**SECURITIES
        AND EXCHANGE COMMISSION**
 WASHINGTON,
        D.C. 20549
 
 
 **FORM
        10-QSB**
 
 **x** **QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF**
 **THE
        SECURITIES EXCHANGE ACT OF 1934**
 
 **FOR
        THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2006**
 or
 **o** **TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
        SECURITIES**
 **EXCHANGE
        ACT OF 1934**
 **Commission
        File Number 000-50888**
 
 **AEROGROW
        INTERNATIONAL, INC.**
 (Exact
        name of small business issuer as specified in its charter)
  **NEVADA**
                      
                      **46-0510685**(State
                          or other jurisdiction of
                        incorporation
                          or organization)
                      
                      (I.R.S.
                          Employer
                        Identification
                          Number)
   **6075
                          Longbow Drive, Suite 200 - Boulder, Colorado**
                      
                      **80301**(Address
                          of principal executive offices)
                      
                      (Zip
                          code)
 **(303)
        444-7755**
 (Issuer's
        telephone number)
 
 
 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 issuer was required to file such reports), and (2) has been subject
        to
        such filing requirements for the past 90 days.
 Yes x No o
 
 Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Exchange Act).
 Yes o No x
 
 **Number
        of shares of issuer's common stock outstanding as of November 20, 2006:
        942,143**
 
 Transitional
        Small Business Disclosure Format (check one). Yes o No x
 
 Documents
        incorporated by reference: None.
  -
            1 -
  **AeroGrow
          International, Inc.**
 **TABLE
          OF CONTENTS**
 **FORM
          10-QSB REPORT**
 **September
          30, 2006**
  **PART
                    I - FINANCIAL INFORMATION**
                **Page****Item
                    1. Interim Financial Statements**Condensed
                    Balance Sheets as of September 30, 2006 (Unaudited)
                  and March 31, 2006
                1Condensed
                    Statements of Operations for the Three and Six
                  Months Ended September 30, 2006 and September 30, 2005
                    (Unaudited)
                2Condensed
                    Statement of Stockholders’ Equity for the Six
                  Months Ended September 30, 2006 (Unaudited)
                3Condensed
                    Statements of Cash Flows for the Six
                  Months Ended September 30, 2006 and September 30, 2005
                    (Unaudited)
                4Notes
                    to the Condensed Financial Statements
                5**Item
                    2. Management's Discussion and Analysis****of
                    Financial Condition and Plan of Operation**
                17**Item
                    3. Controls and Procedures**
                22**PART
                    II - OTHER INFORMATION**Item
                    1. Legal Proceedings
                24Item
                    2. Unregistered Sale of Equity Securities
                24Item
                    3. Defaults Upon Senior Securities
                24Item
                    4. Submission of Matters to a Vote of Security Holders
                24Item
                    5. Other Information
                24Item
                    6. Exhibits
                24Signatures
                26
 
  -
              2 -
  **PART
          I - FINANCIAL INFORMATION**
 **Item
          1. Interim Financial Statements (Unaudited)**
 **AEROGROW
          INTERNATIONAL, INC.**
 **CONDENSED
          BALANCE SHEETS**
 **September
                    30,**
                
                **March
                    31,****2006**
                
                **2006****ASSETS**
                
                (Unaudited)Current
                    assetsCash
                
                $
                3,374,710
                
                $
                8,852,548Restricted
                    cash
                
                
                18,389
                
                
                -Accounts
                    receivable, net of allowance for doubtful accountsof
                    $6,684 and $0 at September 30, 2006 and March 31, 2006,
                    respectively
                
                
                445,713
                
                
                43,156Inventory
                
                
                1,392,717
                
                
                192,946Prepaid
                    expenses and other
                
                
                243,605
                
                
                199,590Total
                    current assets
                
                
                5,475,134
                
                
                9,288,240Property
                    and equipment, net of accumulated depreciation ofof
                    $186,185 and $102,043 at September 30, 2006 andMarch
                    31, 2006, respectively
                
                
                479,534
                
                
                480,771Other
                    assetsDebt
                    issuance costs, net of $404,265 and $373,853 accumulatedamortization
                    at September 30, 2006 and March 31, 2006, respectively
                
                
                15,206
                
                
                45,618Intangible
                    assets, net of $3,546 and $1,071 of accumulatedamortization
                    at September 30, 2006 and March 31, 2006, respectively
                
                
                23,546
                
                
                21,696Deposits
                
                
                36,853
                
                
                4,68475,605
                
                
                71,998**Total
                    Assets**
                
                $
                6,030,273
                
                $
                9,841,009**LIABILITIES
                    AND STOCKHOLDERS' EQUITY**Current
                    liabilitiesAccounts
                    payable
                
                $
                733,591
                
                $
                487,474Accrued
                    expenses
                
                
                261,216
                
                
                334,524Convertible
                    debentures, net of discounts of$87,594
                    and $196,781 at September 30, 2006 andMarch
                    31, 2006, respectively
                
                
                814,179
                
                
                792,539Mandatorily
                    redeemable common stock
                
                
                310,000
                
                
                310,000Total
                    current liabilities
                
                
                2,118,986
                
                
                1,924,537Stockholders'
                    equityPreferred
                    stock, $.001 par value, 20,000,000 shares authorized,none
                    issued or outstanding
                
                
                -
                
                
                -Common
                    stock, $.001 par value, 75,000,000 shares authorized,9,359,343
                    and 9,102,622 shares issued and outstandingat
                    September 30, 2006 and March 31, 2006, respectively
                
                
                9,359
                
                
                9,103Additional
                    paid-in capital
                
                
                28,839,295
                
                
                27,313,081Accumulated
                    (deficit)
                
                
                (24,937,367
                )
                
                (19,405,712
                )Total
                    Stockholders' Equity
                
                
                3,911,287
                
                
                7,916,472**Total
                    Liabilities and Stockholders' Equity**
                
                $
                6,030,273
                
                $
                9,841,009


See
      accompanying notes to the condensed financial statements





-
          1 -




**AEROGROW
      INTERNATIONAL, INC.**


**CONDENSED
      STATEMENTS OF OPERATIONS**


**(Unaudited)**







Three
                  months ended
                September
                  30,
              
              Six
                  months ended
                September
                  30,2006
              
              2005
              
              2006
              
              2005RevenueProduct
                  sales
              
              $
              1,030,316
              
              $
              -
              
              $
              1,852,254
              
              $
              -Operating
                  expensesCost
                  of revenue
              
              
              827,165
              
              
              -
              
              
              1,502,860
              
              
              -Research
                  and development
              
              
              409,453
              
              
              380,352
              
              
              844,384
              
              
              688,565Sales
                  and marketing
              
              
              1,359,797
              
              
              257,307
              
              
              2,320,271
              
              
              351,800General
                  and administrative
              
              
              773,362
              
              
              774,631
              
              
              1,629,402
              
              
              1,432,585Total
                  operating expenses
              
              
              3,369,777
              
              
              1,412,290
              
              
              6,296,917
              
              
              2,472,950Loss
                  from operations
              
              
              (2,339,461
              )
              
              (1,412,290
              )
              
              (4,444,663
              )
              
              (2,472,950
              )Other
                  (income) expense, netInterest
                  (income)
              
              
              (60,749
              )
              
              (13,191
              )
              
              (144,862
              )
              
              (19,629
              )Interest
                  expense
              
              
              101,804
              
              
              1,698,000
              
              
              203,604
              
              
              1,698,000Loss
                  on modification of debt
              
              
              -
              
              
              187,500
              
              
              -
              
              
              187,500Registration
                  rights penalty
              
              
              1,028,250
              
              
              -
              
              
              1,028,250
              
              
              -Total
                  other (income) expense, net
              
              
              1,069,305
              
              
              1,872,309
              
              
              1,086,992
              
              
              1,865,871Net
                  loss
              
              $
              (3,408,766
              )
              $
              (3,284,599
              )
              $
              (5,531,655
              )
              $
              (4,338,821
              )Net
                  loss per share, basic and diluted
              
              $
              (0.37
              )
              $
              (0.67
              )
              $
              (0.60
              )
              $
              (0.88
              )Weighted
                  average number of common shares outstanding, basic and
                  diluted
              
              
              9,286,678
              
              
              4,933,343
              
              
              9,202,219
              
              
              4,945,826











See
      accompanying notes to the condensed financial statements




-
          2 -





**AEROGROW
      INTERNATIONAL, INC.**


**CONDENSED
      STATEMENTS OF STOCKHOLDERS’ EQUITY**


**(Unaudited)**











AdditionalCommon
                Stock
            
            Paid-in
            
            AccumulatedShares
            
            Amount
            
            Capital
            
            (Deficit)
            
            Total**Balances,
                April 1, 2006**
            
            
            9,102,622
            
            $
            9,103
            
            $
            27,313,081
            
            $
            (19,405,712
            )
            $
            7,916,472Exercise
                of common stock warrants at $2.50
            
            
            10,000
            
            
            10
            
            
            24,990
            
            
            -
            
            
            25,000Exercise
                of common stock warrants at $6.25
            
            
            5,000
            
            
            5
            
            
            31,245
            
            
            -
            
            
            31,250Common
                stock issued under equity compensation plans to employees
            
            
            6,000
            
            
            6
            
            
            29,994
            
            
            -
            
            
            30,000Common
                stock issued under equity compensation plans to
                consultants
            
            
            19,400
            
            
            19
            
            
            96,981
            
            
            -
            
            
            97,000Common
                stock issued under equity compensation plans to directors
            
            
            6,000
            
            
            6
            
            
            29,994
            
            
            -
            
            
            30,000Common
                stock issued to landlord as rent
            
            
            7,604
            
            
            8
            
            
            38,012
            
            
            -
            
            
            38,020Repurchase
                of common stock
            
            
            (3,000
            )
            
            (3
            )
            
            (14,997
            )
            
            
            
            
            (15,000
            )Stock
                options issued under equity compensation plans
            
            
            -
            
            
            -
            
            
            182,404
            
            
            -
            
            
            182,404Accretion
                of loss on modification of debt
            
            
            -
            
            
            -
            
            
            79,546
            
            
            -
            
            
            79,546Common
                stock to be issued for registration rights penalty
            
            
            205,650
            
            
            205
            
            
            1,028,045
            
            
            -
            
            
            1,028,250Adjustment
                for error in prior period warrant exercise
            
            
            67
            
            
            -
            
            
            -
            
            
            -
            
            
            -Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            (5,531,655
            )
            
            (5,531,655
            )**Balances,
                September 30, 2006**
            
            
            9,359,343
            
            
            9,359
            
            $
            28,839,295
            
            $
            (24,937,367
            )
            $
            3,911,287




See
      accompanying notes to the condensed financial statements


-
          3 -




**AEROGROW
      INTERNATIONAL INC.**


**CONDENSED
      STATEMENTS OF CASH FLOWS**


**(Unaudited)**


**Six
                months ended****September
                30,****2006**
            
            **2005****Cash
                flows from operating activities:**Net loss
            
            $
            (5,531,655
            )
            $
            (4,338,821
            )Adjustments to reconcile net (loss) to cash provided(used) by operations:Registration
                rights penalty
            
            
            1,028,250
            
            
            -Issuance
                of common stock and options underequity
                compensation plans
            
            
            339,404
            
            
            234,282Issuance
                of common stock to landlord for rent
            
            
            38,020
            
            
            -Depreciation
                and amortization expense
            
            
            86,617
            
            
            14,937Allowance
                for bad debt
            
            
            6,684
            
            
            -Amortization
                of debt issuance costs
            
            
            30,412
            
            
            -Accretion
                of convertible debentures
            
            
            54,375
            
            
            187,500Interest
                expense associated with warrants issued with convertible
                debentures
            
            
            76,812
            
            
            221,250Effects
                of variable accounting for modification of warrant terms
            
            
            -
            
            
            1,335,431Change in assets and liabilities:(Increase)
                in accounts receivable
            
            
            (409,241
            )
            
            -(Increase)
                in inventory
            
            
            (1,199,771
            )
            
            (36,624
            )(Increase)
                decrease in other current assets
            
            
            (44,015
            )
            
            2,750(Increase)
                decrease in deposits
            
            
            (32,169
            )
            
            600Increase
                in accounts payable
            
            
            246,116
            
            
            33,815(Decrease)
                increase in accrued expenses
            
            
            (73,308
            )
            
            604,115Net
                cash used by operating activities
            
            
            (5,383,469
            )
            
            (1,740,765
            )**Cash
                flows from investing activities:**Decrease
                (increase) in restricted cash
            
            
            (18,389
            )
            
            -Purchases
                of equipment
            
            
            (82,905
            )
            
            (101,388
            )Patent
                expenses
            
            
            (4,325
            )
            
            -Net
                cash used by investing activities
            
            
            (105,619
            )
            
            (101,388
            )**Cash
                flows from financing activities:**Stock
                repurchase
            
            
            (15,000
            )
            
            -Increase
                in due to parent company
            
            
            -
            
            
            28,500Proceeds
                from issuance of common stock, net
            
            
            -
            
            
            93,000Proceeds
                from exercise of warrants
            
            
            56,250
            
            
            -Repayments
                of convertible debentures
            
            
            (30,000
            )
            
            -Proceeds
                from issuance of convertible debentures
            
            
            -
            
            
            3,000,000Issuance
                costs associated with convertible debentures
            
            
            -
            
            
            (314,604
            )Net
                cash provided by financing activities
            
            
            11,250
            
            
            2,806,896Net
                increase (decrease) in cash
            
            
            (5,477,838
            )
            
            964,743Cash,
                beginning of period
            
            
            8,852,548
            
            
            1,265,811Cash,
                end of period
            
            $
            3,374,710
            
            $
            2,230,554**Supplemental
                disclosure of non-cash investing and financing
                activities:**Interest
                paid
            
            $
            42,005
            
            $
            -Income
                taxes paid
            
            $
            -
            
            $
            -Accretion
                of debt modification
            
            $
            76,812
            
            $
            -






See
      accompanying notes to the condensed financial statements


-
          4 -


.**AEROGROW INTERNATIONAL INC.**


**NOTES
      TO THE CONDENSED FINANCIAL STATEMENTS**


**(Unaudited)**





**1.**
            **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 before the merger will continue
      to 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 warrant
      to purchase one share of common stock expiring February 2011 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.





**2.**
            **Basis
                of Presentation**





Interim
      Financial Information


The
      unaudited interim financial statements of the Company included herein have
      been
      prepared in accordance with the instructions for Form 10-QSB under the
      Securities Exchange Act of 1934, as amended, and Item 310 of Regulation S-B
      under the Securities Act of 1933, as amended. Certain information and footnote
      disclosures normally included in financial statements prepared in accordance
      with generally accepted accounting principles have been condensed or omitted
      pursuant to such rules and regulations relating to interim financial
      statements.





In
      the
      opinion of management, the accompanying unaudited interim financial statements
      reflect all adjustments, including normal recurring accruals, necessary to
      present fairly the financial position of the Company at September 30, 2006,
      the
      results of operations for the three and six months ended September 30, 2006
      and
      2005, and the cash flows for the six months ended September 30, 2006 and 2005.
      The results of operations for the three and six months ended September 30,
      2006
      are not necessarily indicative of the expected results of operations for the
      full year or any future period. The balance sheet as of March 31, 2006 is
      derived from the Company’s audited financial statements. These financial
      statements should be read in conjunction with the financial statements and
      footnotes included in the Company’s Annual Report on transitional Form 10-KSB
      for the period ended March 31, 2006 as filed with the Securities and Exchange
      Commission (“SEC”).


-
          5 -
 **AEROGROW
          INTERNATIONAL INC.**
 **NOTES
          TO THE CONDENSED FINANCIAL STATEMENTS**
 **(Unaudited)**





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,” (“EPS”) and Securities and Exchange
      Commission SEC Staff Accounting Bulletin (“SAB”) 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 period amounts have been reclassified to conform to current period’s
      presentation.




Concentration
      of Credit Risk


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%.





The
      Company has a concentration of credit risk at September 30, 2006, with respect
      to trade account receivable for a single customer who accounted for 19% of
      the
      Company’s trade accounts receivable. The Company performs ongoing credit
      evaluations of its customers and normally does not require collateral to support
      accounts receivable .





Restricted
      Cash


In
      conjunction with the Company’s processing of credit card transactions and for
      its direct to consumer sales activities and as security with respect to the
      Company’s performance for required credit card refunds and chargebacks, the
      Company is required to maintain a cash reserve with Litle and Company, the
      Company’s credit card processor. This reserve is equal to 5% of the credit card
      sales processed over the previous six months of activity. As of September 30,
      2006, the balance in this reserve account was $18,389.





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. 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 will establish reserves against inventory according
      to
      the age of the product. As of September 30, 2006 and March 31, 2006, the Company
      had determined that no inventory obsolescence reserve was
      necessary.


-
          6 -
 **AEROGROW
          INTERNATIONAL INC.**
 **NOTES
          TO THE CONDENSED FINANCIAL STATEMENTS**
 **(Unaudited)**





Accounts
      Receivable and Allowance for Doubtful Accounts


The
      Company sells its products to retailers and consumers. Consumer transactions
      are
      paid primarily by credit card. Sales to retailer’s vary by customer, however,
      generally are on net 30 days terms. Accounts receivable are 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. As of September
      30, 2006, the Company had recorded an allowance for bad debts of
      $6,684.





Advertising
      and Production Costs


The
      Company expenses the costs of all production costs related to advertising as
      incurred. The Company expenses all costs related to actual advertising such
      as
      print, television, and radio advertisements when the advertisement has been
      broadcast or otherwise distributed.





Research
      and Development


Research,
      development, and engineering costs are expensed as incurred, in accordance
      with
      SFAS No. 2, “Accounting for Research and Development Costs”. Research,
      development, and engineering expenses primarily include payroll and headcount
      related costs, contractor fees, infrastructure costs, and administrative
      expenses directly related to research and development support.





Stock
      Based Compensation


In
      December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No.
      123R, “Share-Based Payment.” Subsequently, the SEC provided for a phase-in
      implementation process for SFAS No. 123(R), which required adoption of the
      new
      accounting standard no later than January 1, 2006. SFAS No. 123(R) requires
      accounting for stock options using a fair-value-based method as described in
      such statement and recognition of 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 Accounting
      Principles Board (“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. 123(R) 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. 123(R).





Income
      Taxes


The
      Company accounts for deferred income taxes in accordance with the liability
      method as required by SFAS No. 109 "Accounting for Income Taxes". 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 six months ended September 30, 2006 and September 30, 2005
      the
      Company recognized a valuation allowance equal to 100% of the net deferred
      tax
      asset balance.





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.


-
          7 -
 **AEROGROW
          INTERNATIONAL INC.**
 **NOTES
          TO THE CONDENSED FINANCIAL STATEMENTS**
 **(Unaudited)**








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. At September 30, 2006 and
      March 31, 2006, the Company had accrued $70,276 and $0, respectively, as its
      estimate for the foregoing deductions and allowances.





Warranty
      and Return Reserves


The
      Company records warranty liabilities at the time of sale for the estimated
      costs
      that may be incurred under its basic warranty program. The specific warranty
      terms and conditions vary depending upon the product sold but generally include
      technical support, repair parts and labor for periods up to one year. Factors
      that affect the Company’s warranty liability include the number of installed
      units currently under warranty, historical and anticipated rates of warranty
      claims on those units, and cost per claim to satisfy the Company’s warranty
      obligation. Based upon the foregoing, the Company has recorded as of September
      30, 2006 a provision for potential future warranty costs of $2,050





The
      Company reserves for potential returns from customers and associated refunds
      or
      credits related to such returns based upon historical experience. As of
      September 30, 2006, the Company has recorded a reserve for customer returns
      of
      $13,129.





Shipping
      and Handling Costs


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





Registration
      Rights Penalties


The
      holders of securities issued in the Company’s February 2006 private placement
      offering and the convertible debt offering in 2005 (see Note 3) have
      registration rights for the common stock and for the common stock underlying
      the
      convertible debt and the warrants held by them. Liquidated damages for failure
      to register and maintain registration for such common stock are payable in
      common stock of the Company under certain circumstances and are limited to
      1% of
      the amount of the outstanding convertible debt up to a maximum of 24% and 1%
      of
      the amount of the investment in the 2006 Offering up to a maximum of 18%. In
      each case, the amount is payable in shares of the Company’s common stock valued
      at a rate of $2.00 per share. Until such time as there has been a consensus
      reached on Emerging Issues Task Force (“EITF”) Issue No. 05-4, "The Effect of a
      Liquidated Damages Clause on a Freestanding Financial Instrument Subject to
      EITF
      Issue No. 00-19, ‘Accounting for Derivative Financial Instruments Indexed to,
      and Potentially Settled in, a Company's Own Stock’ ”, the Company has elected to
      recognize the impact of such registration rights penalties as incurred, which
      commenced after July 22, 2006 (see Note 3 and Note 6).





New
      Accounting Pronouncements


In
      February 2006, theFASB 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.


-
          8 -
 **AEROGROW
          INTERNATIONAL INC.**
 **NOTES
          TO THE CONDENSED FINANCIAL STATEMENTS**
 **(Unaudited)**





In
      March
      2006, the 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.





In
      September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”. SFAS
      157 defines fair value, establishes a framework for measuring fair value and
      expands disclosure of fair value measurements. SFAS 157 applies under other
      accounting pronouncements that require or permit fair value measurements and
      accordingly, does not require any new fair value measurements. SFAS 157 is
      effective for financial statements issued for fiscal years beginning after
      November 15, 2007. The Company is currently in the process of assessing the
      impact the adoption of SFAS 157 will have on its financial statements.





In
      September 2006, the SEC issued SAB No. 108, “Considering the Effects of Prior
      Year Misstatements when Quantifying Misstatements in Current Year Financial
      Statements”. SAB 108 requires that public companies utilize a “dual-approach” to
      assessing the quantitative effects of financial misstatements. This dual
      approach includes both an income statement focused assessment and a balance
      sheet focused assessment. The guidance in SAB 108 must be applied to annual
      financial statements for fiscal years ending after November 15, 2006. Management
      believes the adoption of this pronouncement will not have a material impact
      on
      the Company’s financial statements.





**3.**
            **Convertible
                Debentures**





On
      May
      27, 2005, the Company entered into an exclusive Placement Agreement with Keating
      Securities, LLC to raise 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 (the
      “2005 Offering”). Each unit is comprised of a convertible debenture evidenced by
      a 10% unsecured convertible promissory note in the principal amount of $10,000
      (a total of $3,000,000), and 2,000 five-year warrants (a total of 600,000
      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. The Unsecured Convertible
      Promissory Notes bear interest at the rate of 10% annually which is payable
      quarterly beginning September 30, 2005. The principal was originally due on
      September 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 2005 Offering. In the event the
      Company fails to fulfill in registration obligations the Company agreed 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 2005 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 of 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. The Company has recorded penalties for an Effectiveness Default
      with
      regard to the 2005 Offering through September 30, 2006 of 44,550 shares of
      common stock valued at $222,750.


-
          9 -
 **AEROGROW
          INTERNATIONAL INC.**
 **NOTES
          TO THE CONDENSED FINANCIAL STATEMENTS**
 **(Unaudited)**





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 is being amortized
      as
      interest expense over the term of the convertible debentures which were
      originally due, if not converted, by September 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 September 30, 2006.





Prior
      to
      the closings of the Merger and the 2006 Offering but contingent upon their
      successful completion, in February 2006, the Company entered into agreements
      with the convertible debt holders of the 2005 Offering whereby certain 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 and certain other
      debt holders agreed to extend the maturity dates of $840,000 of debt obligations
      from September 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 September 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. As of September 30, 2006, the
      Company has accreted $92,805 of the recognized loss on extinguishment of debt
      to
      additional paid in capital.


-
          10 -
 **AEROGROW
          INTERNATIONAL INC.**
 **NOTES
          TO THE CONDENSED FINANCIAL STATEMENTS**
 **(Unaudited)**





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 was
      due
      on September 30, 2006 and was repaid on that date and $840,000 is due December
      31, 2006.





The
      balance presented for the convertible debentures, net of discounts, as of
      September 30, 2006 and March 31, 2006 is as follows:





**September
                  30,**
              
              **March
                  31,****2006**
              
              **2006**Convertible
                  debentures outstanding
              
              $
              840,000
              
              $
              870,000Loss
                  on modification of debt, net of $92,805 and $13,258 accretion to
                  additional paid in capital as of September 30, 2006 and March 31,
                  2006,
                  respectively
              
              
              39,773
              
              
              119,320Discount
                  as a result of beneficial conversion feature, net of amortization
                  of
                  $722,812 and $668,437 as of September 30, 2006 and March 31, 2006,
                  respectively
              
              
              (27,188
              )
              
              (81,563
              )Discount
                  as a result of fair value of warrants issued, net of amortization
                  of
                  $1,021,074 and $944,262 as of September 30, 2006 and March 31,
                  2006,
                  respectively
              
              
              (38,406
              )
              
              (115,218
              )Net
                  balance
              
              $
              814,179
              
              $
              792,539





**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
      individuals 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 (the “2005
      Plan”) and it no longer separately exists. However, options issued and
      outstanding under the Plan continue to be governed by their grant agreements
      but
      are administered under the 2005 Plan.





In
      August
      2005, the Company’s Board of Directors approved 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.





The
      2005
      Plan is administered by the Company’s compensation committee which has the
      authority to select the individuals 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.


-
          11 -
 **AEROGROW
          INTERNATIONAL INC.**
 **NOTES
          TO THE CONDENSED FINANCIAL STATEMENTS**
 **(Unaudited)**





Prior
      to
      January 1, 2006, the Company accounted for employee stock-based compensation
      under the recognition and measurement principles of 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).





On
      June
      28, 2006, the Company granted to one employee options to purchase 125,000 shares
      of the Company’s common stock at an exercise price of $5.00 per share under the
      2005 Plan which will vest 50% on the 12 month anniversary of the grant and
      12.5%
      for each of the next four three-month periods. On September 25, 2006, the
      Company granted to one employee options to purchase 10,000 shares of the
      Company’s common stock at an exercise price of $5.00 per share under the 2005
      Plan which will vest pro rata over a two year period. The Company valued the
      foregoing options using the Black Scholes option pricing model using the
      following assumptions: no dividend yield; expected volatility rate of 129.67%;
      risk free interest rate of 5% and an average life of 4 years resulting in a
      value of $4.12 per option granted.





As
      a
      result of recognizing compensation expense for stock options previously granted
      pursuant to the provisions of SFAS No. 123(R), the net loss for the six months
      ended September 30, 2006, was $182,404 greater, than if the Company had
      continued to account for stock options under APB No. 25.





Information
      regarding employee stock options outstanding as of September 30, 2006 is as
      follows:





**Options Outstanding**
            
            **Options Exercisable****Weighted-****Weighted-**
            
            **average****average**
            
            **Remaining****Exercise**
            
            
            
            **Exercise**
            
            **Contractual****price range**
            
            **Options**
            
            **Price**
            
            **Life (years)**
            
            **Options**Over
                $0.00 to $0.50
            
            
            30,618
            
            $
            0.08
            
            
            2.42
            
            
            30,618Over
                $0.50 to $2.50
            
            
            137,259
            
            $
            1.57
            
            
            2.22
            
            
            137,259$5.00
            
            
            1,083,614
            
            $
            5.00
            
            
            4.47
            
            
            953,8181,251,491
            
            $
            4.50
            
            
            3.99
            
            
            1,121,695





In
      addition to option grants, during the six months ended September 30, 2006 the
      Company granted under the 2005 Plan a total of 31,400 shares of common stock
      at
      a fair value of $5.00 per share, consisting of 6,000 shares granted and issued
      to employees, 19,400 shares granted to consultants for services, 1,250 shares
      granted to each of three directors for service on the Audit Committee and 750
      shares granted to each of three directors for service on the Governance
      Committee. All of the foregoing were charged to operating expenses for the
      six
      months ended September 30, 2006 resulting in a total charge of
      $157,000.


-
          12 -
 **AEROGROW
          INTERNATIONAL INC.**
 **NOTES
          TO THE CONDENSED FINANCIAL STATEMENTS**
 **(Unaudited)**





Information
      regarding the Company’s equity compensation plans at September 30, 2006 is as
      follows:





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 issuanceEquity
                compensation plans approved by security holders
            1,251,491
            $4.50
            208,171Equity
                compensation plans not approved by security holders
            -
            $-
            -Total
            1,251,491
            $4.50
            208,171





At
      September 30, 2006, the Company has granted options for 129,796 of the Company’s
      common stock that are unvested that will result in $534,760 of compensation
      expense in future periods if fully vested.





The
      following table illustrates the effect on net income and EPS for the six months
      ended September 30, 2005 if the Company had applied the fair value recognition
      provisions of SFAS No. 123(R):







Six
                months endedSeptember
                30, 2005,(Unaudited)Net
                loss, as reported
            
            $
            (4,338,821
            )Net
                income (loss) per share, basic and diluted, as reported
            
            $
            (0.88
            )Deduct:
                Stock-based compensation expense, as determined under fair-value
                based
                method for all employee awards
            
            $
            (56,461
            )Pro
                forma net loss
            
            $
            (4,395,282
            )Pro
                forma net income (loss) per share, basic and diluted
            
            $
            (0.89
            )








**5.**
            **Related
                Party Transactions**





During
      the six months ended September 30, 2006, the Company paid consulting fees
      totaling $42,574 to one director for services related to the development of
      an
      international channel of distribution for the Company’s products and other
      consulting services.





Also
      during the six months ended September 30, 2006, the Company incurred fees
      totaling $584,903 for various video and web projects, including production
      of
      the Company’s infomercial to promote its products, to MedEd Architects LLC a
      video production company owned 33% by Randy Seffren, the Company’s Chief
      Marketing Officer. The Company may incur additional costs in subsequent calendar
      quarters to MedEd Architects LLC, for editing and production of additional
      infomercials featuring the Company’s products and related video-based products.


-
          13 -
 **AEROGROW
          INTERNATIONAL INC.**
 **NOTES
          TO THE CONDENSED FINANCIAL STATEMENTS**
 **(Unaudited)**





For
      the
      six months ended September 30, 2006 and September 30, 2005, a director of the
      Company, who is a partner in the law firm of Kranitz and Philipp, was paid
      legal
      fees of $12,000 for each period.





During
      the six month period ended September 30, 2005, the Company retained one member
      of their board as a consultant who was granted stock options, common stock
      and
      fees for financial services provided totaling $115,039.





The
      Company rented office furniture, office equipment and computers from its former
      parent company, Mentor Capital Consultants, Inc., for the first two months
      of
      the six months ended September 30, 2005 at $2,500 per month. On May 31, 2005,
      the Company acquired these fixed assets for their net book value of
      $33,901.





In
      August
      2006, each of the Company’s five directors received $1,000 representing
      compensation for attendance at two Board of Director meetings at the rate of
      $500 each meeting.





**6.**
            **Stockholders’
                Equity**





In
      June
      2006, a warrant holder with warrants expiring June 30, 2006 exercised warrants
      to purchase 10,000 shares of the company’s common stock at $2.50 per
      share.





In
      July
      2006, a warrant holder with warrants from the Company’s 2006 Offering expiring
      February 2011 exercised warrants to purchase 5,000 shares of the Company’s
      common stock at $6.25 per share.





The
      Company purchased 3,000 shares of its own common stock at a price of $5.00
      per
      share in July 2006 that had been previously issued as compensation to a
      consultant based upon an agreement to allow such consultant to convert such
      stock to cash if so elected prior to June 30, 2006.





During
      the six months ended September 30, 2006, the Company issued 31,400 shares of
      common stock under its 2005 Plan.





During
      the six months ended September 30, 2006, the Company issued 7,604 shares of
      stock to a landlord and recorded $38,020 as additional rent expense. During
      the
      six months ended September 30, 2005, the Company issued 7,602 shares of stock
      to
      a landlord and recorded $38,012 as additional rent expense.





During
      the six months ended September 30, 2005, the Company realized $93,000 in
      proceeds from 1,600 shares of common stock that were sold at $5.00 per share
      to
      an employee per an employment agreement, 8,000 warrants that were exercised
      at
      $1.25 per share and 30,000 warrants that were exercised at $2.50 per share.





The
      holders of securities issued in the private placement offering, as well the
      convertible debt offering as described in Note 3, 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 limited and payable under the following circumstances: (a) if a registration
      statement is not filed by the Company 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
      of the 2006 Offering (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 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 the 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 such holder pursuant to this Agreement up to a maximum
      of
      18% of the aggregate purchase price paid by such holder, provided that
      liquidation damages in respect of a Suspension Default shall not be payable
      in
      relation to any securities not owned by such holder 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 Company has recorded penalties for (b) above with regard to the
      2006 Offering through September 30, 2006 of 161,100 shares of common stock
      valued at $805,500.


-
          14 -
 **AEROGROW
          INTERNATIONAL INC.**
 **NOTES
          TO THE CONDENSED FINANCIAL STATEMENTS**
 **(Unaudited)**





**7.**
            **Commitments
                and Contingencies**





On
      July
      27, 2006 the Company entered into a lease with Pawnee Properties, LLC to
      consolidate its operations, other than its seed kit manufacturing operations,
      into a 21,012 square foot office space at 6075 Longbow Drive, Boulder, Colorado
      80301, commencing no later than December 1, 2006. Pawnee Properties, LLC, and
      its controlling persons, are not affiliates of the Company. The initial rent
      is
      $15,759 per month, plus the Company’s proportionate share of building taxes,
      insurance and operating expenses. The initial term continues until January
      31,
      2012, unless modified under specified circumstances. The agreement contains
      other standard office lease provisions.





Future
      cash payments under such operating lease for the upcoming five years are as
      follows:





**Year
                Ended**
            **Rent**March
                31, 2007
            $
                48,877March
                31, 2008
            $296,848March
                31, 2009
            $316,253March
                31, 2010
            $325,152March
                31, 2011
            $327,047




On
      July
      24, 2006, the Company entered into an employment agreement with Randal Lee
      Seffren, its Chief Marketing Officer. The employment agreement of Mr. Seffren
      provides that he will be employed as Chief Marketing Officer of the Company.
      He
      will devote all of his business time to the affairs of the Company working
      half
      time from an office in Chicago, Illinois and the balance of his time traveling
      on Company business. The initial term is two years ending July 31, 2008 and
      renewable for successive one year terms. Mr. Seffren shall receive base
      compensation of $200,000 per year and a bonus per fiscal year in an amount
      not
      less than 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; but subject to adjustment so that it is no less
      favorable than granted to other senior executives. The agreement also provides
      for medical, vacation and other benefits commensurate with the policies and
      programs as adopted by the Company for its senior executives. Further, the
      agreement confirms the option grant awarded to Mr. Seffren as of March 28,
      2006,
      consisting of options to purchase 125,000 options to purchase shares of the
      Company’s common stock under the Company’s 2005 Equity Compensation Plan at an
      exercise price of $5.00 per share; and stipulates that the options were fully
      vested as of that grant date; and (iii) are subject to other standard terms
      and
      conditions under the 2005 Equity Compensation Plan. Mr. Seffren has agreed
      to
      regular standard confidentiality and inventions assignment provisions and agreed
      not to compete with the Company during employment and for twenty-four 24 months
      thereafter. If his employment is terminated, he will be entitled to receive
      (i)
      severance pay equal to six months of his base salary as in effect immediately
      before his termination; (ii) and the payment by the Company of medical benefits
      until the twelfth month following termination; and (iii) the pro rata portion
      of
      his bonus as of the nearest quarter end financial statements of the
      Company.


-
          15 -
 **AEROGROW
          INTERNATIONAL INC.**
 **NOTES
          TO THE CONDENSED FINANCIAL STATEMENTS**
 **(Unaudited)**





**8.**
            **Segment
                Information and
                Concentrations**





The
      Company’s only operating segment consists of sales of its aeroponic garden
      systems and peripheral products.





During
      the six months ended September 30, 2006, the Company utilized one manufacturer
      for 100% of its manufacturing of its aeroponic garden systems which accounted
      for $784,040, or 52%, of cost of sales. Goods produced by this manufacturer
      in
      inventory at September 30, 2006 totaled $776,017 or 56% of inventory. As of
      September 30, 2006, the Company had paid cash deposits to this manufacturer
      for
      goods not yet shipped totaling $157,417 which are included in prepaid expenses,
      and had outstanding accounts payable to this manufacturer as of September 30,
      2006 of $139,896 or 19% of the accounts payable balance.





During
      the six months ended September 30, 2006, the Company had one customer which
      accounted for 24% ($449,400) of its net sales. A different customer accounted
      for 28% ($127,977) of the Company’s outstanding accounts receivable at September
      30, 2006.








-
          16 -


**Item
      2. Management's Discussion and Analysis of Financial Condition and Plan of
      Operation**





The
      discussion contained herein is for the three and six months ended September
      30,
      2006 and 2005. The following discussion should be read in conjunction with
      the
      financial statements  of
      AeroGrow International, Inc. (the “Company”) and the notes to the financial
      statements included elsewhere in this Quarterly Report on Form 10-QSB for the
      quarterly period ended September 30, 2006. The following discussion 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 words such as
“anticipates”, “expects”, “intends”, “plans”, “believes”, “may”, “will” or
      similar expressions that are intended to identify forward-looking statements.
      In
      addition, any statements that refer to expectations, projections or other
      characterizations of future events or circumstances, including any underlying
      assumptions, are forward-looking statements. Such statements include, but are
      not limited to, statements regarding our intent, belief or current expectations
      regarding our strategies, plans and objectives, our product release schedules,
      our ability to design, develop, manufacture and market products, our intentions
      with respect to strategic acquisitions, the ability of our products to achieve
      or maintain commercial acceptance and our ability to obtain financing for our
      obligations. Such statements are not guarantees of future performance and are
      subject to risks, uncertainties and assumptions that are difficult to predict.
      Therefore, the Company’s actual results could differ materially and adversely
      from those expressed in any forward-looking statements as a result of various
      factors. Factors that could cause or contribute to the differences are discussed
      in “Risk Factors” and elsewhere in the Company’s transitional annual report on
      Form 10-KSB filed on July 6, 2006 with the Securities and Exchange Commission
      (the “SEC”). Except as required by applicable law or regulation, the Company
      undertakes no obligation to revise or update any forward-looking statements
      contained in this Quarterly Report on Form 10-QSB for the quarterly period
      ended
      September 30, 2006. The information contained in this Quarterly Report on Form
      10-QSB for the quarterly period ended September 30, 2006 is not a complete
      description of the Company’s business or the risks associated with an investment
      in the Company’s common stock. Each reader should carefully review and consider
      the various disclosures made by the Company in this Quarterly Report on Form
      10-QSB for the quarterly period ended September 30, 2006 and in the Company’s
      other filings with the SEC .





**Background
      and Corporate History**





We
      were incorporated in the State of Nevada on March 25, 2002. We are in the
      business of developing, marketing and distributing advanced indoor aeroponic
      garden systems including plants and accessories for use with such systems.
      Since
      formation and through our development stage which ended in February 2006, our
      principal activities had 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 a second manufacturer
      who will commence production in the first quarter of calendar 2007 and we have
      actively began sales activities as of March 2006. To date, we have manufactured
      and taken delivery of over 45,000 units. We commenced our initial marketing
      and
      distribution of our products during March 2006 and have expanded these marketing
      efforts to encompass retail, home shopping, catalogue, international and direct
      to consumer sales channels. Prior to March 2006 when we commenced sales of
      our
      aeroponic garden systems, we were considered a Development Stage Enterprise
      in
      Statement of Financial Accounting Standards (“SFAS”) SFAS No. 7, Accounting and
      Reporting by Development Stage Enterprises.





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


-
          17 -





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 its common stock. Each unit in
      the
      offering consisted of one share of common stock and a warrant to purchase one
      share of common stock expiring February 2011 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.





**Our
      Critical Accounting Policies**




The
      discussion and analysis of our financial condition and results of operations
      are
      based upon our financial statements, which have been prepared in accordance
      with
      accounting principles generally accepted in the United States. The preparation
      of these financial statements requires that we make estimates and judgments
      that
      affect the reported amounts of assets, liabilities, revenues, expenses and
      related disclosure. On an on-going basis, we re-evaluate our estimates,
      including those relating to revenue recognition, uncollectible accounts
      receivable, intangible assets and contingent expenses and revise reported
      amounts prospectively. We base our estimates on historical experiences, combined
      with anticipated activity and various other assumptions that we believe to
      be
      reasonable under the circumstances. When combined, this body of knowledge forms
      the basis for making judgments about the carrying value of assets and
      liabilities. Actual results may differ from these estimates under different
      assumptions or conditions.





Financial
      Reporting Release No. 60, which was issued by the Securities and Exchange
      Commission, requires all companies to include a discussion of critical
      accounting policies or methods used in preparation of financial statements.
      The
      following is a brief discussion of our most critical accounting policies,
      including those methods affected by our more complex judgments and
      estimates.





Stock
      Based Compensation


In
      December 2004, the Financial Accounting Standards Board issued SFAS No. 123(R),
      “Share-Based Payment.” Subsequently, the SEC provided for a phase-in
      implementation process for SFAS No. 123(R), which required adoption of the
      new
      accounting standard no later than January 1, 2006. SFAS No. 123(R) requires
      accounting for stock options using a fair-value-based method as described in
      such statement and recognition of the resulting compensation expense in our
      financial statements. Prior to January 1, 2006, we accounted for employee stock
      options using the intrinsic value method under Accounting Principles Board
      (“APB”) APB No. 25, “Accounting for Stock Issued to Employees” and related
      Interpretations, which generally results in no employee stock option expense.
      We
      adopted SFAS No. 123(R) on January 1, 2006 and do not plan to restate financial
      statements for prior periods. We plan to continue to use the Black-Scholes
      option valuation model in estimating the fair value of the stock option awards
      issued under SFAS No. 123(R). The adoption of SFAS No. 123(R) will have a
      material impact on our results of operations.





Revenue
      Recognition


We
      recognize our 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.





We
      record
      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 us 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
      us to
      estimate based on industry experience the number of customers who will actually
      redeem the incentive  At
      September 30, 2006, and at March 31, 2006, we had accrued $70,276 and $0,
      respectively.




Registration
      Rights Penalties


-
          18 -





The
      holders of securities issued in the Company’s 2006 Offering and the convertible
      debt offering in 2005 have registration rights for the common stock and for
      the
      common stock underlying the convertible debt and the warrants held by them.
      Liquidated damages for failure to register and maintain registration for such
      common stock are payable in our common stock under certain circumstances and
      are
      limited to 1% per month of the amount of the outstanding of convertible debt
      up
      to a maximum of 24% and 1% per month of the amount of the investment in the
      2006
      Offering up to a maximum of 18%. In each case, the amount is payable in shares
      of our common stock valued at a rate of $2.00 per share. Until such time as
      there has been a consensus reached on Emerging Issues Task Force Issue No.
      05-4,
      "The Effect of a Liquidated Damages Clause on a Freestanding Financial
      Instrument Subject to EITF Issue No. 00-19, ‘Accounting for Derivative Financial
      Instruments Indexed to, and Potentially Settled in, a Company's Own Stock’ ”, we
      have elected to recognize the impact of such registration rights penalties
      as
      incurred, which commenced after July 22, 2006.





**Plan
      of Operation**





Having
      commenced the launch of products through multiple channels including
      retail,  home
      shopping, catalogue, international and direct to consumer sales, our objective
      over the next twelve months will be to expand our marketing efforts in each
      of
      these channels for our kitchen garden systems and peripheral products including
      9 seed varieties. Our infomercial, a thirty minute video presentation of the
      product, has been completed and commenced test airings on national cable and
      local broadcast television stations in September 2006. We have completed initial
      test airings of the infomercial and we plan to increase the frequency of our
      infomercial airings through March 2007. It is our expectation that that the
      exposure for our products and services that will be generated through the
      infomercial and other direct response marketing advertising will broaden our
      brand and product recognition in our other channels of distribution. In July,
      we
      were featured on a successful airing on QVC, the world’s largest television
      retailer and have had three additional airings since that time with further
      times scheduled for the remainder of calendar year 2006. We have expanded our
      presence in catalogues from our catalogue launch partner, Frontgate, to multiple
      catalogues including Brookstone, Plow and Hearth, Improvements and others,
      all
      of which we believe add to the growing consumer recognition of our products.
      We
      also to continue to expand our retail distribution with over 450 retail stores
      to date carrying our products nationwide in multiple channels including
      housewares, culinary, lawn and garden and department stores. Included in the
      foregoing is an initiative launched in September 2006 which focuses on
      generating a high level of awareness and product visibility in the New York
      metropolitan market. This initiative included securing high profile
      merchandising for our products from leading retailers in the New York area
      such
      as Macy’s, Bed, Bath and Beyond, Linens ‘n Things and others for the fourth
      quarter 2006 holiday season. This initiative will be promoted in New York using
      our infomercial and other television media to promote sales at the participating
      retail locations.





We
      have begun to build our international distributor network and have entered
      into
      agreements to date with distributors in Mexico and Canada. On September 1,
      2006,
      we retained the services of a consultant in London to assist us in developing
      our international distributor network in Europe and Asia. We anticipate having
      models of our kitchen garden products compatible with European and Asian
      regulatory and electrical requirements completed available for distribution
      during the first calendar quarter of 2007.





In
      order to transition from the 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, a 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.





In
      addition to expanding our sales and distribution, we are also expanding our
      manufacturing activities, which began in January 2006 for pilot production,
      both
      in terms of capacity at our current contract manufacturer as well as with
      additional contract manufacturers. We have completed tooling at our second
      contract manufacturer and intend to commence production at this facility
      beginning January 2007. In addition, we are increasing research
      and development and our production capacity for our seed kits for our
      kitchen garden systems at our facility in Longmont, Colorado. We expect to
      continue to dedicate financial and management resources to the improvement
      of
      operating efficiencies and production capacity at this
      facility.


-
          19 -





We
      have completed development of many of our marketing materials, including our
      website, product brochures, retail packaging, point of purchase displays and
      other retail collateral materials and public relations kits. We continue to
      dedicate financial and management resources to the improvement of our marketing
      and sales materials and processes.





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 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 we could
      be
      required to seek additional financing sooner than we currently
      anticipate.





**Results
      of Operations**





The
      six months ended September 30, 2006 has represented our first six months of
      revenues from operations. Initial shipments of our products began in March
      2006.
      For the three and six months ended September 30, 2006, net sales totaled
      $1,030,316 and $1,852,254, respectively. For the six months ended September
      30,
      2006 one customer represented 24% of revenues. In accordance with our policy
      with regard to revenue recognition, we deferred recognition of $247,512 in
      sales
      to the following period for one customer, a television retailer, due to return
      rights granted this customer in the event our products did not meet sales
      expectations.





Cost
      of revenues  for
      the three and six months ended September 30, 2006 totaled $827,165 and
      $1,502,860, representing 80% and 81% of revenues, respectively. Included in
      cost
      of revenues for the three moths ended September 30, 2006 is approximately
      $170,000 in airfreight costs for the initial shipments of our products at a
      cost
      of approximately of $140,000 over standard ocean freight costs. This shipping
      practice is not expected to be a recurring method of transportation for our
      products. We also experienced higher than anticipated costs in the startup
      of
      our seed kit manufacturing operations. As we begin to increase seed kit
      production volume, costs for seed kit production are anticipated to improve
      in
      future periods as economies of scale and manufacturing efficiencies are
      achieved.





During
      the three and six months ended September 30, 2006 we incurred $409,453 and
      $844,384 in research and development costs as compared to $380,352 and $688,565
      for the three and six months ended September 30, 2005, an increase of $29,101
      and $155,819, or 8% and 23%, respectively. We continue to allocate additional
      resources to the development, design and technology of various new prototype
      models as well as expansion of our greenhouse and laboratory to measure the
      success of various seeds, cuttings and nutrients under different conditions
      and
      testing new plant varieties for additional seed kits. A significant component
      of
      the increase for the six months ended September 30, 2006 over the six months
      ended September 30, 2005 is $121,562 in compensation expense recognized as
      a
      result of stock options granted during the period to personnel engaged in our
      research and development activities.





Sales
      and marketing costs for the three and six months ended September 30, 2006
      totaled $1,359,797 and $2,320,271 as compared to $257,307 and $351,800 for
      the
      three and six months ended September 30, 2005, an increase of $1,102,490 and
      $1,968,471, or 429% and 560%, respectively. Sales and marketing costs include
      all costs associated with the marketing and distribution of our products and,
      for the six months ended September 30, 2006, include $642,000 in personnel
      costs, $590,000 in costs associated with the production of our infomercial,
      $124,000 in public relations costs and $160,000 in other advertising and
      promotional costs.





General
      and administrative costs for the three months ended September 30, 2006 totaled
      $773,362 as compared to $774,631 for the three months ended September 30, 2005,
      a decrease of $1,269. For the six months ended September 30, 2006, general
      and
      administrative costs totaled $1,629,402 as compared to $1,432,585 for the six
      months ended September 30, 2005, an increase of $196,817. The increases for
      the
      six months ended September 30, 2006 are due to salaries for additional
      administrative and finance personnel as well as increases in legal and audit
      fees.


-
          20 -





In
      the next twelve months, we intend to continue researching and developing new
      product designs and product extensions including, but not limited to, product
      line extensions targeted at both higher and lower retail price points, nutrient
      delivery systems and additional seed varieties for our seed kits. We also will
      dedicate research and development resources to the improvement, expansion and
      automation of our in-house seed kit manufacturing capabilities.





**Liquidity
      and Capital Resources**





Prior
      to March 2006, we had been funded primarily from the proceeds of private
      placement offerings of both debt and equity securities inclusive
      of:





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


·  $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.





We
      have used the funds raised to date to:





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


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


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


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





As
      of September 30, 2006, we had a cash balance of $3,374,710, a decrease of
      $5,477,838 from the cash balance at March 31, 2006. Net cash used in operations
      totaled $5,383,469 consisting primarily of our loss from operations for the
      six
      months ended September 30, 2006 of $5,531,655 less non cash charges to net
      loss
      including registration rights penalties totaling $1,028,250 and non cash
      compensation in the form of common stock and stock options under our 2005 Equity
      Compensation Plan totaling $339,804, increases in accounts receivable of
      $409,241 and increases in inventory totaling $1,199,171.





Net
      cash used by investing activities of $105,619 included equipment purchases
      of
      $82,905 primarily related to our increase in staff and updating of computers,
      office furniture and equipment of $43,651, manufacturing equipment related
      to
      our seed kit manufacturing operations of $20,755 and tooling costs of $18,500.
      Restricted cash increased by $18,389 due to the Company’s increased credit sales
      related to its direct response activities .





Net
      cash provided by financing activities totaled $11,250 resulting from exercises
      by two warrant holders of 10,000 warrants at an exercise price of $2.50 per
      share, for a total of $25,000 and an exercise of 5,000 warrants at an exercise
      price of $6.25 per share, for a total of $31,250 offset by repayment of $30,000
      in convertible debt which did not elect the modification options we offered
      in
      January 2006 and a repurchase of 3,000 shares of stock for $15,000 from an
      individual who had received such stock as compensation for a web address
      purchased by the Company.





We
      anticipate that existing cash resources will be sufficient for the next 12
      months. However, we have $840,000 in convertible debentures that become due
      as
      of December 31, 2006. We do not know at this time whether the holders of these
      debentures intend to convert to common stock at a price of $3.50 per share
      or
      seek repayment of their debentures. To date, no notices of conversion have
      been
      received. In the event the majority of the holders of these debentures request
      repayment, we would need to seek additional debt or equity financing to fund
      our
      current business objectives. We believe we could obtain such financing if
      required.


-
          21 -




We
      anticipate our principal sources of liquidity during the current fiscal year
      ended March 31, 2007 will be proceeds from sales of our products. We intend
      to
      use our working capital principally to purchase inventory, fund our media
      advertising, fund product promotion and trade show costs as well as support
      our
      ongoing product development, overheads and operational costs. In the event
      our
      retail and/or direct response sales accelerate more rapidly that currently
      anticipated, we would support this growth through additional asset-based
      financing or the raising of additional equity.




**Principal
      Commitments**





On
      July 27, 2006, we entered into a lease with Pawnee Properties, LLC, an unrelated
      company, to consolidate our operations, other than our seed kit manufacturing
      operations, into a 21,012 square foot office space at 6075 Longbow Drive,
      Boulder, Colorado 80301, commencing no later than December 1, 2006. The initial
      rent is $15,759 per month, plus our proportionate share of building taxes,
      insurance and operating expenses. The initial term continues until January
      31,
      2012, unless modified under specified circumstances. It contains other standard
      office lease provisions.





Future
      cash payments under such operating lease for the upcoming five years are as
      follows:





**Year
                Ended**
            **Rent**March
                31, 2007
            $
                48,877March
                31, 2008
            $296,848March
                31, 2009
            $316,253March
                31, 2010
            $325,152March
                31, 2011
            $327,047




**Off-Balance
      Sheet Arrangements**





At
      September 30, 2006, we did not have any transactions, obligations or
      relationships that could be considered off-balance sheet arrangements.





**Item
      3. Controls and Procedures** .





(a)  Evaluation
      of Disclosure Controls and Procedures





Disclosure
      controls and procedures are designed to ensure that information required to
      be
      disclosed in the reports filed or submitted by the Company under the Exchange
      Act is recorded, processed, summarized and reported, within the time periods
      specified in the rules and forms of the SEC. 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
      is accumulated and communicated to the Company’s management, including its
      principal executive and financial officer, as appropriate, to allow timely
      decisions regarding required disclosure.





The
      Company carried out an evaluation, under the supervision and with the
      participation of its management, including its principal executive officer
      and
      principal 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 and as of the date of that evaluation, the
      Company’s principal executive officer and financial officers concluded that the
      Company’s disclosure controls and procedures are effective to ensure that
      information required to be disclosed in the reports the Company files and
      submits under the Exchange Act of 1934 is recorded, processed, summarized and
      reported within the time periods specified in the Securities and Exchange
      Commission's rules and forms.


-
          22 -




(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.


-
          23 -


**PART
      II - OTHER INFORMATION**





**Item
      1. Legal Proceedings** .





None.





**Item
      2** **.
      Unregistered Sale of Equity Securities.**





The
      Company purchased 3,000 shares of its own common stock at a price of $5.00
      per
      share in July 2006 that had been previously issued as compensation to an
      individual who had received such stock as compensation for a web address
      purchased by the Company.





Period
              
              (a)
                Total
                  # of shares/units purchased
              
              (b)
                Avg.
                  price per share/unit
              
              (c)
                Total
                  # S/U purchased as part of publicly announced program or
                  plan
              
              (d)
                Max
                  # S/U (or approx $ value) that may yet be purchased under the plan
                  or
                  programJuly
                  2006
              
              
              3,000
              
              $
              5.00
              
              
              -
              
              
              -August
                  2006
              
              
              -
              
              $
              -
              
              
              -
              
              
              -September
                  2006
              
              
              -
              
              $
              -
              
              
              -
              
              
              -Total
              
              
              3,000
              
              $
              5.00
              
              
              -
              
              
              -





**Item
      3. Defaults Upon Senior Securities.**





None.





**Item
      4. Submission Of Matters To a Vote of Security Holders.**





None.





**Item
      5. Other Information.**





None.


**Item
      6. Exhibits**





Exhibit 3.1  Articles
      of Incorporation of the Registrant +


Exhibit 3.2  Certificate
      of Amendment to Articles of Incorporation, dated June 25, 2002
      +


Exhibit 3.3  Certificate
      of Amendment to Articles of Incorporation, dated November 3, 2003
      +


Exhibit 3.4  Certificate
      of Amendment to Articles of Incorporation, dated January 31, 2005
      +


Exhibit 3.5  Certificate
      of Change to Articles of Incorporation, dated July 27, 2005 +


Exhibit 3.6  Certificate
      of Amendment to Articles of Incorporation, dated February 24, 2006+


Exhibit 3.7  Amended
      Bylaws of the Registrant*


Exhibit
      31.1  Certification
      of the Chief Executive Officer Under Section 302 of the Sarbanes Oxley
      Act**


Exhibit
      31.2  Certification
      of the Chief Financial Officer Under Section 302 of the Sarbanes Oxley
      Act


Exhibit
      32.1  Certification
      of the Chief Executive Officer Under Section 906 of the Sarbanes Oxley
      Act


Exhibit
      32.2  Certification
      of the Chief Financial Officer Under Section 906 of the Sarbanes Oxley
      Act





+
            Previously
                filed with Form 8-K/A filed November 16, 2006*
            Previously
                filed with Form 8-K filed March 2,
                2006


**
            Filed
                Herewith





-
            24 -







**SIGNATURES**





In
      accordance with the requirements of the Exchange Act the Registrant caused
      this
      report to be signed on its behalf by the undersigned, thereunto duly
      authorized.




**AeroGrow
                International Inc.**Date: November
                20, 2006
            
            /s/Michael
                BissonnetteBy:
                Michael BissonnetteIts:
                Chief Executive Officer (Principal Executive Officer) and DirectorDate: November
                20, 2006
            
            /s/Mitchell
                B. RubinBy:
                Mitchell B. RubinIts:
                Chief Financial Officer (Principal Financial Officer and Principal
                Accounting Officer)




-
          25 -