Filed On 4/10/06 5:18pm ET · SEC File 333-133180 · Accession Number 1144204-6-14630
As Of Filer Filing As/For/On Docs:Pgs Issuer Agent
4/10/06 AeroGrow International/Inc SB-2 2:263 Vintage Filings LLC/FA
Registration of Securities by a Small-Business Issuer · Form SB-2
Filing Table of Contents
Document/Exhibit Description Pages Size
1: SB-2 Registration of Securities by a Small-Business HTML 1,107K
Issuer
2: EX-23.2 Consent of Experts or Counsel HTML 5K
SB-2 · Registration of Securities by a Small-Business Issuer
This is an EDGAR HTML document rendered as filed. [ Alternative Formats ]
As
filed
with the Securities and Exchange Commission on April 10, 2006.
Registration
No. 333-__________
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
_____________________
FORM
SB-2
REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933
_____________________
AeroGrow
International, Inc.
(Name
of
Registrant in its charter)
_____________________
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3524
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46-0510685
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(State
or other jurisdiction of
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(Primary
Standard Industrial
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|
(I.R.S.
Employer
|
|
incorporation
or organization)
|
|
Classification
Code Number)
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|
Identification
Number)
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900
28th Street, Suite 201
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|
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900
28th Street, Suite 201
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(303)
444-7755 • Fax (303) 444-0406
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(Address
and telephone number of principal executive offices)
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|
(Address
of principal place of business)
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W.
Michael Bissonnette
Aero
Grow International, Inc.
900
28th Street, Suite 201
(303)
444-7755 • Fax (303) 444-0406
(Name,
address and telephone number of agent for service)
Copies
to:
David
Alan Miller, Esq.
Andrew
D. Hudders, Esq.
Graubard
Miller
405
Lexington Avenue
(212)
818-8614 • Fax (212) 818-8881
Approximate
date of commencement of proposed sale to the public:
As
soon
as practicable after this registration statement becomes effective.
If
any
securities being offered on this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, check
the following box. x
If
this
Form is filed to register additional securities for an offering pursuant to
Rule
462(b) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. o
If
this
Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. o
If
this
Form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. o
If
delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box. o
CALCULATION
OF REGISTRATION FEE
(See
following page)
The
registrant hereby amends this registration statement on such date or dates
as
may be necessary to delay its effective date until the registrant shall file
a
further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
AERO
GROW INTERNATIONAL, INC.
Registration
Statement on Form SB-2
under
the
Securities
Act of 1933, as amended
CALCULATION
OF REGISTRATION FEE
|
Title
of each class of
securities
to be registered
|
|
Amount
to be
registered(1)
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|
Proposed
maximum offering
price per security
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|
Proposed
maximum aggregate
offering price
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|
Amount
of
registration fee
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|
|
Common
stock
|
|
|
3,438,145
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|
$
|
5.00
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(2)
|
$
|
17,190,725
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|
$
|
1,839.40
|
|
|
Common
stock underlying 2006 Warrants
|
|
|
2,362,800
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|
$
|
6.25
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(3)
|
$
|
14,767,500
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|
$
|
1,580.13
|
|
|
Common
stock underlying 2005 Convertible Notes
|
|
|
240,006
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|
$
|
3.50
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(3)
|
$
|
840,021
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|
$
|
89.88
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|
|
Common
stock underlying 2005 Convertible Notes
|
|
|
7,500
|
|
$
|
4.00
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(3)
|
$
|
30,000
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|
$
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3.21
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|
|
Common
stock underlying 2005 Debt Warrants
|
|
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600,000
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$
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5.00
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(3)
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$
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3,000,000
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$
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321.00
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|
|
Common
stock underlying 2005 Conversion Warrants
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|
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600,000
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$
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6.00
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(3)
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$
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3,600,000
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$
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385.20
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|
|
Other
2005 Warrants
|
|
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60,000
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$
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6.00
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(3)
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$
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360,000
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$
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38.52
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|
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Total
|
|
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7,308,451
|
|
|
|
|
|
|
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$
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4,257.35
|
|
| (1) |
Pursuant
to Rule 416(a) under the Securities Act, there are also being registered
such indeterminable number of shares of common stock as may be issued
pursuant to the anti-dilution provisions of such warrants, stock
splits,
stock dividends or similar
transactions.
|
| (2) |
Estimated
solely for the purpose of calculating the registration fee under
Rule 457
under the Securities Act.
|
| (3) |
Pursuant
to Rule 457(g) under the Securities Act, the registration fee has
been
calculated on the basis of the proposed maximum price at which the
warrants may be exercised or notes may be
converted.
|
The
information in this prospectus is not complete and may be changed. We may not
sell these securities until the registration statement filed with the Securities
and Exchange Commission is effective. This prospectus is not an offer to sell
these securities and we are not soliciting offers to buy these securities in
any
state where the offer or sale is not permitted.
7,308,451
Shares of Common Stock
AEROGROW
INTERNATIONAL,
INC.
This
prospectus covers up to 7,308,451 shares of common stock of AeroGrow
International, Inc. that may be offered for resale, or otherwise disposed for
the account of, the selling stockholders set forth under the heading “Selling
Security Holders” beginning on page 55. The shares of common stock issued and
outstanding may be offered at any time. The shares of common stock underlying
the outstanding common stock purchase warrants and issuable on conversion of
outstanding debt instruments may only be offered for resale after being issued
by AeroGrow to the selling stockholders upon exercise or
conversion.
The
shares of common stock are traded on the OTC Bulletin Board under the symbol
___. The last sale price of the common stock on April ___, 2006 was
$___.
AeroGrow
will not receive any proceeds from the sale or other disposition of the shares
or interests therein by the selling stockholders. To the extent that any of
common stock purchase warrants are exercised, we will receive the exercise
price
paid for the shares of common stock purchased thereunder. AeroGrow will not
receive any proceeds from the conversion of outstanding debt
instruments.
Investing
in our common stock involves a high degree of risk. See “Risk Factors” beginning
on page 4 of this prospectus.
Neither
the 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.
The
date
of this prospectus is April ___, 2006
TABLE
OF CONTENTS
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Page
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PROSPECTUS
SUMMARY
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1
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RISK
FACTORS
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4
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USE
OF PROCEEDS
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9
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DIVIDEND
POLICY
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10
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MARKET
DATA
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10
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MANAGEMENT'S
PLAN OF OPERATION
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12
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BUSINESS
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18
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MANAGEMENT
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31
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CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
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40
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PRINCIPAL
SHAREHOLDERS
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42
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DESCRIPTION
OF SECURITIES
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44
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PLAN
OF DISTRIBUTION
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51
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SELLING
SECURITY HOLDERS
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53
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CHANGES
IN CERTIFYING ACCOUNTANT
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67
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LEGAL
MATTERS
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68
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EXPERTS
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68
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WHERE
YOU CAN FIND MORE INFORMATION
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68
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INDEX
TO FINANCIAL STATEMENTS
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70
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PROSPECTUS
SUMMARY
This
summary highlights information contained elsewhere in this prospectus. You
should read this entire prospectus carefully before making an investment
decision, including the Risk Factors section beginning on page 4 and our
financial statements beginning on page F-1. We refer to Aero Grow International,
Inc. as "AeroGrow," "we," "our" and "us."
AeroGrow
International
AeroGrow
was formed as a Nevada corporation on March 25, 2002. AeroGrow’s business is
researching, developing and marketing advanced indoor aeroponic garden systems
designed and priced to appeal to the gardening, cooking and small kitchen
appliance, healthy eating and home and office décor markets
worldwide.
AeroGrow’s
principal products are “kitchen garden” indoor growing systems and proprietary
seed kits that will allow consumers, with or without gardening experience,
to
easily grow cherry tomatoes, cilantro, chives, basil, dill, oregano, mint,
flowers, chili peppers and lettuce throughout the year. AeroGrow’s kitchen
garden systems are designed to be simple, consistently successful and
affordable. AeroGrow believes that its focus on the design and features of
its
kitchen garden systems will make them the first of their kind on the consumer
market. We reached this conclusion on the basis of standard means of market
research, including focus groups and potential customer interview techniques,
review of potentially competitive products offered at all ranges of
functionality and price, and testing of products that may be considered
competitive in function although not necessarily competitive in terms of market
orientation.
AeroGrow
has filed thirteen patent applications in the United States and one
international patent application to protect its core inventions. To date, no
patents have been granted and there is no assurance such applications will
be
granted. Although aeroponic technology cannot in and of itself be patented,
the
patent applications include aeroponic technological advances described below
as
well as product, nutrient and seed pod inventions designed to enhance plant
growth. Many of AeroGrow’s patent-pending companion technologies are based on
its innovations in the fields of biology, plant physiology, chemistry and
adaptive learning computer science. In addition, AeroGrow has developed certain
trade secrets which simplify, combine and integrate its core technologies into
its indoor kitchen garden systems.
In
addition, AeroGrow has applied for and is currently processing ten (10)
trademark applications for trademarks for its products and product slogans,
including AeroGarden™, all of which are pending. AeroGrow has also obtained the
domain names for AeroGrow.com and AeroGarden.com, AeroGarden.net, AeroGarden.tv
and AeroGarden.biz among others.
AeroGrow
believes that its inventions and combined technologies will allow almost anyone,
from consumers who have no gardening experience to professional gardeners,
using
its seed selections and seed kits to produce year-round harvests of cherry
tomatoes, cilantro, chives, basil, dill, oregano, mint, flowers, chili peppers
and lettuce regardless of season, weather or lack of natural light in almost
any
indoor location including kitchens, bathrooms, living areas and
offices.
Until
March 2006, we were a development stage, start-up company, and we did not
generate any revenues. To date, we have funded our operations primarily through
the private sale of equity securities. We had an accumulated deficit of
$11,862,369 through December 31, 2005. We expect to incur substantial additional
expenses and losses in the further implementation of our business plan. Because
we are in the early stages of implementing our business plan, we cannot indicate
now if we will ever be profitable.
Our
principal office is located at 900 28th Street, Suite 201, Boulder, Colorado
80303. Our telephone number is (303) 444-7755 and our fax number is (303)
444-0406. We maintain a website at www.aerogrow.com.
Information on our website is not part of this prospectus.
Recent
Financing
AeroGrow
completed a private placement offering of its common stock and common stock
purchase warrants to institutional investors and other high net worth
individuals on February 24, 2006. AeroGrow received gross proceeds of
$10,740,000 in the offering from the sale of 2,148,000 shares of common stock
and warrants to purchase an additional 2,148,000 shares of its common stock.
Each unit in the offering consisted of one share of common stock and a five-year
warrant to purchase one share of common stock at an exercise price of $6.25
per
share. The price per unit in the offering was $5.00. After commissions, expenses
and other expenses, AeroGrow received net proceeds of $8,964,952 in the
offering.
AeroGrow
also received in January 2006 an aggregate of $840,000 from the exercise of
warrants during December 2005.
All
the
proceeds from the sale of the above securities will be used for general working
capital purposes, including the funding of the further development of its
products, advertising and marketing expenses and product manufacturing
costs.
Corporate
Merger Reorganization
On
January 12, 2006, AeroGrow executed an Agreement and Plan of Merger (“Merger
Agreement”) with Wentworth I, Inc., a Delaware corporation (“Wentworth”), which
was consummated on February 24, 2006. Pursuant to the Merger Agreement,
Wentworth merged with and into AeroGrow, with AeroGrow being the surviving
corporation (“Merger”). The certificate of incorporation and by-laws of AeroGrow
continue to be those of the surviving company, and the surviving company
continues to be governed by the corporate law of the State of Nevada.
Prior
to
the Merger, Wentworth was a shell company with nominal assets and operations.
Its sole business purpose was to identify, evaluate and complete a business
combination with an operating company. Prior to the Merger, Wentworth was a
reporting company under Section 12(g) of the Securities Exchange Act of 1934,
as
amended (“Exchange Act”) and was current in its reporting under the Exchange
Act.
As
a
result of the Merger, AeroGrow became a “successor issuer” to Wentworth within
the meaning of Rule 12(g)-3 under the Exchange Act. As a “successor issuer”
AeroGrow is now a Section 12(g) reporting company under the Exchange Act. As
a
result, the shares of common stock of AeroGrow are now registered securities
under Section 12(g) of the Exchange Act.
In
the
Merger each of the Wentworth’s 3,750,000 shares of outstanding common stock
(“Wentworth common stock”) was converted into the right to receive 0.154703
shares of AeroGrow common stock (“Exchange Ratio”) resulting in the issuance of
580,136 shares of AeroGrow’s common stock to the Wentworth stockholders. Each
share of AeroGrow common stock issued to the Wentworth stockholders in
connection with the Merger was restricted stock.
As
part
of the February 2006 offering, AeroGrow agreed to register for resale the shares
of AeroGrow’s common stock issued to investors in the February 2006 offering,
together with the shares of AeroGrow’s common stock underlying the warrants
issued in that offering. In addition, AeroGrow agreed to register on that
registration statement the common stock issued to the Wentworth stockholders
in
the Merger. Notwithstanding the registration of the shares held by the Wentworth
stockholders, several of those stockholders holding an aggregate of 396,813
shares of common stock entered into a lock up agreement prohibiting them from
selling or otherwise transferring: (i) any of its shares of common stock for
a
period of twelve months (12) months following the effective date of the
registration statement (“Initial Lock Up Period”), and (ii) fifty percent (50%)
of its shares of common stock after the expiration of Initial Lock Up Period
until the date which is eighteen (18) months after the effective date of the
registration statement. The foregoing lock up restrictions may be released
by
the mutual agreement of AeroGrow and Keating Securities, LLC (“Keating
Securities”), the exclusive placement agent for the February 2006
Offering.
In
connection with the Merger, Wentworth engaged Keating Securities, an affiliate
of Keating Investments to act as a financial advisor for Wentworth in connection
with the Merger. At the closing of the Merger, Keating Securities was paid
an
advisory fee of $350,000.
AeroGrow
has agreed that, after the Merger, unless it has the consent of Keating Reverse
Merger Fund, LLC (“KRM Fund”) and major shareholder of Wentworth, it will not
issue any securities for one year to its officers and directors or 10% or
greater stockholders, consultants, service providers or other parties, except
for issuances with respect to outstanding options, warrants and convertible
securities and pursuant to existing obligations, grants pursuant to stock option
and similar plans approved by the board and stockholders, capital raising
requirements approved by the board, or third party, arms-length transactions.
AeroGrow also will be obligated to: (i) remain a 12(g) reporting company and
comply with the reporting requirements under the Exchange Act, (ii) within
forty-five days following the closing of the Merger, AeroGrow’s board of
directors shall satisfy the independence, audit and compensation committee
and
other corporate governance requirements under the Sarbanes-Oxley Act of 2002
(the “SOX Act”), the rules and regulations promulgated by the SEC, and the
requirements of either Nasdaq or American Stock Exchange (“AMEX”) as selected by
AeroGrow, whether or not AeroGrow’s common stock is listed or quoted, or
qualifies for listing or quotation, on Nasdaq or AMEX, (iii) use its
commercially reasonable efforts to obtain and maintain a quotation of its shares
of AeroGrow common stock on the OTC BB or Nasdaq, and (iv) within 30 days
following the Closing, procure key man life insurance policies on certain
officers of AeroGrow.
The
Merger, for accounting and financial reporting purposes, has been accounted
as
an acquisition of Wentworth by AeroGrow. As such, AeroGrow is the legal and
accounting acquirer in the Merger, and the historical financial statements
of
AeroGrow are the financial statements for AeroGrow.
On
March
28, 2006, pursuant to the authority granted by Section 8.01 of its bylaws,
the
board of directors of AeroGrow unanimously amended Section 1.03 of the bylaws
to
change its fiscal year from the calendar year to the year ending on March 31,
of
each year.
Modification
of Convertible Notes
In
connection with the Merger, AeroGrow sought to modify the terms of certain
outstanding convertible notes issued in 2005 with a principal balance of
$3,000,000, originally due June 30, 2006 (“Convertible Notes”). The note holders
of this debt were offered the opportunity to convert the principal and interest
at a reduced conversion rate, extend the maturity for a lesser reduced
conversion rate than immediate conversion or maintain the current terms
unchanged.
Holders
of Convertible Notes representing $2,130,000 in principal amount converted
their
notes into AeroGrow common stock at a conversion price of $3.00 per share,
a
reduction from the original conversion price of $4.00 per share. Accordingly,
AeroGrow issued 710,009 shares of its common stock (rounded up for fractional
shares) to converting note holders (“Note Conversion”). The converting note
holders also were issued, pursuant to the terms of the note offering, additional
five-year warrants to purchase 426,000 shares of AeroGrow’s common stock at an
exercise price of $6.00 per share. Each share of AeroGrow common stock and
each
warrant issued to the converting note holders are restricted securities.
AeroGrow has agreed to register for resale the shares of AeroGrow’s common stock
issued to converting note holders (together with the shares of AeroGrow’s common
stock underlying the warrants issued to the note holders in connection with
the
original note issuance and upon the note conversion).
Holders
of Convertible Notes representing $840,000 in principal amount agreed to extend
the maturity under their notes from June 30, 2006 to December 31, 2006 in
exchange for a reduction in their conversion price from $4.00 per share to
$3.50
per share. The remaining holders of Convertible Notes, representing $30,000
in
principal amount, did not elect to convert or extend the maturity of their
notes
and may demand payment in cash on June 30, 2006. Pursuant to the terms of their
investment agreements, the common stock underlying their Convertible Notes
and
securities issuable thereunder on conversion have registration rights, which
AeroGrow is satisfying with this prospectus and related registration
statement.
RISK
FACTORS
The
purchase of shares of our common stock involves a high degree of risk. In
addition to the other information contained elsewhere in this prospectus, you
should carefully consider the following factors when evaluating an investment
in
our securities. If any of the adverse events described below actually occur,
our
business, financial condition and operating results could be materially
adversely affected and you may lose part or all of the value of your investment.
If you choose to invest in our securities, you should be able to bear a complete
loss of your investment.
Because
AeroGrow has a limited operating history, AeroGrow may not be able to
successfully manage its business or achieve profitability.
AeroGrow
has a limited operating history upon which you can base your evaluation of
its
prospects and the potential value of its common stock. AeroGrow is just now
starting to produce its garden systems and seed kits. AeroGrow is confronted
with the risks inherent in a start-up, development-stage company, including
difficulties and delays in connection with the production and sales of its
kitchen garden systems, operational difficulties and its potential
under-estimation of production and administrative costs. If AeroGrow cannot
successfully manage its business, AeroGrow may not be able to generate future
profits and may not be able to support its operations.
AeroGrow
is in the early stages of its development, has incurred substantial losses
since
inception and may never achieve profitability.
Since
AeroGrow commenced its operations in 2002, AeroGrow has incurred substantial
operating losses. For the year ended December 31, 2005, AeroGrow had a net
loss
of $7,717,577; for the year ended December 31, 2004, AeroGrow had a net loss
of
$2,389,044; and for the year ended December 31, 2003, AeroGrow had a net
loss of $1,159,535. AeroGrow’s losses from operations have resulted in an
accumulated deficit of $11,862,369 at December 31, 2005. AeroGrow expects that
its operating expenses will outpace revenues for the near future and result
in
continued losses. The success of its business will depend on its ability to
introduce and sell its kitchen garden systems to consumers and develop new
product extensions and applications. You should consider the costs and
difficulties frequently encountered by companies in their early stages of
launching a product and establishing a market presence. There is no assurance
that AeroGrow will ever obtain profitability which may lead to the entire loss
of your investment.
If
AeroGrow’s kitchen garden systems fail to perform properly, its business could
suffer with increased costs and reduced income.
Although
AeroGrow has been internally testing its products in its laboratories and with
users for three years, its products may fail to meet consumer expectations.
AeroGrow has had no experience in returns and has no history with respect to
warranty claims for its products. AeroGrow may be required to replace or repair
products or refund the purchase price to consumers. Failure of AeroGrow’s
products to meet expectations could:
| |
·
|
incur
costs related to returns and
repairs,
|
| |
·
|
delay
market acceptance of its products,
|
| |
·
|
result
in unpaid accounts receivable, and
|
| |
·
|
divert
its resources to remedy the
malfunctions.
|
AeroGrow
may need additional capital to fund its growth.
AeroGrow
anticipates that the proceeds from the Offering will be adequate to satisfy
its
capital requirements for the next 12 to 18 months. However, AeroGrow may require
additional capital to support its growth and cover operational expenses as
AeroGrow expands its marketing and product development. To do this AeroGrow
may
need to issue equity, debt or securities convertible into equity which will
dilute your stock ownership in AeroGrow following the Merger. If AeroGrow cannot
obtain additional financing on reasonable terms, AeroGrow may not have
sufficient capital to operate its business as planned and would have to modify
its business plan or curtail some or all of its operations.
If
the holders of AeroGrow’s convertible notes choose repayment instead of
conversion or the extension of maturity, AeroGrow will not be able to implement
its full plan of operation.
AeroGrow’s
convertible notes with an aggregate principal amount of $30,000 are repayable
on
demand at any time after June 30, 2006, unless converted into shares of
AeroGrow’s common stock. In addition, $840,000 of principal amount will be
repayable on December 31, 2006 unless converted. If these holders choose to
demand payment rather than converting their notes to common stock, up to
$870,000 of principal plus related interest may have to be paid. If such holders
choose not to convert or extend the maturity, AeroGrow would use a portion
of
the net proceeds from the February 2006 offering to repay the convertible notes
instead of funding its full plan of operations and AeroGrow may not be able
to
maximize revenues or profitability.
AeroGrow’s
intellectual property and proprietary rights give it only limited protection
and
can be expensive to defend.
AeroGrow’s
ability to produce and sell kitchen garden systems depends in part on securing
patent protection for the components of its systems, maintaining various
trademarks and protecting its operational trade secrets. To protect its
proprietary technology, AeroGrow relies on a combination of patents pending
(and
if granted, patents), trade secrets and non-disclosure agreements, each of
which
affords only limited protection. AeroGrow owns the rights to thirteen United
States patent applications and one foreign patent application. However, these
patent applications may not result in issued patents and even issued patents
may
be challenged. AeroGrow plans to begin selling its kitchen garden systems prior
to receiving issued patents relating to its patent applications. All of
AeroGrow’s intellectual property rights may be challenged, invalidated or
circumvented. Claims for infringement may be asserted or prosecuted against
AeroGrow in the future and AeroGrow may not be able to protect its patents,
if
any are obtained, and intellectual property rights against others. AeroGrow’s
former employees or consultants may violate their non-disclosure agreements
with
AeroGrow, leading to a loss of proprietary intellectual property. AeroGrow
also
could incur substantial costs to assert its intellectual property or proprietary
rights against others.
AeroGrow
might not be able to hire and retain personnel with the appropriate experience
and talent to build its sales and marketing capability which will negatively
affect future revenue.
AeroGrow
intends to hire sales and marketing personnel with some of the net proceeds
from
the Offering. If AeroGrow is unable to identify, hire or retain qualified sales
and marketing personnel, AeroGrow will not be able to achieve future
revenue.
AeroGrow’s
future depends on the financial success of its kitchen garden systems. Since
AeroGrow is introducing entirely new products without comparable sales history,
AeroGrow does not know if its kitchen garden systems and seed kits will generate
wide acceptance by consumers.
AeroGrow
is introducing its kitchen garden systems and seed kits as new products to
consumer markets unfamiliar with their use and benefits. AeroGrow does not
know
whether its products will generate widespread acceptance. If consumers do not
purchase its products, AeroGrow will not be profitable and you may lose all
of
your investment. You must consider AeroGrow’s prospectus in light of the risks,
expenses and challenges of attempting to introduce new products with unknown
consumer acceptance.
AeroGrow’s
marketing strategies may not be successful which would adversely affect its
future revenues and profitability.
AeroGrow’s
revenues and future depend on the successful marketing of its kitchen garden
systems. AeroGrow cannot assure you that consumers will be interested in
purchasing its products. AeroGrow initially plans to use direct marketing to
sell its products via television commercials, infomercials, magazine and
newspaper advertising and the Internet. Its infomercials and commercials may
not
generate sufficient income to continue to air them. If AeroGrow’s marketing
strategies fail to attract customers, its product sales will not produce future
revenues sufficient to meet its operating expenses or fund its future
operations. If this occurs, AeroGrow’s business may fail and you may lose your
entire investment.
AeroGrow’s
current or future manufacturers could fail to fulfill AeroGrow’s orders for
kitchen garden systems which would disrupt its business, increase its costs
and
could potentially cause it to lose its market.
AeroGrow
will initially depend on one contract manufacturer in China to produce its
kitchen garden systems. To date AeroGrow has received only limited quantities
of
finished products and does not yet have an operating history that demonstrates
that this manufacturer can produce its kitchen garden systems in a timely manner
or in sufficient volumes. The manufacturer may also fail to produce the kitchen
garden system to AeroGrow’s specifications or in a workmanlike manner and may
not deliver the systems on a timely basis. AeroGrow is in the process of
identifying other manufacturers in China to assure them of an alternative source
of supply. Any change in manufacturers could disrupt its business due to delays
in finding a new manufacturer, providing specifications and testing initial
production. A new manufacturer must also obtain an inventory of necessary parts
and tools for production. AeroGrow owns the tools used by its Chinese
manufacturer. AeroGrow’s manufacturer operates in a foreign country and may be
subject to business, political, currency and regulatory risks outside the
control of AeroGrow that may affect its ability to fulfill AeroGrow’s orders for
kitchen garden systems.
If
an exemption from registration on which AeroGrow has relied for any of its
past
offerings of common stock or warrants were later challenged legally, its
principals may have to expend time defending claims and AeroGrow would then
risk
paying expenses for defense, rescission and/or regulatory
sanctions.
To
raise
working capital, AeroGrow offered common stock and warrants in private
transactions that AeroGrow believed to be exempt from registration under the
Securities Act of 1933, as amended, and state securities laws. In 2004 AeroGrow
also conducted a state registered offering in Colorado of common stock and
warrants intended to be exempt from registration under the Securities Act of
1933, as amended, as an intrastate offering. In the event that one or more
investors seeks rescission, with resulting return of investment funds and
interest at a market rate, or that state or federal regulators seeks sanctions
against AeroGrow or its principals, AeroGrow would spend time and financial
resources, including some of the net proceeds of the February 2006 offering,
to
pay expenses for defense, rescission awards or regulatory sanctions. The use
of
funds would reduce the capital available to implement its full plan of
operation.
There
may be substantial sales of AeroGrow’s common stock by existing stockholders and
by the selling security holders who purchase shares of AeroGrow’s common stock
in the February 2006 offering which could cause the price of AeroGrow’s stock to
fall.
Future
sales of substantial amounts of AeroGrow’s common stock in the public market, if
one develops, or the perception that such sales might occur, could cause the
market price of its common stock to decline and could impair the value of your
investment in AeroGrow’s common stock and its ability to raise equity capital in
the future. As of March 31, 2006, AeroGrow had 9,145,120 shares of common stock
outstanding, of which 544,228 shares may be sold immediately after the Merger
without restriction. Of the remaining shares, (i) 710,009 shares issued upon
conversion of the Convertible Notes in the principal amount of $2,130,000 at
a
conversion price of $3.00 per share will be subject to registration rights
and
are not subject to lock up restrictions, (ii) 2,148,000 shares issued in the
February 2006 offering will be subject to registration rights and are not
subject to lock up restrictions, (iii) 580,136 shares issued to Wentworth
stockholders in the Merger will have registration rights, but of these shares,
396,813 shares will be subject to lock up restrictions for periods of 12 to
18
months, (iv) 811,391 shares were issued during 2005 and are considered
“restricted” shares under Rule 144, (v) 4,285,121 shares have been held more
than one year and may be transferred and sold, subject to the restrictions
under
Rule 144 or Rule 701 depending on the status of the holder and the holding
period, and (vi) 66,235 shares gratned to employees nd directors on March 30,
2006 under the company’s 2005 Equity Compensation Plan. Of the shares identified
in the last two categories above, 4,642,326 shares are subject to lock-up
agreements for periods of 12 to 18 months. The lock up restrictions may be
released by the agreement of AeroGrow and Keating Securities. The shares of
AeroGrow’s common stock underlying the Convertible Notes and the warrants issued
or to be issued to the holders of Convertible Notes are required to be
registered for resale by AeroGrow following the Merger and will not be subject
to lock up restrictions. As part of the February 2006 offering, AeroGrow has
agreed to register for resale the shares of common stock issued to investors
in
the February 2006 offering (together with the shares of common stock underlying
the 2,148,000 warrants issued in the February 2006 offering) on a registration
statement to be filed with the SEC. In the event such registration statement
is
filed, the shares of common stock issued to the Wentworth’s stockholders in
connection with the Merger will also be included on such registration statement.
There
can
be no assurance that the shares of common stock subject to registration rights
will become registered under the Securities Act. The sales of AeroGrow common
stock by these stockholders having registration rights or even the appearance
that such holders may make such sales once a registration statement becomes
effective may depress any trading market that develops before you are able
to
sell the common stock you receive in the February 2006 offering.
AeroGrow’s
outstanding warrants, options and convertible notes, and additional future
obligations to issue AeroGrow securities to various parties, may dilute the
value of your investment and may adversely affect AeroGrow’s ability to raise
additional capital.
As
of
March 31, 2006, after giving effect to the Merger, the February 2006 offering
and the Note Conversion, AeroGrow had committed to issue up to 5,941,756
additional shares of common stock under the terms of outstanding convertible
notes, warrants, options and other arrangements. There are warrants and options
outstanding that can be exercised for 1,126,128 shares of its common stock
at
exercise prices ranging from $0.005 to $15.00 per share and, as of March 28,
2006, the Company granted an additional 840,833 options and 66,235 shares of
its
common stock pursuant to the Company’s 2005 Equity Compensation Plan. There are
2,148,000 shares of common stock issuable upon exercise of the warrants issued
to investors in the February 2006 offering exercisable at $6.25 per share.
There
are also 240,006 shares of common stock issuable upon conversion of Convertible
Notes in the principal amount of $840,000 at a conversion price of $3.50 by
holders who have elected to extend the maturity of their notes to December
31,
2006 and 7,500 shares of common stock issuable upon conversion of Convertible
Notes in the principal amount of $30,000 at a conversion price of $4.00 by
holders who have not elected to extend the maturity of their notes beyond June
30, 2006. There are 600,000 shares of common stock issuable upon exercise of
outstanding warrants held by the initial holders of the Convertible Notes with
exercise price of $5.00 per share. There are 426,000 shares of common stock
issuable upon exercise of warrants, at an exercise price of $6.00 per share,
that were issued to holders that elected to convert notes in the principal
amount of $2,130,000. There are 174,000 shares of common stock issuable upon
the
exercise of warrants to be issued upon conversion of Convertible Notes in the
principal amount of $870,000 at an exercise price of $6.00 per share. There
are
60,000 shares of common stock issuable upon exercise of outstanding warrants
issued in 2005 to Keating Securities or its designees in connection with the
Convertible Notes offering with exercise price of $6.00 per share and 214,800
shares of common stock issuable upon exercise of outstanding warrants issued
to
Keating Securities in 2006 in connection with the Offering with an exercise
price of $6.25. AeroGrow also has commitments to issue up to 38,204 shares
of
common stock under certain equity commitments.
AeroGrow
has historically issued shares of its common stock or granted stock options
to
employees, consultants and vendors as a means to conserve cash, and AeroGrow
will continue to grant additional shares of stock and issue stock options in
the
future. As of the date of the merger, AeroGrow was able to issue an additional
1,505,000 shares of common stock under its 2005 equity compensation plan (less
236,796 shares that were issued during 2005 under the plan, options to purchase
28,401 shares that were granted during 2005 under the plan and remain
outstanding, and 38,204 shares under certain equity commitments that are
expected to be issued under the plan). As of March 28, 2006, AeroGrow granted
840,883 options to purchase the Company’s common stock and 66,235 shares of
common stock to employees, consultants and directors of the Company. There
are
401,086 shares of common stock under its 2005 equity compensation plan available
for issuance.
For
the
length of time these notes, warrants and options are outstanding, the holders
will have an opportunity to profit from a rise in the market price of AeroGrow’s
common stock without assuming the risks of ownership. This may adversely affect
the terms upon which AeroGrow can obtain additional capital. The holders of
such
derivative securities would likely exercise or convert them at a time when
AeroGrow would be able to obtain equity capital on terms more favorable than
the
exercise or conversion prices provided by the notes, warrants or
options.
If
AeroGrow’s common stock is traded, AeroGrow expects to be subject to the “penny
stock” rules for the foreseeable future.
The
market price of the shares may fluctuate greatly. Investors in the company
bear
the risk that they will not recover their investment.
There
is
no clearly established market for AeroGrow’s shares at this time. The public
market price is likely to be influenced by the price at which and the amount
of
shares the selling stockholders are attempting to sell at any point in time
with
the possible effect of limiting the trading price or lowering it to their
offering price. Shares such as those of AeroGrow are also subject to the
activities of persons engaged in short selling the securities which has the
effect of driving the price down. Therefore, the price of AeroGrow’s common
stock may fluctuate widely. A full and stable trading market for AeroGrow’s
common stock may never develop in which event any holder of such shares may
not
be able to sell at the time he elects or at all.
AeroGrow’s
articles of incorporation authorize the issuance of shares of preferred stock,
the rights, preferences, designations and limitations of which may be set by
the
board of directors.
AeroGrow’s
articles of incorporation have authorized issuance of up to 20,000,000 shares
of
preferred stock (“Preferred Stock”) in the discretion of its board of directors.
Any undesignated shares of Preferred Stock may be issued by AeroGrow’s board of
directors; no further shareholder action is required. If issued, the rights,
preferences, designations and limitations of such Preferred Stock would be
set
by the board of directors and could operate to the disadvantage of the
outstanding common stock. Such terms could include, among others, preferences
as
to dividends and distributions on liquidation, or could be used to prevent
possible corporate takeovers.
USE
OF PROCEEDS
All
of
the shares of common stock covered by this prospectus may be sold or otherwise
disposed of for the account of the selling stockholders. AeroGrow will not
receive any of the proceeds from the sale or other disposition of the shares
or
interests therein by the selling stockholders. AeroGrow will not receive any
proceeds from the conversion of outstanding debt instruments.
This
prospectus also covers the sale of shares of common stock receivable upon
exercise of common stock purchase warrants and conversion of outstanding debt.
In the event those common stock purchase warrants are exercised for cash,
assuming no adjustments to the exercise price for anti-dilution protection,
then
AeroGrow estimates that it would receive approximately $21,727,500 in gross
proceeds. Any proceeds received from the exercise of the warrants will be used
for general corporate purposes.
There
can
be no assurance that any warrants will be exercised or that AeroGrow will
receive any proceeds therefrom. It is common that such warrants are never
exercised because the price of the common stock does not justify the exercise
or
the warrant expires by its terms.
DIVIDEND
POLICY
We
have
never declared or paid any cash dividends on our common stock. We currently
intend to retain any future earnings to finance the growth and development
of
our business and therefore do not anticipate paying any cash dividends in the
foreseeable future. Our board of directors will determine any future payment
of
cash dividends depending on our financial condition, results of operations,
capital requirements, general business condition and other relevant factors.
If
we issue preferred shares, although currently unanticipated, no dividends may
be
paid on our outstanding common stock until all dividends then due on our
outstanding preferred stock will have been paid.
MARKET
DATA
The
common stock has traded in the over-the-counter market by quotation on the
OTC
BB under the symbol "_____".
Our
common stock is designated as “penny stock” and thus may be illiquid. The SEC
has adopted rules (Rules 15g-2 through l5g-6 of the Exchange Act), which
regulate broker-dealer practices in connection with transactions in “penny
stocks.” Penny stocks generally are any non-NASDAQ equity securities with a
price of less than $5.00, subject to certain exceptions. The penny stock rules
require a broker-dealer to deliver a standardized risk disclosure document
to
provide the customer with current bid and offer quotations for the penny stock,
the compensation of the broker-dealer and its salesperson in the transaction,
monthly account statements showing the market value of each penny stock held
in
the customers account, to make a special written determination that the penny
stock is a suitable investment for the purchaser and receive the purchaser’s
written agreement to the transaction. These disclosure requirements may have
the
effect of reducing the level of trading activity, if any, in the secondary
market for a stock that is subject to the penny stock rules. Since our common
stock is subject to the penny stock rules, persons holding or receiving such
shares may find it more difficult to sell their shares. The market liquidity
for
the shares could be severely and adversely affected by limiting the ability
of
broker-dealers to sell the shares and the ability of stockholders to sell their
stock in any secondary market.
The
trading volume in our common stock has been and is extremely limited. The
limited nature of the trading market can create the potential for significant
changes in the trading price for the common stock as a result of relatively
minor changes in the supply and demand for our common stock and perhaps without
regard to our business activities.
The
market price of our common stock may be subject to significant fluctuations
in
response to numerous factors, including: variations in our annual or quarterly
financial results or those of our competitors; conditions in the economy in
general; announcements of key developments by competitors; loss of key
personnel; unfavorable publicity affecting our industry or us; adverse legal
events affecting us; and sales of our common stock by existing
stockholders.
The
high
and low sales prices for the common stock for the period ____, 2006, the initial
trading date, until ____, 2006, were $____ and $_____ respectively (such prices
being stated without retail mark-up, mark-down, or commissions).
We
have
approximately 700 record holders of our common stock. We believe that in
addition to the record ownership there are a limited number of beneficial owners
who hold their shares in street name or through other nominees.
MANAGEMENT'S
PLAN OF OPERATION
The
following plan of operation provides information which AeroGrow’s management
believes is relevant to an assessment and understanding of AeroGrow’s business,
operations and financial condition. The discussion should be read in conjunction
with the audited financial statements and notes thereto which are included
in
this Memorandum. This plan of operation contains forward-looking statements
that
involve risks, uncertainties and assumptions. AeroGrow’s actual results may
differ substantially from those anticipated in any forward-looking statements
included in this discussion as a result of various factors, including those
set
forth in “Risk Factors” contained elsewhere in this Memorandum.
Overview
AeroGrow
is in the business of developing, marketing and distributing advanced indoor
aeroponic garden systems. Since formation, through its development stage ending
February 2006, its principal activities consisted of product research and
development, market research, business planning and raising the capital
necessary to fund these activities. AeroGrow has completed development of its
kitchen garden systems and related bio-grow seed pods and has started
manufacturing and sales activities as of March 2006. AeroGrow placed its initial
manufacturing order for 4,000 units in December 2005 and began taking delivery
of units in the first quarter of 2006. AeroGrow commenced its initial marketing
and distribution of its products in the first quarter of 2006.
Liquidity
and Capital Resources
As
of
March 31, 2006, AeroGrow has generated net proceeds from the sale of the
following securities:
·
$2,279,444 from private placements of 2,040,611 shares
of its common stock during 2002, 2003 and 2004,
·
$215,000 from the exercise of its
redeemable $1.25 warrants and $2.50 warrants for 164,000 shares of common
stock
in 2003, 2004 and through June 30, 2005,
·
$2,307,737 from a Colorado registered offering of units
consisting of 544,228 shares of common stock and its redeemable $10.00 warrants
and $15.00 warrants during 2004,
·
$2,591,554 from its debt offering of convertible notes
and redeemable 2005 warrants in June, July, August and September
2005,
·
$8,000 from the issuance of 1,600 shares of common
stock pursuant to an agreement with an employee at $5.00 per share during
the
period June 30, 2005 through September 30, 2005,
·
$85,000 from the issuance of 38,000 shares of common
stock pursuant to the exercise of $1.25 and $2.50 warrants,
·
$962,500 from the exercise of outstanding $1.25, $2.50
and $5.00 warrants for 395,000 shares of common stock during December 2005;
and
·
$8,964,952 from the sale of common stock and warrants in
the February 2006 offering, consummated February 24, 2006.
As
of
March 31, 2006, AeroGrow had a cash balance of approximately $8,840,168. This
amount of cash capital will be sufficient to meet its liquidity requirements
for
the next 12 to 18 months. AeroGrow anticipates its principal sources of
liquidity during 2006 will be the net proceeds from the February 2006 offering
and proceeds from initial sales of AeroGrow’s products.
AeroGrow
expects to incur additional losses in the foreseeable future and at least until
such time as it successfully commences volume production of its products and
successfully launches its marketing and public relations campaigns for its
products. Accordingly, there is no historical financial or other information
about AeroGrow which you could use to determine its future
performance.
AeroGrow
has used the funds raised to date to:
· complete
the research and development of its basic and deluxe kitchen garden
systems,
· commence
manufacturing of its deluxe kitchen garden system and six varieties of seed
kits,
· commence
development of its direct response marketing advertisements including one
30-minute infomercial and 60-second television commercials, and
· commence
development of its public relations launch scheduled for the first half of
2006.
AeroGrow
anticipates that existing cash resources will be sufficient to complete these
activities. AeroGrow plans to launch the sale of its kitchen garden systems
nationally through a direct-to-consumer advertising campaign and through
selected retail outlets and to date has shipped products to Sur La Table, a
retailer, and Frontgate, a nationally recognized catalogue. AeroGrow intends
to
use its working capital principally to purchase inventory, fund its initial
media advertising, fund a portion of its public relations campaign and trade
show costs. If the holders choose not convert or elect not to extend the
maturity of the Convertible Notes, AeroGrow will have to use a portion of its
working capital to repay the Convertible Notes instead of funding its plan
of
operations as outlined above.
Plan
of Operation
During
the balance of 2006, AeroGrow intends to expand its efforts in manufacturing,
marketing, distributing and selling its kitchen garden systems. Manufacturing
activities began in January 2006 for pilot production and production capacity
is
being expanded, both in terms of capacity at its current contract manufacturer
as well as seeking additional contract manufacturers, for the balance of
calendar year 2006. AeroGrow intends to complete its infomercial in the second
calendar quarter of 2006 time frame and begin test marketing. Initial test
marketing shipments to retail launch partners, including Sur La Table, Frontgate
and others commenced in March 2006. In order to transition from its development
stage to an operating company, AeroGrow has strengthened its management team
with the additional of a Vice President of Sales, a Vice President of
Operations, a new Chief Financial Officer and other operations and
administrative staff. AeroGrow also is expanding its new product development
activities to sustain operations beyond its initial product
offerings.
AeroGrow
has developed many of its marketing materials, including its website, product
brochures, retail packaging and other retail collateral materials and public
relations kits. Additional development is in process for in-store point of
purchase supplies, infomercial and short-form television show and print media
items. Many of these items will be completed in the period of March to June
2006.
AeroGrow’s plan of operation for the balance of the 2006 and
early 2007 fiscal years will depend, in part, on the assumptions used to develop
its business plan and whether they were or have been inaccurate or need to
be
changed to respond to different assumptions or different business needs or
objectives. Any changes could cause the working capital to be insufficient
to
fund its operations and it could be required to seek additional financing sooner
than it currently anticipates.
Manufacturing.
AeroGrow
plans to manufacture its products using contract manufacturing sources that
are
supervised by its internal engineering and manufacturing teams. Its bio-grow
seed pods will initially be produced and assembled in its laboratory facilities
in Longmont, Colorado.
On
September 30, 2005, AeroGrow entered into a manufacturing agreement with Source
Plus, Inc. (“Source Plus”) an Alabama corporation, and Mingkeda Industries Co.,
Ltd. (“Mingkeda”), a Chinese company located in the Guangdong Province of China
that has primarily manufactures light fixtures in the past. This agreement
supersedes a prior agreement with Mingkeda and Source Plus. Under the terms
of
this agreement, Source Plus advanced monies to Mingkeda for tooling and molds
to
build AeroGrow’s products. To reimburse Source Plus for its advance to Mingkeda,
AeroGrow issued 62,000 shares of its common stock to Source Plus in October
2005
with an estimated market value of $5.00 per share. AeroGrow recorded a $310,000
asset for tooling which AeroGrow will depreciate over a period of three years
to
reflect the estimated useful life of the tooling. AeroGrow and Source Plus
have
agreed to certain selling restrictions on its sale of AeroGrow common stock.
In
the event certain capital raising is not completed by June 1, 2006, Source
Plus
may require AeroGrow to repay the $155,000 in exchange for its return of
AeroGrow stock. If the market value of AeroGrow common stock issued to Source
Plus is less than $155,000 one year after the closing of the Offering, then
AeroGrow has agreed to pay such difference to Source Plus in cash within sixty
days following the one year date, plus interest at 5% per annum. Further, in
return for a $0.50 per unit price concession from Mingkeda for products AeroGrow
has purchased, AeroGrow issued 10,000 shares of its common stock to Mingkeda
in
October 2005 with an estimated market value of $5.00 per share based on the
discussions the company had with investment bankers at that time. These shares
are subject to the same selling restrictions as the stock issued to Source
Plus.
AeroGrow recorded a $50,000 expense for inventory which AeroGrow will charge
to
cost of sales at a rate of $0.50 per unit for each unit sold or one year,
whichever occurs sooner.
The
new
agreement provides for payment of the purchase price of products manufactured
by
Mingkeda as follows: 30% paid twenty-five days prior to shipment, 50% paid
upon
shipment and the remaining 20% paid thirty days after shipment. AeroGrow has
also agreed to pay to Source Plus a commission of 2% of the total purchases
of
the product with such payments to be made using the same proportions as
AeroGrow’s payments to Mingkeda. In addition, Source Plus is entitled to receive
2% of all purchases by AeroGrow of kitchen gardens, from all sources, for a
period of eighteen months from the date of the initial shipment from Mingkeda.
Mingkeda will manufacture and ship the products as and when required by AeroGrow
and will maintain an agreed level of quality. Mingkeda has agreed to develop
sufficient capacity to manufacture up to 30,000 kitchen garden systems per
month. AeroGrow will have the right to audit Mingkeda’s manufacturing
performance periodically and maintain an agent in the Mingkeda plant to inspect
its production. AeroGrow believes that its products will be manufactured to
the
highest quality standards at acceptable costs. In order to diversify its risk
to
a single manufacturer, as well as provide for capacity beyond that of Mingkeda,
AeroGrow is actively seeking additional contract manufacturing
sources.
The
manufacturing agreement with Mingkeda and Source Plus provides for protection
of
the intellectual property rights of AeroGrow. Under the agreement, Source Plus
is specifically responsible for working as the liaison between AeroGrow and
Mingkeda with responsibility for oversight of quality control in the
manufacturing of the products, reviewing of specifications and making sure
that
Mingkeda complies, monitoring order fulfillment and similar tasks related to
quality of the finished goods. Source Plus receives a 2% commission for their
work. Mingkeda manufactures the product to the specifications of AeroGrow at
a
predetermined line item component and assembly cost and is subject to cost
fluctuations only due to changes in exchange rate and cost of raw materials,
which must be pre-approved by AeroGrow.
Public
Relations Program.
During
the first calendar quarter of 2006, AeroGrow initiated a public relations
program designed to gain a wide exposure for AeroGrow and its kitchen garden
systems through news stories:
· on
radio and television,
· in
food and gardening sections of newspapers,
· in
food and gardening magazines, and
· on
the Internet.
AeroGrow’s
products were sent to selected major food and gardening editors, other
recognized gardening and cooking authorities and celebrities to familiarize
them
with the products. The public relations program to date has yielded placements
in newspapers such as the New
York Times,
magazines such as Readers
Digest
and
television shows such as Good Morning America, AeroGrow had signed a letter
agreement with Patrice Tanaka & Company, Inc. to manage its public relations
activities. This agreement is cancelable by either party at any time. AeroGrow
have agreed that 25% of Tanaka’s hourly compensation will be paid in shares of
its common stock at the then current market value, which has totaled 9,388
shares of common stock through February 28, 2006.
Direct
Response Marketing and Sales.
AeroGrow
will begin testing various direct marketing advertisements during the second
calendar quarter of 2006 including:
· 60-second
television commercials,
· 30-minute
infomercials,
· home
shopping networks, and
· print
and Internet advertising.
AeroGrow
will develop a plan based on the results of this testing to generate direct
sales nationally in the experienced gardener market, the “want-to-be” gardener
market, the kitchen products and small appliance markets and the office and
home
décor markets.
AeroGrow
receives the full retail selling price for its products when AeroGrow markets
directly to consumers, which yields higher gross profit margins than sales
made
at wholesale prices. However, the gross margins for direct-to-consumer sales
have a higher marketing cost associated with them. Accordingly, the level of
product awareness achieved by these direct marketing programs will depend on
the
level of consumer response generated by AeroGrow’s advertisements. The consumer
response, in turn, generates revenues which allow AeroGrow to maintain higher
levels of media expenditures.
AeroGrow
entered into an agreement with Respond2, Inc. (“Respond2”) to develop and
produce one 30-minute infomercial and 60-second television commercials. AeroGrow
has paid to Respond2 a creative fee of $15,000 in cash plus 3,000 in shares
of
its common stock valued at $5.00 per share. AeroGrow also agreed to pay to
Respond2 all actual approved production costs currently estimated at
approximately $400,000, and a profit percentage equal to 33% of the production
costs. The profit percentage will be paid in shares of AeroGrow’s common stock
valued at 80% of the then current market price. AeroGrow currently estimates
that the total compensation payable to Respond2 during the term of this
agreement will be approximately $415,000 in cash and AeroGrow will issue an
aggregate of 30,000 shares of common stock to Respond2 assuming a market price
of $5.00 per share during the term of the agreement.
AeroGrow
intends to launch its products nationally through direct response marketing
channels and to maintain a dedicated e-commerce website. AeroGrow plans to
initially allocate $1.9 million to purchase television time for direct response
advertising, $200,000 to purchase print advertisements in newspapers and
magazines and $50,000 to maintain its website.
Retail
Marketing and Sales.
During
the 2006 fiscal year, AeroGrow plans to expand the distribution of its products
to additional channels including:
· television
shopping networks,
· catalog
companies, and
· specialty
retailers including cooking and gourmet, gardening and housewares.
AeroGrow
has developed a nationwide network of manufacturer sales representative
organizations with experience in each of these retail categories to manage
sales
activities for these channels. These sales representatives will be independent
contractors compensated by commission based on the sales they generate. Although
AeroGrow’s gross profit margins will be lower when selling through retail
channels, AeroGrow will not incur the relatively higher advertising costs
associated with its direct response marketing. AeroGrow’s ability to establish
and maintain sales through retail channels will depend on the success of its
public relations and direct marketing campaigns in generating awareness for
its
products, the retailers’ ability and willingness to merchandise its products and
consumer acceptance for its kitchen garden systems.
Distribution.
AeroGrow’s
kitchen garden systems will be shipped from its manufacturer in China primarily
via ocean cargo to a fulfillment center in Reno, Nevada, however, initial
shipments are being shipped via airfreight to meet customer delivery dates
and
allow for additional quality inspection during the early stages of production.
Its seed pods are being shipped from its manufacturing facility in Longmont,
Colorado, to the fulfillment center. AeroGrow has contracted with Innotrac
Corporation (“Innotrac”), a Georgia corporation, to fulfill, store and ship its
products. Innotrac will provide warehousing, order packing and shipping for
the
products sold through both its direct response channels and retail channels
on
primarily a variable cost basis. Costs for warehousing, order packing and
shipping for the products sold through direct response channels are estimated
to
be about $1.50 to $2.00 per units plus actual freight costs forecasted between
$5.00 and $10.00 per order. These costs are included in the shipping and
handling charge paid by the direct response purchaser. For retail distribution,
the costs for warehousing, order packing and shipping are estimated to be
between $.50 and $1.00 per unit because of the efficiencies gained in shipping
larger quantities per order. Freight costs will vary significantly depending
upon quantity ordered and destination, but they are projected to be in the
range
of 2% to 4% of the sales net of reimbursement from customers. Innotrac also
provides payment processing, database management and customer support services
for the direct response sales. These costs are projected to be approximately
2.5% of sales for payment processing and 1% of sales for customer support,
with
database management costs included in the foregoing. The contract with Innotrac
is for an initial term of three years, but provides for termination by either
party on ninety days’ written notice.
AeroGrow
is negotiating with a telemarketing company to provide operators who will take
calls from consumers responding to its direct response marketing. These orders
and the orders received on its website will be provided to Innotrac once each
day to be fulfilled. Telemarketing costs per order are projected at 4% of direct
response sales.
International
Sales. Once
AeroGrow has established consumer acceptance of its products in the United
States, it intends to actively seek to establish international distributors
in
key markets in Europe and Asia. Its goal is to partner with successful
distribution companies that possess both direct and retail marketing experience.
These partnerships will most likely be in the form of exclusive distributor
or
licensing agreements tied to performance criteria. AeroGrow anticipates that
such distributors will modify AeroGrow’s marketing and advertising materials
developed for United States’ markets for use in their respective
markets.
Inflation
and Seasonality. AeroGrow
does not expect inflation to have a significant effect on its operations in
the
foreseeable future. Because its kitchen garden systems are designed for an
indoor gardening experience, it is possible that AeroGrow may experience slower
sales in the United States during April through September when its consumers
may
tend to garden outdoors. However, AeroGrow currently anticipates increased
sales
during the holiday season in the fourth calendar quarter and in the first
calendar quarter due to additional marketing AeroGrow plans to
undertake.
Research
and Development
During
the year ended December 31, 2005, AeroGrow incurred $577,302 in research and
development costs. During the year ended December 31, 2004, AeroGrow incurred
$333,253 in research and development costs. During the year ended December
31,
2003, AeroGrow incurred $344,164 in research and development costs. AeroGrow
initially focused its efforts on determining if an aeroponic product could
be
developed for consumer use in the home at attractive prices. AeroGrow then
focused on developing the design, technology and various prototype models.
In
addition, AeroGrow set up a greenhouse and laboratory to measure the success
of
growing herbs, vegetables and flowers with various seeds, cuttings and nutrients
under different lighting conditions. Finally, AeroGrow filed patent applications
for the technology used in its kitchen garden systems.
In
the
next twelve months AeroGrow intends to continue researching and developing
new
product designs and product extensions including, but not limited to, nutrient
delivery systems and additional seed varieties for its seed kits.
Off-Balance
Sheet Arrangements
AeroGrow
has certain current commitments under operating leases and has not entered
into
any capital leases or contracts for financial derivative instruments such as
futures, swaps and options.
Critical
Accounting Policies and Estimates
Significant
estimates include valuation of AeroGrow’s non-monetary transactions in
connection with issuances of common stock and common stock warrants and options.
This estimate has had a material or substantial effect upon AeroGrow’s
operations.
BUSINESS
Overview
AeroGrow
was formed as a Nevada corporation on March 25, 2002. AeroGrow’s principal
business is researching, developing and marketing advanced indoor aeroponic
garden systems designed and priced to appeal to the gardening, cooking and
small
kitchen appliance, healthy eating and home and office décor markets worldwide.
Since formation, AeroGrow’s principal activities have consisted of product
research and development resulting in the filing of 14 patent applications
and
ten trademark applications, the development of two proprietary growing systems
and 6 proprietary seed kits, research into the markets for AeroGrow’s products
and the best channels through which to sell them, business planning and raising
the capital necessary to fund these activities. In December 2005, AeroGrow
commenced pilot production of its AeroGarden™ system and, in March 2006,
AeroGrow began shipping these systems to retail and catalogue customers.
AeroGrow’s
principal products are “kitchen garden” indoor growing systems and proprietary
seed kits that will allow consumers, with or without gardening experience,
to
easily grow cherry tomatoes, cilantro, chives, basil, dill, oregano, mint,
flowers, chili peppers and lettuce throughout the year. AeroGrow’s kitchen
garden systems are designed to be simple, consistently successful and
affordable. AeroGrow believes that its focus on the design and features of
its
kitchen garden systems will make them the first of their kind on the consumer
market. We reached this conclusion on he basis of standard means of market
research, including focus groups and potential customer interview techniques,
review of potentially competitive products offered at all ranges of
functionality and price, and testing of products that may be considered
competitive in function although not necessarily competitive in terms of market
orientation.
AeroGrow
has filed thirteen patent applications in the United States and one
international patent application to protect its core inventions. To date, no
patens have been grated and there is no assurance such applications will be
granted. Although aeroponic technology cannot in and of itself be patented,
the
patent applications include aeroponic technological advances described below
as
well as product, nutrient and seed pod inventions designed to enhance plant
growth. Many of AeroGrow’s patent-pending companion technologies are based on
its innovations in the fields of biology, plant physiology, chemistry and
adaptive learning computer science. In addition, AeroGrow has developed certain
trade secrets which simplify, combine and integrate its core technologies into
its indoor kitchen garden systems.
AeroGrow
believes that its inventions and combined technologies will allow almost anyone,
from consumers who have no gardening experience to professional gardeners,
to
produce year-round harvests of cherry tomatoes, cilantro, chives, basil, dill,
oregano, mint, flowers, chili peppers and lettuce provided in its seed kits
regardless of season, weather or lack of natural light. AeroGrow believes that
its kitchen garden systems’ unique and attractive designs make them appropriate
for use in almost any location including kitchens, bathrooms, living areas
and
offices.
AeroGrow’s
basic kitchen garden system and its deluxe kitchen garden system are projected
to retail at prices ranging from $99 to $149 based on the channel of
distribution in which they are sold and the specific product features provided.
AeroGrow currently expects to market its deluxe kitchen garden system in the
United States immediately following completion of the Merger and the Offering.
Hydroponic
Industry - Background and Opportunity
Hydroponics
is the science of growing plants in water instead of soil. Used commercially
worldwide, hydroponics is considered an advanced and often preferred crop
production method. Hydroponics is typically used inside greenhouses to give
growers the ability to better regulate and control nutrient delivery, light,
air, water, humidity, pests and temperature. Hydroponic growers benefit by
producing crops faster and enjoying higher crop yields per acre than traditional
soil-based growers.
Aeroponics
is derived from hydroponics and occurs when plant roots are suspended in an
air
chamber and bathed at regular intervals with nutrient solution. AeroGrow
believes that the aeroponics technology used in its kitchen garden systems
is a
technological advance over hydroponics because plant roots are suspended in
a
near-100% humidity, oxygen-rich air chamber and bathed in a nutrient-rich
solution.
AeroGrow
conducted informal market research to help determine the products to be created
and the market characteristics. AeroGrow conducted research with approximately
500 individuals who were located either by their signing up on the website
to
pre-order the basic product, agreed to be beta testers of the basic product,
came to preview meetings concerning the company and friends of employees and
consultants that were asked to locate persons for market testing. The research
consisted of face to face and internet interviews/surveys with potential
consumers and standard focus group experiences. From some of the contacts,
AeroGrow obtained a 10 page questionnaire and in other instances the responses
were taped for later review. Persons from approximately 35 states responded
to
the surveys and focus groups. A professional market research consultant assisted
with the design, implementation and analysis of the focus groups, individual
interviews and surveys. From this research, it appears to AeroGrow that there
is
a potential, sizeable national market for its countertop soil-less kitchen
garden systems for use indoors in homes and offices. Until the development
of
AeroGrow’s kitchen garden systems, significant barriers have prevented
hydroponic or aeroponic technology from being incorporated into mainstream,
mass-marketed consumer products, including:
·
Consumers
generally lack the specialized knowledge required to select, set up, operate
and
maintain the various components for a typical hydroponic or aeroponic system,
including growing trays, irrigation channels, growing media nutrient reservoirs
and nutrient delivery systems consisting of electronic timers, pumps, motors,
tubing and nozzles.
· Consumers
generally do not possess the specialized knowledge required to select, set
up,
operate and maintain the varied indoor lighting systems that are necessary
to
grow plants in the absence of adequate indoor natural light.
· Consumers
are required to properly mix and measure complex hydroponic nutrient formulas
which change depending on the plant variety and the stage of plant growth.
In
addition, consumers must deal with the problem of nutrient
spoilage.
· Federally-mandated
water quality reports show that the water in many large cities is not suitable
for hydroponic or aeroponic growing and requires chemical treatments. Consumers
generally are unaware of how to adjust the water for healthy plant
growth.
AeroGrow
believes that these complexities have been accepted in existing hydroponic
market channels because its research has indicated that hydroponic manufacturers
have generally focused their product development and marketing efforts on
satisfying the needs of the commercial greenhouse and dedicated hobbyist
markets. AeroGrow’s research has indicated that the hydroponic growing equipment
currently available in these markets is bulky, expensive and comprised of many
parts. These users are motivated to gain the specialized knowledge, equipment
and experience currently required to successfully grow plants with these
products.
AeroGrow
believes that the complexities of currently available commercial hydroponic
products fail to address the needs and wants of the mass consumer market,
leaving that market unserved. AeroGrow further believes that its trade secrets,
patent-pending inventions and companion technologies have simplified and
improved hydroponic and aeroponic technologies and enabled it to create the
first indoor aeroponic gardening system appropriate for the mass consumer
market.
AeroGrow’s
Proprietary Technology
AeroGrow
has spent more than three years innovating, simplifying, combining and
integrating numerous proprietary technologies and inventions into a family
of
“plug and grow” aeroponic kitchen garden systems and related seed kits
specifically designed and priced for the mass consumer market. AeroGrow has
filed thirteen patent applications in the United States and one international
patent application to protect its inventions. Following is a description of
AeroGrow’s proprietary technologies and inventions which are used together in
its kitchen garden system and seed kits. The inventions under the patent
applications have not been granted patents, and there can be no assurance that
patents will be granted.
Rainforest
Nutrient Delivery System.
AeroGrow’s “rainforest” nutrient delivery system combines its patent-pending
technologies with features from several advanced hydroponic or aeroponic
methodologies into a proprietary system designed to provide the benefits of
accelerated aeroponic plant growth. These hydroponic or aeroponic methodologies
include:
· Drip
Technologies.
Drip
systems create nutrient irrigation by pumping nutrient solution from a reservoir
up to the base of the plant and saturating a soil-less growing medium. The
growing medium delivers nutrients and moisture to plant roots which is similar
to rainwater as it drips through the soil and past plant roots.
· Ein
Gedi Aeroponic Technologies.
Plant
roots in aeroponic systems are suspended in an air chamber and bathed at regular
intervals with nutrient solution. In the Ein Gedi variation of aeroponics,
plant
roots are allowed to grow directly into nutrient solution after passing through
an air space.
AeroGrow’s
rainforest technology suspends plant roots into a 2 to 4 inch air chamber above
an oxygenated nutrient solution. Nutrients are pumped from the nutrient
reservoir to the base of each plant where a regulated flow of nutrients drips
down through plant roots.
Pre-Seeded
Bio-Grow Seed Pods.
AeroGrow’s proprietary bio-grow seed pods include pre-implanted seeds, a
bio-sponge growing medium, removable bio-dome covers and a grow basket to assist
with the proper distribution of moisture. AeroGrow’s seed pods must be used in
its kitchen garden systems in order to grow plants. AeroGrow believes consumers
may use seeds purchased from other sources for use in its kitchen garden system,
although AeroGrow cannot provide any assurances on germination and growth in
such cases.
AeroGrow
selected the seeds to pre-implant in its bio-grow seed pods after two years
of
extensive research which included:
· analyzing
thousands of seed varieties,
· growing
and testing several hundred varieties of plants in its greenhouse and grow
laboratories, and
· testing
the taste and appearance of its grown vegetables, herbs and flowers with
consumers.
AeroGrow
implants its selected seeds in a bio-sponge growing medium principally developed
for rapid germination and enhanced root growth. The bio-sponge helps facilitate
and regulate oxygen, moisture and nutrition, and supports plant roots from
germination through maturity and harvest. AeroGrow’s bio-grow domes create a
mini-greenhouse environment by covering the grow surface to create a near-100%
humidity air chamber which is optimal for most plant germination and initial
growth. Bio-grow domes help regulate moisture and temperature to levels optimal
for plant germination.
AeroGrow’s
proprietary bio-grow seed pods are a vital component of its kitchen garden
system. AeroGrow’s bio-grow seed pods will be packaged along with nutrients in
its proprietary seed kits to be used exclusively in its kitchen garden systems.
These seed kits currently include seeds for cherry tomatoes, cilantro, chives,
basil, dill, oregano, mint, chili peppers and flowers. In addition to pre-seeded
pods, AeroGrow also plans to allow consumers to purchase unseeded pods to give
them the opportunity to grow their own seeds in AeroGrow’s kitchen garden
systems. AeroGrow seed-pods will be required for use with the kitchen garden
systems. However, not all plants are appropriate to grow in the kitchen garden
system.
Microprocessor-Based
Control Panel and Nutrient Cycle Delivery System.
AeroGrow believes that certain common problems face both experienced gardeners
and beginning gardeners, including:
· improperly
watering plants,
· improperly
feeding plants, and
· failing
to provide plants with sufficient light needed for healthy growth.
To
assist
consumers, especially inexperienced gardeners, AeroGrow has developed two
patent-pending microprocessor-based technologies that address these common
problems. These technologies are designed to:
· regulate
the lighting system,
· automatically
alert users when it is time to add water and nutrients,
· help
simplify and reduce consumers’ time and involvement in caring for
plants,
· reduce
the variables and errors often made by consumers in plant care, and
AeroGrow
has developed two kitchen garden systems with different control systems which
are described, below, at “AeroGrow’s Kitchen Garden Systems.” AeroGrow’s
microprocessor-based control panel will be available as an accessory for its
basic kitchen garden system and is included as a standard feature on its deluxe
kitchen garden system. This control panel includes an electronic nutrient and
water reminder system and microprocessor-controlled lights that alert consumers
to add water and nutrients when needed and help ensure that plants are properly
fed and receive the proper lighting.
In
addition, AeroGrow’s deluxe kitchen garden system includes its
microprocessor-based nutrient cycle delivery system as a standard feature.
With
its nutrient cycle delivery system the consumer selects from four plant types
(lettuce, herbs, tomatoes or flowers) and the system then automatically adjusts
and optimizes the nutrient, water and lighting cycles based on the plant variety
selected.
Time-Release
Nutrient Tablets.
Plants
require a balanced mixture of nutrients for optimal growth. Certain nutrient
combinations, including calcium nitrate and magnesium sulphate, generally cannot
be combined, mixed or stored in the same container due to specific chemical
reactions that bind them together and renders them useless to plants. Hydroponic
growers seek to solve this problem by packaging various nutrient concentrations
in up to four separate containers which are individually measured and added
as
needed by the consumer. These nutrient complexities require consumers using
hydroponic systems to:
· understand
the blends of nutrient fertilizer that are best suited for the specific variety
of plants they are growing,
· understand
the nutrient requirements for the specific plant variety at each of three stages
of its growth and maturity,
· measure
and blend nutrients from up to four different concentrated solutions and add
them to specific measured quantities of water, and
· monitor,
adjust and re-mix nutrient fertilizers over time.
AeroGrow
believes that current plant nutrition processes required for successful
hydroponic growing have created barriers to mass consumer use and acceptance
because they are cumbersome and complex. To help overcome these barriers,
AeroGrow has spent nearly three years developing time-release nutrient tablets
designed specifically to deliver the proper nutrients to the plants, while
offering consumers a user-friendly nutrient system. The consumer simply adds
the
plant-specific nutrient tablets to the kitchen garden systems when instructed
by
the microprocessor-based nutrient cycle delivery system, usually once every
two
weeks. The nutrient tablets eliminate the need for measuring and mixing
multi-part nutrient formulas and storing various nutrients in separate
containers. The nutrient tablets customize multiple nutrients and minerals
such
as calcium, magnesium and iron for specific plant varieties at different stages
of their growth.
Water
Quality.
Tap
water as supplied by local municipalities often is not conducive to aeroponic
or
hydroponic growth. To address these problems, most hydroponic growers monitor
and chemically adjust the water they use on a daily or weekly
basis.
AeroGrow
believes that the problems associated with the wide range of water chemistry
found throughout the United States (and possibly internationally), as well
as
the complexities involved in monitoring water chemistry, are significant
barriers which limit the use of hydroponic gardening by the general public.
AeroGrow has developed a patent-pending formula that automatically adjusts
and
balances the water to a level capable of sustaining healthy plant growth in
an
aeroponic environment. This formula is pre-mixed into AeroGrow’s time-release
nutrient tablet described above, which eliminates the need for consumers to
understand water chemistry.
Integrated
and Automated Lighting System.
Hydroponic systems typically do not incorporate built-in lighting systems.
Lighting systems must typically be purchased as separate components and
assembled by the consumers. Hydroponic lighting systems generally consist of
a
ballast, reflector hood, lights and an electronic timer. The consumer must
suspend the lighting system over the hydroponic unit and then continually raise
the lights as the plants grow. Complete lighting systems often cost hundreds
of
dollars, which is considerably more than the cost of AeroGrow’s entire kitchen
garden system.
AeroGrow’s
kitchen garden systems include built-in adjustable grow lights with ballast,
reflector hood, lights and electronic timer. AeroGrow’s integrated lighting
systems include high-output compact fluorescent light bulbs that deliver a
spectrum and intensity of light designed to help optimize plant growth without
natural light. In addition, AeroGrow’s lighting system is fully automated and
controlled by its microprocessor-based control panel described
above.
Adaptive
Growth Software.
Through
continual research and testing in AeroGrow’s grow laboratory, AeroGrow’s plant
scientists have determined that better plant growth can be achieved if
nutrients, moisture and lighting are adapted and customized to the specific
stages of the plants’ growth: germination, initial growth and advanced growth.
AeroGrow has developed a proprietary software technology entitled “adaptive
growth technology” which automatically analyzes and adjusts the nutrient
delivery schedules based on plant maturity. AeroGrow intends to introduce this
technology into its deluxe kitchen garden system as an added feature for
specialty retailers in the future.
AeroGrow’s
Kitchen Garden Systems
AeroGrow
has initially developed two kitchen garden systems with projected initial retail
prices ranging from approximately $99 to $149 depending on the features and
model selected and the channels of distribution through which they will be
marketed.
Basic
Kitchen Garden System.
AeroGrow’s basic kitchen garden system features its rainforest nutrient delivery
system and an integrated lighting system. This product is projected to retail
for $99. AeroGrow’s microprocessor-based control panel will be available as an
optional accessory with a projected retail price of $29.
Deluxe
Kitchen Garden System.
AeroGrow’s deluxe kitchen garden system contains the features of its basic
kitchen garden system, including the microprocessor-based control panel, and
adds its microprocessor-based nutrient cycle delivery system. AeroGrow currently
plans to launch this product as part of an initial direct marketing campaign
following the Merger and Offering at a price of $149.
AeroGrow’s
Seed Kits
AeroGrow
has developed and is producing a variety of seed kits to be used in its kitchen
garden systems. These seed kits include pre-seeded bio-grow seed pods and a
three- to six-month supply of nutrients, including its formula for adjusting
water quality. AeroGrow expects its seed kits to retail at prices ranging from
$14.99 to $19.99. Currently developed seed kits include:
· grandiflora
petunia garden, and
· international
basil garden.
AeroGrow’s
seed kits, time-release nutrient tablets and replacement light bulbs will be
sold to consumers for use with its kitchen garden system. Additionally, seed
pods will be sold for use by consumers who wish to try to grow their own seeds,
but no assurance can be given that all varieties of plants will grow with the
AeroGrow kitchen garden system.
Additional
Future Products
In
addition to its kitchen garden systems, AeroGrow is developing and plans to
market in the future companion products designed to provide a successful
gardening experience for consumers of all experience levels while providing
a
potentially continuing and profitable revenue stream for it. AeroGrow’s
development and production of the following additional products will depend
in
large part on the revenues generated from future product sales and the
availability of additional financings.
Magic
Garden.
AeroGrow’s children’s magic garden is designed for simplicity and ease of use.
AeroGrow anticipates introducing this garden system in the toy
market.
Decorator
Office Garden.
AeroGrow is developing a garden system designed specifically for use in offices
and work stations to introduce decorative and fragrant living flowers into
the
workplace.
Professional
System.
A
larger-scale garden system is planned for small businesses, florists,
restaurants, large families and gardening enthusiasts who want to grow large
quantities of vegetables, herbs and flowers.
Future
Seed Kits.
AeroGrow plans to complete development and start producing an additional six
to
ten seed kits in 2006. AeroGrow currently anticipates that these seed kits
could
include strawberries, cilantro garden, sunny flower garden, baby bell peppers,
Asian hot peppers, Italian basil garden, Italian herb garden, French herb garden
and salsa garden with cherry tomatoes, jalapenos and cilantro.
Other
Additional Future Products.
AeroGrow is considering other products for future development,
including:
· a
solar-powered system for outdoor use,
· educational
units specifically designed for use in schools,
· a
“vacation-friendly” water reservoir attachment that will hold sufficient water
to enable plants to remain healthy for about three weeks while untended,
and
· tiered
“wall farm” systems that will contain several kitchen garden systems designed to
produce larger quantities of crops.
Development
of the additional range of systems, including units for the office, some seed
kits, water reservoir development and wall units, are included in the estimated
research and development expenses for the future. For other product expansions
and new products, AeroGrow has not budgeted amounts for their research and
development at this time, and in connection therewith may need to raise
additional capital.
Markets
Based
on
AeroGrow’s informal market research, consisting of individual consumer
interviews, focus groups and Internet survey responses, AeroGrow believes that
its kitchen garden systems will appeal to a broad spectrum of the people in
the
United States and internationally, including Europe and Japan. AeroGrow believes
that its products will appeal to at least four major market
segments:
· novice
and “want-to-be” gardeners,
· the
kitchen products and small appliances market, and
· the
office and home décor markets.
Further,
based on its discussions with potential distributors, AeroGrow believes that
its
kitchen garden systems also present opportunities in the specialized toy,
educational, gift and hydroponic hobbyist markets.
Gardener
Market.
The
2002 National Gardening Survey conducted by the National Gardening Association
states that gardening was America’s number one hobby with more than 70 million
active gardeners. In the United States in 2002 there were estimated to be 27
million vegetable gardeners with one out of every four households having a
vegetable garden, over 15 million fresh herb gardeners and over 20 million
flower gardeners. AeroGrow believes that its kitchen garden systems and related
products can offer both expert and novice gardeners several major benefits
not
readily available through traditional gardening methods, including:
· the
ability to grow fresh herbs, lettuces, vegetables, tomatoes and flowers
year-round, regardless of indoor light levels or seasonal weather
conditions,
· the
ability to easily start plants indoors during colder months and then transplant
them outdoors at the onset of the outdoor growing season,
· the
ability to use stem cuttings to propagate multiple reproductions of the desired
plants in AeroGrow’s kitchen garden systems,
· the
reasonable assurance that crops can grow successfully by significantly reducing
potential obstacles such as uncertain weather and garden pests,
· the
ease
of growing hydroponically in contrast to the toil associated with traditional
gardening, including preparing the soil, planting, thinning, weeding and
watering.
“Want-to-be”
Gardener Market.
AeroGrow believes that many people have an interest in gardening but lack the
knowledge, confidence, available space, equipment or time to garden. AeroGrow
has observed the following barriers to beginning to garden:
· gardening
requires an ongoing time commitment,
· apartment,
high-rise and condominium dwellers often lack the land needed for a traditional
garden,
· gardening
requires physical work which can be a significant barrier to older people or
people with limited mobility or health issues,
· buying
the necessary equipment to garden can be expensive, and
· gardening
requires knowledge and expertise.
AeroGrow
believes that its kitchen garden systems overcome many of these barriers and
provide a simple, convenient way for many current non-gardeners to begin to
garden.
Kitchen
Products and Small Appliances Market.
AeroGrow believes that many Americans now enjoy cooking as a form of
entertainment or hobby and that these people repeatedly purchase new kitchen
appliances and will be motivated to purchase AeroGrow’s kitchen garden systems
and related seed kits. Consumers in this potential market include:
· people
interested in cooking who would appreciate the convenience and satisfaction
of
having a readily available supply of fresh-cut herbs and basils to flavor soups,
salads and other dishes,
· people
who prefer the distinctive texture and taste of freshly picked, vine-ripened
tomatoes, basils, lettuces and other vegetables over days-old supermarket
produce, and
· people
interested in healthy, pesticide-free foods for themselves and their families,
reflecting both the rapidly growing interest in naturally and organically grown
foods and the increasing number of people who, for health or weight concerns,
include salads and fresh vegetables as part of their families’
diets.
AeroGrow
believes that its kitchen garden systems will be embraced in this market by
people who understand the value of having an ongoing supply of fresh herbs
and
vine-ripened produce throughout the year.
Office
and Home Decor Market.
Flowers
are frequently used to brighten homes and offices around the world. It is
difficult to readily grow flowers indoors due to a lack of sufficient light
and
growing knowledge. As a result, people often use cut flowers which are
expensive, short-lived and require ongoing maintenance. AeroGrow’s kitchen
garden systems enable colorful and fragrant flowers to be easily grown indoors
year-round. Flowers grown with its kitchen garden systems will last for months
with minimal care and maintenance. Flowers can be grown in a wide variety of
indoor locations, including kitchen and bathroom countertops, living rooms,
bedrooms, family rooms, offices, work stations, waiting rooms and lobbies.
In
addition, professional plant caretakers may be motivated to include AeroGrow’s
kitchen garden systems among their traditional plant options because of the
relatively low cost and ease of maintenance of AeroGrow’s systems.
Specialty
Markets.
AeroGrow’s informal market research indicates that several specialized markets
potentially exist for AeroGrow’s kitchen garden systems in the future,
including:
· toy
market for a children’s “root-viewing” garden,
· classroom
market for student education relating to plant growth,
· hydroponic
enthusiast market, and
· international
markets, particularly in large cities with limited outdoor garden space.
Marketing
and Sales Strategy
AeroGrow
began launching its kitchen garden system in the United States during the first
quarter of 2006 with a nationwide public relations campaign. This will be
followed by sales of its products through direct marketing vehicles and then
expanded distribution through retail channels as described, below, in
“AeroGrow’s Plan of Operation.” AeroGrow plans to expand its marketing and
distribution internationally when its products have been successfully launched
and established in the United States. AeroGrow’s proposed direct marketing
activities include a national public relations campaign, 60-second television
spots, 30-minute infomercials, home shopping networks, print advertising and
Internet-based advertising. AeroGrow’s plan is designed to educate prospective
customers while creating widespread awareness of its kitchen garden systems
and
generating direct sales in four key target markets: the experienced gardener
market, the “want-to-be” gardener market, the kitchen products and small
appliances markets and the office and home décor market.
Competition
Aeroponic
and hydroponic technologies have historically been limited to ardent hobbyists
and commercial growing facilities worldwide. AeroGrow believes that it is the
first company to develop and offer a simple soil-less indoor growing system
for
the mass consumer market. AeroGrow further believes that its proprietary and
patent-pending technologies, and trade secrets and its product development
efforts to date will provide certain barriers to entry for potential
competitors.
Typical
hydroponic manufacturers offer a range of equipment and accessories through
distributors or small independent “hydro-shops” in a trade-oriented manner
similar to plumbing or electrical suppliers. Purchasers typically mix and match
equipment from various suppliers in an “a la carte” fashion to individually
customize a large system that they then assemble on their premises. AeroGrow
believes that these products are substantially more expensive than the proposed
selling prices of the company’s products.
AeroGrow
believes that its simplified and complete kitchen garden systems and planned
methods of distribution offer significant benefits from these traditional
hydroponic industry practices. However, AeroGrow recognizes that there are
companies that are better funded and have greater experience in producing
hydroponic products in commercial markets, including, but not limited to,
companies such as General Hydroponics and American Hydroponics. These companies
could potentially decide to focus on the consumer market with competing
products. AeroGrow could also potentially face competition from gardening
wholesalers and large and profitable soil-based gardening companies, including,
but not limited to, the Burpee Seed Company and Gardener’s Supply Company,
should they decide to produce a competitive product.
Nevertheless,
AeroGrow believes that its kitchen garden systems and related products can
compete effectively in the marketplace on the basis of their affordable cost,
user-friendly design and the benefits offered by its proprietary and
patent-pending technologies. Further, to the best of AeroGrow’s knowledge, none
of the growing systems currently available for use in the home at AeroGrow’s
projected retail prices provide an integrated grow lighting system and are
therefore unsuited to grow fresh herbs, vegetables and flowers indoors without
the additional purchase of a separate bulky lighting system. AeroGrow believes
that these products are too large, noisy and unattractive for indoor home
kitchen or office use.
Manufacturing
AeroGrow
has signed a manufacturing agreement with Source Plus, Inc., an Alabama
corporation, and Mingkeda Industries Co., Ltd., a Chinese company, for the
initial manufacture of its kitchen garden systems and accessories. This
agreement is described at “Manufacturing” on page 13 of this prospectus.
AeroGrow anticipates that it will take Mingkeda approximately 30 to 60 days
to
produce and ship its kitchen garden systems to the Untied States via ocean
freight from the date an order is placed. In addition to the Mingkeda plant,
AeroGrow is exploring relationships with other manufacturers located in China
as
an alternative supply source should sales volumes require added
production.
Mingkeda
has informed AeroGrow that it can produce approximately 30,000 kitchen garden
systems per month with its existing set of tools and can increase its production
to approximately 100,000 kitchen garden systems per month by adding an
additional set of tools and injection molding presses. Mingkeda estimates that
it can add the additional set of tools and presses within 60 to 90 days
following AeroGrow’s notification. There is no assurance that Mingkeda will be
able to meet the projected estimated deliveries. If it is not able to meet
the
orders, the company’s sales will be adversely effected.
AeroGrow
intends to initially produce and assemble its bio-grow seed pods in its
laboratory facilities in Longmont, Colorado. The seed pods and kitchen garden
systems will be shipped to a fulfillment center in Reno, Nevada. Innotrac
Corporation will provide warehousing, order fulfillment and shipping for
AeroGrow’s products. AeroGrow’s agreement with Innotrac is described, below, at
“Distribution.”
Product
Returns and Warranties
AeroGrow
has had limited sales to date and thus has no experience dealing with returns.
AeroGrow currently anticipates that products may be returned to it at its
facilities in Longmont, Colorado. AeroGrow anticipates that the returned
products will go to inventory and AeroGrow may repair the 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. AeroGrow have not yet determined the form of
warranties AeroGrow will grant for its products.
Intellectual
Property
AeroGrow
has filed thirteen patent applications in the United States and one foreign
patent application to protect its technologies and products. These applications
are for:
· seed
germination pods that transport, support and germinate seedlings in aeroponic
or
hydroponic devices and support the growth of the plant to maturity, filed in
November 2003 and responded to examiner’s first action,
· use
of
infrared beams to measure plant roots which creates a basis for the regulation
of nutrients, oxygen and plant growth, filed in December 2003,
· devices
and methods for growing plants, filed as an international application in
September 2004,
· PONDS
(passive, osmotic nutrient delivery system) technology which is a nutrient
delivery system using no moving parts, filed in March 2005,
· RAIN
(rain-aerated ionized nutrient) system technology which hyper-oxygenates and
ionizes plant roots in AeroGrow’s kitchen garden systems, filed in March
2005,
· rainforest
growing dome for maximizing germination, filed in April 2005,
· growing
basket for optimizing liquid and nutrient delivery, filed in April
2005,
· methods
for growing plants using seed germination pods, filed in April
2005,
· devices
and methods for growing plants by measuring liquid or nutrient usage rate,
the
adaptive growth learning technologies, filed in December 2005,
· time-release
oxygen generating nutrient compositions and methods for growing plants, filed
in
December 2005,
· plant
nutrient compositions and methods for growing plants, filed in December
2005,
· devices
and methods for delivering photoradiation to plants, filed in June 2005,
· smart
garden devices and methods for hydroponic gardens, filed in June 2005,
and
· indoor
gardening appliance, filed in August 2006.
AeroGrow
believes that these patent applications do not infringe on issued patents owned
by others. AeroGrow believes that if it fails to receive patents for any one
of
these patent applications, its operations will not be substantially, adversely
affected. In addition to the patents being sought, AeroGrow maintains some
crucial information about the products as trade secrets which are closely
guarded. Also, AeroGrow believes that to reverse engineer some of its
technology, even when the patents become public, would take a substantial amount
of time and be expensive. The inventions under the patent applications have
not
been granted patents, and there can be no assurance that patents will be
granted.
AeroGrow
has filed ten trademark applications which it intends to prosecute in the United
States to protect its products and brand equity. The applications are
for:
· Farmers
Market Fresh, filed in July 2005 and received examiners’ first
action,
· Kitchen
Smart filed in August 2005 and received examiners’ first action,
· KitchenHarvest
filed in December 2005,
· AeroGarden
filed in December 2005;
· Farmer’s
market in your kitchen, filed in March 2006;
· We
grow
green thumbs, filed in March 2006;
· Off
the
plant and into the pot, filed in March 2006;
· Cut
&
cook, filed in March 2006;
· Bio-dome,
filed in March 2006; and
· AeroPod,
filed in March 2006.
Each
of
AeroGrow’s employees, independent contractors and consultants has executed
assignment of application agreements and nondisclosure agreements. The
assignment of application agreements grant to AeroGrow the right to own
inventions and related patents which may be granted in the United States. The
nondisclosure agreements generally provide that these people will not disclose
AeroGrow’s confidential information to any other person without its prior
written consent. AeroGrow has also obtained the domain names for AeroGrow.com
and AeroGarden.com, AeroGarden.net and AeroGarden.biz, among
others.
Governmental
Regulation and Certification
To
the
best of its knowledge, AeroGrow believes that it is complying with United States
regulations concerning the shipping and labeling of seeds and nutrients.
Currently, the components for the kitchen garden system are UL certified.
AeroGrow has filed initial applications for UL certification and ETL
certification for the kitchen garden system as a whole. These certifications
confirm some level of fire safety for consumers and is required for sales of
products through retailers.
Personnel
AeroGrow
currently employs approximately 43 persons with 28 full-time and 15 on a
part-time basis. In addition, AeroGrow contracts for the services of 31
part-time and project consultants. AeroGrow believes that its employee relations
are good. AeroGrow intends to continue to conduct its business primarily using
employees, and it is likely that some consultants will become employees in
the
future, including its chief marketing officer, Randy Seffren. AeroGrow believes
that it will hire additional employees and/or consultants in the future as
its
operations grow. AeroGrow is planning to outsource some activities, in whole
or
part, such as manufacturing, telemarketing, public relations, infomercial
production, fulfillment and shipping.
Facilities
AeroGrow
leases approximately 918 square feet in Boulder, Colorado, pursuant to a lease
agreement that expires on December 30, 2005, which was extended on a
month-to-month basis. AeroGrow maintains a grow room, laboratory and research
facility in this space. The lease agreement requires AeroGrow to pay monthly
rent in the amount of $1,000.
AeroGrow
leases approximately 800 square feet in Boulder, Colorado, pursuant to a
month-to-month rental agreement. AeroGrow is preparing this space to use as
an
additional laboratory facility. The rental agreement requires AeroGrow to pay
monthly rent in the amount of $700.
AeroGrow
leases 3,075 square feet of office space in Boulder, Colorado, from one of
its
consultants pursuant to a lease agreement that expires in April 2006. The lease
agreement requires AeroGrow to pay monthly rent in the amount of $2,534.
AeroGrow is also required to issue 1,267 shares of AeroGrow common stock per
month to this consultant as additional rent for an aggregate of 7,604 additional
shares through the end of the lease. AeroGrow plans to renew this lease in
April
2006 with rental payments solely in cash.
AeroGrow
also rents 1,800 square feet of laboratory, prototyping and manufacturing space
in Longmont, Colorado, pursuant to a month-to-month rental agreement. The rental
agreement requires AeroGrow to pay monthly rent in the amount of $1,200.
AeroGrow use this space to manufacture its seed pods.
While
its
facilities appear adequate for the foreseeable future, AeroGrow may add space
to
meet future growth as needed. Upon expiration of its current leases, AeroGrow
believes that it will be able to either renew its existing leases or arrange
new
leases in nearby locations on acceptable terms. AeroGrow believes that these
properties are adequately covered by insurance.
Legal
Proceedings
AeroGrow
is not a party in any bankruptcy, receivership or other legal proceeding, and
to
the best of AeroGrow’s knowledge, no such proceedings by or against AeroGrow
have been threatened
MANAGEMENT
Directors
and Officers
The
following table shows the names and ages of our directors and executive officers
and the positions they hold with AeroGrow. Our bylaws provide that directors
are
generally elected at our annual shareholders meeting and hold office until
the
next annual shareholders meeting and until their successors are elected and
qualified. Our bylaws provide that the board of directors shall consist of
such
number of members as the board may determine from time to time, but not less
than one and not more than fifteen. Our board of directors currently consists
of
five individuals. Executive officers are selected by the board of directors
and
serve at its discretion.
|
Name
|
|
Age
|
|
Position
with AeroGrow
|
|
Serving
as a Director Since
|
|
W.
Michael Bissonnette
|
|
57
|
|
Chief
Executive Officer, President and Director
|
|
2002
|
|
Richard
A. Kranitz
|
|
61
|
|
Director
|
|
2002
|
|
Wayne
Harding
|
|
50
|
|
Director
|
|
2005
|
|
Jack
J. Walker
|
|
71
|
|
Director
|
|
2006
|
|
Kenneth
Leung
|
|
61
|
|
Director
|
|
2006
|
W.
Michael Bissonnette
is our
founding shareholder and has served as chief executive officer, president and
a
director of AeroGrow since July 2002. Concurrently, he has served as chief
executive officer, president and a director of our former parent company, Mentor
Capital Consultants, Inc. since March 2000. Mentor Capital currently has no
active operating business. From 1989 to 1994, he was the founder, chief
executive officer, president and a director of Voice Powered Technology
International, Inc., an international consumer electronics company. From 1977
to
1989, Mr. Bissonnette was the founder, chief executive officer and president
of
Knight Protective Industries, Inc., an international consumer security products
company. Prior to 1977, he was founder, chief executive officer and president
of
Shagrila Carpets, Inc., a multi-store retailer of commercial and home carpeting.
Both Voice Powered Technology and Knight Protective Industries specialized
in
the funding, development and marketing of technology-based consumer
products.
Richard
A. Kranitz
has been
a director of AeroGrow since July 2002. He has also served as a director of
Mentor Capital since March 2000. Mr. Kranitz has been an attorney in private
practice since 1970 emphasizing securities, banking and business law. From
1990
to the present he has been an attorney in Kranitz & Philipp in Grafton,
Wisconsin. Previously, following the death of a partner in 1976, he formed
the
Law Offices of Richard A. Kranitz. From 1982 to 1983 he also was a member of
Fretty & Kranitz and from 1977 to 1978 he was also a member of Habush,
Gillick, Habush, Davis, Murphy, Kraemer & Kranitz. He was a member of McKay,
Martin & Kranitz from 1973 to 1976, and was employed by Reinhart, Boerner,
Van Deuren, Norris & Reiselbach, s.c. from 1970 to 1973. Mr. Kranitz served
as Law Clerk to the Honorable Myron L. Gordon in the U.S. District Court (E.D.
Wisconsin) from 1969 to 1970. Mr. Kranitz has served as a director of the
Grafton State Bank from 1990 to present. He served as a venture capital
consultant to, and director of, various companies and he has served at various
times as a director of various professional, civic or charitable
organizations.
Wayne
Harding
has been
a director since October 2005. He has served as vice president business
development of Rivet Software since December 2004. From August 2002 to December
2004 Mr. Harding was owner and President of Wayne Harding & Company CPAs and
from 2000 until August 2002 he was director-business development of CPA2Biz.
He
provided consulting services for AeroGrow from December 2003 through March
2004.
Mr. Harding is a certified public accountant licensed in Colorado. He is past
president of the Colorado Society of CPAs and past member of the Governing
Council for the American Institute of CPAs.
Jack
J. Walker has
been
a director since the February 23, 2006, annual meeting of shareholders. He
has
served as president of English & Continental Properties, Inc., a real estate
investment and development company, since 1980. From 1976 to 1985, Mr. Walker
was president of March Trade & Finance, Inc., a private investment company.
Previously, Mr. Walker acquired control of Charles Spreckly Industries, Town
& Commercial Properties and Associated Development Holdings. In 1961 he
started English & Continental Property Company, and became joint Managing
Director of this commercial development company. Mr. Walker began his career
as
a lawyer in London, England specializing in real estate, financing,
international tax and corporate affairs. Mr. Walker has served as a director
of
Megafoods Stores Inc. He also serves as a venture capital consultant to
companies on financial and pre-IPO strategies. In addition, he created the
Walker Foundation for Charitable Activities and he has served at various times
as a director of various professional, civic and charitable
organizations.
Kenneth
Leung
has been
a director since the February 23, 2006, annual meeting of shareholders. From
1995 to the present he has been Managing Director of Investment
Banking-Environmental and the Chief Investment Officer of the Environmental
Opportunities Fund at Sanders Morris Harris. Previously Mr. Leung served as
Managing Director Investment Banking& Research-Environmental at Smith Barney
from 1978 to 1994. He was Vice President Investment Banking &
Research-Environmental with F. Eberstadt & Co. from 1974 to 1978.
Previously, he was an Assistant Treasurer Investment Research-Environmental
with
Chemical Bank from 1968-1974. Mr. Leung serves on the boards of American Ecology
and SystemOne Technologies. He has served at various times as a director of
various civic and charitable organizations.
All
directors are elected to annual terms by the holders of common stock. All
directors hold office until the next annual meeting of shareholders and the
election and qualification of their successors. Outside directors will receive
a
$500 fee for meetings attended and are reimbursed for expenses. Officers are
elected annually by the board of directors and serve at the discretion of the
Board.
Description
of Other Officers of the Corporation
All
of
the officers of the corporation are appointed by the board of directors to
serve
until the annual meeting of the directors and the election and qualification
of
their successors. The officers of AeroGrow not identified above are as
follows:
Mitchell
Rubin was
employed as the chief financial officer and treasurer of AeroGrow on February
23, 2006. Prior to joining AeroGrow, from January 2003 through February 2006,
Mr. Rubin was an independent financial consultant. From July 1999 to December
2002, Mr. Rubin was the Chief Financial Officer of Web-Ideals LLC, a privately
owned application service provider that offered a web-based application for
managing direct to consumer commerce. From January 1994 to June 1999, Mr. Rubin
held various positions including Chief Financial Officer, Chief Executive
Officer and director with Voice Powered Technology International Inc., a
publicly held developer and manufacturer of consumer electronic products. From
July 1991 to December 1993, Mr. Rubin served as Executive Vice President and
Chief Operating Officer of Regal Group, Inc., a television direct-response
company. Mr. Rubin began his career as a certified public
accountant.
Randy
Seffren
has been
chief marketing officer of AeroGrow since April 2004 on a consulting basis.
Mr.
Seffren has 25 years of senior executive level marketing experience with major
advertising and direct response agencies. From 1999 to 2004, Mr. Seffren headed
the marketing efforts for healthcare communications companies, including Orbis
Broadcast Group and MedEd Architects. From 1993 to 1999, he was executive vice
president with Reebok Home Fitness/DP Fitness/Body By Jake Fitness/Kent &
Spiegel Direct. From 1989 to 1993, Mr. Seffren led the marketing, communications
and product development efforts as director of marketing communications with
Life Fitness, a fitness equipment company. In these positions Mr. Seffren
introduced numerous consumer products on a global scale from product development
through marketing and communications. He leveraged the brand image and direct
response marketing of these products through distribution into specialty and
mass retail channels.
Jeff
Brainard
was
employed as of March 31, 2006 as vice president, sales. Prior to joining
AeroGrow, Mr. Brainard served as executive vice president of sales and marketing
of Tensor Corporation, a private manufacturer and marketer of portable lighting,
from October 2002 to March 2006. From April 2000 to March 2002, Mr. Brainard
was
senior vice president of sales of Holmes Corporation, manufacturer and marketers
of kitchen appliances under the Rival brand name and seasonal appliances under
the Bionaire and Holmes brand names. From 1989 to 1999 employed by Brita Water
Filters, a division of Clorox Company the last 4 years as vice president of
sales.
There
are
no family relationships (whether by blood, marriage or adoption) between or
among the AeroGrow directors or executive officers or the
directors.
The
business addresses of the directors are: W. Michael Bissonnette, AeroGrow
International, Inc., 900 28th Street, Suite 201, Boulder, Colorado 80303;
Richard A. Kranitz, Kranitz & Philipp, 1238 12th Avenue, Grafton, Wisconsin
53024; Wayne Harding, Rivet Software, 6501 E. Belleview, Suite 240, Englewood,
Colorado 80111; Jack J. Walker, English & Continental Properties, Inc., 5600
Arapahoe Road, Suite 205, Boulder, Colorado 80303; Kenneth Leung, Sanders Morris
Harris, 527 Madison Avenue, New York, New York 10022.
Board
Committees, Meetings and Compensation
Committees
of the Board
Our
full
board of directors considers all major decisions. However, we have established
two standing committees so that some matters can be addressed in more depth
than
may be possible in a full board meeting: an audit committee and a governance,
compensation and nominating committee. These two committees each operate under
a
written charter. The board has affirmatively determined that Mr. Harding is
independent as defined by applicable securities law and corporate governance
guidelines. Following is a description of both of these committees.
As
of
March 28, 2006, AeroGrow elected to comply with the corporate governance
requirements of NASDQ fulfill its compliance with such rules pursuant to the
Merger Agreement.
Audit
Committee.
The
current members of our audit committee are Mr. Harding (chairman), Mr. Jack
Walker and Mr. Kenneth Leung. Mr. Harding is considered a financial expert
and
Messrs Walker and Leung are considered financially literate under the rules
of
the Securities and Exchange Commission for audit committee members. As we add
additional independent members to our board of directors as required by
applicable securities law or exchange listing guidelines when applicable, such
independent directors may be appointed to our audit committee or the membership
of the committee may be changed. This committee’s charter provides that the
committee shall:
· oversee
our accounting and financial reporting processes and audits of our financial
statements,
· assist
the Board with oversight of the integrity of our financial statements, our
compliance with legal and regulatory requirements, our independent auditors’
qualifications and independence and the performance of our independent auditors,
and
· provide
the Board with the results of its monitoring.
Governance,
Compensation and Nominating Committee.
The
current members of our governance, compensation and nominating committee are
Mr. Harding (chairman) and Mr. Jack Walker and Mr. Kenneth Leung. Each of
these persons is an independent director. This committee’s charter provides that
the committee shall:
· recommend
to the Board our corporate governance guidelines,
· review
and recommend the nomination of Board members,
· set
the
compensation for our chief executive officer, and
· administer
the equity performance plans of AeroGrow.
Meetings.
During
fiscal year ended December 31, 2005, the Board met fifteen times. Each director
attended all of the meetings held by the Board during the period that he served
as a director of AeroGrow.
Director
Compensation
In
2004
and 2005 each of AeroGrow’s directors received 2,000 shares of its common stock
for their service as directors. Mr. Bissonnette has agreed to forego any future
stock-based compensation for serving as a director of AeroGrow. AeroGrow
compensates directors $500 for attending meetings and reimburses them for their
out-of-pocket expenses for attending meetings. On March 28, 2006, AeroGrow
granted to each of its four outside directors 2,500 shares of the company’s
common stock at a value of $5.00 per share for a total of $12,500 for each
director, or an aggregate total of $50,000, and 10,000 fully vested five-year
options to purchase AeroGrow common stock at an exercise price of $5.00 per
share for the fiscal year ending March 31, 2006.
Management
Compensation
The
following table provides information concerning compensation earned by
Mr. Bissonnette, our chief executive officer, Mr. Gutterman, our former
chief financial officer, and Mr. Seffren, our chief marketing officer during
2005, 2004 and 2003. No other executive officer of AeroGrow was paid in excess
of $100,000 in 2005.
Summary
Compensation Table Annual
| |
|
|
|
Compensation
|
|
All
Other
|
|
|
Name
and Principal Position
|
|
Year
|
|
Salary
|
|
Bonus
|
|
Compensation
|
|
|
W.
Michael Bissonnette, CEO,
|
|
|
2005
|
|
$
|
156,954
|
|
$
|
0
|
|
$
|
10,000
|
(2)
|
|
President
and Director(1)
|
|
|
2004
|
|
|
134,428
|
|
$
|
0
|
|
$
|
10,000
|
(2)
|
| |
|
|
2003
|
|
|
123,046
|
|
$
|
0
|
|
$
|
2,500
|
(2)
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Randy
Seffren, CMO
|
|
|
2005
|
|
$
|
0
|
|
$
|
0
|
|
$
|
404,653
|
(3)
|
| |
|
|
2004
|
|
$
|
0
|
|
$
|
0
|
|
$
|
215,566
|
(3)
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jerry
L. Gutterman, Former, CFO
|
|
|
2005
|
|
$
|
0
|
|
$
|
0
|
|
$
|
277,005
|
(4)
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mitchell
Rubin, CFO
|
|
|
2005
|
|
$
|
0
|
|
$
|
0
|
|
$
|
29,937
|
(5)
|
|
(1)
|
Mr.
Bissonnette also received perquisites and other personal benefits
totaling
$31,954 in 2005, $24,504 in 2004 and $22,566 in
2003.
|
|
(2)
|
Other
compensation reflects the value at the time of grant of shares of
our
common stock received by Mr. Bissonnette in each
year.
|
|
(3)
|
Other
compensation reflects consulting fees of $164,153 and $84,466 and
the
value at the time of grant of shares of our common stock received
by
Prometheus Communications Group, LLC of which Mr. Seffren is the
100%
owner and managing member, in 2005 and 2004,
respectively.
|
|
(4)
|
Other
compensation reflects consulting fees of $139,330 and the value at
the
time of grant of shares of our common stock received by Mr. Gutterman
in
2005.
|
|
(5)
|
Other
compensation reflects consulting fees of
$29,937.
|
Compensation
Plans
Amended
2003 Stock Option Plan.
On
January 3, 2003, our board of directors adopted a stock option plan for key
employees (including key employees who are directors), non-employee directors,
consultants and investors which provides that an aggregate of 400,000 shares
of
our common stock may be granted under the plan (“2003 Plan”). On December 31,
2005, there were options for 204,869 shares outstanding and the remaining
options of 195,131 were merged into the 2005 Equity Compensation Plan on August
22, 2005 and the 2003 plan no longer separately exists. Vesting schedules are
determined individually for each grant.
Administration.
The
plan is administered by our Governance, Compensation and Nominating Committee,
and in the past was administered by the board. The plan provides that it may
be
administered by either the committee or board, and in its administration it
may:
· determine
the date of grant, exercise price and other terms of options,
· establish
rules and regulations to administer the plan,
· amend,
suspend or discontinue the plan subject to applicable shareholder
approval,
· interpret
the rules relating to the plan, and
· otherwise
administer the plan.
Stock
Options.
The plan
provides that the committee may grant both incentive stock options, which can
result in potentially favorable tax treatment to the participant, and
non-qualified stock options. The committee determines the terms and vesting
provisions, including the exercise price. The maximum term of each option and
the times at which each option will be exercisable generally are fixed by the
committee, except that no option may have a term exceeding ten years. Shares
subject to options that expire or otherwise terminate remain available for
awards under the plan. Shares issued under the plan may be either newly issued
shares or shares which we have reacquired.
2005
Equity Compensation Plan.
In
August 2005 we adopted our 2005 Equity Compensation Plan (“2005 Plan”) to
promote the interests of AeroGrow and our shareholders by attracting, retaining
and motivating our key officers, employees, directors and consultants. A total
of 1,505,000 shares of our common stock may be granted under this plan pursuant
to stock options or awards of shares of restricted stock. As of December 31,
2005, 28,401 options and 236,796 shares of restricted stock had been granted
under this plan and 1,239,803 remain available for grant. Our 2003 stock option
plan was merged into this plan in August 2005, which modification was approved
by the stockholders in February 23, 2006, and now the 2003 Plan no longer
separately exists. The options for the 204,869 shares issued under the 2003
Plan
continue to be governed by their grant agreements but are administered under
the
2005 Plan. The 2005 Plan was approved by our stockholders at the annual meeting
of stockholders held February 23, 2006. As of March 28, 2006, the Company
granted an additional 800,000 options and 70,000 shares of its common stock
pursuant to the 2005 Plan.
Shares
Available for Awards.
Shares
subject to an award that are cancelled, expire unexercised, forfeited, settled
in cash or otherwise terminated remain available for awards under the plan.
Shares issued under the 2005 Plan may be either newly issued shares or shares
which we have reacquired. The plan imposes individual limitations on the amount
of certain awards in order to comply with Section 162(m) of the Internal Revenue
Code of 1986. Under these limitations no single participant may generally
receive awards in any calendar year that relate to more than $1 million.
Finally, awards may generally be adjusted to prevent dilution or enlargement
of
benefits when certain events occur such as a stock dividend, reorganization,
recapitalization, stock split, combination, merger or
consolidation.
Eligibility.
Our
employees, directors and consultants may be granted awards under the plan.
As of
March 31, 2005, approximately 57 individuals were eligible to
participate.
Administration.
The
plan is administered by our Governance, Compensation and Nominating Committee.
Awards to directors serving on the committee are determined and administered
by
the full board of directors. The committee may:
· determine
the type and number of awards to be granted,
· determine
the exercise or purchase price, vesting periods and any performance
goals,
· determine
and later amend the terms and conditions of any award,
· interpret
the rules relating to the plan, and
· otherwise
administer the plan.
Stock
Options.
The
committee may grant both incentive stock options, which can result in
potentially favorable tax treatment to the participant, and non-qualified stock
options. The committee determines the terms and individual vesting schedules
for
each grant including the exercise price which may not be less than the fair
market value of a share of common stock on the date of the grant.
Restricted
Shares.
The
committee may grant restricted shares of common stock. Restricted shares are
shares of common stock with transfer restrictions. These restrictions lapse
on
the basis of performance and/or continued employment as determined in advance
by
the committee. They may be forfeited by participants as specified by the
committee in the award agreement. A participant who has received a grant of
restricted shares will receive dividends and the right to vote those shares.
Restricted shares may not be transferred, encumbered or disposed of during
the
restricted period or until after the restrictive conditions are
met.
Other
Terms.
All
outstanding awards vest, become immediately exercisable or payable and have
all
restrictions lifted immediately when AeroGrow experiences a change in control.
The Board may amend or terminate the plan subject to applicable stockholder
approval. The committee may not amend the terms of previously granted options
to
reduce the exercise price or cancel options and grant substitute options with
a
lower exercise price than the cancelled options. The committee also may not
adversely affect the rights of any award holder without the award holder’s
consent.
Mr.
Gutterman was granted 69,429 stock options at an exercise price of $1.25 per
share stock options under the 2003 Plan. Mr. Rubin was granted 1,366 stock
options at an exercise price of $0.50 per share stock options under the 2003
Plan. They are the only executive officers who have been granted stock options
under that Plan.
Mr.
Bissonnette, Mr. Gutterman and Mr. Seffren were granted 2,000, 24,710 and 28,520
restricted shares of common stock, respectively, under the 2005 Plan. Mr. Rubin
was granted 2,402 stock options at an exercise price of $0.50 per share stock
options under the 2005 Plan.
Equity
Compensation Plan Information.
The
following table shows the total shares of common stock reserved for issuance
for
outstanding options granted under the 2003 Plan and the 2005 Plan as of December
31, 2005.
|
Plan
category
|
|
Number
of securities to be issued upon exercise of outstanding options
|
|
Weighted
average exercise price of outstanding options
|
|
Number
of securities remaining available for issuance under our Amended
2003
Stock Option Plan
|
|
Number
of securities remaining available for issuance under our 2005 Equity
Compensation Plan
|
|
|
Equity
compensation plans not approved by stockholders
|
|
|
204,869
|
|
$
|
2.13
|
|
|
0
|
|
|
N/A
|
|
|
Equity
compensation plans approved by stockholders
|
|
|
28,401
|
|
$
|
3.81
|
|
|
NA
|
|
|
1,239,803
|
|
|
Total
|
|
|
233,270
|
|
$
|
2.34
|
|
|
|
|
|
1,239,803
|
|
This
table does not reflect 86,436 and 358,008 shares of common stock issued through
December 31, 2005 and 2004, respectively, to employees and consultants as
compensation and not as part of a plan.
AeroGrow
entered into employment agreements with W. Michael Bissonnette and Mitchell
Rubin in February 2006. Effective as of March 31, 2006, AeroGrow entered into
an
employment agreement with Jeff Brainard as vice president, sales.
The
employment agreement of Mr. Bissonnette provides that he will be employed as
the
chief executive officer of AeroGrow for an initial term of 24 months, renewable
automatically for successive one year terms. He will be paid a base salary
of
$225,000. Mr. Bissonnette will also be able to participate in equity
compensation plans as determined by the compensation committee. Mr. Bissonnette
will be reimbursed car and home office expenses at the rate of $2,500 per month
and participate in regular employee benefit plans as provided by the company.
If
Mr. Bissonnette is terminated without cause by the Company or Mr. Bissonnette
terminates upon a company breach, he will be paid his base salary, medical
benefits and pro rata portion of the bonus for one year. If he terminates his
employment without cause, he will be paid his salary for one month. Mr.
Bissonnette has agreed to regular confidentiality provisions and agreed not
to
compete with AeroGrow in the area of aeroponics products and business for two
years after the termination of employment. Any inventions, including
modifications, are assigned to the company by the terms of the agreement.
The
employment agreement of Mr. Rubin provides that he will be employed as the
chief
financial officer of the company. He will devote his entire business time to
the
affairs of the company, provided that for the first four months of his
employment he may devote a limited amount of time to non-competitive business
activities during the work day in transition from his prior consulting business.
The initial term is two years and renewable for successive one year terms.
Mr.
Rubin shall receive base compensation of $200,000 per year and a bonus per
fiscal year of not less than 1.5% of EBITDA. In the event of termination of
the
agreement by AeroGrow without cause or breach by AeroGrow, Mr. Rubin shall
be
entitled to receive severance compensation equivalent to six months base salary
and the pro rata bonus. The agreement also provides for medical, vacation and
other benefits commensurate with the policies and programs as adopted by
AeroGrow for its senior executives. Further, the agreement provides for Mr.
Rubin to receive a grant of 125,000 options to purchase AeroGrow’s common stock
under AeroGrow’s 2005 Equity Compensation Plan at an exercise price of not
greater than $5.00. The options shall; (i) vest pursuant to terms no less than
a
minimum of 50% of the amount of the grant per each twelve month period from
the
date of grant; (ii) shall not expire in less than five (5) years from the date
of grant; (iii) shall be subject to other standard terms and conditions under
the 2005 Equity Compensation Plan, and; (iv) shall have other terms and
conditions no less favorable than that granted to other senior executives of
the
Company. Mr. Rubin has agreed to regular confidentiality and inventions
assignment provisions and agreed not to compete with AeroGrow for two years
after the termination of employment.
The
employment agreement of Mr. Brainard provides that he will be employed as the
vice president, sales of the company. He will devote his entire business time
to
the affairs of the company working from his home office in Lexington,
Massachusetts. The initial term is two years and renewable for successive one
year terms. Mr. Brainard shall receive base compensation of $150,000 per year
and a bonus per fiscal year in an amount not less than the greater of; a)
$50,000; b) 0.5 per cent of retail net sales, net of all customer deductions
including but not limited to returns, allowances, bad debts and other
deductions, or; c) 1.5% of the EBITDA of the Company as determined by the
Company’s annual financial statements and pro rated for any portion of such
annual period covered under this Agreement. Such bonus shall be
payable
for the
initial year in
two
installments, $25,000 to be paid six months following the initial date hereof
and an additional $25,000 12 months following the date hereof and the balance
not later than one hundred and twenty (120) days after the end of the each
of
the Company’s fiscal years covered under this agreement. The agreement also
provides for medical, vacation and other benefits commensurate with the policies
and programs as adopted by AeroGrow for its senior executives. Further, the
agreement provides for Mr. Brainard to receive a grant of 125,000 options to
purchase AeroGrow’s common stock under AeroGrow’s 2005 Equity Compensation Plan
at an exercise price of not greater than $5.00. The options (i) shall vest
pursuant to terms no less than a minimum of 33% of the amount of the grant
at
the date granted and 33% per each twelve month period from the date of grant;
(ii) shall not expire in less than five (5) years from the date of grant; and
(iii) shall be subject to other standard terms and conditions under the 2005
Equity Compensation Plan. Mr. Brainard has agreed to regular confidentiality
and
inventions assignment provisions and agreed not to compete with AeroGrow for
a
period equal to the term employed after the termination of employment. In
addition, in the event of a change in control of AeroGrow, including a change
in
chief executive officer, Mr. Brainard shall be entitled to receive severance
for
one year.
Except
as
set forth above, all employees of AeroGrow are employed on “at will” employment
agreements.
Director
Liability and Indemnification
Under
Nevada law and our bylaws, we are required to indemnify our officers, directors,
employees and agents in certain situations. In some instances, a court must
approve indemnification. As permitted by Nevada statutes, our articles of
incorporation eliminate in certain circumstances the monetary liability of
our
directors for a breach of their fiduciary duties. These provisions do not
eliminate a director's liability for:
· a
willful
failure to deal fairly with us or our shareholders in connection with a matter
in which the director has a material conflict of interest,
· a
violation of criminal law unless the director had reasonable cause to believe
that his or her conduct was lawful or no reasonable cause to believe that his
or
her conduct was unlawful,
· a
transaction from which the director derived an improper personal profit,
and
As
to
indemnification for liabilities arising under the Securities Act of 1933 for
directors, officers or persons controlling AeroGrow, we have been informed
that,
in the opinion of the Securities and Exchange Commission, such indemnification
is against public policy and therefore unenforceable.
Scientific
Advisory Board
We
have a
Scientific Advisory Board currently composed of three experts in aeroponics
and
hydroponics. Each member meets with us as needed regarding the development
of
our products.
Dr.
Henry A. Robitaille, Ph.D.
is known
for his contributions to the science of hydroponics, primarily through his
twenty years of work at Walt Disney World's exhibit, "The Land," at the Epcot
Center in Florida, and his work on the Biosphere project. As Epcot's Director
of
Science and Technology and Agricultural Manager for "The Land," Dr. Robitaille
was primarily responsible for designing, developing and managing "The Land"
exhibit. "The Land" is a 2-acre working greenhouse which demonstrates cutting
edge, "future world" soil-less plant-growing techniques and farm and crop
production. "The Land" receives millions of visitors each year while producing
more than 20,000 pounds of vegetables and herbs annually for use in Disney's
upscale restaurants. In addition, it provides a valuable research laboratory
for
exploring new and improved soil-less growing methodologies and alternative
technologies and methods for increasing food production for impoverished regions
of the world. Dr. Robitaille was also a consultant involved with the research
and development of Biosphere 2, the world's largest controlled environment
growth and measurement facility available for earth systems research. The
Biosphere encloses a complete ecosystem which includes a rainforest, an ocean
with a coral reef, a desert, a savannah and a marshland. Dr. Robitaille received
a Ph.D. in Horticulture and Plant Physiology from Michigan State
University.
Dr.
Howard Resh, Ph.D.
is an
international leader on soil-less growing technologies. Dr. Resh has written
four books and dozens of scientific and popular papers on growing plants without
soil. His best-selling published books include the 500+ page Hydroponic
Food Production
now in
its 6th edition. Dr. Resh was pictured on the cover of the world's leading
magazine for soil-less gardening, The Growing Edge (September 2002), for his
work in designing, developing and managing a hydroponic greenhouse that grows
gourmet food for a CuisinArt resort complex in Anguilla, British West Indies.
Dr. Resh worked for decades as technical director and manager for a variety
of
hydroponic crop production facilities in the United States, Canada, Taiwan,
Venezuela and the British West Indies. He received his Ph.D. in Plant Science
from the University of British Columbia.
Mike
Morton
is the
owner and president of HGI Worldwide, Inc. (Hydro Gardens), an international
horticultural nutrient development and greenhouse supply company. For the past
30 years, Mr. Morton has been at the leading edge of hydroponic nutrient
development and biological pest control methods. He directed the construction
and installation of major greenhouse projects and indoor growing systems in
the
United States and internationally. Mr. Morton is also the inventor of several
new technologies for accelerated plant growth and seedling production. Since
the
early 1980s, he has worked jointly with the U.S. Department of Agriculture
and
many universities and customers across the United States to research the use
of
biological pest controls. Mr. Morton is a frequent guest speaker at
universities and conferences across the United States.
The
members of our scientific advisory board receive shares of our common stock
for
services rendered to the AeroGrow. In 2004 Mr. Morton received 500 shares,
Dr.
Robitaille received 1,890 shares and Dr. Resh received 1,220
shares.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
The
following transactions were or will be entered into with our executive officers,
directors and 5% or greater shareholders. These transactions may or will
continue in effect and may result in conflicts of interest between us and these
individuals. Although our executive officers and directors have fiduciary duties
to us and our shareholders, we cannot assure that these conflicts of interest
will always be resolved in our favor or in the favor of our
shareholders.
Stock
Grants
AeroGrow
granted to our founder, W. Michael Bissonnette, 10,000 shares of common stock
from December 2002 through September 30, 2005, with a weighted value of $3.87
per share or $38,700 in the aggregate, as partial payment for services provided
since inception. In December 2002, Mr. Bissonnette purchased 50,000 shares
of
our common stock for $0.50 per share, or $25,000 in the aggregate, in one of
our
private offerings. We granted Mr. Bissonnette 2,000 shares for serving as our
chairman of the board during 2005 under our 2005 plan on December 31,
2005.
AeroGrow
granted to its former chief financial officer and secretary, Jerry Gutterman,
11,425 shares of our stock from December 2002 through September 30, 2005, with
a
weighted value of $2.69 per share, or $30,725 in the aggregate, as partial
payment for services provided since inception. AeroGrow granted
Mr. Gutterman 25,110 shares under our 2005 plan on December 31,
2005.
AeroGrow
granted to the current chief financial officer, Mitchell Rubin, 1,366 stock
options at an exercise price of $0.50 per share under the 2003 and 2,402 stock
options at an exercise price of $0.50 per shares under the 2005 Plan for
consulting services rendered through February 2006. On March 28, 2006, in
conjunction with Mr. Rubin’s employment as chief financial officer, Mr. Rubin
was granted 125, 000 stock options at an exercise price of $5.00 per share
under
the 2005 Plan that was fully vested upon grant.
AeroGrow
granted to the current vice president, sales, Jeff Brainard, 1,000 shares of
our
common stock with a value of $5.00 per share, or $5,000 in the aggregate, as
partial payment consulting services rendered from January 2006 through February
2006. On March 28, 2006, in conjunction with Mr. Brainard’s employment as vice
president, sales, Mr. Brainard was granted 5,000 shares of the AeroGrow’s common
stock and 125,000 stock options at an exercise price of $5.00 per share under
the 2005 Plan that will vest 33% upon grant, 33% in one year from the date
of
grant and the remaining 33% two years from the date of grant.
Richard
Kranitz, one of our directors, is a member of the law firm of Kranitz and
Philipp which provides legal services to AeroGrow. In 2004 Kranitz and Philipp
was paid $24,000 and received 20,000 shares of stock and in 2003 the firm was
paid $25,000 for legal services performed on our behalf. From January 1 through
July 31, 2005, Kranitz and Philipp has been paid $14,000 for legal services
performed. In the future, Kranitz and Philipp may perform additional legal
services on our behalf on an as-needed basis at hourly rates based on the type
of legal services provided.
AeroGrow
granted to our chief marketing officer, Randy Seffren, 45,800 shares of our
common stock in 2004 and 2005 with a value of $5.00 per share, or $229,000
in
the aggregate, as partial payment for services provided since inception.
AeroGrow granted Mr. Seffren 28,520 shares under our 2005 plan on December
31,
2005. On March 28, 2006, in conjunction with Mr. Seffren’s employment as chief
marketing officer, Mr. Seffren was granted under the 2005 Plan 10,000 shares
of
AeroGrow’s common stock at a value of $5.00 per share for an aggregate vale of
$50,000 and 125,000 stock options at an exercise price of $5.00 per share that
was fully vested upon grant.
Wayne
Harding, one of our directors, provided consulting services for AeroGrow from
December 2003 through March 2004. He received stock options for 3,910 shares
of
common stock with an exercise price of $2.50 per share. As of March 21, 2006,
AeroGrow entered into a consulting agreement with Mr. Harding pursuant to which
Mr. Harding will assist AeroGrow in evaluating international opportunities
for a
fee of $75 per hour plus expenses.
Jack
Walker, one of our directors, provided consulting services for AeroGrow from
January 2006 through February 2006.
On
March
28, 2006, AeroGrow granted to each of its four directors other than the chief
executive officer 2,500 shares each of the Company’s common stock as director
compensation at a value of $5.00 per share for a total of $12,500 for each
director, a total of $50,000 and 100,000 full vested five-year options to
purchase AeroGrow’s common stock at an exercise price of $5.00 per share.
Mentor
Capital
Mentor
Capital Consultants, Inc. was formerly our parent corporation. Mr. Bissonnette
is the principal shareholder and chief executive officer of Mentor Capital.
Mr.
Gutterman is the chief financial officer, secretary and a director of Mentor
Capital. Mr. Kranitz is a director of Mentor Capital.
On
October 15, 2002, Mr. Bissonnette exchanged 1 million shares of Mentor Capital’s
common stock for 3 million common shares of our common stock, not taking into
account the one-for-five reverse stock split to shareholders of record on
May 31, 2005. We valued this transaction at $300,000, which was the market
value of the AeroGrow shares of common stock at the time of the transaction.
The
$300,000 was treated as a compensation expense.
On
December 31, 2004, Mentor Capital made a pro rata liquidating distribution
to
its shareholders of all 6,000,000 shares of our common stock held by it. These
shares were issued with the restriction with AeroGrow that 25% may be sold
beginning six months after a public offering, 25% may be sold beginning one
year
after a public offering, 25% may be sold beginning 18 months after a public
offering and the remaining 25% may be sold beginning 24 months after a public
offering. In addition, these shareholders will be required to execute prior
to
closing of this offering, pursuant to the requirements of the underwriters,
a
lock-up agreement which will restrict their sale for one year following this
offering.
From
inception until May 31, 2005, we leased from Mentor Capital our furniture,
computers and other office equipment for a rental payment of $2,500 per month.
For each of the years ended December 31, 2004 and 2003, we paid $30,000 to
rent the equipment. This lease was terminated as of May 31, 2005. From January
through April 2005 we made interest-free unsecured loans totaling $41,000 to
Mentor Capital to allow Mentor Capital to redeem some of its stock from a
shareholder who is not affiliated with AeroGrow. The lease payments for the
furniture of $2,500 per month were being used to offset a portion of this loan.
We acquired the fixed assets under the furniture lease in full payment of the
loan on May 31, 2005.
Mentor
Capital entered into a research and development contract in 2002 with AgriHouse,
Inc. which provided for development of a nutrient delivery system using
proprietary aeroponic technology that could be used in a low cost consumer
product. If a product was developed, Mentor Capital was granted the exclusive
worldwide marketing rights for it, subject to the duty to pay a royalty to
AgriHouse of 10% of the manufacturing cost of each unit. Mentor Capital assigned
its rights under this contract to AeroGrow shortly after AeroGrow was formed
and
AeroGrow agreed to assume the royalty payment obligations. Subsequently, we
developed a fractionator bar technology, applied for two patents and were
granted one patent. We decided to abandon this technology and pursue other
approaches to produce a low-cost consumer product. In May 2005 we entered into
a
new product research and development agreement with AgriHouse and Mentor Capital
which superseded and terminated the 2002 agreement. We returned related
ownership and manufacturing rights to AgriHouse, along with two related patents,
drawings, molds and other materials. We also paid AgriHouse $25,000 in cash.
The
2005 agreement provides for the collaboration of AeroGrow and AgriHouse on
developing an aeroponic product using our fractionator bar
technology.
PRINCIPAL
SHAREHOLDERS
The
following table sets forth certain information regarding our common stock
beneficially owned on February 28, 2006, by:
· each
shareholder we know to be the beneficial owner of 5% or more of our outstanding
common stock,
· each
of
our executive officers and directors, and
· all
executive officers and directors as a group.
In
general, a person is deemed to be a "beneficial owner" of a security if that
person has or shares the power to vote or direct the voting of such security,
or
the power to dispose or to direct the disposition of such security. A person
is
also deemed to be a beneficial owner of any securities of which the person
has
the right to acquire beneficial ownership within 60 days. To the best of our
knowledge, subject to community and marital property laws, all persons named
have sole voting and investment power with respect to such shares except as
otherwise noted. The table assumes a total of 8,930,885 shares of common stock
outstanding.
|
Name
of Beneficial Owner (1)
|
|
Amount
of
Beneficial
Ownership
|
|
Percent
Beneficial
Ownership
|
|
W.
Michael Bissonnette
900
28th Street, Suite 201
|
|
956,297
|
|
10.45%
|
|
Mitchell
Rubin
900
28th Street, Suite 201
|
|
128,768
|
|
1.39%
|
|
Jeff
Brainard
900
28th
Street, Suite 201
|
|
131,000
|
|
1.41%
|
|
Richard
A. Kranitz
1238
Twelfth Avenue
|
|
67,579
|
|
0.74%
|
|
Randy
Seffren
900
28th Street, Suite 201
|
|
209,320
|
|
2.3%
|
|
Wayne
Harding
5206
South Hanover Way
|
|
144,673
|
|
1.58%
|
|
Jack
J. Walker
c/o
900 28th
Street, Suite 201
|
|
176,908
|
|
1.92%
|
|
Kenneth
Leung
c/o
900 28th
Street, Suite 201
|
|
12,500
|
|
0.14%
|
|
Timothy
J. Keating
5251
DTC Parkway, Suite 1090
|
|
452,449
|
|
4.9%
|
|
All
AeroGrow Executive Officers and Directors as a Group (8 Persons)
(9)
|
|
1,827,045
|
|
19.0%
|
|
(1)
|
Beneficial
ownership is determined in accordance with the rules of the Securities
and
Exchange Commission (“SEC”), which include holding voting and investment
power with respect to the securities. Shares of common stock subject
to
options or warrants currently exercisable, or exercisable within
60 days,
are deemed outstanding for computing the percentage of the total
number of
shares beneficially owned by the designated person, but are not deemed
outstanding for computing the percentage for any other
person.
|
|
(2)
|
Includes
options to purchase 3,768 shares of AeroGrow’s common stock at an exercise
price of $0.50 per share and options granted on March 28, 2006 to
purchase
125,000 shares of AeroGrow’s common stock at an exercise price of $5.00
per share.
|
|
(3)
|
Includes
options granted on March 28, 2006 to purchase 125,000 shares of AeroGrow’s
common stock at an exercise price of $5.00 per
share.
|
|
(4)
|
Includes
46,546 shares owned by Cedar Creek Ventures, LLC, of which Mr. Kranitz
is
a 50% owner and managing member. Also includes 10,000 fully vested
five-year options to purchase AeroGrow’s common stock at an exercise price
of $5.00 per share and 2,500 shares of common stock valued at $5.00
per
share granted as of March 28, 2006.
|
|
(5)
|
Includes
options to purchase 3,910 shares of AeroGrow’s common stock at an exercise
price of $2.50 per share, and warrants to purchase 5,000 shares of
AeroGrow’s common stock at an exercise price of $2.50 per share. Also
includes 10,000 fully vested five-year options to purchase AeroGrow’s
common stock at an exercise price of $5.00 per share and 2,500 shares
of
common stock valued at $5.00 per share granted as of March 28,
2006.
|
|
(6)
|
Includes
96,122 shares held of record by March Trade & Finance, Inc. of which
Mr. Walker is a controlling person and 24,000 shares underlying
immediately exercisable warrants at $5.00 per share and 34,286 shares
issuable under a convertible note in principal amount of $120,000.
Also
includes 10,000 fully vested five-year options to purchase AeroGrow’s
common stock at an exercise price of $5.00 per share and 2,500 shares
of
common stock valued at $5.00 per share granted as of March 28,
2006.
|
|
(7)
|
Includes
10,000 fully vested five-year options to purchase AeroGrow’s common stock
at an exercise price of $5.00 per share and 2,500 shares of common
stock
valued at $5.00 per share granted as of March 28,
2006.
|
|
(8)
|
Includes
warrants to purchase 20,000 shares of common stock at an exercise
price of
$6.00 per share and warrants to purchase 47,800 shares of common
stock at
an exercise price of $6.25 per share. Includes 309,406 shares of
common
stock held by KRM Fund. Timothy J. Keating is the manager of KRM
Fund and
has voting and disposition power of the shares owned by KRM
Fund.
|
|
(9)
|
Includes
options and warrants to acquire 451,678 shares of common stock and
34,286
shares issuable on conversion of an outstanding
note.
|
DESCRIPTION
OF SECURITIES
General
AeroGrow’s
articles of incorporation provide that it is authorized to issue up to
75,000,000 shares of common stock, par value $0.001 per share, and 20,000,000
shares of preferred stock, par value $0.001 per share. As of March 31, 2006,
AeroGrow had 9,145,120 shares of common stock outstanding which includes 66,235
shares of common stock granted under the 2005 Plan as of March 28, 2006. No
shares of preferred stock were issued and outstanding. Nevada law allows
AeroGrow board of directors to issue shares of common stock and preferred stock
up to the total amount of authorized shares without obtaining the prior approval
of shareholders.
The
following description of AeroGrow’s common stock, preferred stock, convertible
notes and various warrants summarizes the material provisions of each and is
qualified in its entirety by the provisions of AeroGrow’s articles of
incorporation, bylaws, convertible notes and warrant agreements, copies of
which
will be provided by us upon request.
Common
Stock
Holders
of AeroGrow’s outstanding common stock have the following rights and privileges
in general:
· the
right
to one vote for each share held of record on all matters submitted to a vote
of
the stockholders, including the election of directors,
· no
cumulative voting rights, which means that holders of a majority of shares
outstanding can elect all of AeroGrow’s directors,
· the
right
to receive ratably dividends when, if and as may be declared by AeroGrow’s board
of directors out of funds legally available for such purposes, subject to the
senior rights of any holders of preferred stock then outstanding,
· the
right
to share ratably in the net assets legally available for distribution to common
stockholders after the payment of AeroGrow’s liabilities on its liquidation,
dissolution and winding-up, and
· no
preemptive or conversion rights or other subscription rights, and no redemption
privileges.
All
outstanding shares of AeroGrow’s common stock are fully paid and
nonassessable.
Preferred
Stock
AeroGrow’s
preferred stock may be issued from time to time by its board of directors,
without further action by its stockholders, in one or more series. The board
can
fix the relative designations, preferences, priorities, powers and other special
rights for each series of preferred stock.
AeroGrow
believes that the preferred stock will provide it with increased flexibility
in
structuring possible future financings and acquisitions and in meeting other
corporate needs that might arise. Although AeroGrow’s board of directors
currently has no intention to issue preferred stock, in the event of any
issuance, its common stockholders will not have any preemptive or similar rights
to acquire any of the preferred stock. Issuances of preferred stock
could:
· dilute
the voting power of common stockholders,
· adversely
affect the voting power of common stockholders,
· adversely
affect the likelihood that common stockholders will receive dividend payments
and payments on liquidation, and
· have
the
effect of delaying or preventing a change in shareholder and management
control.
Debt
Warrants
In
June,
July, August and September 2005, AeroGrow sold in a private placement debt
offering to accredited investors 300 units consisting of convertible notes,
described below, and its redeemable warrants. The warrants are exercisable
for
the purchase of an aggregate 600,000 shares of its common stock at an exercise
price of $5.00 per share in whole at any time or in part from time to time
prior
to September 13, 2010. Upon the expiration of the warrant exercise period,
unless extended, each warrant will expire and become void and of no
value.
The
holder of each warrant is entitled, upon payment of the exercise price, to
purchase one share of AeroGrow’s common stock. The number and kind of securities
or other property for which the warrants are exercisable are subject to
adjustments in certain events such as mergers, reorganizations or stock splits,
to prevent dilution. AeroGrow may redeem the warrants at any time on fifteen
days’ prior written notice at a redemption price of $0.0001 per share of common
stock underlying the warrant, provided an effective registration statement
is in
effect covering the common shares underlying the warrant, and further provided
that for a period of not less than twenty consecutive trading days the closing
bid price as quoted on the Nasdaq Capital Market or NASD OTC Bulletin Board
has
been at least $7.50 per share of common stock and the average daily trading
volume exceeds 50,000 shares per day. All of the outstanding warrants must
be
redeemed if any are redeemed. The holders of the warrants will not possess
the
rights that AeroGrow’s shareholders have unless and until the holders exercise
the warrants and then only as a holder of the common stock.
The
shares of common stock underlying the redeemable 2005 warrants have registration
rights. See “Registration Rights” below.
See
“Convertible Note Modification Agreement” below.
Convertible
Notes and Conversion Warrants
AeroGrow
issued $3,000,000 in aggregate principal face amount of 10% unsecured
convertible notes as part of its debt offering in June, July, August and
September 2005 along with the debt warrants described above. The principal
amount is convertible into its common stock at the option of the note holders,
at any time, at a conversion price equal to $4.00 per share. Assuming a
conversion price of $4.00 per share AeroGrow would issue 750,000 shares of
common stock if all notes are converted. If not converted, these notes and
all
accrued interest are repayable on demand by the note holders at any time after
June 30, 2006. The notes bear interest at the rate of 10% annually which is
payable quarterly beginning September 30, 2005. The principal is due on June
30,
2006. AeroGrow may not prepay the notes without the holder’s prior
consent.
On
conversion of the notes each holder shall also receive five-year warrants to
purchase 2,000 shares of common stock for each $10,000 principal amount
converted. These conversion warrants may be exercised at any time at an exercise
price equal to $6.00 per share. AeroGrow may not redeem these conversion
warrants.
The
shares of common stock underlying the convertible notes and the conversion
warrants have registration rights. See “Registration Rights” below.
See
“Convertible Note Modification Agreement” below.
$10.00
Redeemable Warrants and $15.00 Redeemable Warrants
In
2004
AeroGrow completed a Colorado registered offering of 544,228 shares of its
common stock, redeemable warrants to purchase 390,880 shares of its common
stock
at an exercise price of $10.00 and redeemable warrants to purchase 390,880
shares of its common stock at an exercise price of $15.00. The $10.00 redeemable
warrants and $15.00 redeemable warrants became exercisable on July 1, 2005,
provided that at least 100 shares must be purchased on each exercise. These
warrants expire on December 31, 2007.
AeroGrow
may redeem all of these warrants at any time after its common stock is quoted
on
the OTC BB or a recognized exchange on fifteen days’ prior written notice at a
redemption price of $0.05 per share, provided that the closing bid or sale
price
of its common stock exceeds $12.50 per share for the $10.00 redeemable warrants
and $17.50 per share for the $15.00 redeemable warrants for 20 consecutive
trading days ending within 15 days of the date the notice of redemption is
given.
$5.00
Non-Redeemable Warrants, $2.50 Non-Redeemable Warrants and $1.25 Non-Redeemable
Warrants
From
December 2002 through July 2004 AeroGrow sold in a private placement:
· $5.00
non-redeemable warrants to purchase 30,000 shares of its common stock at an
exercise price of $5.00 per share. As of January 31, 2006, warrants to purchase
5,000 shares have been exercised and warrants to purchase 25,000 have expired.
· $2.50
non-redeemable warrants to purchase 501,098 shares of its common stock at an
exercise price of $2.50 per share. As of January 31, 2006, warrants to purchase
390,000 shares have been exercised and warrants to purchase 111,098 shares
remain outstanding and are exercisable during 2006.
· $1.25
non-redeemable warrants to purchase 170,000 shares of its common stock at an
exercise price of $1.25 per share. As of January 31, 2006, all of these warrants
were exercised.
February
2006 Warrants
In
connection with the February 2006 offering, there were issued common stock
purchase warrants to purchase up to 2,362,800 shares of common stock at an
exercise price of $6.25 per share. Of this amount, warrants for 2,148,000 shares
were issued to investors and warrants for 214,800 shares were issued to the
placement agent of the offering. Each warrant is non-redeemable and is
exercisable until February 24, 2011. The exercise price and number of shares
of
common stock under the warrants will be subject to adjustment on certain events,
including reverse stock splits, stock dividends and recapitalizations,
combinations, and mergers where AeroGrow is not the surviving company. AeroGrow
will at all times reserve and keep available, solely for issuance and delivery
upon the exercise of the warrants, such shares of common stock underlying the
warrants as from time to time shall be issuable upon the exercise of the
warrants. The warrants held by the Placement Agent and its designees also may
be
exercised on a net cashless basis.
The
shares of the underlying common stock have registration rights. See
“Registration Rights” below.
2005
Placement Agent Warrants
In
connection with its services as placement agent for AeroGrow’s 2005 debt
offering of units consisting of convertible notes and redeemable warrants,
AeroGrow agreed to sell to Keating Securities five-year warrants to purchase
60,000 shares of AeroGrow’s common stock. These warrants will be exercisable at
any time after September 13, 2006, at a price equal to $6.00 per share on a
net-issuance or cashless basis.
The
shares of common stock underlying the above placement agent warrants have
registration rights. See “Registration Rights” below.
Stock
Options
AeroGrow
has outstanding options to purchase 233,270 shares of AeroGrow common stock
at
an exercise price ranging from $0.005 to $5.00 per share.
Convertible
Note Modification Agreement
In
connection with the Merger, AeroGrow sought to modify the terms of certain
outstanding convertible notes issued in 2005 with an outstanding principal
balance of $3,000,000 due June 30, 2006 (“Convertible Notes”). The note holders
of this debt were offered the opportunity to convert the principal and interest
at a reduced conversion rate, extend the maturity for a lesser reduced
conversion rate than immediate conversion or maintain the current terms
unchanged.
The
holders of Convertible Notes representing $2,130,000 in principal amount
converted their notes into AeroGrow common stock at a conversion price of $3.00
per share, a reduction from the original conversion price of $4.00 per share.
Accordingly, AeroGrow issued 710,009 shares of its common stock to converting
note holders (rounded up for fractional shares). The converting note holders
also were issued, pursuant to the terms of the note offering, five-year warrants
to purchase 426,000 shares of AeroGrow’s common stock at an exercise price of
$6.00 per share. Holders of Convertible Notes representing $840,000 in principal
amount agreed to extend the maturity under their notes from June 30, 2006 to
December 31, 2006 in exchange for a reduction in their conversion price from
$4.00 per share to $3.50 per share.
The
remaining holders of Convertible Notes representing $30,000 in principal amount
have not elected to convert or extend the maturity of their notes and will
be
able to demand payment in cash on June 30, 2006.
For
those
Convertible Note holders who elected to convert or extend the maturity of their
notes as described above, (i) AeroGrow eliminated the current 180 day lock-up
provisions on the shares of common stock underlying the Convertible Notes and
related warrants; (ii) AeroGrow eliminated the redemption provisions of the
$5.00 warrants issued to holders at the time of the issuance of the notes;
and
(iii) holders waived any registration penalties that they may have in connection
with any late filing or effectiveness under the registration rights provisions
of their original subscription for the notes.
As
of the
date of this prospectus, the Convertible Notes and the warrants issued or to
be
issued to convertible note holders can be summarized as follows:
· 710,009
shares of common stock were issued at the Closing of the Offering to holders
of
Convertible Notes in the principal amount of $2,130,000 who have elected to
convert such notes at $3.00 per share;
· 240,006
shares of common stock will be issuable upon conversion of Convertible Notes
(rounded up for fractional shares) in the principal amount of $840,000 at a
conversion price of $3.50 by holders who have elected to extend the maturity
of
their notes to December 31, 2006;
· 7,500
shares of common stock will be issuable upon conversion of Convertible Notes
in
the principal amount of $30,000 at a conversion price of $4.00 by holders who
have not elected to extend the maturity of their notes beyond June 30, 2006;
· 600,000
shares of common stock will be issuable upon exercise of outstanding warrants
held by the initial holders of the Convertible Notes with exercise price of
$5.00 per share, of which 6,000 warrants held by those not electing to extend
the maturity of their Convertible Notes to December 31, 2006 are redeemable;
· 426,000
shares of common stock issuable upon exercise of warrants, at an exercise price
of $6.00 per share, that were issued to holders that elected to convert notes
in
the principal amount of $2,130,000; and
· 174,000
shares of common stock issuable upon the exercise of warrants to be issued
upon
conversion of Convertible Notes in the principal amount of $870,000 at an
exercise price of $6.00 per share;
Registration
Rights
AeroGrow
has agreed to register: (i) 2,148,000 shares of common stock issued to Investors
in the Offering consummated February 24, 2006; (ii) 2,148,000 shares of common
stock underlying the Warrants issued to Investors in the Offering consummated
February 24, 2006; and (iii) 214,800 shares of common stock underlying the
warrants issued to the Placement Agent in the Offering consummated February
24,
2006, on a registration statement to be filed by AeroGrow (“Registration
Statement”). AeroGrow has agreed to file the Registration Statement within 45
days following the closing of this Offering, February 24, 2006 (“Closing”), and
will use its best efforts to have the Registration Statement declared effective
within 150 days after the Closing. AeroGrow shall pay the usual costs of such
registration. The Registration Statement also will include : (i) 710,009 shares
of common stock issued to holders of Convertible Notes in the principal amount
of $2,130,000 who elected to convert this notes at $3.00 per share; (ii) 240,006
shares of common stock issuable upon conversion of Convertible Notes in the
principal amount of $840,000 at a conversion price of $3.50 by holders who
elected to extend the maturity of their notes to December 31, 2006; (iii) 7,500
shares of common stock issuable upon conversion of Convertible Notes in the
principal amount of $30,000 at a conversion price of $4.00 by holders who have
not elected to extend the maturity of their notes beyond June 30, 2006; (iv)
600,000 shares of common stock underlying warrants, at an exercise price of
$5.00 per share, held by the holders of the Convertible Notes (“Debt Warrants”);
(v) 426,000 shares of common stock underlying warrants, at an exercise price
of
$6.00 per share, held by holders that have elected to convert their Convertible
Notes in the principal amount of $2,130,000, and 174,000 shares of common stock
underlying warrants, at an exercise price of $6.00 per share, to be issued
upon
conversion of Convertible Notes in the principal amount of $870,000 at an
exercise price of $6.00 per share (collectively, the “Conversion Warrants”);
(vi) 60,000 shares of common stock underlying warrants, at an exercise price
of
$6.00 per share, issued to the Placement Agent or its designees in connection
with the Convertible Notes offering (“Agent Debt Warrants”); and (vii) up to
580,136 shares of common stock issued to Wentworth stockholders in the Merger
who comply with the terms of the Merger Agreement for inclusion on the
registration statement. If any additional securities are sold in the Offering
or
issued in connection with the Offering, they will be sold with the same
registration rights as those granted in connection with the
Offering.
If
the
Registration Statement is not filed or does not become effective on a timely
basis, for any reason, AeroGrow will be required to pay the Investors in the
Offering and the investors in the Convertible Note offering an amount equal
to
1% of the purchase price of the securities held by them for every 30 day period
(or part) after the relevant date, in each case until the Registration Statement
is filed or declared effective, as the case may be (“Registration Penalty”).
After
the
effectiveness of the Registration Statement, AeroGrow shall also be required
to
pay Investors in the Offering and the investors in the Convertible Note offering
an amount equal to 1% of the purchase price of the securities held by them
for
every 30 day period that the registration statement is not available for use
to
sell or transfer the registered shares (“Suspension Penalty”). This Suspension
Penalty shall be in addition to any other penalties mentioned.
The
Registration Penalty and/or Suspension Penalty (the “Penalties”) shall be due
and payable only to the Investors in this Offering and investors in the
Convertible Note offering. Payment of the Penalties in the circumstances of
a
registration statement not being filed or declared effective by designated
dates
will be made in shares of common stock calculated by taking the amount due
and
dividing it by $2.00 (“Penalty Shares”). The Penalty Shares will be included in
the registration statement. Payment of the Penalties that may be due after
the
effective date of the registration statement will be paid in cash. The Penalty
amount is 1% per month of the purchase price paid for the securities payable
for
up to a maximum of an aggregate of 18 months.
There
can
be no assurance that the shares of common stock subject to registration rights
as specified above will become registered under the Securities Act.
Lock
Up Agreements
The
former stockholders of Wentworth holding an aggregate of 396,813 shares of
common stock entered into a lock up agreement under which they will be
prohibited from selling or otherwise transferring: (i) any of their shares
of
common stock for a period of twelve months (12) months following the effective
date of the Registration Statement (“Initial Lock Up Period”), and (ii) fifty
percent (50%) of its shares of common stock after the expiration of Initial
Lock
Up Period until the date which is eighteen (18) months after the effective
date
of the Registration Statement.
Further,
as a condition of the closing of the Merger Agreement, 4,792,428 shares of
AeroGrow’s common stock held by existing AeroGrow stockholders (including all
shares of AeroGrow held by AeroGrow’s current officers and directors) and
1,831,067 shares of common stock underlying AeroGrow’s existing warrants and
options outstanding are subject to lock up agreements with the same transfer
restrictions as set forth above and applicable to the stockholders of
Wentworth.
The
following shares of common stock (or shares of common stock underlying warrants
and options) are not subject to any lock up agreement restrictions:
· Approximately
544,228 shares of common stock held by investors in AeroGrow’s Colorado
intrastate offering (“Colorado Offering Shares”). The Colorado Offering Shares
will be freely tradable without restriction and will represent AeroGrow’s
“float” following the Merger.
· 370,319
shares of outstanding common stock held by existing AeroGrow stockholders.
These
shares of common stock may be freely tradable without restriction following
the
Offering depending on how long the holders thereof have held these shares
depending on the requirements of Rules 144 and 701.
· 115,000
shares of common stock underlying existing warrants, and 20,944 shares of common
stock underlying outstanding options issued to employees, consultants and
vendors. Upon exercise of these warrants by the holders thereof, the shares
will
be restricted shares subject to the restrictions on transfer imposed under
Rule
144 and Rule 701 promulgated under the Securities Act, which have different
holding periods and volume limitations depending on the status of the holder
and
the time period that the holder has held the securities.
· None
of
the shares of common stock issued in the Offering, issued upon conversion of
the
Convertible Notes, underlying the warrants issued in this Offering (including
Agent Warrants), underlying the Convertible Notes, or underlying the warrants
issued or to be issued to Convertible Note holders (including placement agent
warrants) are subject to lock up restrictions.
· 183,323
shares of common stock held by Wentworth stockholders will not be subject to
lock up restrictions.
Transfer
Agent and Registrar
Corporate
Stock Transfer, Denver, Colorado, is our registrar and transfer agent and
registrar of our common stock. The mailing address of Corporate Stock Transfer
is 3200 Cherry Creek South Drive, Denver, Colorado 80209-3246.
Shareholder
Action
Under
our
bylaws, the affirmative vote of the holders of a majority of the shares of
common stock represented at a meeting at which a quorum is present is sufficient
to authorize, ratify or consent to any action required by the common
shareholders, except as otherwise provided by the Nevada General Corporation
Law. Under the Nevada General Corporation Law and our bylaws, our shareholders
may also take actions by written consent without holding a meeting. The written
consent must be signed by the holders of at least a majority of the voting
power, except that if a different proportion of voting power is required for
a
specific action, then that proportion. If this occurs, we are required to
provide prompt notice of any corporate action taken without a meeting to our
shareholders who did not consent in writing to the action.
Antitakeover
Provisions
Our
articles of incorporation and the Nevada General Corporation Law include a
number of provisions that may have the effect of encouraging persons considering
unsolicited tender offers or other unilateral takeover proposals to negotiate
with our board of directors rather than pursue non-negotiated takeover attempts.
We believe that the benefits of these provisions outweigh the potential
disadvantages of discouraging these proposals because, among other things,
negotiation of the proposals might result in an improvement of their terms.
Our
articles of incorporation authorize the issuance of preferred stock. Our board
of directors can set and determine the voting, redemption, conversion and other
rights relating to any series of preferred stock. In some circumstances, we
could issue preferred stock to prevent a merger, tender offer or other takeover
attempt which our board of directors opposes.
PLAN
OF DISTRIBUTION
Each
selling security holder of the common stock offered for sale hereunder and
any
of their pledgees, assignees and successors-in-interest may, from time to time,
sell any or all of their shares of common stock on the OTC:BB or other stock
exchange, market or trading facility on which the shares are traded or in
private transactions. These sales may be at fixed or negotiated prices. A
selling security holder may use any one or more of the following methods when
selling shares:
· ordinary
brokerage transactions and transactions in which the broker-dealer solicits
purchasers,
· block
trades in which the broker-dealer will attempt to sell the shares as agent
but
may position and resell a portion of the block as principal to facilitate the
transaction,
· purchases
by a broker-dealer as principal and resale by the broker-dealer for its
account,
· an
exchange distribution in accordance with the rules of the applicable
exchange,
· privately
negotiated transactions,
· settlement
of short sales entered into after the date of this prospectus,
· broker-dealers
may agree with the selling security holders to sell a specified number of such
shares at a stipulated price per share,
· a
combination of any such methods of sale,
· through
the writing or settlement of options or other hedging transactions, whether
through an options exchange or otherwise, or
· any
other
method permitted pursuant to applicable law.
The
selling security holders may also sell shares under Rule 144 under the
Securities Act of 1933, as amended, if available, rather than under this
prospectus.
Broker-dealers
engaged by the selling security holders may arrange for other brokers-dealers
to
participate in sales. Broker-dealers may receive commissions or discounts from
the selling security holders (or, if any broker-dealer acts as agent for the
purchaser of shares, from the purchaser) in amounts to be negotiated, but,
except as set forth in a supplement to this prospectus, in the case of an agency
transaction not in excess of a customary brokerage commission in compliance
with
NASDR Rule 2440, and in the case of a principal transaction a markup or markdown
in compliance with NASDR IM-2440.
In
connection with the sale of the common stock or interests therein, the selling
security holders may enter into hedging transactions with broker-dealers or
other financial institutions, which may in turn engage in short sales of the
common stock in the course of hedging the positions they assume. The selling
security holders may also sell shares of the common stock short and deliver
these securities to close out their short positions, or loan or pledge the
common stock to broker-dealers that in turn may sell these securities. The
selling security holders may also enter into option or other transactions with
broker-dealers or other financial institutions or the creation of one or more
derivative securities which require the delivery to such broker-dealer or other
financial institution of shares offered by this prospectus, which shares such
broker-dealer or other financial institution may resell pursuant to this
prospectus, as supplemented or amended to reflect such transaction.
The
selling security holders and any broker-dealers or agents that are involved
in
selling the shares may be deemed to be "underwriters" within the meaning of
the
Securities Act in connection with such sales. In such event, any commissions
received by such broker-dealers or agents and any profit on the resale of the
shares purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act. Each selling security holder has informed
us
that it does not have any written or oral agreement or understanding, directly
or indirectly, with any person to distribute the common stock. In no event
shall
any broker-dealer receive fees, commissions and markups which, in the aggregate,
would exceed eight percent (8%).
We
are
required to pay certain fees and expenses incurred by us incident to the
registration of the shares. We have agreed to indemnify the selling security
holders against certain losses, claims, damages and liabilities, including
liabilities under the Securities Act.
Because
the selling security holders may be deemed to be "underwriters" within the
meaning of the Securities Act, they will be subject to the prospectus delivery
requirements of the Securities Act. In addition, any securities covered by
this
prospectus which qualify for sale pursuant to Rule 144 under the Securities
Act
may be sold under Rule 144 rather than under this prospectus. Each selling
security holder has advised us that they have not entered into any written
or
oral agreements, understandings or arrangements with any underwriter or
broker-dealer regarding the sale of the resale shares. There is no underwriter
or coordinating broker acting in connection with the proposed sale of the resale
shares by the selling security holders.
We
agreed
to keep this prospectus effective until the earlier of (i) the date on which
the
shares may be resold by the selling security holders without registration and
without regard to any volume limitations by reason of Rule 144(e) under the
Securities Act or any other rule of similar effect or (ii) all of the shares
have been sold pursuant to the prospectus or Rule 144 under the Securities
Act
or any other rule of similar effect. The resale shares will be sold only through
registered or licensed brokers or dealers if required under applicable state
securities laws. In addition, in certain states, the resale shares may not
be
sold unless they have been registered or qualified for sale in the applicable
state or an exemption from the registration or qualification requirement is
available and is complied with.
Under
applicable rules and regulations under the Securities Exchange Act of 1934,
as
amended, any person engaged in the distribution of the resale shares may not
simultaneously engage in market making activities with respect to the common
stock for a period of two business days prior to the commencement of the
distribution. In addition, the selling security holders will be subject to
applicable provisions of the Exchange Act and the rules and regulations
thereunder, including Regulation M, which may limit the timing of purchases
and
sales of shares of the common stock by the selling security holders or any
other
person. We will make copies of this prospectus available to the selling security
holders and have informed them of the need to deliver a copy of this prospectus
to each purchaser at or prior to the time of the sale.
The
selling security holders will be required to agree, prior to any sales, not
to
effect any offers or sales of our securities in any manner other than as
specified in this prospectus and have agreed not to purchase or induce others
to
purchase any of our securities in violation of any applicable state and federal
securities laws, rules and regulations and the rules and regulations governing
the Nasdaq Capital Market.
We
have
agreed with the selling security holders that we will prepare and file this
registration statement and such amendments and supplements to the registration
statement and the prospectus as may be necessary in accordance with the 1933
Act
to keep it effective until the date as of which the selling security holders
have sold all of the common stock offered by this prospectus or the common
stock
held by the selling stockholder may be sold without restriction under Rule
144
under the Securities Act.
The
selling security holders will pay selling expenses associated with the sale
of
the common stock offered, such as commissions or discounts payable to the
underwriters for the sale of the common stock. We are paying, on behalf of
the
selling security holders, and without any reimbursement to us, all expenses
of
registration for resale of the common stock being offered by the selling
security holders, including all expenses of our legal counsel and all expenses
we may pay to qualify the common stock for registration in states where the
common stock is offered or sold.
SELLING
SECURITY HOLDERS
In
July,
August and September 2005 we issued and sold $3,000,000 in aggregate principal
amount of our convertible notes to accredited investors in our 2005 debt
offering which we believe was exempt from the registration requirements of
the
federal securities laws. The notes either are convertible or have been converted
into shares of common stock currently aggregating 957,515 shares. At the time
of
sale of the notes, investors received warrants to acquire an aggregate of
600,000 shares of common stock exercisable at $5.00 per share and on conversion
of the note they received or will receive warrants to acquire an aggregate
of
600,000 shares of common stock exercisable at $6.00 per share. In connection
with the offering, there were issued placement agent warrants by AeroGrow to
acquire up to 60,000 shares of common stock at $6.00 per share.
On
February 24, 2006, AeroGrow sold units in an offering which we believe was
exempt from the registration requirements of the federal securities laws. The
units consisted of one share of common stock and one common stock purchase
warrant. There were issued 2,148,000 shares of common stock and warrants to
acquire up to 2,148,000 shares of common stock at $6.25 per share. In connection
with the offering, there were issued placement agent warrants by AeroGrow to
acquire up to 214,800 shares of common stock at $6.25 per share.
On
February 28, 2006, in exchange for the outstanding shares of Wentworth, AeroGrow
issues 580,136 shares of common stock in an offering which we believe was exempt
from registration requirements of the federal securities laws.
The
following table presents certain information known to us as of March 31, 2006,
relating to the people who are selling common stock pursuant to this offering.
During the past three years, none of the selling security holders held any
position or office with us. Beneficial ownership of the common stock by the
selling security holders, which term includes their transferees, pledgees,
donees and successors, after the offering will depend on the number of shares
of
common stock sold by each selling security holder.
For
purposes of the following table, the number of shares and percentage ownership
of outstanding common stock that the named selling security holders owns and
may
resell by this prospectus includes common stock that the named selling security
holder has the right to acquire.
|
|
|
Beneficial
Ownership of
Common Stock Before Offering
|
|
Maximum
Number of Shares to be Sold
|
|
Beneficial
Ownership of Common Stock After
|
|
Name
of Selling Security Holder
|
|
Number
|
|
Percentage(**)
|
|
|
|
Offering
|
|
|
Joel
Aaseby
|
|
|
22,000
|
|
|
*
|
|
|
22,000
|
|
|
0
|
|
|
The
Joel D. Aaseby Living Trust
|
|
|
10,000
|
|
|
*
|
|
|
10,000
|
|
|
0
|
|
|
Accelera
Capital Limited(1)
|
|
|
10,000
|
|
|
*
|
|
|
10,000
|
|
|
0
|
|
|
Accelera
Private Equity Limited(1)
|
|
|
80,000
|
|
|
*
|
|
|
80,000
|
|
|
0
|
|
|
Accelera
Ventures Ltd.(1)
|
|
|
100,000
|
|
|
1.1%
|
|
|
100,000
|
|
|
0
|
|
|
Alpha
Capital AG(2)
|
|
|
120,000
|
|
|
1.3%
|
|
|
120,000
|
|
|
|
|
|
Jeff
Lawrence Andrews(3)
|
|
|
54,950
|
|
|
*
|
|
|
54,950
|
|
|
0
|
|
|
ANIMA
Rubbrica FONDO AMERICA(4)
|
|
|
120,000
|
|
|
1.3%
|
|
|
120,000
|
|
|
|
|
|
Edward
Harrison Bacon
|
|
|
10,000
|
|
|
*
|
|
|
10,000
|
|
|
0
|
|
|
Christopher
Baker(10)
|
|
|
60,000
|
|
|
*
|
|
|
60,000
|
|
|
0
|
|
|
Bald
Eagle Fund, LLC(5)
|
|
|
4,000
|
|
|
*
|
|
|
4,000
|
|
|
0
|
|
|
Michael
F. Barish
|
|
|
110,000
|
|
|
1.2%
|
|
|
110,000
|
|
|
0
|
|
|
Beeman
Insurance Agency, Inc.(6)
|
|
|
10,000
|
|
|
*
|
|
|
10,000
|
|
|
0
|
|
|
Carl
G. Berry
|
|
|
10,000
|
|
|
*
|
|
|
10,000
|
|
|
0
|
|
|
Cynthia
F. Bissonnette
|
|
|
23,633
|
|
|
*
|
|
|
10,000
|
|
|
13,633
|
|
|
Marcy
Bjelajac(7)
|
|
|
10,000
|
|
|
*
|
|
|
10,000
|
|
|
0
|
|
|
|
|
Beneficial
Ownership of
Common Stock Before Offering
|
|
Maximum
Number of Shares to be Sold
|
|
Beneficial
Ownership of Common Stock After
|
|
Name
of Selling Security Holder
|
|
Number
|
|
Percentage(**)
|
|
|
|
Offering
|
|
|
Margie
Blackwell(3)
|
|
|
18,171
|
|
|
*
|
|
|
18,171
|
|
|
0
|
|
|
Kurt
and Sherry Boehm
|
|
|
34,286
|
|
|
*
|
|
|
34,286
|
|
|
0
|
|
|
Kelley
Boland(3)
|
|
|
5,000
|
|
|
*
|
|
|
5,000
|
|
|
0
|
|
|
John
Botti
|
|
|
41,143
|
|
|
*
|
|
|
41,143
|
|
|
0
|
|
|
John
Philip Bowmer
|
|
|
10,000
|
|
|
*
|
|
|
10,000
|
|
|
0
|
|
|
Martin
Boyd
|
|
|
37,500
|
|
|
*
|
|
|
10,000
|
|
|
27,500
|
|
|
Lawrence
A. and D. Melree Brock
|
|
|
29,497
|
|
|
*
|
|
|
16,000
|
|
|
13,497
|
|
|
Richard
J. Burtness
|
|
|
10,000
|
|
|
*
|
|
|
10,000
|
|
|
*
|
|
|
Patricia
Butler
|
|
|
20,000
|
|
|
*
|
|
|
20,000
|
|
|
0
|
|
|
Russell
Canterbury
|
|
|
10,000
|
|
|
*
|
|
|
10,000
|
|
|
0
|
|
|
Capital
Growth Financial, LLC(8)
|
|
|
400
|
|
|
*
|
|
|
400
|
|
|
0
|
|
|
Carmel
Capital LLC(9)
|
|
|
5,941
|
|
|
*
|
|
|
5,941
|
|
|
0
|
|
|
Robert
D. and Ruth K. Carrell
|
|
|
13,300
|
|
|
*
|
|
|
10,000
|
|
|
3,300
|
|
|
Janet
Kellogg Carter
|
|
|
10,000
|
|
|
*
|
|
|
10,000
|
|
|
0
|
|
|
Dennis
E. Channer
|
|
|
10,000
|
|
|
*
|
|
|
10,000
|
|
|
0
|
|
|
Resources
Trust Company FBO Dennis Channer
|
|
|
20,000
|
|
|
*
|
|
|
20,000
|
|
|
0
|
|
|
Devron
H. and Valerie C. Char
|
|
|
10,000
|
|
|
*
|
|
|
10,000
|
|
|
0
|
|
|
Cimarolo
Partners, LLC(10)
|
|
|
20,000
|
|
|
*
|
|
|
20,000
|
|
|
0
|
|
|
Alan
Cogen
|
|
|
10,000
|
|
|
*
|
|
|
10,000
|
|
|
0
|
|
|
Michael
and Paula Cohn
|
|
|
10,000
|
|
|
*
|
|
|
10,000
|
|
|
0
|
|
|
Michael
L. Conn
|
|
|
22,000
|
|
|
*
|
|
|
22,000
|
|
|
0
|
|
|
Joseph
Coors, Jr.
|
|
|
36,667
|
|
|
*
|
|
|
36,667
|
|
|
0
|
|
|
Barbara
Curtis
|
|
|
76,500
|
|
|
*
|
|
|
10,000
|
|
|
66,500
|
|
|
David
E. Chymiak
|
|
|
40,000
|
|
|
*
|
|
|
40,000
|
|
|
0
|
|
|
|
|
Beneficial
Ownership of
Common Stock Before Offering
|
|
Maximum
Number of Shares to be Sold
|
|
Beneficial
Ownership of Common Stock After
|
|
Name
of Selling Security
Holder
|
|
Number
|
|
Percentage(**)
|
|
|
|
Offering
|
|
|
Denis
Culverwell(11)
|
|
|
3,625
|
|
|
*
|
|
|
3,625
|
|
|
0
|
|
|
Justin
Davis(3)
|
|
|
10,000
|
|
|
*
|
|
|
10,000
|
|
|
0
|
|
|
Daniel
A. Deikel
|
|
|
10,000
|
|
|
*
|
|
|
10,000
|
|
|
0
|
|
|
Carlos
De La Rosa
|
|
|
22,000
|
|
|
*
|
|
|
22,000
|
|
|
0
|
|
|
John
Dexter
|
|
|
20,572
|
|
|
*
|
|
|
20,572
|
|
|
0
|
|
|
Robert
DiPietro
|
|
|
10,000
|
|
|
*
|
|
|
10,000
|
|
|
0
|
|
|
Darryl
Francis Donovan
|
|
|
40,000
|
|
|
*
|
|
|
40,000
|
|
|
0
|
|
|
J.
Michael Doyle
|
|
|
10,000
|
|
|
*
|
|
|
10,000
|
|
|
0
|
|
|
Lani
Dy
|
|
|
20,000
|
|
|
*
|
|
|
20,000
|
|
|
0
|
|
|
Brad
Dobski Revocable Trust
|
|
|
10,000
|
|
|
*
|
|
|
10,000
|
|
|
0
|
|
|
Rhys
Duggan
|
|
|
36,667
|
|
|
*
|
|
|
36,667
|
|
|
0
|
|
|
Dynamic
Decisions Growth Premium(12)
|
|
|
60,000
|
|
|
*
|
|
|
60,000
|
|
|
0
|
|
|
Gary
L. and Suzanne J. Eickert
|
|
|
20,572
|
|
|
*
|
|
|
20,572
|
|
|
0
|
|
|
Ellis
Family Limited Partnership(13)
|
|
|
10,000
|
|
|
*
|
|
|
10,000
|
|
|
0
|
|
|
Enable
Growth Partners, LP(14)
|
|
|
292,000
|
|
|
3.1%
|
|
|
292,000
|
|
|
0
|
|
|
Enable
Opportunity Partners, LP(14)
|
|
|
48,000
|
|
|
*
|
|
|
48,000
|
|
|
0
|
|
|
Gregory
Erigero
|
|
|
29,334
|
|
|
*
|
|
|
29,334
|
|
|
0
|
|
|
Phillip
Frasier
|
|
|
20,572
|
|
|
*
|
|
|
20,572
|
|
|
0
|
|
|
Freedom
Ride, LLC(15)
|
|
|
29,334
|
|
|
*
|
|
|
29,334
|
|
|
0
|
|
|
Michael
Fresoli(16)
|
|
|
200
|
|
|
*
|
|
|
200
|
|
|
0
|
|
|
Robert
Frisch
|
|
|
20,572
|
|
|
*
|
|
|
20,572
|
|
|
0
|
|
|
James
W. Fuller(17)
|
|
|
10,000
|
|
|
*
|
|
|
10,000
|
|
|
0
|
|
|
Garisch
Financial Inc.(18)
|
|
|
48,676
|
|
|
*
|
|
|
48,676
|
|
|
0
|
|
|
Gibson
Living Trust(19)
|
|
|
32,000
|
|
|
*
|
|
|
32,000
|
|
|
0
|
|
|
|
|
Beneficial
Ownership of
Common Stock Before Offering
|
|
Maximum
Number of Shares to be Sold
|
|
Beneficial
Ownership of Common Stock After
|
|
Name
of Selling Security Holder
|
|
Number
|
|
Percentage(**)
|
|
|
|
Offering
|
|
|
Charles
K. Gifford
|
|
|
20,000
|
|
|
*
|
|
|
20,000
|
|
|
0
|
|
|
John
F. Gifford
|
|
|
10,000
|
|
|
*
|
|
|
10,000
|
|
|
0
|
|
|
Gilman
Family Limited Partnership(20)
|
|
|
10,000
|
|
|
*
|
|
|
10,000
|
|
|
0
|
|
|
Kimberly
K. Gollehon
|
|
|
10,000
|
|
|
*
|
|
|
10,000
|
|
|
0
|
|
|
Steven
R. Goodbarn
|
|
|
20,000
|
|
|
*
|
|
|
20,000
|
|
|
0
|
|
|
Joseph
W. Grealish
|
|
|
40,000
|
|
|
*
|
|
|
40,000
|
|
|
0
|
|
|
David
Grose
|
|
|
10,000
|
|
|
*
|
|
|
10,000
|
|
|
0
|
|
|
Larry
Guardiani
|
|
|
10,000
|
|
|
*
|
|
|
10,000
|
|
|
0
|
|
|
Guerrilla
Partners, LP(21)
|
|
|
56,000
|
|
|
*
|
|
|
56,000
|
|
|
0
|
|
|
Guerrilla
IRA Partners, LP(21)
|
|
|
4,000
|
|
|
*
|
|
|
4,000
|
|
|
0
|
|
|
Arthur
Paul Haag
|
|
|
40,000
|
|
|
*
|
|
|
40,000
|
|
|
0
|
|
|
Randolph
James Haag(3)
|
|
|
27,850
|
|
|
*
|
|
|
27,850
|
|
|
0
|
|
|
Halter
Financial Group, Inc.(22)
|
|
|
20,000
|
|
|
*
|
|
|
20,000
|
|
|
0
|
|
|
John
U. Harris, III
|
|
|
10,000
|
|
|
*
|
|
|
10,000
|
|
|
0
|
|
|
John
U. Harris, Jr.
|
|
|
10,000
|
|
|
*
|
|
|
10,000
|
|
|
0
|
|
|
Robert
B. Hayes IRA
|
|
|
10,000
|
|
|
*
|
|
|
10,000
|
|
|
0
|
|
|
Robert
P. Hazelet
|
|
|
10,000
|
|
|
*
|
|
|
10,000
|
|
|
0
|
|
|
Song
He(3)
|
|
|
15,000
|
|
|
*
|
|
|
15,000
|
|
|
0
|
|
|
Joshua
L. Heller
|
|
|
10,000
|
|
|
*
|
|
|
10,000
|
|
|
0
|
|
|
Steven
J. Henricks(3)
|
|
|
17,000
|
|
|
*
|
|
|
17,000
|
|
|
0
|
|
|
Gregory
and Gail Hoag
|
|
|
22,000
|
|
|
*
|
|
|
22,000
|
|
|
0
|
|
|
Paul
Stuart and Barbara Warren Holden
|
|
|
38,200
|
|
|
*
|
|
|
10,000
|
|
|
28,200
|
|
|
Stephen
Hollis
|
|
|
22,000
|
|
|
*
|
|
|
22,000
|
|
|
0
|
|
|
Richard
M. Hopper
|
|
|
30,572
|
|
|
*
|
|
|
30,572
|
|
|
0
|
|
|
Greg
Hornecker
|
|
|
22,000
|
|
|
*
|
|
|
22,000
|
|
|
0
|
|
|
|
|
Beneficial
Ownership of
Common Stock Before Offering
|
|
Maximum
Number of Shares to be Sold
|
|
Beneficial
Ownership of Common Stock After
|
|
|
Name
of Selling Security Holder
|
|
Number
|
|
Percentage(**)
|
|
|
|
Offering
|
|
|
Lee
A. Houk
|
|
|
36,667
|
|
|
*
|
|
|
36,667
|
|
|
0
|
|
|
Iroquois
Master Fund Ltd.(23)
|
|
|
80,000
|
|
|
*
|
|
|
80,000
|
|
|
0
|
|
|
Andrew
and Shelly Iseman
|
|
|
22,000
|
|
|
*
|
|
|
22,000
|
|
|
0
|
|
|
Alan
Jacobs(24)
|
|
|
200
|
|
|
*
|
|
|
200
|
|
|
0
|
|
|
Michael
Jacobs(24)
|
|
|
200
|
|
|
*
|
|
|
200
|
|
|
0
|
|
|
Sara
Jaro
|
|
|
36,667
|
|
|
*
|
|
|
36,667
|
|
|
0
|
|
|
Jerry
A. Watson Trust, No. U/A 4/14/2005(25)
|
|
|
10,000
|
|
|
*
|
|
|
10,000
|
|
|
0
|
|
|
Julie
Ann Johnson
|
|
|
10,000
|
|
|
*
|
|
|
10,000
|
|
|
0
|
|
|
Arthur
Jones
|
|
|
20,000
|
|
|
*
|
|
|
20,000
|
|
|
0
|
|
|
Rhonda
Jordan and Kerry Anderson
|
|
|
20,000
|
|
|
*
|
|
|
20,000
|
|
|
0
|
|
|
Sheldon
Kahn and Sarah Liron
|
|
|
40,000
|
|
|
*
|
|
|
40,000
|
|
|
0
|
|
|
Leah
Kaplan-Samuels and Len Samuels
|
|
|
36,667
|
|
|
*
|
|
|
36,667
|
|
|
0
|
|
|
Max
Kaplan IRA
|
|
|
10,000
|
|
|
*
|
|
|
10,000
|
|
|
0
|
|
|
Keating
Reverse Merger Fund, LLC(27)
|
|
|
309,406
|
|
|
3.4%
|
|
|
309,406
|
|
|
0
|
|
|
Kevin
R. Keating(28)
|
|
|
154,944
|
|
|
1.7%
|
|
|
154,944
|
|
|
0
|
|
|
Michael
Keating(3)
|
|
|
5,000
|
|
|
*
|
|
|
5,000
|
|
|
0
|
|
|
Timothy
J. Keating(3)
|
|
|
143,043
|
|
|
1.6%
|
|
|
143,043
|
|
|
0
|
|
|
Kensington
Partners, LP(5)
|
|
|
76,000
|
|
|
*
|
|
|
76,000
|
|
|
0
|
|
|
Steven
R. Kleen
|
|
|
10,000
|
|
|
*
|
|
|
10,000
|
|
|
0
|
|
|
Carole
and Bill Kolbe
|
|
|
10,000
|
|
|
*
|
|
|
10,000
|
|
|
0
|
|
|
Ursula
Lamberson
|
|
|
69,500
|
|
|
*
|
|
|
20,000
|
|
|
49,500
|
|
|
Dianne
Lathrop Law and Deborah A. Lathrop
|
|
|
44,000
|
|
|
*
|
|
|
44,000
|
|
|
0
|
|
|
Jerome
Phillip Lauffenburger
|
|
|
246,667
|
|
|
2.7%
|
|
|
246,667
|
|
|
0
|
|
