12% SENIOR SECURED CONVERTIBLE NOTE	3 Months Ended
Mar. 31, 2014
Notes to Financial Statements
12% SENIOR SECURED CONVERTIBLE NOTE	NOTE 17 – 12% SENIOR SECURED CONVERTIBLE NOTES PAYABLE On June 7, 2013, in conjunction with its acquisition of Rocky Mountain Hydroponics and Evergreen Garden Center (“RMH/EGC”) (see “NOTE 3 – PURCHASE – ROCKY MOUNTAIN HYDROPONICS and EVERGREEN GARDEN CENTER”), the Company issued $800,000 of 12% Senior Secured Convertible Notes (the “12% Convertible Notes”) to the former owners of RMH/EGC. These 12% Convertible Notes have a 2 year term, with the expiration date being June 8, 2015. The 12% Convertible Notes are secured by substantially all of the Company’s assets, which include the assets of all of the Company’s subsidiaries. Interest accrues daily on the outstanding principal amount at an annual rate of 12 percent and begins accruing on the Original Issue Date (June 7, 2013). Interest is calculated on the basis of a 360-day year, consisting of 12 thirty (30) calendar day periods. The holders of the 12% Convertible Notes can, at their sole discretion, convert any, or all, of the outstanding principal and accrued and unpaid interest into shares of the Company’s common stock. The conversion price is set at $0.035 per share, which is subject to adjustment in the event of any stock splits, stock dividends, and similar events. Per the terms of these 12% Convertible Notes, any conversion by the holders must be for at least an amount equal to the greater of (a) $35,000 of the principal amount of these 12% Convertible Notes and any accrued but unpaid interest thereon, and (b) 5,000,000 shares of common stock (such number to be appropriately adjusted for any stock splits, stock dividends, and similar events). In the event of a default by the Company, the outstanding principal amount of these 12% Convertible Notes, plus accrued but unpaid interest, liquidated damages, and other amounts owing in respect thereof through the date of acceleration, shall become, at the holder’s sole discretion, immediately due and payable in cash. In addition, in the event of a default, the rate of interest will increase to 18% and will be calculated in the same manner described above. At December 31, 2013, the outstanding principal balance on these 12% convertible notes was $408,000 with accrued and unpaid interest totaling $27,608, for a total amount owed of $435,608. On the date these notes were issued, it was determined that there was a beneficial conversion feature valued at $0.005 per share, or $114,285 in the aggregate, which was recorded as a debt discount to these 12% convertible notes. At December 31, 2013, the unamortized debt discount related to these 12% convertible notes was $41,825. On January 31, 2014, the remaining $408,000 principal and $31,688 of accrued and unpaid interest were converted into 12,562,518 shares of the Company’s common stock at a per share conversion price of $0.035 per share. Upon conversion of the $439,688 of principal and accrued and unpaid interest, the Company had repaid this Holder, who was Rob Hunt, a member of the Company’s Board of Directors, the President of GrowLife Hydroponics, Inc., and a former owner of Rocky Mountain Hydroponics, LLC and Evergreen Garden Center, LLC, in full. During the three month period ended March 31, 2014, the Company recorded $4,080 of interest expense in relation to these 12% convertible notes and $41,825 of non-cash interest expense related to the amortization of the $41,285 of debt discount that was outstanding as of December 31, 2013. As of March 31, 2014, these 12% convertible notes had been satisfied in full and all related debt discount had been fully amortized as non-cash interest expense.

12% SENIOR SECURED CONVERTIBLE NOTE

3 Months Ended

Mar. 31, 2014

NOTE 17 – 12% SENIOR SECURED CONVERTIBLE NOTES PAYABLE

On June 7, 2013, in conjunction with its acquisition of Rocky Mountain Hydroponics and Evergreen Garden Center (“RMH/EGC”) (see “NOTE 3 – PURCHASE – ROCKY MOUNTAIN HYDROPONICS and EVERGREEN GARDEN CENTER”), the Company issued $800,000 of 12% Senior Secured Convertible Notes (the “12% Convertible Notes”) to the former owners of RMH/EGC. These 12% Convertible Notes have a 2 year term, with the expiration date being June 8, 2015. The 12% Convertible Notes are secured by substantially all of the Company’s assets, which include the assets of all of the Company’s subsidiaries. Interest accrues daily on the outstanding principal amount at an annual rate of 12 percent and begins accruing on the Original Issue Date (June 7, 2013). Interest is calculated on the basis of a 360-day year, consisting of 12 thirty (30) calendar day periods. The holders of the 12% Convertible Notes can, at their sole discretion, convert any, or all, of the outstanding principal and accrued and unpaid interest into shares of the Company’s common stock. The conversion price is set at $0.035 per share, which is subject to adjustment in the event of any stock splits, stock dividends, and similar events. Per the terms of these 12% Convertible Notes, any conversion by the holders must be for at least an amount equal to the greater of (a) $35,000 of the principal amount of these 12% Convertible Notes and any accrued but unpaid interest thereon, and (b) 5,000,000 shares of common stock (such number to be appropriately adjusted for any stock splits, stock dividends, and similar events). In the event of a default by the Company, the outstanding principal amount of these 12% Convertible Notes, plus accrued but unpaid interest, liquidated damages, and other amounts owing in respect thereof through the date of acceleration, shall become, at the holder’s sole discretion, immediately due and payable in cash. In addition, in the event of a default, the rate of interest will increase to 18% and will be calculated in the same manner described above.

At December 31, 2013, the outstanding principal balance on these 12% convertible notes was $408,000 with accrued and unpaid interest totaling $27,608, for a total amount owed of $435,608. On the date these notes were issued, it was determined that there was a beneficial conversion feature valued at $0.005 per share, or $114,285 in the aggregate, which was recorded as a debt discount to these 12% convertible notes. At December 31, 2013, the unamortized debt discount related to these 12% convertible notes was $41,825.

On January 31, 2014, the remaining $408,000 principal and $31,688 of accrued and unpaid interest were converted into 12,562,518 shares of the Company’s common stock at a per share conversion price of $0.035 per share. Upon conversion of the $439,688 of principal and accrued and unpaid interest, the Company had repaid this Holder, who was Rob Hunt, a member of the Company’s Board of Directors, the President of GrowLife Hydroponics, Inc., and a former owner of Rocky Mountain Hydroponics, LLC and Evergreen Garden Center, LLC, in full.

During the three month period ended March 31, 2014, the Company recorded $4,080 of interest expense in relation to these 12% convertible notes and $41,825 of non-cash interest expense related to the amortization of the $41,285 of debt discount that was outstanding as of December 31, 2013. As of March 31, 2014, these 12% convertible notes had been satisfied in full and all related debt discount had been fully amortized as non-cash interest expense.