**UNITED
        STATES**
 **SECURITIES
        AND EXCHANGE COMMISSION**
 **Washington,
        DC 20549**
  
 **FORM
        10-Q**
  
 
 (MARK
                  ONE)**x**
              **QUARTERLY REPORT PURSUANT
                  TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
                  1934****For
                  the quarterly period ended June 30,
                  2007****OR****o**
              **TRANSITION
                  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                  ACT****For
                  the transition period from  ______________ to
                  ______________**







**Commission
      File No. 000-50888**




**AEROGROW
      INTERNATIONAL, INC.**


(Exact
      Name of Registrant as Specified in its Charter)









**NEVADA**
            
            **46-0510685**(State
                or other jurisdiction of
            
            (I.R.S.
                Employerincorporation
                or organization)
            
            Identification
                Number)**6075
                Longbow Drive, Suite 200****Boulder,
                Colorado**
            
            **80301**(Address
                of principal executive offices)
            
            (Zip
                Code)**(303)
                444-7755**Registrant’s
                telephone number, including area
                code







Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
      during the preceding 12 months (or for such shorter period that the registrant
      was required to file such reports), and (2) has been subject to such filing
      requirements for the past 90 days.   Yes  x  No  o




Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
      (Check one):





Large
                accelerated filer   o
            Accelerated
                filer   o
            Non-accelerated
                filer  x





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





**Number
      of shares of issuer's common stock outstanding as of August 1, 2007:
      11,199,581**





Table
            of Contents




**AeroGrow
      International, Inc.**


**TABLE
      OF CONTENTS**


**FORM
      10-Q REPORT**


**June
      30, 2007**


PagePart
                  I. Financial InformationItem
                    1.
                Condensed Financial
                    Statements
                    (Unaudited)
                3Condensed
                    Balance Sheets as of June 30, 2007 (Unaudited) and
                    March 31, 2007
                3Condensed
                    Statements of Operations for the Three Months Ended
                    June 30, 2007 and June 30, 2006 (Unaudited)
                4Condensed
                    Statements of Cash Flows for the Three Months
                    Ended June 30, 2007 and June 30, 2006
                    (Unaudited)
                5Notes
                    to the Condensed Financial Statements
                    (Unaudited)
                6Item
                    2.
                Management’s
                      Discussion and Analysis of Financial Condition and
                      Results of Operations
                12Item
                    3.
                Quantitative
                      and Qualitative Disclosures About Market
                      Risk
                17Item
                    4.
                Controls
                    and
                    Procedures
                17Part
                  II.Other
                  InformationItem
                    1.
                Legal
                    Proceedings
                18Item
                    1A.
                Risk
                    Factors
                18Item
                    2.
                Unregistered
                    Sales of Equity Securities and Use of Proceeds
                18Item
                    3.
                Defaults
                    Upon
                    Senior Securities
                18Item
                    4.
                Submission
                    of
                    Matters to a Vote of Security Holders
                18Item
                    5.
                Other
                    Information
                18Item
                    6.
                Exhibits
                18






Table
          of Contents




PART
      I - FINANCIAL
      INFORMATION




Item
      1. CondensedFinancial
      Statements (Unaudited)






**AEROGROW
      INTERNATIONAL, INC.**


**CONDENSED
      BALANCE SHEETS**





**June
                30,**
            
            
            **March
                31,****2007**
            
            
            **2007****ASSETS**
            
            **(Unaudited)**Current
                assetsCash
                and cash equivalents
            
            $
            3,418,227
            
            
            $
            5,495,501Restricted
                cash
            
            
            85,036
            
            
            
            84,363Accounts
                receivable, net of allowance for doubtful accounts of
                $56,597  and $80,695 at June 30, 2007 and March 31, 2007,
                respectively
            
            
            2,197,609
            
            
            
            1,884,743Other
                receivable
            
            
            229,470
            
            
            
            182,221Inventory
            
            
            3,908,224
            
            
            
            3,940,614Prepaid
                expenses and other
            
            
            419,090
            
            
            
            480,990Total
                current assets
            
            
            10,257,656
            
            
            
            12,068,432Property
                and equipment, net of accumulated depreciation of $408,267 and $322,405
                at
                June 30, 2007 and March 31, 2007, respectively
            
            
            953,067
            
            
            
            909,496Intangible
                assets, net of accumulated amortization of $8,599 and $6,659 at June
                30,
                2007 and March 31, 2007, respectively
            
            
            30,474
            
            
            
            28,723Deposits
            
            
            136,039
            
            
            
            35,155166,513
            
            
            
            63,878Total
                Assets
            
            $
            11,377,236
            
            
            $
            13,041,806**LIABILITIES
                AND STOCKHOLDERS' EQUITY**Current
                liabilitiesDue
                to factor
            
            $
            1,266,140
            
            
            $
            645,151Accounts
                payable
            
            
            1,601,523
            
            
            
            3,192,734Accrued
                expenses
            
            
            1,082,066
            
            
            
            1,166,485Customer
                deposit
            
            
            910,847
            
            
            
            -Deferred
                rent
            
            
            57,283
            
            
            
            53,531Total
                current liabilities
            
            
            4,917,859
            
            
            
            5,057,901Stockholders'
                equityPreferred
                stock, $.001 par value, 20,000,000 shares authorized, none issued
                or
                outstanding
            
            
            -
            
            
            
            -Common
                stock, $.001 par value, 75,000,000 shares authorized, 11,125,609
                and
                11,065,609 shares issued
              and
                outstanding at June 30, 2007 and March 31, 2007,
                respectively
            
            
            11,125
            
            
            
            11,065Additional
                paid-in capital
            
            
            38,263,145
            
            
            
            37,765,003Accumulated
                (deficit)
            
            
            (31,814,893
            )
            
            
            (29,792,163
            )Total
                Stockholders' Equity
            
            
            6,459,377
            
            
            
            7,983,905Total
                Liabilities and Stockholders' Equity
            
            $
            11,377,236
            
            
            $
            13,041,806





See
      accompanying notes to the condensed financial statements.










3
 Table
          of Contents




**AEROGROW
      INTERNATIONAL, INC.**


**CONDENSED
      STATEMENTS OF OPERATIONS**


**(Unaudited)**





**Three
                Months Ended**
              **June
                30,****2007**
            
            
            **2006**RevenueProduct
                sales, net
            
            $
            6,278,685
            
            
            $
            821,938Operating
                expensesCost
                of revenue
            
            
            3,575,276
            
            
            
            675,695Research
                and development
            
            
            521,819
            
            
            
            434,931Sales
                and marketing
            
            
            2,920,987
            
            
            
            960,474General
                and administrative
            
            
            1,255,008
            
            
            
            856,040Total
                operating expenses
            
            
            8,273,090
            
            
            
            2,927,140Loss
                from operations
            
            
            (1,994,405
            )
            
            
            (2,105,202
            )Other
                (income) expense, netInterest
                (income)
            
            
            (37,859
            )
            
            
            (84,113
            )Interest
                expense
            
            
            66,184
            
            
            
            101,800Total
                other (income) expense, net
            
            
            28,325
            
            
            
            17,687Net
                loss
            
            $
            (2,022,730
            )
            
            $
            (2,122,889
            )Net
                loss per share, basic and diluted
            
            $
            (0.18
            )
            
            $
            (0.23
            )Weighted
                average number of commonshares
                outstanding, basic and diluted
            
            
            11,085,389
            
            
            
            9,116,832





See
      accompanying notes to the condensed financial statements.






4
 Table
          of Contents




**AEROGROW
      INTERNATIONAL, INC.**


**CONDENSED
      STATEMENTS OF CASH FLOWS**


**(Unaudited)**





**Three
                Months Ended**
              **June
                30,****2007**
            
            
            **2006**Cash
                flows from operating activities:Net
                (loss)
            
            $
            (2,022,730
            )
            
            $
            (2,122,889
            )Adjustments
                to reconcile net (loss) to cash provided(used)
                by operations:Issuances
                of common stock and options under equity compensation
                plans
            
            
            123,202
            
            
            
            170,426Issuance
                of common stock to landlord for rent
            
            
            -
            
            
            
            38,020Depreciation
                and amortization expense
            
            
            87,802
            
            
            
            40,344Bad
                debt expense (recoveries)
            
            
            (24,099
            )
            
            
            5,152Amortization
                of debt issuance costs
            
            
            -
            
            
            
            15,206Amortization
                of convertible debentures, beneficial conversion feature
            
            
            -
            
            
            
            27,188Interest
                expense from warrants issued with convertible debentures
            
            
            -
            
            
            
            38,406Change
                in assets and liabilities:(Increase)
                in accounts receivable
            
            
            (288,767
            )
            
            
            (482,068
            )(Increase)
                in other receivable
            
            
            (47,249
            )
            
            
            -Decrease
                (increase) in inventory
            
            
            32,390
            
            
            
            (457,445
            )Decrease
                in other current assets
            
            
            61,900
            
            
            
            29,914(Decrease)
                in accounts payable
            
            
            (1,591,211
            )
            
            
            (56,142
            )(Decrease)
                increase in accrued expenses
            
            
            (84,419
            )
            
            
            6,760Increase
                in customer deposit
            
            
            910,847
            
            
            
            -Increase
                in deferred rent
            
            
            3,752
            
            
            
            -(Increase)
                in deposits
            
            
            (100,884
            )
            
            
            -Net
                cash (used) by operating activities
            
            
            (2,939,466
            )
            
            
            (2,747,128
            )Cash
                flows from investing activities:Decrease
                (increase) in restricted cash
            
            
            (673
            )
            
            
            (6,370
            )Purchases
                of equipment
            
            
            (129,433
            )
            
            
            (65,066
            )Patent
                expenses
            
            
            (3,691
            )
            
            
            (585
            )Net
                cash (used) by investing activities
            
            
            (133,797
            )
            
            
            (72,021
            )Cash
                flows from financing activities:Increase
                in amounts due to factor
            
            
            620,989
            
            
            
            -Proceeds
                from exercise of warrants
            
            
            375,000
            
            
            
            25,000Repayments
                of convertible debentures
            
            
            -
            
            
            
            (30,000
            )Net
                cash provided (used) by financing activities
            
            
            995,989
            
            
            
            (5,000
            )Net
                increase (decrease) in cash
            
            
            (2,077,274
            )
            
            
            (2,824,149
            )Cash,
                beginning of period
            
            
            5,495,501
            
            
            
            8,852,548Cash,
                end of period
            
            $
            3,418,227
            
            
            $
            6,028,399**Supplemental
                disclosure of non cash investing****and financing
                activities:**Interest
                paid
            
            $
            66,184
            
            
            $
            21,000Income
                taxes paid
            
            $
            -
            
            
            $
            -Accretion
                of debt modification
            
            $
            -
            
            
            $
            39,773





See
      accompanying notes to the condensed financial statements.






5
 Table
          of Contents




**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,
      marketing, and distributing 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 consisted of product research and development,
      market research, 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, the Company was
      considered a Development Stage Enterprise in accordance with Statement of
      Financial Accounting Standards (“SFAS”) No. 7, “Accounting and Reporting by
      Development Stage Enterprises.”  Effective March 2006, the Company
      ceased being considered a development stage enterprise. The Company is
      headquartered in Boulder, Colorado.





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 was the accounting acquirer in
      the Merger, and the historical financial statements of the Company will be
      the
      financial statements for the Company following the Merger.





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





Interim
      Financial Information


The
      unaudited interim financial statements of the Company included herein have
      been
      prepared in accordance with the rules and regulations of the Securities and
      Exchange Commission (“SEC”) for interim reporting including the instructions to
      Form 10-Q and Rule 10-01 of Regulation S-X. These condensed statements
      do not include all disclosures required by accounting principles generally
      accepted in the United States of America (“U.S. GAAP”) for annual audited
      financial statements and should be read in conjunction with the Company’s
      audited consolidated financial statements and related notes included in the
      Company’s Annual Report on Form 10-KSB for the year ended March 31, 2007 as
      filed with the SEC.





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 June 30, 2007, the
      results of operations for the three months ended June 30, 2007 and 2006, and
      the
      cash flows for the three months ended June 30, 2007 and 2006. The results of
      operations for the three months ended June 30, 2007 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, 2007 is derived from the Company’s
      audited financial statements.





Use
      of
      Estimates


The
      preparation of financial statements in conformity with U.S. GAAP 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
      Statement of Financial Accounting Standards (“SFAS”) No. 128, “Earnings per
      Share,” and SEC Staff Accounting Bulletin No. 98 (“SAB 98”).  SFAS No.
      128 requires companies with complex capital structures to present basic and
      diluted earnings per share (“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.




6
 Table
          of Contents




Reclassifications


Certain
      prior period amounts have been reclassified to conform to the current period’s
      presentation.




Segments
      of an Enterprise and Related Information


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





Concentration
      of Credit Risk


SFAS
      No.
      105, "Disclosure of Information About Financial Instruments with Off-Balance
      Sheet Risk and Financial Instruments with Concentrations of Credit Risk,"
      requires disclosure of significant concentrations of credit risk regardless
      of
      the degree of such risk.  Financial instruments with significant
      credit risk include cash.  The amount of cash the Company has on
      deposit with a financial institution exceeded the $100,000 federally insured
      limit as of June 30, 2007 and March 31, 2007.  However, management
      believes that the financial institution is financially sound and the risk of
      loss is minimal.





Financial
      instruments consist of cash and cash equivalents, accounts receivable and
      accounts payable. The carrying values of all financial instruments approximate
      their fair value.





*Customers:*


For
      the
      three months ended June 30, 2007, the Company had one customer who represented
      17.7% of net product sales.  At June 30, 2007, this customer accounted
      for less than 1% of the total outstanding accounts receivable.  In
      addition, at June 30, 2007, the Company had two additional customers accounting
      for 26.3%, and 19.7%, respectively, of total accounts receivable
      outstanding.





For
      the
      three months ended June 30, 2006, the Company had two customers represent 46.6%
      and 19.0%, respectively, of net product sales.





*Suppliers:*


As
      of
      June 30, 2007, the Company had one supplier that accounted for $160,413, or
      10.0%, of total outstanding accounts payable.  For the three months
      ended June 30, 2007, the Company purchased inventories and other inventory
      related items from this supplier totaling $680,050, representing 19% of the
      cost
      of revenues for the three months ended June 30, 2007.  In addition,
      during the three months ended June 30, 2007, the Company purchased inventories
      and other inventory related items from one additional supplier totaling
      $1,046,621, representing 29% of the cost of revenues for the three months ended
      June 30, 2007.  During the three months ended June 30, 2006, the
      Company purchased inventory and other inventory related items from one supplier
      totaling $1,063,007.  During the three months ended June 30, 2007,
      inventories and inventory related items from this vendor represented 44% of
      the
      cost of revenues for the period.





Restricted
      Cash


The
      Company has a restricted money market account to secure the activity related
      to
      its corporate credit card purchase account. The balance in this restricted
      money
      market account as of June 30, 2007 and March 31, 2007 was $85,036 and $84,363,
      respectively.




7
 Table
          of Contents




Inventory


Inventories
      are valued at the lower of cost, determined by the first-in, first-out method,
      or market. Included in inventory costs where the Company is the manufacturer
      are
      raw materials, labor and manufacturing overhead. The Company records the raw
      materials at delivered cost. Standard labor and manufacturing overhead costs
      are
      applied to the finished goods based on normal production capacity as prescribed
      under Accounting Research Bulletin No. 43, Chapter 4, “Inventory
      Pricing.”  A majority of the Company’s products are manufactured
      overseas and are recorded at cost.




**June
                  30,**
              ****
              ****
              **March
                  31,******
              ****
              **2007**
              ****
              ****
              **2007**Finished
                  goods
              
              $
              3,377,057
              
              
              $
              3,626,671Raw
                  materials
              
              
              531,167
              
              
              
              313,943$
              3,908,224
              
              
              $
              3,940,614





The
      Company determines inventory obsolescence reserve based on management’s
      historical experience and establishes reserves against inventory according
      to
      the age of the product. As of June 30, 2007 and March 31, 2007, the Company had
      determined that no inventory obsolescence reserve was required.





Accounts
      Receivable and Allowance for Doubtful Accounts


The
      Company sells its products to retailers and consumers. Consumer transactions
      are
      paid primarily by credit card and are recognized as revenue once the applicable
      trial period has expired (see “Revenue Recognition” below). Sales to retailers
      vary by customer, but are generally 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.  The Company had recorded an allowance for
      bad debts of $56,597 and $80,695, as of June 30, 2007 and March 31, 2007,
      respectively.





Other
      Receivable


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 June 30, 2007
      and March 31, 2007, the balance in this reserve account was $229,470 and
      $182,221, respectively.





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. Beginning with the quarter ended December 31, 2006, the
      Company began to offer promotions to its direct sales consumers allowing thirty
      or thirty-six days for product evaluation, where the customer pays only the
      shipping and handling costs for such products before making the required
      installment payments after the expiration of the thirty or thirty-six day trial
      period.  During the three months ended June 30, 2007, the Company offered a
      thirty-six day trial period and accordingly, the Company did not record $294,715
      as of June 30, 2007, related to the unpaid balance due for orders shipped in
      conjunction with this evaluation program.  The Company also deferred, as of
      June 30, 2007, recognition of $89,828 of product costs associated the foregoing
      revenue in as much as the customer is required to return the product and the
      Company is therefore able to recover these costs through resale of the
      goods.  The liability for sales returns is estimated based upon historical
      experience of return levels.





Additionally,
      the Company did not record $910,847 of revenue as of June 30, 2007 related
      to
      inventory held by one of its retail shopping channel customers that was paid
      in
      full by the customer.  Accordingly, the Company has also recorded a
      customer deposit for $910,847 related to this transaction.  The
      Company has also deferred, as of June 30, 2007, recognition of $457,597 of
      product costs associated with this sale, which have been included in
      inventory.





The
      Company records estimated reductions to revenue for customer and distributor
      programs and incentive offerings, including, promotions and other volume-based
      incentives. 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 June 30, 2007 and March 31, 2007, the Company had
      accrued $148,089 and $65,385, respectively, as its estimate for the foregoing
      deductions and allowances.





8
 Table
          of Contents




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.   Both manufacturers of the Company’s products
      provide replacement parts for any defective components free of charge up to
      2%
      of the total units purchased.  Based upon the foregoing, the Company
      has recorded a provision for potential future warranty costs of $47,633 and
      $15,593 at June 30, 2007 and March 31, 2007, respectively.





The
      Company reserves for potential returns from customers and associated refunds
      or
      credits related to such returns based upon historical experience. The Company
      has recorded reserves for customer returns of $166,159 and $238,569 at June
      30,
      2007 and March 31, 2007, respectively.





**3.**
            **Due
                to Factor**





On
      February 9, 2007, the Company entered into an agreement with Benefactor Group
      Inc. (“Benefactor”) whereby Benefactor agreed to factor the company’s retail
      accounts receivable invoices. The term of the agreement is for one year but
      can
      be terminated by the Company with 60 days written notice. In accordance with
      the
      terms of the agreement, Benefactor will purchase the invoices that it approves
      for an initial payment of 85% of the amount of the invoice with the remaining
      15% paid upon collection less any deductions from the customer. Benefactor
      charges a commission of 11⁄4% of the gross amount of the invoice and a maintenance
      fee equal to an annual rate of prime plus 3%, prime being determined by
      Benefactor based upon either the prime rate published by Benefactor’s bank or
      the Wall Street Journal, (11.25% at June 30, 2007 and March 31, 2007), charged
      on a daily basis for the unpaid invoice amounts outstanding. The Company has
      agreed, beginning May 2007, to factor with Benefactor a minimum of $800,000
      of
      invoices monthly. The Company is responsible for any invoices that are unpaid
      after 91 days or are subject to other defaults by the customer and this
      obligation is secured by the Company with a security interest granted to
      Benefactor on all assets. As of June 30, 2007, Benefactor had advanced the
      Company $1,266,140 against invoices totaling $1,560,838.  Fees paid to
      Benefactor for interest, discounts and other services for the three months
      ended
      June 30, 2007 totaled $67,149.  The receivables are considered
      recourse and are shown at their gross value on the balance sheet.





**4.**
            **Stock
                Based Compensation**





Prior
      to
      January 1, 2006, the Company accounted for employee stock options using the
      intrinsic value method under Accounting Principles Board (“APB”) Opinion No. 25,
“Accounting for Stock Issued to Employees” and related interpretations, which
      generally results in no employee stock option expense. The Company adopted
      SFAS
      No. 123R, “Share-Based Payment” on January 1, 2006, and does not plan to restate
      financial statements for prior periods.





For
      the
      three months ended June 30, 2007 and June 30, 2006, respectively, the Company
      granted 0 and 125,000 options to purchase the Company’s common stock at an
      exercise price of $5.00 per share under the 2005 Equity Compensation Plan (“2005
      Plan”).





For
      the
      option grants issued from January 1, 2006 through December 31, 2006, inclusive
      of the three months ended June 30, 2006, the Company used the following weighted
      average assumptions: no dividend yield; expected volatility rate of 129.67%;
      risk free interest rate of 5%; and average lives of four years resulting in
      a
      value of $4.12 per option granted. In March 2007, in as much as the Company’s
      stock had begun trading in the public market but trading history was limited,
      the Company reviewed the assumptions utilized for the volatility
      rate.  This review included researching companies within the consumer
      products category with comparable market capitalizations, comparable per share
      prices and with a minimum of five years of trading history, five years
      representing the length of time the options are exercisable. Accordingly, for
      the options granted subsequent to December 31, 2006, the Company used the
      following weighted average assumptions: no dividend yield; expected volatility
      rate of 50.3%; risk free interest rate of 5%; and average lives of three years.
      As a result of recognizing compensation expense for stock options pursuant
      to
      the provisions of SFAS No. 123R, the net loss for the three months ended June
      30, 2007 and the three months ended June 30, 2006 was $123,202 and $42,925
      greater, respectively, than if the Company had continued to account for stock
      options under APB Opinion No. 25. In addition, both basic and diluted loss
      per
      share for the three months ended June 30, 2007 and the three months ended June
      30, 2006 was $0.01 and $0.00 greater, respectively, than if the Company had
      continued to account for stock options under APB Opinion No. 25.




9
 Table
          of Contents




The
      following table summarizes the total stock-based compensation expense for the
      three months ended June 30, 2007 and the three months ended June 30, 2006 from
      all of the Company’s stock compensation plans, included in the Unaudited
      Condensed Statements of Operations:





**For
                the three months ended June 30,****2007**
            
            
            **2006**General
                and administrative
            
            $
            7,210
            
            
            $
            -Research
                and development
            
            
            69,876
            
            
            
            -Sales
                and marketing
            
            
            46,116
            
            
            
            42,925$
            123,202
            
            
            $
            42,925




There
      were no exercises, grants or forfeitures of stock options under the Company’s
      equity compensation plans for the three months ended June 30,
      2007.  At June 30, 2007, the Company had granted options for 119,870
      shares of the Company’s common stock that are unvested that will result in
      $463,517 of compensation expense in future periods if fully vested.





Information
      regarding all stock options outstanding under the 2005 Plan as of June 30,
      2007
      is as follows:





**OPTIONS
                OUTSTANDING**
            
            **OPTIONS
                EXERCISABLE****Weighted-**
            
            
            
            
            
            
            
            
            
            **Weighted-****average**
            
            
            **Weighted-**
            
            
            
            
            
            
            **average**
            
            
            **Weighted-****Remaining**
            
            
            **average**
            
            **Aggregate**
            
            
            
            
            **Remaining**
            
            
            **average**
            
            **Aggregate****Exercise**
            
            
            
            
            
            **Contractual**
            
            
            **Exercise**
            
            **Intrinsic**
            
            
            
            
            **Contractual**
            
            
            **Exercise**
            
            **Intrinsic****price range**
            
            
            **Options**
            
            
            **Life (years)**
            
            
            **Price**
            
            **Value**
            
            **Options**
            
            
            **Life (years)**
            
            
            **Price**
            
            **Value**Over
                $0.00 to $0.50
            
            
            
            24,141
            
            
            
            1.31
            
            
            $
            0.06
            
            
            
            
            24,141
            
            
            
            3.08
            
            
            $
            0.06Over
                $0.50 to $2.50
            
            
            
            136,259
            
            
            
            1.48
            
            
            $
            1.57
            
            
            
            
            136,259
            
            
            
            3.08
            
            
            $
            1.57$5.00
            
            
            
            1,116,660
            
            
            
            3.74
            
            
            $
            5.00
            
            
            
            
            1,013,282
            
            
            
            3.72
            
            
            $
            5.00$5.90
            
            
            
            60,300
            
            
            
            4.72
            
            
            $
            5.90
            
            
            
            
            43,808
            
            
            
            5.00
            
            
            $
            5.901,337,360
            
            
            
            3.51
            
            
            $
            4.34
            
            $                 1,870,297
            
            
            1,217,490
            
            
            
            3.40
            
            
            $
            4.34
            
            $1,765,270





**5.**
            **Income
                Taxes**





In
      June
      2006, the Financial Accounting Standards Board (“FASB”) issued FASB
      Interpretation No. (“FIN”) 48, “Accounting for Uncertainty in Income Taxes.” FIN
      48 clarifies the accounting for uncertainty in income taxes recognized in an
      enterprise’s financial statements in accordance with SFAS No. 109, Accounting
      for Income Taxes. This Interpretation defines the minimum recognition threshold
      a tax position is required to meet before being recognized in the financial
      statements. The Company adopted FIN 48 on April 1, 2007. As a result of the
      implementation, the Company recognized no material adjustment in the liability
      of unrecognized income tax benefits. At the adoption date of April 1, 2007,
      the
      Company had $4.0 million of unrecognized tax benefits, all of which would affect
      the Company’s effective tax rate if recognized. It is reasonably possible that
      the Company’s unrecognized tax benefit could change; however, the Company does
      not expect any such change to be material.





The
      Company is subject to U.S. federal income tax as well as income tax of several
      state jurisdictions including primarily Colorado and California. The Company
      has
      concluded all U.S. federal income tax matters for the year ended December 31,
      2002. Substantially all material state and local income tax matters have been
      concluded through December 31, 2002, depending on the statute of limitations
      for
      a given jurisdiction. Federal and state income tax returns for 2003 through
      2006
      remain available for examination by the applicable jurisdictions.




10
 Table
          of Contents




**6.**
            **Related
                Party Transactions**





During
      the three months ended June 30, 2007, the Company paid fees totaling $2,000
      per
      month, a total of $6,000, to one director as a retainer for general legal
      services.





During
      the three months ended June 30, 2007 and June 30, 2006, the Company paid
      consulting fees totaling $19,014 and $23,019, respectively, to a former director
      in the 2007 period who served as a director in the 2006 period.  The
      services paid in both periods relate to expanding the Company’s marketing
      efforts and new areas of distribution for the Company’s products.





Also
      during the three months ended June 30, 2007 and June 30, 2006, the Company
      incurred fees totaling $58,995 and $113,175, respectively to MedEd Architects
      LLC, a video production company owned 33% by Randy Seffren, the Company’s Chief
      Marketing Officer.





**7.**
            **Stockholders’
                Equity**





In
      June
      2007, the Company received gross proceeds of $375,000 from the exercise of
      warrants to purchase 60,000 shares of the Company’s common stock at $6.25 per
      share.





A
      summary
      of the Company’s warrant activity for the period from April 1, 2007 through June
      30, 2007 is presented below:




**Weighted**
            
            **Aggregate****Warrants**
            
            
            **Average**
            
            **Intrinsic****Outstanding**
            
            
            **Exercise
                Price**
            
            **Value****Outstanding,
                April 1, 2007**
            
            ****
            **5,724,094**
            
            
            **$**
            **7.21**Granted
            
            
            -
            
            
            $
            -Exercised
            
            
            (60,000
            )
            
            $
            6.25Expired
            
            
            -
            
            
            $
            -**Outstanding,
                June 30, 2007**
            
            ****
            **5,664,094**
            
            
            **$**
            **7.23**
            
            **$  9,803,010**





As
      of June 30, 2007, the Company had the following outstanding warrants to purchase
      its common stock:




**Weighted**
            
            
            **Weighted****Warrants**
            
            
            **Average**
            
            
            **Average****Outstanding**
            
            
            **Exercise
                Price**
            
            
            **Remaining
                Life**32,098
            
            
            $
            2.50
            
            
            
            0.9015,000
            
            
            $
            5.00
            
            
            
            0.90600,000
            
            
            $
            5.01
            
            
            
            3.45654,000
            
            
            $
            6.00
            
            
            
            3.872,297,800
            
            
            $
            6.25
            
            
            
            3.901,283,436
            
            
            $
            7.57
            
            
            
            4.99390,880
            
            
            $
            10.00
            
            
            
            0.75390,880
            
            
            $
            15.00
            
            
            
            0.75****
            **5,664,094**
            
            
            **$**
            **7.23**
            
            
            ****
            **3.64**




**8.**
            **Subsequent
                Events**





In
      July
      2007, the Company received gross proceeds of $60,000 and issued 10,000 shares
      of
      common stock from the exercise of 10,000 warrants at an exercise price of $6.00
      per share.





In
      July
      2007, the Company received gross proceeds of $381,250 and issued 61,000 shares
      of common stock from the exercise of 61,000 warrants at an exercise price of
      $6.25 per share.




11
 Table
          of Contents





**Item
      2. Management’sDiscussion and Analysis of Financial Condition
      and Results of Operations**





The
      discussion contained herein is for the three months ended June 30, 2007 and
      June
      30, 2006. The following discussion should be read in conjunction with the
      financial statements of AeroGrow International, Inc. (the “Company, ” “we,” or
“our”) and the notes to the financial statements included elsewhere in this
      Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2007.
      The
      following discussion contains forward-looking statements within the meaning
      of
      Section 27A of the Securities Act of 1933, as amended, (the “Securities Act”),
      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 annual report on Form 10-KSB filed on
      June 29, 2007 with the Securities and Exchange Commission (the “SEC”) and the
      Form SB-2/A filed with the SEC May 8, 2007. 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-Q
      for
      the quarterly period ended June 30, 2007. The information contained in this
      Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2007
      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-Q for the quarterly period ended June 30, 2007
      and
      in the Company’s other filings with the SEC.





**Overview**





We
      are in
      the business of developing, marketing, and distributing advanced indoor
      aeroponic garden systems. Since formation and through our development stage
      that
      ended March 1, 2006, our principal activities consisted of product research
      and
      development, market research, business planning, and raising the capital
      necessary to fund these activities. We have completed development of our initial
      kitchen garden systems and related “bio-grow” seed pods and have contracted with
      a third-party manufacturers who have commenced production activities. We began
      sales activities as of March 2006. As of March 31, 2007, we had manufactured
      and
      taken delivery of over 140,000 units of our kitchen garden systems and had
      manufactured over 400,000 seed kits. We commenced 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 accordance with Statement of Financial Accounting Standards
      (“SFAS”) No. 7, “Accounting and Reporting by Development Stage
      Enterprises.”





**Our
      Critical Accounting Policies**





*Inventory*


Inventories
      are valued at the lower of cost, determined by the first-in, first-out method,
      or market. When we are the manufacturer, we include in inventory costs raw
      materials, labor and manufacturing overhead. We record the raw materials at
      delivered cost. Standard labor and manufacturing overhead costs are applied
      to
      the finished goods based on normal production capacity as prescribed under
      Accounting Research Bulletin No. 43, Chapter 4, “Inventory Pricing.” A majority
      of our products are manufactured overseas and are recorded at cost.





We
      will
      determine an inventory obsolescence reserve based on historical experience
      and
      will establish reserves against inventory according to the age of the product.
      As of June 30, 2007 and March 31, 2007, we had determined that no inventory
      obsolescence reserve was required.




12
 Table
          of Contents




*Revenue
      Recognition*


We
      recognize 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 fees are
      fixed or determinable; and collection of the resulting receivable is reasonably
      assured. Accordingly, the Company did not record $294,719 of revenue as of
      June
      30, 2007 related to the unpaid balance due for orders shipped in conjunction
      with the Company’s direct sales to consumers which allow the consumer 36 days to
      evaluate the product paying only the shipping and handling costs for such
      products before making the required installment payments after the expiration
      of
      the 36-day trial period. The Company also deferred, as of June 30, 2007,
      recognition of $89,828 of product costs associated the foregoing such revenue
      in
      as much as the customer is required to return the product and the Company is
      therefore able to recover these costs through resale of the goods. The liability
      for sales returns is estimated based upon historical experience of return
      levels.





Additionally,
      the Company did not record $910,847 of revenue as of June 30, 2007 related
      to
      inventory held by one of its retail shopping channel customers which was paid
      in
      full by the customer.  Accordingly, the Company has also recorded a
      customer deposit for $910,847 related to this transaction.  The
      Company has also deferred, as of June 30, 2007, recognition of $457,597 of
      product costs associated this sale which have been included in
      inventory.





We
      record
      estimated reductions to revenue for customer and distributor programs and
      incentive offerings, including promotions and other volume-based incentives.
      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 incentives are offered. Additionally,
      certain incentive programs require us to estimate based on industry experience
      the number of customers who will actually redeem the incentive. At June 30,
      2007
      and March 31, 2007, the Company had accrued $148,089 and $65,385, 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.   Both manufacturers of the Company’s products
      provide replacement parts for any defective components free of charge up to
      2%
      of the total units purchased.  Based upon the foregoing, the Company
      has recorded a provision for potential future warranty costs of $47,633 and
      $15,593 at June 30, 2007 and March 31, 2007, respectively.





*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 sales.





*Stock
      Based Compensation*


In
      December 2004, the Financial Accounting Standards Board issued SFAS No. 123R,
      “Share-Based Payment.” Subsequently, the SEC provided for a phase-in
      implementation process for SFAS No. 123R, which required adoption of the new
      accounting standard no later than January 1, 2006. SFAS No. 123R requires
      accounting for stock options using a fair-value-based method as described in
      such statement and 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. We adopted SFAS No. 123R 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. 123R. The adoption of SFAS No. 123R has
      increased net loss by $121,202 and $42,925 for the three months ended June
      30,
      2007 and the three months ended June 30, 2006, respectively, as compared to
      using our prior method under APB No. 25.




13
 Table
          of Contents




**Results
      of Operations**





The
      following table sets forth, as a percentage of sales, our quarterly financial
      results for the three months ended June 30, 2007 and the three months ended
      June
      30, 2006:





**For
                the Three Months Ended June 30,****2007**
            
            
            **2006**RevenueProduct
                sales- retail
            
            
            65.8
            %
            
            
            84.4
            %Product
                sales- direct to consumer
            
            
            34.2
            %
            
            
            15.6
            %Total
                sales
            
            
            100.0
            %
            
            
            100.0
            %Operating
                expensesCost
                of revenue
            
            
            56.9
            %
            
            
            82.2
            %Research
                and development
            
            
            8.3
            %
            
            
            52.9
            %Sales
                and marketing
            
            
            46.5
            %
            
            
            116.9
            %General
                and administrative
            
            
            20.0
            %
            
            
            104.1
            %Total
                operating expenses
            
            
            131.7
            %
            
            
            356.1
            %Loss
                from operations
            
            
            -31.7
            %
            
            
            -256.1
            %





For
      the
      three months ended June 30, 2007 and June 30, 2006, net sales totaled $6,278,685
      and $821,938, respectively, an increase of $5,456,747 or 664%. The three months
      ended June 30, 2006 was the first full calendar quarter of our operations.
      Our
      AeroGarden products are sold through two sales methods. Direct sales are
      generated as a result of airings of our infomercial, our websites and other
      direct to consumer advertisements. Retail sales are generated through sales
      to
“brick and mortar” retailers, catalogues and home shopping companies who in turn
      sell to consumers. A summary of these two sales categories for the three months
      ended June 30, 2007 and 2006 is as follows:





**For
                the Three Months Ended June 30,**Revenue
            
            **2007**
            
            
            **2006**Product
                sales- retail
            
            $
            4,129,853
            
            
            $
            693,610Product
                sales- direct to consumer
            
            
            2,148,832
            
            
            
            128,328Total
                sales
            
            $
            6,278,685
            
            
            $
            821,938





In
      regard
      to our direct sales, we offer our direct customers 36 days to evaluate the
      product (“Trial Sales”) paying only the shipping and handling costs for such
      products before making the required installment payments after the expiration
      of
      the 36- day trial period. Accordingly, we did not record $294,719 of revenue
      from these Trial Sales as of June 30, 2007. We also deferred, as of June 30,
      2007, recognition of $89,828 of product costs associated with the foregoing
      Trial Sales in as much as the customer is required to return the product and
      we
      are therefore able to recover these costs through resale of the goods. The
      liability for sales returns is estimated based upon historical experience of
      return levels.





Also,
      we
      did not record $910,847 of revenue as of June 30, 2007 related to products
      held
      by one of our retail shopping channel customers under a guaranteed sale
      arrangement which was paid in full by the customer.  Accordingly, we
      have also recorded a customer deposit for $910,847 related to this
      transaction.  We have also deferred, as of June 30, 2007, recognition
      of $457,597 of product costs associated this sale which have been included
      in
      inventory.




14
 Table
          of Contents




For
      the
      three months ended June 30, 2007, we had one customer who represented 17.7%
      of
      our net product sales. For the three months ended June 30, 2006, we had two
      customers representing 46.6% and 19.0%, respectively, of our net product
      sales.





Cost
      of
      revenues for the three months ended June 30, 2007 and June 30, 2006 totaled
      $3,575,276 and $675,695, respectively, representing 56.9% and 82.2% of revenues
      for the respective periods. Cost of revenues include product costs for purchased
      and manufactured products, freight costs for inbound freight from manufacturers
      and outbound freight to customers, costs related to warehousing and the shipping
      of products to customers, credit card processing fees for direct sales and
      duties and customs applicable to products imported. Since our product launch,
      we
      continue to strive to improve both manufacturing costs and transportation costs.
      Included in cost of revenue for the three months ended June 30, 2006 are costs
      associated with expedited shipping of 5,000 of our AeroGarden units from our
      factory in China by air rather than by sea in order to expedite our initial
      deliveries in April 2006, at an incremental airfreight cost of $27 per unit.
      We
      also experienced higher than anticipated costs in the startup of our seed kit
      manufacturing operations during the three months ended June 30, 2006. These
      manufacturing costs have improved since inception as efficiencies in
      manufacturing seed kits due to improvements in both process and volume were
      realized. With the additional factory capacity that enables more efficient
      component purchasing, manufacturing cost reductions related to integration
      of
      electrical components, relocation of our distribution facilities to California
      improving inbound and outbound freight costs and the ability to maintain
      adequate inventory levels thereby avoiding air  freight costs, we
      anticipate further reductions in costs of revenues in the next 12 months.





Gross
      margins vary based upon the factors impacting cost of revenue discussed above
      as
      well as the ratio of direct sales versus retail sales. In a direct to consumer
      sale, we recognize as revenue the full purchase price for the product as opposed
      to retail sales, where we recognize as revenue the wholesale price for the
      product charged to the retailer. Media costs associated with direct sales are
      included in sales and marketing costs. Gross margins for the three months ended
      June 30, 2007 were $2,703,409, representing 43.1% of revenues, as compared
      to
      $146,243, representing 17.8% of revenues for the three months ended June 30,
      2006.





Sales
      and
      marketing costs for the three months ended June 30, 2007 totaled $2,920,987,
      as
      compared to $960,474 for the three months ended June 30, 2006, an increase
      of
      $1,960,513 or 204%. Sales and marketing costs include all costs associated
      with
      the marketing sales and distribution of our products and consist of the
      following:





**Three
                months ended June 30,******
            ****
            **2007**
            ****
            ****
            **2006**Advertising
            
            $
            1,266,994
            
            
            $
            -Salaries
                and related expenses
            
            
            621,997
            
            
            
            299,084Stock
                based compensation
            
            
            44,121
            
            
            
            42,925Infomercial
                production costs
            
            
            99,796
            
            
            
            132,034Sales
                commissions
            
            
            236,693
            
            
            
            49,212Consulting
                fees
            
            
            145,012
            
            
            
            163,179Public
                relations
            
            
            69,302
            
            
            
            98,091Trade
                Shows
            
            
            110,501
            
            
            
            45,006Telemarketing
            
            
            104,586
            
            
            
            -Other
            
            
            221,985
            
            
            
            130,943$
            2,920,987
            
            
            $
            960,474





Advertising
      is primarily comprised of media costs for airing of our infomercial which we
      consider a key component of our marketing strategy in that it helps build
      awareness and therefore consumer demand for all channels of distribution as
      well
      as generating revenues from direct to consumer sales. We anticipate continued
      airing of our current infomercial through December 2007.  Included in
      advertising costs above for the three months ended June 30, 2007 is $1,178,000
      in television media expenses for airing of our infomercial which began airing
      in
      September 2006, hence there was no media expenditure for the three months ended
      June 30, 2006.




15
 Table
          of Contents




We
      plan
      to produce two new infomercials during the remainder of calendar year 2007
      focused on our next generation of product, a three pod AeroGarden utilizing
      a
      new aeroponic technology.  This new technology is anticipated to reduce
      manufacturing costs with no loss of efficacy. The two infomercials will feature
      this new unit in conjunction with accessory components that result in a product
      targeted at the cooking market to be called “Chef in the Box” and a separate
      offering targeted at the market for year round, fresh home flowers called
“Florist in the Box”. We plan to test market these two product offerings on
      television in the fourth calendar quarter of 2007 with a targeted retail price
      of $99-$129 based the accessory components included with the offer.





Sales
      and
      marketing salaries and related costs shown above consist of salaries, payroll
      taxes, employee benefits and other payroll costs for our sales, customer service
      operations, graphics and marketing departments. Stock based compensation
      represents charges related to the granting of stock options and grants to
      employees and consultants who service the foregoing
      departments.  Infomercial production costs represent costs related to
      the development, production, editing and revision of our 30-minute infomercial
      and short form (0:60 and 1:20 second) television commercials. Sales commissions
      reflect commissions equal to 7% of collections from net retail sales to
      retailers, which were paid to sales representative organizations that assisted
      us in opening and maintaining our retail customers. We have recently
      renegotiated the agreements with our sales representative organizations to
      sliding scales based upon the size of the customers and, as a result, anticipate
      the aggregate percentage rate of these commissions to decline in the next 12
      months.





General
      and administrative costs for the three months ended June 30, 2007 totaled
      $1,255,008 as compared to $856,040 for the three months ended June 30, 2006,
      an
      increase of $398,968 or 47%. General and administrative costs have increased
      in
      most areas as we have positioned our organization to manage the sales growth
      over the last twelve months. Increases in general and administrative costs
      include $134,000 in recruiting costs, $40,000 in legal and accounting fees,
      $20,000 in facility rent, $30,000 in corporate governance costs and $170,000
      in
      bad debt allowance costs.





**Research
      and Development**





During
      the three months ended June 30, 2007, we incurred $521,819 in research and
      development costs, as compared to $434,931 for the three months ended June
      30,
      2006, an increase of $86,888 or 20%. The period over period increase was due
      to
      an approximate $20,000 increase in personnel costs for our plant labs and an
      approximate $70,000 increase in personnel costs for engineering, which includes
      $45,000 in non cash compensation related to option grants to engineering
      personnel.





In
      the
      next 12 months we intend to continue researching and developing new product
      designs and product extensions including, but not limited to, nutrient delivery
      systems and additional seed varieties for our seed kits.  We have also
      begun development of a methodology to cultivate and ship live “starter” plants
      in the grow pod mediums that will be able to grow in our kitchen garden systems.
      We started market testing this process with strawberries during the first
      quarter of calendar 2007 and continue to refine and develop this
      process.





**Liquidity
      and Capital Resources**




On
      March
      12 and March 15, 2007, we completed a private offering of 833,400 units of
      our
      common stock and warrants to purchase common stock and on March 29, 2007, we
      completed a private offering of 333,360 units of our common stock and warrants
      to purchase common stock (the “2007 Offerings”). Each unit in the 2007 Offerings
      consisted of one share of common stock, par value $0.001, and one five-year
      warrant to purchase one share of common stock at an exercise price of $7.50
      per
      share. The units were sold at a per unit price of $6.00. We raised an aggregate
      of $7,000,000 from the 2007 Offerings, less placement agent fees of $700,000
      and
      approximately $100,000 in other expenses. The holders of securities issued
      in
      the 2007 Offerings had registration rights for the common stock and for the
      common stock underlying the warrants held by them. Liquidated damages for
      failure to register and maintain registration for such common stock were payable
      in cash under certain circumstances and were limited to 1% of the amount of
      the
      investment per 30-day period made up to a maximum of 10%. We completed the
      registration of $5.0 million of the 2007 Offerings on May 11, 2007 and we intend
      to file a registration statement for the remaining $2.0 million of the 2007
      Offerings within the 150 days required time for filing such registration
      statement.





As
      of
      June 30, 2007, we had a cash balance of approximately $3,418,000. We anticipate
      our principal sources of liquidity during the next 12 months will be proceeds
      from sales of our products. We intend to use our working capital principally
      to
      purchase inventory, fund infomercial production costs and media
      advertising, fund product promotion and trade show costs as well as support
      ongoing product development, overhead and operational costs. During July 2007,
      we were able to negotiate more favorable payment terms with both of our
      manufacturing sources in China which will improve cash utilization for inventory
      purchases. Accordingly, we anticipate that existing cash resources will be
      sufficient for the next 12 months. However, in the event retail and/or direct
      response sales accelerate more rapidly than currently anticipated, we would
      need
      to support this growth through additional asset-based or other debt financing
      or
      the raising of additional equity. However, no assurance that such financing
      will
      be available on attractive terms or at all.




16
 Table
          of Contents




For
      the
      three months ended June 30, 2007, cash used in operations was $2,939,466 as
      compared to cash used in operations for the three months ended June 30, 2006
      of
      $2,747,128, an increase of $192,338. The principal use of cash in operations
      was
      the net loss, which, after add back of non cash items, equaled $1,836,000,
      reductions in accounts payable and accrued expenses of $1,676,000 and increases
      in accounts receivable of $289,000, offset by increases in customer deposits
      for
      goods under guaranteed sale arrangements of $911,000.





Cash
      used
      by investing activities totaled $133,797 for the three months ended June 30,
      2007, as compared to $72,021 used in investing activities for the three months
      ended June 30, 2006. The principal use of cash in investing activities was
      the
      purchase of $61,000 in computer equipment, $20,000 in manufacturing equipment
      and $48,000 in new tooling.





Cash
      provided by financing activities was $995,989 for the three months ended June
      30, 2007, as compared to cash used by financing activities of $5,000 for the
      three months ended June 30, 2006. Cash provided by financing activities included
      $620,000 of net advances from our accounts receivable factoring facility and
      $375,000 in proceeds from exercise of 60,000 outstanding warrants to purchase
      our common stock at an exercise price of $6.25 per share.




**Off-Balance
      Sheet Arrangements**





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





**Item
      3. Quantitativeand Qualitative Disclosures About Market
      Risk**





We
      do not
      have any assets or liabilities which, in our view, impose upon us significant
      market risk except for our credit facility from our accounts receivable factor
      which has a variable rate of interest generally consisting of stated premiums
      above prime. At June 30, 2007, we had $1,266,140 in outstanding borrowings
      under
      this credit facility as compared to $645,151 at March 31, 2007. As short-term
      interest rates fluctuate, the interest expense we incur on our credit facility
      will change resulting in either a positive or negative effect on our financial
      position, results of operations and cash flows. At this borrowing level for
      our
      credit facility, a one percentage point increase in interest rates would have
      an
      unfavorable impact on our net loss of $12,660 on an annual basis; however,
      because our excess cash is generally invested in short-term, high quality
      interest bearing investments, a comparable increase in interest income would
      offset much of the unfavorable impact.





We
      purchase the majority of our inventory from vendors in China in transactions
      that are U.S. dollar denominated transactions. Because the percentage of our
      international purchases denominated in currencies other than the U.S. dollar
      is
      small, any currency risks related to these transactions are immaterial to us.
      However, a decline in the relative value of the U.S. dollar to other foreign
      currencies, particularly the Chinese Ren Min Bi, could lead to increased
      purchasing costs. In order to mitigate this exposure, we make virtually all
      of
      our purchase commitments in U.S. dollars.





**Item
      4. Controlsand 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 is recorded, processed, summarized and reported
      within the time periods specified in the SEC’s rules and forms.





(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 during the period ended June
      30, 2007.




17
 Table
          of Contents





**PART
      II - OTHER INFORMATION**





**Item
      1.Legal Proceedings**





None.





**Item
      1A. RiskFactors**





During
      the three months ended June 30, 2007, there have not been any material changes
      in risk factors previously disclosed.





**Item
      2. UnregisteredSales of Equity Securities and Use of
      Proceeds**





None.





**Item
      3. DefaultsUpon Senior Securities**





None.





**Item
      4. Submissionof Matters to a Vote of Security
      Holders**





During
      the three months ended June 30, 2007 there were no matters brought to a vote
      of
      the security holders.





**Item
      5. OtherInformation**





None.





**Item
      6.Exhibits**





3.1
            Articles
                of Incorporation of the Registrant (incorporated by reference to
                Exhibit
                3.1 of our Current Report on Form 8-K/A-2, filed November 16,
                2006)3.2
            Certificate
                of Amendment to Articles of Incorporation, dated November 3, 2002
                (incorporated by reference to Exhibit 3.2 of our Current Report on
                Form
                8-K/A-2, filed November 16, 2006)3.3
            Certificate
                of Amendment to Articles of Incorporation, dated January 31, 2005
                (incorporated by reference to Exhibit 3.3 of our Current Report on
                Form
                8-K/A-2, filed November 16, 2006)3.4
            Certificate
                of Change to Articles of Incorporation, dated July 27, 2005 (incorporated
                by reference to Exhibit 3.4 of our Current Report on Form 8-K/A-2,
                filed
                November 16, 2006)3.5
            Certificate
                of Amendment to Articles of Incorporation, dated February 24, 2006
                (incorporated by reference to Exhibit 3.5 of our Current Report on
                Form
                8-K/A-2, filed November 16, 2006)3.6
            Amended
                Bylaws of the Registrant (incorporated by reference to Exhibit 3.6
                of our
                Current Report on Form 8-K/A-2, filed November 16,
                2006)31.1
            Certifications
                of the Chief Executive Officer Under Section 302 of the Sarbanes-Oxley
                Act**31.2
            Certifications
                of the Chief Financial Officer Under Section 302 of the Sarbanes-Oxley
                Act**32.1
            Certifications
                of the Chief Executive Officer Under Section 906 of the Sarbanes-Oxley
                Act**32.2
            Certifications
                of the Chief Financial Officer Under Section 906 of the Sarbanes-Oxley
                Act**





**
            Filed
                Herewith







18
 Table
          of Contents





**SIGNATURES**





In
      accordance with the requirements of the Securities Exchange Act of 1934 the
      registrant has duly caused this report to be signed on its behalf by the
      undersigned thereunto duly authorized.




**AeroGrow
                International Inc.**Date:
                August 14,
                2007
            By:
            /s/
              Michael
              BissonnetteMichael
              BissonnetteChief
              Executive Officer
              (Principal Executive Officer) and Director




Date:
                August 14, 2007
            By:
            /s/ Mitchell
              B. RubinMitchell
              B. RubinChief
                Financial Officer
              (Principal
                Financial Officer and Principal Accounting Officer)












19