COMMITMENTS AND CONTINGENCIES

3 Months Ended

Mar. 31, 2014

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

NOTE 21 – COMMITMENTS AND CONTINGENCIES

Operating Leases

In May 2011, we entered into a lease for our Phototron business unit to rent a warehouse facility in Gardena, California. The terms of the lease provide for monthly rental expense of $4,065 with annual rent increases through the expiration of the lease on May 31, 2014. During the last twelve months of the lease the monthly rent is $4,313. As of this filing, the Company has negotiated a six (6) month extension on this lease whereby the monthly rent for the 6 additional months would be $4,442. As of this filing the Company has not yet signed the extension.

On May 30, 2013, the Company entered into a lease to rent retail space in Woodland Hills, California for its Urban Garden Supply (Soja, Inc.) hydroponics store. The term is for ninety days and can be renewed, or terminated, by either party with ninety days written notice. The monthly rent is $3,257. The Company has committed to renting this space through June 2014.

On June 5, 2013, the Company entered into a lease to rent office space in Woodland Hills, California for its corporate headquarters. The landlord is 20259 Ventura Blvd LP, which is an affiliate of a stockholder of our company. The term is for ninety days and can be renewed, or terminated, by either party with thirty days written notice. The monthly rent is $6,758. The Company has committed to renting this space through May 2014.

Upon the Company’s acquisition of Rocky Mountain Hydroponics, LLC and Evergreen Garden Center, LLC (“RMH/EGC”) (see “NOTE 3 - PURCHASE – ROCKY MOUNTAIN HYDROPONICS and EVERGREEN GARDEN CENTER”) the Company assumed the lease for the RMH/EGC retail hydroponics store located in Portland, Maine. Per the terms of the lease, the commencement date was May 1, 2013 with an expiration date of April 30, 2016. The monthly rent for year one of the lease is $4,917, with monthly rent of $5,065 in year two, and monthly rent of $5,217 in year three (the final year) of the lease.

Upon the Company’s acquisition of Rocky Mountain Hydroponics, LLC and Evergreen Garden Center, LLC (“RMH/EGC”) (see “NOTE 3 - PURCHASE – ROCKY MOUNTAIN HYDROPONICS and EVERGREEN GARDEN CENTER”) the Company assumed the lease for the RMH/EGC retail hydroponics store located in Plaistow, New Hampshire. Per the terms of the lease, the commencement date was May 1, 2013 with an expiration date of July 31, 2015. The monthly rent throughout the term of the lease is $2,105, with the first three months of the lease being rent free.

On August 26, 2013, the Company entered into a lease agreement for warehouse and retail space for its Greners (Business Bloom, Inc.) business unit in Santa Rosa, California. Per the terms of the lease agreement, the commencement date was September 1, 2013 with an expiration date of August 31, 2015. The monthly rent is $3,000.

On September 23, 2013, the Company entered into an Assignment and Assumption and Amendment of Lease Agreement (the “Agreement”) for its retail hydroponics store in Peabody, Massachusetts.  Per the terms of the Agreement, the original lease between the landlord and Evergreen Garden Center, LLC was assigned from Evergreen Garden Center, LLC to GrowLife Hydroponics, Inc. (“GLH”). In addition, per the terms of the Agreement, the term of the lease was extended from the original expiration date of October 31, 2013 to the new termination date of October 31, 2014. The monthly rent remained at $4,500 through October 31, 2014.

On October 21, 2013, the Company entered into a lease agreement for retail space for its hydroponics store in Avon (Vail), Colorado. Per the terms of the lease agreement, the lease expires on September 30, 2018. Monthly rent for year one of the lease is $2,606 and increases 3.5% per year thereafter through the end of the lease.

On January 23, 2014, the Company entered into a lease agreement for retail space for its hydroponics store in Boulder, Colorado. Per the terms of the lease agreement, the lease commences on February 1, 2014 and expires on April 30, 2017. Monthly rent for year one of the lease is $4,051, with monthly rent of $4,173 in year two, $4,298 in year three, and $4,427 for month 37 through 39.

Rent expense was $114,720 and $38,895 for the three month periods ended March 31, 2014 and 2013, respectively.

Convertible Notes Payable

As detailed in “NOTE 23 – SUBSEQUENT EVENTS”, the Company is currently in default on its 7% convertible notes payable. Per the terms of these notes (see “NOTE 18 - 7% CONVERTIBLE NOTES PAYABLE”), upon default the Holder(s) may, at their sole discretion, accelerate these 7% convertible notes payable. Upon any such acceleration of these 7% convertible notes, the Company shall be obligated to pay an amount equal to the greater of (i) one hundred and twenty percent (120%) of the outstanding principal of these 7% convertible notes (plus all accrued but unpaid interest), and (ii) the product of (a) the highest closing price for the Company’s common stock for the five (5) days on which the Primary Market is open for business immediately preceding such acceleration and (b) a fraction, the numerator of which is the outstanding principal of this 7% convertible, and the denominator of which is the applicable conversion price as of the date of determination. As of March 31, 2014, the outstanding principal on these 7% convertible notes was $1,250,000 with accrued and unpaid interest totaling $27,807. Should the Holder(s) choose to accelerate these 7% convertible notes, the Company would be required to pay the Holders $1,500,000 of principal and all accrued and unpaid interest. An acceleration of these 7% convertible notes would have a significant adverse affect on the Company’s cash flows and should the Company be unsuccessful in negotiating an extension or other modification, it may have to restructure its operations, divest all or a portion of its business, or file for bankruptcy.

Future minimum contractual cash commitments are summarized below:

			Less Than						Greater Than
Contractual Cash Obligations	Total		1 Year		2-3 Years		4-5 Years		5 Years
Operating leases	$	710,144	$	344,012	$	286,484	$	79,648	$	0
Notes payable		1,527,807		1,527,807		0		0		0
Capital expenditures		0		0		0		0		0
	$	2,237,951	$	1,871,819	$	286,484	$	79,648	$	0