What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2023-11-08 compared with 2023-08-08 · 188 added, 217 removed, 470 unchanged (46% of the section changed)

3 unchanged sentences

(in thousands, except shares and per share amounts)

September 30,

2023 December 31,

2 unchanged sentences

Marketable securities 35,203 31,852

Accounts receivable, net of allowance for credit losses of $ 0.8 million and $ 0.7 million at June 30, 2023 and December 31, 2022

Notes receivable, current, net of allowance for credit losses of $ 1.7 million and $ 1.3 million at June 30, 2023 and December 31, 2022

Accounts receivable, net of allowance for credit losses of $ 1.1 million and $ 0.7 million at September 30, 2023 and December 31, 2022

Notes receivable, current, net of allowance for credit losses of $ 1.7 million and $ 1.3 million at September 30, 2023 and December 31, 2022

Inventory 75,987 77,091

25 unchanged sentences

$ 0.001 par value;

100,000,000 shares authorized, 61,229,051 and 61,010,155 shares issued and outstanding as of June 30, 2023 and December 31, 2022

100,000,000 shares authorized, 61,309,456 and 61,010,155 shares issued and outstanding as of September 30, 2023 and December 31, 2022

Additional paid-in capital 372,789 369,938

5 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except shares and per share amounts)

Three Months Ended June 30, Six Months Ended June 30,

(in thousands, except per share amounts)

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

25 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

SIX MONTHS ENDED JUNE 30, 2023 AND 2022

(in thousands, except shares and per share amounts)

(in thousands)

Common Stock Additional

3 unchanged sentences

Shares Amount

Balances, March 31, 2023 61,035 $ 61 $ 370,379 $ ( 159,737 ) $ 210,703

Balances, June 30, 2023 61,229 $ 61 $ 371,863 $ ( 165,436 ) $ 206,488

Common stock issued for share based compensation 80 — — — —

1 unchanged sentence

Share based compensation — — 938 — 938

Noncash repurchase of liability awards — $ — $ 653 $ — $ 653

Liability redemption associated with business acquisition 35 $ — $ 120 $ — $ 120

Net income (loss) — — — ( 7,349 ) ( 7,349 )

Balances, June 30, 2023 61,229 $ 61 $ 371,863 $ ( 165,436 ) $ 206,488

Balances, September 30, 2023 61,309 $ 61 $ 372,789 $ ( 172,785 ) $ 200,065

Common Stock Additional

3 unchanged sentences

Shares Amount

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

Balances, June 30, 2022 60,782 $ 61 $ 368,077 $ ( 131,412 ) $ 236,726

Common stock issued for share-based compensation 78 — — — —

1 unchanged sentence

Share based compensation — — 1,104 — 1,104

Common stock issued upon cashless exercise of options 12 — — — —

Common stock issued upon cashless exercise of warrants 14 — — — —

Net income (loss) — — — ( 7,202 ) ( 7,202 )

Balances, June 30, 2022 60,782 $ 61 $ 368,077 $ ( 131,412 ) $ 236,726

Balances, September 30, 2022 60,860 $ 61 $ 369,164 $ ( 138,614 ) $ 230,611

Common Stock Additional

7 unchanged sentences

Share based compensation — — 2,265 — 2,265

Noncash repurchase of liabilty awards — — 653 — $ 653

Noncash repurchase of liability awards — — 653 — 653

Liability redemption associated with business acquisition 35 — 120 — 120

Net income (loss) — — — ( 19,182 ) ( 19,182 )

Balances, June 30, 2023 61,229 $ 61 $ 371,863 $ ( 165,436 ) $ 206,488

Balances, September 30, 2023 61,309 $ 61 $ 372,789 $ ( 172,785 ) $ 200,065

Common Stock Additional

11 unchanged sentences

Net income (loss) — — — ( 148,758 ) ( 148,758 )

Balances, June 30, 2022 60,782 $ 61 $ 368,077 $ ( 131,412 ) $ 236,726

Balances, September 30, 2022 60,860 $ 61 $ 369,164 $ ( 138,614 ) $ 230,611

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands, except shares and per share amounts)

Six Months Ended June 30,

(in thousands)

Nine Months Ended September 30,

Cash flows from operating activities:

3 unchanged sentences

Stock-based compensation expense 2,452 3,980

Bad debt expense, net of recoveries 424 1,602

Bad debt expense 681 1,774

(Gain) loss on asset disposition 85 629

1 unchanged sentence

Deferred taxes — ( 2,166 )

Change in value of marketable securities ( 981 ) —

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

24 unchanged sentences

Cash paid for interest $ 6 $ 16

Cash paid for income taxes $ 93 $ —

Common stock issued for business combination $ — $ 5,750

Right-of-use assets acquired under new operating leases $ 4,173 $ 6,221

Indemnity holdback from business acquisitions $ — $ 875

Noncash repurchase of liability awards $ 653 $ —

Liability redemption associated with business acquisition $ 120 $ —

Purchase of property and equipment accrued in accounts payable $ 355 $ —

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

1 unchanged sentence

Notes To Condensed Consolidated Financial Statements

June 30, 2023

September 30, 2023

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 June 30, 2023, GrowGeneration has 62 retail locations across 18 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.

As of September 30, 2023, GrowGeneration has 56 retail locations across 18 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, Horticultural Rep Group ("HRG"), and a benching, racking, and storage solutions business, Mobile Media ("MMI").

GrowGeneration also provides facility design services to commercial growers.

5 unchanged sentences

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.

These statements should be read in conjunction with the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (“2022 Form 10-K”).

There were no significant changes to the Company's significant accounting policies as disclosed in our 2022 Form 10-K.

The results reported in these unaudited Condensed Consolidated Financial Statements 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).

Use of Estimates

4 unchanged sentences

Notes To Unaudited Condensed Consolidated Financial Statements

June 30, 2023

September 30, 2023

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.

Fair value is defined as the exchange price that would be received to sell 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.

7 unchanged sentences

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 is 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 June 30,

Changes in fair value of marketable securities, principally derived from accretion of discounts, was $ 0.5 million and $ 1.0 million for the three and nine months ended September 30, 2023, and included in Other income (expense) on the Condensed Consolidated Statements of Operations.

The fair value of notes receivable approximates the outstanding balance net of reserves for expected credit loss.

Level September 30,

2023 December 31,

3 unchanged sentences

Notes To Unaudited Condensed Consolidated Financial Statements

June 30, 2023

September 30, 2023

RECENT ACCOUNTING PRONOUNCEMENTS

2 unchanged sentences

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.

The Company has implemented all new accounting pronouncements that are in effect and that may impact our financial statements.

In addition to the accounting pronouncement discussed below, no other new accounting pronouncement issued or effective during the fiscal year had or is expected to have a material effect on the Company’s consolidated financial statements or disclosures.

Recently Adopted Accounting Pronouncements

In June 2016, 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 based upon a company’s historical credit loss experience, adjusted for asset-specific risk characteristics, current economic conditions, and reasonable forecasts, rather than incurred losses as required previously by the other-than-temporary impairment model.

The ASU applies 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.

2016-13 was effective January 1, 2020.

The Company has adopted this standard effective January 1, 2023.

2016-13 was effective January 1, 2020, and the Company 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 June 30, 2023, using the 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.

The adoption of this standard did not have a material impact on the Company’s consolidated financial statements or disclosures, and the Company’s estimate of expected credit losses as of January 1, 2023, using the 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.

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.

Net sales are disaggregated by the Company's segments, which represent its principal lines of business, as well as by the type of good or service, including sales of private label products, non-private label products or distributed brands, and sales of commercial fixtures.

See Note 13, Segments , for disaggregated revenue by segment.

Contract Assets and Liabilities

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

Receivables Customer Deposit Liability

Accounts Receivable, Net Customer Deposits

Opening balance, January 1, 2023 $ 8,336 $ 4,338

Closing balance, June 30, 2023

Closing balance, September 30, 2023

Increase (decrease) $ 15 $ 588

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

Closing balance, June 30, 2022

Closing balance, September 30, 2022

Increase (decrease) $ 4,406 $ ( 6,296 )

Of the total amount of customer deposit liability as of January 1, 2023, $ 2.9 million was reported as revenue during the six months ended June 30, 2023.

Of the total amount of customer deposit liability as of January 1, 2022, $ 11.1 million was reported as revenue during the six months ended June 30, 2022.

Of the total amount of customer deposit liability as of January 1, 2023, $ 2.9 million was reported as revenue during the nine months ended September 30, 2023.

Of the total amount of customer deposit liability as of January 1, 2022, $ 11.1 million was reported as revenue during the nine months ended September 30, 2022.

GrowGeneration Corp.

Notes To Unaudited Condensed Consolidated Financial Statements

June 30, 2023

September 30, 2023

PROPERTY AND EQUIPMENT

September 30,

2023 December 31,

Vehicles $ 2,596 $ 2,176

Building 2,121 2,121

Building and land 2,121 2,121

Leasehold improvements 12,268 12,562

5 unchanged sentences

Property and equipment, net $ 28,946 $ 28,669

Depreciation expense for the three and six months ended June 30, 2023 was $ 1.6 million and $ 3.3 million.

Depreciation expense for the three and six months ended June 30, 2022 was $ 2.0 million and $ 3.7 million.

Depreciation expense for the three and nine months ended September 30, 2023 was $ 2.5 million and $ 5.8 million.

Depreciation expense for the three and nine months ended September 30, 2022 was $ 1.7 million and $ 5.4 million.

GrowGeneration Corp.

Notes To Unaudited Condensed Consolidated Financial Statements

June 30, 2023

September 30, 2023

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 was 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.

There were no goodwill impairments recognized during the six months ended June 30, 2023.

The changes in goodwill are as follows:

June 30, 2023 December 31,

September 30, 2023 December 31,

Balance, beginning of period $ 15,978 $ 125,401

2 unchanged sentences

Balance, end of period $ 16,808 $ 15,978

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 was contrary to prior experience.

Management reassessed business performance expectations following persistent adverse developments in equity markets, deterioration in the environment in which the Company operates, 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 as of June 30, 2022.

As a result, the Company performed a cash recoverability test on the following finite-lived intangible assets:

customer relationships, trade names, and non-competes.

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

The Company determined the fair value of its reporting units using the income approach, where estimated future returns are discounted to present value at an appropriate rate of return.

The Company recognized impairment losses for related to its finite-lived intangibles and goodwill on June 30, 2022 as disclosed in the table below.

There were no goodwill or finite-lived intangible impairments recognized during the nine months ended September 30, 2023.

The goodwill balance and impairment by segment are as follows:

4 unchanged sentences

Acquisitions & measurement period adjustments 830 — — 830

Gross carrying value, at June 30, 2023 $ 104,059 $ 11,318 $ 18,088 $ 133,465

Gross carrying value, at September 30, 2023 $ 104,059 $ 11,318 $ 18,088 $ 133,465

Accumulated impairment losses at December 31, 2021 $ — $ — $ — $ —

2 unchanged sentences

Impairment — — — —

Accumulated impairment losses at June 30, 2023

Accumulated impairment losses at September 30, 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 June 30, 2023

Net carrying value at September 30, 2023

$ 965 $ 1,470 $ 14,373 $ 16,808

1 unchanged sentence

Notes To Unaudited Condensed Consolidated Financial Statements

June 30, 2023

September 30, 2023

A summary of intangible assets is as follows:

2 unchanged sentences

of Intangible Assets

as of June 30, 2023

as of September 30, 2023

Trade names 2.47

3 unchanged sentences

Intangible assets consist of the following:

June 30, 2023

September 30, 2023

Amount Accumulated

17 unchanged sentences

Notes To Unaudited Condensed Consolidated Financial Statements

June 30, 2023

September 30, 2023

Intangibles and impairment by segment are as follows:

4 unchanged sentences

Acquisitions & measurement period adjustments 440 — — 440

Gross carrying value at June 30, 2023 $ 38,495 $ 2,501 $ 19,880 $ 60,876

Gross carrying value at September 30, 2023 $ 38,494 $ 2,501 $ 19,880 $ 60,875

Accumulated amortization at December 31, 2021 $ ( 6,285 ) $ ( 354 ) $ ( 1,983 ) $ ( 8,622 )

2 unchanged sentences

Amortization ( 3,793 ) ( 335 ) ( 2,724 ) ( 6,852 )

Accumulated amortization at June 30, 2023 $ ( 14,578 ) $ ( 1,038 ) $ ( 7,379 ) $ ( 22,995 )

Accumulated amortization at September 30, 2023 $ ( 15,799 ) $ ( 1,149 ) $ ( 8,287 ) $ ( 25,235 )

Accumulated impairment losses at December 31, 2021 $ — $ — $ — $ —

2 unchanged sentences

Impairments — — — —

Accumulated impairment losses June 30, 2023 $ ( 11,079 ) $ ( 95 ) $ — $ ( 11,174 )

Accumulated impairment losses September 30, 2023 $ ( 11,079 ) $ ( 95 ) $ — $ ( 11,174 )

Net carrying value at December 31, 2022 $ 14,969 $ 1,592 $ 14,317 $ 30,878

Net carrying value June 30, 2023 $ 12,838 $ 1,368 $ 12,501 $ 26,707

Amortization expense for the three and six months ended June 30, 2023 was $ 2.4 million and $ 4.6 million.

Amortization expense for the three and six months ended June 30, 2022 was $ 2.8 million and $ 5.6 million.

Future amortization expense is as follows:

Net carrying value September 30, 2023 $ 11,616 $ 1,257 $ 11,593 $ 24,466

Amortization expense for the three and nine months ended September 30, 2023 was $ 2.2 million and $ 6.9 million.

Amortization expense for the three and nine months ended September 30, 2022 was $ 2.2 million and $ 7.7 million.

Future amortization expense as of September 30, 2023 is as follows:

2023, remainder $ 2,229

1 unchanged sentence

Total $ 24,466

For the six months ended June 30, 2023, the effective tax rate was zero %, compared to 1.42 % for the six months ended June 30, 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 six months ended June 30, 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.

For the nine months ended September 30, 2023, the effective tax rate was ( 0.42 )%, compared to 1.74 % for the nine months ended September 30, 2022.

The effective tax rate for each of the nine months ended September 30, 2023 and 2022 is lower than the U.S.

federal statutory rate of 21.0% primarily due to the Company’s valuation allowance against deferred tax assets.

As of September 30, 2023, the Company concluded that its deferred tax assets are not expected to be realizable, based on positive and negative evidence, therefore it has assigned a full valuation allowance against them.

GrowGeneration Corp.

Notes To Unaudited Condensed Consolidated Financial Statements

June 30, 2023

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 less than or equal to 12 months, 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.

September 30, 2023

The right-of-use assets and corresponding liabilities related to the Company's operating leases are as follow:

September 30,

2023 December 31,

Right of use assets, operating lease assets $ 42,692 $ 46,433

Current lease liability $ 8,152 $ 8,131

Non-current lease liability 37,191 40,659

Operating leases right-of-use assets $ 42,316 $ 46,433

Current maturities of lease liability $ 8,374 $ 8,131

Operating lease liability, net of current maturities 36,387 40,659

Total lease liability $ 44,761 $ 48,790

2023 June 30,

The weighted-average remaining lease terms and weighted-average discount rates for operating leases were as follows:

September 30,

2023 September 30,

Weighted average remaining lease term 6.07 years 6.68 years

Weighted average discount rate 6.0 % 5.5 %

Three Months Ended June 30,

Lease expense is recorded within the Company’s Condensed Consolidated Statements of Operations based upon the nature of the operating lease right-of-use assets.

Where assets are used to directly serve our customers, such as retail locations and distribution centers, lease costs are recorded in Store operations and other operational expenses.

Facilities and assets which serve management and support functions are expensed through Selling, general, and administrative.

Additionally, the Company recorded sublease income of $ 0.3 million and $ 0.9 million for the three and nine months ended September 30, 2023, respectively, within Other income (expense) related to the sublease of a closed retail location.

The components of lease expense are as follows:

Three Months Ended September 30,

Operating lease costs $ 2,738 $ 2,615

2 unchanged sentences

Total operating lease costs $ 3,012 $ 3,348

GrowGeneration Corp.

Notes To Unaudited Condensed Consolidated Financial Statements

June 30, 2023

Six Months Ended

Nine Months Ended

September 30,

Operating lease costs $ 8,434 $ 8,060

2 unchanged sentences

Total operating lease costs $ 10,141 $ 10,370

The following table presents the maturity of the Company’s operating lease liabilities as of June 30, 2023 :

GrowGeneration Corp.

Notes To Unaudited Condensed Consolidated Financial Statements

September 30, 2023

Future maturities of the Company’s operating lease liabilities as of September 30, 2023 :

2023 (remainder of the year) $ 2,797

2 unchanged sentences

Imputed interest ( 8,604 )

Lease Liability at June 30, 2023

Lease Liability at September 30, 2023

Supplemental and other information related to leases was as follows:

Nine Months Ended

September 30,

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flow from operating leases $ 8,321 $ 7,692

SHARE BASED PAYMENTS

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

The Company maintains long-term incentive plans for employees, non-employee members of its 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").

1 unchanged sentence

The Company also issues share-based awards in the form of common stock warrants to non-employees.

The following table presents share-based award expense for the three and six months ended June 30, 2023 and 2022:

Three months ended June 30, Six months ended June 30,

The following table presents share-based award expense for the three and nine months ended September 30, 2023 and 2022:

Three months ended September 30, Nine months ended September 30,

2023 2022 2023 2022

3 unchanged sentences

Total $ 938 $ 1,291 $ 2,452 $ 3,980

As of June 30, 2023, the Company had approximately $ 5.4 million of unamortized share-based compensation for option awards and restricted stock awards, which are expected to be recognized over a weighted average period of approximately 3.1 years.

As of September 30, 2023, the Company had approximately $ 4.5 million of unamortized share-based compensation for share based awards, which are expected to be recognized over a weighted average period of approximately 1.9 years.

Restricted Stock

4 unchanged sentences

Notes To Unaudited Condensed Consolidated Financial Statements

June 30, 2023

Restricted stock activity for the six months ended June 30, 2023 is presented in the following table:

September 30, 2023

Restricted stock activity for the nine months ended September 30, 2023 is presented in the following table:

Shares Weighted Average Grant Date Fair Value

4 unchanged sentences

Forfeited ( 345,750 ) $ 7.01

Nonvested, June 30, 2023

Nonvested, September 30, 2023

1,073,958 $ 5.42

The table below summarizes all option activity under all plans during the six months ended June 30, 2023:

The table below summarizes all option activity under all plans during the nine months ended September 30, 2023:

Options Shares Weighted -

6 unchanged sentences

Forfeited or expired — — — —

Outstanding at June 30, 2023

Outstanding at September 30, 2023

584,498 $ 3.99 1.17 $ 2.24

Vested at June 30, 2023

Vested at September 30, 2023

584,498 $ 3.99 1.17 $ 2.24

A summary of the status of the Company’s outstanding stock purchase warrants for the six months ended June 30, 2023 is as follows:

A summary of the status of the Company’s outstanding stock purchase warrants for the nine months ended September 30, 2023 is as follows:

Warrants Weighted Average

4 unchanged sentences

Forfeited ( 32,500 ) $ 10.61

Outstanding at June 30, 2023

32,500 $ 15.82

Outstanding at September 30, 2023

Liability Awards

7 unchanged sentences

Notes To Unaudited Condensed Consolidated Financial Statements

June 30, 2023

September 30, 2023

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 and six months ended June 30, 2023 and 2022:

The following table sets forth the composition of the weighted average shares (denominator) used in the basic and dilutive earnings per share computation for the three and nine months ended September 30, 2023 and 2022:

Three Months Ended

2023 June 30,

September 30,

2023 September 30,

Net income (loss) $ ( 7,349 ) $ ( 7,202 )

4 unchanged sentences

Dilutive earnings (loss) per share $ ( 0.12 ) $ ( 0.12 )

Six Months Ended

2023 June 30,

Nine Months Ended

September 30,

2023 September 30,

Net income (loss) $ ( 19,182 ) $ ( 148,758 )

4 unchanged sentences

Dilutive earnings (loss) per share $ ( 0.31 ) $ ( 2.45 )

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

2023 June 30,

Restricted stock 1,868 511

Stock options — 202

Total 1,868 713

Six Months Ended

2023 June 30,

Restricted stock 1,949 511

Stock options — 320

Total 1,949 831

GrowGeneration Corp.

Notes To Unaudited Condensed Consolidated Financial Statements

June 30, 2023

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;

Diluted earnings per share calculations for each of three and nine month ended September 30, 2023 excluded 1.1 million shares of common stock issuable upon exercise of stock options and 0.6 million of non-vested restricted stock that would have been anti-dilutive.

Diluted earnings per share calculations for each of three and nine month ended September 30, 2022 excluded 0.6 million shares of common stock issuable upon exercise of stock options, 0.7 million of non-vested restricted stock, and 0.3 million of shares of common stock issuable upon exercise of the stock purchase warrants that would have been anti-dilutive.

The Company's 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.

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There have been no measurement period adjustments during the current year.

During the six months ended June 30, 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 six months ended June 30, 2023

During the nine months ended September 30, 2022, measurement period adjustments included increasing goodwill by $ 1.3 million offset with intangible assets, which resulted in an insignificant reduction in amortization expense.

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

Acquisitions during the nine months ended September 30, 2023

On May 23, 2023, the Company purchased substantially all of the assets of Southside Garden Supply ("Alaska"), a two-store chain of indoor/outdoor garden centers.

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Alaska is included in our Retail segment.

Additionally, the Company made other, individually immaterial acquisitions during the six months ended June 30, 2023.

GrowGeneration Corp.

Notes To Unaudited Condensed Consolidated Financial Statements

September 30, 2023

Additionally, the Company made other, individually immaterial acquisitions during the nine months ended September 30, 2023.

Total consideration for these purchases was approximately $ 1.2 million, including $ 1.1 million paid in cash and indemnity holdbacks of less than $ 0.1 million.

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These acquisitions are included in our Retail segment.

GrowGeneration Corp.

Notes To Unaudited Condensed Consolidated Financial Statements

June 30, 2023

The table below represents the allocation of the purchase price to the acquired net assets during the six months ended June 30, 2023.

The table below represents the allocation of the purchase price to the acquired net assets during the nine months ended September 30, 2023.

Alaska Other Total

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Total $ 2,029 $ 1,168 $ 3,197

The table below represents the consideration paid for the net assets acquired in business combinations during the six months ended June 30, 2023.

The table below represents the consideration paid for the net assets acquired in business combinations during the nine months ended September 30, 2023.

Alaska Other Total

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Total $ 2,029 $ 1,168 $ 3,197

The following table discloses the date of the acquisitions noted above and the revenue and earnings included in the Condensed Consolidated Statement of Operations for the six months ended June 30, 2023.

The following table discloses the date of the acquisitions noted above and the revenue and earnings included in the Condensed Consolidated Statement of Operations for the nine months ended September 30, 2023.

Alaska Other Total

Acquisition date May 23, 2023

Revenue $ 392 $ 916 $ 1,308

Net sales $ 1,127 $ 2,044 $ 3,171

Net income (loss) $ ( 52 ) $ ( 17 ) $ ( 69 )

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 and six months ended June 30, 2023, and June 30, 2022.

Three Months Ended June 30, Six Months Ended June 30,

The following represents the pro forma Condensed Consolidated Statement of Operations as if the acquisitions had been included in the consolidated results of the Company for the entire period for the three and nine months ended September 30, 2023, and 2022.

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

Revenue $ 122,966 $ 154,168 $ 122,966 154,168

Net sales $ 55,499 $ 74,747 $ 178,465 228,915

Net income (loss) $ ( 7,726 ) $ ( 7,193 ) $ ( 19,217 ) ( 148,863 )

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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.

The asset purchase agreement also provided 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.

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Notes To Unaudited Condensed Consolidated Financial Statements

June 30, 2023

The table below represents the allocation of the purchase price to the acquired net assets during the six months ended June 30, 2022.

September 30, 2023

The table below represents the allocation of the purchase price to the acquired net assets during the nine months ended September 30, 2022.

Inventory $ 4,170

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Total $ 13,391

The table below represents the consideration paid for the net assets acquired in business combinations during the six months ended June 30, 2022.

The table below represents the consideration paid for the net assets acquired in business combinations during the nine months ended September 30, 2022.

Indemnity stock holdback 875

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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 six months ended June 30, 2022.

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 nine months ended September 30, 2022.

Revenue and earnings amounts include other proprietary brands now being included under HRG for operations.

Acquisition date February 1, 2022

Revenue $ 8,086

Net sales $ 13,474

Net Income (loss) $ ( 209 )

Three Months Ended June 30, 2022 Six Months Ended June 30, 2022

Revenue $ 70,939 $ 154,542

Three Months Ended September 30, 2022 Nine Months Ended September 30, 2022

Net sales $ 80,901 $ 235,443

Net income (loss) $ ( 135,514 ) $ ( 149,316 )

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Notes To Unaudited Condensed Consolidated Financial Statements

June 30, 2023

September 30, 2023

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.

The Company is involved in lawsuits and claims that arise in the normal course of business, including the initiation and defense of proceedings related to contract and employment disputes.

In the Company's opinion, these claims individually and in the aggregate are not expected to have a material adverse effect on its financial condition, results of operations, or cash flows.

In December 2021, the Company was sued in the U.S.

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The Company accrued a reserve of $ 1.5 million against the Note & Option.

As discussed in Note 14, Subsequent Events , on July 26, 2023, the arbitrator denied all of Total Grow's claims and defenses, determined that the Company prevailed in its counterclaim, and awarded the Company an award in full settlement of the matter.

On July 26, 2023, the arbitrator denied all of Total Grow's claims and defenses, determined that the Company prevailed in its counterclaim, and awarded the Company an award in full settlement of the matter.

The Company is in the process of attempting to collect the arbitration award from Total Grow.

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.

The Company believes that its 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 the Company's 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 June 30, 2023, the Company did not have any liabilities associated with indemnities.

As of September 30, 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.

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Shared services and other corporate costs are allocated to an individual segment based on that segment's 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.

Retail – The core of the Company's business strategy is to operate the largest chain of retail garden centers in the U.S.

The hydroponic retail landscape is fragmented, which has allowed 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 the Company's online platforms and commercial customers.

The retail segment also includes the Company's 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 commercial customers gain new cultivation licenses, they need lighting, benching, environmental control systems, irrigation, fertigation, and other products to outfit their facilities.

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Commercial customers typically purchase large dollar amounts, quantities, 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

The Company offers commercial customers volume pricing, terms, and financing.

E-commerce – The Company's digital strategy is primarily focused on capturing the home, craft, and commercial grower online.

GrowGeneration.com offers thousands of hydroponic products, all curated by the Company's product team.

GrowGeneration Corp.

Notes To Unaudited Condensed Consolidated Financial Statements

June 30, 2023

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

September 30, 2023

GrowGeneration.com offers 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.

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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 specializing in 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.

In December 2021, the Company purchased the assets of Mobile Media, Inc., a mobile shelving and storage solutions developer and manufacturer.

In February 2022, the Company purchased the assets of Horticultural Rep Group, Inc., a specialty marketing and sales organization specializing in horticultural products.

These products are integrated into the Company's retail, e-commerce, and direct sales activities, and it receive incremental revenue from their sale.

Disaggregated revenue by segment is presented in the following table:

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

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Total distribution and other 11,521 19,829 38,960 44,076

Total $ 63,925 $ 71,093 $ 120,752 $ 152,860

Total net sales $ 55,678 $ 70,850 $ 176,430 $ 223,710

GrowGeneration Corp.

Notes To Unaudited Condensed Consolidated Financial Statements

September 30, 2023

Selected information by segment is presented in the following tables:

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

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Distribution and other 11,521 19,829 38,960 44,076

Total $ 63,925 $ 71,093 $ 120,752 $ 152,860

GrowGeneration Corp.

Notes To Unaudited Condensed Consolidated Financial Statements

June 30, 2023

Three Months Ended June 30, Six Months Ended June 30,

Total net sales $ 55,678 $ 70,850 $ 176,430 $ 223,710

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

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Distribution and other 4,556 7,154 14,043 15,973

Total $ 17,137 $ 20,227 $ 33,426 $ 42,367

Three Months Ended June 30, Six Months Ended June 30,

Total gross profit $ 16,188 $ 18,334 $ 49,614 $ 60,701

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

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Distribution and other 36 18,389 256 ( 2,308 )

Total $ ( 6,566 ) $ ( 136,801 ) $ ( 14,330 ) $ ( 144,022 )

SUBSEQUENT EVENTS

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 was dismissed and the parties submitted the matter to arbitration pursuant to the arbitration clause of the Note & Option.

Among other claims, Total Grow alleged that the Company was 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 counterclaimed for repayment of $ 1.5 million principal plus interest loaned by the Company to Total Grow pursuant to the Note & Option.

On July 26, 2023, the arbitrator denied all of Total Grow’s claims and defenses, determined that the Company prevailed in its counterclaim, and granted the Company an award of $ 1.5 million, with interest at the rate of 8 % compounded annually beginning on March 15, 2021 until paid in full, and certain other costs.

The Award is in full settlement of all claims and counterclaims related to the matter.

Total income (loss) from operations $ ( 8,302 ) $ ( 8,094 ) $ ( 22,632 ) $ ( 152,116 )

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

What changed 10-Q

Item 1. Financial Statements