What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2022-03-10 compared with 2021-03-29 · 25 added, 699 removed, 7 unchanged (99% of the section changed)

MARKET FOR REGISTRANT’S

COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

MARKET INFORMATION

The Company commenced trading on the Nasdaq

Capital Market on December 2, 2019 under the symbol “GRWG”.

Prior to that date, our stock traded on the OTCQX Best

Market since October 10, 2017, prior to which it was traded on the OTCQB Market since November 11, 2016.

The following table sets forth, for each

quarter for the years ended December 31, 2020 and 2019, the reported high and low bid prices of our Common Stock.

Quarter Ended

December 31, 2020

September 30, 2020

June 30, 2020

March 31, 2020

December 31, 2019

September 30, 2019

June 30, 2019

March 31, 2019

Future sales of substantial amounts of

our shares in the public market could adversely affect market prices prevailing from time to time and could impair our ability

to raise capital through the sale of our equity securities.

The approximate number of stockholders

of record as of March 24, 2021 was 114.

The number of stockholders of record does not include beneficial owners of our

Common Stock, whose shares are held in the names of various dealers, clearing agencies, banks, brokers and other fiduciaries.

The Company commenced trading on the Nasdaq Capital Market on December 2, 2019 under the symbol “GRWG”.

Prior to that date, our stock traded on the OTCQX Best Market since October 10, 2017, prior to which it was traded on the OTCQB Market since November 11, 2016.

COMPARISON OF 5 YEAR CUMULATIVE RETURN

The following graph compares the yearly change in the cumulative total stockholder return of our common stock for the past five fiscal years with the cumulative return of the Russell 2000 Index, the S&P 500 Index, and the S&P Retail Select Industry Index.

The approximate number of stockholders of record as of February 18, 2022 was 136.

The number of stockholders of record does not include beneficial owners of our common stock whose shares are held in the names of various dealers, clearing agencies, banks, brokers and other fiduciaries.

DIVIDEND POLICY

We have never paid any cash dividends on

our Common Stock.

We anticipate that we will retain funds and future earnings to support operations and to finance the growth and

development of our business.

We have never paid any cash dividends on our common stock.

We anticipate that we will retain funds and future earnings to support operations and to finance the growth and development of our business.

Therefore, we do not expect to pay cash dividends in the foreseeable future.

Any future determination

to pay dividends will be at the discretion of our board of directors and will depend on our financial condition, results of operations,

capital requirements and other factors that our board of directors deems relevant.

In addition, the terms of any future debt or

credit financings may preclude us from paying dividends.

Any future determination to pay dividends will be at the discretion of our board of directors and will depend on our financial condition, results of operations, capital requirements and other factors that our board of directors deems relevant.

In addition, the terms of any future debt or credit financings may preclude us from paying dividends.

RECENT SALES OF UNREGISTERED SECURITIES

2019 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.

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.

The Company raised a total of $12,782,099 from 19 accredited investors.

2018 Private Placement

On January 17, 2018, the Company completed

a private placement of a total of 36 units of its securities at the price of $250,000 per unit.

Each unit consists 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 Common Stock, at a price of $.01 per share or through cashless exercise.

The Company raised gross proceeds of

$9,000,000 from 23 accredited investors in the offering.

On May 9, 2018, the Company completed a

private placement of a total of 33.33 units of its securities at a price of $300,000 per unit to 3 accredited investors.

consists of (i) 100,000 share of the Company’s Common Stock and (ii) 50,000 3-year warrant to purchase one share of Common

Stock at an exercise price of $.35 per share.

The Company raised an aggregate of $10,000,000 gross proceeds in the offering.

Stock Options and Stock Awards

The Company has a 2014 Equity Compensation

Plan (the “2014 Plan”) and an Amended and Restated 2018 Equity Compensation Plan (the “2018 Plan”).

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.

From inception to December 31, 2020, we

have granted stock options under our 2014 Plan to purchase an aggregate of 2,113,833 shares at exercise prices ranging from $0.60

to $5.11 per share.

Of the total options granted as of December 31, 2020, 2,058,833 have been exercised and 5,000 have been forfeited,

resulting in 50,000 options outstanding.

In addition, as of December 31, 2020, 375,000 stock awards have been issued under our

From inception to December 31, 2020, we

have granted stock options under our 2018 Plan to purchase an aggregate of 1,963,000 shares at exercise prices ranging from $2.25

to $17.39 per share.

As of December 31, 2020, 438,895 options have been exercised and 37,667 forfeited under the 2018 Plan.

addition, as of December 31, 2020, 1,112,979 stock awards have been issued under our 2018 Plan.

SELECTED FINANCIAL DATA

Not applicable.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATION

The following discussion and analysis

of our financial condition and results of operations should be read together with our financial statements and the related notes

and the other financial information included elsewhere in this report.

This discussion contains forward-looking statements that

involve risks and uncertainties.

Our actual results could differ materially from those anticipated in these forward-looking statements

as a result of various factors, including those discussed below and elsewhere in this report, particularly those under “Risk

Factors.”

Dollars in tabular format are presented in thousands, except per share data, or otherwise indicated.

GrowGeneration Corp.

(together with all

of its wholly owned subsidiaries, collectively “GrowGeneration”

or the “Company”) was incorporated in Colorado

in 2014 and 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, environmental control systems and accessories for hydroponic gardening.

GrowGeneration also owns and operates e-commerce platforms,www.growgeneration.com and www.agron.io, Canopy Crop Management Corp,

CharCoir Inc, and several proprietary private-label brands across multiple product categories from LED lighting to nutrients and

additives and environmental control systems for indoor cultivation.

2020 Store Footprint

Currently, the Company owns and operates a chain of fifty two

(52) retail hydroponic/gardening stores, with eighteen (18) in the state of California, six (6) in the state of Michigan, eight

(8) located in the state of Colorado, five (5) in the State of Oklahoma, five (5) in Maine, two (2) in the state of Nevada, two

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

one (1) in the state of Arizona, one (1) in the state of Massachusetts, an online e-commerce store, GrowGeneration.com and a B2B e-commerce platform, agron.io We recently announced the signing of two leases in downtown Los Angeles and Rancho Dominguez,

CA, which are our 53 rd and 54 th locations.

Our plan is to continue to acquire, open and operate hydroponic/gardening

stores and related businesses throughout North America.

Revenue in 2020 was up 142.5% year over year, to $193.4 million.

EBITDA, for 2020 was approximately $19.2 million an increase of approximately $13.9 million over 2019, a 265% increase.

significant revenue increases in all key markets, Maine was up 144%, Oklahoma was up 255%, Michigan was up 243%, and Rhode Island

Same store revenues include 13 stores that generated $72.3 million in revenues for the year ended December 31, 2020,

compared to $44.3 million in revenues for 2019, an increase of 63%.

Store Acquisitions and New Store Openings

Core to our growth strategy is to expand the number of our retail

garden centers throughout North America.

The hydroponic retail landscape is fragmented, which allows us to acquire the “best

of breed”

hydroponic operations.

In addition to the 12 states we are currently operating, we have identified new market opportunities

in states that include Ohio, Illinois, Pennsylvania, New York, New Jersey, Mississippi and Missouri.

In 2020, we opened a second

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

(8) acquisitions, adding 14 locations in 2020.

To-date, the Company has acquired 14 new locations in the first quarter of 2021

and has an active target pipeline of acquisitions for the remainder of the year.

Commercial Sales Division

Our commercial division is focused on selling

end-to-end solutions for large commercial cultivators.

When a commercial customer gains a new cultivation license, they will need

to purchase lighting, benching, environmental control systems, irrigation, fertigation and other products to outfit their cultivation

Commercial customers typically purchase larger amounts and sizes of products.

We offer commercial customers volume pricing,

terms and financing.

Our commercial team manages thousands of commercial accounts across North America.

Our commercial division

collectively contributed approximately $49 million in revenue for 2020 compared to approximately $17 million for 2019, a 189% year

over year increase.

We have identified over 15,000 active licensed growers in North America and believe there is significant room

for us to expand our base of commercial customers.

E-Commerce/Omni Channel Division

Our digital strategy is focused on capturing

the home, craft and commercial growers online.

GrowGeneration.com offers over 10,000 hydroponic products all curated by our product

GrowGeneration.com offer customers the option to have their orders shipped directly to their locations, anywhere in North

America or alternatively customers can buy online and pick up in store.

Revenues for 2020 was approximately $10.6 million compared

to $4.8 million for 2019, an increase of 123%.

New visitors to our website were 1.2 million versus 477,000, an increase of 152%

year over year.

Our online garden center closed 17,000 transaction versus 6,300, an increase of 170%.

On March 19, 2021, the Company

purchased the business-to-business ERP platform, Agron.io.

a leading wholesale agriculture portal that allows commercial growers

to manage their purchasing and logistics in one platform.

Agron.io offers commercial pricing, real-time inventory, and the largest product catalog in the industry, with over 10,000 products

in over 60 categories, including greenhouses, extraction, hemp, and commercial equipment.

The platform manages real-time product

updates, tier-pricing changes, case quantities, pallet quantities, profit margin projections, hazmat fees, ETL/UL listings and

state chemical regulations, as well as guarantees the latest shipping rates using API Pallet.

Our supply chain currently spans approximately 800,000 sq.

of retail and warehouse space, across 52 locations and 12 states.

Today, we operate distribution and fulfillment out of our 60,000

ft location in Sacramento, CA and 40,000 sq.

in Tulsa, OK.

We announced on March 9, 2021, the addition of a total of 122,000

ft., including 52,000 sq.

in downtown Los Angeles, CA and 70,000 sq.

in Rancho Dominguez, CA that will serve as distribution

and fulfillment locations for the Company.

We are in the process of building several additional locations that will serve as fulfillment

service centers, that includes a 25,000 sq.

location in Phoenix, AZ.

and a 58,000 sq.

location in Medley, FL.

these locations to be opened by the summer of 2021.

Brands and Private Label

GrowGeneration purchased Canopy Crop Management

Corp., in December 2020, the developer of the popular Power Si line of monosilicic acids products, a nutrient additive for plants

On March 12, 2021, the Company purchased Char Coir, a line of premium coco pots, cubes and medium.

Both Power Si and Char Coir

are brands that generate over $10,000,000 in annual sales.

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 private-

label business, including Ion Lighting, Sunleaves, powder nutrient and additive line, Optilume Bulbs, Blueprint controllers and

timers, Growxcess pots and containers, Harvest Edge, pruners, trellis and other gardening accessories, and Durabreeze fans and

dehumidifiers.

Both GrowGeneration and Where the Pros Go to Grow are the trademarks used brand and market our garden centers across

North America.

2020 Financial Results

Revenue in 2020 was up 142.5% year over year, to $193.4 million.

Adjusted EBITDA, for 2020 was approximately $19.2 million an increase of approximately $13.9 million or 265% over 2019.

EBITDA per basic share, for 2020 was $0.44 compared to $0.16 for 2019.

Our same store sales were up approximately 63% year over

Store income as a percentage of revenue increased from 14.9% of revenues in 2019 to 16.7 % of revenues in 2020.

store operations increased $20.4 million, from $11.9 million in 2019 to $32.3 million in 2020.

We saw significant revenue increases

in all key markets, Maine up 144%, Oklahoma up 255%, Michigan up 243%, and Rhode Island up 150%.

Our e-commerce store, GrowGeneration.com

had revenues of approximately $10.6 million in 2020 up 123% from 2019.

Our commercial division generated approximately $49 million

in revenue all of which is reflected in store revenues versus $17 million in 2019, an increase of 188%.

With our significant top

line revenue growth, we reduced our store operating expenses to 9.7% of revenues in 2020 compared to 12.7% in 2019 and our corporate

overhead, excluding non-cash share-based compensation and depreciation, declined to 7% as a percentage of our revenue for 2020

compared to 8.5% of revenues for 2019.

The Company purchased a total of 14 stores

in 2020 and 12 stores in 2021, as of March 19, 2021.

The Company also completed the acquisitions of two leading product companies,

Canopy Crop Management in December 2020 and Char Coir in March 2021.

On February 26, 2020, the Company entered

into an asset purchase agreement through its wholly owned subsidiary, GrowGeneration Florida Corp, to purchase the assets of Healthy

& Harvest, LLC, with one location in Pembroke Pines, FL.

In connection with the purchase of the assets, the Company also entered

a three-year commercial lease for warehouse space, effective February 26, 2020 and subleased the store space whose current lease

expires July 31, 2020.

On June 16, 2020 we acquired certain assets

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

Acquired intangibles and 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.

On 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 intangibles and 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.

On October 20, 2020 the Company acquired

the assets of Big Green Tomato (“BGT”), a two-store chain in Battle Creek and Taylor,

The total consideration for the purchase of BGT was approximately $9.1 million, including $6.0

in cash and common stock valued at approximately $3.1 million.

On October 12, 2020, the Company acquired

the assets of Hydroponics Depot, LLC, a single store located in Phoenix Arizona.

consideration for the purchase of Hydroponics Depots LLC was approximately $1.54 million, including $987,500 in cash and common stock valued

at approximately $548,000.

On November 17, 2020, the Company acquired the assets of The

GrowBiz, a five-store chain with four stores in California and one store in Oregon.

The total consideration for the purchase of

The GrowBiz was approximately $44.7 million, including $17.4 million in cash and common stock valued at approximately $27.3 million.

On December 14, 2020, the Company acquired

the assets of Grassroots, a three-store chain in California.

The total consideration for the purchase of Grassroots was approximately

$10 million, including $7.5 million in cash and common stock valued at approximately $2.5 million.

On December 23, 2020, the Company acquired

the assets of Canopy Crop Management and its complete portfolio of products including the Power SI brand of mono-silicic acid-enriched

The total consideration for the purchase of Canopy Crop was approximately $9.2 million, including $5.4 million in

cash and common stock valued at approximately $3.8 million.

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 $1.63 million, including $1.1 million in cash and common stock valued at approximately

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,

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 $411,000.

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.

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, CA.

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.

On March 12, 2021 the Company purchased

the assets of Charcoir Corporation, who sells an RHP-certified growing medium made from the

highest-grade coconut fiber.

The total consideration for the purchase of Charcoir was approximately $16.3 million, including

$9.8 million in cash and common stock valued at approximately $6.5 million.

On March 15, 2021 the Company purchased

the assets of 55 Hydroponics, a hydroponic and organic superstore located in Santa Ana, CA.

The total consideration for the purchase of 55 Hydroponics was approximately $6.1 million, including $5 million in cash and common

stock valued at approximately $1.1 million.

On March 15, 2021 the Company purchased

the assets of Aquarius, a hydroponic and organic garden store in Springfield, MA.

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.

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.

CONDENSED RESULTS OF OPERATIONS

For the Year Ended

Year to Year Comparison

$ 193,365,479

$ 113,631,911

Cost of Sales

Operating expenses

Income from operations

Other income (expense)

Pre-tax net income

Net revenues for the year ended December

31, 2020 were approximately $193.4 million, compared to approximately $79.7 million for the year ended December 31, 2019, an increase

of approximately $113.6 million, or 142.5%.

The increase in revenues is due to 1) the addition of 14 new retail stores opened or

acquired during 2020 for which revenues were $31 million, 2) 11 stores opened or acquired at various times during 2019 that were

open for all of 2020 which had an increase in revenues of $51 million, 3) same store sales which increase 63% comparing 2020 to

2019, which had an increase in revenues of approximately $28 million, 4) an increase in our ecommerce sales of $5.9 million from

2019 to 2020 and 5) revenues of $300,000 from Canopy Crop Management Corp/Power SI, acquired in later December 2020.

While the Company continues to focus on

the 11 geographic markets noted below and the growth opportunities that exist in each market, we also are focusing on new store

acquisitions, proprietary products, private label products, and developing our online revenues with GrowGeneration.com and Amazon

Revenue by Market

Colorado market

California market

Rhode Island market

Michigan market

Nevada market

Washington market

Oklahoma market

Florida market

Oregon market

Arizona market

E-commerce site

Closed/consolidated locations

Total revenues

$ 193,365,479

$ 113,631,911

Overall revenues in the Colorado market

increased approximately $4.2 million or 27%, as noted above, comparing the year ended December 31, 2020 to the year ended December

The increase in revenues was due to our continued focus on selling efforts in building growth in this market primarily

the commercial market.

Our revenues in the California market have

seen growth of approximately $11.4 million or 74% and the increase was primarily from 1) the addition of 8 new stores through acquisitions

during 2020 that contributed $5 million in revenues, 2) 3 stores that comprise same store sales that had an increase in revenues

of $4.4 million and 3) 1 store acquired in 2019 that had an increase in revenues of $2 million.

The California market is the largest

market in the US and is a continuous focus of the Company relative to its growth strategy.

Revenues in the Rhode Island market increased

approximately $12.6 million or 150%.

The primary reason for the increase in revenues in the Rhode Island market was primarily due

to an increase in commercial sales with new regional and multi-state commercial customers.

Revenues in the Michigan market increased

approximately $22.6 million or 244%.

The increase was primarily from 1) increase in same store sales of $4.6 million, 2) two new

stores acquired in 2020, that had revenues of $1.9 million, 3) one acquisition in the third quarter of 2019 that resulted in an

increase in revenues of $9.7 million and 4) an acquisition of a new store in Lansing in 2020 that was consolidated with an existing

store in Lansing that had an increase in revenues of $6.4 million.

Revenues in the Maine market increased

approximately $8.9 million or 144%.

Maine was a new market in 2019 as a result of a new store opening in February 2019 and the

acquisition of two stores in May 2019.

2020 represented a full year of revenues for the three stores.

Our revenues in the Nevada market increased

by approximately $590,000 or 13.5%, with the increase pretty evenly split between or Las Vegas and Reno stores.

Revenues in the Washington market increased

$262,000 or 21%, as the Company continues to focus on adding commercial customers in this market.

The Company opened its first store in Oklahoma

in October 2018, followed by new store openings in February 2019, November 2019 and March 2021.

Oklahoma has been a significant

new market for the Company contributing sales of $41.8 million in 2020 compared to $11.8 million for 2019, an increase for $30

million or 255%.

The Company has a very strong presence in this market and has generated strong sales in both commercial and non-commercial

Florida was a new market for us in 2020

as a result of an acquisition in that market in February 2020.

Revenues were approximately $9 million for 2020.

The market serves

a large number of commercial customers.

Revenues in the Oregon market were $8.2

million in 2020 compared to $154,000 in 2019.

Oregon was a new market with an acquisition in late December 2019, and an additional

acquisition in November 2020.

Arizona was also a new market for the Company

in 2020, with an acquisition in October 2020.

Revenues were $2.4 million, and we service both commercial and retail customers from

this location.

The ecommerce revenues generated for GrowGeneration.com

had an increase in revenue in 2020 of approximately $5.9 million or 123% from $4.8 million in 2019 to $10.6 million in 2020.

ecommerce growth is a result of marketing driving a significant number of new customers to the website.

Same Store Sales

The Company had the same 13 stores (4 in

Colorado, 3 in California, 2 in Michigan, 1 in Washington, 1 in Oklahoma, 1 in Rhode Island and 1 in Nevada) opened for the entire

year ended December 31, 2020 and 2019.

These same stores generated $72.3 million in revenues for the year ended December 31, 2020,

compared to $44.3 million in revenues for 2019, an increase of 63%.

The increase in revenues in these 13 same store sales was primarily

an increase in commercial sales and from an increase in walk in traffic.

13 Same Stores

Cost of Sales

Cost of sales for the year ended December

31, 2020 increased approximately $84.6 million or 146.5%, to approximately $142.3 million, compared to $57.7 million for the year

ended December 31, 2019.

The increase in cost of goods sold was directly attributable to the 142.5% increase in revenues, as detailed

above, comparing the year ended December 31, 2020 to 2019.

Gross profit was $51 million for the year

ended December 31, 2020, as compared to $22 million for the year ended December 31, 2019, an increase of approximately $29 million

Gross profit as a percentage of sales was 26.4% for the year ended December 31, 2020, compared to 27.6% for the year ended

December 31, 2019.

The decrease in the gross profit margin percentage in 2020 was due to a greater percentage of commercial and

ecommerce revenues as a percent of total revenue both of which have lower margins than in retail sales.

Commercial and ecommerce

represented 31% of all revenues for the year ended December 31, 2020 compared to 28% for the year ended December 31, 2019.

Operating Expenses

Operating expenses are comprised of store

operations, primarily payroll, rent and utilities, and corporate overhead.

Store operating costs were approximately $18.7 million

for the year ended December 31, 2020 and approximately $10.1 million for the year ended December 31, 2019, an increase of approximately

$8.6 million or 85%.

The increase in store operating costs was directly attributable to 1) the addition of 14 new retail stores

opened or acquired during 2020 and 2) 11 stores opened or acquired at various times during 2019 that were open for all of 2020.

The addition of these stores, as discussed above, were the primary reasons for the increase in store operating costs.

Store operating

costs as a percentage of revenues were 9.7% for the year ended December 31, 2020, compared to 12.7% for the year ended December

31, 2019, a 24% reduction.

Store operating costs were positively impacted by 1) the opening of new and acquired stores throughout

2020 which have lower percentage of operating costs to revenues due to their larger size and higher volume and 2) same store revenues

increased 63% comparing the year ended December 31, 2020 to the year ended December 31, 2019, which also contributed significantly

to lowering of the store operating costs as a percentage of revenues since the majority of store operating costs are fixed.

Corporate overhead, comprised of general

and administrative costs, share based compensation, depreciation and amortization and corporate salaries, was approximately $23.9

million for the year ended December 31, 2020, compared to approximately $10.3 million for the year ended December 31, 2019.

overhead was 12.4% of revenue for the year ended December 31, 2020 and 13% for the year ended December 31, 2019.

Corporate overhead,

excluding non-cash share-based compensation and depreciation and amortization, was 7.0% of revenues compared to 8.5% of revenues

for 2019 shows that non-cash expenses was a larger component of overhead cost in 2020 compared to 2019.

Non-cash costs included

in corporate overhead was 5.3% of revenues for 2020 compared to 4.4% of revenues for 2019.

The increase in non-cash expenses in

corporate overhead as a percentage of revenues for the year ended December 31, 2020 was primarily due to 1) the increase in non-cash

share-based compensation from approximately $2.5 million for the year ended December 31, 2019 to approximately $7.9 million for

the year ended December 31, 2020, an increase of $5.4 million and 2) the increase in depreciation and amortization from approximately

$1 million for the year ended December 31, 2019 to approximately $2.4 million for the year ended December 31, 2020.

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 share-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 2020 than they will be in the periods subsequent to 2020.

The increase in depreciation and amortization

is due to the significant increase in both depreciable assets and acquired intangible assets being amortized over their useful

Salaries as a percentage of revenues were 4.4% for 2020 and 4.5% for 2019.

The increase in salaries expense from 2019 to

2020, which increased $5.0 million, from $3.6 million for the year ended December 31, 2019 to $8.6 million for the year ended December

31, 2020 was due primarily to the increase in corporate staff to support expanding store operations, including management, purchased

store integrations, accounting and finance, information systems, purchasing and commercial revenues support staff.

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 centralized accounting and finance departments, thus

delivering cost savings.

General and administrative expenses comprised

mainly of marketing, travel & entertainment, professional fees and insurance, was approximately $5 million for the year ended

December 31, 2020 and approximately $3.2 million for the year ended December 31, 2019, with a majority of the increase related

to marketing, insurance (both property and casualty and director and officers liability insurance), professional and legal fees.

The increase in professional and legal fees was due to the increase in acquisitions in 2020 and consulting fees for SOX 404 compliance.

General and administrative costs as a percentage of revenue were 2.6% for the year ended December 31, 2020, and 4% for the year

ended December 31, 2019.

Net income for the year ended

December 31, 2020 was approximately $5.3 million, compared to net income of approximately $1.3 million for the year ended

December 31, 2019, an increase of $4 million.

Net income for 2020 compared to 2019 was primarily impacted by a 142.5%

increase in revenues, offset slightly by an increase in cost of goods sold of 147%.

Store operating costs as a percentage of

revenue was 9.7% in 2020 compared to 12.7% offsetting the increase in cost of goods sold.

Store income as a percentage of

revenue increased from 14.9% of revenues in 2019 to 16.7 % of revenues in 2020.

Income from store operations increased $20.4

million, from $11.9 million in 2019 to $32.3 million in 2020.

Corporate overhead, including non-cash costs, increased $13.6

million from $10.3 million in 2019 to $23.9 million in 2020.

In addition, net income was impacted by the provision for income

taxes which was $3.3 million for 2020 compared to $0 for 2019.

The Company had significant net operating loss carryforwards

which offset taxable income in 2019 thus resulting in no provision for income taxes.

CONDENSED Q4 2020 AND Q4 2019 RESULTS

OF OPERATIONS

For the Quarter Ended

Year to Year Comparison

Cost of Sales

Operating expenses

Income (loss) from operations

Other income (expense)

Pre-tax net income

$ (1,019,278 )

(1,295,7789 )

$ (1,019,278 )

Adjusted EBITDA

Adjusted EBITDA per share, basic

Highlights of Results of Operations

Comparing Q4 2020 to Q4 2019.

● Revenues in Q4 2020 were $62 million,

an increase of 144% primarily the result of the addition of 14 stores in 2020 and an increase in same store sales of 58%

● Margins were 25.8% in Q4 2020 compared

to 23.6% Q4 2019.

Q4 2020 had lower write-offs from physical inventories, resulting in slightly higher margins.

● Operating cost, both store operating costs

and corporate overhead decreased substantially as a percentage of revenue.

Store operating costs were 10% of revenues for Q4 2020

compared to 10.8% for Q4 2019.

The decrease is due to a 58% increase in same store sales which reduces stores operating costs as

a percentage of revenues.

Corporate overhead was 11.5% of revenues for Q4 2020 compared to 17.1% for Q4 2019, a decrease of 33%,

and corporate overhead costs do not rise commensurate with the increase in revenues.

● Pre-tax net income was 4.5% of revenue

for Q4 2020 compared to -4% for Q4 2019.

The increase in margin and the decrease in both store operating costs and corporate overhead

as a percentage of revenues resulted in the pre-tax net income of 4.5% of revenue.

● Adjusted EBITDA was $5.6 million for Q4

2020 compared to $911,000 for Q4 2019, an increase of 515%

Net cash used in operating activities

for the year ended December 31, 2020 was approximately $214,000, compared to $3.3 million for the year ended December 31,

2019, a decrease of approximately $3.1 million.

Cash provided by 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 changes in valuation allowances.

Non-cash adjustment totaled approximately $11.1 million and approximately $4.4 million for the years ended December 31, 2020

and 2019, respectively, so non-cash adjustments had a greater positive impact on net cash used in operating activities for

the year ended December 31, 2020 than the same period in 2019.

Despite net income of approximately $5.3 million and non-cash

adjustments of $11.1 million for 2020, these positive adjustments were offset by increases in inventory of $19.2 million,

increases in trade accounts and notes receivable of $3.5 million and increases in prepaids and other current assets of $9

million, offset by increases in trade accounts payable of $10 million, customer deposits of $2.6 million and other current

liabilities of $3.3 million.

Despite net income of $1.3 million for the year ended December 31, 2019 and non-cash adjustments

totaling $4.4 million, these positive adjustments were offset by increases in inventory of $10 million, increases in trade

receivable of $3.8 million and increases in prepaids and other current assets of $2.1 million, offset by increases in trade

accounts payable of $4.2 million, customer deposits of $2 million and other current liabilities of $495,000.

Net cash used in investing activities was

approximately $45.8 million for the year ended December 31, 2020 and approximately $11.8 million for the year ended December 31,

The increase in 2020 was due to the multiple asset acquisitions throughout 2020, 8 in total, in which we acquired inventory,

fixed assets, goodwill and other intangibles of $40.8 million and the purchase of vehicles and store equipment to support new store

operations of approximately $4 million.

During 2019, we acquired 8 new stores in which we purchased inventory, fixed assets, goodwill

and other intangibles of $9.5 million and the purchase of vehicles and store equipment to support new store operations of approximately

$2.2 million.

Net cash provided

by financing activities for the year ended December 31, 2020 was approximately $211 million and represented proceeds from the sale

of Common Stock and exercise of warrants, net of offering costs of $211.2 million, offset by payments of long-term debt of approximately

$114,400 and stock redemptions of approximately $118,800.

Net cash provided by financing activities for the year ended December

31, 2019 was approximately $13.5 million and was comprised of primarily proceeds from the sales of Common Stock and exercise of

warrants, net of offering costs of $13.9 million, net of payments of long-term debt of $460,000.

Use of Non-GAAP

Financial Information

The Company believes

that the presentation of results excluding certain items in “Adjusted EBITDA,”

such as non-cash equity compensation

charges, provides meaningful supplemental information to both management and investors, facilitating the evaluation of performance

across reporting periods.

The Company uses these non-GAAP measures for internal planning and reporting purposes.

These non-GAAP

measures are not in accordance with, or an alternative for, generally accepted accounting principles and may be different from

non-GAAP measures used by other companies.

The presentation of this additional information is not meant to be considered in isolation

or as a substitute for net income or net income per share prepared in accordance with generally accepted accounting principles.

As previously note, the Company has not been materially impacted

by COVID, as such EBITDA has been adjusted to show the impact of covid costs which we believe to be non-recurring.

Set forth below is a reconciliation

of Adjusted EBITDA to net income (loss):

Depreciation and Amortization

Share based compensation (option compensation, warrant compensation, stock issued for services)

Adjusted EBITDA

Adjusted EBITDA per share, basic

Adjusted EBITDA per share, diluted

LIQUIDITY AND CAPITAL RESOURCES

As of December 31, 2020, we had

working capital of approximately $222.9 million, compared to working capital of approximately $29 million as of December 31,

2019, an increase of approximately $193.9 million.

The increase in working capital from December 31, 2019 to December 31,

2020 was due primarily to the net proceeds from the sale of Common Stock of $207.1 million and exercise of warrants totaling

approximately $3.8 million.

At December 31, 2020, we had cash and cash equivalents of approximately $177.9 million.

Currently, 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

We believe that some of our store acquisitions and new store openings can come from cash flow from

We anticipate that we will need additional

financing in the future to continue to acquire and open new stores.

To date we have financed our operations through the issuance

of the sale of Common Stock, warrants and convertible debentures.

Financing Activities

On December 11, 2020 the Company consummated

an underwritten public offering of 5,750,000 shares of its common stock, which included the exercise in full of the underwriters’

option to purchase an additional 750,000 shares of common stock to cover over-allotments.

The shares were sold at a public offering price of $30 per share, generating gross proceeds of $172.5 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 $162.5 million.

On July 2, 2020 the Company consummated

an underwritten public offering of 8,625,000 shares of its common stock, 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.

2019 Offerings

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.

The Company raised a total of $12,782,099 from 19 accredited investors.

OFF-BALANCE SHEET ARRANGEMENTS

We do not have any off-balance sheet arrangements

(as that term is defined in Item 303 of Regulation S-K) that are reasonably likely to have a current or future material effect

on our financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources.

RECENTLY ISSUED ACCOUNTING STANDARDS

Recently Adopted Accounting Pronouncements

As of January 1, 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.

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.

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.

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.

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.

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 Statements.

Recently Issued Accounting Pronouncements

Pending Adoption

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.

In June 2016, the FASB issued

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):

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 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 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.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT

Not applicable.

The Company has a 2014 Equity Compensation Plan (the “2014 Plan”) and an Amended and Restated 2018 Equity Compensation Plan (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.

From inception to December 31, 2021, we have granted stock options under our 2014 Plan to purchase an aggregate of 2,113,833 shares at exercise prices ranging from $0.60 to $5.11 per share.

Of the total options granted as of December 31, 2021, 2,088,833 have been exercised and 5,000 have been forfeited, resulting in 20,000 options outstanding.

In addition, as of December 31, 2021, 375,000 stock awards have been issued under our 2014 Plan.

From inception to December 31, 2021, we have granted stock options under our 2018 Plan to purchase an aggregate of 1,963,000 shares at exercise prices ranging from $2.25 to $17.39 per share.

As of December 31, 2021, 964,411 options have been exercised and 112,167 shares forfeited under the 2018 Plan.

In addition, as of December 31, 2020, 1,451,827 stock awards have been issued under our 2018 Plan.

Shares of Common Stock Issued In Connection with Asset Purchases

Refer to issuances of shares of common stock in connection with acquisitions during 2019, 2020 and 2021 disclosed under “ITEM 1.

BUSINESS – Acquisitions”.

These shares were issued in reliance on the exemption under Section 4(a)(2) of the Securities Act.

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-K

Item 5. Market for Registrant’s Common Equity