Filed
pursuant to Rule 424(b)(3)
Registration
No. 333-133180
PROSPECTUS
SUPPLEMENT NO. 2
(To
Prospectus dated December 22, 2006)
6,700,900
Shares
AeroGrow
International, Inc.
Common
Stock
___________________________
This
prospectus supplement No. 2 supplements and amends the prospectus dated December
22, 2006, as amended and supplemented, relating to the resale by selling
stockholders of up to 6,700,900 shares of common stock of AeroGrow
International, Inc. (the “Company,” “we,” or “our”). This prospectus supplement
should be read in conjunction with the prospectus dated December 22, 2006
(as amended and supplemented by Prospectus Supplement No. 1 dated January 8,
2007, the “Prospectus”) which is to be delivered with this prospectus
supplement, and this prospectus supplement is qualified by reference to the
Prospectus, except to the extent that the information in this prospectus
supplement superseded the information contained in the Prospectus. This
prospectus supplement is not complete without, and may not be delivered or
utilized except in connection with, the Prospectus, including any supplements
thereto.
We
are
deleting in its entirety the section appearing on page 16 of the Prospectus
under the heading “Distribution” and replacing such section with the
following:
Distribution
AeroGrow
has contracted with a third party service provider to fulfill, store and ship
its products. This third party service provider provides warehousing, order
packing, and shipping for the products sold (through both direct response
channels and retail channels) on primarily a variable cost basis. Costs for
warehousing, order packing, and shipping for the products sold through direct
response channels are included in the shipping and handling charge paid by
the
direct response purchaser. For retail distribution, the costs for warehousing,
order packing, and shipping are lower because of the efficiencies gained in
shipping larger quantities per order. Freight costs will vary significantly
depending upon quantity ordered and destination, but they are projected to
range
from 2% to 4% of sales net of reimbursement from customers. A different third
party service provider also provides payment processing, database management,
and customer support services for the direct response sales. AeroGrow manages
the majority of its consumer and retailer customer support from its own
facilities.
AeroGrow
has contracted with two telemarketing companies, InPulse Response Group, Inc.
and LiveOps, Inc. to provide operators who will take calls from consumers
responding to its direct response marketing. Both contracts may be cancelled
upon 30 days notice. These orders and the orders received on its website are
provided to our third party service provider daily to be fulfilled.
Telemarketing costs per order are approximating 4% of direct response
sales.
We
are
deleting in its entirety the final paragraph under the heading “Manufacturing”
appearing on page 29 of the Prospectus and replacing such paragraph with the
following:
AeroGrow
produces and assembles its bio-grow seed pods in its laboratory facilities
in
Longmont, Colorado. The seed pods and kitchen garden systems are shipped to
a
fulfillment center in Reno, Nevada. A third party service provider provides
warehousing, order fulfillment, and shipping for AeroGrow’s products. See also
“Distribution” above.
We
are
deleting in its entirety the section appearing on page 29 of the Prospectus
under the heading “Product Returns and Warranties” and replacing such section
with the following:
Product
Returns and Warranties
AeroGrow
has had limited sales to date and thus has limited experience dealing with
returns. AeroGrow currently processes returns at a third party distribution
center, but intends to allow products to be returned to its facilities in
Longmont, Colorado in the near future. AeroGrow anticipates that it will send
unopened returned products to back into inventory and repair defective products
to sell as refurbished products. Mingkeda will provide AeroGrow with replacement
part assemblies for products which are deemed defective due to materials or
manufacturing complications. 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, 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.
___________________________
Investing
in our common stock involves a high degree of risk.
See
“Risk Factors” beginning on page 5 of the Prospectus.
___________________________
Neither
the United States Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
This
prospectus supplement is dated January 12, 2007.