ASSET PURCHASE - ROCKY MOUNTAIN HYDRO

9 Months Ended

Sep. 30, 2013

Notes to Financial Statements

Asset Purchase -Rocky Mountain Hydroponics and Evergreen Garden Center

NOTE 6 – PURCHASE – ROCKY MOUNTAIN HYDROPONICS and EVERGREEN GARDEN CENTER

On June 7, 2013, GH completed the purchase of Rocky Mountain Hydroponics, LLC., a Colorado limited liability company (“RMC”), and Evergreen Garden Center, LLC, a Maine limited liability company (“EGC”). The effective date of the RMH/EGC Agreement was June 7, 2013. The RMH/EGC Agreement included all of the assets and liabilities of the RMH Companies, and in specific, their 4 retail hydroponics stores, which are located in Vail and Boulder, Colorado, Peabody, Massachusetts, and Portland, Maine. Per the terms of the RMH/EGC Agreement, GrowLife, Inc. paid the former owners of the RMH Companies $550,000 in cash, $800,000 in 12% Secured Convertible Notes, and $275,000 (7,857,141 shares at $0.035/share) in shares of GrowLife, Inc.’s common stock.

The Company has estimated that the fair value of the assets purchased to be $2,012,614. 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:

Assets	$	907,131
Intangible assets		90,000
Goodwill		1,015,483
Total		2,012,614
Less fair value of liabilities assumed		(387,614	)
Purchase price	$	1,625,000

At the time of this filing the Company had retained the services of an independent third-party to perform a detailed valuation and purchase price allocation with regard to its purchase of RMH/EGC. Should the results of the third party evaluation differ from those above; the Company will make the necessary financial adjustments at that time.

The Company will expense the $90,000 of intangible assets at the rate of $1,500 per month over 5 years, with the Company recording $4,500 of amortization expense related to these intangible assets during the three month period ended September 30, 2013. For the nine months ended September 30, 2013, the Company has expensed $6,000 related to these intangible assets.

The following are unaudited pro-forma results of operations as if the acquisitions had occurred at the beginning of the period for the nine months ended September 30, 2013 and 2012. Note that these pro-forma results include the operating results of SGT, Phototron, Greners, Urban Garden, and Rocky Mountain Hydroponics/Evergreen Garden Center:

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2013			2012			2013			2012
Revenue	$	1,313,399		$	1,778,511		$	4,574,169		$	5,578,167
Cost of revenue		1,051,776			1,272,599			3,376,555			3,914,892
Gross profit		261,623			505,912			1,197,614			1,663,275
General and administrative expenses		902,813			790,750			2,808,211			2,645,211
Share-based compensation		386,921			105,250			1,214,295			115,500
Loss from operations		(1,028,011	)		(390,088	)		(2,824,892	)		(1,097,436	)
Other income		35,865			-			36,811			-
Interest expense, net		(129,697	)		(69,957	)		(929,002	)		(257,237	)
Loss on extinguishment of debt		(750,000	)		-			(752,750	)		-
Change in fair value of derivative		67,130			473,152			(102,623	)		97,153
Net income (loss)	$	(1,804,713	)	$	13,107		$	(4,572,456	)	$	(1,257,520	)
Net loss per share (basic and diluted)	$	(0.00	)	$	0.00		$	(0.01	)	$	(0.00	)
Weighted average shares outstanding (basic and diluted)		563,153,746			336,483,454			507,616,893			271,844,142