GrowGeneration Corp. 10-Q

ITEM 1. FINANCIAL STATEMENTS GROWGENERATION CORP. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (in thousands, except shares and per share amounts) March 31, 2022 December 31, 2021 ASSETS Current assets: Cash and cash equivalents $ 47,273 $ 41,372 Marketable securities 19,035 39,793 Accounts receivable, net of allowance for doubtful accounts of $ 0.6 million and $ 0.6 million at March 31, 2022 and December 31, 2021 7,386 5,741 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 1,967 2,440 Inventory 105,941 105,571 Prepaid income taxes 5,856 5,856 Prepaids and other current assets 7,035 16,116 Total current assets 194,493 216,889 Property and equipment, net 26,928 24,116 Operating leases right-of-use assets 45,839 43,730 Intangible assets, net 48,786 48,402 Goodwill 132,500 125,401 Other assets 807 800 TOTAL ASSETS $ 449,353 $ 459,338 LIABILITIES & STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 14,221 $ 17,033 Accrued liabilities 1,143 2,044 Payroll and payroll tax liabilities 4,302 7,440 Customer deposits 7,190 11,686 Sales tax payable 1,928 1,923 Current maturities of lease liability 7,740 6,858 Current portion of long-term debt 94 92 Total current liabilities 36,618 47,076 Commitments and ontingencies (Note 15) Deferred tax liability 723 2,359 Operating lease liability, net of current maturities 39,879 38,546 Long-term debt, net of current portion 41 66 Total liabilities 77,261 88,047 Stockholders’ equity: 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 61 60 Additional paid-in capital 367,064 361,087 Retained earnings 4,967 10,144 Total stockholders’ equity 372,092 371,291 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 449,353 $ 459,338 The accompanying notes are an integral part of these Condensed Consolidated Financial Statements. 1 GROWGENERATION CORP. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts) (Unaudited) Three Months Ended March 31, 2022 2021 Net sales $ 81,767 $ 90,022 Cost of sales 59,627 64,645 Gross profit 22,140 25,377 Operating expenses: Store operations and other operational expenses 14,532 8,182 Selling, general, and administrative 10,323 7,405 Depreciation and amortization 4,506 2,054 Total operating expenses 29,361 17,641 Income (Loss) from operations ( 7,221 ) 7,736 Other income (expense): Other income (expense) 409 ( 38 ) Interest income 2 4 Interest expense ( 3 ) ( 2 ) Total non-operating income (expense), net 408 ( 36 ) 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 Weighted average shares outstanding, diluted 60,126 60,317 The accompanying notes are an integral part of these Condensed Consolidated Financial Statements. 2 GROWGENERATION CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY THREE MONTHS ENDED MARCH 31, 2022 AND 2021 (in thousands) (Unaudited) Common Stock Additional Paid-In Capital Retained Earnings (Deficit) Total Stockholders’ Equity Shares Amount Balances, December 31, 2021 59,929 $ 60 $ 361,087 $ 10,144 $ 371,291 Common stock issued in connection with business combination 650 1 5,749 5,750 Common stock issued for share based compensation 149 — — — Common stock withheld for employee payroll taxes ( 1,355 ) ( 1,355 ) Share based compensation 1,583 1,583 Net income (loss) ( 5,177 ) ( 5,177 ) Balances, March 31, 2022 60,728 $ 61 $ 367,064 $ 4,967 $ 372,092 Common Stock Additional Paid-In Capital Retained Earnings (Deficit) Total Stockholders’ Equity Shares Amount Balances, December 31, 2020 57,151 $ 57 $ 319,582 $ ( 2,642 ) $ 316,997 Common stock issued upon warrant exercise 40 — 111 — 111 Common stock issued upon cashless warrant exercise 535 1 ( 1 ) — — Common stock issued upon exercise of options 1 — 2 — 2 Common stock issued upon cashless exercise of options 5 — — — — Common stock issued in connection with business combinations 548 — 29,249 — 29,249 Common stock issued for assets 300 — — — — Common stock issued for services ( 90 ) — — — — Common stock issued for share based compensation ( 96 ) — ( 3,954 ) — ( 3,954 ) Share based compensation — — 1,187 — 1,187 Net income (loss) — — — 6,147 6,147 Balances, March 31, 2021 58,394 $ 58 $ 346,176 $ 3,505 $ 349,739 The accompanying notes are an integral part of these Condensed Consolidated Financial Statements. 3 GROWGENERATION CORP. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (Unaudited) Three Months Ended March 31, 2022 2021 Cash flows from operating activities: Net income (loss) $ ( 5,177 ) $ 6,147 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 4,506 2,054 Stock-based compensation expense 1,583 1,327 Bad debt expense, net of recoveries ( 471 ) ( 184 ) Gain on asset disposition 20 — Deferred taxes ( 1,636 ) 384 Changes in operating assets and liabilities (net of the effect of acquisitions): Accounts and notes receivable ( 701 ) ( 1,165 ) Inventory 3,761 ( 16,716 ) Prepaid expenses and other assets 9,740 ( 8,175 ) Accounts payable and accrued liabilities ( 5,082 ) 10,613 Operating leases 106 ( 87 ) Payroll and payroll tax liabilities ( 3,138 ) 261 Income taxes payable — 455 Customer deposits ( 5,738 ) 4,615 Sales tax payable 5 1,213 Net cash provided by (used in) operating activities ( 2,222 ) 742 Cash flows from investing activities: Acquisitions, net of cash acquired ( 6,806 ) ( 39,307 ) Purchase of marketable securities — ( 41,077 ) Maturities from marketable securities 20,758 — Purchase of property and equipment ( 4,451 ) ( 1,679 ) Purchase of intangibles — ( 681 ) 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 withheld for employee payroll taxes ( 1,355 ) ( 3,954 ) Proceeds from the sale of common stock and exercise of warrants, net of expenses — 113 Net cash provided by (used in) financing activities ( 1,378 ) ( 3,868 ) Net change 5,901 ( 85,870 ) Cash and cash equivalents at the beginning of period 41,372 177,912 Cash and cash equivalents at the end of period $ 47,273 $ 92,042 Supplemental disclosures of non-cash activities: Cash paid for interest $ 3 $ 2 Common stock issued for business combination $ 5,750 $ 29,249 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. 4 GrowGeneration Corp. Notes To Condensed Consolidated Financial Statements March 31, 2022 (Unaudited) 1. GENERAL GrowGeneration Corp. (the “Company”, “we”, or “our”) is the largest chain of hydroponic garden centers in North America and is a leading marketer and distributor of nutrients, growing media, advanced indoor and greenhouse lighting, ventilation systems, and accessories for hydroponic gardening. 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. Basis of Presentation The accompanying interim unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. These statements should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended December 31, 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. All amounts included in the accompanying footnotes to the consolidated financial statements, except per share data, are in thousands (000). Risk and Uncertainties The COVID-19 pandemic has created significant public health concerns as well as economic disruption, uncertainty, and volatility 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). The Company has experienced minimal business interruption as a result of the COVID-19 pandemic. We have been deemed an “essential” business by state and local authorities in the areas in which we operate and as such have not been subject to business closures. The COVID-19 pandemic to date has resulted in 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. 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. 5 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. 99. 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. 99. 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. 6 GrowGeneration Corp. Notes To Unaudited Condensed Consolidated Financial Statements March 31, 2022 2. FAIR VALUE MEASUREMENTS Fair Value Measurements Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable: • Level 1—Quoted prices in active markets for identical assets or liabilities. • Level 2—Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data. • Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques. To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The carrying amounts of cash and cash equivalents, accounts receivable, available for 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 March 31, 2022 December 31, 2021 Cash and cash equivalents 1 $ 47,273 $ 41,372 Marketable securities 2 $ 19,035 $ 39,793 7 GrowGeneration Corp. Notes To Unaudited Condensed Consolidated Financial Statements March 31, 2022 3. RECENT ACCOUNTING PRONOUNCEMENTS New Accounting Pronouncements From time to time, the Financial Accounting Standards Board (“FASB”) or other standard setting bodies issue new accounting pronouncements. Updates to the FASB Accounting Standards Codification (“ASC”) are communicated through issuance of an Accounting Standards Update (“ASU”). We have implemented all new accounting pronouncements that are in effect and that may impact our financial statements. We have evaluated recently issued accounting pronouncements and determined that there is no material impact on our financial position or results of operations. 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. 4. REVENUE RECOGNITION The following table disaggregates revenue by source: Three Months Ended March 31, 2022 Three Months Ended March 31, 2021 Sales at company owned stores $ 64,296 $ 81,227 Distribution and other 12,203 2,835 E-commerce sales 5,268 5,960 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: Receivables Customer Deposit Liability Opening balance, January 1, 2022 $ 5,741 $ 11,686 Closing balance, March 31, 2022 7,386 7,190 Increase (decrease) $ 1,645 $ ( 4,496 ) Opening balance, January 1, 2021 $ 3,901 $ 5,155 Closing balance, March 31, 2021 4,276 9,939 Increase (decrease) $ 375 $ 4,784 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. 8 GrowGeneration Corp. Notes To Unaudited Condensed Consolidated Financial Statements March 31, 2022 5. INVESTMENTS 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 Basis Corporate notes and bonds $ 19,035 $ — $ 19,035 6. 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: March 31, 2022 December 31, 2021 Notes receivable $ 2,843 $ 2,962 Allowance for losses ( 876 ) ( 522 ) Notes receivable, net $ 1,967 2,440 The following table summarizes changes in notes receivable balances that have been deemed impaired: March 31, 2022 December 31, 2021 Note receivable $ 1,500 $ 1,500 Allowance for losses ( 876 ) ( 522 ) Notes receivable, net $ 624 978 7. PROPERTY AND EQUIPMENT March 31, 2022 December 31, 2021 Vehicles $ 2,442 $ 2,258 Building 2,121 1,187 Leasehold improvements 11,282 9,186 Furniture, fixtures and equipment 12,153 10,992 Capitalized software 2,575 4,753 Construction-in-progress 5,311 2,948 Total property and equipment, gross 35,884 31,324 Accumulated depreciation and amortization ( 8,956 ) ( 7,208 ) Property and equipment, net $ 26,928 $ 24,116 Depreciation expense for the three months ended March 31, 2022 and 2021 was $ 1.8 million, and $ 0.7 million, respectively. 9 GrowGeneration Corp. Notes To Unaudited Condensed Consolidated Financial Statements March 31, 2022 8. GOODWILL AND INTANGIBLE ASSETS The changes in goodwill are as follows: March 31, 2022 December 31, 2021 Balance, beginning of period $ 125,401 $ 62,951 Goodwill additions and measurement period adjustments 7,099 62,450 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 (in years) Trade names 3.92 Patents 3.83 Customer relationships 5.12 Non-competes 3.20 Intellectual property 3.92 Total 4.34 Intangible assets consist of the following: March 31, 2022 December 31, 2021 Gross Carrying Amount Accumulated Amortization Gross Carrying Amount Accumulated Amortization 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 ) Non-competes 1,639 ( 335 ) 1,384 ( 233 ) Intellectual property 2,065 ( 447 ) 2,065 ( 344 ) 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: 2022, remainder $ 8,414 2023 11,217 2024 11,094 2025 10,700 2026 5,654 Thereafter 1,707 Total $ 48,786 10 GrowGeneration Corp. Notes To Unaudited Condensed Consolidated Financial Statements March 31, 2022 9. INCOME TAXES 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. 10. LEASES We determine if a contract contains a lease at inception. Our material operating leases consist of retail and warehouse locations as well as office space. Our leases generally have remaining terms of 1 - 10 years, most of which include options to extend the leases for additional 3 to 5-year periods. Generally, the lease term is the minimum of the non-cancelable period of the lease or the lease term inclusive of reasonably certain renewal periods. 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. March 31, 2022 December 31, 2021 Right of use assets, operating lease assets $ 45,839 $ 43,730 Current lease liability $ 7,740 $ 6,858 Non-current lease liability 39,879 38,546 $ 47,619 $ 45,404 March 31, 2022 March 31, 2021 Weighted average remaining lease term 6.85 years 3.34 years Weighted average discount rate 5.5 % 6.0 % Three Months Ended March 31, 2022 2021 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 11 GrowGeneration Corp. Notes To Unaudited Condensed Consolidated Financial Statements 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 2023 9,711 2024 8,519 2025 7,478 2026 5,841 Thereafter 18,525 Total lease payments 57,715 Less: Imputed interest ( 10,096 ) Lease Liability at March 31, 2022 $ 47,619 11. SHARE BASED PAYMENTS 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). The Company accounts for share-based payments through the measurement and recognition of compensation expense for share-based payment awards made to employees and directors of the Company, including stock options and restricted shares. The Company also issues share based payments in the form of common stock warrants to non-employees. The following table presents share-based payment expense for the three months ended March 31, 2022 and 2021: Three months ended March 31, 2022 2021 Restricted stock $ 1,201 $ 645 Stock options 43 308 Warrants 339 374 Total $ 1,583 $ 1,327 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 first, second, third, or fourth anniversary of the date of grant, subject to the employee’s continuing employment as of that date. 12 GrowGeneration Corp. Notes To Unaudited Condensed Consolidated Financial Statements 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 Vested ( 247,000 ) $ 4.40 Forfeited ( 13,750 ) $ 5.72 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 - Average Exercise Price Weighted - Average Remaining Contractual Term Weighted - Average Grant Date Fair Value Outstanding at December 31, 2021 906,425 $ 4.38 2.85 $ 2.45 Granted — — — — Exercised — — — — Forfeited or expired ( 187,427 ) 5.12 — 2.89 Outstanding at March 31, 2022 718,998 $ 4.02 2.59 $ 4.02 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 three months ended March 31, 2022 is as follows: Warrants Weighted Average Exercise Price Outstanding at December 31, 2021 330,884 $ 22.14 Issued — — Exercised — — Forfeited — — Outstanding at March 31, 2022 330,884 $ 22.14 13 GrowGeneration Corp. Notes To Unaudited Condensed Consolidated Financial Statements March 31, 2022 12. EARNINGS PER SHARE The following table sets forth the composition of the weighted average shares (denominator) used in the basic and dilutive earnings per share computation for the three months ended March 31, 2022 and 2021: Three Months Ended March 31, 2022 March 31, 2021 Net income (loss) $ ( 5,177 ) $ 6,147 Weighted average shares outstanding, basic 60,126 58,394 Effect of dilution — 1,923 Adjusted weighted average shares outstanding, dilutive 60,126 60,317 Basic earnings per share $ ( 0.09 ) $ 0.11 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 March 31, 2022 March 31, 2021 Restricted stock 1,336 — Stock options 393 — Warrants 819 — Total 2,548 — 13. ACQUISITIONS Our acquisition strategy is primarily to acquire (i) well established profitable hydroponic garden centers in markets where the Company does not have a market presence or in markets where it is increasing its market presence; and (ii) proprietary brands and private label brands. The Company accounts for acquisitions in accordance with ASC 805 “Business Combinations.” Assets acquired and liabilities assumed are recorded in the accompanying 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. 14 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. HRG 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. HRG Cash $ 6,806 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. HRG Acquisition date February 1, 2022 Revenue 3,436 Net Income — 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. Indoor Garden & Lighting, Inc. is included in our Retail segment. 15 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. 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. 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. 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. 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. 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. 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. Agron is included in our E-commerce segment. 16 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, 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 Prepaids and other current assets 46 12 29 534 36 30 3 — 690 Furniture and equipment 29 63 50 — 315 250 25 94 826 Liabilities — — — — — ( 169 ) — — ( 169 ) 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 ) Customer relationships 832 339 809 5,712 605 1,256 549 210 10,312 Trade name 1,530 485 870 1,099 1,192 2,748 344 353 8,621 Non-compete 139 — 26 — 6 94 36 2 303 Intellectual property — — — 2,065 — — — — 2,065 Goodwill 8,673 1,702 3,915 6,119 5,728 11,120 866 661 38,784 Total $ 11,249 $ 3,558 $ 6,479 $ 16,368 $ 9,282 $ 17,779 $ 2,149 $ 1,692 $ 68,556 The table below represents the consideration paid for the net assets acquired in business combinations. 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 Common stock 5,276 1,227 1,132 6,466 4,531 9,679 411 527 $ 29,249 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 March 31, 2021. Agron Aquarius 55 Hydro Charcoir San Diego Hydro Grow Warehouse Grow Depot Maine Indoor Garden Total Acquisition date 3/19/2021 3/15/2021 3/15/2021 3/12/2021 2/22/2021 2/15/2021 2/1/2021 1/25/2021 Revenue $ 230 $ 185 $ 328 $ 276 $ 1,001 $ 2,168 $ 993 $ 805 $ 5,986 Net Income $ 22 $ 16 $ 32 $ 101 $ 117 $ 294 $ 205 $ 118 $ 905 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 (Unaudited) Revenue $ 99,095 Net income $ 7,403 17 GrowGeneration Corp. Notes To Unaudited Condensed Consolidated Financial Statements March 31, 2022 14. 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. 15. SEGMENTS 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 18 GrowGeneration Corp. Notes To Unaudited Condensed Consolidated Financial Statements 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, 2022 2021 Net sales Retail $ 64,296 $ 81,227 E-Commerce 5,268 5,960 Distribution and other 12,203 2,835 Total $ 81,767 $ 90,022 Three Months Ended March 31, 2022 2021 Gross profit 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, 2022 2021 Income (Loss) from operations Retail $ ( 7,183 ) $ 6,258 E-Commerce ( 432 ) 441 Distribution and other 394 1,037 Total $ ( 7,221 ) $ 7,736 19