ASSET PURCHASE - ROCKY MOUNTAIN HYDRO

3 Months Ended

Mar. 31, 2014

Notes to Financial Statements

Asset purchase, Rocky Mountain Hydroponics and Evergreen Garden Center

NOTE 3 – PURCHASE – ROCKY MOUNTAIN HYDROPONICS and EVERGREEN GARDEN CENTER 

On June 7, 2013, GrowLife Hydroponics, Inc. 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 and EGC 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, the Company paid the former owners of the RMH and EGC 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 the Company’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	$	907,614
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 amortize the $366,000 of intangible assets at the rate of $6,100 per month over 5 years, with the Company recording $18,300 of non-cash amortization expense related to these intangible assets during the three month period ended March 31, 2014.

The following are unaudited pro-forma results of operations as if the acquisition had occurred at the beginning of the period for the three months ending March 31, 2013:

	For the Three Months Ended
	March 31, 2014			March 31, 2013
Net revenue	$	2,382,836		$	1,800,015
Cost of Goods Sold		1,862,958			1,239,712
Gross Profit		519,878			560,303
General and administrative		1,189,888			817,796
Shares issued for services rendered		1,645,000			179,125
Stock options expense		151,701			-
Loss from operations		(2,466,711	)		(436,618	)
Other income (expense)
Change in fair value of derivative		(33,888,959	)		(169,753	)
Loss on extinguishment of debt		-			(2,750	)
Other income		-			524
Interest expense, net		(799,631	)		(523,467	)
Net loss	$	(37,155,301	)	$	(1,132,064	)
Net loss per share - (basic and diluted)	$	(0.05	)	$	(0.00	)
Weighted average shares outstanding (2) - (basic and diluted)		775,342,755			451,462,965