What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-07 compared with 2022-08-09 · 90 added, 92 removed, 117 unchanged (61% of the section changed)

9 unchanged sentences

GrowGeneration is the largest chain of hydroponic garden centers in North America and is a leading marketer and distributor of nutrients, growing media, advanced indoor and greenhouse lighting, environmental control systems and accessories for hydroponic gardening.

GrowGeneration also owns and operates an e-commerce platform, www.growgeneration.com, Mobile Media, a vertical racking and storage solutions business, Horticultural Rep Group, a horticultural products sales representative and distributor organization, and PowerSi, CharCoir, and several other proprietary private-label brands across multiple product categories from LED lighting to nutrients and additives and environmental control systems for indoor cultivation.

GrowGeneration also owns and operates an e-commerce platform, www.growgeneration.com, Mobile Media, a vertical racking and storage solutions business, Horticultural Rep Group, a horticultural products sales representative and distributor organization, and Drip Hydro, PowerSi, CharCoir, and several other proprietary private-label brands across multiple product categories from LED lighting to nutrients and additives and environmental control systems for indoor cultivation.

Markets and Business Segments

GrowGeneration sells thousands of products, including nutrients, growing media, advanced indoor and greenhouse lighting, environmental control systems, vertical benching and accessories for hydroponic gardening, as well as other indoor and outdoor growing products, that are designed and intended for growing a wide range of plants.

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Our retail operations are driven by a wide selection of all hydroponic products, service and solutions driven staff and pick, pack and ship distribution and fulfillment capabilities.

We employed approximately 570 employees as of June 30, 2022, a majority of them we have branded as “Grow Pros.” Currently, our operations span over 958,000 square feet of retail and warehouse space.

We employed approximately 494 employees as of September 30, 2022, a majority of them we have branded as “Grow Pros.” Currently, our operations span over 873,000 square feet of retail and warehouse space.

The Company has three primary reportable segments, including retail operations, e-commerce and all other.

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Growth Strategy

Core to our growth strategy is to expand the number of our retail garden centers throughout North America.

In addition to the 14 states in which we are currently operating, we have identified new market opportunities in states that include Connecticut, Ohio, Illinois, Pennsylvania, New York, New Jersey, Missouri and Virginia.

The Company acquired 23 new locations in 2021 and expects to open additional stores in 2022.

Secondary to this growth strategy is the expansion of distribution and sales capabilities for products that the Company owns, distributes, or represents to independent retail garden centers for resale.

Core to our growth strategy is to establish a presence with our retail garden centers in key markets throughout the United States.

In addition to the 15 states in which we are currently operating, we have identified new market opportunities in certain other states where the market for our products is growing.

The Company acquired 23 new locations in 2021 and expects to open additional stores in 2022 and 2023.

An additional component of our growth strategy is the expansion of distribution and sales capabilities for products that the Company owns, distributes, or represents to independent retail garden centers for resale.

R ESULTS OF OPERATIONS

Comparison of the three months ended June 30, 2022 and 2021

Net revenue for the three months ended June 30, 2022 was approximately $71.1 million, compared to $125.9 million for the three months ended June 30, 2021, a decrease of approximately $54.8 million or 44%.

The decrease was attributed to a decrease of approximately $59.3 million related to same store sales, which represented a decrease of 56.9% year over year.

Comparison of the three months ended September 30, 2022 and 2021

Net revenue for the three months ended September 30, 2022 was approximately $70.9 million, compared to $116.0 million for the three months ended September 30, 2021, a decrease of approximately $45.2 million or 39%.

The decrease was primarily attributed to a decrease of approximately $55.4 million related to same store sales, which represented a decrease of 58% year over year.

Overall sales in our retail segment declined from $100.8 million to $47.9 million.

Distributed sales were $12.0 million for the three months ended June 30, 2022, up 141% year-over-year.

E-commerce sales decreased from $12.0 million for the three months ended June 30, 2021 to $3.7 million for the three months ended June 30, 2022.

Cost of Goods Sold

Cost of goods sold for the three months ended June 30, 2022 was approximately $50.9 million, compared to approximately $90.2 million for the three months ended June 30, 2021, a decrease of approximately $39.3 million or 44%.

The decrease in cost of goods sold was primarily due to the 44% decrease in sales comparing the three months ended June 30, 2022 to the three months ended June 30, 2021.

Gross profit was approximately $20.2 million for the three months ended June 30, 2022, compared to approximately $35.7 million for the three months ended June 30, 2021, a decrease of approximately $15.5 million or 43%.

The decrease in gross profit is primarily related to the 44% decrease in revenues comparing the three months ended June 30, 2022 to the three months ended June 30, 2021.

Gross profit as a percentage of revenues was 28.5% for the three months ended June 30, 2022, compared to 28.4% for the three months ended June 30, 2021.

Gross profit in our retail segment declined from $30.6 million for the three months ended June 30, 2021 to $15.6 million for the same period in 2022.

Gross profit from distributed sales was $3.9 million for the three months ended June 30, 2022 up from $2.2 million for the same period in 2021.

Gross profit from e-commerce revenue was $0.7 million for the three months ended June 30, 2022.

Distributed sales were $19.8 million for the three months ended September 30, 2022, up 322% year-over-year due to the acquisitions of HRG and MMI.

E-commerce sales decreased from $10.5 million for the three months ended September 30, 2021 to $3.1 million for the three months ended September 30, 2022.

Cost of Sales

Cost of sales for the three months ended September 30, 2022 was approximately $52.5 million, compared to approximately $81.9 million for the three months ended September 30, 2021, a decrease of approximately $29.4 million or 36%.

The decrease in cost of sales was primarily due to the 39% decrease in sales comparing the three months ended September 30, 2022 to the three months ended September 30, 2021.

Gross profit was approximately $18.3 million for the three months ended September 30, 2022, compared to approximately $34.1 million for the three months ended September 30, 2021, a decrease of approximately $15.7 million or 46%.

The decrease in gross profit is primarily related to the 39% decrease in net sales comparing the three months ended September 30, 2022 to the three months ended September 30, 2021.

Gross profit as a percentage of revenues was 25.9% for the three months ended September 30, 2022, compared to 29.4% for the three months ended September 30, 2021.

Gross profit in our retail segment declined from $29.0 million for the three months ended September 30, 2021 to $10.4 million for the same period in 2022.

Gross profit from distributed sales was $7.2 million for the three months ended September 30, 2022 up from $1.8 million for the same period in 2021.

Gross profit from e-commerce revenue was $0.8 million for the three months ended September 30, 2022.

Operating Expenses

Operating expenses are comprised of store operations, selling, general, and administrative, and depreciation and amortization.

Operating costs were approximately $157.0 million for the three months ended June 30, 2022 and approximately $26.1 million for the three months ended June 30, 2021, an increase of approximately $130.9 million or 502%.

The increase in operating

expenses is primarily attributable to the impairment loss of $127.8 million recorded during the three months ended June 30, 2022.

Store operating costs were approximately $13.8 million for the three months ended June 30, 2022, compared to $12.6 million for the three months ended June 30, 2021, an increase of $1.1 million or 9%.

The increase in store operating costs was directly attributable to the addition of 23 locations that were added during 2021, including seven stores that were added subsequent to June 30, 2021.

Total corporate overhead, which is comprised of Selling, general, and administrative expense and Depreciation and amortization expense, was approximately $15.4 million for the three months ended June 30, 2022, compared to $13.5 million for the three months ended June 30, 2021, an increase of $2.0 million or 14%.

Selling, general, and administrative costs were approximately $10.6 million for the three months ended June 30, 2022, compared to approximately $10.6 million for the three months ended June 30, 2021.

Operating costs were approximately $26.4 million for the three months ended September 30, 2022 and approximately $29.4 million for the three months ended September 30, 2021, a decrease of approximately $3.0 million or 10%.

Store operating costs were approximately $13.6 million for the three months ended September 30, 2022, compared to $14.8 million for the three months ended September 30, 2021, a decrease of $1.3 million or 8%.

Total corporate overhead, which is comprised of Selling, general, and administrative expense and Depreciation and amortization expense, was approximately $12.8 million for the three months ended September 30, 2022, compared to $14.5 million for the three months ended September 30, 2021, a decrease of $1.7 million or 12%.

Selling, general, and administrative costs were approximately $8.8 million for the three months ended September 30, 2022, compared to approximately $10.5 million for the three months ended September 30, 2021.

Salaries expense decreased to $4.0 million from $5.2 million primarily due to a decrease in corporate staff.

General administrative expenses increased to $4.1 million for the three months ended June 30, 2022 from $3.0 million for the same period in 2021 to support expanding operations.

Impairment loss was approximately $127.8 million for the three months ended June 30, 2022 following goodwill impairment testing performed as a result of, the Company’s market capitalization falling below total net assets.

In addition, financial performance continued to weaken during the quarter.

Refer to Critical Accounting Policies, Judgements, and Estimates and Note 8, Goodwill and Intangible Assets.

General administrative expenses decreased to $3.6 million for the three months ended September 30, 2022 from $3.7 million for the same period in 2021.

Other Income/Expense

Total other income was approximately $0.1 million for the three months ended June 30, 2022, compared to expense of $24 thousand for the three months ended June 30, 2021.

This increase is primarily attributable to a gain recorded in the three months ended June 30, 2022 related to an earnout revaluation adjustment related to The Harvest Company acquisition.

Total other income was approximately $0.2 million for the three months ended September 30, 2022, compared to expense of $0.4 million for the three months ended September 30, 2021.

Segment Operating Income

Operating income in our retail segment dropped from $8.6 million to an operating loss of $107.1 million as a result of impairment expense, lower sales volume, lower gross margins and higher expenses at existing stores combined with operating losses at seven stores not in operation in the same period in 2021, including acquired and new retail locations.

Operating income in our e-commerce segment declined from a loss of $15.0 thousand to a loss of $8.6 million, as a result of impairment expense, lower revenue and higher operating expenses as well as integration costs of Agron.IO that was consolidated with our core e-commerce webstore in the period.

Operating income in all other decreased to a loss of $21.1 million in the three months ended June 30, 2022 compared to income of $1.0 million in the three months ended June 30, 2021.

Income tax benefit was $0.3 million for the three months ended June 30, 2022, compared to income tax expense of $2.9 million for the three months ended June 30, 2021.

Operating income in our retail segment dropped from $4.0 million to an operating loss of $23.7 million as a result of lower sales volume, lower gross margins and higher expenses at existing stores combined with operating losses at two stores not in operation in the same period in 2021, including acquired and new retail locations.

Operating income in our e-commerce segment decreased from a loss of $30.0 thousand to a loss of $2.8 million, as a result of the decrease in gross profit primarily from declining demand throughout the industry.

Operating income in all other decreased to a loss of $18.4 million in the three months ended September 30, 2022 compared to income of $0.7 million in the three months ended September 30, 2021.

Income tax benefit was $0.7 million for the three months ended September 30, 2022, compared to income tax expense of $1.1 million for the three months ended September 30, 2021.

Effective tax rate is impacted by differences in timing of expenses for share-based compensation, depreciation, amortization and the impact of 162(m) on deductible wages.

As such, the Company’s taxable income varies from reported income in a material way.The Company has evaluated positive and negative evidence and has concluded that its deferred tax assets are not expected to be realizable and has recorded a valuation allowance in the current period.

Net loss for the three months ended June 30, 2022 was approximately $136.4 million, compared to net income of approximately $6.7 million for the three months ended June 30, 2021, a decrease of approximately $143.1 million.

Comparison of the six months ended June 30, 2022 and 2021

Net revenue for the six months ended June 30, 2022 was approximately $152.9 million, compared to $215.9 million for the six months ended June 30, 2021, a decrease of approximately $63.0 million or 29%.

The decrease was attributed to a decrease of approximately $85.5 million related to same store sales, which represented an approximate 48.0% decrease year over year.

Overall sales in our retail segment declined from $190.1 million for the six months ended June 30, 2021, to $119.7 million for the same period in 2022.

Distributed sales were $24.2 million.

E-commerce sales decreased from $17.9 million for the six months ended June 30, 2021, to $9.0 million for the same period in 2022.

Cost of Goods Sold

Cost of goods sold for the six months ended June 30, 2022 was approximately $110.5 million, compared to approximately $154.8 million for the six months ended June 30, 2021, a decrease of approximately $44.3 million or 29%.

The decrease in cost of goods sold was primarily due to the 29% decrease in sales comparing the six months ended June 30, 2022 to the six months ended June 30, 2021.

Gross profit was approximately $42.4 million for the six months ended June 30, 2022, compared to approximately $61.1 million for the six months ended June 30, 2021, a decrease of approximately $18.7 million or 31%.

The decrease in gross profit is primarily related to the 29% decrease in revenues comparing the six months ended June 30, 2022 to the six months ended June 30, 2021.

Gross profit as a percentage of revenues was 27.7% for the six months ended June 30, 2022, compared to 28.3% for the six months ended June 30, 2021.

Gross profit in our retail segment declined from $52.5 million for the six months ended June 30, 2021, to $31.1 million for the same period in 2022.

Gross profit from distributed sales increased to $8.8 million for the six months ended June 30, 2022 compared to $3.7 million for the six months ended June 30, 2021.

Gross profit from our e-commerce segment was $2.5 million for the six months ended June 30, 2022 compared to $4.9 million for the six months ended June 30, 2021.

As such, the Company’s taxable income varies from reported income in a material way.

The Company has evaluated positive and negative evidence and has concluded that its deferred tax assets are not expected to be realizable and has recorded a valuation allowance in the current period.

Net loss for the three months ended September 30, 2022 was approximately $7.2 million, compared to net income of approximately $4.0 million for the three months ended September 30, 2021, a decrease of approximately $11.2 million.

Comparison of the nine months ended September 30, 2022 and 2021

Net revenue for the nine months ended September 30, 2022 was approximately $223.7 million, compared to $331.9 million for the nine months ended September 30, 2021, a decrease of approximately $108.2 million or 33%.

The decrease was primarily attributed to a decrease of approximately $141.0 million related to same store sales, which represented an approximate 51.6% decrease year over year.

Overall sales in our retail segment declined from $290.9 million for the nine months ended September 30, 2021, to $167.6 million for the same period in 2022.

Distributed sales increased to $44.1 million for the nine months ended September 30, 2022 compared to $12.5 million for the nine months ended September 30, 2021 due to the acquisitions of HRG and MMI.

E-commerce sales decreased from $28.5 million for the nine months ended September 30, 2021, to $12.0 million for the same period in 2022.

Cost of Sales

Cost of sales for the nine months ended September 30, 2022 was approximately $163.0 million, compared to approximately $236.8 million for the nine months ended September 30, 2021, a decrease of approximately $73.7 million or 31%.

The decrease in cost of sales was primarily due to the 33% decrease in sales comparing the nine months ended September 30, 2022 to the nine months ended September 30, 2021.

Gross profit was approximately $60.7 million for the nine months ended September 30, 2022, compared to approximately $95.2 million for the nine months ended September 30, 2021, a decrease of approximately $34.5 million or 36%.

The decrease in gross profit is primarily related to the 33% decrease in net sales comparing the nine months ended September 30, 2022 to the nine months ended September 30, 2021.

Gross profit as a percentage of net sales was 27.1% for the nine months ended September 30, 2022, compared to 28.7% for the nine months ended September 30, 2021.

Gross profit in our retail segment declined from $81.5 million for the nine months ended September 30, 2021, to $41.4 million for the same period in 2022.

Gross profit from distributed sales increased to $16.0 million for the nine months ended September 30, 2022 compared to $5.5 million for the nine months ended September 30, 2021.

Gross profit from our e-commerce segment was $3.3 million for the nine months ended September 30, 2022 compared to $8.2 million for the nine months ended September 30, 2021.

Operating Expenses

Operating expenses are comprised of store operations, selling, general, and administrative, and depreciation and amortization.

Operating costs were approximately $186.4 million for the six months ended June 30, 2022 and approximately $43.7 million for the six months ended June 30, 2021, an increase of approximately $142.6 million or 326%.

The increase in operating expenses is primarily attributable to the impairment loss of $127.8 million recorded during the six months ended June 30, 2022.

Store operating costs were approximately $28.3 million for the six months ended June 30, 2022, compared to $20.8 million for the six months ended June 30, 2021, an increase of $7.5 million or 36%.

The increase in store operating costs was directly attributable to the addition of 23 locations that were added during 2021, including seven stores that were added subsequent to June 30, 2021.

Total corporate overhead, which is comprised of Selling, general, and administrative expense and Depreciation and amortization expense, was approximately $30.3 million for the six months ended June 30, 2022, compared to $22.9 million for the six months ended June 30, 2021, an increase of $7.3 million or 32%.

Selling, general, and administrative costs were approximately $21.0 million for the six months ended June 30, 2022, compared to approximately $18.0 million for the six months ended June 30, 2021.

Salaries expense increased to $10.6 million for the six months ended June 30, 2022, from $9.6 million for the same period in 2021, primarily due to an increase in corporate staff.

General administrative expenses increased to $7.7 million for the six months ended June 30, 2022, from $5.1 million for the same period in 2021, to support expanding operations.

Impairment loss was approximately $127.8 million for the six months ended June 30, 2022 following goodwill impairment testing performed as a result of, the Company’s market capitalization falling below total net assets.

In addition, financial performance continued to weaken during the quarter.

Refer to Critical Accounting Policies, Judgements, and Estimates and Note 8, Goodwill and Intangible Assets.

Operating costs were approximately $212.8 million for the nine months ended September 30, 2022 and approximately $73.1 million for the nine months ended September 30, 2021, an increase of approximately $139.7 million or 191%.

The increase in operating expenses is primarily attributable to the impairment loss of $127.8 million recorded during the nine months ended September 30, 2022.

Store operating costs were approximately $41.9 million for the nine months ended September 30, 2022, compared to $35.6 million for the nine months ended September 30, 2021, an increase of $6.2 million or 17%.

The increase in store operating costs was directly attributable to the addition of 23 locations that were acquired during 2021, including two stores that were added subsequent to September 30, 2021.

Total corporate overhead, which is comprised of Selling, general, and administrative expense and Depreciation and amortization expense, was approximately $43.1 million for the nine months ended September 30, 2022, compared to $37.5 million for the nine months ended September 30, 2021, an increase of $5.6 million or 15%.

Selling, general, and administrative costs were approximately $28.2 million for the nine months ended September 30, 2022, compared to approximately $28.1 million for the nine months ended September 30, 2021.

Salaries expense decreased to $14.7 million for the nine months ended September 30, 2022, from $14.9 million for the same period in 2021.

General administrative expenses increased to $11.3 million for the nine months ended September 30, 2022, from $8.8 million for the same period in 2021, to support expanding operations.

Impairment loss was approximately $127.8 million for the nine months ended September 30, 2022 following goodwill impairment testing performed in the second quarter as a result of the Company’s market capitalization falling below total net assets.

In addition, financial performance continued to weaken during the quarter for which testing was performed.

Refer to Critical Accounting Policies, Judgements, and Estimates and Note 8 - "Goodwill and Intangible Assets" of the notes to the condensed consolidated financial statements for additional information.

Other Income/Expense

Total other income was approximately $0.5 million for the six months ended June 30, 2022, compared to expense of $12.0 thousand for the six months ended June 30, 2021.

This increase is primarily attributable to a gain recorded during the six months ended June 30, 2022, related to an earnout revaluation adjustment related to The Harvest Company acquisition.

Total other income was approximately $0.7 million for the nine months ended September 30, 2022, compared to expense of $0.4 million for the nine months ended September 30, 2021.

This increase is primarily attributable to a gain recorded during the nine months ended September 30, 2022, related to an earnout revaluation adjustment related to The Harvest Company acquisition.

Segment Operating Income

Operating income in our retail segment dropped from $14.9 million to an operating loss of $114.3 million as a result of lower sales volume and higher expenses at existing stores combined with operating losses at nine stores not in operation in the same period in 2021, including acquired and new retail locations.

Operating income in our e-commerce segment declined from $0.4 million for the six months ended June 30, 2021 to a loss of $9.0 million for the same period in 2022, as a result of lower revenue and higher operating expenses as well as integration costs of Agron.IO that was consolidated with our core e-commerce webstore in the six months ended June 30, 2022.

Operating income in all other decreased to a loss of $20.7 million in the six months ended June 30, 2022 compared to income of $2.0 million in the six months ended June 30, 2021.

Income tax benefit was $1.9 million for the six months ended June 30, 2022, compared to income tax expense of $4.5 million for the six months ended June 30, 2021.

Operating income in our retail segment dropped from $18.9 million to an operating loss of $137.9 million.

The operating loss for the current year includes an impairment of Operating income in our e-commerce segment declined from $0.4 million for the nine months ended September 30, 2021 to a loss of $11.9 million for the same period in 2022, as a result of lower revenue and higher operating expenses as well as integration costs of Agron.IO webstore that was consolidated with our core e-commerce webstore in the nine months ended September 30, 2022.

Operating income in all other decreased to a loss of $2.3 million in the nine months ended September 30, 2022 compared to income of $2.7 million in the nine months ended September 30, 2021.

Income tax benefit was $2.6 million for the nine months ended September 30, 2022, compared to income tax expense of $5.6 million for the nine months ended September 30, 2021.

Effective tax rate is impacted by differences in timing of expenses for share-based compensation, depreciation, amortization and the impact of 162(m) on deductible wages.

Net loss for the six months ended June 30, 2022 was approximately $141.6 million, compared to net income of approximately $12.9 million for the six months ended June 30, 2021, a decrease of approximately $154.4 million.

As such, the Company’s taxable income varies from reported income in a material way.

The Company has evaluated positive and negative evidence and has concluded that its deferred tax assets are not expected to be realizable and has recorded a valuation allowance in the current period.

Net loss for the nine months ended September 30, 2022 was approximately $148.8 million, compared to net income of approximately $16.9 million for the nine months ended September 30, 2021, a decrease of approximately $165.6 million.

Operating Activities

Net cash provided by operating activities for six months ended June 30, 2022 was approximately $1.6 million compared to $2.3 million provided for the six months ended June 30, 2021.

The Company reduced prepaid inventory by $8.5 million in the current year as well as inventory by $10.7 million, which was more that offset by payments for accounts payable and deferred compensation, including annual cash bonuses.

Net cash provided by investing activities was approximately $14.2 million for the six months ended June 30, 2022 compared to cash used of approximately $111.1 million for the six months ended June 30, 2021.

Net cash provided by operating activities for nine months ended September 30, 2022 was approximately $9.9 million compared to $1.9 million provided for the nine months ended September 30, 2021.

The Company reduced prepaid inventory by $11.3 million in the current year as well as inventory by $20.7 million, which was partially offset by payments for accounts payable, accrued payroll, and a reduction in customer deposits..

Net cash provided by investing activities was approximately $21.4 million for the nine months ended September 30, 2022 compared to cash used of approximately $114.8 million for the nine months ended September 30, 2021.

Investing activities in 2022 were primarily attributable to the maturity of marketable securities of $39.8 million partially offset by acquisitions of $6.8 million and vehicles and store equipment purchases of $11.6 million.

Investing activities for the six months ended June 30, 2021 were primarily related to store acquisitions of $48.0 million, purchase of marketable securities of $57.4 million, the purchase of vehicles and store equipment to support new store operations of $4.4 million, and intangible assets of $1.3 million.

Net cash used in financing activities for the six months ended June 30, 2022 was approximately $1.5 million and was primarily attributable to common stock withheld for employee payroll taxes.

Net cash used by financing activities for six months ended June 30, 2021 was $1.9 million and was primarily attributable to stock redemptions.

Investing activities for the nine months ended September 30, 2021 were primarily related to store acquisitions of $71.8 million, purchase of marketable securities of $75.0 million, the purchase of vehicles and store equipment to support new store operations of $10.8 million, and intangible assets of $2.3 million.

Net cash used in financing activities for the nine months ended September 30, 2022 was approximately $1.5 million and was primarily attributable to common stock withheld for employee payroll taxes.

Net cash used by financing activities for nine months ended September 30, 2021 was $1.9 million and was primarily attributable to stock withheld to cover payroll taxes.

Use of Non-GAAP Financial Information

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Three Months Ended

Net income $ (136,379) $ 6,713

September 30,

Net income (loss) $ (7,202) $ 4,027

Income taxes (718) 1,096

Interest 10 4

Interest expense 3 25

Depreciation and amortization 3,875 3,539

EBITDA $ (4,042) $ 8,687

Impairment loss 127,831 —

Share based compensation (option compensation, warrant compensation, stock issued for services) 1,291 2,106

Fixed asset disposal 165 —

Adjusted EBITDA $ (2,586) $ 10,793

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Adjusted EBITDA per share, diluted $ (0.04) $ 0.18

Six Months Ended

Net income $ (141,556) $ 12,860

Nine Months Ended

September 30,

Net income (loss) $ (148,758) $ 16,887

Income taxes (2,637) 5,569

Interest 13 6

Interest expense 16 31

Depreciation, and amortization 13,164 8,510

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Share based compensation (option compensation, warrant compensation, stock issued for services) 3,980 5,347

Fixed asset disposal 81 —

Adjusted EBITDA $ (6,323) $ 36,344

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LIQUIDITY AND CAPITAL RESOURCES

As of June 30, 2022, we had working capital of approximately $150.0 million, compared to working capital of approximately $169.8 million as of December 31, 2021, a decrease of approximately $19.8 million.

The decrease in working capital from December 31, 2021 to June 30, 2022 was due primarily to a decrease in marketable securities, inventory and prepaid inventory partially offset by decreases in current liabilities.

At June 30, 2022, we had cash and cash equivalents of approximately $55.6 million and available for sale debt securities of $10.0 million.

As of September 30, 2022, we had working capital of approximately $145.8 million, compared to working capital of approximately $169.8 million as of December 31, 2021, a decrease of approximately $24.0 million.

The decrease in working capital from December 31, 2021 to September 30, 2022 was due primarily to a decrease in marketable securities, inventory and prepaid inventory partially offset by decreases in current liabilities.

At September 30, 2022, we had cash and cash equivalents of approximately $71.1 million.

Currently, we have no extraordinary demands, commitments or uncertainties that would reduce our current working capital.

Our core strategy continues to focus on expanding our geographic reach across the United States and building our store and brand portfolio through organic growth and acquisitions.

Based on our strategy we may need to raise additional capital in the future through equity offerings and/or debt financings.

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

We anticipate that we may need additional financing in the future to continue to acquire and open new stores and related businesses.

We anticipate that we may need additional financing through equity offerings and/or debt financings in the future to continue to acquire and open new stores and related businesses.

To date we have financed our operations through the issuance and sale of common stock, convertible notes and warrants.

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The Company reviews goodwill for impairment during the fourth fiscal quarter or more frequently if events or changes in circumstances indicate the asset might be impaired.

The Company performs impairment reviews for its reporting units using a fair value method based on management's judgments and assumptions or third-party valuations.

The Company performs impairment reviews for its reporting units using a fair value method based on management's judgements and assumptions or third-party valuations.

For goodwill impairment testing purposes, the Company determined four reporting units, three of which were subject to a quantitative assessment.

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Intangible assets with definite lives continue to be amortized over their estimated useful lives and are subject to impairment testing as part of their asset group if events or changes in circumstances indicate that the asset might be impaired.

A considerable amount of management judgment and assumptions are required in performing the impairment tests.

A considerable amount of management judgement and assumptions are required in performing the impairment tests.

During the second quarter of 2022, the Company concluded it had a triggering event.

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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 2. Management’s Discussion and Analysis