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PHOT > SEC Filings for PHOT > Form 10-Q on 15-Nov-2012All Recent SEC Filings

Show all filings for GROWLIFE, INC.

Form 10-Q for GROWLIFE, INC.


15-Nov-2012

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

This discussion summarizes the significant factors affecting our operating results, financial condition and liquidity and cash flows for the three and nine months ended September 30, 2012 and 2011. The discussion and analysis that follows should be read together with the condensed consolidated financial statements and the notes to the financial statements included elsewhere in this report. Except for historical information, the matters discussed in this Management's Discussion and Analysis of Financial Condition and Results of Operations are forward looking statements that involve risks and uncertainties and are based upon judgments concerning various factors that are beyond our control. Our actual results could differ materially from the results anticipated in any forward-looking statements as a result of a variety of factors, including those discussed in the section of our Annual Report on Form 10-K for the year ended December 31, 2011 filed with the Securities and Exchange Commission on April 4, 2012, captioned "Risk Factors."

Overview

On March 21, 2012, we entered into the Merger Agreement and the Closing of the transactions occurred on April 5, 2012. At the Closing, (a) MergerCo was merged with and into SGT; (b) SGT became our wholly-owned subsidiary; and (c) all SGT shares of common stock were exchanged for shares of our common stock and shares of Series A Preferred Stock. At the Closing, we issued to SGT's former stockholders, in exchange for the 200 shares of SGT's common stock outstanding immediately prior to the Merger, 157,000,000 shares of our common stock and 3,000,000 shares of Series A Preferred Stock.

We design and manufacture indoor mini-greenhouses capable of growing almost any herb, vegetable, flower, fruit or terrestrial plant better, stronger and faster than traditional farming methods. Our products ("Phototron Units"), consisting of 21" x 39" units and 21" x 51" units, provide between 18,900 and 36,000 lumens of light. Phototron Units allow users to precisely control what a plant receives, grow crops densely, avoid using pesticides, increase yields and automatically water plants. We also formulate and sell horticultural seeds, mineral nutrient solutions, growing mediums and germination kits to facilitate hydroponic gardening through the use of our Phototron Units, in addition to replacement parts for our Phototron Units to facilitate moderate customization. In addition, through SGT, we manufacture hi-powered LED (Light Emitting Diode) grow light products for indoor horticulture, sold under the brand name "Stealth Grow LED." We provide USA engineered, energy efficient and "green" technology for healthy and abundant indoor gardening. Stealth Grow LED products are available through more than 2,500 hydroponic retailers, and on-line resellers in the USA and Canada. We market our products under the Phototron and Stealth Grow LED brand names. In addition, we operate an online retail and wholesale ecommerce site, Greners.com. Greners.com sells hydroponic supplies and gardening equipment. Greners also provides educational information, customer service and product support to its national and international customers.

Results of Operations

Three Months Ended September 30, 2012 Compared to September 30, 2011

Revenue and cost of revenue

For the three months ended September 30, 2012, our revenue was $475,870, which was $260,216 (121%) more than in the three months ended September 30, 2011. This increase was mainly due to the combined revenues of the two entities. The gross profit margin during the three months ended September 30, 2012, was 34% compared to 57% during the three months ended September 30, 2011 and reflects a change in the customer base

Expenses

During the three months ended September 30, 2012, our general and administrative expenses were $534,176 compared to $108,419 during the three months ended September 30, 2011, an increase of $425,757. During 2011, we were a privately held company and did not incur any of the expense of being a public company. Those expenses include stock compensation, professional fees for legal, accounting, consultants and directors and officers insurance. Additionally, we hired most of Phototron's general, administrative and sales staff; thereby incurring higher wage expense during the current quarter. We expect that our general and administrative expenses will remain at, or near, the current level for the foreseeable future.

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Other Expenses

During the quarter ended September 30, 2012, we incurred $403,195 of other income expenses, including $473,152 change in derivative liability and $69,957 of interest expense related to the amortization of discount on our subordinated notes payable. During the quarter ended September 30, 2011, we incurred interest expense of $7,584.

Gain

For the three months ended September 30, 2012, we incurred a net income of $28,699 compared to a net income of $6,114 during the three months ended September 30, 2011.

Nine Months Ended September 30, 2012 Compared to September 30, 2011

Revenue and cost of revenue

For the nine months ended September 30, 2012, our revenue was $776,125, which was $43,229 (6%) more than in the nine months ended September 30, 2011. During the nine months ended September 30, 2012, management was focused on completing the reverse merger and integrating its systems, facilities, policies and procedures and developing a new strategic direction for the company. The gross profit margin during the nine months ended September 30, 2012, was 33% compared to 36% during the nine months ended September 30, 2011 and reflects a change in the customer base from lower margin distributors to higher margin sales to retail customers.

Expenses

During the nine months ended September 30, 2012, our general and administrative expenses were $1,068,510 compared to $344,360 during the nine months ended September 30, 2011, an increase of $724,150. During 2011, we were a privately held company and did not incur any of the expense of being a public company. Those expenses include stock compensation, professional fees for legal, accounting, consultants and directors and officers insurance. Additionally, we hired most of Phototron's general, administrative and sales staff; thereby incurring higher wage expense during the current quarter. We expect that our general and administrative expenses will remain at, or near, the current level for the foreseeable future.

During the nine months ended September 30, 2012, we incurred $41,036 of other expenses, including $97,153 change in derivative liability and $138,189 of interest expense related to the amortization of discount on our subordinated notes payable. During the quarter ended September 30, 2011, we incurred interest expense of $16,210.

Loss

For the nine months ended September 30, 2012, we incurred a loss of $849,707, compared to a net loss of $95,545 during the nine months ended September 30, 2011.

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Liquidity and Capital Resources

As of September 30, 2012, we had a working capital of $50,155 compared to a working capital deficiency of $379,262 at December 31, 2011. We have relied on funds generated through operations, through loans and through selling shares of our common stock in a series of private placements.

During the nine months ended September 30, 2012, cash used in operations was $1,100,821 compared to cash used of $111,679 during the same period in the prior year. Those expenses include professional fees for legal, accounting, consultants and directors and officers insurance. Additionally, we hired most of Phototron's general, administrative and sales staff; thereby incurring higher wage expense during the current quarter. During the quarter ended September 30, 2011, we did not incur any non-cash expenses.

During the nine months ended September 30, 2012, we received $9,825 in cash from our reverse merger with Phototron Holdings, Inc. and purchased the assets of Greners.com for $250,000. We had no investing activities during the nine months ended September 30, 2011.

During the nine months ended September 30, 2012, cash provided by financing activities was $1,480,740.

Unless our operations generate significant revenues and cash flows from operating activities, our continued operations will depend on whether we are able to raise additional funds through various potential sources, such as equity and debt financing, other collaborative agreements and strategic alliances. Our management is actively engaged in seeking additional capital to fund our operations in the short to medium term. We also intend to obtain, where appropriate, increases of the amounts available to us under existing revolving promissory notes. Such additional funds may not become available on acceptable terms and there can be no assurance that any additional funding that we do obtain will be sufficient to meet our needs in the long term.

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