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, 2023 December 31, 2022 ASSETS Current assets: Cash and cash equivalents $ 62,738 $ 40,054 Marketable securities 9,126 31,852 Accounts receivable, net of allowance for credit losses of $ 0.7 million and $ 0.7 million at March 31, 2023 and December 31, 2022 7,569 8,336 Notes receivable, current, net of allowance for credit losses of $ 1.7 million and $ 1.3 million at March 31, 2023 and December 31, 2022 — 1,214 Inventory 75,581 77,091 Prepaid income taxes 625 5,679 Prepaids and other current assets 8,250 6,455 Total current assets 163,889 170,681 Property and equipment, net 30,274 28,669 Operating leases right-of-use assets 43,581 46,433 Intangible assets, net 28,479 30,878 Goodwill 15,978 15,978 Other assets 442 803 TOTAL ASSETS $ 282,643 $ 293,442 LIABILITIES & STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 15,414 $ 15,728 Accrued liabilities 1,985 1,535 Payroll and payroll tax liabilities 2,363 4,671 Customer deposits 3,916 4,338 Sales tax payable 1,467 1,341 Current maturities of lease liability 8,004 8,131 Current portion of long-term debt 34 50 Total current liabilities 33,183 35,794 Commitments and contingencies (Note 12) Operating lease liability, net of current maturities 38,130 40,659 Other long-term liabilities 627 593 Total liabilities 71,940 77,046 Stockholders’ equity: Common stock; $ 0.001 par value; 100,000,000 shares authorized, 61,035,521 and 61,010,155 shares issued and outstanding as of March 31, 2023 and December 31, 2022 61 61 Additional paid-in capital 370,379 369,938 Retained earnings (deficit) ( 159,737 ) ( 153,603 ) Total stockholders’ equity 210,703 216,396 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 282,643 $ 293,442 The accompanying notes are an integral part of these Condensed Consolidated Financial Statements. 1 GROWGENERATION CORP. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (in thousands, except shares and per share amounts) Three Months Ended March 31, 2023 2022 Net sales $ 56,827 $ 81,767 Cost of sales (exclusive of depreciation and amortization shown below) 40,538 59,627 Gross profit 16,289 22,140 Operating expenses: Store operations and other operational expenses 12,966 14,532 Selling, general, and administrative 6,838 9,609 Bad debt expense 317 714 Depreciation and amortization 3,932 4,506 Total operating expenses 24,053 29,361 Income (Loss) from operations ( 7,764 ) ( 7,221 ) Other income (expense): Other income (expense) 1,204 409 Interest income 428 2 Interest expense ( 2 ) ( 3 ) Total non-operating income (expense), net 1,630 408 Net income (loss) before taxes ( 6,134 ) ( 6,813 ) Benefit (provision) for income taxes — 1,636 Net income (loss) $ ( 6,134 ) $ ( 5,177 ) Net income (loss) per share, basic $ ( 0.10 ) $ ( 0.09 ) Net income (loss) per share, diluted $ ( 0.10 ) $ ( 0.09 ) Weighted average shares outstanding, basic 61,028 60,126 Weighted average shares outstanding, diluted 61,028 60,126 The accompanying notes are an integral part of these Condensed Consolidated Financial Statements. 2 GROWGENERATION CORP. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY THREE MONTHS ENDED MARCH 31, 2023 AND 2022 (Unaudited) (in thousands, except shares and per share amounts) Common Stock Additional Paid-In Capital Retained Earnings (Deficit) Total Stockholders’ Equity Shares Amount Balances, December 31, 2022 61,010 $ 61 $ 369,938 $ ( 153,603 ) $ 216,396 Common stock issued for share based compensation 25 — — — — Common stock withheld for employee payroll taxes — — ( 70 ) — ( 70 ) Share based compensation — — 511 — 511 Net income (loss) — — — ( 6,134 ) ( 6,134 ) Balances, March 31, 2023 61,035 $ 61 $ 370,379 $ ( 159,737 ) $ 210,703 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 combinations 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 The accompanying notes are an integral part of these Condensed Consolidated Financial Statements. 3 GROWGENERATION CORP. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands, except shares and per share amounts) Three Months Ended March 31, 2023 2022 Cash flows from operating activities: Net income (loss) $ ( 6,134 ) $ ( 5,177 ) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 3,932 4,506 Stock-based compensation expense 567 1,583 Bad debt expense, net of recoveries 317 714 Gain (loss) on asset disposition ( 19 ) 20 Deferred taxes — ( 1,636 ) Changes in operating assets and liabilities (net of the effect of acquisitions): Accounts and notes receivable 1,664 ( 1,886 ) Inventory 1,627 3,761 Prepaid expenses and other assets 3,621 9,740 Accounts payable and accrued liabilities 114 ( 5,082 ) Operating leases 372 106 Payroll and payroll tax liabilities ( 2,308 ) ( 3,138 ) Customer deposits ( 422 ) ( 5,738 ) Sales tax payable 126 5 Net cash provided by (used in) operating activities 3,457 ( 2,222 ) Cash flows from investing activities: Acquisitions, net of cash acquired — ( 6,806 ) Purchase of marketable securities ( 10,726 ) — Maturities from marketable securities 33,452 20,758 Purchase of property and equipment ( 3,476 ) ( 4,451 ) Disposal of assets 63 — Net cash provided by (used in) investing activities 19,313 9,501 Cash flows from financing activities: Principal payments on long term debt ( 16 ) ( 23 ) Common stock withheld for employee payroll taxes ( 70 ) ( 1,355 ) Net cash provided by (used in) financing activities ( 86 ) ( 1,378 ) Net change 22,684 5,901 Cash and cash equivalents at the beginning of period 40,054 41,372 Cash and cash equivalents at the end of period $ 62,738 $ 47,273 Supplemental disclosures of non-cash activities: Cash paid for interest $ 2 $ 3 Common stock issued for business combination $ — $ 5,750 Right of use assets acquired under new operating leases $ 1,310 $ 2,703 The accompanying notes are an integral part of these Condensed Consolidated Financial Statements. 4 GrowGeneration Corp. Notes To Condensed Consolidated Financial Statements March 31, 2023 (Unaudited) 1. GENERAL GrowGeneration Corp. (together with its direct and indirect wholly owned subsidiaries, collectively “GrowGeneration” or the “Company”) is a leading marketer and distributor of nutrients, growing media, lighting, benching and racking, environmental control systems, and other products for both indoor and outdoor hydroponic and organic gardening, including proprietary brands such as Charcoir, Drip Hydro, Power Si, MMI benching and racking, Ion lights, Durabreeze fans, and more. Incorporated in Colorado in 2014, GrowGeneration is the largest chain of specialty retail hydroponic and organic garden centers in the U.S. As of March 31, 2023, GrowGeneration has 59 retail locations across 16 states in the U.S. The Company also operates an online superstore for cultivators at growgeneration.com, as well as a wholesale business for resellers, HRG Distribution, and a benching, racking, and storage solutions business, MMI. GrowGeneration also provides facility design services to commercial growers. 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, 2022 (“2022 Form 10-K”). There were no significant changes to our significant accounting policies as disclosed in our 2022 Form 10-K. 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 share and per share data, are in thousands (000). Reclassifications Certain amounts in the prior period consolidated financial statements have been reclassified to conform to the current period presentation. These reclassifications had no effect on reported consolidated net income. Use of Estimates Management uses estimates and assumptions in preparing these consolidated financial statements in accordance with generally accepted accounting principles. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported revenues and expenses during the reporting period. Actual results could vary from the estimates that were used. 5 GrowGeneration Corp. Notes To Unaudited Condensed Consolidated Financial Statements March 31, 2023 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 judgement. Accordingly, the degree of judgement 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, 2023 December 31, 2022 Cash equivalents 1 $ 36,296 $ 25,087 Marketable securities 2 $ 9,126 $ 31,852 6 GrowGeneration Corp. Notes To Unaudited Condensed Consolidated Financial Statements March 31, 2023 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. 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. ASU No. 2016-13 was effective January 1, 2020. The Company has adopted this standard effective January 1, 2023. The adoption of this standard primarily applied to the valuation of the Company’s accounts receivable. Based on the composition of the Company’s accounts receivable, investment portfolio, and other financial assets, including current market conditions and historical credit loss activity, the adoption of this standard did not have a material impact on the Company’s consolidated financial statements or disclosures. Specifically, the Company’s estimate of expected credit losses as of March 31, 2023, using its expected credit loss evaluation process described above, resulted in no adjustments to the provision for credit losses and no cumulative-effect adjustment to accumulated deficit on the adoption date of the standard. 4. REVENUE RECOGNITION Disaggregation of Revenues Sales are disaggregated by our segments, which represent our principal lines of business, as well as by our private label products versus distributed brands, or by commercial fixture revenue. See Note 13, Segments , for disaggregated revenue by segment. 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, 2023 $ 8,336 $ 4,338 Closing balance, March 31, 2023 7,569 3,916 Increase (decrease) $ ( 767 ) $ ( 422 ) Opening balance, January 1, 2022 $ 5,741 $ 11,686 Closing balance, March 31, 2022 7,386 7,190 Increase (decrease) $ 1,645 $ ( 4,496 ) Of the total amount of customer deposit liability as of January 1, 2023, $ 2.3 million was reported as revenue during the three months ended March 31, 2023. 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. 7 GrowGeneration Corp. Notes To Unaudited Condensed Consolidated Financial Statements March 31, 2023 5. PROPERTY AND EQUIPMENT March 31, 2023 December 31, 2022 Vehicles $ 2,482 $ 2,176 Building 2,121 2,121 Leasehold improvements 12,695 12,562 Furniture, fixtures and equipment 13,578 13,195 Capitalized software 2,761 2,644 Construction-in-progress 11,878 9,569 Total property and equipment, gross 45,515 42,267 Accumulated depreciation ( 15,241 ) ( 13,598 ) Property and equipment, net $ 30,274 $ 28,669 Depreciation expense for the three months ended March 31, 2023 was $ 1.7 million. Depreciation expense for the three months ended March 31, 2022 was $ 1.8 million. 8 GrowGeneration Corp. Notes To Unaudited Condensed Consolidated Financial Statements March 31, 2023 6. GOODWILL AND INTANGIBLE ASSETS The Company performs its goodwill impairment testing annually during the fourth quarter, or more frequently if events or if circumstances were to occur that would more likely than not reduce the fair value of our reporting unit below its carrying amount. The Company would recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, not to exceed the total amount of goodwill. The adjusted carrying amount of goodwill shall be its new accounting basis. During the second quarter of 2022, the Company’s market capitalization fell below total net assets. In addition, financial performance continued to weaken during the quarter, which is contrary to prior experience. Management reassessed business performance expectations, following persistent adverse developments in equity markets, deterioration in the environment in which we operate, inflation, lower than expected sales, and an increase in operating expenses. These indicators, in the aggregate, required impairment testing for finite-lived intangible assets at the asset group level and goodwill at the reporting unit level. Under ASC 360, we performed a cash recoverability test on the following intangible assets: customer relationships, trade name, and non-compete. The carrying amounts of any assets that are not within the scope of ASC 360-10, other than goodwill, were adjusted for impairment, as necessary, prior to testing long-lived assets and goodwill. The Company recognized impairment losses as disclosed in the table below. For goodwill impairment testing purposes, the Company determined four reporting units, three of which were subject to a quantitative assessment. We determined fair value using the income approach, where estimated future returns are discounted to present value at an appropriate rate of return. The Company completed its interim goodwill impairment test as of June 30, 2022 and recognized impairment losses as disclosed in the table below. The changes in goodwill are as follows: March 31, 2023 December 31, 2022 Balance, beginning of period $ 15,978 $ 125,401 Goodwill additions and measurement period adjustments — 7,234 Impairment — ( 116,657 ) Balance, end of period $ 15,978 $ 15,978 The goodwill balance and impairment by segment are as follows: Retail E-commerce Distribution Total Gross carrying value at December 31, 2021 $ 101,811 $ 11,659 $ 11,931 $ 125,401 Acquisitions & measurement period adjustments 1,418 ( 341 ) 6,157 7,234 Gross carrying value at December 31, 2022 103,229 11,318 18,088 132,635 Acquisitions & measurement period adjustments — — — — Gross carrying value, at March 31, 2023 $ 103,229 $ 11,318 $ 18,088 $ 132,635 Accumulated impairment losses at December 31, 2021 $ — $ — $ — $ — Impairment ( 103,094 ) ( 9,848 ) ( 3,715 ) ( 116,657 ) Accumulated impairment losses at December 31, 2022 ( 103,094 ) ( 9,848 ) ( 3,715 ) ( 116,657 ) Impairment — — — — Accumulated impairment losses at March 31, 2023 $ ( 103,094 ) $ ( 9,848 ) $ ( 3,715 ) $ ( 116,657 ) Net carrying value at December 31, 2022 $ 135 $ 1,470 $ 14,373 $ 15,978 Net carrying value at March 31, 2023 $ 135 $ 1,470 $ 14,373 $ 15,978 9 GrowGeneration Corp. Notes To Unaudited Condensed Consolidated Financial Statements March 31, 2023 A summary of intangible assets is as follows: Weighted-Average Amortization Period of Intangible Assets as of March 31, 2023 (in years) Trade names 2.99 Patents 2.84 Customer relationships 4.26 Non-competes 1.65 Intellectual property 2.92 Total 3.13 Intangible assets consist of the following: March 31, 2023 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Trade names $ 29,063 $ ( 12,160 ) $ 16,903 Patents 100 ( 60 ) 40 Customer relationships 17,102 ( 7,093 ) 10,009 Non-competes 932 ( 610 ) 322 Intellectual property 2,065 ( 860 ) 1,205 Total $ 49,262 $ ( 20,783 ) $ 28,479 December 31, 2022 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Trade names $ 28,774 $ ( 10,693 ) $ 18,081 Patents 389 ( 56 ) 333 Customer relationships 17,102 ( 6,501 ) 10,601 Non-competes 932 ( 551 ) 381 Intellectual property 2,065 ( 758 ) 1,307 Total $ 49,262 $ ( 18,559 ) $ 30,703 10 GrowGeneration Corp. Notes To Unaudited Condensed Consolidated Financial Statements March 31, 2023 Intangibles and impairment by segment are as follows: Retail E-commerce Distribution Total Gross carrying value at December 31, 2021 $ 37,825 $ 2,501 $ 16,698 $ 57,024 Acquisitions & measurement period adjustments 230 — 3,182 3,412 Gross carrying value at December 31, 2022 38,055 2,501 19,880 60,436 Acquisitions & measurement period adjustments — — — — Gross carrying value at March 31, 2023 $ 38,055 $ 2,501 $ 19,880 $ 60,436 Accumulated amortization at December 31, 2021 $ ( 6,285 ) $ ( 354 ) $ ( 1,983 ) $ ( 8,622 ) Amortization ( 5,897 ) ( 460 ) ( 3,580 ) ( 9,937 ) Accumulated amortization at December 31, 2022 ( 12,182 ) ( 814 ) ( 5,563 ) ( 18,559 ) Amortization ( 1,205 ) ( 112 ) ( 907 ) ( 2,224 ) Accumulated amortization at March 31, 2023 $ ( 13,387 ) $ ( 926 ) $ ( 6,470 ) $ ( 20,783 ) Accumulated impairment losses at December 31, 2021 $ — $ — $ — $ — Impairments ( 11,079 ) ( 95 ) — ( 11,174 ) Accumulated impairment losses at December 31, 2022 ( 11,079 ) ( 95 ) — ( 11,174 ) Impairments — — — — Accumulated impairment losses at March 31, 2023 $ ( 11,079 ) $ ( 95 ) $ — $ ( 11,174 ) Net carrying value at December 31, 2022 $ 14,794 $ 1,592 $ 14,317 $ 30,703 Net carrying value at March 31, 2023 $ 13,589 $ 1,480 $ 13,410 $ 28,479 Amortization expense for the three months ended March 31, 2023 was $ 2.2 million. Amortization expense for the three months ended March 31, 2022 was $ 2.7 million. Future amortization expense is as follows: 2023, remainder $ 6,632 2024 8,726 2025 8,353 2026 3,589 2027 1,144 Thereafter 35 Total $ 28,479 7. INCOME TAXES For the three months ended March 31, 2023, the effective tax rate is 0.00 % which decreased from 24.02 % for the three months ended March 31, 2022. The decrease in the effective tax rate is primarily due to the Company recording a valuation allowance against deferred tax assets. The effective tax rate for the three months ended March 31, 2023 is lower than the U.S. federal statutory rate of 21.0%, which is also primarily due to the Company recording a valuation allowance against deferred tax assets. 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. 11 GrowGeneration Corp. Notes To Unaudited Condensed Consolidated Financial Statements March 31, 2023 8. 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 to 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-cancellable 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, 2023 December 31, 2022 Right of use assets, operating lease assets $ 43,581 $ 46,433 Current lease liability $ 8,004 $ 8,131 Non-current lease liability 38,130 40,659 Total lease liability $ 46,134 $ 48,790 March 31, 2023 March 31, 2022 Weighted average remaining lease term 6.46 years 6.85 years Weighted average discount rate 5.8 % 5.5 % Three Months Ended March 31, 2023 2022 Operating lease costs $ 2,893 $ 2,662 Variable lease costs 599 863 Short-term lease costs 167 126 Total operating lease costs $ 3,659 $ 3,651 12 GrowGeneration Corp. Notes To Unaudited Condensed Consolidated Financial Statements March 31, 2023 The following table presents the maturity of the Company’s operating lease liabilities as of March 31, 2023 : 2023 (remainder of the year) $ 7,887 2024 9,600 2025 8,731 2026 7,307 2027 5,414 Thereafter 16,671 Total lease payments 55,610 Less: Imputed interest ( 9,476 ) Lease Liability at March 31, 2023 $ 46,134 9. SHARE BASED PAYMENTS The Company maintains long-term incentive plans for employees, non-employee members of our Board of Directors and consultants. The plans allow 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, 2023 and 2022: Three months ended March 31, 2023 2022 Restricted stock $ 567 $ 1,201 Stock options — 43 Warrants — 339 Total $ 567 $ 1,583 As of March 31, 2023, the Company had approximately $ 7.8 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 2.7 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. Restricted stock is valued using market value on the grant date. Restricted stock activity for the three months ended March 31, 2023 is presented in the following table: Shares Weighted Average Grant Date Fair Value Nonvested, December 31, 2022 614,875 $ 9.41 Granted 263,000 $ 5.35 Vested ( 39,416 ) $ 10.27 Forfeited ( 164,500 ) $ 2.36 Nonvested, March 31, 2023 673,959 $ 7.97 13 GrowGeneration Corp. Notes To Unaudited Condensed Consolidated Financial Statements March 31, 2023 The table below summarizes all option activity under all plans during the three months ended March 31, 2023: Options Shares Weighted - Average Exercise Price Weighted - Average Remaining Contractual Term Weighted - Average Grant Date Fair Value Outstanding at December 31, 2022 604,498 $ 3.97 1.87 $ 2.24 Granted — — — — Exercised — — — — Forfeited or expired — — — — Outstanding at March 31, 2023 604,498 $ 3.97 1.63 $ 2.24 Vested at March 31, 2023 604,498 $ 3.97 1.63 $ 2.24 A summary of the status of the Company’s outstanding stock purchase warrants for the three months ended March 31, 2023 is as follows: Warrants Weighted Average Exercise Price Outstanding at December 31, 2022 32,500 $ 15.82 Issued — — Exercised — — Forfeited — — Outstanding at March 31, 2023 32,500 $ 15.82 Liability Awards In August 2022, the Company issued certain stock awards classified as liabilities based on the guidance set forth at ASC 480-10-25 and ASC 718-10-25. These awards entitle the employees to receive an equity award with a specified dollar value of common stock on future dates ranging from June 15, 2023, through June 15, 2025. The awards generally vest over three years subject to the employee’s continued employment. The aggregate face value of these awards as of March 31, 2023 amounted to $ 3.7 million. The Company recognizes compensation expense for these awards over the requisite service period. The expense related to the liability awards for the period ended March 31, 2023 was $ 0.2 million; the corresponding liability is included in accrued liabilities and other long-term liabilities on the Company’s balance sheet as of March 31, 2023. 14 GrowGeneration Corp. Notes To Unaudited Condensed Consolidated Financial Statements March 31, 2023 10. EARNINGS (LOSS) 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, 2023 and 2022: Three Months Ended March 31, 2023 March 31, 2022 Net income (loss) $ ( 6,134 ) $ ( 5,177 ) Weighted average shares outstanding, basic 61,028 60,126 Effect of dilution — — Adjusted weighted average shares outstanding, dilutive 61,028 60,126 Basic earnings (loss) per share $ ( 0.10 ) $ ( 0.09 ) Dilutive earnings (loss) per share $ ( 0.10 ) $ ( 0.09 ) The following potentially outstanding restricted stock and stock options were excluded from the computation of diluted earnings per share because the effect would have been antidilutive: Three Months Ended March 31, 2023 March 31, 2022 Restricted stock 2,069 1,336 Stock options 43 393 Warrants — 819 Total 2,112 2,548 11. 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. There have been no measurement periods during the current year. 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. Acquisition during the three months ended March 31, 2023 The Company had no material acquisitions during the three months ended March 31, 2023. Acquisitions during 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 the assets 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. 15 GrowGeneration Corp. Notes To Unaudited Condensed Consolidated Financial Statements March 31, 2023 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 during the three months ended March 31, 2022. 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 three months ended March 31, 2022. Revenue and earnings amounts include other proprietary brands now being included under HRG for operations. HRG Acquisition date February 1, 2022 Revenue $ 3,436 Net Income (loss) $ — 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. Three Months Ended March 31, 2022 Revenue $ 83,603 Net income (loss) $ ( 5,176 ) 16 GrowGeneration Corp. Notes To Unaudited Condensed Consolidated Financial Statements March 31, 2023 12. COMMITMENTS AND CONTINGENCIES Legal Matters We are involved in lawsuits and claims which arise in the normal course of our business, including the initiation and defense of proceedings related to contract and employment disputes. In our opinion, these claims individually and in the aggregate are not expected to have a material adverse effect on our financial condition, results of operations or cash flows. In December 2021, the Company was sued in the U.S. District Court for the Southern District of Texas related to a Promissory Note & Asset Acquisition Rights Option (“Note & Option”) with TGC Systems, LLC (“Total Grow”). The case has been dismissed and the parties are currently engaged in arbitration pursuant to the arbitration clause of the Note & Option. Among other claims, Total Grow alleges that the Company is liable to Total Grow based on promissory estoppel and breach of contract for failing to consummate the acquisition of Total Grow by the Company. The Company believes that the claims against it are without merit and is vigorously defending against them. The Company is also counterclaiming for repayment of $ 1.5 million principal plus interest loaned by the Company to Total Grow pursuant to the Note & Option. The Company has accrued a reserve of $ 1.5 million against the Note & Option. There can be no assurance that future developments related to pending claims or claims filed in the future, whether as a result of adverse outcomes or as a result of significant defense costs, will not have a material effect on the Company’s financial condition, results of operations or cash flows. We believe that our assessment of contingencies is reasonable and that the related accruals, in the aggregate, are adequate; however, there can be no assurance that the final resolution of these matters will not have a material effect on our financial condition, results of operations 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, 2023, 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. 13. SEGMENTS 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 – The core of our business strategy is to operate the largest chain of retail garden centers in the U.S. The hydroponic retail landscape is fragmented, which allows us to acquire “best of breed” hydroponic retail operations and leverage efficiencies of a centralized organization. Some of our garden centers have multi-functions, with added capabilities that include warehousing, distribution and fulfillment for our online platforms and direct fulfillment to our commercial customers. Our retail segment also includes our commercial sales organization, which is focused on selling products and services, including end-to-end solutions, for large commercial cultivators outside of the physical retail network. When a commercial customers gain new cultivation licenses, they need lighting, benching, environmental control systems, irrigation, fertigation and other products to outfit their facilities. Existing facilities also need consumable products for operations, as well as equipment updates from time to time. Commercial customers typically purchase large dollar amounts and sizes of products. We offer commercial customers volume pricing, terms and financing. E-commerce – Our digital strategy is primarily focused on capturing the home, craft and commercial grower online. GrowGeneration.com offers thousands of hydroponic products, all curated by our product team. GrowGeneration.com offers 17 GrowGeneration Corp. Notes To Unaudited Condensed Consolidated Financial Statements March 31, 2023 customers the option to have their orders shipped directly to their locations, anywhere in North America. GrowGeneration also sells its products through its distribution website, HRGdist.com, and online marketplaces such as Amazon and Walmart. Distribution and other – In December 2020, GrowGeneration purchased the business of Canopy Crop Management Corp., the developer of the popular PowerSi line of monosilicic acid products, a widely used nutrient additive for plants. In March 2021, the Company purchased Charcoir, a line of premium coco pots, cubes and medium. In December 2021, the Company purchased the assets of Mobile Media, Inc. ("MMI"), a mobile shelving and storage solutions developer and manufacturer. In February 2022, the Company purchased the assets of Horticultural Rep Group, Inc. ("HRG"), a specialty marketing and sales organization of horticultural products. 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 retail, e-commerce, and direct sales activities and we receive incremental revenue from the sale of these products. Disaggregated revenue by segment is presented in the following table: Three Months Ended March 31, 2023 2022 Sales, net Retail Private label sales 6,601 7,096 Non-private label sales 32,800 57,200 Total retail 39,401 64,296 E-Commerce Private label sales 261 400 Non-private label sales 3,000 4,868 Total e-commerce 3,261 5,268 Distribution and other Private label sales 2,165 2,800 Non-private label sales 4,300 4,203 Commercial fixture sales 7,700 5,200 Total distribution and other 14,165 12,203 Total 56,827 81,767 Selected information by segment is presented in the following tables: Three Months Ended March 31, 2023 2022 Net sales Retail $ 39,401 $ 64,296 E-Commerce 3,261 5,268 Distribution and other 14,165 12,203 Total $ 56,827 $ 81,767 18 GrowGeneration Corp. Notes To Unaudited Condensed Consolidated Financial Statements March 31, 2023 Three Months Ended March 31, 2023 2022 Gross profit Retail $ 10,737 $ 15,493 E-Commerce 862 1,745 Distribution and other 4,690 4,902 Total $ 16,289 $ 22,140 Three Months Ended March 31, 2023 2022 Income (Loss) from operations Retail $ ( 7,075 ) $ ( 7,183 ) E-Commerce ( 484 ) ( 432 ) Distribution and other ( 205 ) 394 Total $ ( 7,764 ) $ ( 7,221 ) 19