UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2009

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT of 1934

For the transition period from __________ to __________

Commission file number 000-52572

ADVANCED GROWING SYSTEMS, INC.

(Name of Registrant as specified in its charter)

Nevada		20-4281128
(State or other jurisdiction of		(I.R.S. Employer
incorporation)		Identification Number)

3050 Royal Boulevard South, Ste 135

Alpharetta, GA 30022

(Address of principal executive offices)

Registrant’s telephone number, including area code: (678) 387-5061

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

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

Large Accelerated Filer  o	Accelerated Filer                  o
Non-Accelerated Filer     o (Do not check if a smaller reporting company)	Smaller reporting company x

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

As of August 14, 2009, there were 27,230,392 shares of the Registrant's common stock, par value $0.001, issued and outstanding. 

TABLE OF CONTENTS

			PAGE
PART I		FINANCIAL INFORMATION
Item 1.		Financial Statements
		Consolidated Balance Sheets		3
		Consolidated Statements of Operations		4
		Consolidated Statements of Cash Flows		5
		Notes to Consolidated Financial Statements		6
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		11
Item 3.		Quantitative and Qualitative Disclosures About Market Risk		12
Item 4.		Controls and Procedures		12
PART II		OTHER INFORMATION		13
Item 1.		Legal Proceedings		13
Item 1A.		Risk Factors		13
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds		13
Item 3.		Defaults upon Senior Securities		13
Item 4.		Submission of Matters to a Vote of Security Holders		13
Item 5.		Other Information		13
Item 6.		Exhibits		13

2

ITEM 1.  Financial Statements

Advanced Growing Systems, Inc. and Subsidiaries
Consolidated Balance Sheets
		June 30, 2009				September 30, 2008
		(Unaudited)				(Audited)
Assets
Current assets:
Cash and cash equivilents		$	-			$	-
Accounts receivable, net of allowance for doubtful accounts of $18,753 and $25,143			80,771				100,145
Inventories			6,357				32,420
Assets of discontinued operations			335,642				890,699
Total current assets			422,770				1,023,264
Property and equipment, net			1,772,827				2,064,990
Other assets			9,255				5,068
Total assets		$	2,204,852			$	3,093,322
Liabilities and stockholders' equity (deficit)
Current liabilities:
Bank overdraft		$	16,038			$	22,952
Accounts payable and accrued expenses			1,753,427				787,056
Convertible notes payable, net of discount			280,000				280,000
Current portion of notes payable, net of discount			1,503,085				903,422
Current portion of capital lease obligations			-				15,759
Liabilities of discontinued operations			2,860,898				2,915,451
Total current liabilities			6,413,448				4,924,640
Long-term notes payable			237,399				328,167
Long-term portion of capital lease obligations			-				37,931
Total liabilities			6,650,847				5,290,738
Minority interest			190				380
Commitments and contingencies
Stockholders' equity (deficit):
Preferred stock, 50,000,000 authorized, 25,000,000 designated as follows:
Preferred stock, Series A; par value $.001; 10,000,000 designated; 4,750,000
issued and outstanding in 2009 and 2008			4,750				4,750
Preferred stock, Series B; par value $.001; 10,000,000 designated; 3,933,333
issued and outstanding in 2009 and 2008			3,933				3,933
Preferred stock, Series C; par value $.001; 15,000,000 designated; 9,235,272
issued and outstanding in 2009 and 2008			9,235				9,235
Common stock; par value $.001; 500,000,000 authorized; 26,910,793 and
25,756,793 issued and outstanding in 2009 and 2008			26,911				25,756
Treasury stock, 357,143 shares at cost			(125,000	)			(125,000	)
Additional paid-in capital			13,388,403				13,115,429
Accumulated deficit			(17,754,417	)			(15,231,899	)
Total stockholders' equity (deficit)			(4,446,185	)			(2,197,796	)
Total liabilities and stockholders' equity		$	2,204,852			$	3,093,322

See accompanying notes to consolidated financial statements

3

Advanced Growing Systems, Inc. and Subsidiaries
Consolidated Statements of Operations
		Three months ended								Nine months ended
		June 30, 2009				June 30, 2008				June 30, 2009				June 30, 2008
Net sales		$	263,403			$	375,810			$	1,685,527			$	911,634
Cost of goods sold			208,918				208,804				1,152,978				422,506
Gross profit			54,485				167,006				532,549				489,128
Administrative expenses:
Operating expenses			529,002				562,188				1,578,461				1,778,160
Occupancy expenses			45,310				132,394				312,585				244,172
Advertising expenses			1,860				1,910				14,782				7,385
Depreciation and amortization			78,525				42,411				240,416				150,477
Total administrative expenses			654,697				738,903				2,146,244				2,180,194
Other (income) expenses:
Interest expense, net			121,286				741,567				421,611				869,945
Penalty incurred on preferred stock			-				-				-				63,333
Other (income) expenses			(3,876	)			6,660				(13,290	)			25,446
Total other (income) expenses			117,410				748,227				408,321				958,724
Total (income) expenses			772,107				1,487,130				2,554,565				3,138,918
Loss before income tax benefit			(717,622	)			(1,320,124	)			(2,022,016	)			(2,649,790	)
Income tax benefit			-				-				-				-
Net loss from continuing operations			(717,622	)			(1,320,124	)			(2,022,016	)			(2,649,790	)
Preferred stock dividend			-				(599,686	)			-				(599,686	)
Discontinued operations (Note 4)
Loss from discontinued operations of
Advanced Nurseries, net of tax			-				(294,666	)			(500,502	)			(991,996	)
Net loss available to common shareholders		$	(717,622	)		$	(2,214,476	)		$	(2,522,518	)		$	(4,241,472	)
Net loss per common share:
Continuing operations		$	(0.03	)		$	(0.08	)		$	(0.07	)		$	(0.14	)
Discontinued operations		$	-			$	(0.01	)		$	(0.02	)		$	(0.04	)
Net loss		$	(0.03	)		$	(0.09	)		$	(0.09	)		$	(0.18	)
Weighted average shares outstanding			26,910,792				24,445,451				26,859,648				23,997,088

See accompanying notes to consolidated financial statements

4

Advanced Growing Systems, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
		For the nine months ended
		June 30, 2009				June 30, 2008
Operating Activities
Net loss from continuing operations		$	(2,022,016	)		$	(2,649,824	)
Net loss from discontinued operations			(500,502	)			(991,996	)
Net loss			(2,522,518	)			(3,641,820	)
Adjustments to reconcile net loss from continuing
operations to net cash provided by (used in) operating activities:
Depreciation and amortization			240,416				150,477
Common shares issued for services			231,316				63,030
Non-cash interest expense			50,437				852,486
Penalty incurred on preferred stock			-				63,333
Loss on sale of equipment			546				-
Changes in operating assets and liabilities
Accounts receivable			19,374				(185,888	)
Inventories			26,063				86,159
Other assets			(4,187	)			1,145
Accounts payable and accrued expenses			966,366				258,832
Net cash provided by (used in) operating activities of
discontinued operations			469,594				1,004,578
Net cash used in operating activities			(522,593	)			(1,347,668	)
Investing Activities
Purchases of property and equipment			(8,941	)			(279,685	)
Net cash provided by (used in) investing activities of
discontinued operations			29,804				62,550
Net cash used in investing activities			20,863				(217,135	)
Financing Activities
Bank overdraft			(6,914	)			-
Proceeds from exercise of warrants			-				500,000
Proceeds on notes payable			610,878				585,000
Payments on capital lease obligations			(5,372	)			26,094
Payments on note payable			(96,862	)			29,429
Net cash provided by (used in) financing activities of
discontinued operations			-				48,767
Net cash provided by financing activities			501,730				1,189,290
Net increase (decrease) in cash and cash equivalents			-				(375,513	)
Cash and cash equivalents at beginning of year			-				375,513
Cash and cash equivalents at end of year		$	-			$	-
Supplemental Disclosure of Cash Flow Information
Cash paid for interest		$	150,214			$	141,841
Supplemental Disclosure of Non-Cash Information
Conversion of convertible notes payable		$	-			$	430,000
Assets returned under a capital lease		$	60,142			$	-
Stock issued for interest on convertible notes		$	-			$	50,559
Warrant re-pricing recorded as preferred stock dividend		$	-			$	599,652
Cashless warrant exercise as preferred stock dividend		$	-			$	1,637,500
Warrants issued with Series A Convertible preferred stock		$	-			$	602,713
Warrants issued with Series A Convertible common stock		$	-			$	169,745

See accompanying notes to consolidated financial statements

5

ADVANCED GROWING SYSTEMS, INC AND SUBSIDIARIES

Notes to the Interim Consolidated Financial Statements

June 30, 2009

(Unaudited)

Note 1, Basis of Presentation

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q of regulation S-X. They do not include all information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. However, except as disclosed herein there has been no material change in the information disclosed in the notes to consolidated financial statements for the period ended September 30, 2008 included in Advanced Growing Systems, Inc.’s (the “Company”) Form 10-K, as filed with the Securities and Exchange Commission (“SEC”). The interim unaudited consolidated financial statements should be read in conjunction with those consolidated financial statements included in the Form 10-K. In the opinion of management, all adjustments considered necessary for a fair presentation, consisting solely of normal recurring adjustments, have been made. Operating results for the nine months ended June 30, 2009 are not necessarily indicative of the results that may be expected for the year ending September 30, 2009.

Note 2, New Accounting Pronouncements

Effective January 1, 2008, we adopted Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS 157”).  SFAS 157 provides enhanced guidance for using fair value to measure assets and liabilities. SFAS 157 provides a common definition of fair value and establishes a framework to make the measurement of fair value under generally accepted accounting principles more consistent and comparable. SFAS 157 also requires expanded disclosures to provide information about the extent to which fair value is used to measure assets and liabilities, the methods and assumptions used to measure fair value, and the effect of fair value measures on earnings. In February 2008, the FASB issued Staff Position No. 157-2, (“FSP 157-2”) which delayed the January 1, 2008 effective date of SFAS 157 for all nonfinancial assets and nonfinancial liabilities, except those already being recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually), until January 1, 2009. Implementation of these standards had no effect on our results of operations, financial position, or cash flows.

Effective January 1, 2009, we adopted FASB Staff Position No. EITF 03-6-1, "Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities" ("EITF 03-6-1"). EITF 03-6-1 addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting, and therefore, need to be included in the earnings allocation in calculating earnings per share under the two-class method described in FASB Statement of Financial Accounting Standards No. 128, "Earnings per Share." EITF 03-6-1 requires companies to treat unvested share-based payment awards that have non-forfeitable rights to dividend or dividend equivalents as a separate class of securities in calculating earnings per share.  The adoption of EITF 03-6-1 had no effect on our results of operations, financial position, or cash flows.

In May 2008, the FASB issued Statement of Financial Accounting Standards No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (“SFAS 162”).  SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles in the United States. SFAS 162 will become effective 60 days following Securities and Exchange Commission (“SEC”) approval of the Public Company Accounting Oversight Board (PCAOB) amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles.”  We do not anticipate the adoption of SFAS 162 will have a material, if any, effect on our results of operations, financial position, or cash flows.

In April 2009, the FASB issued Staff Position FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments” (“FSP FAS 107-1 and APB 28-1”).  FSP FAS 107-1 and APB 28-1 amends FASB Statement No. 107, “Disclosures about Fair Value of Financial Instruments”, to require disclosures about fair value of financial instruments in interim as well as in annual financial statements.  FSP FAS 107-1 and APB 28-1 also amends APB Opinion No. 28, “Interim Financial Reporting”, to require those disclosures in all interim financial statements.  FSP FAS 107-1 and APB 28-1 is effective for periods ending after June 15, 2009.  We will adopt FSP FAS 107-1 and APB 28-1 in the second quarter of 2009 and currently do not expect that such adoption will have a material, if any, effect on our results of operations, financial position, or cash flows.

In May 2009, the FASB issued Statement of Financial Accounting Standards ("SFAS") No. 165, Subsequent Events.  SFAS No. 165 establishes principles and requirements for subsequent events, setting forth the period after the balance sheet date during which management of a reporting entity shall evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity shall recognize events or transactions occurring after the balance sheet date in its financial statements, and the disclosures that an entity shall make about events or transactions that occurred after the balance sheet date.  SFAS No. 165 is effective for interim or annual financial periods ending after June 15, 2009, and shall be applied prospectively.  The adoption of SFAS no. 165 did not have a material effect on the Company's consolidated financial condition or results of operations.

6

ADVANCED GROWING SYSTEMS, INC AND SUBSIDIARIES

Notes to the Interim Consolidated Financial Statements

June 30, 2009

(Unaudited)

In June 2009, the FASB approved the FASB Accounting Standards Codification (the “Codification”), and issued Statement of Financial Accounting Standards No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles, a replacement of FASB Statement No.162” (“SFAS 168”).  SFAS 168 replaces SFAS 162 to establish the Codification as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in preparation of financial statements in conformity with Generally Accepted Accounting Principles in the United States. SFAS 168 is effective for interim and annual periods ending after September 15, 2009. We do not expect the adoption of SFAS168 to have an impact on our financial position or results of operations.

We do not believe that any other recently issued, but not yet effective, accounting or reporting standards if currently adopted would have a material effect on our financial statements

Note 3, Going Concern

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principals generally accepted in the United States of America, which contemplate continuation of the Company as a going concern.  However, the Company has sustained substantial losses and has a significant working capital deficit.  The Company intends to generate positive cash flows from operations through increased production and sales of organic fertilizer and financing activities through debt issuances and from warrant exercises by equity holders.  There can be no assurance the Company will be able to obtain this additional capital in the future.  The Company has no other committed sources or arrangements for additional financing as of the time of this report.

Note 4, Discontinued Operations

In September 2008, the Board of Directors approved a plan to close Advanced Nurseries, Inc. (“ANI”) and begin a voluntary liquidation of the remaining assets.  ANI has incurred over $4,500,000 in losses since its inception and the outlook for the nursery industry warranted this decision.  The Level Four drought imposed by the director of the Georgia Environmental Protection Division, which reduced and eliminated outdoor watering, deepening credit crisis and contraction of the housing industry made the outlook for ANI unfavorable.  The future outlook for operations would result in additional losses for a division that has not produced profits to date.  There have been some attempts to sell the nursery to other competitors, but the economic environment did not warrant any offers.

The majority of the assets of the business have been disposed. The remaining assets consist mainly of cash and trade receivables. Trade receivables have been reduced to estimated net realizable value.  All leased and financed vehicles have been returned to the original parties.  ANI has received notices from the Northern Georgia District of Bankruptcy Court forcing it into an involuntary bankruptcy under the laws of bankruptcy court.  Management is completing its submission of all necessary responses to the court.

7

ADVANCED GROWING SYSTEMS, INC AND SUBSIDIARIES

Notes to the Interim Consolidated Financial Statements

June 30, 2009

(Unaudited)

The following table summarizes the components of the assets and liabilities from discontinued operations reported in the Consolidated Balance Sheets as of June 30:

		2009				2008
Cash		$	1,063			$	-
Accounts receivable, net			334,579				1,292,830
Inventories			-				1,496,803
Property and Equipment, net			-				941,193
Other assets			-				18,894
Total assets		$	335,642			$	3,749,720
Accounts payable			2,505,598				2,343,252
Accrued liabilities			147,176				284,471
Line of credit			208,124				782,941
Lease/debt obligations			-				286,193
Total liabilities		$	2,860,898			$	3,696,857

The following table summarizes certain operating data for discontinued operations for the nine months ended June 30:

		2009				2008
Net sales		$	204,187			$	6,381,664
Cost of goods sold			236,521				4,435,401
Gross profit (loss)			(32,334	)			1,946,263
Administrative expenses:
Operating expenses			260,294				2,326,823
Occupancy expenses			(11,138	)			269,782
Advertising expenses			35				13,280
Depreciation and amortization			-				197,977
Total administrative expenses			249,192				2,807,862
Loss from operations			(281,525	)			(861,599	)
Interest expense			7,101				93,463
Other expense			211,876				36,934
Net loss for discontinued operations		$	(500,502	)		$	(991,996	)

Note 5, Critical Accounting Policies

Our critical accounting policies, including the assumptions and judgements underlying them, are disclosed in our fiscal 2008 Form 10-K in Note 3- Summary of Significant Accounting Policies included in our Consolidated Financial Statements.  There were no significant changes to our critical accounting policies during the three months ended June 30, 2009. On an ongoing basis, we evaluate our estimates based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances.  The result of which form the basis for making judgements about the carrying value of assets and liabilities that are not readily apparent from other sources.  Results may differ from these estimates due to actual outcomes being different from those on which we based our assumptions.  

8

ADVANCED GROWING SYSTEMS, INC AND SUBSIDIARIES

Notes to the Interim Consolidated Financial Statements

June 30, 2009

(Unaudited)

Note 6, Income Taxes

The Company and its subsidiaries file a consolidated federal tax return with the Company being the common parent corporation of the affiliated group and have executed a tax sharing agreement across corporate lines. Deferred tax assets and liabilities are recognized for the effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Substantially all of the tax benefit is attributable to the net operating losses generated during the current fiscal periods.

Management has determined that the deferred tax asset may not be realized in the short term. Therefore, due to the short operating history of the Company, management has recorded a valuation allowance to reduce the deferred tax asset to zero. The net operating loss carryovers from the fiscal years ended September 30, 2006, 2007 and 2008 of $825,416, $2,759,322 and $6,936,631 respectively, will expire in 2026, 2027 and 2028, respectively, if not utilized.

Note 7, Notes Payable

On June 30, 2009, the Company and Conative Capital Management, LLC (“Conative”), agreed to extend the December 2008 $250,000 junior secured short term note until October 10, 2009.  Conative has agreed to capitalize the accrued interest of $7,625.  The extended note will have a new principal payment of $300,000, which will be due on October 10, 2009.  The new principal amount includes interest accruing from June 10, 2009 to October 10, 2009.  On June 13, 2009, Lamassu Capital Management assigned its $1,000,000 senior secured promissory note (“Promissory Note”) dated August 20, 2008, due on August 20, 2009, to enVentive Solutions, Inc. (“enVentive”).  Lamassu assigns all rights, titles and interests as described in the Promissory Note to enVentive.

In December 2008, the Company issued a junior secured short term note to Conative for $250,000.  The note is a six month note due on June 10, 2009 and accrues interest at 18%, payable in cash at the end of each month.  The Company issued 44,000 shares of the Company’s common stock valued at $.20 per share, the spot price of the stock at the time of the transaction, at closing of this transaction.   The value of these shares was $8,800.  The Company will also issue 44,000 shares of the Company’s common stock to Conative at the end of each month that the note is outstanding.  The Company has issued 264,000 shares to be held by an escrow agent to be issued at the end of each month.  The value of these shares was $52,800.  As of June 30, 2009 all of the 264,000 shares have been released by the escrow agent to Conative.

Note 8, Related Party

In June 2009 the Company issued 100,000 warrants, at $.50 per warrant, to the CFO of the Company, per his employment agreement.  The value of these warrants was calculated at $5,110.

In March 2009 the Company issued 100,000 warrants, at $.50 per warrant, each to the President of Organic Growing Systems, Inc. (“OGSI”) and to the CFO of the Company, per their employment agreement.  The value of these warrants was calculated at $11,418.

In December 2008, the Company issued 10,000 shares of common stock to each Board of Directors at $.25 per share, the spot price at the date of the meeting for attendance at the December 14, 2008 Board of Directors meeting.  The 60,000 shares were valued at $15,000.  The Company also issued 50,000 shares of common stock at $.22 per share, the spot price at the date of issuance, to employees of the Company.  These shares had a value of $11,000.  The Company also issued 100,000 warrants at $.50 per warrant, each to the President of OGSI and to the CFO of the Company, per their employment agreements.  The value of these warrants was calculated at $32,656.

9

ADVANCED GROWING SYSTEMS, INC AND SUBSIDIARIES

Notes to the Interim Consolidated Financial Statements

June 30, 2009

(Unaudited)

Note 9, Stock for Services

During the second quarter the Company issued 17,900 shares at $.19 per share, the spot price at time of issuance, to a company providing marketing materials for the Company.  The value of these shares was calculated at $3,401.  The Company also issued 24,000 shares at $.25 per share, the spot price at time of issuance, to a client based upon the number of tons shipped to the client.  These shares were valued at $6,000.  The Company also issued 4,000 shares at $.26 per share, the spot price at the end of February when services were rendered, for information technology services rendered.  These shares were valued at $1,040.  The Company also issued 70,000 shares at $.19 per share, the spot price at the end of February, to one of the Company’s SEC attorneys for services rendered.  These shares were valued at 13,300.  The Company also issued 153,400 shares at a price per share ranging from $.14 to $.25 for invoices due to a raw material supplier dated from December 31, 2008 and January 31, 2009.  These shares were valued at $31,368.

During the first quarter the Company issued 56,000 shares at $.23 per share to one of the Company’s SEC attorneys for services rendered in 2008.  These shares were calculated at $12,880.  The Company also issued 90,000 shares and 207,332 shares at $.19 and $.23 per share, respectively, to the other SEC attorney for services rendered in 2008.  The value of these shares was calculated at $17,100 and $47,686, respectively.  The Company also issue 19,368 shares at $.23, the spot price when the offer for stock was made, to a service provider of OGSI in lieu of cash.  These shares were valued at $4,455.  The Company also issued 30,000 shares at $.19 per share, the spot price at the time of the transaction, to the group that brought the Marquette financing to OGSI.  The value of these shares was $5,700.  The Company also issued 44,000 shares at $.20 per share, the spot price at the time of the agreement, to a client based upon the number of tons shipped to the client.  These shares were valued at $8,800.

Note 10, Subsequent Events

On July 1, 2009, the Company entered into a binding letter of intent (“Letter of Intent”) with enVentive.  Pursuant to the Letter of Intent, enVentive and the Company will commence the negotiation and preparation of a definitive share purchase agreement (“Definitive Agreement”) whereby the Company will receive 100% of the issued and outstanding shares of enVentive in exchange for common stock of the Company representing approximately 85% of the outstanding shares of common stock on a fully diluted basis on or before September 1, 2009.  Pursuant to the Letter of Intent, enVentive will become a wholly-owned subsidiary of the Company. In addition, an additional 7.5% earn-out provision will be available for the shareholders of the Company over a 28 month period.

On July 20, 2009 the Company and enVentive entered into a waiver agreement of the Promissory Note whereby all unpaid accrued interest shall be waived.  This waiver also extends the maturity date of the Promissory Note to February 20, 2009 and waives all interest payments during the extension period.

We have performed an evaluation of subsequent events through August 14, 2009, which is the date the financial statements were issued.

10

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and plan of operations together with our financial statements and related notes appearing elsewhere in this Quarterly Report. Various statements have been made in this Quarterly Report on Form 10-Q that may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may also be made in Advanced Growing’s other reports filed with or furnished to the SEC and in other documents. In addition, from time to time, Advanced Growing through its management may make oral forward-looking statements. Forward-looking statements are subject to risks and uncertainties which could cause actual results to differ materially from such statements. The words “believe,” “expect,” “anticipate,” “optimistic,” “intend,” “plan,” “aim,” “will,” “may,” “should,” “could,” “would,” “likely” and similar expressions are intended to identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. Advanced Growing undertakes no obligation to update or revise any forward-looking statements.

Results of Operations

The Company had a net loss from continuing operations of $717,622 ($.03 per share) for the three months ended June 30, 2009 compared to a net loss from continuing operations of $1,320,124 ($.08 per share) for the three months ended June 30, 2008.

For the nine months ended June 30, 2009 the Company had a net operating loss of $2,022,016 compared to $2,649,790 for the nine months ended June 30, 2008.  Net sales from continuing operations decreased $112,407, or 30%, for the three months ended June 30, 2009 as compared to the three months ended June 30, 2008. 

 Net sales for the nine months ended June 30, 2009 increased $773,893, or 85% over the nine month period ended June 30, 2008.  Cost of goods sold increased $114 for the three months ended June 30, 2009 as compared to the three months ended June 30, 2008.  For the nine months ended June 30, 2009 the cost of goods sold increased $730,472 compared to the nine months ended June 30, 2008.  This increase is attributable to an increase in sales, as well as the Company using a contract manufacturer to help fulfill several customer’s orders resulting in a lower gross margin on those sales.

For the three months ended June 30, 2009, interest expense decreased $620,281 over the same period ended June 30, 2008.  For the nine months ended June 30, 2009 interest expense decreased $448,334 over the same nine month period ended June 30, 2008.  This decrease is due to the amortization and interest expensed on the cashless warrant exchange with Vision Capital Advisors.  

Depreciation and amortization expense increased $36,114 for the three months ended June 30, 2009 over the same three month period ended June 30, 2008.  For the nine months ended June 30, 2009 depreciation and amortization increased $89,939 compared to the nine months ended June 30, 2008.  This increase is attributable to the addition of the second and third manufacturing lines at the Mississippi plant.  

Operating expenses for the three month period ended June 30, 2009 decreased $33,186 over the three month period ended June 30, 2008. For the nine months ended June 30, 2009 operating expenses decreased $199,699 compared to the nine months ended June 30, 2008.  These decreases are attributable to closing the Houston, TX warehouse and well as cutting back on sales, general and administration expenses.  

Overall, management feels that all of the infrastructure, sales and general and administrative expenses are in place to handle the upcoming in-season for the Company.  These levels are not expected to increase over the next three fiscal quarters in order to achieve the projections for the year.

Plan of Operations

For the three months ended June 30, 2009 OGSI decreased their revenue $112,407 as compared to the three months ended June 30, 2008.  For the nine months ended June 30, 2009 revenues increased $773,893 over the nine months ended June 30, 2008.  The decrease for the three months ended June 30, 2009 is attributable to the manufacturing facility being re-engineered by enVentive Solutions, (“enVentive”) to repair the upfront manufacturing process to remove debris from entering the manufacturing area.  This re-engineering will reduce the amount of downtime as well as the amount of repairs needed for broken machinery due to non-conforming materials getting into the process.

The increase in revenues for the nine months ended June 30, 2009 over June 30, 2008 is due to a more mature sales approach as well as the customers learning the benefits of using our product as compared to synthetic fertilizers.  Management feels that revenues could have been even higher if the manufacturing facility had a more dependable manufacturing process.

Sales for the first nine months of 2009 have exceeded the sales for all of fiscal 2008 of $1,286,860.  The sales team is continuing to discuss the positives of the organic fertilizer products. Sales have been primarily focused upon sod farmers and municipal entities, but once a consistent production capacity can be obtained the sales force will begin working with larger farmers in an effort to obtain larger volume customers.  The sales team has been pursuing many larger farms and believes that the third quarter will produce year long commitments from some of the larger clients that have been pursued over the last nine months.  This is typically considered the planning time for the industry and the Company feels that some of the bigger groups will begin purchasing more of the product to be ready for the fertilization period.  For the last twelve months, the sales team has been able to sell all of the fertilizer product produced or available to be sold.  They feel that they can continue to sell all of the finished goods produced and maintain a backlog of potential sales.

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Management feels that the engineering firm will have the necessary changes made to the facility by the middle part of July and will be well on their way to getting the production capacity to the 150-200 tons per day before the end of August.  The engineering firm will be paid in Company stock, up to $500,000, for services rendered in increasing manufacturing capacity.  The engineering firm will also share in a percentage of gross margin dollars once it gets per day production capacity above 100 tons per day.  This capacity along with the anticipated sales should be able to generate enough gross profit to bring the Company to break even or positive net income.

The Company has also introduced a new product into the marketplace called Organisan II-YS.  The product acts as an adjuvant and its natural, environmentally friendly active ingredients are designed for use in combination with fungicides, insecticides, miticides and nutritional sprays.  Management feels that this product will add a significant revenue opportunity that could eclipse the current fertilizer product in a two to three year period.  The product is available in mass quantities and the Company has an exclusive agreement set up with the manufacturer to only sell the product to OGSI.  The sales team will initially target turf and sod growers as well as golf courses.

Liquidity and Capital Resources

At June 30, 2009, we had total current assets of $422,770, consisting primarily of accounts receivable and inventories. Current liabilities of $6,413,448 consisting primarily of accounts payable, accrued expenses and term and convertible notes payable. The Company has accumulated a net loss from inception through June 30, 2009 of $17,754,417. Stockholders’ deficit as of June 30, 2009 was $4,446,185. The Company has recorded gross revenues of $1,685,527 for the nine months ended June 30, 2009.

Off Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

We do not hold any derivative instruments and do not engage in any hedging activities

ITEM 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures in accordance with the Exchange Act Rules 13a-15(e) and 15d-15(e). Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of the period ended June 30, 2009 our disclosure controls and procedures were not effective in ensuring that information required to be disclosed by us in our periodic reports is recorded, processed, summarized and properly reported.

Specifically, the Company has had several complex equity type transactions that have historically required audit adjustments to ensure that the transactions are properly valued, accounted for and disclosed. Management has worked towards evaluating and implementing improvements based upon the Sarbanes-Oxley Act of 2002 and is fully reporting under this act.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with accounting principles generally accepted in the United States.

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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives. Furthermore, smaller reporting companies face additional limitations. Smaller reporting companies employ fewer individuals and find it difficult to properly segregate duties. Often, one or two individuals control every aspect of the Company’s operation and are in a position to override any system of internal control. Additionally, smaller reporting companies tend to utilize general accounting software packages that lack a rigorous set of software controls.

Our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of the Company’s internal control over financial reporting as of June 30, 2009. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control — Integrated Framework. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2009, our internal control over financial reporting was effective.

(b) Changes in Internal Control over Financial Reporting. There were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II- OTHER INFORMATION

ITEM 1.  Legal Proceedings

We are currently not involved in any litigation that we believe could have a materially adverse effect on our consolidated financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending, or to the knowledge of the executive officers of our Company (except as described below) or any of our subsidiaries, threatened against or affecting our Company, our common stock, any of our subsidiaries or our Company’s or our Company’s subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

ITEM 1A. Risk Factors

There are no material changes to our risk factors previously disclosed on Form 10-K, dated September 30, 2008.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

There were no unregistered sales of Equity Securities and Use of Proceeds during the period ended June 30, 2009.

ITEM 3. Defaults Upon Senior Securities

There were no defaults upon senior securities during the period ended June 30, 2009.

ITEM 4.  Submission of Matters to a Vote of Security Holders

There were no Matters submitted to a Vote of Security Holders during the period ended June 30, 2009.

ITEM 5. Other Information

There is no information required to be disclosed under this item which was not previously disclosed.

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ITEM 6. Exhibits 

31.1     Certification of Christopher J. Nichols, Principal Executive Officer pursuant to 18 U.S.C. Sec.1350, as adopted pursuant to Sec. 302 of the Sarbanes-Oxley Act of 2002

31.2     Certification of Dan K. Dunn, Principal Financial and Accounting Officer pursuant to 18 U.S.C. Sec. 150, as adopted pursuant to Sec. 302 of the Sarbanes-Oxley Act of 2002

32.1     Certification of Christopher J. Nichols, Principal Executive Officer pursuant to 18 U.S.C. Sec1350, as adopted pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002

32.2     Certification of Dan K. Dunn, Principal Financial and Accounting Officer pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002

SIGNATURES

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

ADVANCED GROWING SYSTEMS, INC.

/s/ Chris J. Nichols

Chris J. Nichols

Principal Executive Officer

Dated: August 14, 2009

ADVANCED GROWING SYSTEMS, INC.

/s/ Dan K. Dunn

Dan K. Dunn

Principal Financial Officer

Dated: August 14, 2009

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