STOCKHOLDERS' EQUITY/ DEFICIT

9 Months Ended

Sep. 30, 2013

Equity [Abstract]

SHAREHOLDERS EQUITY

NOTE 18 – STOCKHOLDERS’ EQUITY/ DEFICIT

Common Stock

During the nine month period ended September 30, 2013, the Company issued 234,187,473 shares of its common stock related to the conversion of notes payable and convertible notes. The shares were valued at $2,241,296 and consisted of both principal and unpaid and accrued interest

During the nine month period ended September 30, 2013, the Company issued 17,807,433 shares of its common stock for cash. The shares were sold at a price of $0.035 per share and generated proceeds to the Company in the amount of $623,260.

During the nine month period ended September 30, 2013, the Company issued 32,822,333 shares of its common stock for services rendered and wages to its employees. These shares were valued at $1,173,747 and are detailed as follows:

Shares for Services
Wages paid to Company employees	$	238,208
Consulting		566,333
Cannabis.org expenses		29,334
GrowLife Productions expenses		65,000
Public/Investor relations		221,700
Product/inventory acquired		18,172
Board Member compensation		35,000
	$	1,173,747

During the nine month period ended September 30, 2013, the Company issued 1,254,249 shares of its common stock as payment for the Company’s June through November 2013 monthly rent for its office in Woodland Hills, California. These shares were valued at $40,548 by the Company.

During the nine month period ended September 30, 2013, the Company issued 3,680,773 shares of its common stock in relation to the cashless exercise of stock options. These shares were valued at zero by the Company.

During the nine month period ended September 30, 2013, the Company issued 470,237 shares of its common stock in relation to the exercise of stock options by Eric Shevin, who joined the Company’s Board of Directors in April 2013. These shares generated proceeds to the Company in the amount of $9,000.

During the nine month period ended September 30, 2013, the Company issued 7,857,141 shares of its common stock in relation to its purchase of RMH/EGC (see “NOTE 6 – PURCHASE – ROCKY MOUNTAIN HYDROPONICS and EVERGREEN GARDEN CENTER”). These shares were valued at $275,000 and were issued to the former owners of RMH/EGC.

Preferred Stock

On March 19, 2013, pursuant to the terms and conditions of the Merger Agreement, the Company cancelled all of the 3,000,000 shares of its Series A Preferred Stock that were issued and outstanding. Per the terms of the Merger Agreement, the Company was required to attain specified net revenue and gross profit milestones by May 1, 2013 in order for the shares to vest and be distributed to the former shareholders of SGT. On March 19, 2013, applicable parties agreed that the milestones would not be met so the Series A Preferred Stock was returned to the Company and subsequently cancelled

Stock options

On April 5, 2012, the date of the Merger, Phototron had certain stock options outstanding that had been granted to its employees, officers and directors. The terms of these stock options remained unchanged as a result of the Merger and are summarized below:

						Weighted
				Weighted		Average
				Average		Remaining		Aggregate
				Exercise		Contractual		Intrinsic
	Options			Price		Term		Value
Outstanding December 31, 2011		30,861,087		$	0.07
Granted		-			-
Exercised		-			-
Forfeited or expired		(18,009,900	)		0.05
Outstanding December 31, 2012		12,851,187		$	0.10		8.46		-
Forfeited or expired		(10,500,000	)
Vested or expected to vest at September 30, 2013		2,351,187		$	0.02		7.61		-

Warrants

During the nine months ended September 30, 2013, the Company issued warrants to GMF entitling GMF to purchase, at their discretion, 5,000,000 shares of the Company’s common stock. The warrants were issued on May 1, 2013 in connection with the $280,000 OID Bridge Note that was also issued on May 1, 2013. The warrants have a five-year term with an original exercise price of $0.05 per share. The warrants vest immediately and are exercisable in whole, or in part, at any time and from time to time on or after the issue date and on or before the termination date per the terms of the Common Stock Purchase Warrant (the “Warrant Agreement”) between the Company and GMF.  The exercise price was reset on June 4, 2013 to $0.035 per share due to the Company’s sale/issuance of shares at $0.035 per share under its Subscription Agreement. On September 5, 2013, the exercise price was reset again to $0.02156 per share as a result of the Company issuing shares of its common stock at said per share price in relation to a debt conversion related to the Company’s 7% Convertible Notes (see “NOTE 16 – 7% CONVERTIBLE NOTE”).

On June 30, 2013, the Company valued the warrants at $250,000 using the Black-Scholes option pricing model using the following assumptions: (i) dividend yield of 0%; (ii) expected volatility of 240%; (iii) risk free rate of 0.04% and (iv) expected term of 5 years. The Company fully expensed the entire $250,000 as a non-cash charge to “warrants issued expense” during the three month period ended June 30, 2013.

On September 30, 2013, the Company valued the warrants at $312,500 using the Black-Scholes option pricing model using the following assumptions: (i) dividend yield of 0%; (ii) expected volatility of 230%; (iii) risk free rate of 0.02% and (iv) expected term of 4.5 years. The Company fully expensed the $62,500 increase in the value of the warrants as a non-cash charge to “change in fair value of derivative liability” during the three month period ended September 30, 2013.

The table below summarizes the Company’s warrant activity during the nine months ended September 30, 2013:

			Weighted		Average
			Average		Remaining		Aggregate
			Exercise		Contractual		Intrinsic
	Warrants		Price		Term		Value
Outstanding, December 31, 2012		-	$	-		-	$	-
Issued		5,000,000	$	0.02156		4.58	$	312,500
Outstanding, September 30, 2013		5,000,000	$	0.02156		4.58	$	312,500