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Item 1. Financial Statements

2024-08-08 compared with 2024-05-08 · 208 added, 127 removed, 340 unchanged (50% of the section changed)

3 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except shares)

(Unaudited, in thousands, except shares)

2024 December 31,

2 unchanged sentences

Marketable securities 28,407 35,212

Accounts receivable, net of allowance for credit losses of $ 1.4 million and $ 1.4 million at March 31, 2024 and December 31, 2023

Notes receivable, current, net of allowance for credit losses of $ 0.2 million and $ 1.7 million at March 31, 2024 and December 31, 2023

Accounts receivable, net of allowance for credit losses of $ 1,361 and $ 1,363 at June 30, 2024 and December 31, 2023, respectively

Notes receivable, current, net of allowance for credit losses of $ 232 and $ 1,732 at June 30, 2024 and December 31, 2023, respectively

Inventory 60,639 64,905

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$ 0.001 par value;

100,000,000 shares authorized, 61,507,259 and 61,483,762 shares issued and outstanding as of March 31, 2024 and December 31, 2023

100,000,000 shares authorized, 60,888,432 and 61,483,762 shares issued as of June 30, 2024 and December 31, 2023, respectively

Treasury stock, 938,949 shares and zero shares at cost as of June 30, 2024 and December 31, 2023, respectively

Additional paid-in capital 374,737 373,433

Retained earnings (deficit) ( 208,936 ) ( 200,099 )

Accumulated deficit ( 216,705 ) ( 200,099 )

Total stockholders' equity 155,777 173,395

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 219,176 $ 239,090

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

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

GROWGENERATION CORP.

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

Three Months Ended March 31,

(Unaudited, in thousands, except per share amounts)

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

2024 2023 2024 2023

Net sales $ 53,536 $ 63,925 $ 101,424 $ 120,752

7 unchanged sentences

Total operating expenses 20,935 23,442 42,731 47,151

Income (loss) from operations ( 9,432 ) ( 7,420 )

Other income (expense):

Loss from operations ( 6,514 ) ( 6,305 ) ( 15,946 ) ( 13,725 )

Other income (expense):

Other (expense) income ( 10 ) ( 51 ) 37 809

Interest income 737 753 1,339 1,181

Interest expense ( 14 ) ( 3 ) ( 70 ) ( 5 )

Total other income (expense) 593 1,286

Net income (loss) before taxes ( 8,839 ) ( 6,134 )

Benefit (provision) for income taxes 2 —

Net income (loss) $ ( 8,837 ) $ ( 6,134 )

Net income (loss) per share, basic $ ( 0.14 ) $ ( 0.10 )

Net income (loss) per share, diluted $ ( 0.14 ) $ ( 0.10 )

Total other income 713 699 1,306 1,985

Net loss before taxes ( 5,801 ) ( 5,606 ) ( 14,640 ) ( 11,740 )

Provision for income taxes ( 95 ) ( 93 ) ( 93 ) ( 93 )

Net loss $ ( 5,896 ) $ ( 5,699 ) $ ( 14,733 ) $ ( 11,833 )

Net loss per share, basic $ ( 0.10 ) $ ( 0.09 ) $ ( 0.24 ) $ ( 0.19 )

Net loss per share, diluted $ ( 0.10 ) $ ( 0.09 ) $ ( 0.24 ) $ ( 0.19 )

Weighted average shares outstanding, basic 60,681 61,077 61,090 61,053

Weighted average shares outstanding, diluted 60,681 61,077 61,090 61,053

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

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

GROWGENERATION CORP.

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(in thousands)

Common Stock Additional

Paid-In Capital Retained

Earnings (Deficit) Total

(Unaudited, in thousands)

Common Stock Treasury Stock Additional

Paid-In Capital Accumulated Deficit Total

Stockholders' Equity

Shares Amount

Shares Amount Shares Amount

Balances, December 31, 2023 61,484 $ 61 — $ — $ 373,433 $ ( 200,099 ) $ 173,395

2 unchanged sentences

Share-based compensation — — — — 778 — 778

Net income (loss) — — — ( 8,837 ) ( 8,837 )

Net loss — — — — — ( 8,837 ) ( 8,837 )

Balances, March 31, 2024 61,507 $ 62 — $ — $ 374,182 $ ( 208,936 ) $ 165,308

Common Stock Additional

Paid-In Capital Retained

Earnings (Deficit) Total

Common stock issued for share-based compensation 181 — — — — — $ —

Common stock withheld for employee payroll taxes — — — — ( 99 ) — $ ( 99 )

Share-based compensation — — — — 654 — $ 654

Repurchase of common stock — — ( 1,739 ) ( 4,190 ) — — $ ( 4,190 )

Cancellation of common stock ( 800 ) ( 1 ) 800 1,874 — ( 1,873 ) $ —

Net loss — — — — — ( 5,896 ) $ ( 5,896 )

Balances, June 30, 2024 60,888 $ 61 ( 939 ) $ ( 2,316 ) $ 374,737 $ ( 216,705 ) $ 155,777

Common Stock Treasury Stock Additional

Paid-In Capital Accumulated Deficit Total

Stockholders' Equity

Shares Amount

Shares Amount Shares Amount

Balances, December 31, 2022 61,010 $ 61 — $ — $ 369,938 $ ( 153,603 ) $ 216,396

2 unchanged sentences

Share-based compensation — — — — 511 — 511

Net income (loss) — — — ( 6,134 ) ( 6,134 )

Net loss — — — — — ( 6,134 ) ( 6,134 )

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

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

Common stock issued for share-based compensation 159 — — — — — —

Common stock withheld for employee payroll taxes — — — — ( 105 ) — ( 105 )

Share-based compensation — — — — 816 — 816

Non-cash repurchase of liability awards — — — — 653 — 653

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

Net loss — — — — — ( 5,699 ) ( 5,699 )

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

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

GROWGENERATION CORP.

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

Three Months Ended March 31,

(Unaudited, in thousands)

Six Months Ended June 30,

Cash flows from operating activities:

Net income (loss) $ ( 8,837 ) $ ( 6,134 )

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Net loss $ ( 14,733 ) $ ( 11,833 )

Adjustments to reconcile net loss to net cash (used in) provided by operating activities:

Depreciation and amortization 7,357 7,756

Share-based compensation 1,432 1,514

Estimated credit losses (recoveries) ( 488 ) 317

Loss (gain) on disposal of fixed assets 33 ( 19 )

Estimated credit (recoveries) losses ( 482 ) 424

Loss on disposal of fixed assets 37 21

Change in value of marketable securities ( 727 ) —

Proceeds from note receivables for sale of inventory 78 —

Changes in operating assets and liabilities:

7 unchanged sentences

Sales tax payable 36 132

Net cash and cash equivalents provided by (used in) operating activities ( 3,676 ) 3,457

Net cash and cash equivalents (used in) provided by operating activities ( 4,044 ) 7,379

Cash flows from investing activities:

Acquisitions, net of cash acquired — ( 3,197 )

Purchase of marketable securities ( 28,034 ) ( 51,700 )

Maturities of marketable securities 35,566 42,566

Proceeds from notes receivable 30 —

Purchase of property and equipment ( 1,416 ) ( 5,533 )

4 unchanged sentences

Common stock withheld for employee payroll taxes ( 127 ) ( 175 )

Net cash and cash equivalents provided by (used in) financing activities ( 28 ) ( 86 )

Net increase (decrease) in cash and cash equivalents 1,293 22,684

Common stock repurchased ( 4,190 ) —

Net cash and cash equivalents used in financing activities ( 4,317 ) ( 208 )

Net decrease in cash and cash equivalents ( 2,179 ) ( 10,467 )

Cash and cash equivalents at the beginning of period 29,757 40,054

Cash and cash equivalents at the end of period $ 27,578 $ 29,587

Supplemental disclosures of non-cash activities:

Supplemental cash flow disclosures and non-cash investing and financing transactions:

Cash paid for interest $ 70 $ 5

1 unchanged sentence

Right-of use assets obtained in exchange for new or modified operating lease liabilities $ 3,506 $ 2,748

Cancellation of common stock $ 1,873 $ —

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

2 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2024

June 30, 2024

GrowGeneration Corp.

4 unchanged sentences

and its Storage Solutions segment, composed of the Company's benching, racking, and storage solutions business.

As of March 31, 2024, GrowGeneration has 46 retail locations across 18 states in the U.S.

As of June 30, 2024, GrowGeneration has 43 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, Mobile Media or MMI.

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Certain amounts in the prior period Condensed Consolidated Financial Statements have been reclassified to conform to the current period presentation.

These reclassifications had no effect on reported net income (loss) within the Condensed Consolidated Statements of Operations.

These reclassifications had no effect on reported net loss within the Condensed Consolidated Statements of Operations.

Use of Estimates

9 unchanged sentences

In November 2023, the FASB issued ASU No.

2023-07, Segment Reporting—Improvements to Reportable Segment Disclosures (Topic 280) ("ASU 2023-07"), which requires an enhanced disclosure of segments on an annual and interim basis, including the title of the chief operating decision maker, significant segment expenses, and the composition of other segment items for each segment's reported profit.

ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and

2023-07, Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures ("ASU 2023-07"), which requires an enhanced disclosure of segments on an annual and interim basis, including the title of the chief operating decision maker, significant segment expenses, and the composition of other segment items for each segment's reported profit.

ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods

GROWGENERATION CORP.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2024

interim periods within fiscal years beginning after December 15, 2024.

June 30, 2024

within fiscal years beginning after December 15, 2024.

Early adoption is permitted, and adoption of ASU 2023-07 should be applied retrospectively to all prior periods presented in the financial statements.

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The marketable securities are classified as available-for-sale and are carried at fair value based on quoted market prices.

Changes in fair value of marketable securities, principally derived from accretion of discounts, was $ 0.4 million and immaterial for the three months ended March 31, 2024 and 2023, respectively, and included in Interest income on the Condensed Consolidated Statements of Operations.

Level March 31,

Changes in fair value of marketable securities, principally derived from accretion of discounts, were $ 0.3 million and $ 0.7 million for the three and six months ended June 30, 2024, respectively, and immaterial for the three and six months ended June 30, 2023.

Changes in fair value of marketable securities are included in Interest income on the Condensed Consolidated Statements of Operations.

Level June 30,

2024 December 31,

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2024

June 30, 2024

Contract Assets and Liabilities

3 unchanged sentences

Opening balance, January 1, 2024 $ 8,895 $ 5,359

Closing balance, March 31, 2024

Closing balance, June 30, 2024

Increase (decrease) $ 768 $ ( 2,352 )

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

Closing balance, March 31, 2023

Increase (decrease) $ ( 767 ) $ ( 422 )

Of the total amount of customer deposit liability as of January 1, 2024, $ 2.9 million was reported as revenue during the three months ended March 31, 2024.

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.

Notes receivable at March 31, 2024 and December 31, 2023 were as follows:

Closing balance, June 30, 2023

Decrease $ ( 1,018 ) $ ( 592 )

Of the total amount of customer deposit liability as of January 1, 2024, $ 4.0 million was reported as revenue during the six months ended June 30, 2024.

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.

Notes receivable at June 30, 2024 and December 31, 2023 were as follows:

2024 December 31,

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Notes receivable, net $ — $ —

During the three months ended March 31, 2024, the Company received a $ 0.3 million settlement related to a $ 1.5 million note receivable, which had been fully reserved as of December 31, 2023.

During the six months ended June 30, 2024, the Company received a $ 0.3 million settlement related to a $ 1.5 million note receivable, which had been fully reserved as of December 31, 2023.

Refer to Note 13, Commitment and Contingencies, for additional information regarding the settlement.

2 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2024

June 30, 2024

PROPERTY AND EQUIPMENT

Property and equipment at March 31, 2024 and December 31, 2023 consisted of the following:

Property and equipment at June 30, 2024 and December 31, 2023 consisted of the following:

2024 December 31,

8 unchanged sentences

Property and equipment, net $ 24,410 $ 27,052

Depreciation and amortization expense related to property and equipment was $ 2.1 million and $ 1.7 million for the three months ended March 31, 2024 and 2023, respectively.

Depreciation and amortization expense related to property and equipment was $ 1.9 million and $ 4.0 million for the three and six months ended June 30, 2024, respectively.

Depreciation and amortization expense related to property and equipment was $ 1.6 million and $ 3.3 million for the three and six months ended June 30, 2023, respectively.

GOODWILL AND INTANGIBLE ASSETS

The carrying value of goodwill at March 31, 2024 and December 31, 2023 by segment was as follows:

The carrying value of goodwill at June 30, 2024 and December 31, 2023 by segment was as follows:

Cultivation and Gardening Storage Solutions Total

Balances, December 31, 2023 $ 5,920 $ 1,605 $ 7,525

Balances, March 31, 2024 $ 5,920 $ 1,605 $ 7,525

Accumulated impairment for goodwill was $ 125.9 million as of March 31, 2024 and December 31, 2023.

The changes in intangible assets by segment for the quarter ended March 31, 2024 and year ended December 31, 2023 were as follows:

Balance as of December 31, 2023 $ 5,920 $ 1,605 $ 7,525

Balance as of June 30, 2024 $ 5,920 $ 1,605 $ 7,525

Accumulated impairment for goodwill was $ 125.9 million as of June 30, 2024 and December 31, 2023.

The changes in intangible assets by segment for the six months ended June 30, 2024 and year ended December 31, 2023 were as follows:

Cultivation and Gardening Storage Solutions Total

1 unchanged sentence

Amortization ( 2,962 ) ( 391 ) ( 3,353 )

Balance as of March 31, 2024 $ 12,019 $ 2,484 $ 14,503

Intangible assets on the Company's Consolidated Balance Sheets consisted of the following:

March 31, 2024 December 31, 2023

Balance as of June 30, 2024 $ 10,539 $ 2,288 $ 12,827

GROWGENERATION CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2024

Intangible assets on the Condensed Consolidated Balance Sheets consisted of the following:

June 30, 2024 December 31, 2023

Amount Accumulated

8 unchanged sentences

Total $ 43,459 $ ( 30,632 ) $ 12,827 $ 43,459 $ ( 27,279 ) $ 16,180

GROWGENERATION CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2024

Amortization expense for the three months ended March 31, 2024 and 2023 was $ 1.7 million and $ 2.2 million, respectively.

Fu ture amortization expense as of March 31, 2024 was as follows:

Amortization expense was $ 1.7 million and $ 3.4 million for the three and six months ended June 30, 2024, respectively .

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

Fu ture amortization expense as of June 30, 2024 was as follows:

2024 (remainder of the year) $ 3,352

1 unchanged sentence

Total $ 12,827

For the three months ended March 31, 2024, the effective tax rate was ( 0.02 )%, compared to 0.00 % for the three months ended March 31, 2023.

The effective tax rate for each of the three months ended March 31, 2024 and 2023 is lower than the U.S.

For the six months ended June 30, 2024, the effective tax rate was 0.6 %, compared to 0.8 % for the six months ended June 30, 2023.

The effective tax rate for each of the six months ended June 30, 2024 and 2023 was 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 March 31, 2024 , 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.

As of June 30, 2024, 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.

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

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

Three Months Ended March 31,

Weighted average remaining lease term 5.8 years 6.3 years

Weighted average discount rate 6.2 % 5.8 %

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.

The Company recorded sublease income of $ 0.3 million and $ 0.3 million for the three mo nths ended March 31, 2024 and 2023 , respectively, within Store operations and other operational expenses related to the sublease of a closed retail location .

GROWGENERATION CORP.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2024

June 30, 2024

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.

The Company recorded sublease income of $ 0.3 million and $ 0.6 million for the three and six mo nths ended June 30, 2024 , respectively, and, $ 0.3 million and $ 0.6 million for the three and six months ended June 30, 2023, respectively, within Store operations and other operational expenses related to the sublease of a closed retail location .

The components of lease expense were as follows:

Three Months Ended March 31,

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

2024 2023 2024 2023

Operating lease costs $ 2,531 $ 2,803 $ 5,094 $ 5,696

2 unchanged sentences

Total operating lease costs $ 2,990 $ 3,470 $ 6,302 $ 7,129

Future maturities of the Company's operating lease liabilities as of March 31, 2024 were as follows :

Future maturities of the Company's operating lease liabilities as of June 30, 2024 were as follows :

2024 (remainder of the year) $ 4,986

2 unchanged sentences

imputed interest ( 7,968 )

Operating lease liability at March 31, 2024

Operating lease liability as of June 30, 2024

Supplemental and other information related to leases was as follows:

Three Months Ended March 31,

Six Months Ended June 30,

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

Operating cash flow from operating leases $ 5,097 $ 5,583

GROWGENERATION CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2024

EARNINGS PER SHARE

The following table sets forth the composition of the weighted average shares (denominator) used in the basic and dilutive earnings per share computation for the three months ended March 31, 2024 and 2023:

Three Months Ended March 31,

Net income (loss) $ ( 8,837 ) $ ( 6,134 )

The following table sets forth the composition of the weighted average shares (denominator) used in the basic and dilutive loss per share computation for the three months ended June 30, 2024 and 2023:

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

2024 2023 2024 2023

Net loss $ ( 5,896 ) $ ( 5,699 ) $ ( 14,733 ) $ ( 11,833 )

Weighted average shares outstanding, basic 60,681 61,077 61,090 61,053

1 unchanged sentence

Adjusted weighted average shares outstanding, dilutive 60,681 61,077 61,090 61,053

Basic earnings (loss) per share $ ( 0.14 ) $ ( 0.10 )

Dilutive earnings (loss) per share $ ( 0.14 ) $ ( 0.10 )

Diluted earnings per share calculations for the three months ended March 31, 2024 excluded 0.5 million shares of common stock issuable upon exercise of stock options and 0.8 million of non-vested restricted stock units that would have been anti-dilutive.

Diluted earnings per share calculations for the three months ended March 31, 2023 excluded 0.6 million shares of common stock issuable upon exercise of stock options, 0.7 million shares of non-vested restricted stock units, and 33 thousand shares of common stock issuable upon exercise of the stock purchase warrants that would have been anti-dilutive.

GROWGENERATION CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2024

Basic loss per share $ ( 0.10 ) $ ( 0.09 ) $ ( 0.24 ) $ ( 0.19 )

Dilutive loss per share $ ( 0.10 ) $ ( 0.09 ) $ ( 0.24 ) $ ( 0.19 )

Diluted loss per share calculations for each of the three and six months ended June 30, 2024 excluded 0.9 million of non-vested restricted stock units that would have been anti-dilutive and 0.5 million shares of common stock issuable upon exercise of stock options.

Diluted loss per share calculations for each of the three and six months ended June 30, 2023 excluded 1.1 million and 0.9 million shares of non-vested restricted stock units, respectively, 0.6 million shares of common stock issuable upon exercise of stock options, and 33 thousand shares of common stock issuable upon exercise of the stock purchase warrants that would have been anti-dilutive.

SHARE-BASED PAYMENTS

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The Company accounts for share-based payments through the measurement and recognition of compensation expense for share-based awards made to employees, non-employee members of the Board, and consultants of the Company, including stock options and restricted stock units.

The Company recorded share-based compensation expense of $ 0.8 million and $ 0.6 million in the three months ended March 31, 2024 and 2023, respectively.

The Company recorded share-based compensation expense of $ 0.7 million and $ 1.4 million in the three and six months ended June 30, 2024, respectively, and $ 0.9 million and $ 1.5 million for the three and six months ended June 30, 2023, respectively.

Restricted Stock Units

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Restricted stock units are valued using the market value on the grant date.

Restricted stock unit activity for the three months ended March 31, 2024 is presented in the following table:

Restricted stock unit activity for the six months ended June 30, 2024 is presented in the following table:

Units Weighted Average Grant Date Fair Value

Nonvested, December 31, 2023

Nonvested as of December 31, 2023

904,834 $ 5.23

2 unchanged sentences

Forfeited ( 48,750 ) $ 3.23

Nonvested, March 31, 2024

Nonvested as of June 30, 2024

764,042 $ 4.50

As of March 31, 2024, the Company had approximately $ 2.9 million of unrecognized share-based compensation related to restricted stock units, which are expected to be recognized over a weighted average period of approximately 1.6 years.

GROWGENERATION CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2024

As of June 30, 2024, the Company had approximately $ 2.6 million of unrecognized share-based compensation related to restricted stock units, which are expected to be recognized over a weighted average period of approximately 1.8 years.

Stock Options

Stock option activity for the three months ended March 31, 2024 is presented in the following table:

Stock option activity for the six months ended June 30, 2024 is presented in the following table:

Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Term Weighted Average Grant Date Fair Value

Outstanding at December 31, 2023

Outstanding as of December 31, 2023

577,998 $ 4.01 0.95 $ 2.25

2 unchanged sentences

Forfeited or expired ( 68,332 ) 2.76 — 1.82

Outstanding at March 31, 2024

Outstanding as of June 30, 2024

509,666 $ 4.17 0.45 $ 2.31

Vested and exercisable at March 31, 2024

Vested and exercisable as of June 30, 2024

509,666 $ 4.17 0.45 $ 2.31

Liability Awards

In August 2022, the Company issued certain stock awards classified as liabilities based on the guidance set forth at ASC 480, Distinguishing Liabilities from Equity , and ASC 718, Compensation-Stock Compensation .

These awards entitled 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 vested over three years subject to the employee's continued employment.

On June 15, 2023, the three employees subject to these awards entered into new employment agreements which superseded the prior agreements and removed the liability awards from their compensation package.

In accordance with ASC 718-20-35-2A through 718-20-35-9, these awards were evaluated and accounted for as modified awards.

In the six months ended June 30, 2023, the liability of $ 0.7 million was relieved to additional paid-in capital and no awards were outstanding as of June 30, 2024 and December 31, 2023.

STOCKHOLDERS' EQUITY

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This share repurchase program is intended to enhance long-term shareholder value.

The program does not obligate the Company to acquire any specific number of shares

The program does not obligate the Company to acquire any specific number of shares or to acquire any shares over any specific period of time.

The timing and amount of any repurchases will depend on factors such as the stock price, trading volumes, market conditions, and regulatory requirements.

The stock repurchase program may be amended, suspended, or discontinued at any time by the Company.

During each of the three and six months ended June 30, 2024, the Company repurchased 1.7 million shares of common stock at an average price of $ 2.39 per share, exclusive of incremental direct costs.

As of June 30, 2024, approximately $ 1.8 million remained available under the stock repurchase program.

The Company recognizes the common stock repurchased as treasury stock at the amount paid to repurchase its shares, including the incremental direct costs to repurchase the common stock, as a reduction to stockholders' equity on the Condensed Consolidated Balance Sheets.

The Company retired 0.8 million shares of treasury stock under the repurchase program in the three and six months ended June 30, 2024.

The shares were returned to the status of authorized but unissued shares.

The retirement of treasury stock was recognized as a deduction from common stock for the shares' par value and any excess cost over par value was recognized as a deduction from retained earnings.

Treasury stock is retired on a first in, first out basis.

GROWGENERATION CORP.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2024

or to acquire any shares over any specific period of time.

The timing and amount of any repurchases will depend on factors such as the stock price, trading volumes, market conditions, and regulatory requirements.

The stock repurchase program may be amended, suspended, or discontinued at any time by the Company.

June 30, 2024

The Company's acquisition strategy has been 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.

Acquisitions during the three and six months ended June 30, 2024

The Company had no acquisitions during the three and six months ended June 30, 2024.

Acquisitions during the three and six months ended June 30, 2023

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

The total consideration for the purchase of the SGS assets was approximately $ 2.0 million, including $ 1.9 million in cash and an indemnity holdback of $ 0.1 million.

The SGS asset acquisition also included acquired goodwill of approximately $ 0.6 million, which represented the value expected to rise from organic growth and an opportunity for the Company to expand into a new market.

SGS was included in the Company's Cultivation and Gardening segment.

Additionally, the Company made other, individually immaterial acquisitions during the three and six months ended June 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.

These individually immaterial acquisitions also included aggregate acquired goodwill of approximately $ 0.3 million, which represented the value expected to rise from organic growth and an opportunity for the Company to expand into a new market.

These acquisitions were included in the Company's Cultivation and Gardening segment.

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

SGS Other Total

Inventory $ 720 $ 867 $ 1,587

Prepaids and other current assets 292 1 293

Furniture and equipment — 47 47

Operating lease right-of-use asset 612 620 1,232

Operating lease liability ( 612 ) ( 620 ) ( 1,232 )

Customer relationships 440 — 440

Goodwill 577 253 830

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

The table below represents the consideration paid for the net assets acquired in business combinations during 2023.

SGS Other Total

Cash $ 1,922 $ 1,128 $ 3,050

Indemnity holdback 107 40 147

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

COMMITMENTS AND CONTINGENCIES

2 unchanged sentences

It is the Company's opinion that 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.

GROWGENERATION CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2024

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

6 unchanged sentences

In February 2024, the Company received $ 0.3 million from the bankruptcy proceedings, which it recorded as a recovery on the $ 1.5 million Note & Option.

The remainder of the Note & Option, which were fully reserved, were written off during the three months ended March 31, 2024.

The remainder of the Note & Option, which were fully reserved, were written off during the six months ended June 30, 2024.

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.

3 unchanged sentences

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, 2024, the Company did not have any liabilities associated with indemnities.

As of June 30, 2024, 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.

3 unchanged sentences

No such losses have been recorded to date.

RELATED PARTIES

The Company has engaged with a firm that employs an immediate family member of an officer of the Company as partner.

The firm provides certain legal services.

Amounts paid to that firm in total were approximately $ 0.1 million and $ 0.1 million for the three and six months ended June 30, 2024, respectively, and were immaterial for the three and six months ended June 30, 2023.

As of June 30, 2024 and December 31, 2023, there was an immaterial amount outstanding due to the firm.

During the fourth quarter of 2023, the Company realigned its operating and reportable segments to correspond with changes to its operating model, management structure, and internal reporting and to better align with how the chief operating decision maker ("CODM") makes operating decisions, allocates resources, and assesses performance.

3 unchanged sentences

Comparative prior period disclosures have been recast to conform to the current segment presentation.

GROWGENERATION CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2024

In addition to sales by operating segment, which represent the Company's principal lines of business, the CODM evaluates the Company's operations by regularly reviewing sales by major product line, including proprietary brands, non-proprietary brands, and commercial fixtures, and by product type, including consumable and durable products.

1 unchanged sentence

Comparative prior period disclosures have been recast to conform to the current presentation.

GROWGENERATION CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2024

Disaggregated revenue by segment is presented in the following tables:

Three Months Ended March 31,

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

Net sales 2024 2023 2024 2023

7 unchanged sentences

Total $ 53,536 $ 63,925 $ 101,424 $ 120,752

Three Months Ended March 31,

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

Net sales 2024 2023 2024 2023

7 unchanged sentences

Total $ 53,536 $ 63,925 $ 101,424 $ 120,752

GROWGENERATION CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2024

Selected information by segment is presented in the following tables:

Three Months Ended March 31,

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

2024 2023 2024 2023

Cultivation and Gardening $ 46,110 $ 55,551 $ 89,218 $ 104,678

10 unchanged sentences

Selling, general, and administrative 7,104 7,503 15,012 14,341

Estimated credit losses ( 488 ) 317

Estimated credit losses (recoveries) 6 107 ( 482 ) 424

Depreciation and amortization 3,615 3,824 7,357 7,756

Income (loss) from operations $ ( 9,432 ) $ ( 7,420 )

Loss from operations $ ( 6,514 ) $ ( 6,305 ) $ ( 15,946 ) $ ( 13,725 )

The Company does not evaluate segments by assets as it is not practical and does not inform any of its decision making processes.

The CODM neither reviews nor requests this information.

GROWGENERATION CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2024

SUBSEQUENT EVENTS

On July 22, 2024, the Company announced a strategic restructuring plan focused on long-term profitability and advancing growth initiatives in key areas of its Gardening and Cultivation segment such as its proprietary brands, commercial sales, and e-commerce business.

These restructuring plans primarily include reductions in cost structure by closing and consolidating twelve redundant or underperforming retail locations, in addition to the seven retail locations closed in the first half of 2024, workforce reductions, and other operational improvements.

The Company expects that the restructuring activities will be substantially completed by the end of fiscal year 2024.

The Company is currently unable to make a good faith determination of an estimate or range of estimates of the total expected restructuring and restructuring related costs.

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