ASSET PURCHASE - URBAN GARDEN

6 Months Ended

Jun. 30, 2013

Notes to Financial Statements

ASSET PURCHASE - URBAN GARDEN

NOTE 5 – PURCHASE – URBAN GARDEN

On October 22, 2012, GH completed the purchase of all of the UG Shares from the UG Sellers. The effective date of the UG Agreement was October 24, 2012. The UG Agreement included all of the assets and liabilities of Urban Garden which includes the inventory of the store located at 22516 Ventura Blvd., Woodland Hills, CA 91364 and various other assets. GH also assumed the liabilities of Urban Garden which were valued at $70,761. GrowLife CEO Sterling Scott personally guaranteed this liability. In consideration for the UG Shares, GrowLife agreed to pay to the Sellers an aggregate of 3,906,250 shares of the Company’s common stock valued at $156,250.

The Company has estimated that the fair value of the assets purchased to be $227,011. The purchase price has been allocated to specific identifiable tangible and intangible assets at their fair value at the date of the purchase in accordance with Accounting Standards Codification 805, “Business Combinations”, as follows:

Inventory	$	35,000
Intangible assets		60,000
Goodwill		132,011
Total		227,011
Less fair value of liabilities assumed		(70,761 )
Purchase price	$	156,250

The intangible assets relate to customer lists and trade names will be amortized over their respective life of five years.

The following are unaudited pro-forma results of operations as if the acquisition had occurred at the beginning of the period for the six months ended June 30, 2013 and 2012. Note that these pro-forma results include the operating results of SGT, Phototron, Greners, and Urban Garden:

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2013			2012			2013			2012
Revenue	$	691,340		$	1,060,058		$	1,444,408		$	2,340,207
Cost of revenue		558,251			757,721			1,069,835			1,702,369
Gross profit		133,089			302,338			374,573			637,838
General and administrative expenses		1,187,396			680,950			1,888,548			1,380,917
Loss from operations		(1,054,307	)		(378,613	)		(1,513,975	)		(743,079	)
Interest expense, net		(33,319	)		(64,418	)		(217,818	)		(187,287	)
Warrant expense		(250,000	)		-			(250,000	)
Debt discount expense		(242,453	)		-			(581,492	)		-
Amortization of intangible assets		(28,749	)		-			(55,998	)		-
Loss on extinguishment of debt		-			-			(2,750	)		-
Change in fair value of derivative		-			(375,999	)		(169,753	)		(375,999	)
Net loss	$	(1,608,828	)	$	(819,030	)	$	(2,791,786	)	$	(1,306,365	)
Net loss per share (basic and diluted)	$	(0.00	)	$	(0.00	)	$	(0.01	)	$	(0.00	)
Weighted average shares outstanding (basic and diluted)		555,296,605			311,657,697			499,759,752			311,657,697