PURCHASE BUSINESS

12 Months Ended

Dec. 31, 2012

Notes to Financial Statements

Purchase -Urban Gardens

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.

Unaudited Pro-forma results of operations as if the acquisition had occurred at the beginning of the period for the year ended December 31, 2012 and 2011 are as follows:

	For the Years Ended
	December 31,
	2012			2011
Revenue	$	2,287,049		$	2,863,956
Cost of revenue		1,626,360			1,970,197
Gross profit		660,689			893,759
General and administrative		1,939,261			711,695
Loss from operations		(1,278,572	)		182,064
Other income / (expenses)
Impairment of goodwill		(634,128	)
Loss on extinguishment of debt		(428,467	)
Change in fair value of derivatives		525,619			—
Interest expense, net		(378,253	)		(25,412	)
Net income / (loss)	$	(2,193,801	)	$	156,652
Net income / (loss) per share - (basic and diluted)	$	(0.01	)	$	0.00
Weighted average shares outstanding - (basic and diluted)		245,420,970			157,000,000