What changed in this filing

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Item 1. Financial Statements

2022-05-16 compared with 2021-11-12 · 282 added, 365 removed, 302 unchanged (68% of the section changed)

1 unchanged sentence

GROWGENERATION CORP.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

September 30,

(in thousands, except shares and per share amounts)

2022 December 31,

2 unchanged sentences

Marketable securities 19,035 39,793

Accounts receivable, net 6,953 3,901

Notes receivable, current 7,734 2,612

Inventory, net 113,281 54,024

Accounts receivable, net of allowance for doubtful accounts of $ 0.6 million and $ 0.6 million at March 31, 2022 and December 31, 2021

Notes receivable, current, net of allowance for doubtful accounts of $ 0.9 million and $ 0.5 million at March 31, 2022 and December 31, 2021

Inventory 105,941 105,571

Prepaid income taxes 5,856 5,856

2 unchanged sentences

Property and equipment, net 26,928 24,116

Operating leases right-of-use assets, net 36,155 12,088

Notes receivables, net of current portion 550 1,200

Operating leases right-of-use assets 45,839 43,730

Intangible assets, net 48,786 48,402

9 unchanged sentences

Sales tax payable 1,928 1,923

Income taxes payable — —

Current maturities of lease liability 7,740 6,858

1 unchanged sentence

Total current liabilities 36,618 47,076

Commitments and ontingencies (Note 15)

Deferred tax liability 723 2,359

4 unchanged sentences

Common stock;

$ 0.001 par value;

100,000,000 shares authorized, 60,727,888 and 59,928,564 shares issued and outstanding as of March 31, 2022 and December 31, 2021

Additional paid-in capital 367,064 361,087

Retained earnings (deficit) 14,245 ( 2,642 )

Retained earnings 4,967 10,144

Total stockholders’ equity 372,092 371,291

2 unchanged sentences

GROWGENERATION CORP.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

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

Three Months Ended March 31,

Net sales $ 81,767 $ 90,022

Cost of sales 59,627 64,645

1 unchanged sentence

Operating expenses:

Store operations 14,842 5,008 35,648 12,524

Store operations and other operational expenses 14,532 8,182

Selling, general, and administrative 10,323 7,405

1 unchanged sentence

Total operating expenses 29,361 17,641

Income from operations 4,675 5,103 22,020 5,795

Income (Loss) from operations ( 7,221 ) 7,736

Other income (expense):

Other expense 78 ( 14 ) 32 ( 75 )

Other income (expense) 409 ( 38 )

Interest income 2 4

1 unchanged sentence

Total non-operating income (expense), net 408 ( 36 )

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

Net income (loss) before taxes ( 6,813 ) 7,700

Benefit (provision) for income taxes 1,636 ( 1,553 )

Net income (loss) $ ( 5,177 ) $ 6,147

Net income (loss) per share, basic $ ( 0.09 ) $ 0.11

Net income (loss) per share, diluted $ ( 0.09 ) $ 0.10

Weighted average shares outstanding, basic 60,126 58,394

4 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

THREE MONTHS ENDED MARCH 31, 2022 AND 2021

(in thousands)

5 unchanged sentences

Balances, December 31, 2021 59,929 $ 60 $ 361,087 $ 10,144 $ 371,291

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 in connection with business combination 650 1 5,749 5,750

Common stock issued for share based compensation 149 — — —

Common stock redeemed in litigation settlement ( 90 ) — — — —

Common stock redemption ( 96 ) — ( 3,954 ) — ( 3,954 )

Common stock withheld for employee payroll taxes ( 1,355 ) ( 1,355 )

Share based compensation 1,583 1,583

Net income — — — 6,147 6,147

Net income (loss) ( 5,177 ) ( 5,177 )

Balances, March 31, 2022 60,728 $ 61 $ 367,064 $ 4,967 $ 372,092

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

Common Stock Additional

6 unchanged sentences

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 — — — —

4 unchanged sentences

Share based compensation — — 1,187 — 1,187

Net loss — — — ( 2,094 ) ( 2,094 )

Net income (loss) — — — 6,147 6,147

Balances, March 31, 2021 58,394 $ 58 $ 346,176 $ 3,505 $ 349,739

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.

GROWGENERATION CORP.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

Cash flows from operating activities:

Net income $ 16,887 $ 3,818

Net income (loss) $ ( 5,177 ) $ 6,147

Adjustments to reconcile net income to net cash provided by operating activities:

4 unchanged sentences

Deferred taxes ( 1,636 ) 384

Changes in operating assets and liabilities:

Changes in operating assets and liabilities (net of the effect of acquisitions):

Accounts and notes receivable ( 701 ) ( 1,165 )

7 unchanged sentences

Sales tax payable 5 1,213

Net cash provided by operating activities 1,866 3,698

Net cash provided by (used in) operating activities ( 2,222 ) 742

Cash flows from investing activities:

Assets acquired in business combinations ( 71,813 ) ( 4,027 )

Acquisitions, net of cash acquired ( 6,806 ) ( 39,307 )

Purchase of marketable securities — ( 41,077 )

2 unchanged sentences

Purchase of intangibles — ( 681 )

Net cash used in investing activities ( 114,841 ) ( 6,939 )

Net cash provided by (used in) investing activities 9,501 ( 82,744 )

Cash flows from financing activities:

Principal payments on long term debt ( 23 ) ( 27 )

Common stock redeemed ( 3,954 ) —

Common stock withheld for employee payroll taxes ( 1,355 ) ( 3,954 )

Proceeds from the sale of common stock and exercise of warrants, net of expenses — 113

5 unchanged sentences

Cash paid for interest $ 3 $ 2

Common stock issued for accrued payroll $ — $ 718

Common stock issued for business combination $ 5,750 $ 29,249

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 $ —

Right of use assets acquired under new operating leases $ 2,703 $ 3,220

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

Notes To Condensed Consolidated Financial Statements

March 31, 2022

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,

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.

Currently, the Company owns and operates a chain of sixty-three ( 63 ) retail hydroponic/gardening stores across 13 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.

6 unchanged sentences

These statements should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

There were no significant changes to our significant accounting policies as disclosed in our 2021 Form 10-K, except for the immaterial out-of-period adjustments discussed below.

The results of operations for our interim periods are not necessarily indicative of results for the full fiscal year.

1 unchanged sentence

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.

The COVID-19 pandemic has created significant public health concerns as well as economic disruption, uncertainty, and volatility that may negatively affect our business operations and financial results.

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).

1 unchanged sentence

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.

The COVID-19 pandemic to date has resulted in supply chain delays of our inventory, higher operating costs and increased shipping costs, 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

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.

GrowGeneration Corporation and Subsidiaries

Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued ASU No.

2016-13, “Financial Instruments — Credit Losses (Topic 326),” changing the impairment model for most financial instruments by requiring companies to recognize an allowance for expected losses, rather than incurred losses as required currently by the other-than-temporary impairment model.

The ASU will apply to most financial assets measured at amortized cost and certain other instruments, including trade and other receivables, loans, available-for-sale and held-to-maturity debt securities, net investments in leases, and off-balance sheet credit exposures.

The Company is in the process of evaluating the impact of this standard.

Immaterial out-of-period adjustments

During the three months ended March 31, 2022, the Company recorded an immaterial out-of period adjustment that impacted the prior year Consolidated Balance Sheets.

The adjustment related to a change in the calculation of operating lease right-of-use assets and operating lease liabilities.

This adjustment corrected an understatement of operating lease right-of-use assets of $ 1.3 million and an understatement of operating lease liabilities of $ 1.3 million as of December 31, 2021 during the period ended March 31, 2022.

The Company assessed the materiality of this adjustment on the previously issued annual financial statements in accordance with SEC Staff Accounting Bulletin No.

The Company concluded that the changes were not material to any of the previously issued consolidated financial statements.

During the three months ended March 31, 2022, the Company identified an omission regarding the disclosure of reportable segments under ASC 280 related to the year ended December 31, 2021.

During the year ended December 31, 2021 the Company inappropriately reported a single segment, aggregating multiple operating segments.

The impact at March 31, 2021 was that $ 8.8 million of revenue, $ 3.5 million of gross margin, and $ 1.5 million of operating income should have been reported as a separate “Distribution and other segment ” .

The Company assessed the materiality of this omission on the previously issued interim and annual financial statements in accordance with SEC Staff Accounting Bulletin No.

The Company concluded that the ommission was not material to any of the previously issued consolidated financial statements and will begin reporting segments results in accordance with ASC 280 on a prospective basis starting with the quarter ending March 31, 2022.

GrowGeneration Corp.

Notes To Unaudited Condensed Consolidated Financial Statements

September 30, 2021

March 31, 2022

FAIR VALUE MEASUREMENTS

9 unchanged sentences

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 carrying amounts of cash and cash equivalents, accounts receivable, available for sale 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,

Level March 31,

2022 December 31,

Cash equivalents 2 $ 63,035 $ 177,912

Cash and cash equivalents 1 $ 47,273 $ 41,372

Marketable securities 2 $ 19,035 $ 39,793

Notes receivable impaired 3 $ — $ 875

GrowGeneration Corporation and Subsidiaries

GrowGeneration Corp.

Notes To Unaudited Condensed Consolidated Financial Statements

September 30, 2021

March 31, 2022

RECENT ACCOUNTING PRONOUNCEMENTS

4 unchanged sentences

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, 2021 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.

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

Three Months Ended March 31, 2022 Three Months Ended March 31, 2021

Sales at company owned stores $ 64,296 $ 81,227

Distribution 4,696 — 12,519 —

Distribution and other 12,203 2,835

E-commerce sales 5,268 5,960

Total Revenues $ 116,003 $ 55,007 $ 331,910 $ 131,440

GrowGeneration Corporation and Subsidiaries

Notes To Unaudited Condensed Consolidated Financial Statements

September 30, 2021

REVENUE RECOGNITION, continued

Total Net Sales $ 81,767 $ 90,022

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

1 unchanged sentence

Opening balance, January 1, 2022 $ 5,741 $ 11,686

Closing balance, September 30, 2021

15,237 13,743

Closing balance, March 31, 2022

Increase (decrease) $ 1,645 $ ( 4,496 )

Opening balance, January 1, 2021 $ 3,901 $ 5,155

Closing balance, September 30, 2020

Closing balance, March 31, 2021

Increase (decrease) $ 375 $ 4,784

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,

Of the total amount of customer deposit liability as of January 1, 2022, $ 7.6 million was reported as revenue during the three months ended March 31, 2022.

Of the total amount of customer deposit liability as of January 1, 2021, $ 2.1 million was reported as revenue during the three months ended March 31, 2021.

GrowGeneration Corp.

Notes To Unaudited Condensed Consolidated Financial Statements

March 31, 2022

Marketable securities have maturities of less than one year as of March 31, 2022.

There were no significant realized or unrealized gains or losses for the three months ended March 31, 2022.

The components of investments, available for sale securities, as of March 31, 2022 were as follows:

Adjusted Cost Basis Unrealized Gain (Loss) Recorded

Corporate notes and bonds $ 19,035 $ — $ 19,035

NOTES RECEIVABLE

The Company also has notes receivables under longer term financing arrangements at interest rates ranging from 8 % to 12 % with repayment terms ranging for 12 to 18 months.

Notes receivables as of March 31, 2022 and December 31, 2021 are as follows:

2022 December 31,

Note receivable $ 8,402 $ 4,104

Notes receivable $ 2,843 $ 2,962

Allowance for losses ( 876 ) ( 522 )

1 unchanged sentence

The following table summarizes changes in notes receivable balances that have been deemed impaired:

September 30,

2022 December 31,

2 unchanged sentences

Notes receivable, net $ 624 978

GrowGeneration Corporation and Subsidiaries

Notes To Unaudited Condensed Consolidated Financial Statements

September 30, 2021

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

Commercial paper Level 2 $ 9,998 $ — $ 9,998

Corporate notes and bonds Level 2 19,963 — 19,963

Marketable securities $ 29,961 $ — $ 29,961

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,

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

PROPERTY AND EQUIPMENT

September 30,

2022 December 31,

3 unchanged sentences

Furniture, fixtures and equipment 12,153 10,992

Capitalized software 2,575 4,753

Construction-in-progress 5,311 2,948

2 unchanged sentences

Property and equipment, net $ 26,928 $ 24,116

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.

GrowGeneration Corporation and Subsidiaries

Depreciation expense for the three months ended March 31, 2022 and 2021 was $ 1.8 million, and $ 0.7 million, respectively.

GrowGeneration Corp.

Notes To Unaudited Condensed Consolidated Financial Statements

September 30, 2021

March 31, 2022

GOODWILL AND INTANGIBLE ASSETS

The changes in goodwill are as follows:

September 30, 2021 December 31,

March 31, 2022 December 31,

Balance, beginning of period $ 125,401 $ 62,951

1 unchanged sentence

Balance, end of period $ 132,500 $ 125,401

A summary of intangible assets is as follows:

Weighted-Average

Amortization Period

of Intangible Assets

as of March 31, 2022

Trade names 3.92

Customer relationships 5.12

Non-competes 3.20

Intellectual property 3.92

Intangible assets consist of the following:

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

Amount Accumulated

1 unchanged sentence

Amount Accumulated

Tradenames $ 27,144 $ ( 3,584 ) $ 13,923 $ ( 398 )

Patents, trademarks 100 ( 38 ) 100 ( 9 )

Trade names $ 28,774 $ ( 6,377 ) $ 28,300 $ ( 4,948 )

Patents 100 ( 45 ) 100 ( 42 )

Customer relationships 27,569 ( 4,157 ) 25,175 ( 3,055 )

1 unchanged sentence

Intellectual property 2,065 ( 447 ) 2,065 ( 344 )

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.

Total $ 60,147 $ ( 11,361 ) $ 57,024 $ ( 8,622 )

Amortization expense for the three months ended March 31, 2022 and 2021 was $ 2.7 million and $ 1.4 million, respectively.

Future amortization expense is as follows:

2 unchanged sentences

Total $ 48,786

GrowGeneration Corporation and Subsidiaries

GrowGeneration Corp.

Notes To Unaudited Condensed Consolidated Financial Statements

September 30, 2021

LONG-TERM DEBT

September 30,

2021 December 31,

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

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

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.

March 31, 2022

For the three months ended March 31, 2022, the effective tax rate is 24.02 %, which increased from 20.17 % at March 31, 2021.

The increase in rate is primarily due to the effect of stock based compensation.

The three months ended March 31, 2022 effective tax rate is higher than the US federal statutory rate of 21.00%, which is also primarily due to stock compensation.

We determine if a contract contains a lease at inception.

2 unchanged sentences

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,

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

Operating lease liabilities represent the present value of remaining lease payments over the lease term.

Operating lease assets represent our right to use an underlying asset and are based upon the operating lease liabilities adjusted for prepayments or accrued lease payments, initial direct costs, lease incentives, and impairment of operating lease assets.

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

Our leases typically contain rent escalations over the lease term.

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

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

Short-term disclosures include only those leases with a term greater than one month and 12 months or less, and expense is recognized on a straight-line basis over the lease term.

Leases with an initial term of 12 months or less that do not include an option to purchase the underlying asset that we are reasonably certain to exercise are not recorded on the balance sheet.

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

Where assets are used to directly serve our customers, such as facilities dedicated to customer contracts, lease costs are recorded in “store operating costs.” Facilities and assets which serve management and support functions are expensed through general and administrative expenses.

2022 December 31,

Right to use assets, operating lease assets $ 36,155 $ 12,088

Right of use assets, operating lease assets $ 45,839 $ 43,730

Current lease liability $ 7,740 $ 6,858

1 unchanged sentence

$ 47,619 $ 45,404

September 30,

2021 September 30,

2022 March 31,

Weighted average remaining lease term 6.85 years 3.34 years

Weighted average discount rate 5.5 % 6.0 %

Nine Months Ended

September 30,

Three Months Ended

Operating lease costs $ 2,662 $ 1,541

Variable lease costs 863 —

Short-term lease costs 126 141

Total operating lease costs $ 3,651 $ 1,682

GrowGeneration Corporation and Subsidiaries

GrowGeneration Corp.

Notes To Unaudited Condensed Consolidated Financial Statements

September 30, 2021

LEASES, continued

The following table presents the maturity of the Company’s operating lease liabilities as of September 30, 2021:

March 31, 2022

The following table presents the maturity of the Company’s operating lease liabilities as of March 31, 2022 :

2022 (remainder of the year) $ 7,641

2 unchanged sentences

Imputed interest ( 10,096 )

Lease Liability at September 30, 2021

Lease Liability at March 31, 2022

SHARE BASED PAYMENTS

The Company maintains long-term incentive plans for employee, non-employee members of our Board of Directors and consultants.

The Company maintains long-term incentive plans for employees, 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).

1 unchanged sentence

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,

The following table presents share-based payment expense for the three months ended March 31, 2022 and 2021:

Three months ended March 31,

Restricted stock $ 1,201 $ 645

2 unchanged sentences

Total $ 1,583 $ 1,327

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.

As of March 31, 2022, the Company had approximately $ 12.9 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 3.7 years.

As of March 31, 2022, the Company also had approximately $ 2.2 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 1.7 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.

GrowGeneration Corporation and Subsidiaries

The awards generally vest on the first, second, third, or fourth anniversary of the date of grant, subject to the employee’s continuing employment as of that date.

GrowGeneration Corp.

Notes To Unaudited Condensed Consolidated Financial Statements

September 30, 2021

SHARE BASED PAYMENTS AND STOCK OPTIONS, continued

Restricted stock activity for the nine months ended September 30, 2021 is presented in the following table:

March 31, 2022

Restricted stock activity for the three months ended March 31, 2022 is presented in the following table:

Shares Weighted Average Grant Date Fair Value

Nonvested, December 31, 2021

483,750 $ 20.19

Granted 595,500 $ 10.84

1 unchanged sentence

Forfeited ( 13,750 ) $ 5.72

Nonvested, September 30, 2021

The table below summarizes all option activity under all plans during the nine months ended September 30, 2021:

Nonvested, March 31, 2022

818,500 $ 18.18

The table below summarizes all option activity under all plans during the three months ended March 31, 2022:

Options Shares Weight -

6 unchanged sentences

Forfeited or expired ( 187,427 ) 5.12 — 2.89

Outstanding at September 30, 2021

Outstanding at March 31, 2022

718,998 $ 4.02 2.59 $ 4.02

Options vested at September 30, 2021

Options vested at March 31, 2022

679,000 $ 4.35 2.52 $ 2.44

A summary of the status of the Company’s outstanding stock purchase warrants for the nine months ended September 30, 2021 is as follows:

A summary of the status of the Company’s outstanding stock purchase warrants for the three months ended March 31, 2022 is as follows:

Warrants Weighted Average

1 unchanged sentence

Outstanding at December 31, 2021

330,884 $ 22.14

Exercised — —

Forfeited — —

Outstanding at September 30, 2021

GrowGeneration Corporation and Subsidiaries

Outstanding at March 31, 2022

330,884 $ 22.14

GrowGeneration Corp.

Notes To Unaudited Condensed Consolidated Financial Statements

September 30, 2021

March 31, 2022

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.

The following table sets forth the composition of the weighted average shares (denominator) used in the basic and dilutive earnings per share computation for the three months ended March 31, 2022 and 2021:

Three Months Ended

September 30,

2021 September 30,

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,

Net income $ 16,887 $ 3,818

2022 March 31,

Net income (loss) $ ( 5,177 ) $ 6,147

Weighted average shares outstanding, basic 60,126 58,394

3 unchanged sentences

Dilutive earnings per share $ ( 0.09 ) $ 0.10

The following potentially outstanding restricted stock, stock options, and warrants were excluded from the computation of diluted EPS because the effect would have been antidilutive:

Three Months Ended

2022 March 31,

Restricted stock 1,336 —

Stock options 393 —

Warrants 819 —

Total 2,548 —

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 Company accounts for acquisitions in accordance with ASC 805 “Business Combinations.” Assets acquired and liabilities assumed are recorded in the accompanying Condensed Consolidated Balance Sheets at their estimated fair values, as of the acquisition date.

For all acquisitions, the preliminary allocation of purchase price was based upon the preliminary valuation, and the Company's estimates and assumptions are subject to change within the measurement period as valuations are finalized, not to exceed one year from the acquisition date.

The Company has made adjustments to the preliminary valuations of the acquisitions based on valuation analyses prepared by independent third-party valuation consultants.

During the three months ended March 31, 2022 our measurement period adjustments included increasing goodwill by $ 1.3 million offset with intangible assets.

As a result of these measurement period adjustments, we made an insignificant reduction in amortization expense.

All acquisition costs are expensed as incurred and recorded in general and administrative expenses in the Condensed Consolidated Statements of Operations.

Acquisitions during the three months ended March 31, 2022

On February 1, 2022, the Company purchased all of the assets of Horticultural Rep Group, Inc.

(“HRG”), a specialty marketing and sales organization of horticultural products based in Ogden, Utah.

The total consideration for the purchase of HRG was approximately $ 13.4 million, including $ 6.8 million in cash and common stock valued at $ 5.7 million.

The Asset Purchase Agreement also provides for an indemnity holdback to be settled in common stock of the Company valued at $ 0.9 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.

HRG is included in our Distribution and other segment.

The Company's preliminary estimates of fair values of the net assets acquired are based on the information that was available at the date of the acquisition, and the Company is continuing to evaluate the underlying inputs and assumptions used in its valuations.

GrowGeneration Corp.

Notes To Unaudited Condensed Consolidated Financial Statements

March 31, 2022

The table below represents the allocation of the purchase price to the acquired net assets during the three months ended March 31, 2022.

Inventory $ 4,170

Prepaids and other current assets 76

Furniture and equipment 148

Operating lease right of use asset 666

Operating lease liability ( 666 )

Customer relationships 2,430

Trademark 496

Non-compete 255

Goodwill 5,816

Total $ 13,391

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

Indemnity stock holdback 875

Common stock 5,710

Total $ 13,391

The following table discloses the date of the acquisition noted above and the revenue and earnings included in the Condensed Consolidated Statement of Operations for the period ended March 31, 2022.

Acquisition date February 1, 2022

Revenue 3,436

The following represents the pro forma Condensed Consolidated Statement of Operations as if the acquisition had been included in the consolidated results of the Company for the entire period for the three months ended March 31, 2022 and 2021.

Three Months Ended Three Months Ended

March 31, 2022 (Unaudited) March 31, 2021 (Unaudited)

Revenue $ 83,603 $ 93,458

Net income $ ( 5,176 ) $ 6,147

Acquisitions during the three months ended March 31, 2021

On January 25, 2021, the Company purchased all of 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.

Indoor Garden & Lighting, Inc.

is included in our Retail segment.

GrowGeneration Corp.

Notes To Unaudited Condensed Consolidated Financial Statements

March 31, 2022

On February 1, 2021, the Company purchased all of 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.

GrowGeneration Corporation and Subsidiaries

Notes To Unaudited Condensed Consolidated Financial Statements

September 30, 2021

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).

Grow Depot Maine is included in our Retail segment.

On February 15, 2021, the Company purchased all of 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.

Grow Warehouse LLC is included in our Retail segment.

On February 22, 2021, the Company purchased all of 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.

San Diego Hydroponics & Organics is included in our Retail segment.

On March 12, 2021, the Company purchased all of 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.

Charcoir is included in our Distribution and other segment.

On March 15, 2021, the Company purchased all of 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.

55 Hydroponics is included in our Retail segment.

On March 15, 2021, the Company purchased all of 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.

Aquarius is included in our Retail segment.

On March 19, 2021, the Company purchased all of 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.

GrowGeneration Corporation and Subsidiaries

Agron is included in our E-commerce segment.

GrowGeneration Corp.

Notes To Unaudited Condensed Consolidated Financial Statements

September 30, 2021

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

March 31, 2022

The table below represents the allocation of the purchase price to the acquired net assets during the three months ended March 31, 2021.

Agron Aquarius 55 Hydro Charcoir San Diego Hydro Grow Warehouse Grow Depot Maine Indoor Garden Total

Inventory $ — $ 957 $ 780 $ 839 $ 1,400 $ 2,450 $ 326 $ 372 $ 7,124

2 unchanged sentences

Liabilities — — — — — ( 169 ) — — ( 169 )

Operating lease right to use asset 746 641 92 137 273 3,782 10,971

Operating lease right of use asset 98 108 861 — 1,079 641 92 137 3,016

Operating lease liability ( 98 ) ( 108 ) ( 861 ) — ( 1,079 ) ( 641 ) ( 92 ) ( 137 ) ( 3,016 )

5 unchanged sentences

Total $ 11,249 $ 3,558 $ 6,479 $ 16,368 $ 9,282 $ 17,779 $ 2,149 $ 1,692 $ 68,556

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

Agron Aquarius 55 Hydro Charcoir San Diego Hydro Grow Warehouse Grow

Depot Maine Indoor Garden Total

Cash $ 5,973 $ 2,331 $ 5,347 $ 9,902 $ 4,751 $ 8,100 $ 1,738 $ 1,165 $ 39,307

1 unchanged sentence

Total $ 11,249 $ 3,558 $ 6,479 $ 16,368 $ 9,282 $ 17,779 $ 2,149 $ 1,692 $ 68,556

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

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 March 31, 2021.

Agron Aquarius 55 Hydro Charcoir San Diego Hydro Grow Warehouse Grow Depot Maine Indoor Garden Total

Acquisition date

2 unchanged sentences

Net Income $ 22 $ 16 $ 32 $ 101 $ 117 $ 294 $ 205 $ 118 $ 905

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

The following table discloses the pro forma consolidated statement of operations as if the acquisition had been included in the consolidated results of the Company for the three months ended March 31, 2021.

Three Months Ended March 31, 2021

Revenue $ 99,095

Net income $ 7,403

GrowGeneration Corporation and Subsidiaries

GrowGeneration Corp.

Notes To Unaudited Condensed Consolidated Financial Statements

September 30, 2021

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

Revenue $ 146,030 $ 361,937

Net income $ 5,299 $ 23,276

Three Months Ended Nine Months Ended

September 30, 2020

(Unaudited) September 30, 2020

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

GrowGeneration Corporation and Subsidiaries

March 31, 2022

COMMITMENTS AND CONTINGENCIES

Legal Matters

From time to time, the Company has been, and may again become involved in legal proceedings arising in the ordinary course of its business.

The Company is not presently a party to any litigation, and is not aware of any pending or threatened litigation, against the Company that it believes could have a material adverse effect on its business, operating results, financial condition, or cash flows.

Indemnifications

In the ordinary course of its business, the Company makes certain indemnities under which it may be required to make payments in relation to certain transactions.

As of March 31, 2022, the Company did not have any liabilities associated with indemnities.

In addition, the Company, as permitted under Colorado law and in accordance with its amended and restated certificate of incorporation and amended and restated bylaws, in each case, as amended to date, indemnifies its officers and directors for certain events or occurrences, subject to certain limits, while the officer or director is or was serving at the Company’s request in such capacity.

The duration of these indemnifications varies.

The Company has a director and officer insurance policy that may enable it to recover a portion of any future amounts paid.

The Company accrues for losses for any known contingent liability, including those that may arise from indemnification provisions, when future payment is probable.

No such losses have been recorded to date.

As discussed in Note ,1 at December 31, 2021 the Company had two reportable segments which increased to three at March 31, 2022 based on quantitative and qualitative analyses the Company now also reports E-commerce as a reportable segment.

The Company has three primary reportable segments including retail operations, e-commerce and all other which includes the distribution of proprietary brands to wholesale accounts.

The Company has segmented its operations to reflect the manner in which management reviews and evaluates the results of its operations.

The structure reflects the manner in which the chief operating decision maker regularly assesses information for decision-making purposes, including the allocation of resources.

Shared services and other corporate costs are allocated to individual segments based on that segments profitability.

Retail – Currently, the Company owns and operates a chain of 63 hydroponic/gardening centers focused on serving growers and cultivators.

Inclusive of commercial sales organizations selling directly to customers outside of the physical retail network.

Some of our garden centers have multi-functions, with added capabilities that include warehousing, distribution and fulfillment for direct shipments of products to garden center locations, pick, pack and ship for our online platforms and direct fulfillment to our commercial customers.

E-commerce – Our digital strategy is focused on capturing the home, craft and commercial grower online.

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

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

The Company also sells and distributes product through third-party marketplaces.

Distribution and other – In December 2020, GrowGeneration purchased the business of Canopy Crop Management Corp., the developer of the popular Power Si line of monosilicic acid products, a widely used nutrient additive for plants.

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

On December 31, 2021, the Company purchased the assets of Mobile Media, Inc.

(“MMI”), a mobile shelving design and build facility.

On February 1, 2022, the Company purchased the assets of Horticultural Rep Group, Inc.

(“HRG”), a specialty marketing and sales organization of horticultural products based in Ogden, Utah.

The Company is in the process of combining the operations and management of these non-retail enterprises.

The products these companies provide are integrated into our

GrowGeneration Corp.

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

March 31, 2022

retail, e-commerce, and direct sales activities and we receive incremental gross profit from the sale of these products.

The profit generated from those sales are recorded in our retail and e-commerce segments.

Selected information by segment is presented in the following tables:

Three Months Ended March 31,

Retail $ 64,296 $ 81,227

E-Commerce 5,268 5,960

Distribution and other 12,203 2,835

Total $ 81,767 $ 90,022

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

Pro forma consolidated income statement:

Three Months Ended Nine Months Ended

September 30, 2019

(Unaudited) September 30, 2019

Revenue $ 24,651 $ 61,176

Earnings $ 1,220 $ 2,603

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.

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.

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 .

Three Months Ended March 31,

Retail $ 15,493 $ 21,901

E-Commerce 1,745 1,997

Distribution and other 4,902 1,479

Total $ 22,140 $ 25,377

Three Months Ended March 31,

Income (Loss) from operations

Retail $ ( 7,183 ) $ 6,258

E-Commerce ( 432 ) 441

Distribution and other 394 1,037

Total $ ( 7,221 ) $ 7,736

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements