**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**




**FORM
      10-KSB**





**o**
            
            **ANNUAL
                REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934****ý**
            
            **TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934****For
                the transition period from January 1, 2005 to March 31,
                2006**(Commission
                File Number)**000-50888**





**AEROGROW
      INTERNATIONAL, INC.**


(Name
      of
      small business issuer in its charter))





**Nevada**
              (State
                or other jurisdiction of incorporation or organization)
            
            **46-0510685**
              (IRS
                Employer Identification No.)


**900
      28th Street, Suite 201, Boulder, Colorado 80303**


(Address
      of principal executive offices, including zip code)





**Issuer’s
      Telephone Number, Including Area Code: (303) 444-7755**





**Securities
      registered pursuant to Section 12(b) of the Act: 
None**


**Securities
      registered pursuant to Section 12(g) of the Act:  common stock, $0.001 par
      value**





Check
      whether the issuer is not required to file reports pursuant to Section 13
      or 15(d) of the Exchange Act. o




Check
      whether the issuer (1) 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 ý No o




Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B contained in this form, and no disclosure will 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-KSB or any
      amendment to this Form 10-KSB o




Indicate
      by check mark whether the registrant is a shell company (as defined in
      Rule 12b-2 of the Exchange Act).  Yes o No ý




State
      issuer’s revenues for its most recent fiscal year $34,245.




As
      of May
      31, 2006, the registrant’s common stock had not commenced trading therefore
      market value is not applicable.




As
      of May
      31, 2006, there were 9,164,622 shares of the registrant’s common stock, par
      value $0.001 per share, issued and outstanding.




**Documents
      incorporated by reference** : 
      None.





**Transitional
      Small Business Disclosure Format (Check one)** :
      Yes
ýNoo















**TABLE
                OF CONTENTS**PART
                I
            
            1Item
                1
            Description
                of Business
            10Item
                2.
            Description
                of Property
            10Item
                3.
            Legal
                Proceedings
            10Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            10PART
                IIItem
                5.
            Market
                for Common Equity , Related Stockholder Matters, and Small Business
                Issuer
                Purchases of Equity Securities
            12Item
                6.
            Management's
                Discussion and Analysis or Plan of Operation
            12Item
                7.
            Financial
                Statements
            23Item
                8.
            Changes
                in and Disagreements With Accountants on Accounting and Financial
                Disclosure
            23Item
                8A.
            Controls
                and Procedures
            23Item
                8B.
            Other
              Information
            23PART
                IIIItem
                9.
            Directors,
                Executive Officers, Promoters and Control Persons; Compliance With
                Section
                16(a) of the Exchange Act.
            24Item
                10.
            Executive
                Compensation
            27Item
                11.
            Security
                Ownership of Certain Beneficial Owners and Management and Related
                Stockholder Matters
            31Item
                12.
            Certain
                Relationships and Related Transactions
            35Item
                13.
            Exhibits
                and Reports
            37Item
                14
            Principal
                Accountant Fees and Services.
            37Signatures
            
            39Financial
                Statements
            F-1Exhibit
                Index
            I-1





*In
      addition to historical information, this Annual Report on Form 10-KSB (“Annual
      Report”) for AeroGrow International Inc. (“AeroGrow” the “Company,” “we,” “our”
or “us”) 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 this 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 this Annual Report, as well as other public reports filed by us with the
      United States Securities and Exchange Commission. Investors should not place
      undue reliance on any forward-looking statement as a prediction of actual
      results of developments. Except as required by applicable law or regulation,
      we
      undertake no obligation to update or revise any forward-looking statement
      contained in this Annual Report.*














**PART
      I**




**ITEM
      1. DESCRIPTION OF BUSINESS**





We
      were
      formed as a Nevada corporation on March 25, 2002. Our principal business is
      developing and marketing advanced indoor aeroponic garden systems designed
      and
      priced to appeal to the gardening, cooking and small kitchen appliance, healthy
      eating and home and office décor markets worldwide. Since our formation through
      March 2006, our principal activities have consisted of product research and
      development, research into the markets for our planned products and the best
      channels through which to sell them, product engineering, business planning
      and
      raising the capital necessary to fund these activities. In December 2005, we
      commenced pilot production of our AeroGardenTM system and, in March 2006,
      AeroGrow began shipping these systems to retail and catalogue
      customers.




Our
      principal products are “kitchen garden” indoor growing systems and proprietary
      seed kits that will allow consumers, with or without gardening experience,
      to
      easily grow cherry tomatoes, cilantro, chives, basil, dill, oregano, mint,
      flowers, chili peppers and lettuce throughout the year. Under the AeroGardenTM
brand, our kitchen garden systems are designed to be simple, consistently
      successful and affordable. We believe that our focus on the design and features
      of our kitchen garden systems will make them the first of their kind on the
      consumer market. We reached this conclusion on the basis of standard methods
      of
      market research, including focus groups and potential customer interview
      techniques, review of potentially competitive products offered at all ranges
      of
      functionality and price, and testing of products that may be considered
      competitive in function although not necessarily competitive in terms of market
      orientation.




We
      have
      filed thirteen patent applications in the United States and one international
      patent application to potentially protect our core inventions. To date, no
      patents have been grated and there is no assurance such applications will be
      granted. Although aeroponic technology cannot in and of itself be patented,
      the
      patent applications include aeroponic technological advances described below
      as
      well as product, nutrient and seed pod inventions designed to enhance plant
      growth. Many of the patent-pending companion technologies are based on our
      innovations in the fields of biology, plant physiology, chemistry and adaptive
      learning computer science. In addition, we have developed certain trade secrets
      which simplify, combine and integrate our core technologies into our indoor
      kitchen garden systems.




We
      believe that our inventions and combined technologies will allow almost anyone,
      from consumers who have no gardening experience to professional gardeners,
      to
      produce year-round harvests of herbs, flowers and vegetables provided in our
      seed kits regardless of season, weather or lack of natural light. We believe
      that our kitchen garden systems’ unique and attractive designs make them
      appropriate for use in almost any location including kitchens, bathrooms, living
      areas and offices.




Our
      basic
      kitchen garden system and our deluxe kitchen garden system are projected to
      retail at prices ranging from $99 to $199 based on the channel of distribution
      in which they are sold and the specific product features provided.




**Hydroponic
      Industry - Background and Opportunity**




Hydroponics
      is the science of growing plants in water instead of soil. Used commercially
      worldwide, hydroponics is considered an advanced and often preferred crop
      production method. Hydroponics is typically used inside greenhouses to give
      growers the ability to better regulate and control nutrient delivery, light,
      air, water, humidity, pests and temperature. Hydroponic growers benefit by
      producing crops faster and enjoying higher crop yields per acre than traditional
      soil-based growers.




Aeroponic
      technology is derived from hydroponics and occurs when plant roots are suspended
      in an air chamber and bathed at regular intervals with nutrient solution. We
      believe that the aeroponic technology used in our kitchen garden systems is
      a
      technological advance over hydroponics because plant roots are suspended in
      a
      near-100% humidity, enclosed air chamber and bathed in a nutrient-rich solution.
      Aeroponic methods ensure the plants not only have sufficient water, nutrients
      and of course oxygen, but the temperature inside the root chamber can be easily
      controlled, ensuring temperature stress of the plant does not limit growth.
      For
      this reason, the use of a well designed and maintained aeroponic system can
      yield increases in growth rate and plant survival when compared to hydroponics
      systems.







1





From
      August 2002 through July 2005, we conducted our own market research which
      indicated that there is a potential, sizeable national market for our countertop
      soil-less kitchen garden systems for use indoors in homes and offices. Until
      the
      development of our kitchen garden systems, significant barriers have prevented
      hydroponic or aeroponic technology from being incorporated into mainstream,
      mass-marketed consumer products, including:




·  Consumers
      generally lack the specialized knowledge required to select, set up, operate
      and
      maintain the various components for a typical hydroponic or aeroponic system,
      including growing trays, irrigation channels, growing media nutrient reservoirs
      and nutrient delivery systems consisting of electronic timers, pumps, motors,
      tubing and nozzles.




·  Consumers
      generally do not possess the specialized knowledge required to select, set
      up,
      operate and maintain the varied indoor lighting systems that are necessary
      to
      grow plants in the absence of adequate indoor natural light.




·  Consumers
      are required to properly mix and measure complex hydroponic nutrient formulas
      which change depending on the plant variety and the stage of plant growth.
      In
      addition, consumers must deal with the problem of nutrient
      spoilage.




·  Federally-mandated
      water quality reports show that the water in many large cities is not suitable
      for hydroponic or aeroponic growing and requires chemical treatments. Consumers
      generally are unaware of how to adjust the water for healthy plant
      growth.




We
      believe that these complexities have been accepted in existing hydroponic market
      channels because our research has indicated that hydroponic manufacturers
      generally have focused their product development and marketing efforts on
      satisfying the needs of the commercial greenhouse and dedicated hobbyist
      markets. Our internal research has indicated that the hydroponic growing
      equipment currently available in these markets is bulky, expensive and comprised
      of many parts. These users are motivated to gain the specialized knowledge,
      equipment and experience currently required to successfully grow plants with
      these products.




We
      believe that the complexities of currently available commercial hydroponic
      products fail to address the needs and wants of the mass consumer market,
      leaving that market un-served. We further believe that our trade secrets,
      patent-pending inventions and companion technologies have simplified and
      improved hydroponic and aeroponic technologies and enabled it to create the
      first indoor aeroponic gardening system appropriate for the mass consumer
      market.




**Our
      Proprietary Technology**




We
      have
      spent more than three years innovating, simplifying, combining and integrating
      numerous existing and proprietary technologies and inventions into a family
      of
“plug and grow” aeroponic kitchen garden systems and related seed kits
      specifically designed and priced for the mass consumer market. We have filed
      thirteen patent applications in the United States and one international patent
      application in an effort to protect our inventions. Following is a description
      of our proprietary technologies and inventions which are used together in its
      kitchen garden system and seed kits. The inventions under the patent
      applications have not been granted patents, and there can be no assurance that
      patents will be granted and, if granted, that such patents will be adequate
      to
      prevent competition from developing and manufacturing functionally equivalent
      systems.







2





**Rainforest
      Nutrient Delivery System** .
      Our
“rainforest” nutrient delivery system combines components of our patent-pending
      technologies with features from several hydroponics or aeroponic methodologies
      into a proprietary system designed to provide aeroponic plant growth. These
      hydroponics or aeroponic methodologies include:




·  *Drip
      Technologies* .
      Drip
      systems create nutrient irrigation by pumping nutrient solution from a reservoir
      up to the base of the plant and saturating a soil-less growing medium. The
      growing medium delivers nutrients and moisture to plant roots which is similar
      to rainwater as it drips through the soil and past plant roots.




·  *Ein
      Gedi Aeroponic Technologies* .
      Plant
      roots in aeroponic systems are suspended in an air chamber and bathed at regular
      intervals with nutrient solution. In the Ein Gedi variation of aeroponics,
      plant
      roots are allowed to grow directly into nutrient solution after passing through
      an air space.




Our
      rainforest technology suspends plant roots into a 2 to 4 inch air chamber above
      an oxygenated nutrient solution. Nutrients are pumped from the nutrient
      reservoir to the base of each plant where a regulated flow of nutrients drips
      down through plant roots.




**Pre-Seeded
      Bio-Grow Seed Pods** .
      Our
      proprietary bio-grow seed pods include pre-implanted seeds, a bio-sponge growing
      medium, removable bio-dome covers and a grow basket to assist with the proper
      distribution of moisture. These seed pods must be used in our kitchen garden
      systems in order to grow plants. We believe consumers may use seeds purchased
      from other sources for use in its kitchen garden system, although we cannot
      provide any assurances on germination and growth in such cases.




We
      have
      selected the seeds to pre-implant in its bio-grow seed pods after two years
      of
      research. We implant our selected seeds in a bio-sponge growing medium that,
      based upon our internal research, facilitates rapid germination and enhanced
      root growth in comparison to other mediums tested, as well as supporting plant
      roots from germination through maturity and harvest. Our bio-grow domes create
      a
      mini-greenhouse environment by covering the grow surface to create a near-100%
      humidity air chamber which is optimal for most plant germination and initial
      growth. Bio-grow domes help regulate moisture and temperature to levels optimal
      for plant germination.




Our
      proprietary bio-grow seed pods are a vital component of its kitchen garden
      system. AeroGrow’s bio-grow seed pods will be packaged along with nutrients in
      seed kits to be used exclusively in our kitchen garden systems. These seed
      kits
      currently include seeds for cherry tomatoes, cilantro, chives, basil, dill,
      oregano, mint, chili peppers and flowers. In addition to pre-seeded pods, we
      also plan to allow consumers to purchase unseeded pods to give them the
      opportunity to grow their own seeds in AeroGrow’s kitchen garden systems. Our
      seed-pods will be required for use with the kitchen garden systems. However,
      not
      all plants are appropriate to grow in the kitchen garden system.




**Microprocessor-Based
      Control Panel and Nutrient Cycle Delivery System** .
      We
      believe that three common problems face both experienced gardeners and beginning
      gardeners, including:




·  improperly
      watering plants,




·  improperly
      feeding plants, and




·  failing
      to provide plants with sufficient light needed for healthy growth.




To
      assist
      consumers, especially inexperienced gardeners, we have developed two
      patent-pending microprocessor-based technologies that address these common
      problems. These technologies are designed to:




·  regulate
      the lighting system,







3




·  automatically
      alert users when it is time to add water and nutrients,




·  help
      simplify and reduce consumers’ time and involvement in caring for
      plants,




·  reduce
      the variables and errors often made by consumers in plant care, and




·  enhance
      plant growth.




We
      have
      developed two kitchen garden systems with different control systems. Our
      microprocessor-based control panel will be available as an accessory for its
      basic kitchen garden system and is included as a standard feature on its deluxe
      kitchen garden system. This control panel includes an electronic nutrient and
      water reminder system and microprocessor-controlled lights that alert consumers
      to add water and nutrients when needed and help ensure that plants are properly
      fed and receive the proper lighting. Without the microprocessor control panel,
      the user is required to track the time since the last nutrient tablets were
      added and needs to monitor the system visually as to when to add
      water.




In
      addition, our deluxe kitchen garden system includes its microprocessor-based
      nutrient cycle delivery system as a standard feature. With its nutrient cycle
      delivery system the consumer selects from four plant types (lettuce, herbs,
      tomatoes or flowers) and the system then automatically adjusts and optimizes
      the
      nutrient, water and lighting cycles based on the plant variety
      selected.




**Time-Release
      Nutrient Tablets** .
      Plants
      require a balanced mixture of nutrients for optimal growth. Certain nutrient
      combinations, including calcium nitrate and magnesium sulphate, generally cannot
      be combined, mixed or stored in the same container due to specific chemical
      reactions that bind them together and renders them useless to plants. Hydroponic
      growers seek to solve this problem by packaging various nutrient concentrations
      in up to four separate containers which are individually measured and added
      as
      needed by the consumer. These nutrient complexities require consumers using
      hydroponic systems to:




·  understand
      the blends of nutrient fertilizer that are best suited for the specific variety
      of plants they are growing,




·  understand
      the nutrient requirements for the specific plant variety at each of three stages
      of its growth and maturity,




·  measure
      and blend nutrients from up to four different concentrated solutions and add
      them to specific measured quantities of water, and




·  monitor,
      adjust and re-mix nutrient fertilizers over time.




We
      believe that current plant nutrition processes required for successful
      hydroponic growing have created barriers to mass consumer use and acceptance
      because they are cumbersome and complex. To help overcome these barriers, we
      have spent nearly three years developing time-release nutrient tablets designed
      specifically to deliver the proper nutrients to the plants, while offering
      consumers a user-friendly nutrient system. The consumer simply adds the
      plant-specific nutrient tablets to the kitchen garden systems when instructed
      by
      the microprocessor-based nutrient cycle delivery system, usually once every
      two
      weeks. The nutrient tablets eliminate the need for measuring and mixing
      multi-part nutrient formulas and storing various nutrients in separate
      containers.




**Water
      Quality** .
      Tap
      water as supplied by local municipalities often is not conducive to aeroponic
      or
      hydroponic growth. To address these problems, most hydroponic growers monitor
      and chemically adjust the water they use on a daily or weekly
      basis.






4




We
      believe that the problems associated with the wide range of water chemistry
      found throughout the United States (and possibly internationally), as well
      as
      the complexities involved in monitoring water chemistry, are significant
      barriers which limit the use of hydroponic gardening by the general public.
      We
      have developed a patent-pending formula that automatically adjusts and balances
      the water to a level capable of sustaining healthy plant growth in an aeroponic
      environment. This formula is pre-mixed into AeroGrow’s time-release nutrient
      tablet described above, which eliminates the need for consumers to understand
      water chemistry.




**Integrated
      and Automated Lighting System** .
      Hydroponic systems typically do not incorporate built-in lighting systems.
      Lighting systems must typically be purchased as separate components and
      assembled by the consumers. Hydroponic lighting systems generally consist of
      a
      ballast, reflector hood, lights and an electronic timer. The consumer must
      suspend the lighting system over the hydroponic unit and then continually raise
      the lights as the plants grow. Complete lighting systems often cost hundreds
      of
      dollars, which is considerably more than the cost of our entire kitchen garden
      system.




Our
      kitchen garden systems include built-in adjustable grow lights with ballast,
      reflector hood, lights and electronic timer. Our integrated lighting systems
      include high-output compact fluorescent light bulbs that deliver a spectrum
      and
      intensity of light designed to help optimize plant growth without natural light.
      In addition, our lighting system is fully automated and controlled by its
      microprocessor-based control panel described above.




**Markets**




Based
      on
      our informal market research, consisting of individual consumer interviews,
      focus groups and Internet survey responses, we believe that our kitchen garden
      systems will appeal to a broad spectrum of the people in the United States
      and
      internationally, including Europe and Japan. We believe that our products will
      appeal to at least four major market segments:




·  experienced
      gardeners,




·  novice
      and “want-to-be” gardeners,




·  the
      kitchen products and small appliances market, and




·  the
      office and home décor markets.




Further,
      based on our discussions with potential distributors, we believe that our
      kitchen garden systems also present opportunities in the specialized toy,
      educational, gift and hydroponic hobbyist markets.




**Gardener
      Market** .
      The
      2002 National Gardening Survey conducted by the National Gardening Association
      states that gardening was America’s number one hobby with more than 70 million
      active gardeners. In the United States in 2002 there were estimated to be 27
      million vegetable gardeners with one out of every four households having a
      vegetable garden, over 15 million fresh herb gardeners and over 20 million
      flower gardeners. We believe that our kitchen garden systems and related
      products can offer both expert and novice gardeners several major benefits
      not
      readily available through traditional gardening methods, including:




·  the
      ability to grow fresh herbs, lettuces, vegetables, tomatoes and flowers
      year-round, regardless of indoor light levels or seasonal weather
      conditions,




·  the
      ability to easily start plants indoors during colder months and then transplant
      them outdoors at the onset of the outdoor growing season,




·  the
      ability to use stem cuttings to propagate multiple reproductions of the desired
      plants in Our kitchen garden systems,







5




·  the
      reasonable assurance that crops can grow successfully by significantly reducing
      potential obstacles such as uncertain weather and garden pests,




·  the
      ease
      of growing hydroponically in contrast to the toil associated with traditional
      gardening, including preparing the soil, planting, thinning, weeding and
      watering.




**“Want-to-be”
      Gardener Market** .
      We
      believes that many people have an interest in gardening but lack the knowledge,
      confidence, available space, equipment or time to garden. We have observed
      the
      following barriers to beginning to garden:




·  gardening
      requires an ongoing time commitment,




·  apartment,
      high-rise and condominium dwellers often lack the land needed for a traditional
      garden,




·  gardening
      requires physical work which can be a significant barrier to older people or
      people with limited mobility or health issues,




·  buying
      the necessary equipment to garden can be expensive, and




·  gardening
      requires knowledge and expertise.




We
      believe that our kitchen garden systems overcome many of these barriers and
      provide a simple, convenient way for many current non-gardeners to begin to
      garden.




**Kitchen
      Products and Small Appliances Market** .
      We
      believe that many Americans now enjoy cooking as a form of entertainment or
      hobby and that these people repeatedly purchase new kitchen appliances and
      will
      be motivated to purchase our kitchen garden systems and related seed kits.
      Consumers in this potential market include:




·  people
      interested in cooking who would appreciate the convenience and satisfaction
      of
      having a readily available supply of fresh-cut herbs and basils to flavor soups,
      salads and other dishes,




·  people
      who prefer the distinctive texture and taste of freshly picked, vine-ripened
      tomatoes, basils, lettuces and other vegetables over days-old supermarket
      produce, and




·  people
      interested in healthy, pesticide-free foods for themselves and their families,
      reflecting both the rapidly growing interest in naturally and organically grown
      foods and the increasing number of people who, for health or weight concerns,
      include salads and fresh vegetables as part of their families’
diets.




We
      believe that our kitchen garden systems will be embraced in this market by
      people who understand the value of having an ongoing supply of fresh herbs
      and
      vine-ripened produce throughout the year.




**Office
      and Home Decor Market** .
      Flowers
      are frequently used to brighten homes and offices around the world. It is
      difficult to readily grow flowers indoors due to a lack of sufficient light
      and
      growing knowledge. As a result, people often use cut flowers which are
      expensive, short-lived and require ongoing maintenance. Our kitchen garden
      systems enable colorful and fragrant flowers to be easily grown indoors
      year-round. Flowers grown with our kitchen garden systems will last for months
      with minimal care and maintenance. Flowers can be grown in a wide variety of
      indoor locations, including kitchen and bathroom countertops, living rooms,
      bedrooms, family rooms, offices, work stations, waiting rooms and lobbies.
      In
      addition, professional plant caretakers may be motivated to include our kitchen
      garden systems among their traditional plant options because of the relatively
      low cost and ease of maintenance of our systems.







6




**Specialty
      Markets** .
      Our
      informal market research indicates that several specialized markets potentially
      exist for our kitchen garden systems in the future, including:




·  toy
      market for a children’s “root-viewing” garden,




·  classroom
      market for student education relating to plant growth,




·  gift
      market,




·  hydroponic
      enthusiast market, and




**·**  international
      markets, particularly in large cities with limited outdoor garden space.




**Marketing
      and Sales Strategy**




We
      began
      launching our kitchen garden system in the United States during February and
      March of 2006 with a nationwide public relations campaign. Initial test
      marketing shipments to retail launch partners, including Sur La Table, Frontgate
      and others commenced in March 2006. We have developed many of our marketing
      materials, including our website ( www.aerogarden.com ),
      product brochures, retail packaging and other retail collateral materials and
      public relations kits. Additional development is in process for in-store point
      of purchase supplies, infomercial and short-form television show and print
      media
      items. We plan to expand our marketing and distribution internationally when
      our
      products have been successfully launched and established in the United States.
      Our proposed direct marketing activities may include a 60-second television
      spots, 30-minute infomercials, home shopping networks, print advertising and
      Internet-based advertising and these activities will begin market testing in
      June 2006. Our plan is designed to educate prospective customers while creating
      widespread awareness of its kitchen garden systems and generating direct sales
      in four key target markets: the experienced gardener market, the “want-to-be”
gardener market, the kitchen products and small appliances markets and the
      office and home décor market.




**Competition**




Aeroponic
      and hydroponic technologies have historically been limited to ardent hobbyists
      and commercial growing facilities worldwide. We believe that we are the first
      company to develop and offer a simple soil-less indoor growing system for the
      mass consumer market. We further believe that our proprietary and patent-pending
      technologies, and trade secrets and our product development efforts to date
      will
      provide certain barriers to entry for potential competitors.




Typical
      hydroponic manufacturers offer a range of equipment and accessories through
      distributors or small independent “hydro-shops” in a trade-oriented manner
      similar to plumbing or electrical suppliers. Purchasers typically mix and match
      equipment from various suppliers in an “a la carte” fashion to individually
      customize a large system that they then assemble on their premises. We believe
      that these products are substantially more expensive than the proposed selling
      prices of the company’s products.




We
      believe that our simplified and complete kitchen garden systems and planned
      methods of distribution offer significant benefits from these traditional
      hydroponic industry practices. However, we recognize that there are companies
      that are better funded and have greater experience in producing hydroponic
      products in commercial markets, including, but not limited to, companies such
      as
      General Hydroponics and American Hydroponics. These companies could potentially
      decide to focus on the consumer market with competing products. We could also
      potentially face competition from gardening wholesalers and large and profitable
      soil-based gardening companies, including, but not limited to, the Burpee Seed
      Company and Gardener’s Supply Company, should they decide to produce a
      competitive product.







7




Nevertheless,
      we believe that our kitchen garden systems and related products can compete
      effectively in the marketplace on the basis of their affordable cost,
      user-friendly design and the benefits offered by its proprietary and
      patent-pending technologies. Further, to the best of our knowledge, none of
      the
      growing systems currently available for use in the home at our projected retail
      prices provide an integrated grow lighting system and are therefore unsuited
      to
      grow fresh herbs, vegetables and flowers indoors without the additional purchase
      of a separate bulky lighting system.




**Manufacturing**




We
      manufacture our products using contract manufacturing sources that are
      supervised by our internal engineering and manufacturing teams. Our bio-grow
      seed pods will initially be produced and assembled in our own laboratory
      facilities.




We
      have
      signed a tri-party manufacturing agreement with Source Plus, Inc., an Alabama
      corporation, and Mingkeda Industries Co., Ltd., a Chinese company, for the
      initial manufacture of our kitchen garden systems and accessories. Source Plus
      assisted us in identifying companies in China that had the capability to
      manufacture our kitchen garden systems. Source Plus advanced monies to Mingkeda
      for tooling and molds to build our products. To reimburse Source Plus for its
      advances to Mingkeda for tooling, we issued 62,000 shares of our common stock
      to
      Source Plus in October 2005 with an estimated fair value of $5.00 per share.
      Source Plus is also obligated to provide quality control inspection services
      for
      us at Mingkeda’s factory. To date, we have received approximately 10,000 units
      from Mingkeda with over 25,000 additional units in the process of manufacturing
      and/or delivery. In addition to the Mingkeda plant, we are exploring
      relationships with other manufacturers located in China as an alternative supply
      source should sales volumes require added production. In the event Mingkeda
      in
      unable to meet its anticipated production capacity before we are able to develop
      additional contract manufacturing sources, sales could be adversely affected
      if
      sales demand exceed production capacity.




Mingkeda
      has informed us that it can produce approximately 30,000 kitchen garden systems
      per month with its existing set of tools and can increase its production to
      approximately 100,000 kitchen garden systems per month by adding an additional
      set of tools and injection molding presses. Mingkeda estimates that it can
      add
      the additional set of tools and presses within 60 to 90 days following our
      notification. In addition to the Mingkeda plant, we are exploring relationships
      with other manufacturers located in China as an alternative supply source should
      sales volumes require added production.




We
      intend
      to initially produce and assemble our bio-grow seed pods in our laboratory
      facilities in Longmont, Colorado. The seed pods and kitchen garden systems
      will
      be shipped to a fulfillment center in Reno, Nevada. Innotrac Corporation will
      provide warehousing, order fulfillment and shipping for our products. Our
      agreement with Innotrac is described, below, at “Distribution.”




**Product
      Returns and Warranties**




We
      have
      had limited sales to date and thus has little experience dealing with returns.
      We currently anticipate that products may be returned to us at our facilities
      in
      Longmont, Colorado. We anticipate that the returned products will go into
      inventory and we may repair the products to sell as refurbished products.
      Mingkeda will provide us with replacement part assemblies for products which
      are
      deemed defective due to materials or manufacturing complications. We currently
      provide a one year warranty on the kitchen garden systems, a six month warranty
      on the grow bulbs and a one month warranty on our seed kits.




**Intellectual
      Property**




We
      have
      filed thirteen patent applications in the United States and one foreign patent
      application to protect its technologies and products. We believe that these
      patent applications do not infringe on issued patents owned by others. We also
      believe that if we fail to receive patents for any one of these patent
      applications, our operations will not be immediately adversely affected, however
      the failure to obtain none of the patents will enable competition to more easily
      bring competitive products to market which could adversely effect our future
      operations if such competitive products performed better and/or were marketed
      by
      companies with greater financial and distribution resources than us. In addition
      to the patents being sought, we maintain some crucial information about our
      products as trade secrets which information is closely guarded. Also, we believe
      that to reverse engineer some of our technology, if and when the patents become
      public, would take a substantial amount of time and would be costly to do.
      The
      inventions under the patent applications have not been granted patents, and
      there can be no assurance that patents will be granted.




8




We
      have
      filed ten trademark applications which we intends to prosecute in the United
      States to protect our products and brand equity. The applications are
      for:




·  Farmers
      Market Fresh, filed in July 2005 and received examiners’ first
      action,




·  Kitchen
      Smart, filed in August 2005 and received examiners’ first action,




·  KitchenHarvest,
      filed in December 2005,




·  AeroGarden,
      filed in December 2005;




·  Farmer’s
      market in your kitchen, filed in March 2006;




·  We
      grow
      green thumbs, filed in March 2006;




·  Off
      the
      plant and into the pot, filed in March 2006;




·  Cut
&
      cook, filed in March 2006;




·  Bio-dome,
      filed in March 2006; and




·  AeroPod,
      filed in March 2006.




Each
      of
      our employees, independent contractors and consultants has executed assignment
      of application agreements and nondisclosure agreements. The assignment of
      application agreements grant to us the right to own inventions and related
      patents which may be granted in the United States. The nondisclosure agreements
      generally provide that these people will not disclose our confidential
      information to any other person without its prior written consent. We have
      also
      obtained the domain names for AeroGrow.com and AeroGarden.com, AeroGarden.net
      and AeroGarden.biz, among others.




**Governmental
      Regulation and Certification**




To
      the
      best of our knowledge, we believe that we are complying with United States
      regulations concerning the shipping and labeling of seeds and nutrients.
      Currently, certain of the components for the kitchen garden system and our
      deluxe kitchen garden system as well as the actual finished kitchen garden
      system currently being shipped are UL certified. These certifications confirm
      that the products have been tested and conform to a recognized level of fire
      and
      other safety standards for consumers. Such independent third party certification
      is required for sales of products through many major retailers.




**Personnel**




We
      currently employ approximately 49 persons with 35 full-time and 14 on a
      part-time basis. In addition, we contract for the services of part-time and
      project consultants. We believe that our employee relations are good. We intend
      to continue to conduct its business primarily using employees, and it is likely
      that some consultants will become employees in the future, including its chief
      marketing officer, Randy Seffren. We believe that we will hire additional
      employees and/or consultants in the future as our operations grow. We are
      planning to outsource some activities, in whole or part, such as manufacturing,
      telemarketing, public relations, infomercial production, fulfillment and
      shipping.





9




**Corporate
      Reorganization and 2006 Private Placement**




On
      January 12, 2006, we entered into an Agreement and Plan of Merger (the “Merger
      Agreement”) with Wentworth I, Inc., a Delaware corporation (“Wentworth”), which
      was consummated on February 24, 2006. Under the Merger Agreement, Wentworth
      merged with and into our company, and we were the surviving corporation
      (“Merger”). The Merger, for accounting and financial reporting purposes, has
      been accounted as an acquisition of Wentworth by the us. As such, we are the
      accounting acquirer in the Merger, and our historical financial statements
      will
      be the financial statements following the Merger.




In
      two
      closings, held on February 24, 2006 and March 1, 2006, we completed the sale
      of
      shares of our common stock and common stock purchase warrants in a private
      placement (the “2006 Offering”). We sold 2,148,000 shares of our common stock
      and warrants to purchase 2,148,000 shares of our common stock. Each unit in
      the
      2006 Offering consisted of one share of common stock and a five-year warrant
      to
      purchase one share of common stock at an exercise price of $6.25 per share.
      The
      price per unit was $5.00. We received net proceeds of $8,964,952 from the 2006
      Offering after the commission and offering expenses.




**ITEM
      2. DESCRIPTION OF PROPERTY**





We
      currently lease seven different nearby office facilities and one research and
      production facility under primarily month to month operating lease agreements.
      Rent expense for the years ended December 31, 2005, and December 31, 2004,
      was
      approximately $106,444 and $91,741, respectively. This includes the fair value
      of 15,208 shares and 15,531 shares of common stock granted to the landlord
      for
      the years ended December 31, 2005 and December 31, 2004, respectively. For
      the
      three month transitional period ended March 31, 2006, rent expense was $33,458.




One
      of
      our operating leases for office space ended on December 31, 2005. We
      renegotiated a new operating lease for this office space on an annual basis
      at a
      rent of $1,000 per month through December 31, 2006. We leased certain production
      space under a month-to-month lease beginning in August 2005, at the rate of
      $1,315 per month.




We
      are
      presently in negotiation for approximately 20,000 square feet of leased office
      and research and development space in a single, consolidated facility that
      will
      be finished to our specifications, as opposed to the seven separate facilities
      leased today. We believe that we will be able to either renew our existing
      leases or arrange new leases in nearby locations on acceptable terms. We believe
      that these properties are adequately covered by insurance.




**ITEM
      3. LEGAL PROCEEDINGS**





To
      the
      best of our knowledge, there are no legal proceedings pending or threatened
      against us.





**ITEM
      4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**





At
      our
      annual shareholders meeting held on February 21, 2006, the following items
      were
      approved by a majority of our shareholders:




1.
            The
                election of a Board of five directors to serve until the 2007 Annual
                Meeting of Stockholders, or until their successors are duly elected
                and
                qualified as follows;





10




W.
                Michael Bissonnette (Chairman)Richard
                A. KranitzWayne
                HardingJack
                J. WalkerKenneth
                Leung




2.
            The
                approval of the 2005 Equity Compensation Plan, and merger of the
                2003
                Stock Option Plan into the 2005 Equity Compensation
                Plan;





3.
            The
                approval of an amendment to the Articles of Incorporation of the
                corporation, correcting the name from “Aero Grow” to
                “AeroGrow.”





4.
            The
                approval of rounding up the number of shares issued in the one for
                five
                reverse split of corporation common stock that was accomplished on
                May 31,
                2005;





5.
            The
                ratification of Gordon, Hughes & Banks, LLP as auditors for fiscal
                year ending December 31, 2006.





The
      following table shows the results of the shareholder voting for the foregoing
      proposals:





**For**
            ****
            **Against**
            ****
            **Abstained**
            ****
            **Total**1.
            Election
                of five directorsW.
                Michael Bissonnette (Chairman)
            3,039,496
            
            -
            
            224,787
            
            3,264,283Richard
                A. Kranitz
            3,039,496
            
            -
            
            224,787
            
            3,264,283Wayne
                Harding
            3,039,496
            
            -
            
            224,787
            
            3,264,283Jack
                J. Walker
            3,039,496
            
            -
            
            224,787
            
            3,264,283Kenneth
                Leung
            3,039,496
            
            -
            
            224,787
            
            3,264,2832.
            Approval
                of the 2005 Equity Compensation Plan
            3,192,741
            
            11,362
            
            63,967
            
            3,268,0703.
            Approval
                of name change
            3,260,470
            
            -
            
            7,600
            
            3,268,0704.
            Approval
                of rounding on reverse split
            3,255,970
            
            2,000
            
            10,100
            
            3,268,0705.
            Ratification
                of Gordon, Hughes & Banks, LLP as auditors
            3,118,300
            
            -
            
            149,770
            
            3,268,070










11





**PART
      II**





**ITEM
      5. MARKET FOR COMMON EQUITY , RELATED STOCKHOLDER MATTERS, AND SMALL BUSINESS
      ISSUER PURCHASES OF EQUITY SECURITIES.**





We
      plan
      to have to have our shares of common stock commence quotation on the
      Over-the-Counter Bulletin Board (“OTC BB”). We also plan to seek listing of its
      common stock on NASDAQ in the future if and when we satisfy the requirements
      for
      such listing. There is no public trading market for our equity.




**Holders
      of Record**





As
      of May
      31, 2006, we had 754 holders of record of our common stock.




**Dividends**





We
      have
      not declared or paid any cash dividends on our common stock, and we currently
      intend to retain future earnings, if any, to finance the expansion of our
      business, and we do not expect to pay any cash dividends in the foreseeable
      future. The decision whether to pay cash dividends on our common stock will
      be
      made by our Board of Directors, in their discretion, and will depend on our
      financial position, operating results, capital requirements and other factors
      that the Board of Directors considers significant.




**Equity
      Compensation Plan Information**





Refer
      to
      Item 11 below for information with respect to our equity compensation
      plans.




**Lock
      Up Restrictions**




In
      conjunction with the closing of the Merger with Wentworth in February 2006,
      the
      former stockholders of Wentworth holding an aggregate of 396,813 shares of
      common stock, AeroGrow stockholders (including all shares of AeroGrow held
      by
      AeroGrow’s current officers and director) holding an aggregate of 4,792,428
      shares of our common stock and 1,831,067 shares of common stock underlying
      AeroGrow’s existing warrants and options outstanding entered into lock up
      agreements under which they will be prohibited from selling or otherwise
      transferring: (i) any of their shares of common stock for a period of twelve
      months (12) months following the effective date of the registration statement
      (“Initial Lock Up Period”) which registers their shares for resale, and (ii)
      fifty percent (50%) of its shares of common stock after the expiration of
      Initial Lock Up Period until the date which is eighteen (18) months after the
      effective date of the registration statement filed by us which is
      pending.




There
      are
      544,428 shares of common stock held by investors in AeroGrow’s Colorado
      intrastate offering (“Colorado Offering Shares”) and 553,642 shares of other
      outstanding common stock that are not subject to lock up restrictions and will
      be freely tradable without restriction depending on how long the holders thereof
      have held these shares in accordance with the requirements of Rules 144 and
      701
      if and when our common stock becomes tradable.




**ITEM
      6. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF
      OPERATION**





The
      following plan of operation provides information which our management believes
      is relevant to an assessment and understanding of our business, operations
      and
      financial condition. The discussion should be read in conjunction with the
      audited financial statements and notes thereto which are included in this Form
      10-KSB. This plan of operation contains forward-looking statements that involve
      risks, uncertainties and assumptions. Our actual results may differ
      substantially from those anticipated in any forward-looking statements included
      in this discussion as a result of various factors, including those set forth
      in
“Risk Factors.”




12




**Overview**




We
      are in
      the business of developing, marketing and distributing advanced indoor aeroponic
      garden systems. Since formation, through our development stage ending February
      2006, our principal activities consisted of product research and development,
      market research, business planning and raising the capital necessary to fund
      these activities. We have completed development of our initial kitchen garden
      systems and related bio-grow seed pods, have contracted with a third-party
      manufacturer who has commenced production activities and we have actively began
      sales activities as of March 2006. We placed our initial manufacturing order
      for
      4,000 units in December 2005 and have taken delivery of additional orders in
      excess of 10,000 units to date. We commenced our initial marketing and
      distribution of our products during the three month transitional period ended
      March 31, 2006.




**Liquidity
      and Capital Resources**




As
      of
      March 31, 2006, we had generated net proceeds from the sale of the following
      securities:




·  $2,279,444
      from private placements of 2,040,611 shares of our common stock during 2002,
      2003 and 2004,




·  $215,000
      from the exercise of our redeemable $1.25 warrants and $2.50 warrants for
      164,000 shares of common stock in 2003, 2004 and through June 30,
      2005,




·  $2,307,737
      from a Colorado registered offering of units consisting of 544,228 shares of
      common stock and our redeemable $10.00 warrants and $15.00 warrants during
      2004,




·  $2,591,554
      from our debt offering of convertible notes and redeemable 2005 warrants in
      June, July, August and September 2005,




·  $8,000
      from the issuance of 1,600 shares of common stock pursuant to an agreement
      with
      an employee at $5.00 per share during the period June 30, 2005 through September
      30, 2005,




·  $85,000
      from the issuance of 40,000 shares of common stock pursuant to the exercise
      of
      $1.25 and $2.50 warrants,




·  $962,500
      from the exercise of outstanding $2.50 and $5.00 warrants for 395,000 shares
      of
      common stock during December 2005; and




·  $8,964,952
      in net proceeds from the sale of common stock and warrants in our private
      placement offering, consummated February 24, 2006 and March 1,
      2006.




As
      of
      March 31, 2006, we had a cash balance of $8,852,548. We believe this amount
      of
      cash capital will be sufficient to meet our liquidity requirements for the
      next
      12 to 18 months. We anticipate our principal sources of liquidity during the
      fiscal year ended March 31, 2007 will be proceeds from initial sales of our
      products.




We
      expect
      to incur additional losses in the foreseeable future and at least until such
      time as we successfully launch our marketing and public relations campaigns
      generating wide scale domestic and international sales and distribution for
      our
      products and successfully obtains additional contract manufacturers needed
      for
      volume production of our products. Accordingly, there is no historical financial
      or other information about us which you could use to determine our future
      performance.




We
      have
      used the funds raised to date to:




·  complete
      the research and development of our kitchen garden systems,




13




·  commence
      manufacturing of one model of our kitchen garden and six varieties of seed
      kits,




·  commence
      development of our direct response marketing advertisements including one
      30-minute infomercial and 60-second television commercials, and




·  our
      public relations launch during the period from January 2006 through June
      2006.




We
      anticipate that existing cash resources will be sufficient to complete these
      activities. We have launched the sale of our kitchen garden systems nationally
      through selected retail outlets and catalogues and plan to launch a
      direct-to-consumer advertising campaign in the quarter ending September 30,
      2006. To date we have shipped products to Sur La Table, a retailer, and
      Frontgate, a nationally recognized catalogue and other retailers. We intend
      to
      use our working capital principally to purchase inventory, fund our initial
      media advertising, continuing to fund our public relations campaign and trade
      show costs as well as our ongoing overheads and operations costs.




**Plan
      of Operation**




During
      the balance of calendar year 2006, we intend to expand our efforts in
      manufacturing, marketing, distributing and selling our kitchen garden systems.
      Manufacturing activities began in January 2006 for pilot production and
      production capacity is being expanded, both in terms of capacity at our current
      contract manufacturer as well as seeking additional contract manufacturers,
      for
      the balance of calendar year 2006. We intend to complete our infomercial in
      the
      third calendar quarter of 2006 time frame and begin test marketing. Initial
      test
      marketing shipments to retail launch partners, including Sur La Table, Frontgate
      and others commenced in March 2006. In order to transition from our development
      stage to an operating company, we have strengthened our management team with
      the
      addition of a Vice President of Sales, a Vice President of Operations, Vice
      President of Engineering and Manufacturing, a new Chief Financial Officer and
      other marketing, operations and administrative staff. We also are expanding
      our
      new product development activities to sustain operations beyond our initial
      product offerings.




We
      have
      developed many of our marketing materials, including our website, product
      brochures, retail packaging and other retail collateral materials and public
      relations kits. Additional development is in process for in-store point of
      purchase supplies, infomercial and short-form television show and print media
      items. Most of these items will be completed in the period of March to September
      2006.




Our
      plan
      of operation for the balance of the fiscal years ended March 31, 2007 and 2008
      will depend, in part, on the assumptions used to develop our business plan
      and
      whether they were or have been inaccurate or need to be changed to respond
      to
      different assumptions or different business needs or objectives. Any changes
      could cause the working capital to be insufficient to fund our operations and
      it
      could be required to seek additional financing sooner than it currently
      anticipates.




**Manufacturing.** We
      plan
      to manufacture our products using contract manufacturing sources that are
      supervised by our internal engineering and manufacturing teams. Our bio-grow
      seed pods will initially be produced and assembled in our laboratory facilities
      in Longmont, Colorado.




On
      September 30, 2005, we entered into a manufacturing agreement with Source Plus,
      Inc. (“Source Plus”) an Alabama corporation, and Mingkeda Industries Co., Ltd.
      (“Mingkeda”), a Chinese company located in the Guangdong Province of China that
      has primarily manufactures light fixtures in the past. This agreement supersedes
      a prior agreement with Mingkeda and Source Plus. Under the terms of this
      agreement, Source Plus advanced monies to Mingkeda for tooling and molds to
      build our products. To reimburse Source Plus for our advance to Mingkeda, we
      issued 62,000 shares of our common stock to Source Plus in October 2005 with
      an
      estimated market value of $5.00 per share. We recorded a $310,000 asset for
      tooling which we will depreciate over a period of three years to reflect the
      estimated useful life of the tooling. We have agreed with Source Plus to certain
      selling restrictions on the sale of our common stock. In the event our stock
      is
      not traded on a public market by June 1, 2006, Source Plus may require us to
      repay the $310,000 in exchange for the return of our stock. To date, no such
      notice has been received. If the market value of our common stock issued to
      Source Plus is less than $155,000 one year after the closing of our 2006
      Offering, then we have agreed to pay such difference to Source Plus in cash
      within sixty days following the one year date, plus interest at 5% per annum.
      Further, in return for a $0.50 per unit price concession from Mingkeda for
      products we have purchased, we issued 10,000 shares of our common stock to
      Mingkeda in October 2005 with an estimated fair value of $5.00 per share. These
      shares are subject to the same selling restrictions as the stock issued to
      Source Plus. We recorded a $50,000 expense for inventory which we will charge
      to
      cost of sales at a rate of $0.50 per unit for each unit sold or one year,
      whichever occurs sooner.




14





The
      new
      agreement provides for payment of the purchase price of products manufactured
      by
      Mingkeda as follows: 30% paid twenty-five days prior to shipment, 50% paid
      upon
      shipment and the remaining 20% paid twenty days after shipment. The purchase
      price is determined based upon a fixed percentage (29% except for light bulbs
      which are 14%) for profit, overhead and labor applied to actual component costs.
      Mingkeda will manufacture and ship the products as and when required by us
      and
      will maintain an agreed level of quality. Mingkeda has agreed to develop
      sufficient capacity to manufacture up to 30,000 kitchen garden systems per
      month. We will have the right to audit Mingkeda’s manufacturing performance
      periodically and maintain an agent in the Mingkeda plant to inspect our
      production. We believe that our products will be manufactured to the highest
      quality standards at acceptable costs. In order to diversify our risk to a
      single manufacturer, as well as provide for capacity beyond that of Mingkeda,
      We
      are actively seeking additional contract manufacturing sources to increase
      capacity and diversify risk.




Under
      our
      agreement with Source Plus, Source Plus is specifically responsible for working
      as the liaison between us and Mingkeda with responsibility for oversight of
      quality control in the manufacturing of the products, reviewing of
      specifications and making sure that Mingkeda complies, monitoring order
      fulfillment and similar tasks related to quality of the finished goods. We
      have
      also agreed to pay to Source Plus a commission of 2% of the total purchases
      of
      the product with such payments to be made using the same proportions as our
      payments to Mingkeda. In addition, Source Plus is entitled to receive 2% of
      all
      purchases by us of kitchen gardens, from all sources, for a period of eighteen
      months from the date of the initial shipment from Mingkeda.




The
      manufacturing agreement with Mingkeda and Source Plus provides for protection
      of
      our intellectual property rights.




**Public
      Relations Program** .
      During
      the first calendar quarter of 2006, we initiated a public relations program
      designed to gain a wide exposure for us and our kitchen garden systems through
      news stories:




·  on
      radio
      and television,




·  in
      food
      and gardening sections of newspapers,




·  in
      food
      and gardening magazines, and




·  on
      the
      Internet.




Our
      products were sent to selected major food and gardening editors, other
      recognized gardening and cooking authorities and celebrities to familiarize
      them
      with the products. The public relations program to date has yielded placements
      in newspapers such as the *New
      York Times* ,
      magazines such as *Readers
      Digest* and
      television shows such as Good Morning America. We signed a letter agreement
      with
      Patrice Tanaka & Company, Inc. (“Tanaka”) in June 2005, to manage our public
      relations activities. This agreement is cancelable by either party at any time.
      We have agreed that, through March 2006, 25% of Tanaka’s hourly compensation
      will be paid in shares of our common stock at the then current market or fair
      value. The total stock compensation payable to Tanaka as of March 31, 2006
      is
      11,354 shares valued at $5.00 per share for a total of $56,770. We expect Tanaka
      to execute a lock-up agreement with restrictions similar to those agreed to
      by
      KRM Fund. We anticipate continuing to have Tanaka manage public relations
      activities through March 2007.





15




**Direct
      Response Marketing and Sales.** We will
      begin testing various direct marketing advertisements during the third calendar
      quarter of 2006 including:




·  60-second
      television commercials,




·  30-minute
      infomercials




Wee
      have
      begun testing as the date hereof the following:




·  home
      shopping networks, and




·  print
      and
      Internet advertising.




We
      will
      develop a plan based on the results of this testing to generate direct sales
      nationally in the experienced gardener market, the “want-to-be” gardener market,
      the kitchen products and small appliance markets and the office and home décor
      markets.




We
      receive the full retail selling price for our products when we market directly
      to consumers, which yield higher gross profit margins than sales made at
      wholesale prices. However, the gross margins for direct-to-consumer sales have
      a
      higher marketing cost associated with them. Accordingly, the level of product
      awareness achieved by these direct marketing programs will depend on the level
      of consumer response generated by our advertisements. The consumer response,
      in
      turn, generates revenues which allow us to maintain higher levels of media
      expenditures.




We
      entered into an agreement with Respond2, Inc. (“Respond2”) to develop and
      produce one 30-minute infomercial and 60-second television commercials. As
      of
      March 31, 2006, we have paid to Respond2 a creative fee of $15,000 in cash
      plus
      3,000 shares of our common stock valued at $5.00 per share. We also agreed
      to
      pay to Respond2 all actual approved production costs currently estimated at
      approximately $400,000, and a profit percentage equal to 33% of the production
      costs. The profit percentage will be paid in shares of our common stock valued
      at 80% of the then current market price. We currently estimates that the total
      compensation payable to Respond2 during the term of this agreement will be
      approximately $415,000 in cash and we will issue an aggregate of 30,000 shares
      of common stock to Respond2 assuming a fair value per share of $5.00 per share
      during the term of the agreement.




We
      intend
      to launch our products nationally through direct response marketing channels
      and
      to maintain a dedicated e-commerce website.




**Retail
      Marketing and Sales.** During
      the fiscal year ending March 31, 2007, we plan to expand the distribution of
      our
      products to additional channels including:




·  television
      shopping networks,




·  catalog
      companies, and




·  specialty
      retailers including cooking and gourmet, gardening and housewares.




We
      have
      developed a nationwide network of manufacturer sales representative
      organizations with experience in each of these retail categories to manage
      sales
      activities for these channels. These sales representatives will be independent
      contractors compensated by commission based on the sales they generate. Although
      our gross profit margins will be lower when selling through retail channels,
      we
      will not incur the relatively higher advertising costs associated with our
      direct response marketing. Our ability to establish and maintain sales through
      retail channels will depend on the success of our public relations and direct
      marketing campaigns in generating awareness for our products, the retailers’
ability and willingness to merchandise our products and consumer acceptance
      for
      our kitchen garden systems.




16




**Distribution.** Our
      kitchen garden systems will be shipped from our manufacturer in China primarily
      via ocean cargo to a fulfillment center in Reno, Nevada, however, initial
      shipments are being shipped via airfreight to meet customer delivery dates
      and
      allow for additional quality inspection during the early stages of production.
      Our seed pods are being shipped from our manufacturing facility in Longmont,
      Colorado, to the fulfillment center. We have contracted with Innotrac
      Corporation (“Innotrac”), a Georgia corporation, to fulfill, store and ship our
      products. Innotrac will provide warehousing, order packing and shipping for
      the
      products sold through both our direct response channels and retail channels
      on
      primarily a variable cost basis. Costs for warehousing, order packing and
      shipping for the products sold through direct response channels are estimated
      to
      be about $1.50 to $2.00 per unit plus actual freight costs forecasted between
      $5.00 and $10.00 per order. These costs are included in the shipping and
      handling charge paid by the direct response purchaser. For retail distribution,
      the costs for warehousing, order packing and shipping are estimated to be
      between $.50 and $1.00 per unit because of the efficiencies gained in shipping
      larger quantities per order. Freight costs will vary significantly depending
      upon quantity ordered and destination, but they are projected to be in the
      range
      of 2% to 4% of the sales net of reimbursement from customers. Innotrac also
      provides payment processing, database management and customer support services
      for the direct response sales. These costs are projected to be approximately
      2.5% of sales for payment processing and 1% of sales for customer support,
      with
      database management costs included in the foregoing. The contract with Innotrac
      is for an initial term of three years, but provides for termination by either
      party on ninety days’ written notice.




We
      are
      negotiating with a telemarketing company to provide operators who will take
      calls from consumers responding to our direct response marketing. These orders
      and the orders received on our website will be provided to Innotrac once each
      day to be fulfilled. Telemarketing costs per order are projected at 4% of direct
      response sales.




**International
      Sales.** Once
      we
      have established consumer acceptance of our products in the United States,
      we
      intend to actively seek to establish international distributors in key markets
      in Europe and Asia. Our goal is to partner with successful distribution
      companies that possess both direct and retail marketing experience. These
      partnerships will most likely be in the form of exclusive distributor or
      licensing agreements tied to performance criteria. We anticipate that such
      distributors will modify our marketing and advertising materials developed
      for
      United States’ markets for use in their respective markets.




**Inflation
      and Seasonality.** We
      do not
      expect inflation to have a significant effect on our operations in the
      foreseeable future. Because our kitchen garden systems are designed for an
      indoor gardening experience, it is possible that we may experience slower sales
      in the United States during April through September when our consumers may
      tend
      to garden outdoors. However, we currently anticipate increased sales during
      the
      holiday season in the fourth calendar quarter and in the first calendar quarter
      due to additional marketing we plan to undertake.




**Research
      and Development**




During
      the year ended December 31, 2005, we incurred $1,578,833 in research and
      development costs. During the year ended December 31, 2004, we incurred $333,038
      in research and development costs. During the three months ended March 31,
      2006,
      we incurred $978,539 in research and development costs, inclusive of $573,916
      in
      compensation relating to the granting of stock options granted March 28, 2006.
      We initially focused our efforts on determining if an aeroponic product could
      be
      developed for consumer use in the home at attractive prices. We then focused
      on
      developing the design, technology and various prototype models. In addition,
      we
      set up a greenhouse and laboratory to measure the success of growing herbs,
      vegetables and flowers with various seeds, cuttings and nutrients under
      different lighting conditions. Finally, we filed patent applications for the
      technology used in our kitchen garden systems.







17




In
      the
      next twelve months we intend to continue researching and developing new product
      designs and product extensions including, but not limited to, nutrient delivery
      systems and additional seed varieties for our seed kits.




**Off-Balance
      Sheet Arrangements**




We
      have
      certain current commitments under month to month operating leases and, as of
      March 31, 2006, have not entered into any capital leases or contracts for
      financial derivative instruments such as futures, swaps and
      options.




**RISK
      FACTORS**




*The
      business, financial condition and operating results of AeroGrow International
      Inc. (“AeroGrow”) could be adversely affected by any of the following factors,
      in which event the value of the equity securities of AeroGrow could decline,
      and
      investors could lose part or all of their investment. The risks and
      uncertainties described below are not the only ones that the combined company
      faces. Additional risks and uncertainties not presently known to management,
      or
      that management currently thinks are immaterial, may also impair future business
      operations.*




**Because
      AeroGrow has a limited operating history, AeroGrow may not be able to
      successfully manage its business or achieve profitability.**




AeroGrow
      has a limited operating history upon which you can base your evaluation of
      its
      prospects and the potential value of its common stock. AeroGrow is just now
      starting to produce its garden systems and seed kits. AeroGrow is confronted
      with the risks inherent in a start-up company, including difficulties and delays
      in connection with the production and sales of its kitchen garden systems,
      operational difficulties and its potential under-estimation of production and
      administrative costs. If AeroGrow cannot successfully manage its business,
      AeroGrow may not be able to generate future profits and may not be able to
      support its operations.




**AeroGrow
      has incurred substantial losses since inception and may never achieve
      profitability.**




Since
      AeroGrow commenced its operations in 2002, AeroGrow has incurred substantial
      operating losses. For the three months ended March 31, 2006, AeroGrow had a
      net
      loss of $7,543,343; for the year ended December 31, 2005, AeroGrow had a net
      loss of $7,717,577; and for the year ended December 31, 2004, AeroGrow had
      a net
      loss of $2,389,044. AeroGrow’s losses from operations have resulted in an
      accumulated deficit of $19,405,712 at March31, 2006. AeroGrow expects that
      its
      operating expenses will outpace revenues for the near future and result in
      continued losses. The success of its business will depend on its ability to
      introduce and sell its kitchen garden systems to consumers and develop new
      product extensions and applications. You should consider the costs and
      difficulties frequently encountered by companies in their early stages of
      launching a product and establishing a market presence. There is no assurance
      that AeroGrow will ever obtain profitability which may lead to the entire loss
      of your investment.




**If
      AeroGrow’s kitchen garden systems fail to perform properly, its business could
      suffer with increased costs and reduced income** .




Although
      AeroGrow has been internally testing its products in its laboratories and with
      users for three years, its products may fail to meet consumer expectations.
      AeroGrow has had no experience in returns and has no history with respect to
      warranty claims for its products. AeroGrow may be required to replace or repair
      products or refund the purchase price to consumers. Failure of AeroGrow’s
      products to meet expectations could:




·  damage
      its reputation,







18




·  decrease
      sales,




·  incur
      costs related to returns and repairs,




·  delay
      market acceptance of its products,




·  result
      in
      unpaid accounts receivable, and




**·**  divert
      its resources to remedy the malfunctions.




**AeroGrow
      may need additional capital to fund its growth.**




AeroGrow
      anticipates that has sufficient capital to satisfy its requirements for the
      next
      12 to 18 months. However, AeroGrow may require additional capital to support
      its
      growth and cover operational expenses as AeroGrow expands its marketing and
      product development. AeroGrow may need to issue equity, debt or securities
      convertible into equity which will dilute the current stock ownership in
      AeroGrow. If AeroGrow cannot obtain additional financing on reasonable terms,
      AeroGrow may not have sufficient capital to operate its business as planned
      and
      would have to modify its business plan or curtail some or all of its
      operations.




**If
      the holders of AeroGrow’s convertible notes choose repayment instead of
      conversion or the extension of maturity, AeroGrow will not be able to implement
      its full plan of operation.**




AeroGrow’s
      convertible notes with an aggregate principal amount of $30,000 are repayable
      on
      demand at any time after June 30, 2006, unless converted into shares of
      AeroGrow’s common stock. In addition, $840,000 of principal amount will be
      repayable on December 31, 2006 unless converted. If these holders choose to
      demand payment rather than converting their notes to common stock, up to
      $870,000 of principal plus related interest may have to be paid. If such holders
      choose not to convert or extend the maturity, AeroGrow would use a portion
      of
      its current capital to repay the convertible notes instead of funding its full
      plan of operations, and AeroGrow may not be able to maximize revenues or
      profitability.




**AeroGrow’s
      intellectual property and proprietary rights give it only limited protection
      and
      can be expensive to defend.**




AeroGrow’s
      ability to produce and sell kitchen garden systems depends in part on securing
      patent protection for the components of its systems, maintaining various
      trademarks and protecting its operational trade secrets. To protect its
      proprietary technology, AeroGrow relies on a combination of patents pending
      (and
      if granted, patents), trade secrets and non-disclosure agreements, each of
      which
      affords only limited protection. AeroGrow owns the rights to thirteen United
      States patent applications and one foreign patent application. However, these
      patent applications may not result in issued patents and even issued patents
      may
      be challenged. AeroGrow plans to begin selling its kitchen garden systems prior
      to receiving issued patents relating to its patent applications. All of
      AeroGrow’s intellectual property rights may be challenged, invalidated or
      circumvented. Claims for infringement may be asserted or prosecuted against
      AeroGrow in the future and AeroGrow may not be able to protect its patents,
      if
      any are obtained, and assert its intellectual property rights against others.
      AeroGrow’s former employees or consultants may violate their non-disclosure
      agreements with AeroGrow, leading to a loss of proprietary intellectual
      property. AeroGrow also could incur substantial costs to assert its intellectual
      property or proprietary rights against others.


**AeroGrow
        might not be able to hire and retain personnel with the appropriate experience
        and talent to build its sales and marketing capability which will negatively
        affect future revenue.**
  AeroGrow
        intends expand its sales and marketing personnel with additional hires during
        2006. If AeroGrow is unable to identify, hire or retain qualified sales and
        marketing personnel, AeroGrow may not be able to implement its business plan
        and
        may not be able to achieve adequate revenues.





19




**AeroGrow’s
      future depends on the financial success of its kitchen garden systems. Since
      AeroGrow is introducing entirely new products without comparable sales history,
      AeroGrow does not know if its kitchen garden systems and seed kits will generate
      wide acceptance by consumers.**




AeroGrow
      has introduced its kitchen garden systems and seed kits as new products to
      consumer markets unfamiliar with their use and benefits. AeroGrow cannot be
      certain that its products will generate widespread acceptance. If consumers
      do
      not purchase its products in sufficient numbers, AeroGrow will not be
      profitable. Investors must consider AeroGrow’s prospects in light of the risks,
      expenses and challenges of attempting to introduce new products with unknown
      consumer acceptance.




**AeroGrow’s
      marketing strategies may not be successful which would adversely affect its
      future revenues and profitability.**




AeroGrow’s
      revenues and future depend on the successful marketing of its kitchen garden
      systems. AeroGrow cannot give assurance that consumers will be interested in
      purchasing its products. AeroGrow plans to use direct marketing to sell its
      products via television commercials, infomercials, magazine and newspaper
      advertising and the Internet. Its infomercials and commercials may not generate
      sufficient income to continue to air them. If AeroGrow’s marketing strategies
      fail to attract customers, its product sales will not produce future revenues
      sufficient to meet its operating expenses or fund its future operations. If
      this
      occurs, AeroGrow’s business may fail and investors may lose their entire
      investment.




**AeroGrow’s
      current or future manufacturers could fail to fulfill AeroGrow’s orders for
      kitchen garden systems which would disrupt its business, increase its costs
      and
      could potentially cause it to lose its market.**




AeroGrow
      currently depends on one contract manufacturer in China to produce its kitchen
      garden systems. To date, AeroGrow has received only limited quantities of
      finished products, and it does not yet have a sufficient operating history
      demonstrating that this manufacturer can produce its kitchen garden systems
      in a
      timely manner or in volumes required. The manufacturer may also fail to produce
      the kitchen garden system to AeroGrow’s specifications or in a workmanlike
      manner and may not deliver the systems on a timely basis. AeroGrow is in the
      process of identifying other manufacturers in China to assure them of
      alternative sources of supply. Any change in manufacturers could disrupt its
      business due to delays in finding a new manufacturer, providing specifications
      and testing initial production. A new manufacturer must also obtain an inventory
      of necessary parts and tools for production. AeroGrow owns the tools and dies
      used by its manufacturer. AeroGrow’s manufacturer operates in China and may be
      subject to business, political, currency and regulatory risks outside the
      control of AeroGrow that may affect its ability to fulfill AeroGrow’s orders for
      kitchen garden systems.




**If
      an exemption from registration on which AeroGrow has relied for any of its
      past
      offerings of common stock or warrants were later challenged legally, its
      principals may have to expend time defending claims and AeroGrow would then
      risk
      paying expenses for defense, rescission and/or regulatory
      sanctions.**




To
      raise
      working capital, AeroGrow offered common stock and warrants in private
      transactions that AeroGrow believed to be exempt from registration under the
      1933 Act, as amended, and state securities laws. In 2004 AeroGrow also conducted
      a state registered offering in Colorado of common stock and warrants intended
      to
      be exempt from registration under the 1933 Act, as amended, as an intrastate
      offering. In the event that one or more investors seeks rescission, with
      resulting return of investment funds and interest at a market rate, or that
      state or federal regulators seeks sanctions against AeroGrow or its principals,
      AeroGrow would spend time and financial resources, including some of the net
      proceeds of the 2006 Offering, to pay expenses for defense, rescission awards
      or
      regulatory sanctions. The use of funds would reduce the capital available to
      implement its full plan of operation.




20




**There
        may be substantial sales of AeroGrow’s common stock by existing stockholders
        which could cause the price of AeroGrow’s stock to fall.**
  Future
        sales of substantial amounts of AeroGrow’s common stock in the public market, if
        one develops, or the perception that such sales might occur, could cause
        the
        market price of its common stock to decline and could impair the value of
        your
        investment in AeroGrow’s common stock and its ability to raise equity capital in
        the future. As of March 31, 2006, AeroGrow had 9,164,622 shares of common
        stock
        outstanding, of which 544,228 shares may be sold without restriction. Of
        the
        remaining shares, (i) 710,009 shares issued upon conversion of the Convertible
        Notes in the principal amount of $2,130,000 at a conversion price of $3.00
        per
        share are subject to registration rights and are not subject to lock up
        restrictions, (ii) 2,148,000 shares issued in the 2006 Offering are subject
        to
        registration rights and are not subject to lock up restrictions, (iii) 580,136
        shares issued to Wentworth stockholders in the Merger have registration rights,
        but of these shares, 396,813 shares are subject to lock up restrictions for
        periods of 12 to 18 months, (iv) 811,391 shares were issued during 2005 and
        are
        considered “restricted” shares under Rule 144, (v) 4,285,121 shares have been
        held more than one year and may be transferred and sold, subject to the
        restrictions under Rule 144 or Rule 701 depending on the status of the holder
        and the holding period, and (vi) 66,235 shares granted to employees and
        directors on March 30, 2006 under the company’s 2005 Equity Compensation Plan.
        Of the shares identified in the last two categories above, 4,642,326 shares
        are
        subject to lock-up agreements for periods of 12 to 18 months. The lock up
        restrictions may be released by the agreement of AeroGrow and Keating
        Securities, LLC. The shares of AeroGrow’s common stock underlying the
        Convertible Notes and the warrants issued or to be issued to the holders
        of
        Convertible Notes are required to be registered for resale by AeroGrow following
        and are not subject to lock up restrictions. As part of the 2006 Offering,
        AeroGrow agreed to register for resale the shares of common stock issued
        to
        investors in the 2006 Offering (together with the shares of common stock
        underlying the 2,148,000 warrants issued in the 2006 Offering) on a registration
        statement to be filed with the SEC. In the event such registration statement
        is
        filed, the shares of common stock issued to the Wentworth’s stockholders in
        connection with the Merger will also be included. T here
        can
        be no assurance that the shares of common stock subject to registration rights
        will become registered under the Securities Act. The sales of AeroGrow common
        stock by these stockholders having registration rights or even the appearance
        that such holders may make such sales once a registration statement becomes
        effective may limit the market for the common stock or depress any trading
        market volume and price before other investors are able to sell the common
        stock.
  **AeroGrow’s
        outstanding warrants, options and convertible notes, and additional future
        obligations to issue AeroGrow securities to various parties, may dilute the
        value of an investment in the company and may adversely affect AeroGrow’s
        ability to raise additional capital.**
  As
        of
        March 31, 2006, AeroGrow is committed to issue up to 5,902,152 additional
        shares
        of common stock under the terms of outstanding convertible notes, warrants,
        options and other arrangements. There are options outstanding under AeroGrow’s
        2005 Equity Compensation Plan that can or will be exercisable for 1,121,423
        shares of its common stock at exercise prices ranging from $0.005 to $5.00
        per
        share. There are 111,098, 390,880 and 390,880 warrants outstanding that were
        issued prior to December 31, 2004 at an exercise price of $2.50, $10.00 and
        $15.00 respectively. There are 2,148,000 shares of common stock issuable
        upon
        exercise of the warrants issued to investors in the 2006 Offering exercisable
        at
        $6.25 per share. There are also 240,006 shares of common stock issuable upon
        conversion of the Convertible Notes in the principal amount of $840,000 at
        a
        conversion price of $3.50 by holders who have elected to extend the maturity
        of
        their notes to December 31, 2006 and 7,500 shares of common stock issuable
        upon
        conversion of Convertible Notes in the principal amount of $30,000 at a
        conversion price of $4.00 by holders who have not elected to extend the maturity
        of their notes beyond June 30, 2006. There are 600,000 shares of common stock
        issuable upon exercise of outstanding warrants held by the initial holders
        of
        the Convertible Notes with exercise price of $5.00 per share. There are 426,000
        shares of common stock issuable upon exercise of warrants, at an exercise
        price
        of $6.00 per share, that were issued to holders that elected to convert notes
        in
        the principal amount of $2,130,000. There are 174,000 shares of common stock
        issuable upon the exercise of warrants to be issued upon conversion of
        Convertible Notes in the principal amount of $870,000 at an exercise price
        of
        $6.00 per share. There are 60,000 shares of common stock issuable upon exercise
        of outstanding warrants issued in 2005 to Keating Securities, LLC or its
        designees in connection with the Convertible Notes offering with exercise
        price
        of $6.00 per share and 214,800 shares of common stock issuable upon exercise
        of
        outstanding warrants issued to designees of Keating Securities, LLC in the
        2006
        Offering with an exercise price of $6.25. AeroGrow also has commitments to
        issue
        a minimum of 17,565 shares of common stock under certain equity commitments
        to
        vendors.
   21
  AeroGrow
        has historically issued shares of its common stock or granted stock options
        to
        employees, consultants and vendors as a means to conserve cash, and AeroGrow
        will continue to grant additional shares of stock and issue stock options
        in the
        future. There are 272,067 shares of common stock under its 2005 equity
        compensation plan available for issuance.
  For
        the
        length of time these notes, warrants and options are outstanding, the holders
        will have an opportunity to profit from a rise in the market price of AeroGrow’s
        common stock without assuming the risks of ownership. This may adversely
        affect
        the terms upon which AeroGrow can obtain additional capital. The holders
        of such
        derivative securities would likely exercise or convert them at a time when
        AeroGrow would be able to obtain equity capital on terms more favorable than
        the
        exercise or conversion prices provided by the notes, warrants or
        options.
  **If
        AeroGrow’s common stock is traded, AeroGrow expects to be subject to the “penny
        stock” rules for the foreseeable future.**
  AeroGrow
        will be subject to the SEC’s “penny stock” rules if its common stock sells below
        $5.00 per share. Penny
        stocks generally are equity securities with a
        price of less than $5.00. The penny stock rules requirebroker-dealers
        to deliver a standardized risk disclosure document prepared by the SEC which
        provides information about penny stocks and the nature and level of risks
        in the penny stock market. The broker-dealer must also provide the customer
        with current bid and offer quotations for the penny stock, thecompensation of the broker-dealer and its salesperson, and monthly account statements
        showing the market value of each penny stock held in the customer’saccount.
        The bid and offer quotations, and the broker-dealer and salesperson compensation
        information must be given to the customer orally or in writing prior to
        completing the transaction and must be given to the customer in writing before
        or with the customer’s confirmation.
  In
        addition, the penny stock rules require that prior to a transaction, the
        broker
        and/or dealer must make a special written determination that the penny
        stock is a
        suitable investment for the purchaser and receive thepurchaser’s written agreement to the transaction. The
        penny stock rules are burdensome and may reduce purchases of anyofferings and reduce the trading activity for AeroGrow’s common stock. As long
        as AeroGrow’s common stock is
        subject to the penny stock rules, the holders of its sharesmay find
        it more difficult to sell their securities.
  **The
        market price of the shares may fluctuate greatly. Investors in the company
        bear
        the risk that they will not recover their investment.**
  There
        is
        no clearly established market for AeroGrow’s shares at this time. If a public
        market develops, the price is likely to be influenced by the price at which
        and
        the amount of shares the selling stockholders are attempting to sell at any
        point in time with the possible effect of limiting the trading price or lowering
        it to their offering price. Shares such as those of AeroGrow are also subject
        to
        the activities of persons engaged in short selling the securities which have
        the
        effect of driving the price down. Also, common stock of emerging growth
        companies is subject to high price and volume volatility. Therefore, the
        price
        of AeroGrow’s common stock may fluctuate widely. A full and stable trading
        market for AeroGrow’s common stock may never develop in which event any holder
        of such shares may not be able to sell at the time he elects or at all.
   22
  **AeroGrow’s
        articles of incorporation authorize the issuance of shares of preferred stock,
        the rights, preferences, designations and limitations of which may be set
        by the
        board of directors.**
  AeroGrow’s
        articles of incorporation authorize the issuance of up to 20,000,000 shares
        of
        preferred stock (“Preferred Stock”) in the discretion of its board of directors.
        Any undesignated shares of Preferred Stock may be issued by AeroGrow’s board of
        directors; no further shareholder action is required. If issued, the rights,
        preferences, designations and limitations of such Preferred Stock would be
        set
        by the board of directors and could operate to the disadvantage of the
        outstanding common stock. Such terms could include, among others, preferences
        as
        to dividends and distributions on liquidation, or could be used to prevent
        possible corporate takeovers.
  **ITEM
        7. FINANCIAL STATEMENTS**
 
 Our
        consolidated financial statements appear in a separate section of this Annual
        Report. Such information is incorporated herein by reference.
 
 **ITEM
        8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
        DISCLOSURE**
 
 On
        February 24, 2006, AeroGrow dismissed Hein & Associates LLP (“Hein”) as its
        independent certified public accountants, the former accountants for Wentworth,
        the company which merged with and into AeroGrow. The decision was approved
        by
        the Board of Directors of AeroGrow. AeroGrow is the “successor issuer” to
        Wentworth I, Inc. within the meaning of Rule 12(g)-3 under the Securities
        Exchange Act of 1934, as amended (“Exchange Act”) and became a Section 12(g)
        reporting company under the Exchange Act.
 
 The
        reports of Hein on Wentworth’s financial statements for the fiscal years ended
        December 31, 2005 and 2004 did not contain an adverse opinion or disclaimer
        of
        opinion and were not modified as to uncertainty, audit scope, or accounting
        principles, except the report did contain an explanatory paragraph related
        to
        Wentworth’s ability to continue as a going concern. During Wentworth’s fiscal
        years ended December 31, 2005 and 2004, there were no disagreements with
        Hein on
        any matter of accounting principles or practices, financial statement
        disclosure, or auditing scope or procedure, which disagreements, if not resolved
        to the satisfaction of Hein would have caused Hein to make reference to the
        subject matter of the disagreements in connection with its report on the
        financial statements for such years. Wentworth requested that Hein furnish
        it
        with a letter addressed to the Securities and Exchange Commission ("SEC")
        stating whether or not it agrees with Wentworth’s statements in this Item
        4.01(a). A copy of the letter furnished by Hein in response to that request,
        dated February 27, 2006 which was filed as Exhibit 16.1 to the Form 8-K
        reporting the change.
 
 Gordon,
        Hughes & Banks, LLP (“GHB”) have audited the Company’s financial statements
        annually since inception through March 31, 2006. At a shareholder’s meeting held
        on February 21, 2006, the Company’s shareholder’s ratified the appointment of
        GHB as auditors for fiscal year ending December 31, 2006. During the years
        ended
        December 31, 2005 and 2004, and the period from January 1, 2006 through March
        31, 2006 there were no disagreements with GHB on any matter of accounting
        principles or practices, financial statement disclosure, or auditing scope
        or
        procedure, which disagreements, if not resolved to the satisfaction of GHB,
        would have caused GHB to make reference to the subject matter of the
        disagreements in connection with its reports on the our financial statements.
        In
        addition, none of the events described in Item 304(a)(1)(iv) of Regulation
        S-K
        occurred during such periods.
 
 **ITEM
        8A. CONTROLS AND PROCEDURES**
 
 (a)
        Evaluation of Disclosure Controls and Procedures
  23
  Disclosure
        controls and procedures are designed to ensure that information required
        to be
        disclosed in the reports filed or submitted under the Exchange Act of 1934
        is
        recorded, processed, summarized and reported, within the time periods specified
        in the rules and forms of the Securities and Exchange Commission. Disclosure
        controls and procedures include, without limitation, controls and procedures
        designed to ensure that information required to be disclosed in the reports
        filed under the Exchange Act of 1934 is accumulated and communicated to
        management, including its principal executive and financial officers, as
        appropriate, to allow timely decisions regarding required
        disclosure.  We
        carried out an evaluation, under the supervision and with the participation
        of
        the our management, including our Chief Executive Officer and Chief Financial
        Officer, of the effectiveness of the design and operation of the Company's
        disclosure controls and procedures as of the end of the period covered by
        this
        report. Based upon that evaluation, our Chief Executive Officer and our Chief
        Financial Officer concluded that there were material weaknesses in our internal
        controls over financial reporting as of the end of the period covered by
        this
        report related to the segregation of duties and the review, approval and
        reconciliation of accounting data. We have addressed these issues by reviewing
        and revising our internal accounting policies and procedures, expanding the
        resources allocated to our accounting department and reviewing and revising
        our
        accounting and management information systems software. We believe these
        issues
        have been substantially resolved as of the date of this report. In addition,
        our
        Chief Executive Officer and Chief Financial Officer identified weaknesses
        with
        respect to the recording of stock options, warrants and other equity grants.
        These internal control deficiencies have been addressed with the installation
        of
        a third party transfer agent, the installation of a compensation committee
        to
        review and approve equity grants and significantly limiting the use of stock
        and
        other equity related grants as a means of compensating outside consultants.
        The
        foregoing, though weaknesses in internal controls, were determined not to
        have a
        material effect on the financial statements for the periods presented in
        this
        annual report.
 
 (b)
        Changes in Internal Controls
 
 There
        were no changes in the Company's internal controls or in other factors that
        could have significantly affected those controls subsequent to the date of
        the
        Company's most recent evaluation.
 
 **ITEM
        8B. OTHER INFORMATION**
 
 Not
        applicable.
  **PART
        III**
  **ITEM
        9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
        WITH
        SECTION 16(A) OF THE EXCHANGE ACT**
  **Directors
        and Executive Officers**
  The
        following sets forth the name and position of each of our current executive
        officers and directors. All directors are elected to annual terms by the
        holders
        of common stock. All directors hold office until the next annual meeting
        of
        shareholders and the election and qualification of their successors. Officers
        are elected annually by the board of directors and serve at the discretion
        of
        the Board.
  24
  Name
              
              Age
              
              Position
                  with AeroGrowW.
                  Michael Bissonnette
              
              57
              
              Chief
                  Executive Officer, President and DirectorMitchell
                  B. Rubin
              
              51
              
              Chief
                  Financial OfficerRichard
                  A. Kranitz
              
              61
              
              DirectorWayne
                  Harding
              
              50
              
              DirectorJack
                  J. Walker
              
              71
              
              DirectorKenneth
                  Leung
              
              61
              
              Director
  **W.
        Michael Bissonnette** is our
        founding shareholder and has served as chief executive officer, president
        and a
        director of AeroGrow since July 2002. Concurrently, he has served as chief
        executive officer, president and a director of our former parent company,
        Mentor
        Capital Consultants, Inc. since March 2000. Mentor Capital currently has
        no
        active operating business. From 1994 through 2000, Mr. Bissonnette was a
        private
        investor. From 1989 to 1994, he was the founder, chief executive officer,
        president and a director of Voice Powered Technology International, Inc.,
        an
        international consumer electronics company. From 1977 to 1989, Mr. Bissonnette
        was the founder, chief executive officer and president of Knight Protective
        Industries, Inc., an international consumer security products company. Prior
        to
        1977, he was founder, chief executive officer and president of Shangrila
        Carpets, Inc., a multi-store retailer of commercial and home carpeting. Both
        Voice Powered Technology and Knight Protective Industries specialized in
        the
        funding, development and marketing of technology-based consumer
        products.
  **Mitchell
        Rubin** was
        elected chief financial officer and treasurer of AeroGrow on February 23,
        2006.
        Prior to joining AeroGrow, from January 2003 through February 2006, Mr. Rubin
        was an independent financial consultant. From July 1999 to December 2002,
        Mr.
        Rubin was the Chief Financial Officer of Web-Ideals LLC, a privately owned
        application service provider that offered a web-based application for managing
        direct to consumer commerce. From January 1994 to June 1999, Mr. Rubin held
        various positions including Chief Financial Officer, Chief Executive Officer
        and
        director with Voice Powered Technology International Inc., a publicly held
        developer and manufacturer of consumer electronic products. From July 1991
        to
        December 1993, Mr. Rubin served as Executive Vice President and Chief Operating
        Officer of Regal Group, Inc., a television direct-response company. Mr. Rubin
        began his career as a certified public accountant.
  **Richard
        A. Kranitz** has been
        a director of AeroGrow since July 2002. He has also served as a director
        of
        Mentor Capital since March 2000. Mr. Kranitz has been an attorney in private
        practice since 1970 emphasizing securities, banking and business law. From
        1990
        to the present he has been an attorney in Kranitz & Philipp in Grafton,
        Wisconsin. Previously, following the death of a partner in 1976, he formed
        the
        Law Offices of Richard A. Kranitz. From 1982 to 1983 he also was a member
        of
        Fretty & Kranitz and from 1977 to 1978 he was also a member of Habush,
        Gillick, Habush, Davis, Murphy, Kraemer & Kranitz. He was a member of McKay,
        Martin & Kranitz from 1973 to 1976, and was employed by Reinhart, Boerner,
        Van Deuren, Norris & Reiselbach, s.c. from 1970 to 1973. Mr. Kranitz served
        as Law Clerk to the Honorable Myron L. Gordon in the U.S. District Court
        (E.D.
        Wisconsin) from 1969 to 1970. Mr. Kranitz has served as a director of the
        Grafton State Bank from 1990 to present. He served as a venture capital
        consultant to, and director of, various companies and he has served at various
        times as a director of various professional, civic or charitable
        organizations.
  **Wayne
        Harding** has been
        a director since October 2005. He has served as vice president business
        development of Rivet Software since December 2004. From August 2002 to December
        2004 Mr. Harding was owner and President of Wayne Harding & Company CPAs and
        from 2000 until August 2002 he was director-business development of CPA2Biz.
        He
        provided consulting services for AeroGrow from December 2003 through March
        2004.
        Mr. Harding is a certified public accountant licensed in Colorado. He is
        past
        president of the Colorado Society of CPAs and past member of the Governing
        Council for the American Institute of CPAs.
   25
  **Jack
        J. Walker** has
        been
        a director since the February 23, 2006, annual meeting of shareholders. He
        has
        served as president of English & Continental Properties, Inc., a real estate
        investment and development company, since 1980 to present. From 1976 to 1985,
        Mr. Walker was president of March Trade & Finance, Inc., a private
        investment company. From 1974 to 1976, Mr. Walker acquired control of Charles
        Spreckly Industries, Town & Commercial Properties and Associated Development
        Holdings. In 1961 he started English & Continental Property Company, and
        became 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 has served as a director of Megafoods Stores Inc. from 1984 to
        1993.
        In addition, since 1975 through the present, he also serves as a venture
        capital
        consultant to companies on financial and pre-IPO strategies. In addition,
        he
        created the Walker Foundation for Charitable Activities and he has served
        at
        various times as a director of various professional, civic and charitable
        organizations.
  **Kenneth
        Leung** has been
        a director since the February 23, 2006, annual meeting of shareholders. From
        1995 to the present he has been Managing Director of Investment
        Banking-Environmental and the Chief Investment Officer of the Environmental
        Opportunities Fund at Sanders Morris Harris. Previously Mr. Leung served
        as
        Managing Director Investment Banking& Research-Environmental at Smith Barney
        from 1978 to 1994. He was Vice President Investment Banking &
Research-Environmental with F. Eberstadt & Co. from 1974 to 1978.
        Previously, he was an Assistant Treasurer Investment Research-Environmental
        with
        Chemical Bank from 1968-1974. Mr. Leung served on the boards of American
        Ecology
        since February 2005 and SystemOne Technologies since June 2000, both of which
        are public companies. He has served at various times as a director of various
        civic and charitable organizations.
  There
        are
        no family relationships (whether by blood, marriage or adoption) between
        or
        among the AeroGrow directors or executive officers or the
        directors.
  **Committees
        of the Board**
  Our
        board
        of directors considers all major decisions. AeroGrow has established two
        standing committees so that some 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. The board has affirmatively determined that Mr. Harding is
        independent as defined by applicable securities law and NASDAQ corporate
        governance guidelines. As of March 28, 2006, AeroGrow elected to comply with
        the
        corporate governance requirements of NASDQ which satisfied its obligation
        pursuant to the Merger Agreement. Following is a description of both of these
        committees.
  **Audit
        Committee.** The
        current members of our audit committee are Mr. Harding (chairman), Mr. Jack
        Walker and Mr. Kenneth Leung. Mr. Harding is considered a financial expert
        and
        Messrs Walker and Leung are considered financially literate under the rules
        of
        the Securities and Exchange Commission for audit committee members. As AeroGrow
        adds additional independent members to our board of directors as required
        by
        applicable securities law or exchange listing guidelines when applicable,
        such
        independent directors may be appointed to our audit committee or the membership
        of the committee may be changed. This 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 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. Harding (chairman) and Mr. Jack Walker and Mr. Kenneth Leung. Each of
        these persons is an independent director. This committee’s charter provides that
        the committee shall:
   26
  ·
            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 performance plans of AeroGrow.  **Compliance
        with Section 16(a) of the Securities Exchange Act of 1934**
  Section
        16(a) of the Securities Exchange Act of 1934, as amended, requires the Company’s
        executive officers and directors, and persons who own more than 10% of the
        Company’s Common Stock, to file reports of ownership on Form 3 and changes in
        ownership on Form 4 or 5 with the Securities and Exchange Commission (the
        "SEC"). Such executive officers, directors and 10% stockholders are also
        required by SEC rules to furnish the Company with copies of all Section 16(a)
        forms they file.
  To
        our
        knowledge, based solely on our review of the copies of such forms received
        by
        us, or written representations from the reporting persons, the initial Section
        16(a) forms for our officers and directors subsequent to completion of our
        merger on February 24, 2006 were not timely filed as follows:
 
 **Name**
              
              **Form**
              
              **Event
                  Date**
              
              **Date
                  Filed**
              
              **Reason**Mitchell
                  B. Rubin
              
              
              3
              
              
              24-Feb-2006
              
              
              08-Mar-2006
              
              
              Delay
                  in obtaining CIK numberMitchell
                  B. Rubin
              
              
              4
              
              
              28-Mar-2006
              
              
              06-Jul-2006
              
              
              Year
                  end compliance reviewRandall
                  Seffren
              
              
              4
              
              
              28-Mar-2006
              
              
              06-Jul-2006
              
              
              Year
                  end compliance reviewRichard
                  Kranitz
              
              
              4
              
              
              28-Mar-2006
              
              
              06-Jul-2006
              
              
              Year
                  end compliance reviewJack
                  Walker
              
              
              4
              
              
              28-Mar-2006
              
              
              06-Jul-2006
              
              
              Year
                  end compliance reviewWayne
                  Harding
              
              
              4
              
              
              28-Mar-2006
              
              
              06-Jul-2006
              
              
              Year
                  end compliance reviewKenneth
                  C. Leung
              
              
              3
              
              
              28-Mar-2006
              
              
              06-Jul-2006
              
              
              Year
                  end compliance reviewKenneth
                  C. Leung
              
              
              4
              
              
              28-Mar-2006
              
              
              06-Jul-2006
              
              
              Year
                  end compliance review
  **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 at www.aerogrow.com. The Code of Ethics is filed as Exhibit 3.4 to
        this
        annual report. 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 filing with the Securities and Exchange
        Commission.
  **** **ITEM
        10.  EXECUTIVE COMPENSATION**
  The
        following table provides information concerning compensation earned by
        Mr. Bissonnette, our Chief Executive Officer, Mr. Gutterman, our former
        Chief Financial Officer, Mr. Rubin, our current Chief Financial Officer,
        Mr.
        Brainard, our Vice President of Sales, and Mr. Seffren, our Chief Marketing
        Officer. As of March 31, 2006, no other executive officer of AeroGrow was
        paid
        in excess of $100,000 in 2005 or is anticipated to earn in excess of $100,000
        in
        the next fiscal year.
   27
  **Summary
                  Compensation Table Annual****Compensation****Name
                  and Principal Position**
              
              **Year**
              
              **Salary**
              
              **Bonus**
              
              **All
                  Other****Compensation**W.
                  Michael Bissonnette, CEO, President and Director(1)
              
              
              Transition
                Period
                2005
                2004
              
              $
                $
              39,583
                156,954
                134,428
              
              $
                $
                $
              0
                0
                0
              
              $
                $
                $
              4,500
                  (1)
                10,000
                  (1) (2)
                10,000(1)
                  (2)Randy
                  Seffren, CMO
              
              
              Transition
                  Period
                2005
                2004
              
              $
                $
                $
              0
                0
                0
              
              $
                $
                $
              0
                0
                0
              
              $
                $
                $
              99,167(3)
                404,653(3)
                215,566(3)Jerry
                  L. Gutterman, Former, CFO(through
                  February 24, 2006)
              
              
              Transition
                  Period 2005
                2004
              
              $
                $
              0
                0
              
              $
                $
              0
                0
              
              $
                $
              277,005(4)
                56,723(4)Mitchell
                  Rubin, CFO
              
              
              Transition
                Period
                2005
                2004
              
              $
                $
                $
              16,667
                0
                0
              
              $
                $
                $
              0
                0
                0
              
              $
                $
                $
              10,072(5)
                29,937(5)
                0Jeff
                  Brainard, Vice President Sales
              
              
              Transition
                Period
                2005
                2004
              
              $
                $
                $
              0
                0
                0
              
              $
                $
                $
              0
                0
                0
              
              $
                $
                $
              6,656
                  (6)
                0
                0
  (1)
              Mr.
                  Bissonnette also received perquisites and other personal benefits
                  totaling
                  $31,954 in 2005, $24,504 in 2004 and $4,500 for the three months
                  ended
                  March 31, 2006. In accordance with the employment agreement entered
                  into
                  as of March 1, 2006, Mr. Bissonette non-accountable expense allowance
                  of
                  $2,500 per month as reimbursement for Employee’s auto expenses, home
                  office expenses and other expenses.
  (2)
              Other
                  compensation reflects the value at the time of grant of shares
                  of our
                  common stock received by Mr. Bissonnette in each
                  year.
  (3)
              Other
                  compensation for 2005 and 2004 reflects consulting fees of $164,153
                  and
                  $84,466 and the value at the time of grant of shares of our common
                  stock
                  received by Prometheus Communications Group, LLC (“PCG”) of which Mr.
                  Seffren is the 100% owner and managing member, in 2005 and 2004,
                  respectively. For the three months ended March 31, 2006, $49,167
                  of
                  consulting fees were paid to PCG. On March 28, 2006, Mr. Seffren
                  was
                  granted 10,000 shares of common stock which are shown above at
                  fair value
                  deemed to be $5.00 per share. Also on March 28, 2006, Mr. Seffren
                  was
                  granted 125,000 five year options to purchase the Company’s common stock
                  at an exercise price of $5.00 that were fully vested upon grant
                  and which
                  are not included in the above
                  table.
  (4)
              Other
                  compensation reflects consulting fees of $139,330 and the value
                  at the
                  time of grant of shares of our common stock received by Mr. Gutterman
                  in
                  2005.Also reflected2,000
                  shares valued at $1.00 per share in 2004. Other Compensation also
                  includes
                  $46,723of consulting fees paid in 2004. In 2004, Mr. Gutterman
                  received
                  options to purchase 19,922 shares of our common stock at an exercise
                  price
                  of $1.25 per share. The values of these stock options are not included
                  in
                  the above table.
   28
 
  (5)
              Other
                  compensation reflects consulting fees of $10,072 for the three
                  months
                  ended March 31, 2006 prior to the commencement of Mr. Rubin’s employment
                  and $29,937 in consulting fees for 2005. During 2005, Mr. Rubin
                  was
                  granted 3,768 five year options to purchase the Company’s common stock at
                  an exercise price of $0.50 that were fully vested upon grant and
                  which are
                  not included in the above table. On March 28, 2006, Mr. Rubin was
                  granted
                  125,000 five year options to purchase the Company’s common stock at an
                  exercise price of $5.00 that were fully vested upon grant and which
                  are
                  not included in the above table
  (6).
              Other
                  compensation reflects consulting fees of $6,656 for the three months
                  ended
                  March 31, 2006 prior to the commencement of Mr. Brainard’s employment. On
                  March 28, 2006, Mr. Brainard was granted 125,000 five year options
                  to
                  purchase the Company’s common stock at an exercise price of $5.00 that
                  will vest 33% of the amount of the grant at the date granted and
                  33% per
                  each twelve month period from the date of grant and which are not
                  included
                  in the above table
  The
        following table provides information, with respect to the named executive
        officers, concerning unexercised stock options held by them at March 31,
        2006.
        All options granted to date are unexercised and, in as much as there is no
        trading market in the Company’s common stock, are considered not to be “in the
        money”.
 
 **Name
                  and Principal Position**
              
              **Number
                  of Securities Underlying Options Granted**
              
              **%
                  of Total Options Granted through**
                **March
                  31, 2006**
              
              **Exercise
                  Price per Share**
              
              **Expiration****Date**Randy
                  Seffren, CMO
              
              
              125,000
              
              
              11.2
              %
              $
              5.00
              
              
              3/27/2011Mitchell
                  Rubin, CFO
              
              
              3,768
              
              
              0.3
              %
              $
              0.50
              
              
              12/31/2010Mitchell
                  Rubin, CFO
              
              
              125,000
              
              
              11.2
              %
              $
              5.00
              
              
              3/27/2011Jeff
                  Brainard, Vice President Sales
              
              
              125,000
              
              
              11.2
              %
              $
              5.00
              
              
              3/27/2011
 
 **Current
        Employment Agreements**
  We
        have
        entered into employment agreements with W. Michael Bissonnette, Mitchell
        Rubin
        and Jeff Brainard.
  The
        employment agreement of Mr. Bissonnette provides that he will be employed
        as the
        chief executive officer of AeroGrow for an initial term of 24 months, renewable
        automatically for successive one year terms. He will be paid a base salary
        of
        $225,000. Mr. Bissonnette will also be able to participate in equity
        compensation plans as determined by the compensation committee. Mr. Bissonnette
        will be reimbursed car and home office expenses at the rate of $2,500 per
        month
        and participate in regular employee benefit plans as provided by the company.
        If
        Mr. Bissonnette is terminated without cause by the Company or Mr. Bissonnette
        terminates upon a company breach, he will be paid his base salary, medical
        benefits and pro rata portion of the bonus for one year. If he terminates
        his
        employment without cause, he will be paid his salary to the end of the month
        of
        such notice.. Mr. Bissonnette has agreed to regular confidentiality provisions
        and agreed not to compete with AeroGrow in the area of aeroponics products
        and
        business for two years after the termination of employment. Any inventions,
        including modifications, are assigned to the company by the terms of the
        agreement. Mr. Bissonnette has executed a lock up agreement regarding the
        sale
        of all of our equity securities as described in Item 5 - Market for Common
        Equity, Related Stockholder Matters, and Small Business Issuer Purchases
        of
        Equity Securities.
  The
        employment agreement of Mr. Rubin provides that he will be employed as the
        chief
        financial officer of the company. He will devote his entire business time
        to the
        affairs of the company, provided that for the first four months of his
        employment he may devote a limited amount of time to non-competitive business
        activities during the work day in transition from his prior consulting business.
        The initial term is two years and renewable for successive one year terms.
        Mr.
        Rubin shall receive base compensation of $200,000 per year and a bonus per
        fiscal year of not less than 1.5% of EBITDA. In the event of termination
        of the
        agreement by AeroGrow without cause or breach by AeroGrow, Mr. Rubin shall
        be
        entitled to receive severance compensation equivalent to six months base
        salary
        and the pro rata bonus. The agreement also provides for medical, vacation
        and
        other benefits commensurate with the policies and programs as adopted by
        AeroGrow for its senior executives. Further, the agreement provides for Mr.
        Rubin to receive a grant of 125,000 options to purchase AeroGrow’s common stock
        under AeroGrow’s 2005 Equity Compensation Plan at an exercise price of not
        greater than $5.00. The options , which were subsequently granted March 28,
        2006. ; (i) were fully vested upon grant (ii) expire in five (5) years from
        the
        date of grant, and; (iii) are subject to other standard terms and conditions
        under the 2005 Equity Compensation Plan, Mr. Rubin has executed a lock up
        agreement regarding the sale of all of our equity securities as described
        in
        Item 5 - Market for Common Equity , Related Stockholder Matters, and Small
        Business Issuer Purchases of Equity Securities. Mr. Rubin has agreed to regular
        confidentiality and inventions assignment provisions and agreed not to compete
        with AeroGrow for two years after the termination of employment.
   29
  The
        employment agreement of Mr. Brainard provides that he will be employed as
        the
        vice president, sales of the company. He will devote his entire business
        time to
        the affairs of the company working from his home office in Lexington,
        Massachusetts. The initial term is two years and renewable for successive
        one
        year terms. Mr. Brainard shall receive base compensation of $150,000 per
        year
        and a bonus per fiscal year in an amount not less than the greater of; a)
        $50,000; b) 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; c) 1.5% of the EBITDA of the Company as determined by the
        Company’s annual financial statements and pro rated for any portion of such
        annual period covered under this Agreement. Such bonus shall be
        payable for the
        initial year in
        two
        installments, $25,000 to be paid six months following the initial date hereof
        and an additional $25,000 12 months following the date hereof and the balance
        not later than one hundred and twenty (120) days after the end of the each
        of
        the Company’s fiscal years covered under this agreement. The agreement also
        provides for medical, vacation and other benefits commensurate with the policies
        and programs as adopted by AeroGrow for its senior executives. Further, the
        agreement provides for Mr. Brainard to receive a grant of 125,000 options
        to
        purchase AeroGrow’s common stock under AeroGrow’s 2005 Equity Compensation Plan
        at an exercise price of not greater than $5.00. The options (i) shall vest
        pursuant to terms no less than a minimum of 33% of the amount of the grant
        at
        the date granted and 33% per each twelve month period from the date of grant;
        (ii) shall not expire in less than five (5) years from the date of grant;
        and
        (iii) shall be subject to other standard terms and conditions under the 2005
        Equity Compensation Plan. 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. In
        addition, 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
        for
        one year. Mr. Brainard has agreed to execute a lock up agreement regarding
        the
        sale of all of our equity securities as described in Item 5 - Market for
        Common
        Equity, Related Stockholder Matters, and Small Business Issuer Purchases
        of
        Equity Securities.
  Except
        as
        set forth above, all employees of AeroGrow were employed on “at will” employment
        agreements as of march 31, 2006.
  **Director
        Compensation**
  In
        2004
        and 2005 each director received 2,000 shares of common stock for their service
        as directors. Mr. Bissonnette has agreed to forego any future stock-based
        compensation for serving as a director of AeroGrow. AeroGrow compensates
        directors $500 for attending meetings and reimburses them for their
        out-of-pocket expenses for attending meetings. On March 28, 2006, AeroGrow
        granted to each of its four outside directors 2,500 shares of the company’s
        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 AeroGrow common stock at an exercise price of $5.00 per
        share for services for the fiscal year ending March 31, 2007.
   30
  **ITEM
        11.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
        AND RELATED STOCKHOLDER MATTERS**
 
 **Beneficial
        Ownership**
 
 The
        following table sets forth certain information regarding our common stock
        beneficially owned on March 31, 2006, by:
  ·  each
        shareholder we know to be the beneficial owner of 5% or more of our outstanding
        common stock,
  ·  each
        of
        our executive officers and directors, and
  ·  all
        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 9,164,622 shares of common
        stock
        outstanding.
  **Name
                  of Beneficial Owner (1)**
              
              **Amount
                  of**
                **Beneficial
                  Ownership**
              
              **Percent**
                **Beneficial
                  Ownership**W.
                  Michael Bissonnette
                900
                  28th Street, Suite 201
                Boulder,
                  CO 80303
              
              
              956,297
              
              
              10.4
              %Mitchell
                  Rubin
                900
                  28th Street, Suite 201
                Boulder,
                  CO 80303 (2)
              
              
              128,768
              
              
              1.4
              %Jeff
                  Brainard
                900
                  28thStreet, Suite 201
                Boulder,
                  CO 80303 (3)
              
              
              131,000
              
              
              1.4
              %Richard
                  A. Kranitz
                1238
                  Twelfth Avenue
                Grafton,
                  WI 53024 (4)
              
              
              67,579
              
              
              0.7
              %Randy
                  Seffren
                900
                  28th Street, Suite 201
                Boulder,
                  CO 80303 (3)
              
              
              209,320
              
              
              2.3
              %Wayne
                  Harding
                5206
                  South Hanover Way
                Englewood,
                  CO 80111 (5)
              
              
              144,673
              
              
              1.6
              %Jack
                  J. Walker
                c/o
                  900 28thStreet, Suite 201
                Boulder,
                  CO 80303 (6)
              
              
              188,908
              
              
              2.1
              %Kenneth
                  Leung
                c/o
                  900 28thStreet, Suite 201
                Boulder,
                  CO 80303 (7)
              
              
              12,500
              
              
              0.1
              %
 
  31
 
 **Name
                  of Beneficial Owner (1)**
              
              **Amount
                  of**
                **Beneficial
                  Ownership**
              
              **Percent**
                **Beneficial
                  Ownership**Timothy
                  J. Keating
                5251
                  DTC Parkway, Suite 1090
                Greenwood
                  Village, Colorado 80111 (8)
              
              
              452,449
              
              
              4.9
              %All
                  AeroGrow Executive Officers and Directors as a Group (8 Persons)
                  (9)
              
              
              1,839,045
              
              
              20.0
              %
  *
              Less
                  than 1%
  (1)
              Beneficial
                  ownership is determined in accordance with the rules of the Securities
                  and
                  Exchange Commission (“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)
              Includes
                  options to purchase 3,768 shares of AeroGrow’s common stock at an exercise
                  price of $0.50 per share and options granted on March 28, 2006
                  to purchase
                  125,000 shares of AeroGrow’s common stock at an exercise price of $5.00
                  per share.
  (3)
              Includes
                  options granted on March 28, 2006 to purchase 125,000 shares of
                  AeroGrow’s
                  common stock at an exercise price of $5.00 per
                  share.
  (4)
              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 AeroGrow’s 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.
  (5)
              Includes
                  options to purchase 3,910 shares of AeroGrow’s common stock at an exercise
                  price of $2.50 per share, and warrants to purchase 5,000 shares
                  of
                  AeroGrow’s common stock at an exercise price of $2.50 per share. Also
                  includes 10,000 fully vested five-year options to purchase AeroGrow’s
                  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.
  (6)
              Includes
                  76,122 shares held of record by March Trade & Finance, Inc. of which
                  Mr. Walker is a controlling person and 24,000 shares underlying
                  immediately exercisable warrants at $5.00 per share and 34,286
                  shares
                  issuable under a convertible note in principal amount of $120,000.
                  Also
                  includes 10,000 fully vested five-year options to purchase AeroGrow’s
                  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.
  (7)
              Includes
                  10,000 fully vested five-year options to purchase AeroGrow’s 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.
  (8)
              Includes
                  warrants to purchase 20,000 shares of common stock at an exercise
                  price of
                  $6.00 per share and warrants to purchase 47,800 shares of common
                  stock at
                  an exercise price of $6.25 per share. Includes 309,406 shares of
                  common
                  stock held by KRM Fund. Timothy J. Keating is the manager of KRM
                  Fund and
                  has voting and disposition power of the shares owned by KRM
                  Fund.
  (9)
              Includes
                  options and warrants to acquire 451,678 shares of common stock
                  and 34,286
                  shares issuable on conversion of an outstanding
                  note.
   32
  **Securities
        Authorized for Issuance Under Equity Compensation Plans**
  **Amended
        2003 Stock Option Plan.** On
        January 3, 2003, the board of directors adopted a stock option plan for key
        employees (including key employees who are directors), non-employee directors,
        consultants and investors which provides that an aggregate of 400,000 shares
        of
        our common stock may be granted under the plan (“2003 Plan”). On December 31,
        2005, there were options for 204,869 shares outstanding and the remaining
        options of 195,131 were merged into the 2005 Equity Compensation Plan on
        August
        22, 2005 and the 2003 plan no longer separately exists. Vesting schedules
        are
        determined individually for each grant.
  *Administration* .
        The
        plan is administered by our Governance, Compensation and Nominating Committee,
        and in the past was administered by the board. The plan provides that it
        may be
        administered by either the committee or board, and in its administration
        it
        may:
  ·
            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.  *Stock
        Options.* The plan
        provides that the committee may grant both incentive stock options, which
        can
        result in potentially favorable tax treatment to the participant, and
        non-qualified stock options. The committee determines the terms and vesting
        provisions, including the exercise price. The maximum term of each option
        and
        the times at which each option will be exercisable generally are fixed by
        the
        committee, except that no option may have a term exceeding ten years. Shares
        subject to options that expire or otherwise terminate remain available for
        awards under the plan. Shares issued under the plan may be either newly issued
        shares or shares which AeroGrow has reacquired.
  **2005
        Equity Compensation Plan.** In
        August 2005 AeroGrow adopted the 2005 Equity Compensation Plan (“2005 Plan”) to
        promote the interests of AeroGrow and our shareholders by attracting, retaining
        and motivating our key officers, employees, directors and consultants. A
        total
        of 1,505,000 shares of our common stock may be granted under this plan pursuant
        to stock options or awards of shares of restricted stock. As of December
        31,
        2005, 28,401 options and 236,796 shares of restricted stock had been granted
        under this plan and 1,239,803 remain available for grant. Our 2003 stock
        option
        plan was merged into this plan in August 2005, which modification was approved
        by the stockholders in February 23, 2006, and now the 2003 Plan no longer
        separately exists. The options for the 204,869 shares issued under the 2003
        Plan
        continue to be governed by their grant agreements but are administered under
        the
        2005 Plan. The 2005 Plan was approved by our stockholders at the annual meeting
        of stockholders held February 23, 2006. As of March 28, 2006, AeroGrow granted
        an additional 888,153 options and 83,737 shares of its common stock pursuant
        to
        the 2005 Plan. As of March 31, 2006, there were 272,067 unallocated shares
        that
        may be the subject of awards in the future.
  *Shares
        Available for Awards* .
        Shares
        subject to an award that are cancelled, expire unexercised, forfeited or
        otherwise terminated remain available for awards under the plan. Shares issued
        under the 2005 Plan may be either newly issued shares or shares which AeroGrow
        has reacquired. The 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 relate to more than $1 million. Finally, awards
        may
        generally be adjusted to prevent dilution or enlargement of benefits when
        certain events occur such as a stock dividend, reorganization, recapitalization,
        stock split, combination, merger or consolidation.
   33
  *Eligibility.* Our
        employees, directors and consultants may be granted awards under the plan.
        As of
        March 31, 2006, approximately 57 individuals were eligible to
        participate.
  *Administration* .
        The
        plan is administered by the Governance, Compensation and Nominating Committee.
        Awards to directors serving on the committee are determined and administered
        by
        the full board of directors. The 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
        committee may grant both incentive stock options, which can result in
        potentially favorable tax treatment to the participant, and non-qualified
        stock
        options. The 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
        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 receive dividends and 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 immediately exercisable or payable and have
        all
        restrictions lifted immediately when AeroGrow experiences a change in control.
        The Board may amend or terminate the plan subject to applicable stockholder
        approval. The 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 committee also may not
        adversely affect the rights of any award holder without the award holder’s
        consent.
  Mr.
        Gutterman was granted 69,429 stock options at an exercise price of $1.25
        per
        share stock options under the 2003 Plan. Mr. Rubin was granted 1,366 stock
        options at an exercise price of $0.50 per share stock options under the 2003
        Plan. They are the only executive officers who have been granted stock options
        under that Plan.
  For
        the
        year ended December 31, 2005, Mr. Bissonnette, Mr. Gutterman and Mr. Seffren
        were granted 2,000, 24,710 and 28,520 restricted shares of common stock,
        respectively, under the 2005 Plan. Mr. Rubin was granted 2,402 stock options
        at
        an exercise price of $0.50 per share stock options under the 2005 Plan. On
        March
        28, 2006, Mr. Seffren, Mr. Rubin and Mr. Brainard were each granted 125,000
        options under the 2005 Plan\
   34
 Information
          regarding all stock options outstanding under the 2005 Plan as of March
          31, 2006
          is as follows:
  **Options Outstanding**
              
              **Options Exercisable****Exercise**
                **price range**
              
              **Options**
              
              **Weighted-**
                **average**
                **Exercise**
                **Price**
              
              **Weighted-average**
                **Remaining**
                **Contractual**
                **Life (years)**
              
              **Options**Over
                  $0.00 to $0.50
              
              
              30,618
              
              $
              0.08
              
              
              2.92
              
              
              30,618Over
                  $0.50 to $2.50
              
              
              137,259
              
              $
              1.57
              
              
              2.72
              
              
              137,259At
                  $5.00
              
              
              949,392
              
              $
              5.00
              
              
              4.94
              
              
              866,0551,117,269
              
              $
              4.44
              
              
              4.38
              
              
              1,033,932
  This
        table does not reflect 71,732 and 358,008 shares of common stock issued through
        December 31, 2005 and 2004, respectively, to employees and consultants as
        compensation and not as part of a plan.
  The
        following table summarizes the status of all equity compensation plans at
        March
        31, 2006:
  **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 remaining available for future
                  issuance****(a)**
              
              **(b)**
              
              **(c)**Equity
                  compensation plans approved by security holders
              
              
              1,117,269
              
              $
              4.44
              
              
              351,671Equity
                  compensation plans not approved by security holders
              
              
              -
              
              $
              -
              
              
              -Total
              
              
              1,117,269
              
              $
              4.44
              
              
              351,671
 
 **ITEM
        12.  CERTAIN RELATIONSHIPS AND RELATED PARTY
        TRANSACTIONS**
  The
        following transactions were or will be entered into with our executive officers,
        directors and 5% or greater shareholders. These transactions may or will
        continue in effect and may result in conflicts of interest between us and
        these
        individuals. Although our executive officers and directors have fiduciary
        duties
        to us and our shareholders, AeroGrow cannot assure that these conflicts of
        interest will always be resolved in our favor or in the favor of our
        shareholders.
  **Stock
        Grants**
  We
        granted to our founder, W. Michael Bissonnette, 10,000 shares of common stock
        from December 2002 through September 30, 2005, with a weighted value of $3.87
        per share or $38,700 in the aggregate, as partial payment for services provided
        since inception. In December 2002, Mr. Bissonnette purchased 50,000 shares
        of
        our common stock for $0.50 per share, or $25,000 in the aggregate, in one
        of our
        private offerings. We granted Mr. Bissonnette 2,000 shares for serving as
        our
        chairman of the board during 2005 under our 2005 plan on December 31,
        2005.
  We
        granted to our former chief financial officer and secretary, Jerry Gutterman,
        11,425 shares of our stock from December 2002 through September 30, 2005,
        with a
        weighted value of $2.69 per share, or $30,725 in the aggregate, as partial
        payment for services provided since inception. We granted Mr. Gutterman
        25,110 shares under our 2005 plan on December 31, 2005.
  We
        granted to the current chief financial officer, Mitchell Rubin, 1,366 stock
        options at an exercise price of $0.50 per share under the 2003 and 2,402
        stock
        options at an exercise price of $0.50 per shares under the 2005 Plan. On
        March
        28, 2006, Mr. Rubin was granted 125,000 five year fully vested stock options
        at
        an exercise price of $5.00 per share.
   35
  Richard
        Kranitz, one of our directors, is a member of the law firm of Kranitz and
        Philipp which provides legal services to us. During the years ended December
        31,
        2005 and December 31, 2004, we paid legal fees to Kranitz and Philipp in
        the
        amount of $37,438 and $24,000, respectively, and issued shares of common
        stock
        for services provided valued at $10,000 and $83,250, respectively. During
        the
        three months ended March 31, 2006 and March 31, 2005 (unaudited), we paid
        fees
        of $44,472 and $10,000, respectively, to Kranitz and Philipp for legal services.
  We
        granted to our chief marketing officer, Randy Seffren, 45,800 shares of our
        common stock in 2004 and 2005 with a value of $5.00 per share, or $229,000
        in
        the aggregate, as partial payment for services provided since inception.
        We
        granted Mr. Seffren 28,520 shares under our 2005 plan on December 31, 2005.
        On
        March 28, 2006, Mr. Seffren was granted 125,000 five year fully vested stock
        options at an exercise price of $5.00 per share.
  Wayne
        Harding, one of our directors, provided consulting services for us from December
        2003 through March 2004. He received stock options for 3,910 shares of common
        stock with an exercise price of $2.50 per share.
  **Mentor
        Capital**
  Mentor
        Capital Consultants, Inc. was formerly our parent corporation. Mr. Bissonnette
        is the principal shareholder and chief executive officer of Mentor Capital.
        Mr.
        Gutterman is the chief financial officer, secretary and a director of Mentor
        Capital. Mr. Kranitz is a director of Mentor Capital.
  On
        October 15, 2002, Mr. Bissonnette exchanged 1 million shares of Mentor Capital’s
        common stock for 3 million common shares of our common stock, not taking
        into
        account the one-for-five reverse stock split to shareholders of record on
        May 31, 2005. We valued this transaction at $300,000, which was the market
        value of the AeroGrow shares of common stock at the time of the transaction.
        The
        $300,000 was treated as a compensation expense.
  On
        December 31, 2004, Mentor Capital made a pro rata liquidating distribution
        to
        its shareholders of all 6,000,000 shares of our common stock held by it.
        These
        shares were issued with the restriction with AeroGrow that 25% may be sold
        beginning six months after a public offering, 25% may be sold beginning one
        year
        after a public offering, 25% may be sold beginning 18 months after a public
        offering and the remaining 25% may be sold beginning 24 months after a public
        offering. In addition, these shareholders will be required to execute prior
        to
        closing of this offering, pursuant to the requirements of the underwriters,
        a
        lock-up agreement which will restrict their sale for one year following this
        offering.
  From
        inception until May 31, 2005, AeroGrow leased from Mentor Capital our furniture,
        computers and other office equipment for a rental payment of $2,500 per month.
        For each of the years ended December 31, 2004 and 2003, AeroGrow paid
        $30,000 to rent the equipment. This lease was terminated as of May 31, 2005.
        From January through April 2005 AeroGrow made interest-free unsecured loans
        totaling $41,000 to Mentor Capital to allow Mentor Capital to redeem some
        of its
        stock from a shareholder who is not affiliated with AeroGrow. The lease payments
        for the furniture of $2,500 per month were being used to offset a portion
        of
        this loan. We acquired the fixed assets under the furniture lease in full
        payment of the loan on May 31, 2005. At the time of these transactions, Michael
        Bissonnette owned 41.4% of Mentor Capital.
  Mentor
        Capital entered into a research and development contract in 2002 with AgriHouse,
        Inc. that provided for development of a nutrient delivery system using
        proprietary aeroponic technology which could be used in a low cost consumer
        product. If a product was developed, Mentor Capital was granted the exclusive
        worldwide marketing rights for it, subject to the duty to pay a royalty to
        AgriHouse of 10% of the manufacturing cost of each unit. Mentor Capital assigned
        its rights under this contract to us shortly after AeroGrow was formed, and
        we
        agreed to assume the royalty payment obligations. Subsequently, AeroGrow
        developed a fractionator bar technology, applied for two patents and was
        granted
        one patent. The fractionator bar technology uses a spinning cylinder to disperse
        water to the roots of plants in an aeroponic growing system. In May 2005
        we
        entered into an agreement with AgriHouse and consented to by Mentor Capital
        to
        collaborate on the development of an aeroponic product employing the
        fractionator bar technology (the “FB Product”) which agreement; 1) assigned all
        ownership and manufacturing rights to the FB Product to AgriHouse along with
        two
        related patents, drawings, molds and other materials; 2) granted us exclusive
        marketing rights to the FB Product; 3) required the payment of $25,000 to
        AgriHouse by us for AgriHouse to act as a consultant to determine the
        feasibility of commercializing the FB Product; and 5) superseded and terminated
        the 2002 agreement thereby releasing us from all obligations related thereto.
        The May 2005 agreement with AgriHouse was terminated by us in accordance
        with
        its terms by our election not to proceed with the FB Product and thereby
        assigning all rights to such product and technology associated therewith
        to
        AgriHouse. We had determined that the fractionator bar technology was not
        feasible for mass production for consumer use and therefore believe the loss
        of
        this technology did not and will not have a material effect on our
        operations.
   36
  **Other
        Related Party Transactions**
  During
        the three months ended March 31, 2006, we incurred $131,894 in expenses to
        Med
        Ed Architects, a company which is 33% owned by Randy Seffren, our Chief
        Marketing Officer, for video production, printing, duplication and web
        design
  During
        the three months ended March 31, 2006, the Company paid to Mr. Walker, a
        director, $12,500 in consulting fees for his assistance in our fund raising
        activities in Europe.
  Richard
        Kranitz, one of our directors, is a member of the law firm of Kranitz and
        Philipp which provides legal services to us. During the years ended December
        31,
        2005 and December 31, 2004, we paid legal fees to Kranitz and Philipp in
        the
        amount of $37,438 and $24,000, respectively, and issued shares of common
        stock
        for services provided valued at $10,000 and $83,250, respectively. During
        the
        three months ended March 31, 2006 and March 31, 2005, we paid fees of $44,472
        and $10,000, respectively, to Kranitz and Philipp for legal services.
  **ITEM
        13. EXHIBITS**
 
 The
        information required by this Item is set forth in the section of this Annual
        Report entitled “EXHIBIT INDEX” and is incorporated herein by
        reference.
 
 **ITEM
        14. PRINCIPAL ACCOUNTANT FEES AND SERVICES**
 
 Aggregate
        fees billed by Gordon, Hughes & Banks, LLP (“GHB”), our current independent
        registered public accounting firm, for the three months ended March 31, 2006
        and
        for the years ended December 31, 2005 and 2004, respectfully, are as
        follows:
 **Three
                  Months Ended March 31,**
              
              **Years
                  Ended**
                **December
                  31,****2006**
              
              **2005**
              
              **2004**Audit
                  Fees
              
              $
              18,000
              
              $
              10,500
              
              $
              8,000All
                  Other Fees
              
              $
              11,300
              
              $
              2,150
              
              $
              2,000
  **Audit
        Fees**
 
 Audit
        and
        audit-related fees consist of fees for the audit of our financial statements,
        the review of our interim financial statements and other audit services,
  37
 
 **All
        Other Fees**
 
 All
        other
        fees consist of fees for not specifically discussed under Audit Fees or Tax
        Fees
        including the review of and, as applicable, consent to documents filed by
        us
        with the Securities and Exchange Commission
 
 **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
        $3,375 for tax related services for the three months ended March 31, 2006
        and
        $9,244 for the year ended December 31, 2005, respectively.
 
 **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) the compliance by us 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 service or category 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 has considered the provision of non-audit services provided by
        our
        independent registered public accounting firm to be compatible with maintaining
        their independence. The Audit Committee will continue to approve all audit
        and
        permissible non-audit services provided by our independent registered public
        accounting firm. These services may include audit services and related services,
        tax services, and other services.
  38
  **SIGNATURES**
  Pursuant
        to the requirements of Section 13 or 15(d) of the Securities Exchange Act
        of
        1934, the registrant has duly caused this report to be signed on its behalf
        by
        the undersigned thereunto duly authorized.
 
 Signature
              
              Title
              
              Date/s/
                  W. MICHAEL BISSONNETTE
              
              President
                  and Chairman
              
              July
                  ___, 2006W.
                  Michael Bissonnette
              
              of
                  the Board (PrincipalExecutive
                  Officer)/s/
                  MITCHELL RUBIN
              
              Treasurer
                  (Principal
              
              July
                  ___, 2006Mitchell
                  Rubin
              
              Financial
                  Officer andPrincipal
                  Accounting Officer/s/
                  RICHARD A. KRANITZ
              
              Director
              
              July
                  ___, 2006Richard
                  A. Kranitz/s/
                  WAYNE HARDING
              
              Director
              
              July
                  ___, 2006Wayne
                  Harding/s/
                  JACK J. WALKER
              
              Director
              
              July
                  ___, 2006Jack
                  J. Walker/s/
                  KENNETH LEUNG
              
              Director
              
              July
                  ___, 2006Kenneth
                  Leung
 
  39


**AERO
      GROW INTERNATIONAL, INC.**


**INDEX
      TO FINANCIAL STATEMENTS**




**Page**Report
                of Independent Registered Public Accounting Firm
            
            F-1Balance
                Sheets - March 31, 2006, December 31, 2005 and December 31,
                2004
            
            F-2Statements
                of Operations - Three Months Ended March 31, 2006 and 2005 (Unaudited)
                and
                Years Ended December 31, 2005 and 2004
            
            F-3Statements
                of Changes in Stockholders' Equity - Three Months Ended March 31,
                2006 and
                Years Ended December 31, 2005 and 2004
            
            F-4Statements
                of Changes in Cash Flows - Three Months Ended March 31, 2006 and
                2005
                (Unaudited) and Years Ended December 31, 2005 and 2004
            
            F-6Notes
                to Financial Statements - Three Months Ended March 31, 2006 and 2005
                (Unaudited) and Years Ended December 31, 2005 and 2004
            
            F-7








**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**





The
      Board
      of Directors


AeroGrow
      International, Inc.


Boulder,
      CO





We
      have
      audited the accompanying balance sheets of AeroGrow International, Inc. (the
      “Company”) as of March 31, 2006, December 31, 2005 and 2004 and the related
      statements of operations, changes in stockholders’ equity (deficit) and cash
      flows for the three months ended March 31, 2006 and each of the two years ended
      December 31, 2005 and 2004. These 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 audits.





We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audits to obtain reasonable assurance about whether the
      financial statements are free of material misstatement. The
      Company has determined that it is not required to have, nor were we engaged
      to
      perform, an audit of its internal control over financial reporting. Our audit
      included 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
      includes examining, on a test basis, evidence supporting the amounts and
      disclosures in the financial statements. An audit also includes assessing the
      accounting principles used and significant estimates made by management, as
      well
      as evaluating the overall financial statement presentation. We believe that
      our
      audits provide a reasonable basis for our opinion.





In
      our
      opinion, the financial statements referred to above present fairly, in all
      material respects, the financial position of AeroGrow International, Inc. as
      of
      March 31, 2006, December 31, 2005 and 2004, and the consolidated results of
      its
      operations and its cash flows for the three month period ended March 31, 2006
      and the years ended December 31, 2005 and 2004, in conformity with accounting
      principles generally accepted in the United States of America.





***Gordon,
      Hughes & Banks, LLP***





Greenwood
      Village, Colorado


May
      19,
      2006





F-1


**AEROGROW
      INTERNATIONAL, INC.**


**BALANCE
      SHEETS**




**March
                31,**
            
            **December
                31,****2006**
            
            **2005**
            
            **2004****ASSETS**Current
                assetsCash
                and cash equivalents
            
            $
            8,852,548
            
            $
            949,126
            
            $
            1,916,842Subscriptions
                receivable
            
            
            -
            
            
            840,000
            
            
            41,000Accounts
                receivable
            
            
            43,156
            
            
            -
            
            
            -Inventory
            
            
            192,946
            
            
            19,480
            
            
            -Prepaid
                expenses and other
            
            
            199,590
            
            
            79,720
            
            
            5,423Total
                current assets
            
            
            9,288,240
            
            
            1,888,326
            
            
            1,963,265Property
                and equipment, net of accumulated depreciation of$102,431,
                $61,599 and $7,840 at March 31, 2006,December
                31, 2005 and 2004, respectively
            
            
            480,771
            
            
            420,444
            
            
            30,721Debt
                issuance costs, net of $373,853 and $209,734 accumulatedamortization
                at March 31, 2006 and December 31, 2005, respectively
            
            
            45,618
            
            
            209,737Intangible
                assets, net of $1,071 and $0 of amortization atMarch
                31, 2006 and December 31, 2005, respectively
            
            
            21,696
            
            
            20,407Deposits
            
            
            4,684
            
            
            4,684
            
            
            4,484Total
                other assets
            
            
            71,998
            
            
            234,828
            
            
            4,484**Total
                assets**
            
            $
            9,841,009
            
            $
            2,543,598
            
            $
            1,998,470**LIABILITIES
                AND STOCKHOLDERS' EQUITY (DEFICIT)**Current
                liabilitiesAccounts
                payable
            
            $
            487,474
            
            $
            196,840
            
            $
            46,969Accrued
                expenses
            
            
            334,524
            
            
            56,900
            
            
            27,745Convertible
                debentures, net of loan issue discounts of$196,781
                and $904,740 at March 31, 2006 andDecember
                31, 2005, respectively
            
            
            792,539
            
            
            2,095,260
            
            
            -Mandatorily
                redeemable common stock
            
            
            310,000
            
            
            310,000
            
            
            -Accrued
                compensation
            
            
            -
            
            
            -
            
            
            11,833Total
                current liabilities
            
            
            1,924,537
            
            
            2,659,000
            
            
            86,547Commitments
                and contingenciesStockholders'
                equity (deficit)Preferred
                stock, $.001 par value, 20,000,000 shares authorized,none
                issued or outstanding
            
            
            -
            
            
            -
            
            
            -Common
                stock, $.001 par value, 75,000,000 shares authorized,9,102,622,
                5,580,740 and 4,882,908 shares issued andoutstanding
                at March 31, 2006, December 31, 2005 andDecember
                31, 2004, respectively
            
            
            9,103
            
            
            5,579
            
            
            4,883Additional
                paid-in capital
            
            
            27,313,081
            
            
            11,741,388
            
            
            5,761,832Accumulated
                (deficit)
            
            
            (19,405,712
            )
            
            (11,862,369
            )
            
            (3,854,792
            )Total
                stockholders' equity (deficit)
            
            
            7,916,472
            
            
            (115,402
            )
            
            1,911,923**Total
                liabilities and stockholders' equity (deficit)**
            
            $
            9,841,009
            
            $
            2,543,598
            
            $
            1,998,470





See
      accompanying notes to the financial statements




F-2





**AEROGROW
      INTERNATIONAL, INC.**


**STATEMENTS
      OF OPERATIONS**





**Three
                    months ended**
                  **March
                    31,**
            ****
            **Year
                  Ended****December
                  31,****2006**
            
            **2005**
            
            **2005**
            
            **2004****(Unaudited)**RevenueProduct
                sales
            
            $
            35,245
            
            $
            -
            
            $
            -
            
            $
            -Operating
                expensesCost
                of revenue
            
            
            134,622
            
            
            -
            
            
            -
            
            
            -Research
                and development
            
            
            978,538
            
            
            306,194
            
            
            1,578,833
            
            
            333,038Sales
                and marketing
            
            
            2,548,583
            
            
            28,275
            
            
            583,897
            
            
            79,811General
                and administrative
            
            
            2,010,908
            
            
            514,973
            
            
            3,994,992
            
            
            1,983,759Total
                operating expenses
            
            
            5,672,651
            
            
            849,442
            
            
            6,157,722
            
            
            2,396,608Loss
                from operations
            
            
            (5,637,406
            )
            
            (849,442
            )
            
            (6,157,722
            )
            
            (2,396,608
            )Other
                (income) expense, netInterest
                expense
            
            
            1,813,278
            
            
            
            
            
            1,600,961
            
            
            (7,564
            )Interest
                income
            
            
            (39,919
            )
            
            (7,935
            )
            
            (41,106
            )Loss
                on modification of debt
            
            
            132,578
            
            
            -
            
            
            -
            
            
            -Total
                other (income) expense, net
            
            
            1,905,937
            
            
            (7,935
            )
            
            1,559,855
            
            
            (7,564
            )Net
                loss
            
            $
            (7,543,343
            )
            $
            (841,507
            )
            $
            (7,717,577
            )
            $
            (2,389,044
            )Net
                loss per share, basic and diluted
            
            $
            (0.84
            )
            $
            (0.17
            )
            $
            (1.55
            )
            $
            (0.56
            )Weighted
                average number of common sharesoutstanding,
                basic and diluted
            
            
            8,956,353
            
            
            4,898,686
            
            
            4,971,857
            
            
            4,252,626




See
      accompanying notes to the financial statements





F-3


**AEROGROW
      INTERNATIONAL, INC.**


**STATEMENT
      OF CHANGES IN STOCKHOLDERS' EQUITY**





**Common
                Stock**
            ****
            
            ****
            
            ****
            ****
            ********
            ****
            **Shares**
            ****
            **Amount**
            ****
            **Additional**
                  **Paid-in**
                **Capital**
            ****
            **Accumulated**
                  **(Deficit)**
            ****
            **Total****Balances,
                January 1, 2004**
            
            
            3,747,570
            
            $
            3,748
            
            $
            2,411,345
            
            $
            (1,755,748
            )
            $
            659,345Issuance
                of common stock for cash fromJanuary
                1 to January 30, 2004 at $1.25 per share
            
            
            40,000
            
            
            40
            
            
            49,960
            
            
            -
            
            
            50,000Issuance
                of common stock for cash during privateplacement
                from February 1 to June 30, 2004 at $1.665 per share
            
            
            360,458
            
            
            360
            
            
            600,140
            
            
            -
            
            
            600,500Issuance
                of common stock for cash during publicoffering
                from July 30 to December 31, 2004 at$5.00
                per share, net of $185,240 in offering costs
            
            
            498,596
            
            
            498
            
            
            2,307,239
            
            
            -
            
            
            2,307,737Issuance
                of additional shares of common stockto
                private placement investors
            
            
            27,700
            
            
            28
            
            
            (28
            )
            
            -
            
            
            -Issuance
                of additional shares of common stockto
                public offering investors
            
            
            45,632
            
            
            46
            
            
            (46
            )
            
            -
            
            
            -Issuance
                of common stock for services provided (4,000shares
                    at  $0.05 per share;5,000 shares at $1.25 per share; 38,332 shares
                    at
                    $1.65 per shareand
                    97,550 shares at $5.00 per share)
            
            
            144,882
            
            
            145
            
            
            557,301
            
            
            -
            
            
            557,446Exercise
                of common stock warrants at $1.25 per share
            
            
            12,000
            
            
            12
            
            
            14,988
            
            
            -
            
            
            15,000Issuance
                of stock options to non-employees for servicesprovided
                from January 1, 2004 to December 31, 2004
            
            
            -
            
            
            -
            
            
            80,939
            
            
            -
            
            
            80,939Issuance
                of common stock to Board of Directors at $5.00 per share
            
            
            6,000
            
            
            6
            
            
            29,994
            
            
            -
            
            
            30,000Net
                (loss)
            
            
            -
            
            
            -
            
            
            -
            
            
            (2,389,044
            )
            
            (2,389,044
            )Effects
                of 1 for 5 reverse stock split
            
            
            69
            
            
            -
            
            
            -
            
            
            -
            
            
            -**Balances,
                December 31, 2004**
            
            
            4,882,908
            
            
            4,883
            
            
            6,051,832
            
            
            (4,144,792
            )
            
            1,911,923





(Continued)


See
      accompanying notes to the financial statements




F-4


**AEROGROW
      INTERNATIONAL, INC.**


**STATEMENT
      OF CHANGES IN STOCKHOLDERS' EQUITY**


(Continued)




**Common
                Stock**
            ****
            
            ****
            
            ****
            ****
            ********
            ****
            **Shares**
            ****
            **Amount**
            ****
            **Additional**
                  **Paid-in**
                    **Capital**
            ****
            **Accumulated**
                **(Deficit)**
            ****
            **Total**Exercise
                of common stock warrants from August to December 31, 2005 at $1.25
                per
                share
            
            
            40,000
            
            
            40
            
            
            47,460
            
            
            -
            
            
            47,500Exercise
                of common stock warrants from June toDecember
                31, 2005 at $2.50 per share
            
            
            390,000
            
            
            390
            
            
            974,610
            
            
            -
            
            
            975,000Exercise
                of common stock warrants at December 31, 2005 at $5.00 per
                share
            
            
            5,000
            
            
            5
            
            
            24,995
            
            
            -
            
            
            25,000Issuance
                of common stock for cash in August at $5.00 per share
            
            
            1,600
            
            
            2
            
            
            7,998
            
            
            -
            
            
            8,000Issuance
                of common stock for services provided,rent and
                equipment purchases from January toDecember
                31, 2005 at $5.00 per share
            
            
            261,232
            
            
            261
            
            
            1,305,875
            
            
            -
            
            
            1,306,136Issuance
                of stock options to non-employees for services provided
            
            
            -
            
            
            -
            
            
            72,936
            
            
            -
            
            
            72,936Issuance
                of warrants to debt holders of convertible debentures
            
            
            -
            
            
            -
            
            
            1,059,480
            
            
            -
            
            
            1,059,480Intrinsic
                value of convertible debentures, beneficial conversion
            
            
            -
            
            
            -
            
            
            750,000
            
            
            -
            
            
            750,000Effects
                of variable accounting on the modification ofterms
                of outstanding warrants
            
            
            -
            
            
            -
            
            
            1,446,200
            
            
            -
            
            
            1,446,200Net
                (loss)
            
            
            -
            
            
            -
            
            
            -
            
            
            (7,717,577
            )
            
            (7,717,577
            )**Balances,
                December 31, 2005**
            
            
            5,580,740
            
            
            5,581
            
            
            11,741,386
            
            
            (11,862,369
            )
            
            (115,402
            )Common
                stock issued in private placement
            
            
            2,148,000
            
            
            2,148
            
            
            8,807,787
            
            
            -
            
            
            8,809,935Common
                stock issued for conversion of convertible debentures
            
            
            710,009
            
            
            710
            
            
            2,129,290
            
            
            -
            
            
            2,130,000Common
                stock issued in exchange for stock of Wentworth 1
            
            
            580,136
            
            
            580
            
            
            (580
            )
            
            -
            
            
            -Common
                stock issued under equity compensation plans
            
            
            83,737
            
            
            84
            
            
            418,600
            
            
            -
            
            
            418,684Stock
                options issued under equity compensation plans
            
            
            -
            
            
            -
            
            
            3,315,840
            
            
            -
            
            
            3,315,840Beneficial
                conversion value due to modificationof
                the terms of the convertible debentures
            
            
            -
            
            
            -
            
            
            900,758
            
            
            -
            
            
            900,758Net
                (loss)
            
            
            -
            
            
            -
            
            
            -
            
            
            (7,543,343
            )
            
            (7,543,343
            )**Balances,
                March 31, 2006**
            
            
            9,102,622
            
            $
            9,103
            
            $
            27,313,081
            
            $
            (19,405,712
            )
            $
            7,916,472





See
      accompanying notes to the financial statements




F-5




**AEROGROW
      INTERNATIONAL, INC.**


**STATEMENTS
      OF CASH FLOWS**





**Three
                  months ended**
                **March
                  31,**
            
            **Year
                  Ended**
                **December
                  31,****2006**
            
            **2005**
            
            **2005**
            
            **2004****(Unaudited)****Cash
                flows from operating activities:**Net
                loss
            
            $
            (7,543,343
            )
            $
            (841,507
            )
            $
            (7,717,577
            )
            $
            (2,389,044
            )Adjustments
                to reconcile net loss to cash provided(used)
                by operations:Issuance
                of common stock and options underequity
                compensation plans
            
            
            3,734,525
            
            
            218,805
            
            
            1,349,072
            
            
            668,385Depreciation
                and amortization expense
            
            
            41,514
            
            
            1,898
            
            
            53,759
            
            
            5,920Amortization
                of debt issuance costs
            
            
            164,119
            
            
            -
            
            
            209,737
            
            
            -Amortization
                of convertible debentures, beneficialconversion
                feature
            
            
            1,180,937
            
            
            -
            
            
            375,000
            
            
            -Interest
                expense associated with warrants issued withconvertible
                debentures
            
            
            414,522
            
            
            -
            
            
            529,740
            
            
            -Effects
                of variable accounting for modification ofwarrant
                terms
            
            
            -
            
            
            -
            
            
            1,446,200
            
            
            -Loss
                on modification of debt
            
            
            132,578
            
            
            -
            
            
            -
            
            
            -Change
                in assets and liabilities:Decrease
                in subscriptions receivable
            
            
            840,000
            
            
            -
            
            
            -
            
            
            -(Increase)
                in accounts receivable
            
            
            (43,156
            )
            
            -
            
            
            -
            
            
            -(Increase)
                in inventory
            
            
            (173,466
            )
            
            -
            
            
            (19,480
            )
            
            -(Increase)
                in other current assets
            
            
            (119,870
            )
            
            37,866
            
            
            (873,297
            )
            
            (3,323
            )(Increase)
                in deposits
            
            
            -
            
            
            (200
            )
            
            (200
            )
            
            (2,484
            )Increase
                in accounts payable
            
            
            290,634
            
            
            (2,800
            )
            
            149,871
            
            
            39,480Increase
                in accrued expenses and manditorily redeemable stock
            
            
            277,624
            
            
            (21,657
            )
            
            339,155
            
            
            18,469(Decrease)
                in accrued compensation
            
            
            -
            
            
            (11,833
            )
            
            (11,833
            )
            
            (25,770
            )Net
                cash (used) by operating activities
            
            
            (803,382
            )
            
            (619,428
            )
            
            (4,169,853
            )
            
            (1,688,367
            )**Cash
                flows from investing activities:**Purchases
                of equipment
            
            
            (100,771
            )
            
            (3,103
            )
            
            (413,482
            )
            
            (11,556
            )Patent
                expenses
            
            
            (2,360
            )
            
            -
            
            
            (20,407
            )
            
            -Net
                cash (used) by investing activities
            
            
            (103,131
            )
            
            (3,103
            )
            
            (433,889
            )
            
            (11,556
            )**Cash
                flows from financing activities:**(Decrease)
                in due to parent company
            
            
            -
            
            
            (28,500
            )
            
            -
            
            
            (17,884
            )Proceeds
                from issuance of common stock, net
            
            
            8,809,935
            
            
            -
            
            
            1,055,500
            
            
            3,002,237Proceeds
                from issuance of convertible debentures
            
            
            -
            
            
            -
            
            
            3,000,000
            
            
            -Issuance
                costs associated with debentures
            
            
            -
            
            
            -
            
            
            (419,474
            )
            
            -Net
                cash provided by financing activities
            
            
            8,809,935
            
            
            (28,500
            )
            
            3,636,026
            
            
            2,984,353Net
                increase (decrease) in cash
            
            
            7,903,422
            
            
            (651,031
            )
            
            (967,716
            )
            
            1,284,430Cash,
                beginning of period
            
            
            949,126
            
            
            1,916,842
            
            
            1,916,842
            
            
            632,412Cash,
                end of period
            
            $
            8,852,548
            
            $
            1,265,811
            
            $
            949,126
            
            $
            1,916,842**Supplemental
                disclosure of non-cash investing and financing
                activities**Interest
                paid
            
            $
            32,700
            
            $
            -
            
            $
            111,487
            
            $
            324Income
                taxes paid
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -Issuance
                of common stock for equipment purchases
            
            $
            -
            
            $
            -
            
            $
            30,000
            
            $
            -Convertible
                debentures converted to common stock
            
            $
            2,130,000
            
            $
            -
            
            $
            -
            
            $
            -





See
      accompanying notes to the financial statements




F-6




**Note
      1 - Description of the Business and Summary of Significant Accounting
      Policies**




**Description
      of the Business**





AeroGrow
      International, Inc. ("the Company") was incorporated in the State of Nevada
      on
      March 25, 2002. The Company’s principal business is developing and marketing
      advanced indoor aeroponic garden systems designed and priced to appeal to the
      gardening, cooking and small kitchen appliance markets worldwide. The Company’s
      principal activities since its formation through March 2006 have consisted
      of
      the development of the Company’s products business planning and raising the
      capital necessary to fund these activities. In December 2005, the Company
      commenced pilot production of its AeroGardenTM system and, in March 2006, began
      shipping these systems to retail and catalogue customers. Prior to March 2006
      when the Company commenced sales of its aeroponic garden systems, the Company
      was considered a Development Stage Enterprise in accordance FAS No. 7,
      Accounting and Reporting by Development Stage Enterprises. Effective March
      2006,
      the Company ceased being considered a development stage enterprise.





On
      January 12, 2006, the Company and Wentworth I, Inc., a Delaware corporation
      (“Wentworth”), entered into an Agreement and Plan of Merger (the “Merger
      Agreement”) which was consummated on February 24, 2006. Under the Merger
      Agreement, Wentworth merged with and into the Company, and the Company was
      the
      surviving corporation (“Merger”). The Merger, for accounting and financial
      reporting purposes, has been accounted as an acquisition of Wentworth by the
      Company. As such, the Company is the accounting acquirer in the Merger, and
      the
      historical financial statements of the Company will be the financial statements
      for the Company following the Merger.





In
      two
      closings, held on February 24, 2006 and March 1, 2006, the Company completed
      the
      sale of shares of its common stock and common stock purchase warrants in a
      private placement (the “2006 Offering”). The Company sold 2,148,000 shares of
      its common stock and warrants to purchase 2,148,000 shares of its common stock.
      Each unit in the offering consisted of one share of common stock and a five-year
      warrant to purchase one share of common stock at an exercise price of $6.25
      per
      share. The price per unit was $5.00. The Company received net proceeds of
      $8,964,952 from the 2006 Offering after the commission and offering
      expenses.





**Significant
      Accounting Policies**





Use
      of
      estimates


The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States of America requires management to make
      estimates and assumptions that affect the reported amounts of assets and
      liabilities and disclosure of contingent assets and liabilities at the date
      of
      the financial statements and the reported amounts of revenues and expenses
      during the reporting period. Actual results could differ from those
      estimates.





**Net
      Income (Loss) per Share of Common Stock**


The
      Company computes net income (loss) per share of common stock in accordance
      with
      SFAS No. 128, “Earnings per Share,” and Securities and Exchange Commission Staff
      Accounting Bulletin No. 98 (“SAB 98”). SFAS No. 128 requires companies with
      complex capital structures to present basic and diluted EPS. Basic EPS is
      measured as the income or loss available to common stock shareholders divided
      by
      the weighted average shares of common stock outstanding for the period. Diluted
      EPS is similar to basic EPS but presents the dilutive effect on a per share
      basis of potential common stock (e.g., convertible securities, options and
      warrants) as if they had been converted at the beginning of the periods
      presented. Potential shares of common stock that have an anti-dilutive effect
      (i.e., those that increase income per share or decrease loss per share) are
      excluded from the calculation of diluted EPS.




Reclassifications


Certain
      prior year amounts have been reclassified to conform to current year
      presentation.




Cash
      and cash equivalents


The
      Company considers all highly liquid investments with an original maturity of
      three months or less when purchased to be cash equivalents.





Concentration
      of Credit Risk and Financial Instruments


Statement
      of Financial Accounting Standards ("SFAS") No. 105, "Disclosure of Information
      About Financial Instruments with Off-Balance Sheet Risk and Financial
      Instruments with Concentrations of Credit Risk", requires disclosure of
      significant concentrations of credit risk regardless of the degree of such
      risk.
      Financial instruments with significant credit risk include cash. The amount
      on
      deposit with a financial institution exceeded the $100,000 federally insured
      limit as of March 31, 2006, December 31, 2005 and 2004. However, management
      believes that the financial institution is financially sound and the risk of
      loss is minimal.




F-7




Financial
      instruments consist of cash and cash equivalents, subscriptions receivable
      and
      accounts payable. The carrying values of all financial instruments approximate
      their fair value. The carrying value of the convertible debentures approximate
      their fair value based on the current interest rate of 5%.





Property
      and Equipment


Property
      and equipment are stated at cost. Depreciation for financial accounting purposes
      is computed using the straight-line method over the estimated lives of the
      respective assets. Office equipment and computer hardware are depreciated over
      five years. The Company has purchased and built its own manufacturing equipment
      and tools. The equipment is being amortized over a period of seven years
      commencing July 1, 2003. Direct internal labor incurred in the manufacturing
      of
      the equipment totaled $12,714 as of December 31, 2005, and $6,240 as of December
      31, 2004, and has been capitalized. The Company does not capitalize any overhead
      or other administrative costs in conjunction with the manufacturing of
      equipment.




Property
        and equipment consist of the following as of:


**March
                31,**
            
            **December
                31,****2006**
            
            **2005**
            
            **2004**Manufacturing
                equipment and tooling
            
            $
            425,482
            
            $
            402,639
            
            $
            11,772Computer
                hardware
            
            
            88,681
            
            
            40,973
            
            
            17,575Office
                equipment
            
            
            68,651
            
            
            38,431
            
            
            9,214582,814
            
            
            482,043
            
            
            38,561Less:
                accumulated depreciation
            
            
            (102,043
            )
            
            (61,599
            )
            
            (7,840
            )Property
                and equipment, net
            
            $
            480,771
            
            $
            420,444
            
            $
            30,721





Intangible
      assets and goodwill


Intangible
      assets, to date, have consisted of the direct costs incurred for application
      fees and legal expenses associated with patents and trademarks on the Company's
      products.  The Company periodically reviews the recoverability from future
      operations using undiscounted cash flows.  To the extent carrying values
      exceed fair values; an impairment loss will be evaluated for possible
      recording.  The Company amortizes its patent and trademarks costs on a
      straight line basis over their estimated useful of 5 years.





Intangible
      assets consist of the following:





**March
                31,**
            
            **December
                31,****2006**
            
            **2005**
            
            **2004**Patents
            
            $
            15,913
            
            $
            15,503
            
            $
            -Trademarks
            
            $
            6,854
            
            
            4,904
            
            
            -22,767
            
            
            20,407
            
            
            -Less:
                accumulated amortization
            
            
            (1,071
            )
            
            -
            
            
            -Intangible
                assets, net
            
            $
            21,697
            
            $
            20,407
            
            $
            -





Inventory


Inventories
      are valued at the lower of cost, determined by the first-in, first-out method,
      or market. Included in inventory costs where the Company is the manufacturer
      are
      raw materials, labor and manufacturing overhead. The Company records the raw
      materials at delivered cost. Standard labor and manufacturing overhead costs
      are
      applied to the finished goods based on normal production capacity as prescribed
      under ARB No. 43. A majority of the Company’s products are manufactured overseas
      and are recorded at cost.





The
      Company will determine inventory obsolescence reserve based on management’s
      historical experience and establishes reserves against inventory according
      to
      the age of the product. As of March 31, 2006 and December 31, 2005, the Company
      had determined that no inventory obsolescence reserve was required.





Accounts
      Receivable and Allowance for Doubtful Accounts


The
      Company sells its products to retailers and consumers. Consumer transactions
      are
      paid primarily by credit card. Retailer sales vary by customer, however,
      generally are net 30 days. Accounts receivable is reported at net realizable
      value and net of allowance for doubtful accounts. The Company uses the allowance
      method to account for uncollectible accounts receivable. The Company's estimate
      is based on a review of the current status of trade accounts receivable. There
      was no allowance recorded at March 31, 2006.




F-8




Research
      and Development


The
      costs
      incurred to develop products to be sold or otherwise marketed are currently
      charged to expense. When a product is ready for general release, its capitalized
      costs will be amortized using the straight-line method of amortization over
      a
      reasonable period. During the three months ended March 31, 2006 and March 31,
      2005 (unaudited) and the years ended December 31, 2005 and 2004, no research
      and
      development costs have been capitalized.





Stock
      Based Compensation


In
      December 2004, the Financial Accounting Standards Board issued SFAS No. 123R,
      “Share-Based Payment.” Subsequently, the Securities and Exchange Commission
      (“SEC”) provided for a phase-in implementation process for SFAS No. 123R, which
      required adoption of the new accounting standard no later than January 1, 2006.
      SFAS No. 123R requires accounting for stock options using a fair-value-based
      method as described in such statement and recognize the resulting compensation
      expense in the Company’s financial statements. Prior to January 1, 2006, the
      Company accounted for employee stock options using the intrinsic value method
      under APB No. 25, “Accounting for Stock Issued to Employees” and related
      Interpretations, which generally results in no employee stock option expense.
      The Company adopted SFAS No. 123R on January 1, 2006 and does not plan to
      restate financial statements for prior periods. The Company plans to continue
      to
      use the Black-Scholes option valuation model in estimating the fair value of
      the
      stock option awards issued under SFAS No. 123R. The adoption of SFAS No. 123R
      will have a material impact on our results of operations. For the three months
      ended March 31, 2006, equity compensation in the form of stock options and
      grants of restricted stock totaled $3,734,525 and is included in the Statement
      of Operations in the following categories:





General
                and administrative
            
            $
            1,332,540Research
                and development
            
            
            651,417Sales
                and marketing
            
            
            1,724,940Cost
                of Sales
            
            
            25,628$
            3,734,525




Income
      taxes


The
      Company accounts for deferred income taxes in accordance with the liability
      method as required by Statement of Financial Accounting Standards No. 109
      "Accounting for Income Taxes" ("SFAS 109"). Deferred income taxes are recognized
      for the tax consequences in future years for differences between the tax basis
      of assets and liabilities and their financial reporting amounts at the end
      of
      each period, based on enacted laws and statutory rates applicable to the periods
      in which the differences are expected to affect taxable income. Any liability
      for actual taxes to taxing authorities is recorded as income tax
      liability.  The
      effect on deferred tax assets and liabilities of a change in tax rates is
      recognized in income in the period that includes the enactment date. A valuation
      allowance is established against such assets where management is unable to
      conclude more likely than not that such asset will be realized. For the three
      months ended Mach 31, 2006 and March 31, 2005 (unaudited) and for the years
      ended December 31, 2005 and 2004 the Company recognized a valuation allowance
      equal to 100% of the net deferred tax asset balance.





Comprehensive
      Income


Statement
      of Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
      requires the presentation and disclosure of all changes in equity from non-owner
      sources as "Comprehensive Income". The Company had no items of comprehensive
      income for the three months ended March 31, 2006 and March 31, 2005 (unaudited)
      and for the years ended December 31, 2005 and December 31, 2004.





Revenue
      Recognition


The
      Company recognizes revenue from product sales, net of estimated returns, when
      persuasive evidence of a sale exists: that is, a product is shipped under an
      agreement with a customer; risk of loss and title has passed to the customer;
      the fee is fixed or determinable; and collection of the resulting receivable
      is
      reasonably assured. The liability for sales returns is estimated based upon
      historical experience of return levels.





The
      Company records estimated reductions to revenue for customer and distributor
      programs and incentive offerings, including price markdowns, promotions, other
      volume-based incentives and expected returns. Future market conditions and
      product transitions may require the Company to take actions to increase customer
      incentive offerings, possibly resulting in an incremental reduction of revenue
      at the time the incentive is offered. Additionally, certain incentive programs
      require the Company to estimate based on industry experience the number of
      customers who will actually redeem the incentive. The Company also records
      estimated reductions to revenue for end user rebate programs, returns and costs
      related to warranty services.




F-9




Shipping
      and Handling Costs


Shipping
      and handling costs associated with inbound freight are recorded in cost of
      sales. Shipping and handling costs associated with freight out to customers
      are
      also included in cost of sales. Shipping and handling charges to customers
      are
      included in sales.





Segments
      Of An Enterprise And Related Information


Statement
      of Financial Accounting Standards No. 131, "Disclosures about Segments of an
      Enterprise and Related Information" ("SFAS 131") replaces the industry segment
      approach under previously issued pronouncements with the management approach.
      The management approach designates the internal organization that is used by
      management for allocating resources and assessing performance as the source
      of
      the Company's reportable segments. SFAS 131 also requires disclosures about
      products and services, geographic areas and major customers. At present, the
      Company only operates in one segment.





Debt
      Issuance Costs


Debt
      issuance costs consist of consideration paid to third parties with respect
      to a
      $3.0 million debt financing in July 2005, including cash payments for legal
      fees
      and placement agent fees. Such costs are being deferred and were to be amortized
      over the term of the related debt, which was one year. On February 24, 2006,
      $2,130,000 of the debt associated with these costs converted to 710,009 shares
      of the common stock (See Note 3, Convertible Debentures). The pro rata costs
      associated with the $2,130,000 which converted to common stock was expensed
      as
      interest as of the date converted. The amortization of the remaining debt
      issuance costs will be amortized over the remaining life of the
      debt.





Beneficial
      Conversion Feature of Debentures


In
      accordance with Emerging Issues Task Force No. 98-5, “Accounting for Convertible
      Securities with Beneficial Conversion Features or Contingently Adjustable
      Conversion Ratios”, and Emerging Issues Task Force No. 00-27, “Application of
      Issue No. 98-5 to Certain Convertible Instruments”, the Company recognizes the
      advantageous value of conversion rights attached to convertible debt. Such
      rights gives the debt holder the ability to convert debt into shares of common
      stock at a price per share that is less than the fair market value of the common
      stock on the day the loan is made to the Company. The beneficial value is
      calculated as the intrinsic value (the fair market value of the stock at the
      commitment date in excess of the conversion rate) of the beneficial conversion
      feature of the debentures and the related accrued interest and is recorded
      as a
      discount to the related debt and an addition to additional paid in capital.
      The
      discount is subsequently amortized to interest expense over the remaining
      outstanding period of the related debt using the interest method.





New
      Accounting Pronouncements


In
      June
      2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections, a
      replacement of APB No. 20, and FAS No. 3.” SFAS No. 154 provides guidance on the
      accounting for and reporting of accounting changes and error corrections. It
      establishes, unless impracticable, retrospective application as the required
      method for reporting a change in accounting principle in the absence of explicit
      transition requirements specific to the newly adopted accounting principle.
      SFAS
      No. 154 also provides guidance for determining whether retrospective application
      of a change in accounting principle is impracticable and for reporting a change
      when retrospective application is impracticable. The correction of an error
      in
      previously issued financial statements is not an accounting change. However,
      the
      reporting of an error correction involves adjustments to previously issued
      financial statements similar to those generally applicable to reporting an
      accounting change retrospectively. Therefore, the reporting of a correction
      of
      an error by restating previously issued financial statements is also addressed
      by SFAS No. 154. SFAS No. 154 is required to be adopted in fiscal years
      beginning after December 15, 2005. The Company does not believe adoption of
      SFAS
      No. 154 will have a material impact on its financial position, results of
      operations or cash flows.




In
      February 2006, the Financial Accounting Standard Board (“FASB”) issued SFAS No.
      155, “Accounting for Certain Hybrid Financial Instruments, an amendment of FASB
      Statements No. 133 and 140”. This Statement resolves issues addressed in
      Statement 133 Implementation Issue No. D1, “Application of Statement 133 to
      Beneficial Interest in Securitized Financial Assets.” This pronouncement will be
      effective on the fiscal year beginning after September 15, 2006. Currently,
      the
      Company does not have any derivative instruments or participate in any hedging
      activities, and therefore the adoption of SFAS No. 155 is not expected to have
      a
      material impact on the Company’s financial position or results of operations.




In
      March
      2006, the Financial Accounting Standard Board (“FASB”) issued SFAS No. 156,
“Accounting for Servicing of Financial Assets, an amendment of FASB Statement
      No. 140”. This Statement requires recognition of servicing a financial asset by
      entering into a servicing contract in certain situations. This pronouncement
      will be effective on the fiscal year beginning after September 15, 2006.
      Currently, the Company does not have any servicing asset or liability, and
      therefore the adoption of SFAS No. 156 is not expected to have a material impact
      on the Company’s financial position or results of operations.




F-10




**Note
      2 - Merger and Private Placement**




The
      Company entered into a Letter of Intent on January 4, 2006, and a Merger
      Agreement on January 12, 2006, with Wentworth I, Inc., a Delaware corporation.
      Wentworth was a non-operating entity without significant assets. On January
      12,
      2006, Wentworth’s Board of Directors and its shareholders approved the Merger
      Agreement and the Company’s Board of Directors approved the Merger Agreement.
      Under the Merger Agreement, Wentworth merged with and into the Company, and
      the
      Company was the surviving corporation (“Merger”). The Merger, for accounting and
      financial reporting purposes, has been accounted as an acquisition of Wentworth
      by the Company.





As
      a
      condition of the closing of the Merger Agreement, the Company was required
      to
      complete a private placement offering of its common stock shares and common
      stock warrants with gross proceeds of not less that $5 million (the “Offering”).
      Under the terms of the Merger Agreement, the Company paid a financial advisory
      fee of $350,000 to Keating Securities, Wentworth’s financial advisor in the
      transaction.





The
      closing of the Merger Agreement occurred on February 24, 2006 and closings
      of
      the Offering occurred on February 24, 2006 and March 1, 2006. The Company
      received gross proceeds of $10,740,000 in the Offering. Pursuant to Subscription
      Agreements entered into with these Investors, the Company sold 2,148,000 units
      (“Unit(s)”) in the Offering; each Unit consisted of one share of common stock
      and a five-year warrant to purchase one share of common stock at an exercise
      price of $6.25 per share. The price per Unit in the Offering was $5.00. After
      commissions, expenses and the reverse merger fee payable to Keating Securities,
      AeroGrow received net proceeds of $8,964,952 in the Offering. This offering
      required registration of the common stock issued and the shares of common stock
      underlying the warrants. Liquidated damages are payable to investors under
      the
      following circumstances: (a) if a registration statement is not filed by the
      AeroGrow on or prior to 45 days after the closing date (such an event, a “Filing
      Default”); (b) if the registration statement is not declared effective by the
      SEC on or prior to the 150th day after the Closing Date (such an event, an
      “Effectiveness Default”); and/or (c) if the Registration Statement (after its
      effectiveness date) ceases to be effective and available to investors for any
      continuous period that exceeds 30 days or for one or more periods that exceeds
      in the aggregate 60 days in any 12-month period (such an event, a “Suspension
      Default” and together with a Filing Default and an Effectiveness Default, a
“Registration Default”). In the event of a Registration Default, AeroGrow shall
      pay as Liquidated Damages, for each 30-day period of a Registration Default,
      an
      amount equal to 1% of the aggregate purchase price paid by the investors up
      to a
      maximum of 18% of the aggregate purchase price paid, provided that liquidation
      damages in respect of a Suspension Default shall not be payable in relation
      to
      any securities not owned by the investors at the time of the Suspension Default
      and, provided further, that no liquidated damages are due in respect of the
      warrants. In the event of a Filing Default or an Effectiveness Default, the
      Liquidated Damages shall be paid by the issuance of additional Common Stock
      at
      the rate of the amount of the liquidated damages due divided by $2.00. In the
      event of a Suspension Default, the liquidated damages shall be paid in cash.
      The
      Company filed the required Registration Statement within the 45 days pursuant
      to
      (a) above and the effectiveness of such registration is pending.





In
      the
      Merger each of the Wentworth’s 3,750,000 shares of outstanding common stock was
      converted into the right to receive 0.154703 shares of AeroGrow common stock
      resulting in the issuance of 580,136 shares of AeroGrow’s common stock to the
      Wentworth stockholders representing 6.4% of the issued and outstanding common
      stock of AeroGrow immediately after the Merger, the Offering and the Note
      Conversion. Immediately after the closing of the Offering, the investors owned
      2,148,000 shares of AeroGrow’s common stock representing 23.7% of the issued and
      outstanding common stock immediately after the Merger, the Offering and the
      Note
      Conversion.





**Note
      3 - Convertible Debentures**





On
      May
      27, 2005, the Company entered into an exclusive Placement Agreement with Keating
      Securities, LLC to solicit up to $3,000,000, through a private placement
      offering consisting of up to 300 Units at an offering price of $10,000 per
      Unit.
      Each Unit is comprised of a convertible debenture evidenced by a 10% unsecured
      convertible promissory note in the principal amount of $10,000, and 2,000
      five-year warrants, each warrant providing for the purchase of one share of
      the
      Company's common stock at the exercise price of $5.01 per share. Interest is
      payable quarterly beginning September 30, 2005. The principal was originally
      due
      on June 30, 2006. During the fifteen days following the completion of an
      additional financing, each note holder has the opportunity to request full
      payment of the principal amount of the notes and interest instead of converting
      their convertible notes into shares of common stock and convertible warrants.
      The Company received proceeds of $3,000,000 from this private placement less
      $419,471, in directly incurred debt issuance costs.  In
      addition to the foregoing, for each share of common stock issuable upon
      conversion, each note holder shall receive an additional five year warrant
      to
      purchase one share of the common stock at an exercise price of $6.00 per share.
      The Company had agreed to registration rights related to both the shares
      underlying the convertible debt and the related warrants associated with this
      offering. In the event the Company fails to fulfill in registration obligations
      the Company hereby agrees to pay liquidated damages under the following
      circumstances: (a) if the registration statement is not filed by the Company
      on
      or prior to 60 days after the final closing of the offering (such an event,
      a
“Filing Default”); (b) if the registration statement is not declared effective
      by the SEC on or prior to 150 days after the final Closing in the offering
      (such
      an event, an “Effectiveness Default”); or (c) if the Company does not file its
      required periodic reports under the Exchange Act when due (such an event, a
      “Reporting Default” and together with a Filing Default and an Effectiveness
      Default, a “SEC Default”). In the event of an SEC Default, the Company shall as
      liquidated damages pay, for each 30-day period of an SEC Default, an amount
      equal to 1% of the principal amount of the notes up to a maximum aggregate
      of 24
      months of SEC Defaults. The Company shall pay the Liquidated Damages in shares
      of Common Stock, priced at $2.00 per share as follows: (i) in connection with
      a
      Filing Default, on the 61st day after the initial closing, and each 30th day
      thereafter until the registration statement is filed with the SEC; (ii) in
      connection with an Effectiveness Default, on the 151st day after the initial
      closing, and each 30th day thereafter until the Registration Statement is
      declared effective by the SEC; or (iii) in connection with a Reporting Default,
      on the 31st consecutive day of after a Reporting Default has occurred, provided
      that if the Reporting Default has been cured, then such days during which a
      Reporting Default were accruing will be added to any future Reporting Default
      period for the purposes of calculating the payment of the liquidated damages
      provided for in this provision.




F-11




In
      conjunction with this $3,000,000 private placement, the Company recognized
      at
      the time of issuance $750,000 of beneficial conversion costs, representing
      the
      value of the beneficial conversion rights of the Convertible Debentures,
      determined by calculating the difference of the fair market value of the stock
      at the commitment date, or $5.00 per share, less the conversion exercise price
      of $4.00 times the number of shares to be issued upon conversion or 750,000
      shares. This value is recorded as a discount to the Convertible Debentures
      and
      an addition to additional paid in capital. This discount was to be amortized
      over the term of the Convertible Debentures which were originally due, if not
      converted, by June 30, 2006.





Also
      in
      conjunction with this $3,000,000 private placement, the Company recognized
      at
      the time of issuance $1,059,480 representing the fair value of the five year
      warrants issued with the Convertible Debentures. The value of these warrants
      was
      determined in accordance with the Black-Scholes pricing model utilizing a
      historic volatility factor of 129.67%, a risk free interest rate of 5.0% and
      an
      expected life for the warrants of five years, resulting in a value of $2.73
      per
      warrant. This value was recorded as an additional discount to the Convertible
      Debentures and an addition to additional paid in capital. This discount was
      to
      be amortized to interest expense over the term of the Convertible Debentures
      which were originally due if not converted by June 30, 2006.





Prior
      to
      the closings of the Merger and the Offering but contingent upon their successful
      completion, in February 2006, the Company entered into agreements with the
      convertible debt holders whereby debt holders converted $2,130,000 of their
      outstanding debt obligations into common stock of the Company at a conversion
      price of $3.00 per share (the “Note Conversion”) and certain other debt holders
      agreed to extend the maturity dates of $840,000 of debt obligations from June
      30, 2006 to December 31, 2006. The $2,130,000 of debt that converted immediately
      resulted in additional beneficial conversion expense of $887,500 to account
      for
      the additional fair value attributed to the additional shares of common stock
      which were issued as a result of the change in the conversion price change
      to $3
      per share from the originally issued $4 per share. The fair value of the
      foregoing additional shares was based upon a price of $5.00 per share. The
      converting note holders also were issued, pursuant to the terms of the original
      note offering, five-year warrants to purchase 426,000 shares of the Company’s
      common stock at an exercise price of $6.00 per share.





With
      respect to the $840,000 of convertible debentures that were modified by
      extension of the due date from June 30, 2006 to December 31, 2006 and
      modification of the embedded conversion feature from a conversion price of
      $4.00
      per share to a conversion price of $3.50 per share, based on the significant
      change in the terms of these $840,000 in debentures, the original debt is deemed
      extinguished and a debt extinguishment loss was recognized. This loss is based
      on the fair value of the new debt instrument in accordance with EITF 96-19,
      Debtor’s Accounting for a Modification or Exchange of Debt Instruments and EITF
      05-07, Accounting for Modifications to Conversion Options Embedded in Debt
      Instruments and Related Issues. The Company recognized a loss on extinguishment
      of debt of $132,578. This loss was determined by calculating the change in
      net
      present value of the cash flows from the convertible debt, inclusive of the
      change in the embedded conversion feature determined by comparing the fair
      value
      of the conversion option immediately following such modification with its fair
      value immediately prior to the modification. This loss was recorded as of
      February 2006 with a corresponding increase in fair value of the modified
      convertible debenture balance and is being amortized over the remaining term
      of
      these debentures to additional paid in capital.




F-12




Of
      the
      original amount of $3,000,000 in convertible debentures disclosed as outstanding
      as of December 31, 2005, $2,130,000 converted to common stock, $30,000 is due
      on
      June 30, 2006 and $840,000 is due December 31, 2006.





The
      holders of securities issued in the private placement offering and the
      convertible debt offering have registration rights under the common stock and
      for the common stock underlying the warrants held by them. Liquidated damages
      for failure to register and maintain registration for the common stock and
      for
      the common stock underlying the warrants held by investors are payable under
      the
      following circumstances: (a) if a registration statement is not filed by the
      AeroGrow on or prior to 45 days after the closing date (such an event, a “Filing
      Default”); (b) if the registration statement is not declared effective by the
      SEC on or prior to the 150th day after the Closing Date (such an event, an
      “Effectiveness Default”); and/or (c) if the Registration Statement (after its
      effectiveness date) ceases to be effective and available to Investor for any
      continuous period that exceeds 30 days or for one or more period that exceeds
      in
      the aggregate 60 days in any 12-month period (such an event, a “Suspension
      Default” and together with a Filing Default and an Effectiveness Default, a
“Registration Default”). In the event of a Registration Default, the AeroGrow
      shall pay to Investor as Liquidated Damages, for each 30-day period of a
      Registration Default, an amount equal to 1% of the aggregate purchase price
      paid
      by Investor pursuant to this Agreement up to a maximum of 18% of the aggregate
      purchase price paid by the Investor, provided that liquidation damages in
      respect of a Suspension Default shall not be payable in relation to any
      securities not owned by the Investor at the time of the Suspension Default
      and,
      provided further, that no liquidated damages are due in respect of the warrants.
      In the event of a Filing Default or an Effectiveness Default, the Liquidated
      Damages shall be paid by the issuance of additional Common Stock at the rate
      of
      the amount of the liquidated damages due divided by $2.00. In the event of
      a
      Suspension Default, the liquidated damages shall be paid in cash. In summary,
      the liquidated damages are either settled with common stock in the case of
      a
      delay in filing having declared effective a registration statement, or in cash
      but only related to actual stock issued (excluding common stock underlying
      warrants) for failure to maintain effectiveness of a registration. The Company
      filed the required Registration Statement within the 45 days pursuant to (a)
      above and the effectiveness of such registration is pending.





The
      balance presented for the Convertible Debentures, net of discounts, as of March
      31, 2006 and December 31, 2005 is as follows:





**March
                  31, 2006**
            
            **December
                  31, 2005**Convertible
                debentures outstanding
            
            $
            870,000
            
            $
            3,000,000Loss
                on modification of debt, net of $13,258 accretion to additional paid
                in
                capital as of March 31, 2006
            
            
            119,320
            
            
            -Discount
                as a result of beneficial conversion feature, net of amortization
                of
                $668,437 and $375,000 as of March 31, 2006 and December 31, 2005,
                respectively
            
            
            (81,563
            )
            
            (375,000
            )Discount
                as a result of fair value of warrants issued, net of amortization
                of
                $944,262 and $529,740 as of March 31, 2006 and December 31, 2005,
                respectively
            
            
            (115,218
            )
            
            (529,740
            )Net
                balance
            
            $
            792,539
            
            $
            2,095,260





**Note
      4 - Equity Compensation Plans**




In
      2003,
      the Company's Board of Directors approved a Stock Option Plan (the Plan)
      pursuant to which nonqualified stock options are reserved for issuance to
      eligible employees, consultants and directors of the Company. The Plan is
      administered by the Board of Directors, which has the authority to select the
      individual’s to whom awards are to be granted, the number of shares of common
      stock to be covered by each award, the vesting schedule of stock options, and
      all other terms and conditions of each award. The Company has granted
      nonqualified stock options to purchase shares of common stock to certain
      employees at exercise prices ranging from $0.05 to $5.00 per share. In August
      2005, the Plan was merged into the 2005 Equity Compensation Plan and it no
      longer separately exists. However, options issued and outstanding under this
      Plan continue to be governed by their grant agreements but are administered
      under the 2005 Equity Compensation Plan.





In
      August
      2005, the Company’s Board of Directors approved the 2005 Equity Compensation
      Plan (the 2005 Plan) pursuant to which both qualified and nonqualified stock
      options as well as restricted shares of common stock are reserved for issuance
      to eligible employees, consultants and directors of the Company. A total of
      1,505,000 shares of our common stock may be granted under the 2005
      Plan.




F-13




The
      2005
      Plan is administered by the Company’s compensation committee which has the
      authority to select the individual’s to whom awards are to be granted, the
      number of shares of common stock to be covered by each award, the vesting
      schedule of stock options, and all other terms and conditions of each award.
      The
      Company has granted qualified stock options to purchase shares of common stock
      to certain employees at exercise prices ranging from $2.50 to $5.00 per
      share.





Prior
      to
      January 1, 2006, the Company accounted for employee stock-based compensation
      under the recognition and measurement principles of Accounting Principles Board
      Opinion (“APB”) No. 25, “Accounting for Stock Issued to Employees,” and related
      Interpretations, as permitted by SFAS No. 123, “Accounting for Stock-Based
      Compensation”. Under the recognition principles of APB No. 25, compensation
      expense related to restricted stock and performance units was recognized in
      the
      financial statements. However, APB No. 25 generally did not require the
      recognition of compensation expense for stock options because the exercise
      price
      of these instruments was generally equal to the fair value of the underlying
      common stock on the date of grant, and the related number of shares granted
      were
      fixed at that point in time.




Effective
      January 1, 2006, the Company adopted the fair value recognition provisions
      of
      SFAS No. 123(R), “Share-Based Payment”. In addition to recognizing compensation
      expense related to restricted stock and performance units, SFAS No. 123(R)
      also
      requires recognition of compensation expense related to the estimated fair
      value
      of stock options. The Company adopted SFAS No. 123(R) using the
      modified-prospective-transition method. Under that transition method,
      compensation expense recognized subsequent to adoption includes: (a)
      compensation cost for all share-based payments granted prior to, but not yet
      vested as of January 1, 2006, based on the values estimated in accordance with
      the original provisions of SFAS No. 123, and (b) compensation cost for all
      share-based payments granted subsequent to January 1, 2006, based on the
      grant-date fair values estimated in accordance with the provisions of SFAS
      No.
      123(R). Consistent with the modified-prospective-transition method, the
      Company’s results of operations for prior periods have not been adjusted to
      reflect the adoption of FAS 123(R).




For
      the
      three months ended March 31, 2006, the Company granted 888,153 options to
      purchase the Company’s common stock at an exercise price of $5.00 per share
      under the 2005 Plan as follows:





Employees
            
            
            810,700Consultants
            
            
            40,000Directors
            
            
            37,453888,153





For
      the
      option grants issued during the three months ended March 31, 2006, the Company
      used the following weighted average assumptions: no
      dividend yield, expected volatility rate of 129.67%; risk
      free
      interest rate of 5%; and average lives of 4 years resulting in a value of $4.12
      per option granted. As
      a
      result of recognizing compensation expense for stock options pursuant to the
      provisions of SFAS No. 123(R), the net loss for the three months ended March
      31,
      2006, was $3,315,840 greater, than if the Company had continued to account
      for
      stock options under APB No. 25. In addition, both basic and diluted loss per
      share for the three months ended March 31, 2006 was $0.37 greater than if the
      Company had continued to account for stock options under APB No. 25.




The
      following table illustrates the effect on net income and EPS for the years
      ended
      December 31, 2005 and 2004 if the Company had applied the fair value recognition
      provisions of SFAS No. 123R:




**Three
                months ended**
              **March
                31,**
            ****
            ****
              **Year
                Ended December 31**
            ********
            ****
            **2006**
            ****
            **2005**
            ****
            **2004**(Unaudited)Net
              loss, as reported
            
            $
            (841,507
            )
            $
            (7,717,577
            )
            $
            (2,389,044
            )Net
                income (loss) per share, basic and diluted, as reported
            
            
            ($0.17
            )
            
            ($1.55
            )
            
            ($0.56
            )Deduct:
                Stock-based compensation expense, as determined under fair-value
                based
                method for all employee awards
            
            
            (48,000
            )
            
            (225,127
            )
            
            (96,294
            )Pro
                forma net loss
            
            $
            (889,507
            )
            $
            (7,942,704
            )
            $
            (2,485,338
            )Pro
                forma net income (loss) per share, basic and diluted
            
            
            ($0.18
            )
            
            ($1.60
            )
            
            ($0.58
            )






F-14





For
      purposes of calculating fair value under SFAS 123, the fair value of each option
      grant for the years ended December 31, 2005 and 2004 was estimated on the date
      of grant using the Black-Scholes option-pricing model with the following
      weighted average assumptions: no dividend yield, expected volatility rate of
      129.67%; risk
      free
      interest rate of 5%; and average lives of 5 years.





A
      summary
      of option activity in the 2005 Plan is as follows:




**Exercise price****Options**
            
            **Low**
            
            **High**
            
            **Weighted-**
                **average**Balance
                unexercised at January 1, 2004
            
            
            106,662
            
            $
            0.01
            
            $
            2.50
            
            $
            1.05Granted
            
            
            77,767
            
            $
            0.05
            
            $
            5.00
            
            $
            2.11Exercised
            
            
            -
            
            $
            0.00
            
            $
            0.00
            
            $
            0.00Forfeited
            
            
            -
            
            $
            0.00
            
            $
            0.00
            
            $
            0.00Balance
                unexercised at December 31, 2004
            
            
            184,429
            
            $
            0.01
            
            $
            5.00
            
            $
            1.47Granted
            
            
            67,070
            
            $
            0.50
            
            $
            5.00
            
            $
            4.22Exercised
            
            
            -
            
            $
            0.00
            
            $
            0.00
            
            $
            0.00Forfeited
            
            
            (18,229
            )
            $
            0.05
            
            $
            1.25
            
            
            -$0.62Balance
                unexercised at December 31, 2005
            
            
            233,270
            
            $
            0.01
            
            $
            5.00
            
            $
            2.34Granted
            
            
            888,153
            
            $
            5.00
            
            $
            5.00
            
            $
            5.00Exercised
            
            
            -
            
            $
            0.00
            
            $
            0.00
            
            $
            0.00Forfeited
            
            
            (4,154
            )
            $
            5.00
            
            $
            5.00
            
            $
            5.00Balance
                unexercised at March 31, 2006
            
            
            1,117,269
            
            $
            0.01
            
            $
            5.00
            
            $
            4.44





In
      addition to stock options granted to employees, the
      Company granted options to purchase shares of common stock to certain
      consultants in exchange for services provided. The compensation cost of these
      options, measured by the fair value of the options provided in lieu of cash,
      has
      been included in general and administrative expense. The assumptions utilized
      to
      value employee options in accordance with the disclosure requirements of SFAS
      No. 123 were also used to value the options issued to the consultants. For
      the
      three months ended March 31, 2006 and March 31, 2005 (unaudited), the Company
      has recognized consulting expense related to the non-employee options of
      $154,306 and $151,797, respectively. For the years ended December 31, 2005,
      and
      December 31, 2004, the Company has recognized consulting expense related to
      the
      non-employee options of $72,936 and $80,939, respectively.





Information
      regarding all stock options outstanding under the 2005 Plan as of March 31,
      2006
      is as follows:





**Options Outstanding**
            
            **Options Exercisable****Exercise**
                  **price range**
            
            **Options**
            
            **Weighted-**
                      **average**
                      **Exercise**
                      **Price**
            
            **Weighted-average**
                      **Remaining**
                      **Contractual**
                      **Life (years)**
            
            **Options**Over
                $0.00 to $0.50
            
            
            30,618
            
            $
            0.08
            
            
            2.92
            
            
            30,618Over
                $0.50 to $2.50
            
            
            137,259
            
            $
            1.57
            
            
            2.72
            
            
            137,259$5.00
            
            
            949,392
            
            $
            5.00
            
            
            4.94
            
            
            866,0551,117,269
            
            $
            4.44
            
            
            4.38
            
            
            1,033,932





In
      addition to option grants, during the year ended December 31, 2005 and the
      three
      months ended March 31, 2006 the Company granted and issued under the 2005 Equity
      Compensation Plan a total of 83,737 and 157,192 shares, respectively, of common
      stock at a $5.00 per share to directors, consultants and employees for services
      provided. The fair value of these shares was determined based upon sales of
      other stock transactions in the private market just prior to the services being
      provided as follows:




**Shares
                Granted****Three
                Months ended March 31, 2006**
            
            **Year
                ended December 31, 2005**Employees
            
            
            34,000
            
            
            30,431Consultants
            
            
            39,737
            
            
            126,761Directors
            
            
            10,000
            
            
            -83,737
            
            
            157,192






F-15




Accordingly,
      a total of 351,671 shares are available for future grants under the 2005 Plan.





**Note
      5 - Income Taxes**




The
      Company did not record any provision for federal and state income taxes for
      the
      three months ended March 31, 2006 and March 31, 2005 and for the years ended
      December 31, 2005, and December 31, 2004. Variations from the federal statutory
      rate are as follows:





**Three
                  Months Ended**
                **March
                  31,**
            
            **Years
                  Ended**
                **December
                  31,****2006**
            
            **2005**
            
            **2004**Expected
                income tax benefit atthe
                statutory rate of 34%
            
            $
            2,179,733
            
            $
            1,559,071
            
            $
            794,910Less
                valuation allowance
            
            
            (2,179,733
            )
            
            (1,559,071
            )
            
            (794,910
            )Net
                tax expense
            
            $
            -
            
            $
            -
            
            $
            -




Deferred
      income tax assets result from cumulative federal and state operating loss
      carryforwards in the amounts of $7,758,420, and $3,777,190 at December 31,
      2005
      and 2004, respectively. For the three months period ended March 31, 2006, a
      shortened tax period resulting from the change of the Company’s fiscal year, the
      Company incurred additional federal and state operating loss carryforwards
      of
      $2,650,857. The loss carry forwards will begin to expire in 2022. At March
      31,
      2006, December 31, 2005 and 2004, the Company has research and development
      tax
      credit carryforwards of $118,285, $118,285 and $83,942, respectively, which
      begin to expire in 2022.




Net
      deferred tax assets consist of the following as of:





**March
                31,**
            
            **December
                31,****2006**
            
            **2005**
            
            **2004**Tax
                effect of net operating loss carryforwards
            
            $
            4,021,104
            
            $
            2,997,078
            
            $
            1,459,129Tax
                effect of employee equity compensation
            
            
            1,157,638
            
            
            -
            
            
            -Tax
                effect of other temporary differences
            
            
            (22,348
            )
            
            (20,417
            )
            
            (7,196
            )Research
                and development tax credit
            
            
            118,285
            
            
            118,285
            
            
            83,942Less
                valuation allowance
            
            
            (5,274,679
            )
            
            (3,094,946
            )
            
            (1,535,875
            )Net
                deferred tax assets
            
            $
            -
            
            $
            -
            
            $
            -







In
      assessing the realizability of deferred tax assets, the Company considers
      whether it is more likely than not that some or the entire deferred tax asset
      will not be realized. The Company believes that sufficient uncertainty exists
      regarding the realizability of the deferred tax assets such that valuation
      allowances equal to the entire balance of the deferred tax assets are necessary.
      In accordance with Sections 382 and 383 of the Internal Revenue Code, a change
      in ownership of greater than 50% of a corporation within a three-year period
      will place an annual limitation on our ability to utilize our existing tax
      loss
      and tax credit carryforwards.




**Note
      6 - Related Party Transactions**





During
      the years ended December 31, 2005 and December 31, 2004, the Company retained
      one member of their board as a consultant who was granted shares of common
      stock
      and fees for services provided totaling $286,167 and $46,723, respectively.
      During the years ended December 31, 2005 and December 31, 2004, the Company
      paid
      legal fees to a director in the amount of $37,438 and $24,000, respectively,
      and
      issued shares of common stock for services provided valued at $10,000 and
      $83,250, respectively. During the three months ended March 31, 2006 and March
      31, 2005 (unaudited), the Company paid $44,472 and $10,000, respectively, to
      this same director for legal services. The Company also issued shares of common
      stock to its Board of Directors for services provided valued at $30,000 for
      both
      of the years ended December 31, 2005 and December 31, 2004. On March 28, 2006,
      the Company granted to each of its four outside directors 2,500 shares of the
      company’s 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 the Company’s common stock at an exercise price of
      $5.00 per share for services for the fiscal year ending March 31, 2007. Also,
      during the three months ended March 31, 2006, the Company paid to a director
      $12,500 in consulting fees for his assistance in the Company’s fund raising
      activities in Europe.




F-16




The
      Company leased their office space during the year ended December 31, 2005 from
      a
      landlord who is a minority shareholder. The Company paid rent to the shareholder
      in the amount of $30,408 and issued shares of common stock for rent provided
      valued at $76,036. Thru July 2005, the Company leased certain laboratory space
      from an employee. Rent expense paid to the employee totaled $7,574 and $5,200
      for the years ended December 31, 2005 and 2004, respectively.





The
      Company was renting office furniture, office equipment, and computers from
      its
      former parent, Mentor Capital Consultants, Inc., at the rate of $2,500 per
      month. For the year ended December 31, 2004, the Company paid $30,000 to rent
      the equipment. For the first five months of 2005, the Company continued to
      rent
      equipment from its parent for a total of $12,500. On May 31, 2005, the Company
      acquired these fixed assets for their net book value of $33,901.





**Note
      7 - Operating Leases**





The
      Company leases certain facilities and office space under month to month
      operating lease agreements. Rent expense for the years ended December 31, 2005,
      and December 31, 2004, was approximately $106,444 and $91,741, respectively.
      This includes the fair value of 15,208 shares and 15,531 shares of common stock
      granted to the landlord for the years ended December 31, 2005 and December
      31,
      2004, respectively. For the three months ended March 31, 2006 and March 31,
      2005
      (unaudited), rent expense was $33,458 and $28,560, respectively.





One
      of
      the Company’s operating leases ended on December 31, 2005. The Company
      renegotiated a new operating lease and is on an annual basis at a rent of $1,000
      per month through December 31, 2006. In addition, the Company is on a
      month-to-month basis with the same landlord for additional space beginning
      in
      November at the rate of $700 per month.





The
      Company leased certain laboratory space under a month-to-month lease beginning
      November 2005 at the rate of $600 per month.





The
      Company leased certain production space under a month-to-month lease beginning
      in August 2005, at the rate of $1,315 per month.





**Note
      8 - Shareholders' Equity**





During
      the years ended December 31, 2004 and 2003, the Company continued a private
      placement offering initiated in 2002, and issued shares of common stock to
      new
      investors at $0.50 per share for 90,000 shares, and at $1.25 per share for
      880,800 shares. On August 1, 2003, the Company initiated a new private placement
      offering, and issued shares of common stock to new investors at $1.665 per
      share
      for 175,763 shares. During the year ended December 31, 2004, an additional
      360,458 shares were issued at $1.665 per share. In conjunction with the
      continuing and new private placement offerings, certain investors who purchased
      minimum amounts of shares of common stock were provided with additional bonus
      shares of common stock. If investors contributed a minimum of $15,000, to the
      Company, they were awarded 10% bonus common stock award. In total, 27,700 and
      81,888 shares of common stock were issued as bonus shares for the years ended
      December 31, 2004 and December 31, 2003, respectively.





The
      Company also issued shares of common stock to its Board of Directors for
      services provided valued at $30,000 for the years ended December 31,
      2004.




As
      of
      December 31, 2004, in conjunction with the private placement offerings, certain
      investors who purchased a minimum of $25,000, of shares of common stock were
      provided warrants to purchase additional shares of common stock. One hundred
      seventy seven thousand (177,000) warrants were issued at $2.50 per share. The
      warrants are exercisable over a period not to exceed two years commencing
      immediately at the time of issuance.




During
      the year ended December 31, 2004, the Company issued a total of 144,882 shares
      of common stock to landlords and consultants. Four thousand (4,000) shares
      were
      issued at $0.05, 5,000 shares at $1.25, 38,332 shares at $1.665, and 97,550
      shares at $5.00 for legal, information technology, marketing, administrative,
      and research and development services provided. These shares were priced based
      on the fair value at which shares were being issued, based on private placement
      offerings, at the time services were rendered.




F-17




On
      July
      1, 2004, the Company was approved for an initial public offering in the State
      of
      Colorado, and issued shares of common stock to new investors at $5.00 per share
      for 498,596 shares. In conjunction with the Colorado public offering, certain
      investors who purchased minimum amounts of shares of common stock were provided
      with additional bonus shares of common stock. If investors contributed a minimum
      of $15,000, to the Company, they were awarded 10% bonus stock award. In total,
      45,633 shares of common stock were issued as bonus shares for the year ended
      December 31, 2004. Also, in conjunction with the public offering, certain
      investors who purchased a minimum of $25,000 of shares of common stock were
      provided two warrants to purchase additional shares of common stock. One warrant
      is exercisable to purchase a share of common stock at the price of $10.00 per
      share and the other warrant is exercisable at $15.00 per share. In total,
      390,880 warrants were issued at the exercise price of $10.00, and the same
      total
      was issued at the exercise price of $15.00 in conjunction with the public
      offering for year ended December 31, 2004. None of the warrants were exercised
      during 2005 and 2004.





As
      of
      December 31, 2004, the Company has recorded subscriptions receivable of $41,000,
      for shares sold. This amount was subsequently collected in cash.




On
      January 31, 2005, the State of Nevada approved the Board of Director's amendment
      to the articles of incorporation which increased the authorized shares of the
      Company's common stock from 40,000,000 shares to 75,000,000 shares. On May
      31,
      2005, the Company's Board of Directors approved a one-for-five reverse stock
      split of all outstanding shares. The historical share and per share amounts
      included in the accompanying financial statement have been retroactively
      adjusted to reflect the split.




On
      September 2, 2005, the Board approved the modification of 504,098 warrants
      whereby the expiration dates of the aforementioned warrants was extended from
      various dates throughout 2005, through and including December 31, 2005. The
      Company recorded the effects of the modification of these terms of the warrants
      in accordance with variable accounting. This modification resulted in additional
      expense of $1,446,200 being recorded in the year ending December 31, 2005.
      The
      Company accounted for this modification in warrant terms in accordance with
      variable accounting in that the extension of the expiration dates of the
      outstanding warrants results in a new measurement of compensation cost as if
      the
      award were newly granted. Therefore, in applying variable accounting, the
      Company revalued the warrants as if they were granted on September 2, 2005
      and
      recognized as compensation expense the difference between the fair value
      determined on September 2, 2005 and the fair value of the warrants determined
      when originally issued in 2002 and 2003. The warrants, when originally issued,
      were determined to have a fair value of $198,844. The warrants, when re-valued
      on September 2, 2005, were determined to have a fair value of $1,645,044, or
      a
      difference of $1,446,200. This modification resulted in additional expense
      of
      $1,446,200 being recorded in the year ending December 31, 2005. The
      Black-Scholes valuation model was utilized to value the warrants in accordance
      with fair value as of both the original warrant issuance date and September
      2,
      2005.




During
      the year ended December 31, 2005, 1,600 shares of common stock were sold at
      $5.00 per share to an employee per an employment agreement. In addition, 38,000
      warrants were exercised at $1.25 per share and 64,000 warrants were exercised
      at
      $2.50 per share. As of December 31, 2005, the Company has recorded subscriptions
      receivable of $840,000 representing the exercises of 326,000 warrants at $2.50
      per share and 5,000 warrants at $5.00 per share. This amount has subsequently
      been collected in cash in January 2006.




Also
      during 2005, the Company issued a total of 104,040 shares of common stock at
      a
      $5.00 per share value to vendors (17,100 shares), landlords (15,208 shares),
      consultants (62,705 shares) and employees (9,027 shares) for various services
      provided. The fair value of these shares was determined based upon sales of
      other stock transactions in the private market just prior to the services being
      provided.




During
      the three months ended March 31, 2006, the Company issued 2,148,000 shares
      of
      common stock valued at $5.00 per share and warrants in conjunction with a
      private placement (Note 2 - Merger and Private Placement).




During
      the three months ended March 31, 2006, the Company issued 710,009 shares of
      common stock valued at $5.00 per share and warrants in exchange for conversion
      of convertible debentures (Note 3 - Convertible Debentures).




During
      the three months ended March 31, 2006, the Company issued 580,136 shares of
      common stock in conjunction with a merger with Wentworth I (Note 2 - Merger
      and
      Private Placement).




F-18




The
      Company's Articles of Incorporation authorize the issuance of 20,000,000 shares
      of preferred stock with $.001 par value. The preferred stock may be issued
      from
      time to time with such designation, rights, preferences and limitations as
      the
      Board of Directors may determine by resolution. As of March 31, 2006, December
      31, 2005 and 2004, no shares of preferred stock have been issued.




A
      summary
      of the Company’s warrant activity for the period from Inception through December
      31, 2005 is presented below:




**Warrants**
                **Outstanding**
            
            **Weighted**
                  **Average**
                  **Exercise
                    Price****Outstanding,
                January 1, 2004**
            
            
            **404,098**
            
            **$**
            **2.53**Granted
            
            
            958,760
            
            $
            10.65Exercised
            
            
            (12,000
            )
            $
            1.25**Outstanding,
                December 31, 2004**
            
            
            **1,350,858**
            
            **$**
            **8.31**Granted
            
            
            660,000
            
            $
            5.10Exercised
            
            
            (433,000
            )
            $
            1.25Expired
            
            
            (25,000
            )
            $
            5.00**Outstanding,
                December 31, 2005**
            
            
            **1,552,858**
            
            **$**
            **8.64**Granted
            
            
            2,962,800
            
            $
            6.20**Outstanding,
                March 31, 2006**
            
            
            **4,515,868**
            
            **$**
            **7.04**







As
      of
      March 31, 2006, the Company had the following outstanding warrants to purchase
      its common stock:


**Exercise
                    Price**
              
              **Warrants
                    Outstanding**$
              2.50
              
              
              111,098$
              5.00
              
              
              600,000$
              6.00
              
              
              660,000$
              6.25
              
              
              2,362,800$
              10.00
              
              
              390,880$
              15.00
              
              
              390,8804,515,658




**Note
      9 - Mandatorily Redeemable Common Stock**




On
      September 30, 2005, the Company entered into a manufacturing agreement with
      Source Plus, Inc. (“Source Plus”) and Mingkeda Industries Co. Ltd. (“Mingkeda”).
      Source Plus advanced monies to Mingkeda for tooling and molds to build the
      Company’s products. To reimburse Source Plus for its advances to Mingkeda, the
      Company issued 62,000 shares of common stock to Source Plus in October 2005
      with
      an estimated market value of $5.00 per share. The Company recorded a $310,000
      asset for tooling which is being depreciated over a period of three years to
      reflect the estimated useful life of the tooling. If an offering or other
      transaction to enable Source Plus an ability to register their issued shares
      is
      not completed on or before June 1, 2006, Source Plus may require the Company
      to
      repay $310,000 in exchange for its return of the shares of common stock. In
      accordance with SFAS No. 150, the Company has recorded the shares issued as
      a
      liability until such time as the registration contingency can be
      removed.





The
      tooling is located in China and the Company holds title to the tooling equipment
      and is able to move the tooling to another manufacturer, if required, in future
      periods.





Further,
      in return for a future $0.50 per unit price concession from Mingkeda for
      products the Company will purchase, the Company issued 10,000 shares of common
      stock to Mingkeda in October 2005 with an estimated market value of $5.00 per
      share. The Company also agreed to pay to Source Plus a commission of 2% of
      the
      total purchases of the product with such payments to be made using the same
      terms as payments to Mingkeda.





F-19


**INDEX
      TO EXHIBITS**




3.1
            Amended
                and Restated Articles of Incorporation of the
                Registrant*




3.2
            Certificate
                of Amendment to Articles of Incorporation, dated February 24, 2006
                (Change
                of Name)*




3.3
            Amended
                Bylaws of the Registrant**++**




3.4
            Code
                of Ethics **




4.1
            Form
                of Certificate of Common Stock of
                Registrant*




4.2
            Form
                of 2005 Warrant*




4.3
            Form
                of 2006 Warrant*




4.4
            Form
                of 10% Convertible Note*




4.5
            Form
                of $10.00 Redeemable Warrant*




4.6
            Form
                of $15.00 Redeemable Warrant*




4.7
            Form
                of Conversion Warrant*




4.8
            Form
                of 2005 Placement Agent Warrant *




4.9
            Form
                of 2006 Placement Agent Warrant*




4.10
            Form
                of $2.50 Warrant*




4.11
            Form
                of $5.00 Warrant*




10.1
            Lease
                Agreement between AeroGrow and United Professional Management, Inc.
                dated
                October 1, 2003, as amended by a Lease Amendment dated April 1, 2005,
                and a Lease Amendment dated October 7,
                2003*




10.2
            Amended
                2003 Stock Option Plan*




10.3
            Form
                of Stock Option Agreement relating to the 2003 Stock Option
                Plan*




10.4
            2005
                Equity Compensation Plan*




10.5
            Form
                of Stock Option Agreement relating to the 2005 Equity Compensation
                Plan*




10.6
            Form
                of Restricted Stock Grant Agreement relating to the 2005 Equity
                Compensation Plan*




10.7
            Form
                of Lock-up Agreement for certain
                investors*






1




10.8
            Placement
                Agent Agreement between Keating Securities, LLC and AeroGrow dated
                May 27,
                2005 with respect to the Convertible Note
                offering*




10.9
            Placement
                Agent Agreement between Keating Securities, LLC and AeroGrow dated
                February 6, 2006 with respect to the 2006
                Offering*




10.10
            Business
                Lease dated December 8, 2004, between AeroGrow and Investors Independent
                Trust Company*




10.11
            Consulting
                Arrangement between Randy Seffren and AeroGrow dated October 13,
                2004*




10.12
            Contract
                between AeroGrow and Innotrac Corporation dated October 7,
                2005*




10.13
            Letter
                of Agreement dated September 30, 2005, between AeroGrow and Kenneth
                Dubach*




10.14
            Consulting
                Agreement between AeroGrow and Jerry Gutterman dated May 16,
                2005*




10.15
            Manufacturing
                Agreement among Mingkeda Industries Co., LTD., Source Plus, Inc.
                and
                AeroGrow dated September 30, 2005*




10.16
            Form
                of Subscription Agreement relating to the issuance of our convertible
                notes and redeemable 2005 warrants*




10.17
            Form
                of Assignment of Application Agreement between AeroGrow and our
                executives, employees and
                consultants*




10.18
            Form
                of Non-disclosure Agreement between AeroGrow and our executives,
                employees
                and consultants*




10.19
            Form
                of Statement of Confidentiality, Non-Disclosure and Non-Compete Agreement
                between AeroGrow and our employees, consultants and other third-party
                contractors*




10.20
            Letter
                agreement dated July 15, 2005 between AeroGrow and Patrice Tanaka
&
                Company*




10.21
            Production
                Agreement dated October 3, 2005, between AeroGrow and Respond2,
                Inc.*




10.22
            Form
                of Subscription Agreement relating to offering consummated February
                24,
                2006 for the sale of common stock and
                warrants*




10.23
            Employment
                Agreement between AeroGrow and W. Michael Bissonnette*




10.24
            Employment
                Agreement between AeroGrow and Mitchell Rubin*




10.25
            Employment
                Agreement between AeroGrow and Jeff Brainard**+**




*
      Previously filed with Form 8-K filed March 2, 2006


+
      Previously filed with Form 8-K/A filed May 16, 2006


++
      Previously filed with Form 8K filed April 3, 2006


**
      Filed
      herewith





2