What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2020-11-12 compared with 2020-08-13 · 1146 added, 1125 removed, 509 unchanged (82% of the section changed)

FINANCIAL STATEMENTS

GROWGENERATION CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

GROWGENERATION

CORPORATION AND SUBSIDIARIES

BALANCE SHEETS

September 30,

Current assets:

7 unchanged sentences

Intangible assets, net

$ 139,702,033

LIABILITIES & STOCKHOLDERS’

22 unchanged sentences

TOTAL LIABILITIES AND STOCKHOLDERS’

See Notes to the Unaudited Consolidated

Financial Statements.

GROWGENERATION CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF OPERATIONS

$ 139,702,033

Notes to the Unaudited Consolidated Financial Statements.

GROWGENERATION

CORPORATION AND SUBSIDIARIES

STATEMENT OF OPERATIONS

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

$ 131,440,820

Cost of sales

10 unchanged sentences

Interest income

Other income (loss)

Other income (expense)

Total non-operating income (expense), net

5 unchanged sentences

Weighted average shares outstanding, diluted

See Notes to the Unaudited Consolidated

Financial Statements.

GROWGENERATION CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’

THREE MONTHS AND SIX MONTHS ENDED JUNE

30, 2020 and 2019

Notes to the Unaudited Consolidated Financial Statements.

GROWGENERATION

CORPORATION AND SUBSIDIARIES

STATEMENTS OF STOCKHOLDERS’

MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2020

Stockholders’

21 unchanged sentences

$ (6,406,763 )

Sale of common stock, net of offering costs

Common stock issued upon warrant exercise

Common stock issued upon cashless exercise of warrants

Common stock issued upon cashless exercise of options

Common stock issued for share-based compensation

Share-based compensation

Balances, September 30, 2020

$ 115,285,993

$ (3,069,430 )

$ 112,264,975

Notes to the Unaudited Consolidated Financial Statements.

GROWGENERATION

CORPORATION AND SUBSIDIARIES

STATEMENTS OF STOCKHOLDERS’

MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2019

Stockholders’

Balances, December 31, 2018

17 unchanged sentences

$ (7,474,571 )

See Notes to the Unaudited Consolidated

Financial Statements.

Common stock issued for convertible debt and cashless warrant exercise

Common stock issued upon warrant exercise

Common stock issued upon cashless exercise of options

Common stock issued in connection with business combinations

Common stock issued for accrued share-based compensation

Share based compensation

Balances, September 30, 2019

$ (6,424,872 )

Notes to the Unaudited Consolidated Financial Statements.

G ROWGENERATION

CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

For the Six Months Ended June 30,

STATEMENT OF CASH FLOWS

For the Nine Months Ended

September 30,

Cash flows from operating activities:

3 unchanged sentences

Stock-based compensation expense

Gain on asset disposition

Changes in operating assets and liabilities:

1 unchanged sentence

Accounts receivable

(13,421,096 )

Prepaid expenses and other assets

12 unchanged sentences

Net cash used in investing activities

(10,178,025 )

Cash flows from financing activities:

10 unchanged sentences

Common stock issued for business combination

Debt converted to equity

Assets acquired by issuance of common stock

Debt converted to equity

Right to use assets acquired under new operating leases

See Notes to the Unaudited Consolidated

Financial Statements.

GrowGeneration Corporation and Subsidiaries

Notes to the Unaudited Consolidated Financial

June 30, 2020

Notes to the Unaudited Consolidated Financial Statements.

GrowGeneration

Corporation and Subsidiaries

to the Unaudited Consolidated Financial Statements

OF OPERATIONS

3 unchanged sentences

Currently, the Company owns and operates

a chain of twenty eight (28) retail hydroponic/gardening stores, with five (5) located in the state of Colorado, five (5) in the

state of California, four (4) in the state of Michigan, two (2) in the state of Nevada, one (1) in the state of Washington, one

(1) in the state of Oregon, four (4) in the State of Oklahoma, one (1) in the state of Rhode Island, three (3) in Maine, (1) in

Florida, one (1) distribution center in California and an online e-commerce store, GrowGeneration.com.

In addition, we operate

a warehouse out of Sacramento, CA.

Our plan is to acquire, open and operate hydroponic/gardening stores and related businesses

throughout the United States and Canada.

The Company engages in its business

through its wholly-owned subsidiaries, GrowGeneration Pueblo Corp, GrowGeneration California Corp, GrowGeneration Nevada Corp,

GrowGeneration Washington Corp, GrowGeneration Rhode Island Corp, GrowGeneration Oklahoma Corp, GrowGeneration Canada, GrowGeneration

HG Corp, GrowGeneration Hemp Corp, GGen Distribution Corp, GrowGeneration Michigan Corp, GrowGeneration New England Corp, GrowGeneration

Florida Corp and GrowGeneration Management Corp.

a chain of thirty one (31) retail hydroponic/gardening stores, with six (6) in the state of California, six (6) in the state of

Michigan, five (5) located in the state of Colorado, four (4) in the State of Oklahoma, three (3) in Maine, two (2) in the state

of Nevada, one (1) in the state of Washington, one (1) in the state of Oregon, one (1) in the state of Rhode Island, one (1) in

the state of Florida, one (1) distribution center in the state of California and an online e-commerce store, GrowGeneration.com.

Our plan is to continue to acquire, open and operate hydroponic/gardening stores and related businesses throughout the United States and

Company engages in its business through its wholly-owned subsidiaries, GrowGeneration Pueblo Corp, GrowGeneration California Corp,

GrowGeneration Nevada Corp, GrowGeneration Washington Corp, GrowGeneration Rhode Island Corp, GrowGeneration Oklahoma Corp, GrowGeneration

Canada, GrowGeneration HG Corp, GrowGeneration Hemp Corp, GGen Distribution Corp, GrowGeneration Michigan Corp, GrowGeneration

New England Corp, GrowGeneration Florida Corp and GrowGeneration Management Corp.

OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The accompanying unaudited

condensed consolidated interim financial statements include our accounts and those of our wholly-owned subsidiaries, and reflect

all adjustments which are necessary for a fair statement of the financial position, results of operations, and cash flows for

the periods presented in accordance with accounting principles generally accepted in the United States of America (“U.S.

of Consolidation

accompanying unaudited condensed consolidated interim financial statements include our accounts and those of our wholly-owned

subsidiaries, and reflect all adjustments which are necessary for a fair statement of the financial position, results of operations,

and cash flows for the periods presented in accordance with accounting principles generally accepted in the United States of America

GAAP”).

Such unaudited condensed consolidated interim financial statements have been prepared in accordance with the instructions

to Form 10-Q pursuant to the rules and regulations of the U.S.

Such unaudited condensed consolidated interim financial statements have been prepared in accordance

with the instructions to Form 10-Q pursuant to the rules and regulations of the U.S.

Securities and Exchange Commission.

All significant intercompany

balances and transactions are eliminated in consolidation.

Certain information and footnote disclosures normally included in financial

statements prepared in accordance with U.S.

GAAP have been condensed or omitted pursuant to such rules and regulations.

condensed balance sheet data was derived from audited financial statements but does not include all disclosures required by U.S.

These unaudited condensed consolidated interim financial statements should be read in conjunction with our Annual Report on Form

10-K for the year ended December 31, 2019 (“Annual Report”) filed on March 27, 2020, and have been prepared on

a consistent basis with the accounting policies described in Note 1 of the Notes to the Audited Consolidated Financial Statements

included in our Annual Report.

Our accounting policies did not change during the six months ended June 30, 2020.

GrowGeneration Corporation and Subsidiaries

Notes to the Unaudited Consolidated Financial

June 30, 2020

OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

Use of Estimates

Management uses estimates

and assumptions in preparing these financial statements in accordance with U.S.

These estimates and assumptions affect

the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the

All significant

intercompany balances and transactions are eliminated in consolidation.

Certain information and footnote disclosures normally

included in financial statements prepared in accordance with U.S.

GAAP have been condensed or omitted pursuant to such rules and

The year-end condensed balance sheet data was derived from audited financial statements but does not include all

disclosures required by U.S.

unaudited condensed consolidated interim financial statements should be read in conjunction with our Annual Report on Form 10-K

for the year ended December 31, 2019 (“Annual Report”) filed on March 27, 2020, and have been prepared on a consistent

basis with the accounting policies described in Note 1 of the Notes to the Audited Consolidated Financial Statements included

in our Annual Report.

Our accounting policies did not change during the nine months ended September 30, 2020.

uses estimates and assumptions in preparing these financial statements in accordance with U.S.

These estimates and assumptions

affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the

financial statements, and the reported revenues and expenses during the reporting period.

Actual results could vary from the

estimates that were used.

Additionally, the full impact

of COVID-19 is unknown and cannot be reasonably estimated.

However, we have made appropriate accounting estimates based on the

facts and circumstances available as of the reporting date.

To the extent there are differences between these estimates and actual

results, our consolidated financial statements may be materially affected.

As we continue to monitor the

COVID-19 situation, the Company is considered an “essential”

supplier to the agricultural industry, suppling the nutrients

and nourishment required to feed their plants.

The Company has been opened during this difficult time.

We have plans and procedures

in place to ensure our customers and employees stay safe during this time of uncertainty.

As a result of COVID-19 we reduced some

hours of operations at the store level and some stores were closed on the weekends, primarily in the later part of the first quarter

There have been some minor delays in vendor shipments as their warehouses and supply chain were affected by staffing shortages.

The Company successfully implemented a will call and curb side pick-up process that is working well.

Other than what has been disclosed

above, we have not experienced adverse effects from COVID-19.

We assess whether an arrangement

is a lease at inception.

Leases with an initial term of 12 months or less are not recorded on the balance sheet.

We have elected

the practical expedient to not separate lease and non-lease components for all assets.

Operating lease assets and operating lease

liabilities are calculated based on the present value of the future minimum lease payments over the lease term at the lease start

As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available

at the lease start date in determining the present value of future payments.

The operating lease asset is increased by any lease

payments made at or before the lease start date and reduced by lease incentives and initial direct costs incurred.

The lease term

includes options to renew or terminate the lease when it is reasonably certain that we will exercise that option.

of lease renewal options is at our sole discretion.

The depreciable life of lease assets and leasehold improvements are limited

by the lease term.

Lease expense for operating leases is recognized on a straight-line basis over the lease term.

The Company accounts for

income taxes in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards

Codification (“ASC”) 740, Income Taxes, which requires the recognition of deferred tax assets and liabilities for

future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and

liabilities and their respective tax bases and tax credit carry forwards.

Deferred tax assets and liabilities are measured

using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to

be recovered or settled.

The effect on deferred tax assets and liabilities of a change in tax rates is recognized in

operations in the period that includes the enactment date.

In 2019 and as of June 20, 2020, a valuation allowance was

provided for the amount of deferred tax assets that would otherwise be recorded for income tax benefits primarily relating to

operating loss carryforwards as realization could not be determined to be more likely than not.

GrowGeneration Corporation and Subsidiaries

Notes to the Unaudited Consolidated Financial

June 30, 2020

Actual results could vary from the estimates

that were used.

Additionally,

the full impact of COVID-19 is unknown and cannot be reasonably estimated.

However, we have made appropriate accounting estimates

based on the facts and circumstances available as of the reporting date.

To the extent there are differences between these estimates

and actual results, our consolidated financial statements may be materially affected.

GrowGeneration

Corporation and Subsidiaries

to the Unaudited Consolidated Financial Statements

OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

The Company adopted the provisions

of FASB ASC 740-10-25, which prescribes a recognition threshold and measurement attribute for the recognition and measurement of

tax positions taken or expected to be taken in income tax returns.

FASB ASC 740-10-25 also provides guidance on recognition of

income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, and accounting for

interest and penalties associated with tax positions.

The Company’s tax returns are subject to tax examinations by U.S.

and state authorities until their respective statute of limitation.

Currently, the 2019, 2018 and 2017 tax years are open and subject

to examination by taxing authorities.

However, the Company is not currently under audit nor has the Company been contacted by any

of the taxing authorities.

The Company does not have any accrual for uncertain tax positions as of June 30, 2020.

Revenue Recognition

we continue to monitor the COVID-19 situation, the Company is considered an “essential”

supplier to the agricultural

industry, suppling the nutrients and nourishment required to feed their plants.

The Company has been opened during this difficult

We have plans and procedures in place to ensure our customers and employees stay safe during this time of uncertainty.

a result of COVID-19 we reduced some hours of operations at the store level and some stores were closed on the weekends, primarily

in the later part of the first quarter of 2020.

There have been some minor delays in vendor shipments as their warehouses and

supply chain were affected by staffing shortages.

The Company successfully implemented a will call and curb side pick-up process

that is working well.

Other than what has been disclosed above, we have not experienced adverse effects from COVID-19.

We account for leases in accordance

with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 842, Leases.

We assess whether an arrangement is a lease at inception.

Leases with an initial term of 12 months or less are not recorded on

the balance sheet.

We have elected the practical expedient to not separate lease and non-lease components for all assets.

lease assets and operating lease liabilities are calculated based on the present value of the future minimum lease payments over

the lease term at the lease start date.

As most of our leases do not provide an implicit rate, we use our incremental borrowing

rate based on the information available at the lease start date in determining the present value of future payments.

The operating

lease asset is increased by any lease payments made at or before the lease start date and reduced by lease incentives and initial

direct costs incurred.

The lease term includes options to renew or terminate the lease when it is reasonably certain that we will

exercise that option.

The exercise of lease renewal options is at our sole discretion.

The depreciable life of lease assets and

leasehold improvements are limited by the lease term.

Lease expense for operating leases is recognized on a straight-line basis

over the lease term.

The Company accounts for income

taxes in accordance with FASB ASC 740, Income Taxes, which requires the recognition of deferred tax assets and liabilities for

future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities

and their respective tax bases and tax credit carry forwards.

Deferred tax assets and liabilities are measured using enacted tax

rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes

the enactment date.

In 2019 and as of September 30, 2020, a valuation allowance was provided for the amount of deferred tax assets

that would otherwise be recorded for income tax benefits primarily relating to operating loss carryforwards as realization could

not be determined to be more likely than not.

Company adopted the provisions of FASB ASC 740-10-25, which prescribes a recognition threshold and measurement attribute for the

recognition and measurement of tax positions taken or expected to be taken in income tax returns.

FASB ASC 740-10-25 also provides

guidance on recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities,

and accounting for interest and penalties associated with tax positions.

The Company’s tax returns are subject to tax examinations

federal and state authorities until their respective statute of limitation.

Currently, the 2019, 2018 and 2017 tax years

are open and subject to examination by taxing authorities.

However, the Company is not currently under audit nor has the Company

been contacted by any of the taxing authorities.

The Company does not have any accrual for uncertain tax positions as of September

GrowGeneration

Corporation and Subsidiaries

to the Unaudited Consolidated Financial Statements

OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

The Company recognizes revenue,

13 unchanged sentences

When the Company receives payment from customers before

the customer has taken possession of the merchandise or the service has been performed, the amount received is recorded as Deferred

Revenue in the accompanying Consolidated Balance Sheets until the sale or service is complete.

Accounts Receivable

Accounts receivable are stated at

the amount the Company expects to collect from balances outstanding at period-end, based on the Company’s assessment of the

credit history with customers having outstanding balances and current relationships with them.

A reserve for uncollectable receivables

is established when collection of amounts due is deemed improbable.

Indicators of improbable collection include client bankruptcy,

client litigation, client cash flow difficulties or ongoing service or billing disputes.

Credit is generally extended on a short-term

basis thus receivables do not bear interest.

At June 30, 2020 and December 31, 2019, the Company established an allowance for doubtful

accounts of $465,420 and $291,372, respectively.

Inventory consists primarily

of gardening supplies and materials and is recorded at the lower of cost (first-in, first-out method) or net realizable value.

The Company periodically reviews the value of items in inventory and provides write-downs or write-offs of inventory based on its

assessment of market conditions.

the customer has taken possession of the merchandise or the service has been performed, the amount received is recorded as customer

deposit in the accompanying Consolidated Balance Sheets until the sale or service is complete.

Accounts Receivable and Concentration

of Credit Risk

receivable are stated at the amount the Company expects to collect from balances outstanding at period-end, based on the Company’s

assessment of the credit history with customers having outstanding balances and current relationships with them.

A reserve for

uncollectable receivables is established when collection of amounts due is deemed improbable.

Indicators of improbable collection

include client bankruptcy, client litigation, client cash flow difficulties or ongoing service or billing disputes.

generally extended on a short-term basis thus receivables do not bear interest.

At September 30, 2020 and December 31, 2019, the

Company established an allowance for doubtful accounts of $364,262 and $291,372, respectively.

We are exposed to credit risk

in the normal course of business, primarily related to accounts receivable.

We are affected by general economic conditions in the

United States.

To limit credit risk, management periodically reviews and evaluates the financial condition of its customers and

maintains an allowance for doubtful accounts.

As of September 30, 2020, and December 31, 2019, we do not believe that we have significant

consists primarily of gardening supplies and materials and is recorded at the lower of cost (first-in, first-out method) or net

realizable value.

The Company periodically reviews the value of items in inventory and provides write-downs or write-offs of inventory

based on its assessment of market conditions.

Write-downs and write-offs are charged to cost of goods sold.

GrowGeneration Corporation and Subsidiaries

Notes to the Unaudited Consolidated Financial

June 30, 2020

OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

Property and Equipment

Property and equipment are carried

Leasehold Improvements are amortized using the straight-line method over the original term of the lease or the useful

life of the improvement, whichever is shorter.

Renewals and betterment that materially extend the life of the asset are capitalized.

and Equipment

and equipment are carried at cost.

Leasehold Improvements are amortized using the straight-line method over the original term

of the lease or the useful life of the improvement, whichever is shorter.

Renewals and betterment that materially extend the life

of the asset are capitalized.

Expenditures for maintenance and repairs are charged against operations.

Depreciation of property and equipment is provided on

the straight-line method for financial reporting purposes at rates based on the following estimated useful lives:

Depreciation of property

and equipment is provided on the straight-line method for financial reporting purposes at rates based on the following estimated

useful lives:

Estimated Lives

4 unchanged sentences

exceed lease term

Goodwill represents the excess

of purchase price over the fair value of net assets.

Goodwill is not amortized but is reviewed for potential impairment on an annual

basis, or if events or circumstances indicate a potential impairment, at the reporting unit level.

The Company’s review for

impairment includes an assessment of qualitative factors to determine whether it is more likely than not that the fair value of

a reporting unit is less than its carrying value, including goodwill.

If it is determined that it is more likely than not that

the fair value of a reporting unit is less than its carrying value, including goodwill, the first step of the two-step quantitative

goodwill impairment test is performed, which compares the fair value of the reporting unit with its carrying amounts, including

If the fair value of the reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not

However, if the carrying amount of the reporting unit exceeds its fair value, additional procedures must be performed.

That additional procedure compares the implied fair value of the reporting unit’s goodwill with the carrying amount of that

An impairment loss is recorded to the extent that the carrying amount of goodwill exceeds its implied fair value.

Stock Based Compensation

The Company records stock-based

compensation in accordance with FASB ASC Topic 718, Compensation-Stock Compensation (“ASC 718”).

estimates the fair value of stock options using the Black-Scholes option pricing model.

The fair value of stock options granted

is recognized as an expense over the requisite service period.

Stock-based compensation expense for all share-based payment awards

are recognized using the straight-line single-option method.

The Black-Scholes option pricing

model requires subjective assumptions, including future stock price volatility and expected time to exercise, which greatly affect

the calculated values.

The expected term of options granted is derived from historical data on employee exercises and post-vesting

employment termination behavior.

The risk-free rate selected to value any particular grant is based on the U.S.

Treasury rate that

corresponds to the expected life of the grant effective as of the date of the grant.

The expected volatility is based on the historical

volatility of the Company’s stock price.

These factors could change in the future, affecting the determination of stock-based

compensation expense in future periods.

GrowGeneration Corporation and Subsidiaries

Notes to the Unaudited Consolidated Financial

June 30, 2020

GrowGeneration

Corporation and Subsidiaries

to the Unaudited Consolidated Financial Statements

OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

New Accounting Pronouncements

As an emerging growth company,

the Company is permitted to delay the adoption of new or revised accounting standards until such time as those standards apply

to private companies.

The Company has chosen to take advantage of the extended transition period for complying with new or revised

accounting standards.

represents the excess of purchase price over the fair value of net assets.

Goodwill is not amortized but is reviewed for potential

impairment on an annual basis, or if events or circumstances indicate a potential impairment, at the reporting unit level.

Company’s review for impairment includes an assessment of qualitative factors to determine whether it is more likely than

not that the fair value of a reporting unit is less than its carrying value, including goodwill.

If it is determined that it is

more likely than not that the fair value of a reporting unit is less than its carrying value, including goodwill, the first step

of the two-step quantitative goodwill impairment test is performed, which compares the fair value of the reporting unit with its

carrying amounts, including goodwill.

If the fair value of the reporting unit exceeds its carrying amount, goodwill of the reporting

unit is considered not impaired.

However, if the carrying amount of the reporting unit exceeds its fair value, additional procedures

must be performed.

That additional procedure compares the implied fair value of the reporting unit’s goodwill with the carrying

amount of that goodwill.

An impairment loss is recorded to the extent that the carrying amount of goodwill exceeds its implied

Based Compensation

Company records stock-based compensation in accordance with FASB ASC Topic 718, Compensation-Stock Compensation (“ASC

The Company estimates the fair value of stock options using the Black-Scholes option pricing model.

value of stock options granted is recognized as an expense over the requisite service period.

Stock-based compensation expense

for all share-based payment awards are recognized using the straight-line single-option method.

Black-Scholes option pricing model requires subjective assumptions, including future stock price volatility and expected time

to exercise, which greatly affect the calculated values.

The expected term of options granted is derived from historical data

on employee exercises and post-vesting employment termination behavior.

The risk-free rate selected to value any particular grant

is based on the U.S.

Treasury rate that corresponds to the expected life of the grant effective as of the date of the grant.

expected volatility is based on the historical volatility of the Company’s stock price.

These factors could change in the

future, affecting the determination of stock-based compensation expense in future periods.

RECENT ACCOUNTING PRONOUNCEMENTS

Accounting Pronouncements

Recently Adopted Accounting

Pronouncements

During the first quarter of

2019, the Company adopted the FASB ASU 2016-02, Leases (ASC 842), which introduces the balance sheet recognition of

lease assets and lease liabilities by lessees for those leases classified as operating leases under previous guidance.

has adopted the new lease standard using the new transition option issued under the amendments in ASU 2018-11, Leases , which

allowed the Company to continue to apply the legacy guidance in ASC 840, Leases , in the comparative periods presented in

the year of adoption.

The Company elected the package of practical expedients permitted under the transition guidance within

the new standard, which among other things, allowed the Company to carry forward the historical lease classification.

made an accounting policy election to keep leases with an initial term of 12 months or less off the balance sheet.

will recognize those lease payments on a straight-line basis over the lease term.

The impact of the adoption was an increase to

the Company’s operating lease assets and liabilities on January 1, 2019 of $3.2 million.

On January 1, 2019, the Company

also adopted ASU 2018-07, “Improvements to Nonemployee Share-Based Payment Accounting.”

ASU 2018-07 more closely aligns

the accounting for employee and nonemployee share-based payments.

The amendment is effective commencing in 2019 with early

adoption permitted.

The adoption of this new guidance did not have a material impact on our Financial Statements.

In August 2018, the SEC adopted

amendments to certain disclosure requirements in Securities Act Release No.

33-10532, Disclosure Update and Simplification.

amendments eliminate, modify, or integrate into other SEC requirements certain disclosure rules.

Among the amendments is the requirement

to present an analysis of changes in stockholders’

equity in the interim financial statements included in Quarterly Reports

on Form 10-Q.

The analysis, which can be presented as a footnote or separate statement, is required for the current and comparative

quarter and year-to-date interim periods.

The amendments are effective for all filings made on or after November 5, 2018.

adopted these amendments in its Quarterly Report on Form 10-Q for the quarter ended March 31, 2019.

In August 2018, the FASB issued

ASU 2018-13, Fair Value Measurement (Topic 820):

Disclosure Framework - Changes to the Disclosure Requirements for Fair Value

Measurement .

The new guidance modifies the disclosure requirements on fair value measurements in Topic 820.

The amendments

in ASU 2018-13 are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after

December 15, 2019.

The adoption of this new guidance, effective January 1, 2020, did not have a material impact on our Financial

GrowGeneration Corporation and Subsidiaries

Notes to the Unaudited Consolidated Financial

June 30, 2020

an emerging growth company, the Company is permitted to delay the adoption of new or revised accounting standards until such time

as those standards apply to private companies.

The Company has chosen to take advantage of the extended transition period for

complying with new or revised accounting standards.

GrowGeneration

Corporation and Subsidiaries

to the Unaudited Consolidated Financial Statements

ACCOUNTING PRONOUNCEMENTS, continued

Recently Issued Accounting

Pronouncements –

Adopted Accounting Pronouncements

the first quarter of 2019, the Company adopted the FASB ASU 2016-02, Leases (ASC 842), which introduces the balance

sheet recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous

The Company has adopted the new lease standard using the new transition option issued under the amendments in ASU 2018-11,

Leases , which allowed the Company to continue to apply the legacy guidance in ASC 840, Leases , in the comparative

periods presented in the year of adoption.

The Company elected the package of practical expedients permitted under the transition

guidance within the new standard, which among other things, allowed the Company to carry forward the historical lease classification.

The Company made an accounting policy election to keep leases with an initial term of 12 months or less off the balance sheet.

The Company will recognize those lease payments on a straight-line basis over the lease term.

The impact of the adoption was an

increase to the Company’s operating lease assets and liabilities on January 1, 2019 of $3.2 million.

January 1, 2019, the Company also adopted ASU 2018-07, “Improvements to Nonemployee Share-Based Payment Accounting.”

ASU 2018-07 more closely aligns the accounting for employee and nonemployee share-based payments.

The amendment is effective

commencing in 2019 with early adoption permitted.

The adoption of this new guidance did not have a material impact on our Financial

August 2018, the SEC adopted amendments to certain disclosure requirements in Securities Act Release No.

33-10532, Disclosure

Update and Simplification.

These amendments eliminate, modify, or integrate into other SEC requirements certain disclosure rules.

Among the amendments is the requirement to present an analysis of changes in stockholders’

equity in the interim financial

statements included in Quarterly Reports on Form 10-Q.

The analysis, which can be presented as a footnote or separate statement,

is required for the current and comparative quarter and year-to-date interim periods.

The amendments are effective for all filings

made on or after November 5, 2018.

The Company adopted these amendments in its Quarterly Report on Form 10-Q for the quarter ended

March 31, 2019.

August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820):

Disclosure Framework - Changes to the Disclosure

Requirements for Fair Value Measurement .

The new guidance modifies the disclosure requirements on fair value measurements

in Topic 820.

The amendments in ASU 2018-13 are effective for all entities for fiscal years, and interim periods within those

fiscal years, beginning after December 15, 2019.

The adoption of this new guidance, effective January 1, 2020, did not have a

material impact on our Financial Statements.

Issued Accounting Pronouncements –

Pending Adoption

In June 2016, the FASB issued

June 2016, the FASB issued ASU No.

2016-13, “Financial Instruments —

Credit Losses (Topic 326),”

changing the impairment model for most financial

instruments by requiring companies to recognize an allowance for expected losses, rather than incurred losses as required currently

by the other-than-temporary impairment model.

The ASU will apply to most financial assets measured at amortized cost and certain

other instruments, including trade and other receivables, loans, available-for-sale and held-to-maturity debt securities, net investments

in leases, and off-balance-sheet credit exposures.

In November 2019, the FASB issued ASU No.

2019-10, changing effective dates

for the new standards to give implementation relief to certain types of entities.

The Company is required to adopt the new standards

no later than January 1, 2023 according to ASU 2019-10, with early adoption allowed.

We are currently evaluating the impact of

adopting this new accounting guidance on our condensed consolidated financial statements.

In January 2017, the FASB issued

ASU 2017-04, Intangibles - Goodwill and Other (Topic 350):

impairment model for most financial instruments by requiring companies to recognize an allowance for expected losses, rather than

incurred losses as required currently by the other-than-temporary impairment model.

The ASU will apply to most financial assets

measured at amortized cost and certain other instruments, including trade and other receivables, loans, available-for-sale and

held-to-maturity debt securities, net investments in leases, and off-balance-sheet credit exposures.

In November 2019, the FASB

issued ASU No.

2019-10, changing effective dates for the new standards to give implementation relief to certain types of entities.

The Company is required to adopt the new standards no later than January 1, 2023 according to ASU 2019-10, with early adoption

We are currently evaluating the impact of adopting this new accounting guidance on our condensed consolidated financial

GrowGeneration

Corporation and Subsidiaries

to the Unaudited Consolidated Financial Statements

ACCOUNTING PRONOUNCEMENTS , continued

January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350):

Simplifying the Test for Goodwill Impairment.

The guidance in ASU 2017-04

eliminates the requirement to determine the fair value of individual assets and liabilities of a reporting unit to measure goodwill

Under the amendments in the new ASU, goodwill impairment testing will be performed by comparing the fair value of the

reporting unit with its carrying amount and recognizing an impairment charge for the amount by which the carrying amount exceeds

the reporting unit’s fair value.

ASU 2017-04 is effective for annual and interim goodwill impairment tests in fiscal years

beginning after December 15, 2022 and should be applied on a prospective basis.

The Company is currently evaluating the impact

of adopting this guidance on the Company’s consolidated financial statements.

The guidance in ASU 2017-04 eliminates the requirement to determine the fair value of individual assets and liabilities of a reporting

unit to measure goodwill impairment.

Under the amendments in the new ASU, goodwill impairment testing will be performed by comparing

the fair value of the reporting unit with its carrying amount and recognizing an impairment charge for the amount by which the

carrying amount exceeds the reporting unit’s fair value.

ASU 2017-04 is effective for annual and interim goodwill impairment

tests in fiscal years beginning after December 15, 2022 and should be applied on a prospective basis.

The Company is currently

evaluating the impact of adopting this guidance on the Company’s consolidated financial statements.

In December 2019, the FASB issued

new guidance to simplify the accounting for income taxes by removing certain exceptions to the general principles and also simplification

of areas such as franchise taxes, step-up in tax basis goodwill, separate entity financial statements and interim recognition of

enactment of tax laws or rate changes.

The standard will be effective for annual reporting periods beginning after December 15,

2020, including interim reporting periods within those periods.

We are currently evaluating the impact of adopting this new accounting

guidance on our condensed consolidated financial statements.

GrowGeneration Corporation and Subsidiaries

Notes to the Unaudited Consolidated Financial

June 30, 2020

Disaggregation of Revenues

The following table disaggregates

revenue by source:

ASU 2019-02, Simplifying the Accounting for Income Taxes, to simplify the accounting for income taxes by removing certain exceptions

to the general principles and also simplification of areas such as franchise taxes, step-up in tax basis goodwill, separate entity

financial statements and interim recognition of enactment of tax laws or rate changes.

The standard will be effective for annual

reporting periods beginning after December 15, 2020, including interim reporting periods within those periods.

We are currently

evaluating the impact of adopting this new accounting guidance on our condensed consolidated financial statements.

In August 2020, the FASB issued

ASU 2020-06, Debt with Conversion and Other Options:

Accounting for Convertible Instruments and Contracts in an Entity’s

Own Equity, which simplifies the accounting for certain instruments with characteristics of liabilities and equity, including convertible

instruments and contracts on an entity’s own equity.

ASU 2020-06 removes from U.S.

GAAP the separation models for (1) convertible

debt with a cash conversion feature and (2) convertible instruments with a beneficial conversion feature.

ASU 2020-06 requires

entities to provide expanded disclosures about “the terms and features of convertible instruments,”

how the instruments

have been reported in the entity’s financial statements, and “information about events, conditions, and circumstances

that can affect how to assess the amount or timing of an entity’s future cash flows related to those instruments.”

ASU 2020-06 is effective for

public business entities that are not smaller reporting companies for fiscal years beginning after December 15, 2021 and interim

periods within those fiscal years.

For all other entities, ASU 2020-06 is effective for fiscal years beginning after December 15,

2023 and interim periods within those fiscal years.

We are currently evaluating the impact of adopting this new accounting guidance

on our condensed consolidated financial statements.

Disaggregation

following table disaggregates revenue by source:

September 30,

Sales at company owned stores

1 unchanged sentence

Total Revenues

September 30,

Sales at company owned stores

$ 123,992,048

E-commerce sales

Total Revenues

Contract Balances

Depending on the timing of when

a customer takes possession of product and when a customer make payments for such product, the Company recognizes a customer trade

receivable (asset) or a customer deposit (liability).

The difference between the opening and closing balances of the Company’s

customer trade receivables and the customer deposit liability results from timing differences between the Company’s performance

and the customer’s payment.

The opening and closing balances

of the Company’s customer trade receivables and customer deposit liability are as follows:

$ 131,440,820

on the timing of when a customer takes possession of product and when a customer makes payments for such product, the Company

recognizes a customer trade receivable (asset) or a customer deposit (liability).

The difference between the opening and closing

balances of the Company’s customer trade receivables and the customer deposit liability results from timing differences

between the Company’s performance and the customer’s payment.

GrowGeneration

Corporation and Subsidiaries

to the Unaudited Consolidated Financial Statements

RECOGNITION, continued

opening and closing balances of the Company’s customer trade receivables and customer deposit liability are as follows:

Customer Deposit Liability

5 unchanged sentences

Increase (decrease)

GrowGeneration Corporation and

Notes to the Unaudited Consolidated Financial

June 30, 2020

AND EQUIPMENT

September 30,

Leasehold improvements

2 unchanged sentences

Property and Equipment, net

Depreciation expense for the

three months ended June 30, 2020 and 2019 was $373,975 and $150,842, respectively.

Depreciation expense for the

six months ended June 30, 2020 and 2019 was $705,299 and $291,132, respectively.

expense for the three months ended September 30, 2020 and 2019 was $399,482 and $247,715, respectively.

expense for the nine months ended September 30, 2020 and 2019 was $1,104,781 and $538,847, respectively.

AND INTANGIBLE ASSETS

The changes in goodwill

are as follows:

The changes in goodwill are as follows:

September 30,

Balance, beginning of period

1 unchanged sentence

Balance, end of period

Intangible assets on the Company’s consolidated

balance sheets consist of the following:

Other Intangibles

GrowGeneration

Corporation and Subsidiaries

to the Unaudited Consolidated Financial Statements

AND INTANGIBLE ASSETS, continued

assets on the Company’s consolidated balance sheets consist of the following:

September 30,

Other intangibles, patents and trademarks

Capitalized software

Amortization expense for the

three months ended June 30, 2020 and 2019 was $93,702 and $0, respectively.

Amortization expense for the

six months ended June 30, 2020 and 2019 was $121,520 and $0, respectively.

GrowGeneration Corporation

and Subsidiaries

Notes to the Unaudited Consolidated Financial

June 30, 2020

expense for the three months ended September 30, 2020 and 2019 was $44,097 and $0, respectively.

expense for the nine months ended September 30, 2020 and 2019 was $165,617 and $0, respectively.

September 30,

Long term debt is as follows:

4 unchanged sentences

Total Long-Term Debt

Interest expense for the three

months ended June30, 2020 and 2019 was $13,240 and $3,161, respectively.

Interest expense for the six

months ended June 30, 2020 and 2019 was $20,421 and $8,690, respectively.

We determine if a contract contains

a lease at inception.

Our material operating leases consist of retail and warehouse locations as well as office space.

generally have remaining terms of 1- 5 years, most of which include options to extend the leases for additional 3 to 5 year periods.

Generally, the lease term is the minimum of the noncancelable period of the lease or the lease term inclusive of reasonably certain

renewal periods.

Operating lease assets and liabilities

are recognized at the lease commencement date.

Operating lease liabilities represent the present value of lease payments not yet

Operating lease assets represent our right to use an underlying asset and are based upon the operating lease liabilities

adjusted for prepayments or accrued lease payments, initial direct costs, lease incentives, and impairment of operating lease assets.

To determine the present value of lease payments not yet paid, we estimate incremental secured borrowing rates corresponding to

the maturities of the leases.

Interest expense for the three months ended September 30, 2020

and 2019 was $142 and $27,067, respectively.

expense for the nine months ended September 30, 2020 and 2019 was $19,728 and $35,757, respectively.

determine if a contract contains a lease at inception.

Our material operating leases consist of retail and warehouse locations

as well as office space.

Our leases generally have remaining terms of 1-5 years, most of which include options to extend the leases

for additional 3 to 5-year periods.

Generally, the lease term is the minimum of the noncancelable period of the lease or the lease

term inclusive of reasonably certain renewal periods.

GrowGeneration

Corporation and Subsidiaries

to the Unaudited Consolidated Financial Statements

LEASES, continued

lease assets and liabilities are recognized at the lease commencement date.

Operating lease liabilities represent the present

value of lease payments not yet paid.

Operating lease assets represent our right to use an underlying asset and are based upon

the operating lease liabilities adjusted for prepayments or accrued lease payments, initial direct costs, lease incentives, and

impairment of operating lease assets.

To determine the present value of lease payments not yet paid, we estimate incremental secured

borrowing rates corresponding to the maturities of the leases.

Our leases typically contain rent escalations over the lease term.

We recognize expense for these

leases on a straight-line basis over the lease term.

We elected this expedient to

account for lease and non-lease components as a single component for our entire population of operating lease assets.

We have elected the short-term

lease recognition exemption for all applicable classes of underlying assets.

Short-term disclosures include only those leases with

a term greater than one month and 12 months or less, and expense is recognized on a straight-line basis over the lease term.

with an initial term of 12 months or less, that do not include an option to purchase the underlying asset that we are reasonably

certain to exercise, are not recorded on the balance sheet.

GrowGeneration Corporation and Subsidiaries

Notes to the Unaudited Consolidated Financial

June 30, 2020

We recognize expense for these leases on a straight-line basis over the lease term.

have elected the practical expedient to account for lease and non-lease components as a single component for our entire population

disclosures include only those leases with a term greater than one month and 12 months or less, and expense is recognized on a

straight-line basis over the lease term.

Leases with an initial term of 12 months or less, that do not include an option to purchase

the underlying asset that we are reasonably certain to exercise, are not recorded on the balance sheet.

expense is recorded within our consolidated statements of operations based upon the nature of the assets.

Where assets are used

to directly serve our customers, such as facilities dedicated to customer contracts, lease costs are recorded in “cost of

sales.”

to directly serve our customers, such as facilities dedicated to customer contracts, lease costs are recorded in “store

operating costs.”

Facilities and assets which serve management and support functions are expensed through general and administrative

September 30,

Right to use assets, operating lease assets

1 unchanged sentence

Non-current lease liability

September 30,

Weighted average remaining lease term

Weighted average discount rate

Three Months Ended

September 30,

Operating lease costs

1 unchanged sentence

Total operating lease costs

The following table presents the maturity of the Company’s operating lease liabilities as of June 30, 2020:

GrowGeneration

Corporation and Subsidiaries

to the Unaudited Consolidated Financial Statements

Nine Months Ended

September 30,

Operating lease costs

Short-term lease costs

Total operating lease costs

The following table presents the maturity of the Company’s operating lease liabilities as of September

2020 (remainder of the year)

1 unchanged sentence

Imputed interest

Lease Liability at June 30, 2020

GrowGeneration Corporation and Subsidiaries

Notes to the Unaudited Consolidated Financial

June 30, 2020

On January 12, 2018, the Company

completed a private placement of a total of 36 units of the Company’s securities at the price of $250,000 per unit pursuant

to Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”) and Rule 506 of Regulation D promulgated

under the Securities Act.

Each Unit consisted of (i) a .1% unsecured convertible promissory note of the principal amount of $250,000,

and (ii) a 3-year warrant entitling the holder to purchase 37,500 shares of the Company’s common stock, par value $.001 per

share, at a price of $.01 per share or through cashless exercise.

The convertible debt had a maturity

date of January 12, 2021 and the principal balance and any accrued interest is convertible by the holder at any time into common

stock of the Company at conversion price of $3.00 a share.

Principal due and interest accrued on the notes will automatically convert

into shares of common stock, at the conversion price, if at any time during the term of the notes, commencing twelve (12) months

from the date of issuance, the common stock trades minimum daily volume of at least 50,000 shares for twenty (20) consecutive days

with a volume weighted average price of at least $4.00 per share.

As of August 21, 2019, all remaining convertible debt and accrued

interest had been converted to equity and no convertible debt remains outstanding.

During the six months ended

June 30, 2019, convertible debt and accrued interest of $250,356, net of unamortized debt discount of $60,783 was converted into

83,451 shares of common stock, at the conversion rate of $3.00 per share.

During the six months ended

June 30, 2019, 172,500 warrants issued in connection with the convertible debt were exercised, resulting in the issuance of 172,500

shares of common stock.

During the six months ended

June 30, 2020, 18,712 shares were issued upon cashless exercise of convertible debt warrants.

Lease Liability at September 30, 2020

January 12, 2018, the Company completed a private placement of a total of 36 units of the Company’s securities at the price

of $250,000 per unit pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”)

and Rule 506 of Regulation D promulgated under the Securities Act.

Each Unit consisted of (i) a .1% unsecured convertible promissory

note of the principal amount of $250,000, and (ii) a 3-year warrant entitling the holder to purchase 37,500 shares of the Company’s

common stock, par value $.001 per share, at a price of $.01 per share or through cashless exercise.

convertible debt had a maturity date of January 12, 2021 and the principal balance and any accrued interest is convertible by

the holder at any time into common stock of the Company at conversion price of $3.00 a share.

Principal due and interest accrued

on the notes will automatically convert into shares of common stock, at the conversion price, if at any time during the term of

the notes, commencing twelve (12) months from the date of issuance, the common stock trades minimum daily volume of at least 50,000

shares for twenty (20) consecutive days with a volume weighted average price of at least $4.00 per share.

As of August 21, 2019,

all remaining convertible debt and accrued interest had been converted to equity and no convertible debt remains outstanding.

the nine months ended September 30, 2019, 172,500 warrants issued in connection with the convertible debt were exercised, resulting

in the issuance of 172,500 shares of common stock.

the nine months ended September 30, 2020, 37,438 shares were issued upon cashless exercise of convertible debt warrants.

GrowGeneration

Corporation and Subsidiaries

to the Unaudited Consolidated Financial Statements

BASED PAYMENTS AND STOCK OPTIONS

The Company accounts for share-based

payments through the measurement and recognition of compensation expense for share-based payment awards made to employees and directors

of the Company, including stock options and restricted shares.

During the three months ended

June 30, 2020 the Company issued 10,000 shares of common stock (stock-based awards) to employees that vested immediately resulting

in compensation expense of approximately $39,200.

During the three months ended June 30, 2019 the Company issued 17,500 shares

of common stock (stock-based awards) to employees that vested immediately resulting in compensation expense of approximately $35,800.

During the six months ended

June 30, 2020 the Company issued 528,333 shares of common stock (stock-based awards) to employees that vested immediately resulting

in compensation expense of approximately $2,169,832.

During the six months ended June 30, 2019 the Company issued 17,500 shares

of common stock (stock-based awards) to employees that vested immediately resulting in compensation expense of approximately $35,800.

During the three months and

six months ended June 30, 2020, the Company recorded $125,000 of share-based compensation to executives that is included in payroll

and payroll tax liabilities.

During the three months and six months ended June 30, 2019, the Company recorded $69,500 and $245,000,

respectively, of share-based compensation to executives that is included in payroll and payroll tax liabilities.

GrowGeneration Corporation and Subsidiaries

Notes to the Unaudited Consolidated Financial

June 30, 2020

BASED PAYMENTS AND STOCK OPTIONS, continued

The following table presents

share-based payment expense and new shares issued for the three months ended June 30, 2020 and 2019.

Company accounts for share-based payments through the measurement and recognition of compensation expense for share-based payment

awards made to employees and directors of the Company, including stock options and restricted shares.

the three months ended September 30, 2020 the Company issued 1,000 shares of common stock (stock-based awards) to employees that

vested immediately resulting in compensation expense of approximately $4,490.

During the three months ended September 30, 2019

the Company did not issue any shares of common stock (stock-based awards) to employees that vested immediately.

the nine months ended September 30, 2020 the Company issued 534,333 shares of common stock (stock-based awards) to employees that

vested immediately resulting in compensation expense of approximately $2,200,947.

During the nine months ended September 30, 2019

the Company issued 17,500 shares of common stock (stock-based awards) to employees that vested immediately resulting in compensation

expense of approximately $35,800.

the three months and nine months ended September 30, 2020, the Company recorded $0 and $125,000, respectively, of share-based

compensation to executives that is included in payroll and payroll tax liabilities.

During the three months and nine months ended

September 30, 2019, the Company recorded $217,100 and $716,600, respectively, of share-based compensation to executives that is

included in payroll and payroll tax liabilities.

following table presents share-based payment expense and new shares issued for the three months ended September 30, 2020 and 2019.

Three Months Ended

September 30,

Total non-cash share-based compensation

The following table presents

share-based payment expense and new shares issued for the six months ended June 30, 2020 and 2019.

Six Months Ended

following table presents share-based payment expense and new shares issued for the nine months ended September 30, 2020 and 2019.

Nine Months Ended

September 30,

Total non-cash share-based compensation

GrowGeneration

Corporation and Subsidiaries

to the Unaudited Consolidated Financial Statements

BASED PAYMENTS AND STOCK OPTIONS, continued

March 6, 2014, the Company’s Board of Directors (the “Board”) approved the 2014 Equity Incentive Plan (“2014

4 unchanged sentences

which may be issued over the term of the 2014 Plan shall not exceed 2,500,000 shares.

Awards under this plan are made by the Board or

a committee designated by the Board.

Options under the plan are to be issued at the market price of the stock on the day of the

grant except to those issued to holders of 10% or more of the Company’s common stock which is required to be issued at a

price not less than 110% of the fair market value on the day of the grant.

Each option is exercisable at such time or times, during

such period and for such numbers of shares shall be determined by the plan administrator.

No option may be exercisable for more

than ten years (five years in the case of an incentive stock option granted to a 10% stockholder) from the date of grant.

On January 7, 2018, the Board

adopted the 2018 Equity Compensation Plan (the “2018 Plan”) and on April 20, 2018, the shareholders approved the 2018

On February 7, 2020, the Board approved the amendment and restatement of the 2018 Plan to increase the number of shares issuable

thereunder from 2,500,000 to 5,000,000, which amendment was approved by shareholders on May 11, 2020.

The 2018 Plan will be administered

by the Board.

The Board may grant options to purchase shares of common stock, stock appreciation rights, restricted stock units,

restricted or unrestricted shares of common stock, performance shares, performance units, other cash-based awards and other stock-based

The Board also has broad authority to determine the terms and conditions of each option or other kind of equity award,

adopt, amend and rescind rules and regulations for the administration of the 2018 Plan and amend or modify outstanding options,

grants and awards.

GrowGeneration Corporation

and Subsidiaries

Notes to the Unaudited Consolidated Financial

June 30, 2020

BASED PAYMENTS AND STOCK OPTIONS, continued

No options, stock purchase rights

or awards may be made under the 2018 Plan on or after the ten-year anniversary of the adoption of the 2018 Plan by the Board, but

the 2018 Plan will continue thereafter while previously granted options, stock appreciation rights or awards remain subject to

the 2018 Plan.

Awards under the 2014 Plan are made by the

Board or a committee designated by the Board.

Options under the 2014 Plan are to be issued at the market price of the stock on

the day of the grant except to those issued to holders of 10% or more of the Company’s common stock which is required to

be issued at a price not less than 110% of the fair market value on the day of the grant.

Each option is exercisable at such time

or times, during such period and for such numbers of shares shall be determined by the plan administrator.

No option may be exercisable

for more than ten years (five years in the case of an incentive stock option granted to a 10% stockholder) from the date of grant.

January 7, 2018, the Board adopted the 2018 Equity Compensation Plan (the “2018 Plan”) and on April 20, 2018, the

shareholders approved the 2018 Plan.

On February 7, 2020, the Board approved the amendment and restatement of the 2018 Plan to

increase the number of shares issuable thereunder from 2,500,000 to 5,000,000, which amendment was approved by shareholders on

May 11, 2020.

The 2018 Plan will be administered by the Board.

The Board may grant options to purchase shares of common stock,

stock appreciation rights, restricted stock units, restricted or unrestricted shares of common stock, performance shares, performance

units, other cash-based awards and other stock-based awards.

The Board also has broad authority to determine the terms and conditions

of each option or other kind of equity award, adopt, amend and rescind rules and regulations for the administration of the 2018

Plan and amend or modify outstanding options, grants and awards.

options, stock purchase rights or awards may be made under the 2018 Plan on or after the ten-year anniversary of the adoption

of the 2018 Plan by the Board, but the 2018 Plan will continue thereafter while previously granted options, stock appreciation

rights or awards remain subject to the 2018 Plan.

Options granted under the 2018 Plan may be either “incentive stock options”

that are intended to meet

the requirements of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”) or “nonstatutory

stock options”

that are intended to meet the requirements of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”)

or “nonstatutory stock options”

that do not meet the requirements of Section 422 of the Code.

The Board will determine the exercise price

of options granted under the 2018 Plan.

The exercise price of stock options may not be less than the fair market value, on the

date of grant, per share of our Common Stock issuable upon exercise of the option (or 110% of fair market value in the case of

incentive options granted to a 10% stockholder).

No option may be exercisable for more than ten years (five years in the case of

an incentive stock option granted to a 10% stockholder) from the date of grant.

As of June 30, 2020, there was

approximately $4.1 million of unrecognized compensation costs related to non-vested share-based compensation granted under that

share option plans, which is expected to be recognized over the next two years.

The Board will determine

the exercise price of options granted under the 2018 Plan.

The exercise price of stock options may not be less than the fair market

value, on the date of grant, per share of our Common Stock issuable upon exercise of the option (or 110% of fair market value

in the case of incentive options granted to a 10% stockholder).

No option may be exercisable for more than ten years (five years

in the case of an incentive stock option granted to a 10% stockholder) from the date of grant.

Share Based Awards as of September 30, 2020 are summarized below:

Option awards

GrowGeneration

Corporation and Subsidiaries

to the Unaudited Consolidated Financial Statements

BASED PAYMENTS AND STOCK OPTIONS, continued

Awards issued under the 2014

Plan as of June 30, 2020 are summarized below:

Plan as of September 30, 2020 are summarized below:

Total shares available for issuance pursuant to the 2014 Plan

Options outstanding, June 30, 2020

Options outstanding, September 30, 2020

Total options exercised under 2014 Plan

Total shares issued pursuant to the 2014 Plan

Awards available for issuance under the 2014 Plan, June 30, 2020

issued under the 2018 Plan as of June 30, 2020 are summarized below:

Awards available for issuance under the 2014 Plan, September 30, 2020

issued under the 2018 Plan as of September 30, 2020 are summarized below:

Total shares available for issuance pursuant to the 2018 Plan, after amendment

Options outstanding, June 30, 2020

Options outstanding, September 30, 2020

Total options exercised under 2018 Plan

Total shares issued pursuant to the 2018 Plan

Awards available for issuance under the 2018 Plan, June 30, 2020

Awards available for issuance under the 2018 Plan, September 30, 2020

The table below summarizes all

the options granted by the Company under all plans during the six months ended June 30, 2020:

option activity under all plans during the nine months ended September 30, 2020:

Outstanding at December 31, 2019

Forfeited or expired

Outstanding at June 30, 2020

Options vested at June 30, 2020

GrowGeneration Corporation and Subsidiaries

Notes to the Unaudited Consolidated Financial

June 30, 2020

BASED PAYMENTS AND STOCK OPTIONS, continued

Outstanding at September 30, 2020

Options vested at September 30, 2020

September 30,

Options outstanding pursuant to 2014 Plan

1 unchanged sentence

Options issued outside of 2014 and 2018 Plans

GrowGeneration

Corporation and Subsidiaries

to the Unaudited Consolidated Financial Statements

PURCHASE WARRANTS

A summary of the status of the

Company’s outstanding stock purchase warrants as of June 30, 2020 is as follows:

Company’s outstanding stock purchase warrants for the nine months ended September 30, 2020 is as follows:

Weighted Average

Exercise Price

Outstanding at December 31, 2019

Outstanding at June 30, 2020

The following table sets forth

the composition of the weighted average shares (denominator) used in the basic and dilutive earnings per share computation for

the three months and six months ended June 30, 2020 and 2019.

Outstanding at September 30, 2020

following table sets forth the composition of the weighted average shares (denominator) used in the basic and dilutive earnings

per share computation for the three months and nine months ended September 30, 2020 and 2019.

Three months ended

September 30,

Weighted average shares outstanding, basic

3 unchanged sentences

Dilutive income per share

GrowGeneration Corporation and

Notes to the Unaudited Consolidated Financial

June 30, 2020

PER SHARE, continued

Six months ended

Nine months ended

September 30,

Weighted average shares outstanding, basic

3 unchanged sentences

Dilutive income per share

Our acquisition strategy is

to acquire well established profitable hydroponic garden centers in markets where the Company does not have a market presence or

in markets where it is increasing its market presence.

The Company accounts for acquisitions in accordance with ASC 805 “Business

Combinations.”

Assets acquired and liabilities assumed are recorded in the accompanying consolidated balance sheets at their

estimated fair values, as of the acquisition date.

For all acquisitions, the preliminary allocation of the purchase price was based

upon a preliminary valuation, and the Company’s estimates and assumptions are subject to change within the measurement period

as valuations are finalized.

GrowGeneration

Corporation and Subsidiaries

to the Unaudited Consolidated Financial Statements

acquisition strategy is to acquire well established profitable hydroponic garden centers in markets where the Company does not

have a market presence or in markets where it is increasing its market presence.

The Company accounts for acquisitions in accordance

with ASC 805 “Business Combinations.”

Assets acquired and liabilities assumed are recorded in the accompanying consolidated

balance sheets at their estimated fair values, as of the acquisition date.

For all acquisitions, the preliminary allocation of

the purchase price was based upon a preliminary valuation, and the Company’s estimates and assumptions are subject to change

within the measurement period as valuations are finalized.

The Company has not made any adjustments to the preliminary valuations.

On February 26, 2020 we acquired

certain assets of Health & Harvest LLC in a transaction valued at approximately $2.85 million.

Acquired goodwill of approximately

$1.75 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market

for the Company.

February 26, 2020 we acquired certain assets of Health & Harvest LLC in a transaction valued at approximately $2.85 million.

Acquired goodwill of approximately $1.75 million represents the value expected to rise from organic growth and an opportunity

to expand into a well-established market for the Company.

Cash consideration was funded from the Company’s existing working

Transaction costs incurred in connection with this acquisition were not significant.

June 16, 2020 we acquired certain assets of H2O Hydroponics, LLC in a transaction valued at approximately $1.99 million.

goodwill of approximately $1.4 million represents the value expected to rise from organic growth and an opportunity to expand

into a well-established market for the Company.

Cash consideration was funded from the Company’s existing working capital.

Transaction costs incurred in

connection with this acquisition were not significant.

On June 16, 2020 we acquired

certain assets of H2O Hydroponics, LLC in a transaction valued at approximately $1.99 million.

Acquired goodwill of approximately

$1.4 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market

for the Company.

Transaction costs incurred in connection with this acquisition were not significant.

August 10, 2020 we acquired certain assets of Benzakry Family Corp, d/b/a Emerald City Garden, in a transaction valued at $1 million.

Acquired goodwill of approximately $840,000 represents the value expected to rise from organic growth and an opportunity to expand

into a well-established market for the Company.

Cash consideration was funded from the Company’s existing working capital.

Transaction costs incurred in

connection with this acquisition were not significant.

Transaction costs incurred in connection with this acquisition were not significant.

The table below represents the

allocation of the purchase price to the acquired net assets.

allocation of the purchase price to the acquired net assets during the nine months ended September 30, 2020.

Prepaids and other current assets

Furniture and equipment

Right to use asset

Lease liability

GrowGeneration Corporation and Subsidiaries

Notes to the Unaudited Consolidated Financial

June 30, 2020

Property and equipment

Operating leases right to use asset

Operating lease liability

table below represents the consideration paid for the net assets acquired in business combinations.

GrowGeneration

Corporation and Subsidiaries

to the Unaudited Consolidated Financial Statements

ACQUISITIONS,

The table below represents the

consideration paid for the net assets acquired in business combinations.

The following table discloses

the date of the acquisitions noted above and the revenue and earnings included in the consolidated income statement from the date

of acquisition to the period ended June 30, 2020.

Acquisition date

The following represents the

pro forma consolidated income statement as if the acquisitions had been included in the consolidated results of the Company for

the entire period for the three months and six months ended June 30, 2019.

The table below represents the

allocation of the preliminary purchase price to the acquired net assets during the six months ended June 30, 2019.

the date of the acquisitions noted above and the revenue and earnings included in the consolidated statement of operations from

the date of acquisition through September 30, 2020.

following represents the pro forma consolidated income statement as if the acquisitions had been included in the consolidated

results of the Company for the entire period for the three months and nine months ended September 30, 2019.

September 30,

table below represents the allocation of the purchase price to the acquired net assets during the nine months ended September

Reno Hydroponics

Prepaids and other current assets

Furniture and equipment

Right to use asset

Lease liability

GrowGeneration Corporation

and Subsidiaries

Notes to the Unaudited Consolidated Financial

June 30, 2020

ACQUISITIONS,

Property and equipment

Operating right to use asset

Operating lease liability

The table below represents the

consideration paid for the net assets acquired in business combinations for the period ended June 30, 2019.

consideration paid for the net assets acquired in business combinations for the nine months ended September 30, 2019.

Reno Hydroponics

GrowGeneration

Corporation and Subsidiaries

to the Unaudited Consolidated Financial Statements

ACQUISITIONS,

The following table discloses

the date of the acquisitions noted above and the revenue and earnings included in the consolidated income statement from the date

of acquisition to the period ended June 30, 2019.

Acquisition date

the date of the acquisitions noted above and the revenue and earnings included in the consolidated statement of operations from

the date of acquisition to the period ended September 30, 2019.

The following represents the

proforma consolidated income statement as if the acquisitions had been included in the consolidated results of the Company for

the entire period for the three months and six months ended June 30, 2018.

Six Months Ended

The Company has evaluated events

and transaction occurring subsequent to June 30, 2020 up to the date of this filing of these consolidated financial statements.

proforma consolidated statement of operations as if the acquisitions had been included in the consolidated results of the Company

for the entire period for the three months and nine months ended September 30, 2018.

September 30,

Nine Months Ended

September 30,

Company has evaluated events and transaction occurring subsequent to September 30, 2020 up to the date of this filing of these

consolidated financial statements.

These statements contain all necessary adjustments and disclosures resulting from that evaluation.

July 2, 2020 the Company consummated an underwritten public offering (the “Offering”)

of 8,625,000 shares of its common stock (the “Shares”), which included the exercise in full of the underwriters’

option to purchase an additional 1,125,000 shares of common stock to cover over-allotments,

pursuant to a Registration Statement on Form S-1 (File No.

333-239058) (the “Registration Statement”) which was declared

effective by the U.S.

Securities and Exchange Commission on June 29, 2020 and another Registration Statement on Form S-1 (File

333-239545) filed on June 29, 2020 related to the Registration Statement to upsize the Offering pursuant to Rule 462(b) under

the Securities Act of 1933, as amended.

The Shares were sold at a public offering price of $5.60 per share, generating gross proceeds

of $48.3 million, before deducting the underwriting discounts and commissions and other

offering expenses .

Net proceeds from the sales of common stock, net of all offering costs and expenses was approximately

$44.6 million.

On August 10, 2020 the Company

purchased the assets of Emerald City Garden located in Concord, CA.

for $1 million.

Following this acquisition, the Company opened

a new store in the state of California.

October 12, 2020, the Company acquired the assets of Hydroponics Depot, LLC, a single store located in Phoenix Arizona for $987,500

in cash and 31,027 shares of the Company’s common stock valued at $500,000.

October 20, 2020 the Company acquired the assets of Big Green Tomato, a two-store chain

in Battle Creek and Taylor, Michigan for $5,495,000 in cash and 167,116 shares of common stock valued at $2,750,000.

October 29, 2020, the Company signed an asset purchase agreement with The GrowBiz, a five-store chain with four stores in California

and one store in Oregon.

The asset purchase is expected to close by the end of the year.

The total consideration for the purchase

of The GrowBiz is approximately $32 million, $17,000,000 in cash and common stock valued at $15 million.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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obligation to update forward looking statements, except as required by law.

GrowGeneration believes it is the largest

chain of hydroponic garden centers in North America by revenue and number of stores.

We also believe we are a leading marketer

and distributor of nutrients, growing media, advanced indoor and greenhouse lighting, ventilation systems and accessories for hydroponic

Currently the Company owns and operates a chain of twenty eight (28) retail hydroponic/gardening stores, with five (5)

located in the state of Colorado, five (5) in the state of California, four (4) in the state of Michigan, two (2) in the state

of Nevada, one (1) in the state of Washington, one (1) in the state of Oregon, four (4) in the State of Oklahoma, one (1) in the

state of Rhode Island, three (3) in Maine, (1) in Florida, one (1) distribution center in California and an online e-commerce store,

growgeneration.com.

In addition, we operate a warehouse out of Sacramento, CA.

stores sell thousands of products, including nutrients, growing media, advanced indoor and greenhouse lighting, ventilation systems,

and accessories for hydroponic gardening, as well as other indoor and outdoor growing products, that serve multi-purposes and

are designed and intended for growing a wide range of plants.

Hydroponics is a specialized method of growing plants using mineral

nutrient solutions in a water solvent, as opposed to soil.

This method is typically used inside greenhouses to give growers the

ability to better regulate and control nutrient delivery, light, air, water, humidity, pests, and temperature.

Hydroponic growers

benefit from these techniques by producing crops faster and with higher crop yields per acre as compared to traditional soil-based

Indoor growing techniques and hydroponic products are being utilized in new and emerging industries or segments, including

the growing of cannabis and hemp.

In addition, vertical farms producing organic fruits and vegetables are also beginning to utilize

hydroponics due to a rising shortage of farmland as well as environmental vulnerabilities including drought, other severe weather

conditions and insect pests.

GrowGeneration is the largest chain of

hydroponic garden centers in North America by revenue and number of stores.

We are the leading marketer and distributor of nutrients,

growing media, advanced indoor and greenhouse lighting, ventilation systems and accessories for hydroponic gardening.

the Company owns and operates a chain of thirty one (31) retail hydroponic/gardening centers, with six (6) in the state of California,

six (6) in the state of Michigan, five (5) located in the state of Colorado, four (4) in the State of Oklahoma, three (3) in Maine,

two (2) in the state of Nevada, one (1) in the state of Washington, one (1) in the state of Oregon, one (1) in the state of Rhode

Island, (1) in the state of Florida, one (1) distribution center in the state of California and an online e-commerce store, GrowGeneration.com.

Our plan is to continue to acquire, open and operate hydroponic/gardening centers and related businesses throughout the United

States and Canada.

garden centers sell thousands of products, including nutrients, growing media, advanced indoor and greenhouse lighting, ventilation

systems, and accessories for hydroponic gardening, as well as other indoor and outdoor growing products, that serve multi-purposes

and are designed and intended for growing a wide range of plants.

Hydroponics is a specialized method of growing plants using

mineral nutrient solutions in a water solvent, as opposed to soil.

This method is typically used inside greenhouses to give growers

the ability to better regulate and control nutrient delivery, light, air, water, humidity, pests, and temperature.

growers benefit from these techniques by producing crops faster and with higher crop yields per acre as compared to traditional

soil-based growers.

Indoor growing techniques and hydroponic products are being utilized in new and emerging industries or segments,

including the growing of cannabis and hemp.

In addition, vertical farms producing organic fruits and vegetables are also beginning

to utilize hydroponics due to a rising shortage of farmland as well as environmental vulnerabilities including drought, other

severe weather conditions and insect pests.

GrowGeneration

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facilities in both the US and Canada.

Total sales for the hydroponic equipment industry were well over $8 billion in 2019, projected

to surpass $16 billion by 2025.

Our retail operations are driven by our

high-quality products, value-add knowledgeable staff and fast distribution capabilities.

We employ horticulturists that we have

branded as “Grow Pros”.

Our operations span over 300,000 square feet of retail and warehouse space.

During COVID-19,

we have been deemed an “essential”

supplier to the agricultural industry and, as such, we remained open and continued

our operations.

In the second quarter of 2020, our revenue was $43.5 million, which increased 123% from the same period of the

For the six months ended June 30, 2020, our revenue was $76 million, which increased 135% compared to the same period

There was a 49% increase in our same store sales comparing the quarter ended June 30, 2020 to the quarter ended June 30,

The Company performed well in all markets, most notably sales in the Oklahoma market up 348%, Michigan market was up 322%,

Maine market up 146%, all attributable to gaining more commercial and walk in business in these growth markets.

Income from store

operations was $7.6 million for the second quarter of 2020, compared to $3.1 million for the second quarter 2019, an increase of

Net income from store operations was approximately $13 million for the six months ended June 30, 2020, compared to approximately

$4.9 million for the six months ended June 30, 2019.

Adjusted EBITDA was $4.6 million for the

second quarter of 2020 compared to $1.7 million the same period of 2019, an increase of 166%.

There was a 50% increase in walk-in

transaction, averaging 10,000 per week from the end of the first quarter 2020 to the end of the second quarter 2020.

Total sales for the hydroponic equipment industry, projected to surpass $16 billion by 2025.

retail operations are driven by our high-quality products, value-add knowledgeable staff and fast distribution capabilities.

employ horticulturists that we have branded as “Grow Pros”.

Our operations span over 400,000 square feet of retail

and warehouse space.

During COVID-19, we have been deemed an “essential”

supplier to the agricultural industry and,

as such, we remained open and continued our operations.

For the quarter ended September 30, 2020, our revenue was $55 million,

which increased 153% from the same period of the prior year.

For the nine months ended September 30, 2020, our revenues were $131.4

million, which increased 141.8% compared to the same period 2019.

There was a 73% increase in our same store sales comparing the

quarter ended September 30, 2020 to the quarter ended September 30, 2019.

The Company performed well in all markets, most notably

sales in the Oklahoma market up 288%, Michigan market was up 271%, Maine market up 82%, all attributable to gaining more commercial

and walk in business in these growth markets.

Income from store operations was $9.6 million for the third quarter of 2020, compared

to $3.8 million for the third quarter 2019, an increase of 155%.

Net income from store operations was approximately $22.6 million

for the nine months ended September 30, 2020, compared to approximately $8.6 million for the nine months ended September 30, 2019.

EBITDA was $6.6 million for the third quarter of 2020 compared to $2 million the same period of 2019, an increase of 230%.

Company is averaging 12,000 walk-in transaction per week.

operate our business through the following sales channels:

31 retail and commercial hydroponic/gardening centers focused on serving growers and cultivators.

● Commercial :

Sales to commercial customers, including expert growers and cultivators, and provide them with advice from sales representatives

with the requisite expertise (whom we brand as “GrowPros”) to serve their specific needs.

● E-Commerce :

Our existing e-commerce operation, growgeneration.com (previously HeavyGarden.com and

GrowGen.pro), is currently being developed and rebranded into an omni-channel sales approach

to enable e-commerce at all of our locations, which we intend to launch in September

Our existing e-commerce operation, growgeneration.com (previously HeavyGarden.com and GrowGen.pro), is currently being developed

and rebranded into an omni-channel sales approach to enable e-commerce at all of our locations, which ws launched in September

Distribution :

The majority of our stores are also functioning as warehouse, distribution and fulfillment centers for directing products to our

store locations and to the retail, wholesale and mass hydroponic markets.

Some of our stores function as warehouse, distribution and fulfillment centers for directing products to other store locations

and to the retail, wholesale and mass hydroponic markets.

Strategy - Store Acquisitions and New Store Openings

Our growth strategy is to expand the number

of our retail and commercial operations throughout the United States.

The hydroponic retail landscape is fragmented, which we believe

has allowed us to acquire the “best of breed”

Our growth strategy is to expand the

number of our retail and commercial operations throughout the United States.

The hydroponic retail landscape is fragmented,

which we believe has allowed us to acquire the “best of breed”

locations in the United States.

In addition, we have a two-year roadmap

to open a number of new locations in markets that we believe are underserved throughout the country.

In addition to the 10 states

where we are currently operating, we have identified Arizona, Illinois, Pennsylvania, New York, New Jersey and Missouri as new

markets where we plan to open a new operation.

In the first quarter of 2020, we opened a second hydroponic/gardening center in

Tulsa, Oklahoma, a 40,000 square feet store operation and fulfillment center, and acquired Healthy Harvest located outside of Miami,

On June 16, 2020, we acquired the assets of H2O Hydroponics LLC, a hydroponic garden center in Lansing, MI.

In connection

with this acquisition, we have consolidated and relocated our current West Lansing location into a newly built 14,000

square foot hydroponic garden center.

On August 10, 2020, we purchased the assets of Emerald City Garden located in Concord, CA

for $1 million, following which acquisition we opened a new store in the state of California.

We have set a target to be at 50

stores and operate in 15 states by the end of 2021.

In addition, we

have a two-year roadmap to open a number of new locations in markets that we believe are underserved throughout the country.

In addition to the 11 states where we are currently operating, we have identified Ohio, Illinois, Pennsylvania, New York, New

Jersey and Missouri as new markets where we plan to open a new operation.

In the first quarter of 2020, we opened a second

hydroponic/gardening center in Tulsa, Oklahoma, a 40,000 square feet store operation and fulfillment center, and acquired

Health & Harvest located outside of Miami, FL.

On June 16, 2020, we acquired the assets of H2O Hydroponics LLC, a

hydroponic garden center in Lansing, MI.

In connection with this acquisition, we have consolidated and relocated our

current West Lansing location into a newly built 14,000 square foot hydroponic garden center.

On August 10, 2020,

we purchased the assets of Emerald City Garden located in Concord, CA for $1 million, following which acquisition we opened a

new store in the state of California.

On October 12, 2020, the Company purchased the assets of Hydroponics Depot, located in

Phoenix, AZ, which represents the Company’s 11 th state.

On October 20, 2020, we purchased the assets of The

Big Green Tomato, a two-store chain in Michigan.

Company now owns and operates 6 locations in the state of Michigan.

On October 29, 2020, the Company entered into an asset purchase

agreement to buy The GrowBiz, the 3 rd largest chain of Hydroponic garden centers in the US.

The GrowBiz operates five

garden centers, four in CA and one in Oregon.

We have set a target to be at 50 stores and operate in 15 states by the end of 2021.

Sales Division

In 2019, we created a commercial division

with a dedicated sales and support team to sell and service large commercial customers, who are primarily licensed growers of medicinal

and non-medicinal cannabis.

As of the second quarter of 2020, our commercial division services over 700 commercial accounts, who

collectively contributed $9.2 million in revenue or approximately 21% of our sales.

For the six-month period ended June 30,2020,

the commercial division generated $17.7 million compared to $6.3 million for the same period in 2019, a 181% increase.

identified over 14,000 licensed hemp and cannabis growers in the United States and believe there is significant room for us to

expand our base of commercial customers.

Our online sales for the second quarter

of 2020 was approximately $2.6 million compared to $1.0 million for the same period in 2019, an increase of 149%.

For the six months

ended June 30, 2020, our online sales were approximately $4.5 million compared to $1.7 million for the same period in 2019, an

increase of 163%.

New visitors to our website are now approaching 100,000 per month.

We are currently developing and rebranding

commercial division is a dedicated sales and support team to sell and service large commercial customers, who are primarily licensed

growers of medicinal and non-medicinal cannabis.

As of the third quarter of 2020, our commercial division services over 1,000

commercial accounts, who collectively contributed $13.2 million in revenue or approximately 24% of our total Q3 2020 revenues.

For the nine-month period ended September 30,2020, the commercial division generated revenues of $32.7 million compared to $10.9

million for the same period in 2019, a 200% increase.

We have identified over 14,000 licensed hemp and cannabis growers in the

United States and believe there is significant room for us to expand our base of commercial customers.

online revenues for the third quarter of 2020 was approximately $2.9 million compared to $1.4 million for the same period in 2019,

an increase of 112%.

For the nine months ended September 30, 2020, our online revenues were approximately $7.4 million compared

to $3.1 million for the same period in 2019, an increase of 140%.

New visitors to our website are over 100,000 per month.

our existing e-commerce operation, HeavyGarden.com and GrowGen.Pro, as growgeneration.com, which will be an omni-channel sales

approach to enable e-commerce at all of our locations, providing our customers convenient ways to shop when and how they feel comfortable.

We intend to launch this strategy in September 2020.

This omni-channel approach will provide 24/7 availability of products and

allow our customers to “Buy Online and Pick Up In Store.”

Customers will be able to shop online in all product departments

and access descriptions, reviews and pictures of our products.

Our customers can order online and they can choose to either have

their products delivered directly to their growing facility (usually within 48 hours) or they can pick up the products at one of

our stores (usually within 24 hours).

We believe that this omni-channel initiative will result in a more seamless, convenient shopping

experience for our customers and will drive financial results.

We have built a supply chain that currently

spans through 28 locations across 10 states.

We are in the process of building several 20,000 square foot store operations that

will serve as fulfillment service centers, in addition to serving the local retail and commercial customers.

These stores and fulfillment

centers will ship directly to a farm or home as well as to any commercial hydroponic store (including ours and others) in the United

approach to enable e-commerce at all of our locations, providing our customers convenient ways to shop when and how they feel

We launched this strategy in September 2020.

This omni-channel approach will provide 24/7 availability of products

and allow our customers to “Buy Online and Pick Up In Store is currently being tested in several garden centers.”

Customers will be able to shop online in all product departments and access descriptions, reviews and pictures of our products.

Our customers can order online and they can choose to either have their products delivered directly to their growing facility

(usually within 48 hours) or they can pick up the products at one of our stores (usually within 24 hours).

We believe that this

omni-channel initiative will result in a more seamless, convenient shopping experience for our customers and will drive financial

have built a supply chain that currently spans through 31 locations across 10 states.

We are in the process of building several

operations that will serve as fulfillment service centers, in addition to serving the local retail and commercial customers.

garden/fulfillment centers will ship directly to a farm or home as well as to any commercial hydroponic store (including ours

and others) in the United States.

We have a fleet of trucks that allow us to deliver within the proximity of any of these locations.

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center to fulfill their daily and weekly growing needs.

We are also actively developing a line

of private label products that we intend to sell through our garden centers under brands we own or control.

Our strategy is to

deliver high-quality products at a lower cost, and higher margin to us.

To further our private label strategy, we acquired various

trademarks in March 2019 to aid in branding our ‘in house’

are also actively developing a line of private label products that we intend to sell through our garden centers under brands we

own or control.

Our strategy is to deliver high-quality products at a lower cost, and higher margin to us.

To further our private

label strategy, we acquired various trademarks in March 2019 to aid in branding our ‘in house’

products to our customers.

We introduced our first

private labeled products under the Sunleaves brand in first quarter of 2020.

Sales in the second quarter of 2020 for the line of

Sunleaves products is now approaching $100,000 per month.

This initial offering encompassed a broad variety of products ranging

from trellis netting to plastic pots and organic nutrients.

We intend to introduce additional private label products during 2020

We believe that expanding our private label offerings will have a positive impact on our margins and profitability in

the near term.

We use various trademarks, trade names and service marks in our business, including Blueprint

We introduced our first private labeled products under the Sunleaves brand in first quarter of 2020.

Sales of our various private

label products are over $1,000,000.

This initial offering encompassed a broad variety of products ranging from trellis netting

to plastic pots and organic nutrients.

We intend to introduce additional private label products during 2020 and 2021.

that expanding our private label offerings will have a positive impact on our margins and profitability in the near term.

various trademarks, trade names and service marks in our business, including Blueprint

Controllers, Carbide, DuraBreeze, Elemental Solutions, GrowGeneration, GrowXcess, GuardenWare, Harvester’s Edge, HeavyGardens,

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symbols, but such

omission is not meant to indicate that we would not protect our intellectual property rights to the fullest extent allowed by law.

omission is not meant to indicate that we would not protect our intellectual property rights to the fullest extent allowed by

Any other trademarks, trade names or service marks referred to in this filing are the property of their respective owners.

we continue to monitor the COVID-19 situation, we are considered an “essential”

supplier to the agricultural industry,

suppling the nutrients and nourishment required to feed their plants.

As we continue to monitor the COVID-19

situation, we are considered an “essential”

supplier to the agricultural industry, suppling the nutrients and nourishment

required to feed their plants.

The Company has been opened during this difficult time.

We have plans and procedures in place to ensure our customers and employees stay safe during this time of uncertainty.

of COVID-19 we reduced some hours of operations at the store level and some stores were closed on the weekends, starting in the

later part of the first quarter of 2020.

There have been some minor delays in vendor shipments as their warehouses and supply

chain were affected by staffing shortages.

The Company successfully implemented a will call and curb side pick-up process that

is working well.

All of us at GrowGeneration remain committed to the safety and well-being of our customers and employees.

do our part, GrowGeneration has committed to donate up to $500,000 of free product to local communities that have been severely

We have plans and procedures in place to

ensure our customers and employees stay safe during this time of uncertainty.

As a result of COVID-19 we reduced some hours of

operations at the store level and some stores were closed on the weekends, starting in the later part of the first quarter of 2020.

There have been some minor delays in vendor shipments as their warehouses and supply chain were affected by staffing shortages.

The Company successfully implemented a will call and curb side pick-up process that is working well.

All of us at GrowGeneration

remain committed to the safety and well-being of our customers and employees.

To do our part, GrowGeneration has committed to donate

up to $500,000 of free product to local communities that have been severely affected.

To date, COVID-19 related costs are $158,000

for payroll related and $29,000 for store masks, gloves, cleaning supplies and sneeze guards.

the largest chain of stand-alone hydroponic garden centers by revenue and number of stores in the United States based on management’s

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label products;

● We have a professional team for mergers and acquisitions to

acquire and open new locations and successfully add them to our company portfolio;

have a professional team for mergers and acquisitions to acquire and open new locations and successfully add them to our company

offer a program of issuing credit to licensed commercial customers based on a credit evaluation process.

The Company has recently announced its

partnership with Whole Cities Foundation.

Founded by Whole Foods Market in 2014, the independent, nonprofit organization is based

in Austin, Texas, and has partnered with more than 190 community organizations in 100 cities across the U.S.

to build thriving

local food systems and improve health.

The first project, with Whole Cities, through its Fresh, Healthy Food Access Grant program,

has been with Newark Science & Sustainability and Greater Newark Conservancy over the past 4 years.

Both organizations

had identified hydroponic growing as a goal for their community plans.

Each group will benefit from an equipment grant.

first two opportunities are part of a pilot that we expect will yield learnings over the course of the next year.

GrowGeneration

will provide equipment and expertise and partner with Whole Cities to evaluate community impact.

As we have built a national chain of hydroponic

garden centers, it has always been our mission to give back to the local communities.

In our day to day operations, we see the

results growing hydroponically.

We could not be prouder to partner with Whole Cities to donate hydroponic equipment and supplies

to their local communities to help them with their gardens and increase the quality of their food production.

Our staff of over

250 dedicated team members, the majority have tremendous knowledge on how to grow hydroponically, are energized to lend a hand

and their personal time to support Whole Cities.

It is rewarding to watch a community, come together, parents and children, and

produce the largest tomatoes and produce in their community!

Company has recently announced its partnership with Whole Cities Foundation.

Founded by Whole Foods Market in 2014, the independent,

nonprofit organization is based in Austin, Texas, and has partnered with more than 190 community organizations in 100 cities across

to build thriving local food systems and improve health.

The first project, with Whole Cities, through its Fresh, Healthy

Food Access Grant program, has been with Newark Science & Sustainability and Greater Newark Conservancy over the past 4 years.

Both organizations had identified hydroponic growing as a goal for their community plans.

Each group will benefit from an

equipment grant.

These first two opportunities are part of a pilot that we expect will yield learnings over the course of the

GrowGeneration will provide equipment and expertise and partner with Whole Cities to evaluate community impact.

we have built a national chain of hydroponic garden centers, it has always been our mission to give back to the local communities.

In our day to day operations, we see the results growing hydroponically.

We could not be prouder to partner with Whole Cities

to donate hydroponic equipment and supplies to their local communities to help them with their gardens and increase the quality

of their food production.

Our staff of over 250 dedicated team members, the majority have tremendous knowledge on how to grow

hydroponically, are energized to lend a hand and their personal time to support Whole Cities.

It is rewarding to watch a community,

come together, parents and children, and produce the largest tomatoes and produce in their community!

We Evaluate Our Operations

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as revenue until final payment is received and the merchandise has been delivery.

Our sales depend on the type of products

we sell and the mix between consumables and non-consumables.

Due to their nature, purchases of consumables results in repeat orders

as customers seek to replenish their supplies.

In 2019, approximately 60% of our sales were consumables.

Generally, in markets

where legalization of plant-based medicines is recent and licensors are ramping up their grow operations, there are more purchases

of non-consumables for build-outs compared to purchases of consumables.

In more mature markets, there are generally more purchases

of consumables than non-consumables.

Our sales are also impacted by our customer mix of commercial and non-commercial customers,

as larger commercial customers may receive volume discounts.

More than a majority of our sales is derived from our commercial customers.

sales depend on the type of products we sell and the mix between consumables and non-consumables.

Due to their nature, purchases

of consumables results in repeat orders as customers seek to replenish their supplies.

In 2020, approximately 60% of our sales

were consumables.

Generally, in markets where legalization of plant-based medicines is recent and licensors are ramping up their

grow operations, there are more purchases of non-consumables for build-outs compared to purchases of consumables.

In more mature

markets, there are generally more purchases of consumables than non-consumables.

Our sales are also impacted by our customer mix

of commercial and non-commercial customers, as larger commercial customers may receive volume discounts.

More than a majority

of our sales is derived from our commercial customers.

calculate gross profit as sales less cost of goods sold.

1 unchanged sentence

profit excludes depreciation and amortization, which is presented separately in our consolidated statements of operations.

Profit Margin

overall gross profit margin varies with our product mix, in particular the percentage of sales of consumable products versus non-consumables,

13 unchanged sentences

and marketing expenses are controllable and variable depending on the particular market.

We assess the organic growth of our sales

on a same-store basis.

We believe that our assessment on a same-store basis represents an important indicator of comparative financial

results and provides relevant information to assess our performance.

New and acquired stores become eligible for inclusion in the

comparable store base if the store has been under our ownership for the entire period in the same-store base periods for which

we are including the store.

For example, our same store sales for the three months ended June 30, 2020 and 2019 includes stores

that operated for the entire quarter in both 2020 and 2019.

We do not include any stores that were closed or consolidated during

a particular period.

assess the organic growth of our sales on a same-store basis.

We believe that our assessment on a same-store basis represents

an important indicator of comparative financial results and provides relevant information to assess our performance.

New and acquired

stores become eligible for inclusion in the comparable store base if the store has been under our ownership for the entire period

in the same-store base periods for which we are including the store.

For example, our same store sales for the three months and

nine months ended September 30, 2020 and 2019 includes stores that operated for the entire quarter and year to date in both 2020

We do not include any stores that were closed or consolidated during a particular period.

define Adjusted EBITDA as net income (loss) before interest expense, income taxes, depreciation and amortization, further adjusted

5 unchanged sentences

OF OPERATIONS

of the three months ended June 30, 2020 and 2019

of the three months ended September 30, 2020 and 2019

following table presents certain consolidated statement of operations information and presentation of that data as a dollar and

percentage change from year-to-year.

June 30, 2020

June 30, 2019

Cost of goods sold

Store operating costs

Income from store operation

Corporate operating expenses

Operating income

Other income (expense)

Net income, before taxes

Provision for income taxes

Net revenue for the three months ended

June 30, 2020 was approximately $43.5 million, compared to approximately $19.5 million for the three months ended June 30, 2019

an increase of approximately $24 million or 123%.

The increase in revenues in 2020 was primarily due to 1) 6 new stores opened

or acquired at various times after June 30, 2019 that had revenues of $13.5 million for the quarter ended June 30, 2020 for which

there were no revenues for the quarter ended June 30, 2019, 2) 2 stores opened or acquired in May 2019, that had revenues of $2.25

million for the quarter ended June 30, 2020, compared to revenues of $1 million for the quarter ended June 30, 2019, 3) an increase

in same store sales of 49% comparing revenues for the quarter ended June 30, 2020 to the quarter ended June 30, 2019, and 4) an

increase in e-commerce revenues of $1.5 million or 149% comparing the quarter ended June 30, 2020 to the quarter ended June 30,

As noted in the chart below, the 19 same stores contributed revenue of $25.1 million for the quarter ended June 30, 2020,

compared to revenues of $16.9 million for the quarter ended June 30, 2019, a 49% increase.

Company operated the same 19 stores for the entire three months ended June 30, 2020 and 2019:

five (5) in Colorado, four (4) in

California, three (3) in Michigan, two (2) in Nevada, one (1) in Rhode Island, one (1) in Washington, one (1) in Maine and one

(2) in Oklahoma.

As the chart shows below, these same stores generated approximately $25.1 million in revenues for the three months

ended June 30, 2020, compared to approximately $16.9 million in revenues for the three months ended June 30, 2019, an increase

of 49%, primarily due to an increase in the number of commercial customers in those markets.

Same store sales increased in all

of the markets as noted below comparing June 30, 2020 to June 30, 2019 except for Washington and Nevada.

Las Vegas, Nevada has

been impacted by COVID-19 and revenue increases in our Reno store were offset by revenue decreases in our Las Vegas store.

September 30, 2020

September 30, 2019

of goods sold

operating costs

from store operation

operating expenses

income (expense)

income, before taxes

for income taxes

revenue for the three months ended September 30, 2020 was approximately $55 million, compared to approximately $21.8 million for

the three months ended September 30, 2019 an increase of approximately $33.2 million or 153%.

The increase in revenues in 2020

was primarily due to 1) an increase in same store sales of $14.1 million or 73%, 2) 6 new stores opened or acquired at various

times after September 30, 2019 that had revenues of $15.8 million for the quarter ended September 30, 2020 for which there were

no revenues for the quarter ended September 30, 2019, 3) 1 store acquired in September 2019, that had revenues of $2.9 million

for the quarter ended September 30, 2020, compared to revenues of $646,000 for the quarter ended September 30, 2019 and 4) an

increase in e-commerce revenues of $1.5 million or 112% comparing the quarter ended September 30, 2020 to the quarter ended September

As noted in the chart below, the 20 same stores contributed revenue of $33.4 million for the quarter ended September

30, 2020, compared to revenues of $19.2 million for the quarter ended September 30, 2019, a 73% increase.

Company operated the same 20 stores for the entire three months ended September 30, 2020 and 2019:

five (5) in Colorado, four

(4) in California, two (2) in Michigan, two (2) in Nevada, one (1) in Rhode Island, one (1) in Washington, three (3) in Maine

and one (2) in Oklahoma.

As the chart shows below, these same stores generated approximately $33.4 million in revenues for the

three months ended September 30, 2020, compared to approximately $19.2 million in revenues for the three months ended September

30, 2019, an increase of 73%, primarily due to an increase in the number of commercial customers in those markets.

sales increased in all of the markets as noted below comparing September 30, 2020 to September 30, 2019.

Same Stores All Markets

Three Months Ended

Colorado market

California market

Washington market

Nevada market

Net revenue, all markets

September 30,

revenue, all markets

Company currently continues to focus on ten (10) markets and e-commerce noted below and the growth opportunities that exist in

We continue to focus on new store acquisitions and openings, proprietary products and the continued development of

our online omni-channel and Amazon sales.

Sales by Market

Three Months Ended

Closed/consolidated locations

Total revenues

in the Colorado market increased approximately $717,000 or 18% comparing the quarter ended June 30, 2020 to June 30, 2019.

increase in sales in the Colorado market is due to 1) the Company’s continued focus on increasing commercial sales, and

2) the acquisition of a new store in mid-January 2019.

in the California market increased approximately $1 million, or 19%.

Same store revenues in the California market increased approximately

$1 million over the same quarter in 2019 and the Palm Springs acquisition in mid-February 2019 had revenues of approximately $1.4

million, a $464,000 increase or 50%.

in the Rhode Island market increased approximately $1.2 million or 60% primarily from its increased focus on commercial and multi-state

commercial customers.

Revenues in the Michigan market increased

approximately $5.2 million or 322% due to 1) the acquisition of Grand Rapids in September 2019 that contributed $3.1 million in

revenue in the quarter ended June 30, 2020, 2) the acquisition of the Lansing store in mid-June 2020, that contributed revenues

of $227,000 for the quarter ended June 30, 2020, and 3) the increase in same store revenues which increased $1.8 million or 112%

primarily due to the increase in commercial accounts.

in the Nevada market were flat.

Las Vegas, Nevada has been impacted by COVID-19 and revenue increases in our Reno store were offset

by revenue decreases in our Las Vegas store.

in the Washington market decrease 14% comparing the quarter ended June 30, 2020 to the quarter ended June 30, 2019.

currently is our smallest market.

our online omni-channel and Amazon revenues.

In October 2020, the Company purchased the assets of Hydroponics Depot, located in

Phoenix, AZ, which represents the Company’s 11 th state.

September 30,

Closed/consolidated

in the Colorado market increased approximately $1.5 million or 36.8% comparing the quarter ended September 30, 2020 to September

The increase in sales in the Colorado market is due to 1) the Company’s continued focus on increasing commercial

sales, and 2) the acquisition of a new store in mid-January 2019.

Revenues in the California market increased

approximately $2.6 million, or 57.7%.

Same store revenues in the California market increased approximately $2.1 million over the

same quarter in 2019 and the Concord, CA acquisition in mid-August 2020 had revenues of approximately $472,000 for the quarter

ended September 30, 2020.

in the Rhode Island market increased approximately $4.8 million or 218.5% primarily from its increased focus on commercial and

multi-state commercial customers.

in the Michigan market increased approximately $6.1 million or 271.7% due to 1) the increase in same store revenues which increased

$1.8 million or 153% primarily due to the increase in commercial accounts, 2) the acquisition of Grand Rapids in September 2019

that contributed $2.9 million in revenue in the quarter ended September 30, 2020 compared to $646,000 for the quarter ended September

30, 2019, 3) the acquisition of the West Lansing store in mid-June 2020 that was consolidated with our existing West Lansing store,

that had revenues of $2.6 million for the quarter ended September 30, 2020 compared to $440,000 for the quarter ended September

in the Nevada market were up 12%.

The Las Vegas, Nevada store has been impacted by COVID-19 and their revenues were flat quarter

to quarter but same store sales revenue in our Reno store were up 25%.

in the Washington market increased 30% comparing the quarter ended September 30, 2020 to the quarter ended September 30, 2019.

in Oregon were approximately $1.9 million and represents a new market from an acquisition in mid-December 2019.

we have 4 stores in the Oklahoma market.

Revenues in the Oklahoma market increased $8.7 million or 348% comparing the quarter

ended June 30, 2020 to the quarter ended June 30, 2019.

Same stores revenues increased 105% comparing the quarter ended June 30,

2020 to the quarter ended June 30, 2019.

The increase in revenues is primarily related to the addition of two new stores in November

2019 and one new store in March 2020.

Revenues in Maine have increased $2.2 million

or 146% comparing the quarter ended June 30, 2020 to the quarter ended June 30, 2019.

The increase was primarily due to a new store

opened January 31, 2019 and two new stores acquired in May 2019.

The new store opened in early 2019 had revenues of $1.5 million

in the quarter ended June 30, 2020, compared to $506,000 for the quarter ended June 30, 2019.

The two new stores acquired in May

2019, contributed $2.3 million in revenues for the quarter ended June 30, 2020, compared to revenues of $1 million for the quarter

ended June 30, 2019.

Currently we have 4 stores in the Oklahoma

Revenues in the Oklahoma market increased $9.7 million or 288% comparing the quarter ended September 30, 2020 to the quarter

ended September 30, 2019.

Same stores revenues increased 1.7 million or 51% comparing the quarter ended September 30, 2020 to

the quarter ended September 30, 2019.

The increase in revenues is also related to the addition of two new stores, one in November

2019 and one in March 2020 which contributed revenues of $8 million.

in Maine have increased $2 million or 82% comparing the quarter ended September 30, 2020 to the quarter ended September 30, 2019.

The increase in revenues in primarily due to the increase in commercial customers.

was a new market resulting from an acquisition in February 2020.

Revenues in this market were $2.9 million for the quarter ended

June 30, 2020.

September 30, 2020.

of Goods Sold

of goods sold for the three months ended June 30, 2020 was approximately $31.9 million compared to approximately $13.7 million

for the three months ended June 30, 2019 and increase of approximately $18.2 million or 133%.

The increase in cost of goods sold

was primarily due to the 123% increase in sales comparing the three months ended June 30, 2020 to the three months ended June

The increase in cost of goods sold is directly attributable to the increase in the number of stores open during the

quarter ended June 30, 2020 compared to the quarter ended June 30, 2019, as discussed in detail above.

The increase in cost of

goods sold as a percentage of revenues is due to increased commercial and e-commerce revenues as a percentage to total revenues.

Both commercial sales and e-commerce sales have lower margins than retail sales.

Gross profit was approximately $11.6 million

for the three months ended June 30, 2020, compared to approximately $5.8 million for the three months ended June 30, 2019, an increase

of approximately $5.8 million or 99%.

The increase in cost of goods sold is primarily related to the 123% increase in revenues

comparing the quarter ended June 30, 2020 to the quarter ended June 30, 2019.

Gross profit as a percentage of revenues was 26.7%

for the three months ended June 30, 2020, compared to 29.9% for the three months ended June 30, 2019.

The decrease in the gross

profit margin percentage is due to 1) a greater percentage of our revenues for the quarter ended June 30, 2020 in commercial and

e-commerce revenues as a percentage of overall revenues that have lower margins and 2) in the first quarter of 2019 we acquired

a significant amount of inventory from a vendor at a substantial discount, sales of this product in the second quarter of 2019

accounted for 5% of our overall revenue and high margins, resulting in an 1.3 basis points increase in margin.

Commercial and e-commerce

accounted for approximately 26% of overall sales for the quarter ended June 30, 2020, resulting in a margin reduction of approximately

Operating expenses are comprised of store

operations, primarily payroll, rent and utilities, and corporate overhead.

Operating costs were approximately $8.8 million for

the three months ended June 30, 2020 and approximately $4.6 million for the three months ended June 30, 2019, an increase of approximately

$4.1 million or 89%.

Store operating costs were $4 million for the three months ended June 30, 2020 compared to $2.7 million for

the quarter ended June 30, 2019, an increase of 46%.

The increase in store operating costs was directly attributable to 1) the

addition of six (6) new locations that were added after June 30, 2019, and 2) two (2) locations added at various times in the quarter

ended June 30, 2019 that were open for the entire quarter ended June 30, 2020.

The addition of these 8 stores, discussed above,

and a new warehouse facility were the primary reasons for the increase in store operating costs.

Store operating costs as a percentage

of sales were 9.2% for the three months ended June 30, 2020, compared to 14% for the three months ended June 30, 2019, a 34% reduction.

of goods sold for the three months ended September 30, 2020 was approximately $40.4 million compared to approximately $15.3 million

for the three months ended September 30, 2019 an increase of approximately $25.2 million or 164%.

The increase in cost of goods

sold was primarily due to the 153% increase in sales comparing the three months ended September 30, 2020 to the three months ended

September 30, 2019.

The increase in cost of goods sold is directly attributable to the increase in the number of stores open during

the quarter ended September 30, 2020 compared to the quarter ended September 30, 2019, and an increase in same store sales as

discussed in more detail above.

profit was approximately $14.6 million for the three months ended September 30, 2020, compared to approximately $6.5 million for

the three months ended September 30, 2019, an increase of approximately $8.1 million or 124%.

The increase in gross profit is

primarily related to the 153% increase in revenues comparing the quarter ended September 30, 2020 to the quarter ended September

Gross profit as a percentage of revenues was 26.5% for the three months ended September 30, 2020, compared to 29.9%

for the three months ended September 30, 2019.

The decrease in the gross profit margin percentage is due to 1) a greater percentage

of our revenues for the quarter ended September 30, 2020 in commercial and e-commerce revenues as a percentage of overall revenues

that have lower margins and 2) in the first quarter of 2019 we acquired a significant amount of inventory from a vendor at a substantial

discount, sales of this product in the third quarter of 2019 accounted for 5% of our overall revenue with higher margins.

and e-commerce accounted for approximately 29.3% of overall sales for the quarter ended September 30, 2020 compared to 27.3% for

the quarter ended September 30, 2019, resulting in a margin reduction of approximately 1.3 basis points .

The Company has

maintained a consistent margin for all of 2020.

expenses are comprised of store operations, primarily payroll, rent and utilities, and corporate overhead.

Operating costs were

approximately $9.5 million for the three months ended September 30, 2020 and approximately $5.4 million for the three months ended

September 30, 2019, an increase of approximately $4.1 million or 76%.

Store operating costs were $5 million for the three months

ended September 30, 2020 compared to $2.7 million for the quarter ended September 30, 2019, an increase of 81%.

The increase in

store operating costs was directly attributable to 1) the 153% increase in revenues, 2) the addition of five (5) new locations

that were added after September 30, 2019, and 3) two (2) locations added at various times in the quarter ended September 30, 2019

that were open for the entire quarter ended September 30, 2020.

The addition of these 7 stores, discussed above, and a new warehouse

facility were the primary reasons for the increase in store operating costs.

Store operating costs as a percentage of sales were

9% for the three months ended September 30, 2020, compared to 12.6% for the three months ended September 30, 2019, a 28% reduction.

Store operating costs were positively impacted by 1) the opening of new and acquired stores throughout 2019 and 2020 which have

lower percentage of operating costs to revenues due to their larger size and higher volume, and 2) a 73% increase in same store

Corporate overhead, comprised of general

and administrative costs, share based compensation, depreciation and amortization and corporate salaries, was approximately $4.8

million for the three months ended June 30, 2020, compared to approximately $1.9 million for the three months ended June 30, 2019.

Corporate overhead was 11% of revenue for the three months ended June 30, 2020 and 9.8% for the three months ended June 30, 2019.

The increase in corporate overhead as a percentage of revenues for the quarter ended June 30, 2020 was primarily due to the increase

in all components of corporate overhead as noted below.

The increase in non-cash share based compensation from approximately $391,000

for the quarter ended June 30, 2019 to approximately $1.2 million for the quarter ended June 30, 2020, an increase of approximately

$796,000 was primarily the result of several new executive employment agreements which became effective January 1, 2020.

in the non-cash share-based compensation in 2020 over 2019 was approximately 1.8% of revenues.

The increase in salaries expense

from approximately $821,000 in the second quarter of 2019 to $2 million for the second quarter of 2020 was due primarily to the

increase in corporate staff to support expanding operations, including purchased store manager integrations, accounting and finance,

information systems, purchasing and commercial sales staff.

It should be noted that when we consummate a new acquisition, purchasing

and back office accounting functions are stripped from the new acquisitions and those functions are absorbed into our existing

centralized purchasing and accounting and finance departments, thus delivering cost savings.

Corporate salaries and related payroll

costs as a percentage of sales were 4.5% for the three months ended June 30, 2020 compared to 4.2% for the three months ended June

General and administrative expenses comprised mainly of advertising and promotions, travel & entertainment, professional

fees insurance, and bad debt expense was approximately $1.2 million for the three months ended June 30, 2020 and approximately

$549,000 for the three months ended June 30, 2019, with a majority of the increase related to advertising and promotion, professional

and legal fees, insurance and bad debt reserve expense of $180,000.

General and administrative costs as a percentage of revenue

were 2.6% for the three months ended June 30, 2020, and 2.8% for the three months ended June 30, 2019.

As noted earlier, corporate

overhead, which includes non-cash expenses consisting primarily of depreciation and share based compensation, was approximately

$1.6 million for the three months ended June 30, 2020, compared to approximately $542,000 for the three months ended June 30, 2019.

Net income for the three months ended June

30, 2020 was approximately $2.6 million, compared to net income of approximately $1.1 million for the three months ended June 30,

2019, a positive change of nearly $1.5 million.

The increase in net income for the quarter ended June 30, 2020 was primarily due

to the 123% increase in revenues while store operating costs increased only 46%.

Net income from store operations which was approximately

$7.6 million for the quarter ended June 30, 2020, compared to approximately $3.1 million for the quarter ended June 30, 2019, an

increase of 146%.

The increase in income from store operations were offset by increased corporate overhead which was approximately

$4.8 million for the quarter ended June 30, 2020, compared to approximately $1.9 million for the quarter ended June 30, 2019, an

increase of $2.9 million of which non-cash share based compensation and depreciation was approximately $1.1 million of that increase.

Increases in G&A and salaries in the quarter ended June 30, 2020 compared to the quarter ended June 30, 2019 accounted for

the remaining increase.

of the six months ended June 30, 2020 and 2019

overhead, comprised of general and administrative costs, share based compensation, depreciation and amortization and corporate

salaries, was approximately $4.5 million for the three months ended September 30, 2020, compared to approximately $2.6 million

for the three months ended September 30, 2019.

Corporate overhead was 8.2% of revenue for the three months ended September 30,

2020 and 12.1% for the three months ended September 30, 2019.

The decrease in corporate overhead as a percentage of revenues for

the quarter ended September 30, 2020 compared to the quarter ended September 30, 2019 was primarily due to the leverage we are

achieving through the increase in revenues not only from same store sales but through revenues from acquired and opened stores.

Share based compensation for the three months ended September 30, 2020 was $1 million compared to $553,000 for the three months

ended September 30, 2019.

The increase in the amount of share-based compensation is primarily due to new executive compensation

agreements effective January 1, 2020.

Share based compensation as a % of revenues decreased from 2.5% for the three months ended

September 30, 2019 to 1.9% for the three months ended September 30, 2020.

The increase in salaries expense from approximately

$1 million in the three months ended September 30, 2019 to $2.2 million for the three months ended September 30, 2020 was due

primarily to the increase in corporate staff to support expanding operations, including purchased store integrations, new store

openings, accounting and finance, information systems, purchasing and commercial sales staff.

It should be noted that when we

consummate a new acquisition, purchasing and back office accounting functions are stripped from the new acquisitions and those

functions are absorbed into our existing centralized purchasing and accounting and finance departments, thus delivering cost savings.

Corporate salaries and related payroll costs as a percentage of sales were 4% for the three months ended September 30, 2020 compared

to 4.7% for the three months ended September 30, 2019.

General and administrative expenses comprised mainly of advertising and

promotions, travel & entertainment, professional fees, insurance, and bad debt expense was approximately $858,000 for the

three months ended September 30, 2020 and approximately $804,000 for the three months ended September 30, 2019, with a majority

of the increase related to advertising and promotion, professional and legal fees and insurance.

General and administrative costs

as a percentage of revenue were 1.6% for the three months ended September 30, 2020, and 3.7% for the three months ended September

As noted earlier, corporate overhead, which includes non-cash expenses consisting primarily of depreciation and share

based compensation, was approximately $1.5 million for the three months ended September 30, 2020, compared to approximately $801,000

for the three months ended September 30, 2019.

Net income for the three months ended

September 30, 2020 was approximately $3.3 million, compared to net income of approximately $1 million for the three months

ended September 30, 2019, a positive change of approximately $2.3 million.

The increase in net income for the quarter ended

September 30, 2020 was primarily due to the 153% increase in revenues while store operating costs increased only 81%.

income from store operations which was approximately $9.6 million for the quarter ended September 30, 2020, compared to

approximately $3.8 million for the quarter ended September 30, 2019, an increase of $5.8 million or 155%.

The increase in

income from store operations were offset by increased corporate overhead, which was approximately $4.5 million for the

quarter ended September 30, 2020, compared to approximately $2.6 million for the quarter ended September 30, 2019, an

increase of $1.9 million.

In addition, the Company reported a provision for income taxes of approximately $1.8 million for

which there was no provision in the comparable period last year.

In prior years, the Company was able to offset taxable

income with net operating loss carryforwards.

Those carryforwards were fully utilized this year, as such we commenced

recorded a provision for income taxes.

Of the total corporate overhead of $4.5 million, non-cash share-based compensation and

depreciation was approximately $1.5 million.

Increases in G&A and salaries in the quarter ended September 30, 2020

compared to the quarter ended September 30, 2019 accounted for the remaining increase.

of the nine months ended September 30, 2020 and 2019

following table presents certain consolidated statement of operations information and presentation of that data as a dollar and

percentage change from year-to-year.

September 30,

$ 131,440,820

Cost of goods sold

6 unchanged sentences

Provision for income taxes

revenue for the six months ended June 30, 2020 was approximately $76 million, compared to approximately $33 million for the six

months ended June 30, 2019 an increase approximately $44 million or 135%.

The increase in revenues in 2020 was primarily due to

1) 6 new stores opened or acquired after June 30, 2019 which had revenues of $20 million for the six months ended June 30, 2020

for which there were no revenues for the six months ended June 30, 2019, 2) 7 stores opened or acquired in early 2019, that had

revenues of $19 million for the six months ended June 30, 2020 compared to revenues of $7.7 million for the six months ended June

30, 2019, 3) an increase in same store sales of 48% comparing revenues for the six months ended June 30, 2020 to the six months

ended June 30, 2019 and 4) an increase in e-commerce sales of $2.8 million or 163% comparing the six months ended June 30, 2020

to the six months ended June 30, 2019.

As noted in the chart below, the 14 same stores contributed revenue of $32.7 million for

the six months ended June 30, 2020 compared to revenues of $22.1 million for the six months ended June 30, 2019, a 48% increase.

The Company operated the same 14 stores

for the entire six months ended June 30, 2020 and 2019:

four (4) in Colorado, six (3) in California, three (3) in Michigan, one

(1) in Nevada, one (1) in Rhode Island, one (1) in Washington and one (1) in Oklahoma.

These same stores generated approximately

$32.7 million in revenues for the six months ended June 30, 2020, compared to approximately $22.1 million in revenues for the six

months ended June 30, 2019, an increase of 48%, primarily due to an increase in the number of commercial customers in those markets.

Same store sales increased in all of the markets, except for Washington, as noted below comparing June 30, 2020 to June 30, 2019.

revenue for the nine months ended September 30, 2020 was approximately $131 million, compared to approximately $54 million for

the nine months ended September 30, 2019 an increase approximately $77 million or 142%.

The increase in revenues in 2020 was primarily

due to 1) 5 new stores opened or acquired after September 30, 2019 which had revenues of $27 million for the nine months ended

September 30, 2020 for which there were no revenues for the nine months ended September 30, 2019, 2) 8 stores opened or acquired

in early 2019, that had revenues of $38.7 million for the nine months ended September 30, 2020 compared to revenues of $15.7 million

for the nine months ended September 30, 2019, 3) an acquired store June 2020 that was consolidated with an existing store, that

on a combined basis had revenues of $5.5 million for the nine months ended September 30, 2020 compared to $1.5 million for the

nine months ended September 30, 2019, 4) increase in same store sales of 59% comparing revenues for the nine months ended September

30, 2020 to the nine months ended September 30, 2019 and 5) an increase in e-commerce sales of $4.3 million or 140% comparing

the nine months ended September 30, 2020 to the nine months ended September 30, 2019.

As noted in the chart below, the 13 same

stores contributed revenue of $52.4 million for the nine months ended September 30, 2020 compared to revenues of $33 million for

the nine months ended September 30, 2019, a 59% increase.

Company operated the same 13 stores for the entire nine months ended September 30, 2020 and 2019:

four (4) in Colorado, six (3)

in California, two (2) in Michigan, one (1) in Nevada, one (1) in Rhode Island, one (1) in Washington and one (1) in Oklahoma.

These same stores generated approximately $52.4 million in revenues for the nine months ended September 30, 2020, compared to

approximately $33 million in revenues for the nine months ended September 30, 2019, an increase of 59%, primarily due to an increase

in the number of commercial customers in those markets.

Same store sales increased in all of the markets, except for Washington,

as noted below comparing September 30, 2020 to September 30, 2019.

Same Stores All Markets

Colorado market

California market

Washington market

Nevada market

Net revenue, all markets

September 30,

Company currently continues to focus on ten (10) markets and the new e-commerce site noted below and the growth opportunities

2 unchanged sentences

development of our online omni-channel and Amazon revenues.

Sales by Market

Six Months Ended

Closed/consolidated locations

Total revenues

Revenues in the Colorado market increased

approximately $1.5 million or 21% comparing the six months ended June 30, 2020 to June 30, 2019.

The increase in revenues in the

Colorado market is due to 1) the Company’s continued focus on increasing commercial revenues, and 2) the acquisition of a

new store in mid-January 2019.

Same store revenues in Colorado increased approximately $1.8 million.

September 30,

Closed/consolidated

$ 131,440,820

in the Colorado market increased approximately $3 million or 26.8% comparing the nine months ended September 30, 2020 to September

The increase in revenues in the Colorado market is due to 1) the Company’s continued focus on increasing commercial

revenues, and 2) the acquisition of a new store in mid-January 2019.

Same store revenues in Colorado increased approximately $3.7

million or 53%.

in the California market increased approximately $5 million, or 41%.

Same store revenues in the California market increased

approximately $1.4 million or 21% over the same six months in 2019 and the Palm Springs acquisition in mid-February 2019 had revenues

of approximately $2.4 million for 2020 compared to $1.3 million for 2019.

Same store revenues in the California market increased approximately

$3 million or 30% over the same nine months in 2019 and the Palm Springs acquisition in mid-February 2019 had revenues of approximately

$3.9 million for 2020 compared to $2.3 million for 2019.

in the Rhode Island market increased approximately $8.3 million or 144% primarily from its increased focus on commercial and multi-state

commercial customers.

Revenues in the Michigan market increased

approximately $9.4 million or 299% due to 1) an acquisition in September 2019 that contributed $5.9 million in revenue in the six

months ended June 30, 2020, 2) an acquisition in mid-June 2020 that contributed $227,000 in revenues in the six months ended June

30, 2020, and 3) the increase in same store revenues which increased $3.3 million or 105% primarily due to the increase in commercial

Revenues in the Nevada market increased

18% due to 1) the acquisition of our Reno store in February 2019 which had revenues of $1.2 million in the six months ended June

30, 2020 compared to revenues of 881,000 for the six months ended June 30, 2019, and 2) a 5% increase in same store revenues in

the Las Vegas store.

in the Washington market decreased by 2% comparing the six months ended June 30, 2020 to the six months ended June 30, 2019.

currently is our smallest market.

in the Michigan market increased approximately $15.6 million or 288% due to 1) an acquisition in September 2019 that contributed

$8.8 million in revenue in the nine months ended September 30, 2020 compared to $646,000 for the nine months ended September 30,

2019, 2) an acquisition in mid-June 2020 that consolidated with an existing store that combined had revenues of $5.5 million for

the nine months ended September 30, 2020 compared to $1.5 million for the nine months ended September 30, 2019, and 3) the increase

in same store revenues which increased $3.4 million or 103% primarily due to the increase in commercial accounts.

in the Nevada market increased $465,000 or 15.6% due to 1) the acquisition of our Reno store in February 2019 which had revenues

of $1.8 million in the nine months ended September 30, 2020 compared to revenues of $1.4 million for the nine months ended September

30, 2019, and 2) a 3% increase in same store revenues in the Las Vegas store.

in the Washington market increased by 8% comparing the nine months ended September 30, 2020 to the nine months ended September

Washington currently is our smallest market.

in Oregon were approximately $5.2 million and represents a new market from an acquisition in mid-December 2019.

we have 4 stores in the Oklahoma market.

Revenues in the Oklahoma market increased $13.5 million or 332% comparing the six months

ended June 30, 2020 to the six months ended June 30, 2019.

Same stores revenues increased 17% in Oklahoma City, the first store

opened in October 2018.

Revenues in Maine have increased $5.1 million

or 328% comparing the six months ended June 30, 2020 to the six months ended June 30, 2019.

The increase was primarily due to a

new store opened January 31, 2019 and two new stores acquired in May 2019.

The new store opened in early 2019 had revenues of $2.2

million in the six months ended June 30, 2020, compared to $560,000 for the six months ended June 30, 2019.

The two new stores

acquired in May 2019, contributed $4.5 million in revenues for the six months ended June 30, 2020, compared to $1 million for the

six months ended June 30, 2019.

Revenues in the Oklahoma market increased $23.2 million or 312% comparing the nine months

ended September 30, 2020 to the nine months ended September 30, 2019.

Same stores revenues increased 20% in Oklahoma City, the

first store opened in October 2018.

Revenue growth in 2020 was greatly enhanced by the addition of two new stores in Oklahoma

that opened in mid-November 2019 and March 2020, that combined had revenues of $15.9 million for the nine months ended September

30, 2020 and no revenues for the nine months ended September 30, 2019.

in Maine have increased $7.1 million or 178% comparing the nine months ended September 30, 2020 to the nine months ended September

The increase was primarily due to a new store opened January 31, 2019 and two new stores acquired in May 2019.

store opened in early 2019 had revenues of $4.1 million in the nine months ended September 30, 2020, compared to $1.1 million

for the nine months ended September 30, 2019.

The two new stores acquired in May 2019, contributed $7.1 million in revenues for

the nine months ended September 30, 2020, compared to $2.9 million for the nine months ended September 30, 2019.

was a new market resulting from an acquisition in February 2020.

Revenues in this market were $3 million for the six months ended

June 30, 2020.

Revenues in this market were $5.9 million for the nine months

ended September 30, 2020.

of Goods Sold

Cost of goods sold for the six months ended

June 30, 2020 was approximately $56 million compared to approximately $23 million for the six months ended June 30, 2019 an increase

of approximately $33 million or 142%.

The increase in cost of goods sold was primarily due to the 135% increase in revenues comparing

the six months ended June 30, 2020 to the six months ended June 30, 2019.

The increase in cost of goods sold is directly attributable

to the increase in the number of stores open during the six months ended June 30, 2020 compared to the six months ended June 30,

2019, as discussed in detail above.

Gross profit was approximately $20.5 million

for the six months ended June 30, 2020, compared to approximately $9.5 million for the six months ended June 30, 2019, an increase

of approximately $11 million or 116%.

The increase in cost of goods sold is primarily related to the 135% increase in revenues

comparing the six months ended June 30, 2020 to the six months ended June 30, 2019.

Gross profit as a percentage of revenues was

26.8% for the six months ended June 30, 2020, compared to 29.2% for the six months ended June 30, 2019.

The decrease in the gross

profit margin percentage is due to 1) a greater percentage of our sale for the six months ended June 30, 2020 in commercial and

e-commerce revenues with lower margins, and 2) in the first quarter of 1 2019 we acquired a significant amount of inventory from

a vendor at a substantial discount, sales of this product during the six months ended 2019 accounted for 4% of our overall revenue

and high margins, resulting in an 1.1 basis points increase in margin.

Commercial and e-commerce accounted for approximately 30%

of overall revenues for the six months ended June 30, 2020.

of goods sold for the nine months ended September 30, 2020 was approximately $96.3 million compared to approximately $38.3 million

for the nine months ended September 30, 2019 an increase of approximately $58 million or 151%.

The increase in cost of goods sold

was primarily due to the 142% increase in revenues comparing the nine months ended September 30, 2020 to the nine months ended

September 30, 2019.

The increase in cost of goods sold is directly attributable to the increase in the number of stores open during

the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, as discussed in detail above.

profit was approximately $35.1 million for the nine months ended September 30, 2020, compared to approximately $16 million for

the nine months ended September 30, 2019, an increase of approximately $19.1 million or 119%.

The increase in cost of goods sold

is primarily related to the 141.8% increase in revenues comparing the nine months ended September 30, 2020 to the nine months

ended September 30, 2019.

Gross profit as a percentage of revenues was 26.7% for the nine months ended September 30, 2020, compared

to 29.5% for the nine months ended September 30, 2019.

The decrease in the gross profit margin percentage is due to 1) a greater

percentage of our sale for the nine months ended September 30, 2020 in commercial and e-commerce revenues with lower margins compare

to the nine months ended September 30, 2019 (30.6% vs 25.7%, respectively), and 2) in the first quarter of 2019 we acquired a

significant amount of inventory from a vendor at a substantial discount, sales of this product during the nine months ended 2019

accounted for 4% of our overall revenue and high margins, resulting in an 1.1 basis points increase in margin.

Commercial and

e-commerce accounted for approximately 30.6% of overall revenues for the nine months ended September 30, 2020 compared to 25.7%

for the nine months ended September 30, 2019.

expenses are comprised of store operations, primarily payroll, rent and utilities, and corporate overhead.

Store operating costs

were approximately $19.8 million for the six months ended June 30, 2020 and approximately $8 million for the six months ended

June 30, 2019, an increase of approximately $11.9 million or 149%.

The increase in store operating costs was directly attributable

to 1) the addition of six (6) new locations that were added after June 30, 2019, and 2) six (6) locations added at various times

in the six months ended June 30, 2019 that were open for the entire six months ended June 30, 2020.

The addition of these 12 new

stores, discussed above, and the new warehouse facility were the primary reasons for the increase in store operating costs.

operating costs as a percentage of revenues were 9.8% for the six months ended June 30, 2020, compared to 14.2% for the six months

ended June 30, 2019, a 31% reduction.

Store operating costs were positively impacted by the opening of new and acquired stores

throughout 2019 and acquisitions in February and June of 2020 which have lower percentage of operating costs to revenues due to

their larger size and higher volume.

As noted above, same store revenues increased 48% comparing the six months ended June 30,

2020 to the six months ended June 30, 2019, which also contributed to lowering of the store operating costs as a percentage of

overhead, comprised of general and administrative costs, share based compensation, depreciation and amortization and corporate

salaries, was approximately $12.3 million for the six months ended June 30, 2020, compared to approximately $3.4 million for the

six months ended June 30, 2019.

Corporate overhead was 16.1% of revenue for the six months ended June 30, 2020 and 10.3% for the

six months ended June 30, 2019.

The increase in corporate overhead as a percentage of revenues for the six months ended June 30,

2020 was primarily due to the increase in non-cash share base compensation from approximately $522,000 for the six months ended

June 30, 2019 to approximately $5.3 million for the six months ended June 30, 2020, an increase of $4.8 million.

in non-cash share-based compensation was primarily the result of several new executive employment agreements which became effective

January 1, 2020 which resulted in the vesting of common stock and common stock options at the start of the quarter, as well as

options issued in 2018 and 2019 for options vesting in 2020.

The shares based awards associated with the new executive employment

agreements resulted in approximately one-third of the award being recognized as an expense in the first six months of 2020, due

to vesting, and the remaining two-thirds on the share-based awards are being recognized over a 24 month period commencing January

2020 and ending December 2021, based on shared based award vesting in future periods.

were approximately $12.5 million for the nine months ended September 30, 2020 and approximately $7.4 million for the nine months

ended September 30, 2019, an increase of approximately $5.2 million or 70%.

The increase in store operating costs was directly

attributable to 1) the addition of five (5) new locations that were added after September 30, 2019, and 2) eight (8) locations

added at various times during the nine months ended September 30, 2019 that were open for the entire nine months ended September

The addition of these 13 stores, as discussed above, and the new warehouse facility were the primary reasons for the

increase in store operating costs.

Store operating costs as a percentage of revenues were 9.5% for the nine months ended September

30, 2020, compared to 13.5% for the nine months ended September 30, 2019, a 30% reduction.

Store operating costs were positively

impacted by the opening of new and acquired stores throughout 2019 and acquisitions in 2020 which have lower percentage of operating

costs to revenues due to their larger size and higher volume.

As noted above, same store revenues increased 59% comparing the

nine months ended September 30, 2020 to the nine months ended September 30, 2019, which also contributed significantly to lowering

of the store operating costs as a percentage of revenues.

Corporate overhead, comprised of general

and administrative costs, share based compensation, depreciation and amortization and corporate salaries, was approximately $16.8

million for the nine months ended September 30, 2020, compared to approximately $6 million for the nine months ended September

Corporate overhead was 12.8% of revenue for the nine months ended September 30, 2020 and 11% for the nine months ended

September 30, 2019.

The increase in corporate overhead as a percentage of revenues for the nine months ended September 30, 2020

was primarily due to the increase in non-cash share base compensation from approximately $1.1 million for the nine months ended

September 30, 2019 to approximately $6.3 million for the nine months ended September 30, 2020, an increase of $5.2 million.

increase in non-cash share-based compensation was primarily the result of several new executive employment agreements which became

effective January 1, 2020 which resulted in the vesting of common stock and common stock options at the start of the first quarter,

as well as options issued in 2018 and 2019 for options vesting in 2020.

The shares based awards associated with the new executive

employment agreements resulted in approximately one-third of the award being recognized as an expense in the first three months

of 2020, due to vesting, and the remaining two-thirds on the share-based awards are being recognized over a 24 month period commencing

January 2020 and ending December 2021, based on shared based award vesting in future periods.

The vesting of these shares and options

was significantly higher in the first six months of 2020 than they will be in the periods subsequent to June 30, 2020.

in salaries expense from 2019 to 2020 was due primarily to the increase in corporate staff to support expanding operations, including

purchased store manager integrations, accounting and finance, information systems, purchasing and commercial revenues staff.

should be noted that when we consummate a new acquisition, purchasing and back office accounting functions are stripped from the

new acquisitions and those functions are absorbed into our existing centralized purchasing and accounting and finance departments,

thus delivering cost savings.

Corporate salaries and related payroll costs as a percentage of revenues were 4.9% for the six months

ended June 30, 2020 compared to 4.4% for the six months ended June 30, 2019.

General and administrative expenses comprised mainly

of advertising and promotions, travel & entertainment, professional fees and insurance, was approximately $2.4 million for

the six months ended June 30, 2020 and approximately $1.1 million for the six months ended June 30, 2019, with a majority of the

increase related to advertising and promotion, travel and entertainment and legal fees.

General and administrative costs as a

percentage of revenue were 3.2% for the six months ended June 30, 2020, and 3.5% for the six months ended June 30, 2019.

earlier, corporate overhead, which includes non-cash expenses consisting primarily of depreciation and share based compensation,

was approximately $6.2 million for the six months ended June 30, 2020, compared to approximately $813,000 for the six months ended

June 30, 2019, an increase of $5.3 million.

Net income for the six months ended June

30, 2020 was approximately $480,000, compared to net income of approximately $1.3 million for the six months ended June 30, 2019,

a change of approximately $(811,000).

Net income from store operations which was approximately $13 million for the six months ended

June 30, 2020, compared to approximately $4.9 million for the six months ended June 30, 2019.

The net income for the six months ended

June 30, 2020 was primarily due to the 1) a 135% increase in revenues, 2) a 166% in income from store operations, offset by 3)

an increase in share-based compensation from approximately $522,000 in 2019 to $5.3 million for the six months ended June 30, 2020,

and 4) income tax expense of $156,000.

The total of non-cash expense, share-based compensation and depreciation was $6.1 million

for the six months ended June 30, 2020 compared to $813,000 for the six months ended June 30, 2019.

Net cash provided by operating activities

for six months ended June 30, 2020 was approximately $6.1 million compared to net cash used by operating activities of approximately

$860,000 for six months ended June 30, 2019.

Cash used in operating activities is driven by our net income and adjusted by non-cash

items as well as changes in operating assets and liabilities.

Non-cash adjustments primarily include depreciation, amortization

of intangible assets, share based compensation expense and amortization of debt discount.

Non-cash adjustments totaled approximately

$6.3 million and approximately $1.1 million for the six months ended June 30, 2020 and 2019, respectively, so non-cash adjustments

had a far greater positive impact on net cash provided by operating activities for the six months ended June 30, 2020 than the

same period in 2019.

The net cash provided by operating activities, $6.1 million, for the six months ended June 30, 2020 compared

to the net cash used in operating activities, $(860,000) for six months ended June 30, 2019, a positive difference of $7 million,

was primarily related to1) the net income of approximately $636,000 for the six months ended June 30, 2020, 2) net increases in

inventory and prepaids of approximately $8.8 million offset by 3) positive non-cash adjustments of approximately $6.3 million and

4) increases in accounts payable, customer deposits and other current liabilities of approximately $7.5 million.

was significantly higher in the first nine months of 2020 than they will be in the periods subsequent to September 30, 2020.

increase in salaries expense from 2019 to 2020, which increased from $2.5 million for the nine months ended September 30, 2019

to $5.9 million for the nine months ended September 30, 2020 was due primarily to the increase in corporate staff to support expanding

store operations, including purchased store integrations, accounting and finance, information systems, purchasing and commercial

revenues staff.

It should be noted that when we consummate a new acquisition, purchasing and back office accounting functions are

stripped from the new acquisitions and those functions are absorbed into our existing centralized purchasing and accounting and

finance departments, thus delivering cost savings.

Corporate salaries and related payroll costs as a percentage of revenues were

4.5% for the nine months ended September 30, 2020 and the nine months ended September 30, 2019.

General and administrative expenses comprised

mainly of advertising and promotions, travel & entertainment, professional fees and insurance, was approximately $3.2 million

for the nine months ended September 30, 2020 and approximately $1.9 million for the nine months ended September 30, 2019, with

a majority of the increase related to advertising and marketing, insurance, consulting and legal fees.

General and administrative

costs as a percentage of revenue were 2.5% for the nine months ended September 30, 2020, and 3.5% for the nine months ended September

As noted earlier, corporate overhead, which includes non-cash expenses consisting primarily of depreciation and share

based compensation, was approximately $7.6 million for the nine months ended September 30, 2020, compared to approximately $1.6

million for the nine months ended September 30, 2019, an increase of $6 million, primarily due to share-based compensation as previously

Corporate overhead, excluding non-cash share-based compensation and depreciation, was $9.2 million for the nine months

ended September 30, 2020 or 7% of revenues, compared to $4.4 for the nine months ended September 30, 2019, or 8.1% of revenues.

Net income for the nine months ended September

30, 2020 was approximately $3.8 million, compared to net income of approximately $2.3 million for the nine months ended September

30, 2019, a positive change of approximately $1.5 million.

The net income for the nine months ended

September 30, 2020 was primarily due to the 1) a 141.8% increase in revenues, 2) a 161% increase in income from store operations

from $8.6 million for the nine months ended September 30, 2019 to $22.6 million for the nine months ended September 30, 2020, offset

by 3) a $5.2 million increase in share-based compensation from approximately $1.1 million in 2019 to $6.3 million for the nine

months ended September 30, 2020, and 4) income tax expense of $2 million for 2020 compared to $0 for 2019.

In prior years, the

Company was able to offset taxable income with net operating loss carryforwards.

Those carryforwards were fully utilized this year,

as such we commenced recorded a provision for income taxes.

The total of non-cash expense, share-based compensation and depreciation

was $7.6 million for the nine months ended September 30, 2020 compared to $1.6 million for the nine months ended September 30,

Net cash provided by operating

activities for nine months ended September 30, 2020 was approximately $3.7 million compared to net cash used by operating

activities of approximately $(2.3) million for nine months ended September 30, 2019.

Cash used in operating activities is

driven by our net income and adjusted by non-cash items as well as changes in operating assets and liabilities.

adjustments primarily include depreciation, amortization of intangible assets, share based compensation expense and

amortization of debt discount.

Non-cash adjustments totaled approximately $7.7 million and approximately $2 million for the

nine months ended September 30, 2020 and 2019, respectively, so non-cash adjustments had a far greater positive impact on net

cash provided by operating activities for the nine months ended September 30, 2020 than the same period in 2019.

provided by operating activities, $3.7 million, for the nine months ended September 30, 2020 compared to the net cash used in

operating activities, $(2.3) million for nine months ended September 30, 2019, a positive difference of $6 million, was

primarily related to 1) the net income of approximately $3.8 million for the nine months ended September 30, 2020, 2) net

increases in inventory and prepaids of approximately $(16.5) million, which had a negative impact, offset by 3) positive

non-cash adjustments of approximately $7.7 million and 4) increases in accounts payable, customer deposits, income taxes and

other current liabilities of approximately $9.6 million.

Net cash used in operating activities for

the six months ended June 30, 2019 was approximately $860,000.

This amount was primarily related to 1) net income of approximately

$1.3 million, 2) positive non-cash adjustments of approximately $1.1 million, 3) increase in accounts payable and other current

liabilities of approximately $1.5 million offset by 4) increases of inventory of approximately $3 million, accounts receivable

of approximately $558,000 and prepaids of approximately $1.1 million.

Net cash used in investing activities was

approximately $5 million for the six months ended June 30, 2020 and approximately $8.8 million for the six months ended June 30,

Investing activities in 2020 were primarily attributable to a store acquisition ($3 million) and vehicles, store equipment

purchases ($1.3 million) and intangible assets $(.7 million).

Investing activities in for the six months ended June 30, 2019 were

primarily related to store acquisitions for which we paid approximately $7.6 million and the purchase of vehicles and store equipment

to support new store operations of approximately $1.1 million.

the nine months ended September 30, 2019 was approximately $(2.3) million.

This amount was primarily related to 1) net income of

approximately $2.3 million, 2) positive non-cash adjustments of approximately $2 million, 3) increase in accounts payable and other

current liabilities of approximately $4.3 million offset by 4) increases of inventory of approximately $7.3 million, accounts receivable

of approximately $1.3 million and prepaids of approximately $2.2 million.

cash used in investing activities was approximately $6.9 million for the nine months ended September 30, 2020 and approximately

$10.2 million for the nine months ended September 30, 2019.

Investing activities in 2020 were primarily attributable to a store

acquisition ($4 million), vehicles and store equipment purchases ($2.1 million) and intangible assets $(.8 million).

activities in for the nine months ended September 30, 2019 were primarily related to store acquisitions approximately $(8.5) million,

the purchase of vehicles and store equipment to support new store operations of approximately $(1.5) million.

Net cash provided

by financing activities for the six months ended June 30, 2020 was approximately $745,000 and was primarily attributable to proceeds

from the exercise of warrants of approximately $792,000, offset by debt principal payments of approximately $47,000.

used in financing activities for six months ended June 30, 2019 was $12.9 million and was primarily from proceeds from the sale

of common stock and exercise of warrants of $13.1 million, offset by debt principal payments of approximately $229,000.

by financing activities for the nine months ended September 30, 2020 was approximately $45.6 and was primarily attributable to

proceeds from the sale of common stock in a public offering, $44.6 million, exercise of warrants of approximately $1.1 million,

offset by debt principal payments of approximately $74,000.

Net cash provided by financing activities for nine months ended September

30, 2019 was $13.8 million and was primarily from proceeds from the sale of common stock and exercise of warrants of $14.1 million,

offset by debt principal payments of approximately $340,000.

of Non-GAAP Financial Information

10 unchanged sentences

Three Months Ended

Depreciation and Amortization

Share based compensation (option compensation, warrant compensation, stock issued for services)

Bad debt reserve allowance

Amortization of debt discount

Adjusted EBITDA

Adjusted EBITDA per share, basic

Adjusted EBITDA per share, diluted

Six Months Ended

September 30,

Depreciation and Amortization

Share based compensation (option compensation, warrant compensation, stock issued for services)

Bad debt reserve allowance

Amortization of debt discount

2 unchanged sentences

Adjusted EBITDA per share, diluted

September 30, 2020

September 30, 2019

and Amortization

based compensation (option compensation, warrant compensation, stock issued for services)

of debt discount

EBITDA per share, basic

EBITDA per share, diluted

AND CAPITAL RESOURCES

As of June 30, 2020, we had working capital

of approximately $35.2 million, compared to working capital of approximately $30.6 million as of December 31, 2019, an increase

of approximately $4.6 million.

The increase in working capital from December 31, 2019 to June 30, 2020 was due primarily to 1)

proceeds from the exercise of warrants totaling approximately $792,000 during the six months ended June 30, 2020 and 2) the increase

in net cash provided by operations.

At June 30, 2020, we had cash and cash equivalents of approximately $14.8 million.

we have no demands, commitments or uncertainties that would reduce our current working capital.

Our core strategy continues to

focus on expanding our geographic reach across the United States through organic growth and acquisitions.

Based on our strategy

we may need to raise additional capital in the future through equity offerings and/or debt financings.

We believe that some

of our store acquisitions and new store openings can come from cash flow from operations.

We anticipate

that we may need additional financing in the future to continue to acquire and open new stores and related businesses.

we have financed our operations through the issuance and sale of common stock, convertible notes and warrants.

Financing Activities

of September 30, 2020, we had working capital of approximately $83 million, compared to working capital of approximately $30.6

million as of December 31, 2019, an increase of approximately $52.4 million.

The increase in working capital from December 31,

2019 to September 30, 2020 was due primarily to 1) proceeds from the a public offering of common stock resulting in net proceeds

of $44.6 million, 2) exercise of warrants totaling approximately $1.1 million during the nine months ended September 30, 2020

and 3) the increase in net cash provided by operations.

At September 30, 2020, we had cash and cash equivalents of approximately

$55.3 million.

Currently, we have no demands, commitments or uncertainties that would reduce our current working capital.

core strategy continues to focus on expanding our geographic reach across the United States through organic growth and acquisitions.

Based on our strategy we may need to raise additional capital in the future through equity offerings and/or debt financings.

believe that some of our store acquisitions and new store openings can come from cash flow from operations.

anticipate that we may need additional financing in the future to continue to acquire and open new stores and related businesses.

To date we have financed our operations through the issuance and sale of common stock, convertible notes and warrants.

Public Offering

On July 2, 2020 the Company consummated

an underwritten public offering of 8,625,000 shares of its common stock (the “Shares”), which included the exercise

in full of the underwriters’

option to purchase an additional 1,125,000 shares of common

stock to cover over-allotments.

The Shares were sold at a public offering price of $5.60 per share, generating gross proceeds

of $48.3 million, before deducting the underwriting discounts and commissions and other offering

Net proceeds from the sales of common stock, net of all offering costs and expenses was approximately $44.6 million.

July 2, 2020 the Company consummated an underwritten public offering of 8,625,000 shares of its common stock (the “Shares”),

which included the exercise in full of the underwriters’

option to purchase an additional

1,125,000 shares of common stock to cover over-allotments.

The Shares were sold at a public offering price of $5.60 per

share, generating gross proceeds of $48.3 million, before deducting the underwriting discounts

and commissions and other offering expenses .

Net proceeds from the sales of common stock, net of all offering costs and

expenses was approximately $44.6 million.

Private Placement

On June 26, 2019, the Company completed

a private placement of a total of 4,123,257 units of the Company’s securities at the price of $3.10 per unit pursuant to

Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D promulgated under the Securities Act.

Each unit consisted of

(i) one share of common stock and (ii) one 3-year warrant, each entitling the holder to purchase one half share of common stock,

at a price of $3.50 per share.

June 26, 2019, the Company completed a private placement of a total of 4,123,257 units of the Company’s securities at the

price of $3.10 per unit pursuant to Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D promulgated under the Securities

Each unit consisted of (i) one share of common stock and (ii) one 3-year warrant, each entitling the holder to purchase one

half share of common stock, at a price of $3.50 per share.

The Company raised a total of $12,782,099 from 19 accredited investors.

37 unchanged sentences

Receivable and Concentration of Credit Risk

Accounts receivable are recorded at the invoiced

amounts less an allowance for doubtful accounts and do not bear interest.

The allowance for doubtful accounts is based on our estimate

of the amount of probable credit losses in our accounts receivable.

We determine the allowance for doubtful accounts based upon

an aging of accounts receivable, historical experience and management judgment.

Accounts receivable balances are reviewed individually

for collectability, and balances are charged off against the allowance when we determine that the potential for recovery is remote.

An allowance for doubtful accounts of approximately $465,420 and $291,372 has been reserved as of June 30, 2020 and December 31,

2019, respectively.

receivable are recorded at the invoiced amounts less an allowance for doubtful accounts and do not bear interest.

The allowance

for doubtful accounts is based on our estimate of the amount of probable credit losses in our accounts receivable.

the allowance for doubtful accounts based upon an aging of accounts receivable, historical experience and management judgment.

Accounts receivable balances are reviewed individually for collectability, and balances are charged off against the allowance

when we determine that the potential for recovery is remote.

An allowance for doubtful accounts of approximately $364,262 and

$291,372 has been reserved as of September 30, 2020 and December 31, 2019, respectively.

are exposed to credit risk in the normal course of business, primarily related to accounts receivable.

3 unchanged sentences

of its customers and maintains an allowance for doubtful accounts.

As of June 30, 2020, and December 31, 2019, we do not believe

that we have significant credit risk.

As of September 30, 2020, and December 31, 2019, we do not

believe that we have significant credit risk.

Value of Financial Instruments

12 unchanged sentences

the amount and timing of estimated future cash flows.

No impairment was determined as of June 30, 2020 and December 31, 2019.

No impairment was determined as of September 30, 2020 and December 31, 2019.

on product revenues is recognized upon delivery or shipment.

16 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements