Item 1. Financial Statements
ITEM 1. FINANCIAL STATEMENTS
GROWGENERATION CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
September 30,
2021 December 31,
2020
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 63,035 $ 177,912
Marketable securities 29,961 —
Accounts receivable, net 6,953 3,901
Notes receivable, current 7,734 2,612
Inventory, net 113,281 54,024
Prepaid income taxes 2,546 655
Prepaids and other current assets 28,169 11,125
Total current assets 251,679 250,229
Property and equipment, net 16,755 6,475
Operating leases right-of-use assets, net 36,155 12,088
Notes receivables, net of current portion 550 1,200
Intangible assets, net 49,397 21,490
Goodwill 123,875 62,951
Other assets 777 301
TOTAL ASSETS $ 479,188 $ 354,734
LIABILITIES & STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 39,627 $ 14,623
Accrued liabilities 2,716 672
Payroll and payroll tax liabilities 6,705 2,655
Customer deposits 13,743 5,155
Sales tax payable 3,376 1,161
Income taxes payable — —
Current maturities of lease liability 6,205 3,001
Current portion of long-term debt 111 83
Total current liabilities 72,483 27,350
Deferred tax liability 2,351 750
Operating lease liability, net of current maturities 31,355 9,479
Long-term debt, net of current portion 92 158
Total liabilities 106,281 37,737
Stockholders’ Equity:
Common stock 60 57
Additional paid-in capital 358,602 319,582
Retained earnings (deficit) 14,245 ( 2,642 )
Total stockholders’ equity 372,907 316,997
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 479,188 $ 354,734
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
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GROWGENERATION CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(Unaudited)
For the Three Months Ended September 30, For the Nine Months Ended September 30,
2021 2020 2021 2020
Sales $ 116,003 $ 55,007 $ 331,910 $ 131,440
Cost of sales 81,940 40,436 236,757 96,338
Gross profit 34,063 14,571 95,153 35,102
Operating expenses:
Store operations 14,842 5,008 35,648 12,524
Selling, general, and administrative 11,007 4,017 28,975 15,513
Depreciation and amortization 3,539 443 8,510 1,270
Total operating expenses 29,388 9,468 73,133 29,307
Income from operations 4,675 5,103 22,020 5,795
Other income (expense):
Other expense 78 ( 14 ) 32 ( 75 )
Interest income 395 48 435 73
Interest expense ( 25 ) — ( 31 ) ( 20 )
Total non-operating income (expense), net 448 34 436 ( 22 )
Net income before taxes 5,123 5,137 22,456 5,773
Provision for income taxes ( 1,096 ) ( 1,799 ) ( 5,569 ) ( 1,955 )
Net income $ 4,027 $ 3,338 $ 16,887 $ 3,818
Net income per share, basic $ 0.07 $ 0.07 $ 0.29 $ 0.09
Net income per share, diluted $ 0.07 $ 0.06 $ 0.28 $ 0.09
Weighted average shares outstanding, basic 58,531 47,878 58,994 41,477
Weighted average shares outstanding, diluted 59,490 51,626 60,108 44,224
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
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GROWGENERATION CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
(in thousands)
(Unaudited)
Common Stock Additional
Paid-In Capital Retained
Earnings (Deficit) Total
Stockholders’ Equity
Shares Amount
Balances, December 31, 2020 57,151 $ 57 $ 319,582 $ ( 2,642 ) $ 316,997
Common stock issued upon warrant exercise 40 — 111 — 111
Common stock issued upon cashless warrant exercise 535 1 ( 1 ) — —
Common stock issued upon exercise of options 1 — 2 — 2
Common stock issued upon cashless exercise of options 5 — — — —
Common stock issued in connection with business combinations 548 — 29,249 — 29,249
Common stock issued for share based compensation 300 — — — —
Common stock redeemed in litigation settlement ( 90 ) — — — —
Common stock redemption ( 96 ) — ( 3,954 ) — ( 3,954 )
Share based compensation — — 1,187 — 1,187
Net income — — — 6,147 6,147
Balances, March 31, 2021 58,394 $ 58 $ 346,176 $ 3,505 $ 349,739
Common stock issued upon warrant exercise 216 — 224 — 224
Common stock issued upon cashless warrant exercise 119 — — — —
Common stock issued upon exercise of options 460 1 1,729 — 1,730
Common stock issued upon cashless exercise of options 272 — — — —
Common stock issued in connection with business combinations 101 1 3,938 — 3,939
Share based compensation — — 1,508 — 1,508
Net income — — — 6,713 6,713
Balances, June 30, 2021 59,562 $ 60 $ 353,575 $ 10,218 $ 363,853
Common stock issued upon cashless warrant exercise 5 — — — —
Common stock issued upon exercise of options 8 — 22 — 22
Common stock issued upon cashless exercise of options 47 — — — —
Common stock issued in connection with business combinations 87 — 3,063 — 3,063
Common stock issued for share based compensation 61 — 220 — 220
Share based compensation — — 1,722 — 1,722
Net income — — — 4,027 4,027
Balances, September 30, 2021 59,770 $ 60 $ 358,602 $ 14,245 $ 372,907
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Common Stock Additional
Paid-In Capital Retained
Earnings (Deficit) Total
Stockholders’ Equity
Shares Amount
Balances, December 31, 2019 36,876 $ 37 $ 60,742 $ ( 7,970 ) $ 52,809
Common stock issued upon warrant exercise 191 — 510 — 510
Common stock issued upon cashless warrant exercise 19 — — — —
Common stock issued upon cashless exercise of options 280 — — — —
Common stock issued in connection with business combinations 250 — 1,102 — 1,102
Common stock issued for assets 24 — 101 — 101
Common stock issued for services 50 — — — —
Common stock issued for share based compensation 519 1 1,760 — 1,761
Share based compensation — — 2,209 — 2,209
Net loss — — — ( 2,094 ) ( 2,094 )
Balances, March 31, 2020 38,209 $ 38 $ 66,424 $ ( 10,064 ) $ 56,398
Common stock issued upon warrant exercise 81 — 282 — 282
Common stock issued upon cashless warrant exercise 78 — — — —
Common stock issued upon cashless exercise of options 30 — — — —
Common stock issued in connection with business combinations 108 — 705 — 705
Common stock issued for assets 10 — 67 — 67
Common stock issued for services 325 — 717 — 717
Common stock issued for share based compensation 5 — 25 — 25
Share based compensation — — 1,162 — 1,162
Net income — — — 2,574 2,574
Balances, June 30, 2020 38,846 $ 38 $ 69,382 $ ( 7,490 ) $ 61,930
Sale of common stock, net of offering costs 8,625 9 44,611 — 44,620
Common stock issued upon warrant exercise 88 — 272 — 272
Common stock issued upon cashless warrant exercise 570 1 ( 1 ) — —
Common stock issued upon cashless exercise of options 164 — — — —
Common stock issued for share based compensation 120 — 44 — 44
Share based compensation — — 978 — 978
Net income — — — 3,338 3,338
Balances, September 30, 2020 48,413 $ 48 $ 115,286 $ ( 4,152 ) $ 111,182
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
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GROWGENERATION CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Nine Months Ended September 30,
2021 2020
Cash flows from operating activities:
Net income $ 16,887 $ 3,818
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 8,510 1,270
Stock-based compensation expense 5,347 6,324
Bad debt expense, net of recoveries 304 94
Gain on asset disposition — ( 28 )
Deferred taxes 1,601 —
Changes in operating assets and liabilities:
Accounts and notes receivable ( 7,828 ) ( 885 )
Inventory ( 46,030 ) ( 13,421 )
Prepaid expenses and other assets ( 18,960 ) ( 3,092 )
Accounts payable and accrued liabilities 26,338 6,265
Operating leases 1,013 220
Payroll and payroll tax liabilities 4,050 871
Income taxes payable — 1,928
Customer deposits 8,419 ( 34 )
Sales tax payable 2,215 368
Net cash provided by operating activities 1,866 3,698
Cash flows from investing activities:
Assets acquired in business combinations ( 71,813 ) ( 4,027 )
Purchase of marketable securities ( 75,000 ) —
Maturities from marketable securities 45,039 —
Purchase of property and equipment ( 10,756 ) ( 2,115 )
Purchase of intangibles ( 2,311 ) ( 797 )
Net cash used in investing activities ( 114,841 ) ( 6,939 )
Cash flows from financing activities:
Principal payments on long term debt ( 38 ) ( 75 )
Common stock redeemed ( 3,954 ) —
Proceeds from the sale of common stock and exercise of warrants, net of expenses 2,090 45,684
Net cash provided by (used in) financing activities ( 1,902 ) 45,609
Net change ( 114,877 ) 42,368
Cash and cash equivalents at the beginning of period 177,912 12,979
Cash and cash equivalents at the end of period $ 63,035 $ 55,347
Supplemental disclosures of non-cash activities:
Cash paid for interest $ 31 $ 20
Common stock issued for accrued payroll $ — $ 718
Common stock issued for business combination $ 36,250 $ 1,808
Assets acquired by issuance of common stock $ — $ 168
Right to use assets acquired under new operating leases $ 26,115 $ 2,173
Cash paid for income taxes $ 4,275 $ —
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
GrowGeneration Corp. and Subsidiaries
Notes To Unaudited Condensed Consolidated Financial Statements
September 30, 2021
1. GENERAL
GrowGeneration Corp. (the “Company”, “we”, or “our”) is the largest chain of hydroponic garden centers in North America and is a leading marketer and distributor of nutrients, growing media, advanced indoor and greenhouse lighting,
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ventilation systems and accessories for hydroponic gardening. Currently, the Company owns and operates a chain of sixty-one ( 61 ) retail hydroponic/gardening stores across 12 states, an online e-commerce platform, and proprietary businesses that market grow solutions through our platforms and other wholesale customers. The Company’s plan is to continue to acquire, open and operate hydroponic/gardening stores and related businesses throughout the United States.
Basis of Presentation
The accompanying interim unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. These statements should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended December 31, 2020. The results of operations for our interim periods are not necessarily indicative of results for the full fiscal year.
All amounts included in the accompanying footnotes to the consolidated financial statements, except per share data, are in thousands (000).
Risk and Uncertainties
The COVID-19 pandemic has created significant public health concerns as well as economic disruption, uncertainty, and volatility which may negatively affect our business operations. As a result, if the pandemic or its effects persist or worsen, our accounting estimates and assumptions could be impacted in subsequent interim reports and upon final determination at year-end, and it is reasonably possible such changes could be significant (although the potential effects cannot be estimated at this time). The Company has experienced minimal business interruption as a result of the COVID-19 pandemic. We have been deemed an “essential” business by state and local authorities in the areas in which we operate and as such have not been subject to business closures. The COVID-19 pandemic to date has resulted in temporary supply chain delays of our inventory and increased shipping cost among other impacts. As events surrounding the COVID-19 pandemic can change rapidly we cannot predict how it may disrupt our operations or the full extent of the disruption.
New Accounting Policies Adopted During the Nine Months Ended September 30, 2021
Securities
The Company classifies its commercial paper and debt securities as marketable securities. Marketable securities with available fair market values are stated at fair market values. Unrealized gains and unrealized losses on these marketable securities are reported, net of applicable income taxes, in other comprehensive income. Realized gains or losses on sale of marketable securities are computed using primarily the moving average cost and reported in net income. For the nine months ended September 30, 2021, there were no significant unrealized gains or losses recorded.
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GrowGeneration Corporation and Subsidiaries
Notes To Unaudited Condensed Consolidated Financial Statements
September 30, 2021
2. FAIR VALUE MEASUREMENTS
Fair Value Measurements
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:
• Level 1—Quoted prices in active markets for identical assets or liabilities.
• Level 2—Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.
• Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.
To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
The carrying amounts of cash and cash equivalents, accounts receivable, available for sales securities, accounts payable and all other current liabilities approximate fair values due to their short-term nature. The fair value of notes receivable approximates the outstanding balance and are reviewed for impairment at least annually. The fair value of impaired notes receivable is determined based on estimated future payments discounted back to present value using the notes effective interest rate.
Level September 30,
2021 December 31,
2020
Cash equivalents 2 $ 63,035 $ 177,912
Marketable securities 2 $ 29,961 $ —
Notes receivable impaired 3 $ — $ 875
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GrowGeneration Corporation and Subsidiaries
Notes To Unaudited Condensed Consolidated Financial Statements
September 30, 2021
3. RECENT ACCOUNTING PRONOUNCEMENTS
New Accounting Pronouncements
From time to time, the Financial Accounting Standards Board (“FASB”) or other standard setting bodies issue new accounting pronouncements. Updates to the FASB Accounting Standards Codification ("ASC") are communicated through issuance of an Accounting Standards Update (“ASU”). We have implemented all new accounting pronouncements that are in effect and that may impact our financial statements. We have evaluated recently issued accounting pronouncements and determined that there is no material impact on our financial position or results of operations.
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.
Refer to Note 3 to the Consolidated Financial Statements reported in Form 10-K for the year ended December 31, 2020 for recently issued accounting pronouncements that are pending adoption.
Recently Adopted Accounting Pronouncements
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 Statements.
In December 2019, the FASB issued ASU 2019-12, 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 was effective for annual reporting periods beginning after December 15, 2020, including interim reporting periods within those periods. There was no material impact on our consolidated financial statements and related disclosures as a result of adopting this standard.
4. REVENUE RECOGNITION
The following table disaggregates revenue by source:
Three Months Ended
September 30, 2021 Three Months Ended
September 30, 2020 Nine Months Ended September 30, 2021 Nine Months Ended September 30, 2020
Sales at company owned stores $ 100,799 $ 51,684 $ 290,937 $ 123,991
Distribution 4,696 — 12,519 —
E-commerce sales 10,508 3,323 28,454 7,449
Total Revenues $ 116,003 $ 55,007 $ 331,910 $ 131,440
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GrowGeneration Corporation and Subsidiaries
Notes To Unaudited Condensed Consolidated Financial Statements
September 30, 2021
4. REVENUE RECOGNITION, continued
The opening and closing balances of the Company’s customer trade receivables and customer deposit liability are as follows:
Receivables Customer Deposit Liability
Opening balance, January 1, 2021 $ 7,713 $ 5,155
Closing balance, September 30, 2021
15,237 13,743
Increase (decrease) $ 7,524 $ 8,588
Opening balance, January 1, 2020 $ 4,455 $ 2,504
Closing balance, September 30, 2020
5,247 2,470
Increase (decrease) $ 792 $ ( 34 )
Of the total amount of customer deposit liability as of January 1, 2021, $ 3,708 was reported as revenue during the nine months ended September 30, 2021. Of the total amount of customer deposit liability as of January 1, 2020, $ 1,599 was reported as revenue during the nine months ended September 30, 2020.
The Company also has customer trade receivables under longer term financing arrangements at interest rates ranging from 9 % to 12 % with repayment terms ranging for 12 to 18 months. Long term trade receivables as of September 30, 2021 and December 31, 2020 are as follows:
September 30,
2021 December 31,
2020
Note receivable $ 8,402 $ 4,104
Allowance for losses ( 118 ) ( 292 )
Notes receivable, net $ 8,284 3,812
The following table summarizes changes in notes receivable balances that have been deemed impaired.
September 30,
2021 December 31,
2020
Note receivable $ 118 $ 1,166
Allowance for losses ( 118 ) ( 291 )
Notes receivable, net $ — 875
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GrowGeneration Corporation and Subsidiaries
Notes To Unaudited Condensed Consolidated Financial Statements
September 30, 2021
5. INVESTMENTS
Marketable securities have maturities of less than one year as of September 30, 2021. There were no significant realized or unrealized gains or losses for the nine months ended September 30, 2021.
The components of investments, available for sales securities, as of September 30, 2021 were as follows:
Fair Value Level Adjusted Cost Basis Unrealized Gain (Loss) Recorded
Basis
Commercial paper Level 2 $ 9,998 $ — $ 9,998
Corporate notes and bonds Level 2 19,963 — 19,963
Marketable securities $ 29,961 $ — $ 29,961
6. NOTES RECEIVABLE
Notes receivable include customer trade receivables under long term financing arrangements and other note receivables not associated with customer transactions.
September 30,
2021 December 31,
2020
Trade receivables under longer term financing arrangements $ 8,284 $ 3,812
Note receivable, non-customer related — —
Subtotal 8,284 3,812
Less, current portion ( 7,734 ) ( 2,612 )
Notes receivable, noncurrent $ 550 1,200
7. PROPERTY AND EQUIPMENT
September 30,
2021 December 31,
2020
Vehicles $ 2,455 $ 1,342
Building 1,187 477
Leasehold improvements 5,485 1,988
Furniture, fixtures and equipment 9,106 5,739
Construction-in-progress 3,966 —
Total property and equipment, gross 22,199 9,546
Accumulated depreciation and amortization ( 5,444 ) ( 3,071 )
Property and equipment, net $ 16,755 $ 6,475
Depreciation expense for the three and nine months ended September 30, 2021 was $ 932 thousand and $ 2.4 million, respectively. Depreciation expense for the three and nine months ended September 30, 2020 was $ 400 thousand and $ 1.1 million, respectively.
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GrowGeneration Corporation and Subsidiaries
Notes To Unaudited Condensed Consolidated Financial Statements
September 30, 2021
8. GOODWILL AND INTANGIBLE ASSETS
The changes in goodwill are as follows:
September 30, 2021 December 31,
2020
Balance, beginning of period $ 62,951 $ 17,799
Goodwill additions and measurement period adjustments 60,924 45,152
Balance, end of period $ 123,875 $ 62,951
Intangible assets consist of the following:
September 30, 2021 December 31, 2020
Gross
Carrying
Amount Accumulated
Amortization Gross
Carrying
Amount Accumulated
Amortization
Tradenames $ 27,144 $ ( 3,584 ) $ 13,923 $ ( 398 )
Patents, trademarks 100 ( 38 ) 100 ( 9 )
Customer relationships 22,057 ( 2,130 ) 6,297 ( 138 )
Non-competes 1,146 ( 175 ) 796 ( 22 )
Intellectual property 2,065 ( 241 ) — —
Capitalized software 3,811 ( 758 ) 1,163 ( 222 )
$ 56,323 $ ( 6,926 ) $ 22,279 $ ( 789 )
Amortization expense for the three months ended September 30, 2021 and 2020 was $ 2.6 million and $ 44.1 thousand, respectively.
Amortization expense for the nine months ended September 30, 2021 and 2020 was $ 6.1 million and $ 0.2 million, respectively.
Future amortization expense is as follows:
2021, remainder $ 2,718
2022 11,002
2023 10,707
2024 10,356
2025 9,459
Thereafter 5,155
Total $ 49,397
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GrowGeneration Corporation and Subsidiaries
Notes To Unaudited Condensed Consolidated Financial Statements
September 30, 2021
9. LONG-TERM DEBT
September 30,
2021 December 31,
2020
Long term debt is as follows:
Wells Fargo Equipment Finance, interest at 3.5 % per annum, payable in monthly installments of $ 518.96 beginning April 2016 through March 2021, secured by warehouse equipment with a book value of $ 25
$ — $ 1
Notes payable issued in connection with seller financing of assets acquired, interest at 8.125 %, payable in 60 installments of $ 8,440.00 , due August 2023
203 240
$ 203 $ 241
Less Current Maturities ( 111 ) ( 83 )
Total Long-Term Debt $ 92 $ 158
Interest expense for the three months ended September 30, 2021 and 2020 was $ 25 thousand and $ 0 , respectively.
Interest expense for the nine months ended September 30, 2021 and 2020 was $ 31 thousand and $ 20 thousand, respectively.
10. LEASES
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. Our leases generally have remaining terms of 1 - 7 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 non-cancelable period of the lease or the lease term inclusive of reasonably certain renewal periods.
September 30,
2021 December 31,
2020
Right to use assets, operating lease assets $ 36,155 $ 12,088
Current lease liability $ 6,205 $ 3,001
Non-current lease liability 31,355 9,479
$ 37,560 $ 12,480
September 30,
2021 September 30,
2020
Weighted average remaining lease term 6.89 years 2.98 years
Weighted average discount rate 6.5 % 7.6 %
Nine Months Ended
September 30,
2021 2020
Operating lease costs $ 5,687 $ 2,660
Short-term lease costs 192 22
Total operating lease costs $ 5,879 $ 2,682
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GrowGeneration Corporation and Subsidiaries
Notes To Unaudited Condensed Consolidated Financial Statements
September 30, 2021
10. LEASES, continued
The following table presents the maturity of the Company’s operating lease liabilities as of September 30, 2021:
2021 (remainder of the year) $ 2,248
2022 8,116
2023 7,548
2024 6,320
2025 5,330
Thereafter 17,128
Total lease payments 46,690
Less: Imputed interest ( 9,130 )
Lease Liability at September 30, 2021
$ 37,560
11. SHARE BASED PAYMENTS
The Company maintains long-term incentive plans for employee, non-employee members of our Board of Directors and consultants. The plans allows us to grant equity-based compensation awards, including stock options, stock appreciation rights, performance share units, restricted stock units, restricted stock awards, or a combination of awards (collectively, share-based awards).
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. The Company also issues share based payments in the form of common stock warrants to non-employees.
The following table presents share-based payment expense for the nine months ended September 30, 2021 and 2020.
Nine months ended September 30,
2021 2020
Restricted stock $ 3,511 $ 3,966
Stock options 721 2,358
Warrants 1,115 —
Total $ 5,347 $ 6,324
As of September 30, 2021, the Company had approximately $ 9.7 million of unamortized share-based compensation for option awards and restricted stock awards, which is expected to be recognized over a weighted average period of approximately 3.1 years. As of September 30, 2021, the Company also had approximately $ 2.9 million of unamortized share-based compensation for common stock warrants issued to consultants, which is expected to be recognized over a weighted average period of 2.3 years.
Restricted Stock
The Company issues shares of restricted stock to eligible employees, which are subject to forfeiture until the end of an applicable vesting period. The awards generally vest on the second or third anniversary of the date of grant, subject to the employee’s continuing employment as of that date.
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GrowGeneration Corporation and Subsidiaries
Notes To Unaudited Condensed Consolidated Financial Statements
September 30, 2021
11. SHARE BASED PAYMENTS AND STOCK OPTIONS, continued
Restricted stock activity for the nine months ended September 30, 2021 is presented in the following table:
Shares Weighted Average Grant Date Fair Value
Nonvested, December 31, 2020
630 $ 4.15
Granted 250 $ 40.56
Vested ( 355 ) $ 4.48
Forfeited ( 9 ) $ 18.54
Nonvested, September 30, 2021
516 $ 19.92
The table below summarizes all option activity under all plans during the nine months ended September 30, 2021:
Options Shares Weight -
Average
Exercise
Price Weighted -
Average
Remaining
Contractual
Term Weighted -
Average
Grant Date
Fair Value
Outstanding at December 31, 2020
1,803 $ 3.92 3.47 $ 2.38
Granted — — — —
Exercised ( 821 ) 3.20 — 1.71
Forfeited or expired ( 51 ) 4.12 — 2.26
Outstanding at September 30, 2021
931 $ 4.55 3.12 $ 2.62
Options vested at September 30, 2021
595 $ 4.27 3.01 $ 2.51
A summary of the status of the Company’s outstanding stock purchase warrants for the nine months ended September 30, 2021 is as follows:
Warrants Weighted Average
Exercise Price
Outstanding at December 31, 2020
1,393 $ 7.49
Issued — —
Exercised ( 968 ) $ 2.84
Forfeited — —
Outstanding at September 30, 2021
425 $ 17.25
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GrowGeneration Corporation and Subsidiaries
Notes To Unaudited Condensed Consolidated Financial Statements
September 30, 2021
12. EARNINGS PER SHARE
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 and nine months ended September 30, 2021 and 2020.
Three Months Ended
September 30,
2021 September 30,
2020
Net income $ 4,027 $ 3,338
Weighted average shares outstanding, basic 58,531 47,878
Effect of dilution 959 3,748
Adjusted weighted average shares outstanding, dilutive 59,490 51,626
Basic earnings per share $ 0.07 $ 0.07
Dilutive earnings per share $ 0.07 $ 0.06
Nine Months Ended
September 30,
2021 September 30,
2020
Net income $ 16,887 $ 3,818
Weighted average shares outstanding, basic 58,994 41,477
Effect of dilution 1,114 2,747
Adjusted weighted average shares outstanding, dilutive 60,108 44,224
Basic earnings per share $ 0.29 $ 0.09
Dilutive earnings per share $ 0.28 $ 0.09
13. ACQUISITIONS
Our acquisition strategy is primarily to acquire (i) 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; and (ii) proprietary brands and private label brands. 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 made adjustments to the preliminary valuations of the acquisition based on valuation analysis prepared by independent third-party valuation consultants. During the nine months ended September 30, 2021 our measurement period adjustments included reducing intangible assets by $ 1.0 million and increasing goodwill by the same amount. As a result of these measurement period adjustments, we made an insignificant reduction in amortization expense which is included in the income statement. All acquisition costs are expensed as incurred and recorded in general and administrative expenses in the consolidated statements of operations.
Acquisitions during the nine months ended September 30, 2021
On January 25, 2021, the Company purchased the assets of Indoor Garden & Lighting, Inc, a two-store chain of hydroponic and equipment and indoor gardening supply stores serving the Seattle and Tacoma, Washington area. The total consideration for the purchase of Garden & Lighting was approximately $ 1.7 million, including $ 1.2 million in cash and common stock valued at approximately $ 0.5 million. Acquired goodwill of approximately $ 0.7 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company.
On February 1, 2021, the Company purchased the assets of J.A.R.B., Inc d/b/a Grow Depot Maine, a two-store chain in Auburn and Augusta, Maine. The total consideration for the purchase of Grow Depot Maine was approximately $ 2.1 million, including $ 1.7 million in cash and common stock valued at approximately $ 0.4 million. Acquired goodwill of approximately $ 0.9 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company.
15
GrowGeneration Corporation and Subsidiaries
Notes To Unaudited Condensed Consolidated Financial Statements
September 30, 2021
13. ACQUISITIONS, continued
On February 15, 2021, the Company purchased the assets of Grow Warehouse LLC, a four-store chain of hydroponic and organic garden stores in Colorado (3) and Oklahoma (1). The total consideration for the purchase of Grow Warehouse LLC was approximately $ 17.8 million, including $ 8.1 million in cash and common stock valued at approximately $ 9.7 million. Acquired goodwill of approximately $ 11.1 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company.
On February 22, 2021, the Company purchased the assets of San Diego Hydroponics & Organics, a four-store chain of hydroponic and organic garden stores in San Diego, California. The total consideration for the purchase of San Diego Hydroponics was approximately $ 9.3 million, including $ 4.8 million in cash and common stock valued at approximately $ 4.5 million. Acquired goodwill of approximately $ 5.7 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company.
On March 12, 2021, the Company purchased the assets of Charcoir Corporation, which sells an RHP-certified growing medium made from the highest-grade coconut fiber. The total consideration for the purchase of Charcoir was approximately $ 16.4 million, including $ 9.9 million in cash and common stock valued at approximately $ 6.5 million. Acquired goodwill of approximately $ 6.1 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established distribution market for the Company of a proprietary brand.
On March 15, 2021, the Company purchased the assets of 55 Hydroponics, a hydroponic and organic superstore located in Santa Ana, California. The total consideration for the purchase of 55 Hydroponics was approximately $ 6.5 million, including $ 5.4 million in cash and common stock valued at approximately $ 1.1 million. Acquired goodwill of approximately $ 3.9 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company.
On March 15, 2021, the Company purchased the assets of Aquarius, a hydroponic and organic garden store in Springfield, Massachusetts. The total consideration for the purchase of Aquarius was approximately $ 3.6 million, including $ 2.4 million in cash and common stock valued at approximately $ 1.2 million. Acquired goodwill of approximately $ 1.7 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company.
On March 19, 2021, the Company purchased the assets of Agron, LLC, an online seller of growing equipment. The total consideration for the purchase of Agron was approximately $ 11.3 million, including $ 6 million in cash and common stock valued at approximately $ 5.3 million. Acquired goodwill of approximately $ 8.7 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established e-commerce market for the Company targeting the commercial customer.
On April 19, 2021, the Company purchased the assets of Grow Depot LLC ("Down River Hydro"), a hydroponic and indoor gardening supply store in Brownstown, Michigan. The total consideration for the purchase of Down River Hydro was approximately $ 4.4 million, including approximately $ 3.2 million in cash and common stock valued at approximately $ 1.2 million. Acquired goodwill of approximately $ 2.1 million represents the value expected to rise from organic growth and an opportunity to expand into a well established market for the Company.
On May 24, 2021, the Company purchased the assets of The Harvest Company ("Harvest"), a northern California-based hydroponic supply center and cultivation design innovator with stores in Redding and Trinity Counties. The total consideration for the purchase of Harvest was approximately $ 8.3 million, including approximately $ 5.6 million in cash and common stock valued at approximately $ 2.8 million. Acquired goodwill of approximately $ 4.6 million represents the value expected to rise from organic growth and an opportunity to expand into a well established market for the Company.
On July 19, 2021, the Company purchased the assets of Aqua Serene, Inc., ("Aqua Serene") an Oregon corporation which consists of an indoor/outdoor garden center with stores in Eugene and Ashland, Oregon. The total consideration for the purchase was $ 11.7 million, including approximately $ 9.9 million in cash and common stock valued at approximately $ 1.8 million. Acquired goodwill represents the value expected to rise from organic growth and an opportunity to expand into a well established market for the Company.
16
GrowGeneration Corporation and Subsidiaries
Notes To Unaudited Condensed Consolidated Financial Statements
September 30, 2021
13. ACQUISITIONS, continued
On July 3, 2021, the Company purchased the assets of Mendocino Greenhouse & Garden Supply, Inc, a Northern California-based hydroponic garden center located in Mendocino, California. The purchase agreement was modified on July 19, 2021 to amend the purchase price. The total consideration for the purchase was $ 4.0 million in cash. This acquisition allows the Company to expand its footprint in the Northern California.
On August 24, 2021, the Company purchased the assets of Commercial Grow Supply, Inc. ("CGS"), a hydroponic superstore located in Santa Clarita, California. The total consideration for the purchase was $ 7.2 million, including approximately $ 6.0 million in cash and common stock valued at approximately $ 1.3 million. Acquired goodwill represents the value expected to rise from organic growth and an opportunity to expand into a well established market for the Company.
On August 23, 2021 the Company purchased the assets of Hoagtech Hydroponics, Inc. ("Hoagtech"), a Washington -based corporation consisting of a hydroponic and garden supply center serving the Bellingham, Washington area. The total consideration for the purchase was $ 3.9 million in cash. The Asset Purchase Agreement contains a contingent payment equal to $ 0.6 million to be settled in GrowGen common stock if this garden supply center reaches $ 8.0 million in revenue within a 12-month calendar period from the date of close. The Company used a third-party specialist to value this contingent consideration. The probability that the target will be reached was determined to be 5 % which resulted in a value of approximately $ 29 thousand of contingent consideration which was offset against goodwill. This acquisition expands our footprint in the Pacific Northwest. Acquired goodwill represents the value expected to rise from organic growth and an opportunity to expand into a well established market for the Company.
The table below represents the allocation of the purchase price to the acquired net assets during the nine months ended September 30, 2021.
Agron Aquarius Aqua Serene 55 Hydro Charcoir San Diego Hydro Mendocino Hoagtech
Inventory $ — $ 957 $ 1,696 $ 780 $ 839 $ 1,400 753 751
Prepaids and other current assets 29 12 2 29 534 36 1 37
Furniture and equipment 46 63 500 50 — 315 160 144
Liabilities — — — — — — — —
Operating lease right to use asset 98 108 1,177 861 — 1,079 408 1,569
Operating lease liability ( 98 ) ( 108 ) ( 1,177 ) ( 861 ) — ( 1,079 ) ( 408 ) ( 1,569 )
Customer relationships 832 339 1,235 809 5,712 605 575 493
Trade name 1,530 485 1,231 870 1,099 1,192 449 428
Non-compete 139 — 11 26 — 6 6 3
Intellectual property — — — — 2,065 — — —
Goodwill 8,673 1,702 6,976 3,915 6,119 5,728 2,056 2,076
Total $ 11,249 $ 3,558 $ 11,651 $ 6,479 $ 16,368 $ 9,282 $ 4,000 $ 3,932
CGS Grow Warehouse Grow Depot Maine Indoor Garden Down River Hydro Harvest Total
Inventory 875 $ 2,450 $ 326 $ 372 $ 824 $ 1,204 $ 13,227
Prepaids and other current assets 1 30 3 — 3 7 724
Furniture and equipment 100 250 25 94 50 100 1,897
Liabilities — ( 169 ) — — — — ( 169 )
Operating lease right to use asset 746 641 92 137 273 3,782 10,971
Operating lease liability ( 746 ) ( 641 ) ( 92 ) ( 137 ) ( 273 ) ( 3,782 ) ( 10,971 )
Customer relationships 1,382 1,256 549 210 634 1,016 15,647
Trade name 852 2,748 344 353 698 1,392 13,671
Non-compete 11 94 36 2 16 — 350
Intellectual property — — — — — — 2,065
Goodwill 4,027 11,120 866 661 2,126 4,606 60,651
Total $ 7,248 $ 17,779 $ 2,149 $ 1,692 $ 4,351 $ 8,325 $ 108,063
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GrowGeneration Corporation and Subsidiaries
Notes To Unaudited Condensed Consolidated Financial Statements
September 30, 2021
The table below represents the consideration paid for the net assets acquired in business combinations.
Agron Aquarius Aqua Serene 55 Hydro Charcoir San Diego Hydro Mendocino Hoagtech
Cash $ 5,973 $ 2,331 $ 9,860 $ 5,347 $ 9,902 $ 4,751 $ 4,000 $ 3,932
Common stock 5,276 1,227 1,791 1,132 6,466 4,531 — —
Total $ 11,249 $ 3,558 $ 11,651 $ 6,479 $ 16,368 $ 9,282 $ 4,000 $ 3,932
CGS Grow Warehouse Grow
Depot Maine Indoor Garden Down River Hydro Harvest Total
Cash 5,976 $ 8,100 $ 1,738 $ 1,165 $ 3,177 $ 5,561 $ 71,813
Common stock 1,272 9,679 411 527 1,174 2,764 36,250
Total $ 7,248 $ 17,779 $ 2,149 $ 1,692 $ 4,351 $ 8,325 $ 108,063
The following table discloses the date of the acquisitions noted above and the revenue and earnings included in the consolidated income statement for the period ended September 30, 2021.
Agron Aquarius Aqua Serene 55 Hydro Charcoir San Diego Hydro Mendocino Hoagtech
Acquisition date
3/19/2021 3/15/2021 7/19/21 3/15/2021 3/12/2021 2/22/2021 7/19/21 8/23/21
Revenue $ 10,587 $ 5,555 $ 1,590 $ 4,482 $ 4,048 $ 5,525 $ 1,085 $ 483
Net Income $ 149 $ 1,145 $ 331 $ 393 $ 723 $ 839 $ 158 $ 36
CGS Grow Warehouse Grow Depot Maine Indoor Garden Down River Hydro Harvest Total
Acquisition date
8/24/21 2/15/2021 2/1/2021 1/25/2021 4/19/2021 5/24/21
Revenue $ 447 $ 10,153 $ 4,660 $ 4,508 $ 2,460 $ 4,444 $ 60,027
Net Income $ ( 1 ) $ 1,812 $ 907 $ 520 $ 277 $ 756 $ 8,045
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GrowGeneration Corporation and Subsidiaries
Notes To Unaudited Condensed Consolidated Financial Statements
September 30, 2021
13. ACQUISITIONS, continued
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 and nine months ended September 30, 2021 and 2020.
Three Months Ended Nine Months Ended
September 30, 2021
(Unaudited) September 30, 2021
(Unaudited)
Revenue $ 146,030 $ 361,937
Net income $ 5,299 $ 23,276
Three Months Ended Nine Months Ended
September 30, 2020
(Unaudited) September 30, 2020
(Unaudited)
Revenue $ 121,809 $ 222,193
Net income $ 6,412 $ 15,681
Acquisitions during the nine months ended September 30, 2020
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 $ 1.1 million represented 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.
On June 16, 2020, we acquired certain assets of H2O Hydroponics, LLC in a transaction valued at approximately $ 2.0 million. Acquired goodwill of approximately $ 1.0 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.
On August 10, 2020, we acquired certain assets of Benzakry Family Corp, d/b/a Emerald City Garden, in a transaction valued at $ 1.0 million. Acquired goodwill of approximately $ 0.6 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.
The table below represents the allocation of the purchase price to the acquired net assets during the nine months ended September 30, 2020.
Emerald City Garden H2O Hydroponics LLC Health & Harvest LLC Total
Inventory $ 150 $ 498 $ 1,054 $ 1,702
Prepaids and other current assets — 4 — 4
Furniture and equipment 10 50 51 111
Right to use asset 140 906 324 1,370
Lease liability ( 140 ) ( 906 ) ( 324 ) ( 1,370 )
Customer relationships 212 150 255 617
Trade name — 234 357 591
Non-compete 14 43 6 63
Goodwill 614 1,008 1,130 2,752
Total $ 1,000 $ 1,987 $ 2,853 $ 5,840
19
GrowGeneration Corporation and Subsidiaries
Notes To Unaudited Condensed Consolidated Financial Statements
September 30, 2021
The table below represents the consideration paid for the net assets acquired in business combinations.
Emerald City Garden H2O Hydroponics LLC Health & Harvest LLC Total
Cash $ 1,000 $ 1,282 $ 1,750 $ 4,032
Common stock — 705 1,103 1,808
Total $ 1,000 $ 1,987 $ 2,853 $ 5,840
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 nine months ended September 30, 2020.
Emerald City Gardens H2O Hydroponics LLC Health & Harvest LLC Total
Acquisition date 8/10/20 6/26/20 2/26/2020
Revenue $ 472 $ 2,769 $ 5,887 $ 9,128
Earnings $ 74 $ 504 $ 831 $ 1,409
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 nine months ended September 30, 2019.
Pro forma consolidated income statement:
Three Months Ended Nine Months Ended
September 30, 2019
(Unaudited) September 30, 2019
(Unaudited)
Revenue $ 24,651 $ 61,176
Earnings $ 1,220 $ 2,603
14. RELATED PARTIES
The Company has engaged with a firm that employs an immediate family member of an officer of the Company as partner. The firm provides certain legal services. Amounts paid for to that firm in total were approximately $ 32.0 thousand and $ 457.8 thousand for the three and nine months ended September 30, 2021, respectively. As of September 30, 2021, there was no outstanding balance due.
15. SUBSEQUENT EVENTS
The Company has evaluated events and transaction occurring subsequent to September 30, 2021 up to the date of this filing of these consolidated financial statements. These statements contain all necessary adjustments and disclosures resulting from that evaluation.
For all acquisitions subsequent to the end of the quarter, the Company’s initial accounting for the business combination has not been completed because the valuations have not yet been received from the Company’s independent valuation firm.
On October 12, 2021, the Company purchased the assets of All Seasons Gardening, an indoor-outdoor garden supply center specializing in hydroponics systems, lighting, and nutrients. All Seasons Gardening is the largest hydroponics retailer in New Mexico. The total consideration for the purchase was $ 1.0 million, including approximately $ 0.7 million in cash and common stock valued at approximately $ 0.3 million.
20
GrowGeneration Corporation and Subsidiaries
Notes To Unaudited Condensed Consolidated Financial Statements
September 30, 2021
On October 12, 2021, the Company terminated a series of asset purchase agreements (the “Asset Purchase Agreements”) entered into on July 27, 2021 through its wholly-owned subsidiary, GrowGeneration Michigan Corp., to purchase the assets from subsidiaries of HGS Hydro (“HGS Hydro”). The termination of the Asset Purchase Agreement was mutually agreed to by both parties. In connection with the termination, the Company reimbursed HGS Hydro of a transaction fee of $ 300,000 .
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