ASSET PURCHASE - ROCKY MOUNTAIN HYDRO (ROCKY MOUNTAIN HYDROPONICS and EVERGREEN GARDEN CENTER)

12 Months Ended

Dec. 31, 2013

ROCKY MOUNTAIN HYDROPONICS and EVERGREEN GARDEN CENTER

Purchase price allocated to specific identifiable tangible and intangible assets at fair value

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 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 Company retained the services of an independent, third-party consultant to review and analyze the allocation of the Company’s $1,625,000 purchase price of Rocky Mountain Hydroponics, LLC and Evergreen Garden Center, LLC. Detailed below is the final manner on which 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:

Allocation of Purchase Price for the acquisition of Rocky Mountain
Hydroponics, LLC and Evergreen Garden Center, LLC
Assets	$	907,614
Intangible assets		366,000
Goodwill		739,000
Total		2,012,614
Less fair value of liabilities assumed		(387,614	)
Purchase price	$	1,625,000

The Company will expense the $366,000 of intangible assets at the rate of $6,100 per month over 5 years, beginning in June 2013 and ending in May 2018. During the twelve months ended December 31, 2013, the Company recorded amortization expense of $42,700 in relation to the $366,000 of intangible assets related to the acquisition of Rocky Mountain Hydroponics, LLC and Evergreen Garden Center, LLC.

The following are unaudited pro-forma results of operations as if the acquisition had occurred at the beginning of the year ended December 31, 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 Years Ended
	December 31,
	2013			2012
Net revenue	$	6,494,119		$	7,363,184
Cost of goods sold		5,132,976			5,164,584
Gross profit		1,361,143			2,198,600
General and administrative		(3,639,664)			(3,084,360)
Shares issued for services rendered		(1,469,184)			(332,750)
Stock options expense		(148,633)			(26,563)
Warrant expense		(7,015,000)			-
Loss from operations		(10,911,338	)		(1,245,073	)
Other income (expense)
Impairment of goodwill		(279,515	)		(634,128	)
Impairment of intangible assets		(262,604	)		-
Loss on extinguishment of debt		(960,750	)		(428,467	)
Change in fair value of derivative		(3,701,078	)		525,619
Other income		43,082			-
Interest expense, net		(5,275,749	)		(497,303	)
Net loss	$	(21,347,952	)	$	(2,279,352	)
Net loss per share - (basic and diluted)	$	(0.04	)	$	(0.01	)
Weighted average shares outstanding (2) - (basic and diluted)		600,891,794			253,278,111