What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2025-03-13 compared with 2024-03-13 · 418 added, 497 removed, 715 unchanged (56% of the section changed)

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Reports of Independent Registered Public Accounting Firms (PCAOB ID 248 and 166 )

Reports of Independent Registered Public Accounting Firms (PCAOB ID 248 )

Consolidated Balance Sheets as of December 31, 202 4 and 2 023

3 unchanged sentences

Notes to Consolidated Financial Statements

F- 11 to F- 36

Report of Independent Registered Public Accounting Firm

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We have audited the accompanying consolidated balance sheets of GrowGeneration Corp.

(a Colorado corporation) and subsidiaries (the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2023, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

(a Colorado corporation) and subsidiaries (the “Company”) as of December 31, 2024 and 2023, the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2024, and the related notes (collectively referred to as the “consolidated financial statements”) .

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2024, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated March 13, 2025 expressed an adverse opinion .

Basis for opinion

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

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The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Consolidated Financial Statements - Impact of Internal Control over Financial Reporting

As described in Management’s Report on Internal Control Over Financial Reporting, material weaknesses were identified as of December 31, 2023.

During a portion of the year ended December 31, 2024, the Company’s previously reported material weaknesses related to the control environment, information and communication, and control activities (“the material weaknesses”) continued to exist.

The prevention, detection, and correction of material misstatements of the consolidated financial statements, is dependent, in part, on management (i) designing and maintaining an effective control environment, including maintaining sufficient resources within the accounting and financial reporting department to review complex financial reporting transactions;

and updating and distributing accounting policies and procedures across the organization (ii) designing and implementing effective information and communication process to identify and assess the source of and controls necessary to ensure the reliability of information used in financial reporting and that communicates relevant information about roles and responsibilities for internal control over financial reporting and (iii) designing and implementing effective process-level control activities and general information technology controls related to financial reporting processes.

We identified the impact on our audit of the material weaknesses related to the control environment, information and communication, and control activities (“material weaknesses”), as further described in Management’s Report, as a critical audit matter.

The principal consideration for our determination that the impact on our audit of the material weaknesses is a critical audit matter is that especially challenging auditor judgment was required in designing audit procedures and evaluating audit evidence due to the ineffective system of internal control over financial reporting, which affects substantially all consolidated financial statement account balances and disclosures.

and updating and distributing accounting policies and procedures across the organization (ii) designing and implementing effective information and communication processes to identify and assess the source of and controls necessary to ensure the reliability of information used in financial reporting and that communicates relevant information about roles and responsibilities for internal control over financial reporting and (iii) designing and implementing effective process-level control activities and general information technology controls related to financial reporting processes.

We identified the impact on our audit of the material weaknesses as a critical audit matter.

The principal consideration for our determination that the impact of the material weaknesses on our audit is a critical audit matter is that especially challenging auditor judgment was required in designing audit procedures and evaluating audit

evidence due to the ineffective system of internal control over financial reporting that existed during portions of the year, which affects substantially all consolidated financial statement account balances and disclosures.

Our audit procedures related to the material weaknesses included the following, among others:

We determined the nature and extent of audit procedures that are responsive to the identified material weaknesses and evaluated the evidence obtained from the procedures performed.

• We determined the nature and extent of audit procedures that are responsive to the risk of material misstatement as a result of the material weaknesses and evaluated the evidence obtained from the procedures performed.

• We lowered the threshold used for investigating differences noted for recorded amounts.

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We have audited the internal control over financial reporting of GrowGeneration Corp.

(the “Company”) as of December 31, 2023, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

In our opinion, because of the effect of material weaknesses described in the following paragraphs on the achievement of the objectives of control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2023, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO.

(a Colorado corporation) and subsidiaries (the “Company”) as of December 31, 2024, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

In our opinion, because of the effect of the material weakness described in the following paragraphs on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2024, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO.

A material weakness is a deficiency, or combination of control deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.

The following material weaknesses have been identified and included in management’s assessment.

• Control Environment:

The Company did not maintain an effective control environment based on the criteria established in the COSO framework, which resulted in deficiencies in principles associated with the control environment.

In addition, the following material weaknesses were previously identified and contributed to the material weakness in the control environment:

• Insufficient resources within the accounting and financial reporting department to review the accounting of complex financial reporting transactions including areas such as business combinations, share based compensation and the related income tax reporting.

• Ineffective controls over updating and distributing accounting policies and procedures across the organization.

The control environment material weaknesses contributed to other material weaknesses within the Company’s system of internal controls over financial reporting related to the following COSO components:

• Risk Assessment:

The Company did not design and implement an effective risk assessment based on the criteria established in the COSO framework and identified deficiencies in the principles associated with the risk assessment component of the COSO framework.

• Information and Communication:

The Company did not have an effective information and communication process that identified and assessed the source of and controls necessary to ensure the reliability of information used in financial reporting and that communicates relevant information about roles and responsibilities for internal control over financial reporting.

• Monitoring Activities:

The Company did not have effective monitoring activities to assess the operation of internal control over financial reporting, including the continued appropriateness of control design and level of documentation maintained to support control effectiveness.

• Control Activities:

As a consequence of the material weaknesses described above, internal control deficiencies related to the design and operation of process-level controls and general information technology controls were determined to be pervasive throughout the Company’s financial reporting processes.

In addition, the following material weaknesses were previously identified and contributed to the material weakness in control activities:

• Inadequate information and technology general controls, including segregation of duties, change management, and user access, which were inadequate to support financial reporting applications and support automated controls and functionality.

• Inadequate controls over physical inventory counts.

• Inadequate controls over valuations, inclusive of appropriate valuation model inputs and appropriate forecasting for prospective financial information.

• Inadequate segregation of duties within human resources, manual journal entry posting processes, and various bank accounts of the Company to prevent and detect unauthorized transactions in a timely manner.

The following material weakness has been identified and included in management’s assessment.

The Company identified a material weakness resulting from control deficiencies in information technology general controls related to a certain enterprise resource planning system for the operations within the Storage Solutions segment.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of and for the year ended December 31, 2024.

The material weaknesses identified above were considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2023 consolidated financial statements, and this report does not affect our report dated March 13, 2024, which expressed an unqualified opinion on those financial statements.

The material weakness identified above was considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2024 consolidated financial statements, and this report does not affect our report dated March 13, 2025 which expressed an unqualified opinion on those financial statements.

Basis for opinion

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March 13, 2025

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors of GrowGeneration Corp.

Opinion on the Financial Statements

We have audited the accompanying consolidated statements of operations, stockholders' equity, and cash flows of GrowGeneration Corp.

(the “Company”) for the year ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements referred to above present fairly, in all material respects, the results of operations of the Company and its cash flows for the ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

The Company's management is responsible for these financial statements.

Our responsibility is to express an opinion on the Company’s financial statements based on our audit.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audit provides a reasonable basis for our opinion.

/s/ Plante & Moran, PLLC

Denver, Colorado

March 9, 2022, except for the effects of the change in segments described in Notes 2, 6, 12 and 14, as to which the date is March 13, 2024

We served as the Company’s auditor from 2020-2022.

GROWGENERATION CORP.

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Marketable securities 28,984 35,212

Accounts receivable, net of allowance for credit losses of $ 1.4 million and $ 0.7 million at December 31, 2023 and 2022, respectively

Notes receivable, long-term, net of allowance for credit losses of $ 1.7 million and $ 1.3 million at December 31, 2023 and 2022, respectively

Accounts receivable, net of allowance for credit losses of $ 2,177 and $ 1,363 at December 31, 2024 and 2023, respectively

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

Inventory 40,295 64,905

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Sales tax payable 1,313 1,185

Current maturities of operating lease liability 8,021 8,131

Current portion of long-term debt — 50

Current maturities of operating lease liabilities 7,398 8,021

Total current liabilities 24,274 30,930

Operating lease liability, net of current maturities 34,448 40,659

Operating lease liabilities, net of current maturities 29,633 34,448

Other long-term liabilities 352 317

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Additional paid-in capital 375,677 373,433

Retained earnings (deficit) ( 200,099 ) ( 153,603 )

Accumulated deficit ( 255,643 ) ( 200,099 )

Total stockholders’ equity 120,093 173,395

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Selling, general, and administrative 29,243 29,799 36,758

Estimated credit losses 955 1,737 1,428

Estimated credit (recoveries) losses ( 58 ) 955 1,737

Depreciation and amortization 19,436 16,607 17,132

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Total operating expenses 95,694 111,102 238,138

Income (loss) from operations ( 49,844 ) ( 167,875 ) 15,002

Other income (expense):

Loss from operations ( 51,972 ) ( 49,844 ) ( 167,875 )

Other income (expense):

Other (expense) income ( 13 ) 781 684

Interest income 2,703 2,696 580

Interest expense ( 70 ) ( 97 ) ( 21 )

Total other income (expense) 3,380 1,243 227

Net income (loss) before taxes ( 46,464 ) ( 166,632 ) 15,229

Benefit (provision) for income taxes ( 32 ) 2,885 ( 2,443 )

Net income (loss) $ ( 46,496 ) $ ( 163,747 ) $ 12,786

Net income (loss) per share, basic $ ( 0.76 ) $ ( 2.69 ) $ 0.22

Net income (loss) per share, diluted $ ( 0.76 ) $ ( 2.69 ) $ 0.21

Total other income 2,620 3,380 1,243

Net loss before taxes ( 49,352 ) ( 46,464 ) ( 166,632 )

(Provision) benefit for income taxes ( 158 ) ( 32 ) 2,885

Net loss $ ( 49,510 ) $ ( 46,496 ) $ ( 163,747 )

Net loss per share, basic $ ( 0.82 ) $ ( 0.76 ) $ ( 2.69 )

Net loss per share, diluted $ ( 0.82 ) $ ( 0.76 ) $ ( 2.69 )

Weighted average shares outstanding, basic 60,176 61,181 60,813

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(in thousands)

Common Stock Additional

Common Stock Treasury Stock Additional

Capital Retained Earnings (Deficit) Total

Stockholders’

Shares Amount

Balances, December 31, 2020 57,152 $ 57 $ 319,582 $ ( 2,642 ) $ 316,997

Common stock issued upon warrant exercise 256 — 335 — 335

Common stock issued upon cashless exercise of warrants 657 1 ( 1 ) — —

Common stock issued upon exercise of options 469 1 1,757 — 1,758

Common stock issued upon cashless exercise of options 325 — — — —

Common stock issued in connection with business combinations 807 1 37,271 — 37,272

Common stock issued in connection with purchase of intangible assets 4 — 168 — 168

Common stock issued for share based compensation 204 — — — —

Common stock issued for services 145 — 717 — 717

Common stock redeemed in litigation settlement ( 90 ) — — — —

Share-based compensation — — 1,258 — 1,258

Net income (loss) — — — 12,786 12,786

Balances, December 31, 2021 59,929 $ 60 $ 361,087 $ 10,144 $ 371,291

Shares Amount Shares Amount

Balance as of December 31, 2021 59,929 $ 60 — $ — $ 361,087 $ 10,144 $ 371,291

Common stock issued in connection with business combinations 650 1 — — 5,710 — 5,711

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Common stock issued in connection with asset acquisition 50 — — — 173 — 173

Net income (loss) — — — ( 163,747 ) ( 163,747 )

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

Net loss — — — — — ( 163,747 ) ( 163,747 )

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

Common stock issued for share-based compensation 439 — — — — — —

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

Net income (loss) — — — ( 46,496 ) ( 46,496 )

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

Net loss — — — — — ( 46,496 ) ( 46,496 )

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

Common stock issued for share-based compensation 436 1 — — — — 1

Common stock withheld for employee payroll taxes — — — — ( 177 ) — ( 177 )

Share-based compensation — — — — 2,421 — 2,421

Repurchase of common stock — — ( 2,517 ) ( 6,037 ) — — ( 6,037 )

Cancellation of common stock ( 2,517 ) ( 3 ) 2,517 6,037 — ( 6,034 ) —

Net loss — — — — — ( 49,510 ) ( 49,510 )

Balance as of December 31, 2024 59,403 $ 59 — $ — $ 375,677 $ ( 255,643 ) $ 120,093

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

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Cash flows from operating activities:

Net income (loss) $ ( 46,496 ) $ ( 163,747 ) $ 12,786

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

Net loss $ ( 49,510 ) $ ( 46,496 ) $ ( 163,747 )

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

Depreciation and amortization 19,436 16,607 17,132

Estimated credit losses 955 1,737 1,428

Estimated credit (recoveries) losses ( 58 ) 955 1,737

Share-based compensation 2,421 3,171 4,967

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Provision for deferred income taxes — — ( 2,359 )

Loss on disposal of fixed assets 218 568 198

Loss on asset disposition 685 218 568

Change in value of marketable securities ( 1,326 ) ( 1,438 ) —

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

(Increase) decrease in:

Accounts and notes receivable 835 ( 300 ) ( 3,106 )

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Sales taxes payable 128 ( 156 ) ( 582 )

Net cash and cash equivalents provided by (used in) operating activities 1,421 11,948 5,159

Net cash and cash equivalents (used in) provided by operating activities ( 1,799 ) 1,421 11,948

Cash flows from investing activities:

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Common stock withheld for employee payroll taxes ( 176 ) ( 263 ) ( 1,618 )

Common stock repurchased ( 6,037 ) — —

Proceeds from the sales of common stock and exercise of warrants and options, net of expenses — — 33

Net cash and cash equivalents (used in) provided by financing activities ( 313 ) ( 1,693 ) ( 2,382 )

Net increase (decrease) in cash and cash equivalents ( 10,297 ) ( 1,318 ) ( 136,540 )

Net cash and cash equivalents used in financing activities ( 6,213 ) ( 313 ) ( 1,693 )

Net decrease in cash and cash equivalents ( 2,286 ) ( 10,297 ) ( 1,318 )

Cash and cash equivalents at beginning of year 29,757 40,054 41,372

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Cash paid for income taxes $ 125 $ 93 $ —

Right to use assets acquired under new operating leases $ 4,289 $ 9,607 $ 32,875

Indemnity holdback from business acquisition $ — $ 875 $ —

Right-of-use assets obtained in exchange for new or modified operating lease liabilities $ 3,506 $ 4,289 $ 9,607

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

Non-cash issuance of a note receivable $ — $ 299 $ —

Common stock issued for business combinations $ — $ 5,710 $ 37,272

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

Indemnity holdback from business acquisition $ — $ — $ 875

Common stock issued for business combinations $ — $ — $ 5,710

Common stock issued for intangible assets $ — $ — $ 173

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As of December 31, 2024, GrowGeneration has 31 retail locations across 12 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.

The Company also operates an online superstore at growgeneration.com, as well as a wholesale distribution business for resellers, and a benching, racking, and storage solutions business, Mobile Media or MMI.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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All amounts included in the accompanying notes to the Consolidated Financial Statements, except 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 Statements of Operations.

Use of Estimates

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Actual results could vary from the estimates that were used.

Segment Reporting

The Company continually monitors and reviews its segment reporting structure in accordance with authoritative guidance for changes in management's approach or changes in other facts and circumstances that might result in different segment reporting.

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.

Accordingly, the Company identified two operating segments, each its own reportable segment, based on its major lines of business:

the Cultivation and Gardening segment, composed of the Company's hydroponic and organic gardening business;

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

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

Refer to Note 14, Segments, for additional information regarding the Company's reportable segments.

GROWGENERATION CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Revenue Recognition

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In evaluating the timing of the transfer of control of products to customers, the Company considers several control indicators, including significant risks and rewards of products, the Company's right to payment, and the legal title of the products.

Based on the assessment of control indicators, product sales are typically recognized when product is made available to the carrier or picked up by the customer.

Based on the assessment of control indicators, product sales are typically recognized when product is delivered to or picked up by the customer.

Promises related to product installation are considered a separate performance obligation from the product sale because the products can be used without customization or modification and the installation is not complex and can be performed by other vendors.

Installation revenue is recognized upon completion of the installation services.

Revenues are measured as the amount of consideration that the Company expects to receive, which is derived from a list price reduced by variable consideration, which includes applicable sales discounts and estimated expected sales returns.

Revenues are measured as the amount of consideration that the Company expects to receive, which is derived from a list price, reduced by variable consideration including applicable sales discounts and estimated expected sales returns.

The majority of the Company's returns come from retail sales.

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Sales and other taxes collected concurrent with revenue producing activities are also excluded from revenue.

GROWGENERATION CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company provides standard assurance type warranties that its products and installation services will comply with all agreed-upon specifications.

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Cost of sales includes cost of goods and shipping costs.

Cost of goods consists of cost of merchandise, inbound freight, and other inventory-related costs, such as shrinkage costs and lower of cost or market adjustments.

Cost of goods consists of cost of merchandise, inbound freight, and other inventory-related costs, such as shrinkage costs and lower of cost or net realizable value adjustments.

Occupancy expenses of the Company's retail locations and distribution centers, which consist of payroll, rent, and other lease required costs, including common area maintenance and utilities, are included as a component of Store operations and other operational expenses on the Consolidated Statements of Operations.

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Accounts at each institution are insured by the Federal Deposit Insurance Corporation ("FDIC") up to $ 250,000 .

Additionally, certain cash equivalents maintained with investment institutions are insured by a combination of the Securities Investor Protection

GROWGENERATION CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Corporation ("SIPC") up to $ 500,000 , which includes a $ 250,000 limit for cash, and additional private insurance, which mitigates the Company's exposure.

At December 31, 2023 and 2022, the Company had approximately $ 20.8 million and $ 34.3 million, respectively, in excess of the FDIC, SIPC, and other insurance limits.

Additionally, certain cash equivalents maintained with investment institutions are insured by a combination of the Securities Investor Protection Corporation ("SIPC") up to $ 500,000 , which includes a $ 250,000 limit for cash, and additional private insurance, which mitigates the Company's exposure.

As of December 31, 2024, the Company had $ 25.9 million in excess of the FDIC, SIPC, and other insurance limits.

Marketable Securities

1 unchanged sentence

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 $ 1.4 million for the year ended December 31, 2023 and immaterial for the years ended December 31, 2022 and 2021, and included in Interest income on the Consolidated Statements of Operations.

Changes in fair value of marketable securities related to unrealized gains and losses were immaterial for the years ended December 31, 2023, 2022, and 2021.

Changes in fair value of marketable securities, principally derived from accretion of discounts, were $ 1.3 million and $ 1.4 million for the years ended December 31, 2024 and 2023 and were immaterial for the year ended December 31, 2022.

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

Accounts Receivable

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Interest on past due balances are subject to an interest charge of 1.5 % per month.

GROWGENERATION CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Notes Receivable

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Should the value of the underlying collateral become less than the outstanding principal and interest, the Company will determine whether an allowance or impairment of the note receivable and related accrued interest is necessary.

As of December 31, 2023 and 2022, the Company believes the value of the underlying collateral to be sufficient and in excess of the respective outstanding principal and accrued interest, net of recognized allowance for doubtful accounts.

As of December 31, 2024 and 2023, the Company believes the value of the underlying collateral to be sufficient and in excess of the respective outstanding principal and accrued interest, net of recognized allowance for credit losses.

Concentration of Credit Risk

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As of December 31, 2024 and 2023, the Company does not believe that it has significant credit risk.

GROWGENERATION CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Inventory consists predominantly of finished goods, including gardening supplies and materials, fixtures, and equipment, and is recorded at the lower of cost (weighted average cost method) or net realizable value.

Inventory consists predominantly of gardening supplies and materials, fixtures, and equipment, and is recorded at the lower of cost (weighted average cost method) or net realizable value.

The inventory balance includes raw materials of $ 2.4 million for each of the years ended December 31, 2024 and 2023, with the remainder consisting of finished goods.

The Company periodically reviews the value of items in inventory and provides write-downs or write-offs of inventory based on its assessment of market conditions.

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With respect to constructed assets, all materials, direct labor, and contract services, as well as certain indirect costs, are capitalized.

Expenditures for maintenance and repairs are charged against operations.

Costs for maintenance and repairs are expensed as incurred.

Computer software development costs and website development costs are expensed as incurred, except for internal-use software or website development costs that qualify for capitalization in accordance with ASC 350, Intangibles—Goodwill and Other , and include certain employee related expenses, including salaries, bonuses, benefits, and share-based compensation expenses;

1 unchanged sentence

and costs incurred in developing features and functionality.

The Company expenses costs incurred in the preliminary project and post-implementation stages of software development and capitalizes costs incurred in the application development stage and costs associated with significant enhancements to existing internal use software applications.

The Company expenses costs incurred in the preliminary project and post-implementation stages of software

GROWGENERATION CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

development and capitalizes costs incurred in the application development stage and costs associated with significant enhancements to existing internal use software applications.

Costs incurred related to less significant modifications and enhancements as well as maintenance are expensed as incurred.

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The estimated useful lives for trade names, customer relationships, non-compete agreements, and intellectual property are generally five to six years .

GROWGENERATION CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Goodwill represents the excess purchase price over the fair value of identifiable assets acquired and liabilities assumed in connection with acquisitions in accordance to ASC 805, Business Combinations .

Goodwill is not amortized but instead is tested for impairment at the reporting unit level at least annually, or more frequently if indicators of impairment exist.

Effective the fourth quarter of 2023 and prospectively, the Company performs its required annual goodwill impairment test as of December 1 rather than on December 31, which was the Company's previous practice.

Goodwill is assessed using either a qualitative or quantitative approach to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount.

2 unchanged sentences

Otherwise, no further assessment is required.

Companies also have the unconditional option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to performing the quantitative goodwill impairment test for a reporting unit.

The quantitative approach compares the estimated fair value of the reporting unit, including goodwill, to its carrying amount.

Impairment is indicated if the estimated fair value of the reporting unit is less than the carrying amount, and an impairment charge is recognized for the differential.

Companies also have the unconditional option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to performing the quantitative goodwill impairment test.

Effective the fourth quarter of 2023 and prospectively, the Company performed its required annual goodwill impairment test as of December 1 rather than on December 31, which was the Company's previous practice.

This change represented a change in method of applying an accounting principle, and it was determined to be preferable as it more closely aligned the annual goodwill impairment assessment date with the Company's annual planning, forecasting, and budgeting processes.

The change in accounting principle did not result in any, nor does the Company expect the change in accounting principle to result in any, delay, acceleration, or avoidance of an impairment cha rge.

This change was not applied retrospectively, as it would be impracticable to do so because retrospective application would require application of significant estimates and assumptions with the use of hindsight.

For the goodwill impairment test performed on December 1, 2023, the Company completed a quantitative goodwill impairment assessment for each reporting unit.

As a result of changes to the business and future projections, the Company identified a $ 9.3 million impairment related to its goodwill.

Additionally, for the year ended December 31, 2022, the Company recorded a goodwill impairment loss of $ 116.7 million.

These impairment losses related to goodwill are included in Impairment loss on the Consolidated Statements of Operations.

Impairment is indicated if the estimated fair value of the reporting unit is less than the carrying amount, and an impairment loss is recognized for the differential.

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

The fair value of a reporting unit refers to the price that would be received to sell the unit as a whole in an orderly transaction between market participants at the measurement date.

The Company determines fair value using the income approach, where estimated future cash flows are discounted to present value at an appropriate rate of return.

Multiples of earnings based on the average of historical, published multiples of earnings of comparable entities with similar operations and economic characteristics are also used in developing estimated fair values.

The inputs utilized in the analyses are classified as Level 3 inputs within the fair value hierarchy as defined in ASC 820, Fair Value Measurement .

GROWGENERATION CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Impairment losses related to goodwill are included in Impairment loss on the Consolidated Statements of Operations.

Refer to Note 6, Goodwill and Intangible Assets, for additional information regarding the Company's impairment assessments.

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The measurement of impairment requires management to make estimates of these cash flows related to long-lived assets, as well as other fair value determinations.

During the fourth quarter of 2023, the Company quantitatively evaluated the recoverability of its long-lived assets, including its finite-lived intangible assets, for impairment in conjunction with its annual goodwill impairment assessment.

As a result, the Company identified a $ 6.2 million impairment related to its finite-lived intangible assets.

Additionally, the Company identified a $ 0.1 million impairment related to its operating lease right-of-use assets for the year ended December 31, 2023.

For the year ended December 31, 2022, the Company recorded an impairment loss of $ 11.2 million related to its finite-lived intangible assets.

These impairment losses related to long-lived assets are included in Impairment loss on the Consolidated Statements of Operations.

Refer to Note 6, Goodwill and Intangible Assets, for additional information regarding the Company's intangible asset impairment assessments.

The estimated fair values of the assets are measured using an income approach, which utilizes forecasted discounted cash flows.

The inputs utilized in the analyses are classified as Level 3 inputs within the fair value hierarchy as defined in ASC 820, Fair Value Measurement , and primarily consist of expected future operating margins and cash flows, weighted average cost of capital rates, estimated salable values and third-party appraisal techniques such as market comparables.

Impairment losses related to long-lived assets are included in Impairment loss on the Consolidated Statements of Operations.

Refer to Note 6, Goodwill and Intangible Assets, and Note 8, Leases, for additional information regarding the Company's long-lived asset impairment assessments.

Leases are accounted for in accordance with ASC 842, Leases .

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The Company does not have finance leases.

GROWGENERATION CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Additionally, the Company subleases certain of its operating leases related to closed retail locations.

Right-of-use assets and lease liabilities are recognized at the lease commencement date based on the present value of the future minimum lease payments over the lease term.

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Additionally, the Company reviews for impairment indicators of its right-of-use assets and other long-lived assets as described in the Recoverability of long-lived assets significant accounting policy.

GROWGENERATION CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Where assets are used to directly serve 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.

Variable lease payments are expensed as incurred and include certain non-lease components, such as maintenance and other services provided by the lessor, and other charges included in the lease, as applicable.

The Company's subleases generally do not relieve it of its primary obligations under the corresponding head lease.

As a result, the Company accounts for the head lease based on the original assessment at inception.

Additionally, the Company determines if the sublease arrangement is either a sales-type, direct financing, or operating lease at inception.

The Company recognizes sublease income within Store operations and other operational expenses.

If the total remaining lease cost on the head lease for the term of the sublease is greater than the anticipated sublease income, the right-of-use asset is assessed for impairment.

If these cash flows are less than the carrying value of such asset, an impairment loss is recognized for the difference between estimated fair value and carrying value.

Fair Value Measurements

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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.

GROWGENERATION CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The carrying amounts of cash and cash equivalents, accounts receivable, 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 net of recognized allowance for doubtful accounts.

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

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

Level December 31, 2024 December 31, 2023

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Measurement period adjustments are recognized in the reporting period in which the adjustments were determined and calculated as if the accounting had been completed at the acquisition date.

The process for estimating fair values requires the use of significant estimates, assumptions and judgments, including determining the timing and estimates of future cash flows and developing appropriate discount rates.

The process for estimating fair values requires the use of significant estimates,

GROWGENERATION CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

assumptions and judgments, including determining the timing and estimates of future cash flows and developing appropriate discount rates.

Any changes to these estimates may have a material impact on the Company's operating results or financial position.

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Advertising and promotional expenses for the years ended December 31, 2024, 2023, and 2022 amounted to $ 2.0 million, $ 1.8 million, and $ 4.0 million, respectively.

GROWGENERATION CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Earnings Per Share

The Company computes net earnings per share under ASC 260-10, Earnings Per Share .

Basic earnings or loss per share ("EPS") is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding for the period.

Diluted EPS is computed by dividing net income (loss) by the weighted average of all potentially dilutive shares of common stock that were outstanding during the periods presented.

The treasury stock method is used in calculating diluted EPS for potentially dilutive stock options, restricted stock and common stock warrants, which assumes that any proceeds received from the exercise of in-the-money stock options, restricted stock and common stock warrants, would be used to purchase common shares at the average market price for the period.

Basic earnings or loss per share ("EPS") is computed by dividing net income or loss available to common stockholders by the weighted average number of common shares outstanding for the period.

Diluted EPS is computed by dividing net income or loss by the weighted average of all potentially dilutive shares of common stock that were outstanding during the periods presented.

The treasury stock method is used in calculating diluted EPS for potentially dilutive stock options, restricted stock units, and common stock warrants, which assumes that any proceeds received from the exercise of in-the-money stock options, restricted stock units, and common stock warrants, would be used to purchase common shares at the average market price for the period.

Share-Based Compensation

The Company uses share-based compensation, including stock options, restricted stock units, and common stock warrants, to provide long-term performance incentives for its employees, non-employee members of its Board of Directors, and consultants.

GROWGENERATION CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company records share-based compensation in accordance with ASC 718, Compensation-Stock Compensation .

The Company estimates the fair value of stock options and common stock warrants on the grant date using the Black-Scholes option pricing model.

The fair value of stock options and common stock warrants granted is recognized as an expense over the requisite service period.

Share-based compensation expense for all share-based payment awards is recognized using the straight-line single-option method and is included in Selling, general, and administrative expense in the Consolidated Statements of Operations.

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

The fair value of all share-based payment awards is recognized as an expense over the requisite service period using the straight-line single-option method and is included in Selling, general, and administrative expense in the Consolidated Statements of Operations.

Forfeitures are recognized as they occur.

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The Company recognizes compensation expense for these awards over the requisite service period.

Refer to Note 9, Share-Based Payments, for additional information regarding the Company's share-based compensation and share-based awards.

Refer to Note 9, Share-Based Payments, for additional information regarding the Company's share-based compensation and share-based payment awards.

Treasury Stock

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

In accordance with ASC 505, Equity , the retirement of treasury stock is recognized as a deduction from common stock for the shares' par value and any excess cost over par value is recognized as a deduction from retained earnings.

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

Segment Reporting

Consistent with the prior year, the Company has two operating segments, each its own reportable segment, based on its major lines of business:

the Cultivation and Gardening segment, composed of the Company's hydroponic and organic gardening business;

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

Refer to Note 15, Segments, for additional information regarding the Company's reportable segments.

Restructuring Activities

The Company's restructuring and restructuring related charges consists of inventory disposal costs, retail location closure costs including related contract termination costs and fixed asset disposals, employee termination benefits, asset impairments including the impairment of operating lease right-of-use assets, and other associated costs.

Certain of the Company's restructuring activities include the recognition of exit or disposal costs, which are recognized in accordance with ASC 420, Exit or Disposal Cost Obligations .

Exit or disposal costs include, but are not limited to, the costs of termination benefits, such as one-time involuntary severance or retention bonuses, one-time contract termination costs (excluding leases), and other costs associated with non-termination type costs related to restructuring initiatives.

Liabilities from exit and disposal costs are recorded for estimated costs to be incurred.

Refer to Note 17, Restructuring, for additional information related to restructuring activities.

RECENT ACCOUNTING PRONOUNCEMENTS

From time to time, the FASB or other standard setting bodies issue new accounting pronouncements.

Updates to the FASB Accounting Standards Codification are communicated through issuance of an Accounting Standards Update ("ASU").

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

In addition to the accounting pronouncements 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, the FASB issued ASU No.

2016-13, Financial Instruments—Credit Losses (Topic 326) ("ASU 2016-13"), 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.

ASU 2016-13 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

Updates to the FASB Accounting Standards Codification are communicated through the issuance of an Accounting Standards Update ("ASU").

GROWGENERATION CORP.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

investments in leases, and off-balance sheet credit exposures.

ASU 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.

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 Retained earnings (deficit) in the Consolidated Balance Sheets on the adoption date of the standard.

Recently Issued Accounting Pronouncements Not Yet Adopted

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

Recently Adopted Accounting Pronouncements

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 interim periods 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.

The Company is currently evaluating the impact of this standard.

2023-07, Segment Reporting—Improvements to Reportable Segment Disclosures (Topic 280) ("ASU 2023-07"), which expanded disclosure requirements for reportable segments on an annual and interim basis primarily through enhanced disclosures about significant segment expenses and the composition of other segment items for each segment's reported profit or loss.

The Company adopted this standard retrospectively as of December 31, 2024.

Refer to Note 15, Segments for segment disclosures.

Recently Issued Accounting Pronouncements Not Yet Adopted

In December 2023, the FASB issued ASU No.

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The Company is currently evaluating the impact of this standard.

In November 2024, the FASB issued ASU No.

2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40) ("ASU 2024-03"), which requires disclosure on an annual and interim basis of disaggregated information about certain income statement expense line items in the notes to the financial statements.

ASU 2024-03 is effective for fiscal years beginning after December 15, 2026, and interim periods beginning after December 15, 2027.

Early adoption is permitted, and adoption of ASU 2024-03 can be applied prospectively or retrospectively.

The Company is currently evaluating the impact of this standard.

REVENUE RECOGNITION

Disaggregation of Revenues

Sales are disaggregated by the Company's segments, which represent its principal lines of business, as well as by major product line, including proprietary brands, non-proprietary brands, and commercial fixtures, and by product type, including consumable and durable products.

Net sales are disaggregated by the Company's segments, which represent its principal lines of business, as well as by major product line, including proprietary brands, non-proprietary brands, and commercial fixtures, and by product type, including consumable and durable products.

Refer to Note 15, Segments, for disaggregated revenue disclosures.

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Accounts Receivable, Net Customer Deposits

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

Closing balance, December 31, 2023 8,895 5,359

Increase (decrease) $ 559 $ 1,021

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

Closing balance, December 31, 2022 8,336 4,338

Increase (decrease) $ 2,595 $ ( 7,348 )

Balance as of January 1, 2024 $ 8,895 $ 5,359

Balance as of December 31, 2024 7,361 2,404

Decrease $ ( 1,534 ) $ ( 2,955 )

Balance as of January 1, 2023 $ 8,336 $ 4,338

Balance as of December 31, 2023 8,895 5,359

Increase $ 559 $ 1,021

Of the total amount of customer deposits as of January 1, 2024, $ 4.8 million was reported as revenue during the year ended December 31, 2024.

Of the total amount of customer deposits as of January 1, 2023, $ 3.4 million was reported as revenue during the year ended December 31, 2023.

The Company also has notes receivable under longer term financing arrangements at interest rates typically ranging from 6 % to 12 % with repayment terms typically ranging for 12 to 18 months.

GROWGENERATION CORP.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company also has notes receivable under longer term financing arrangements at interest rates typically ranging from 12 % to 14 % with repayment terms typically ranging for 12 to 18 months.

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

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Notes receivable, net $ — $ —

During the year ended December 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.

Refer to Note 16, Commitment and Contingencies, for additional information regarding the settlement.

PROPERTY AND EQUIPMENT

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Depreciation and amortization expense related to property and equipment was $ 12.8 million, $ 7.9 million, and $ 7.2 million for the years ended December 31, 2024, 2023, and 2022, respectively.

In conjunction with the Company's restructuring activities as discussed in Note 17, Restructuring, the Company reassessed and shortened the estimated useful life of certain capitalized software assets, which resulted in a $ 5.3 million increase to depreciation and amortization expense related to property and equipment for the year ended December 31, 2024.

Refer to Note 17, Restructuring, for additional information on the restructuring activities.

GOODWILL AND INTANGIBLE ASSETS

The change in accounting principle did not result in any, nor does the Company expect the change in accounting principle to result in any, delay, acceleration, or avoidance of an impairment cha rge.

For the goodwill impairment test performed on December 1, 2023, the Company completed a quantitative goodwill impairment assessment for each of its four reporting units.

The fair value of each reporting unit was determined using the income approach, which discounts estimated future cash flows to present value using an appropriate rate of return.

The estimated fair value of each reporting unit, including goodwill, was compared to its carrying amount, and, as a result of changes to the business and future projections, the Company identified a $ 9.3 million impairment related to its goodwill for the year ended December 31, 2023.

The Company performs goodwill impairment testing annually on December 1, or more frequently if events or circumstances were to occur that would more likely than not reduce the fair value of reporting units below the carrying amount.

The Company would recognize an impairment loss 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.

GROWGENERATION CORP.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the goodwill impairment test performed on December 1, 2024, the Company elected different approaches based on the circumstances surrounding each reporting unit.

Of the Company's four reporting units, only three had remaining goodwill balances.

The Company elected to qualitatively review one reporting unit for events and circumstances which would indicate whether it was more than likely than not reporting unit fair values were below carrying values.

The qualitative assessment did not identify any indicators of impairment, and accordingly, no further impairment assessments were necessary.

For the remaining two reporting units, the Company elected to bypass the qualitative assessment and proceed directly to a quantitative assessment.

The fair value of each reporting unit was primarily determined using the income approach, which discounts estimated future cash flows to present value using an appropriate rate of return.

The estimated fair value of each reporting unit was compared to each respective carrying amount, and, as a result of changes to the business and future projections, the Company recorded a goodwill impairment loss of $ 5.9 million.

In conjunction with the quantitative impairment assessment on December 1, 2024, the Company performed a recoverability test on the following finite-lived intangible assets:

customer relationships and trade names.

The Company determined the fair value of these finite-lived intangible assets using the income approach.

The estimated fair values of the finite-lived intangible assets were compared to the respective carrying values, and as a result, the Company identified a $ 0.7 million impairment loss, for the year ended December 31, 2024.

For the goodwill impairment test performed on December 1, 2023, the Company completed a quantitative goodwill impairment assessment for each of its four reporting units.

The fair value of each reporting unit was determined using the income approach, which discounts estimated future cash flows to present value using an appropriate rate of return.

The estimated fair value of each reporting unit was compared to its carrying amount, and, as a result of changes to the business and future projections, the Company identified a $ 9.3 million impairment loss related to its goodwill for the year ended December 31, 2023.

In conjunction with its annual goodwill impairment assessment on December 1, 2023, the Company quantitatively evaluated the recoverability of its long-lived assets, including its finite-lived intangible assets, for impairment.

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If the undiscounted cash flows were less than the carrying values, an impairment loss was recognized for the difference between the estimated fair values using an income approach and the related carrying values.

As a result, the Company identified a $ 6.2 million impairment for the year ended December 31, 2023 related to its finite-lived intangible assets, including trade names, patents, customer relationships, non-competes, and intellectual property.

As a result, the Company identified a $ 6.2 million impairment loss for the year ended December 31, 2023 related to its finite-lived intangible assets, including trade names, patents, customer relationships, non-competes, and intellectual property.

For the year ended December 31, 2022, the Company recorded a total impairment loss of $ 127.8 million related to goodwill and intangible assets.

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The Company determined the fair value of its reporting units and finite-lived intangible assets using the income approach.

The Company recognized an impairment losses of $ 11.2 million related to its finite-lived intangibles and $ 116.7 million related to goodwill on June 30, 2022.

The Company recognized impairment losses of $ 11.2 million related to its finite-lived intangibles and $ 116.7 million related to goodwill on June 30, 2022.

GROWGENERATION CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The changes in goodwill, including the impairments discussed above, by segment for the years ended December 31, 2024 and 2023 were as follows:

Cultivation and Gardening Storage Solutions Total

Balance at December 31, 2021 $ 124,199 $ 1,202 $ 125,401

Balance as of December 31, 2022 $ 14,373 $ 1,605 $ 15,978

Acquisitions and measurement period adjustments 830 — 830

Impairment ( 9,283 ) — ( 9,283 )

Balance at December 31, 2022 $ 14,373 $ 1,605 $ 15,978

Acquisitions 830 — 830

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

Impairment ( 5,920 ) — ( 5,920 )

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

Accumulated impairment for goodwill was $ 125.9 million, $ 116.7 million, and zero as of December 31, 2023, 2022, and 2021, respectively.

Balance as of December 31, 2024 $ — $ 1,605 $ 1,605

Accumulated impairment for goodwill was $ 131.9 million, $ 125.9 million, and $ 116.7 million as of December 31, 2024, 2023, and 2022, respectively.

The changes in intangible assets, including the impairments discussed above, by segment for the years ended December 31, 2024 and 2023 were as follows:

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Amortization ( 5,885 ) ( 781 ) ( 6,666 )

Acquisitions 440 — 440

Impairment ( 735 ) — ( 735 )

Balance as of December 31, 2024 $ 6,881 $ 1,898 $ 8,779

GROWGENERATION CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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Total $ 42,724 $ ( 33,945 ) $ 8,779 $ 43,459 $ ( 27,279 ) $ 16,180

The weighted-average remaining amortization period for intangible assets as of December 31, 2023 is as follows:

Weighted-Average

Amortization Period

Trade names 2.21 years

Customer relationships 3.83 years

Non-competes 1.14 years

Total 2.64 years

GROWGENERATION CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Amortization expense for the years ended December 31, 2024, 2023, and 2022 was $ 6.7 million, $ 8.7 million, and $ 9.9 million respectively.

Future amortization expense as of December 31, 2024 is as follows:

Thereafter 25

Total $ 8,779

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State — — ( 180 )

Valuation allowance — — —

Provision (benefit) for income taxes $ 158 $ 32 $ ( 2,885 )

GROWGENERATION CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The tax effects of temporary differences that gave rise to the Company's deferred tax assets and liabilities as of December 31, 2024 and 2023 were as follows:

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Net operating losses and attributes carryovers $ 24,897 $ 15,097

Deferred right to use lease liabilities 10,874 12,200

Deferred right-of-use lease liabilities 9,750 10,874

Share-based compensation 586 1,249

Accumulated depreciation and amortization 31,804 30,101

Capitalized research costs 397 —

Accruals and other 2,039 2,421

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Deferred tax liabilities:

Deferred right to use lease assets ( 10,224 ) ( 11,638 )

Deferred right-of-use lease assets ( 9,071 ) ( 10,224 )

Total deferred tax liabilities ( 9,071 ) ( 10,224 )

Deferred tax asset (liability) 49,518 38,689

Net deferred tax asset 60,402 49,518

Valuation allowance ( 60,402 ) ( 49,518 )

Deferred tax asset (liability), net $ — $ —

Net deferred tax asset after valuation allowance $ — $ —

As of December 31, 2024, the Company had cumulative federal net operating losses of $ 98.9 million, which have an indefinite carryforward period.

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State net operating loss carryforwards will begin to expire in calendar year 2035.

GROWGENERATION CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Net operating loss carryforwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant shareholders over a three-year period in excess of 50%, as defined under Sections 382 and 383 of the Internal Revenue Code, respectively, as well as similar state provisions.

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Share-based compensation — % ( 1 ) % ( 1 ) %

Return to provision adjustments — % — % ( 4 ) %

Valuation allowance ( 22 ) % ( 24 ) % ( 23 ) %

Other ( 2 ) % — % — %

Effective income tax rate — % — % 2 %

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federal jurisdiction and various state jurisdictions.

GROWGENERATION CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

tax years for the Company are currently under examination by the IRS or state and local tax authorities for income tax purposes.

No tax years for the Company are currently under examination by the IRS or state and local tax authorities for income tax purposes.

Generally, the Company's 2021 through 2023 fiscal years remain open for examination and assessment.

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Years prior to 2020 remain open solely for purpose of examination of the Company's loss and credit carryforwards.

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

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

Operating leases right-of-use assets, net $ 34,453 $ 39,933

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Weighted average discount rate 6.2 % 6.1 %

Lease expense is recorded within the Company's 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 that serve management and support functions are expensed through Selling, general, and administrative.

Additionally, the Company recorded sublease income of $ 1.1 million and $ 0.1 million for the years ended December 31, 2023 and 2022, respectively, within Store operations and other operational expenses related to the sublease of a closed retail location.

There was no sublease income for the year ended December 31, 2021.

The Company also identified a $ 0.1 million impairment related to its operating lease right-of-use assets for the year ended December 31, 2023, which is included in Impairment loss on the Consolidated Statements of Operations.

The components of lease expense are as follows:

GROWGENERATION CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The components of lease costs were as follows:

Year Ended December 31,

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Short-term lease costs 373 268 451

Sublease income ( 1,420 ) ( 1,148 ) ( 86 )

Total operating lease costs $ 10,959 $ 12,927 $ 13,729

GROWGENERATION CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Future maturities of the Company's operating lease liabilities as of December 31, 2023:

In conjunction with the Company's restructuring activities as discussed in Note 17, Restructuring, the Company assessed and impaired the right-of-use assets of certain closed retail locations, which resulted in an impairment loss of $ 0.2 million in the year ended December 31, 2024.

Refer to Note 17, Restructuring, for additional information on the restructuring activities.

Future maturities of the Company's operating lease liabilities and receipts from subleases as of December 31, 2024 were as follows:

Lease Payments Sublease Receipts

2025 $ 9,420 $ ( 1,187 )

2026 8,208 ( 1,222 )

2027 6,455 ( 1,257 )

2028 6,022 ( 1,294 )

2029 5,425 ( 1,332 )

Thereafter 8,170 ( 1,470 )

Total lease payments 50,612

Total lease payments (receipts) 43,700 ( 7,762 )

imputed interest ( 6,669 )

Operating lease liability at December 31, 2023 $ 42,469

Supplemental and other information related to leases is as follows:

Operating lease liability as of December 31, 2024 $ 37,031

Supplemental and other information related to leases was as follows:

Year Ended December 31,

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Equity Incentive Plans Overview

The Company maintains two long-term incentive plans for employees, non-employee members of its Board of Directors (the "Board"), and consultants:

the 2014 Equity Incentive Plan and the Amended and Restated 2018 Equity Incentive Plan.

The plans allow the Company to grant equity-based compensation awards, including stock options, stock appreciation rights, performance share units, restricted stock units, restricted stock awards, common stock warrants, or a combination of awards (collectively, "share-based awards").

On March 6, 2014, the Board approved the 2014 Equity Incentive Plan ("2014 Plan") pursuant to which the Company may grant incentive, non-statutory options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units and other stock or cash awards to employees, non-employee members of the Board, consultants and other independent advisors who provide services to the Company.

The maximum shares of common stock which may be issued over the term of the 2014 Plan shall not exceed 2,500,000 shares.

Awards under the 2014 Plan are made by the Board or a committee designated by the Board.

Options under the 2014 Plan are to be issued at the market price of the stock on the day of the grant except to those issued to holders of 10% or more of the Company's common stock which is required to be issued at a price not less than 110 % of the fair market value on the day of the grant.

Each option is exercisable at such time or times, during such period and for such numbers of shares shall be determined by the plan administrator.

No option may be exercisable for more than ten years ( five years in the case of an incentive stock option granted to a 10% stockholder) from the date of grant.

The Company maintains a long-term incentive plan, the Second Amended and Restated 2018 Equity Incentive Plan, for employees, non-employee members of its Board of Directors (the "Board"), and consultants.

The plan allows the Company to grant equity-based compensation awards, including stock options, stock appreciation rights, performance share units, restricted stock units, restricted stock awards, common stock warrants, or a combination of awards (collectively, "share-based awards").

On January 7, 2018, the Board adopted the 2018 Equity Incentive Plan (the "2018 Plan"), and on April 20, 2018, the shareholders approved the 2018 Plan.

On February 7, 2020, the Board approved the amendment and restatement of the 2018 Plan to increase the number of shares issuable thereunder from 2,500,000 to 5,000,000 , which amendment was approved by shareholders on May 11, 2020.

On April 22, 2024, the Board approved another amendment of the First Restated 2018 Plan to increase the number of shares issuable thereunder from 5,000,000 to

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6,500,000 , which amendment was approved by shareholders on June 20, 2024 (the "Second Restated 2018 Plan").

As of December 31, 2024, there were 1.4 million shares available for issuance under the 2018 Plan.

The 2018 Plan is administered by the Board.

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No options, stock purchase rights or awards may be made under the 2018 Plan on or after the ten-year anniversary of the adoption of the 2018 Plan by the Board, but the 2018 Plan will continue thereafter while previously granted options, stock appreciation rights or awards remain subject to the 2018 Plan.

Options granted under the 2018 Plan may be either "incentive stock options" that are intended to meet the requirements of Section 422 of the Internal Revenue Code of 1986,

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as amended (the "Code") or "non-statutory stock options" that do not meet the requirements of Section 422 of the Code.

Options granted under the 2018 Plan may be either "incentive stock options" that are intended to meet the requirements of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code") or "non-statutory stock options" that do not meet the requirements of Section 422 of the Code.

The Board will determine the exercise price of options granted under the 2018 Plan.

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No option may be exercisable for more than ten years ( five years in the case of an incentive stock option granted to a 10% stockholder) from the date of grant.

As of December 31, 2023, there were 0.3 million shares available for issuance under the 2014 Plan and 2018 Plan, collectively.

Share-Based Compensation

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, restricted stock, and common stock warrants.

The following table presents share-based compensation expense for the years ended December 31, 2024, 2023, and 2022.

2024 2023 2022

Restricted stock $ 3,171 $ 3,889 $ 4,349

Restricted stock units $ 2,421 $ 3,171 $ 3,889

Stock options — — 59

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Total $ 2,421 $ 3,171 $ 4,967

As of December 31, 2023, the Company had approximately $ 3.7 million of unamortized share-based compensation for share-based awards, which are expected to be recognized over a weighted average period of 2.5 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.

As of December 31, 2024, the Company had $ 2.9 million of unamortized share-based compensation for share-based awards, which are expected to be recognized over a weighted average period of 2.7 years.

Restricted Stock Units

The Company issues shares of restricted stock units 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 years ended December 31, 2023 and 2022 is presented in the following table:

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

Restricted stock unit activity for the year ended December 31, 2024 is presented in the following table:

Shares Weighted Average Grant Date Fair Value

Nonvested, December 31, 2021 484 $ 20.19

Granted 1,044 8.85

Vested ( 399 ) 9.26

Forfeited ( 514 ) 18.73

Nonvested, December 31, 2022 615 $ 9.41

Nonvested as of December 31, 2023 905 $ 5.23

Granted 1,224 $ 2.14

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Forfeited ( 209 ) $ 4.88

Nonvested, December 31, 2023 905 $ 5.23

Nonvested as of December 31, 2024 1,403 $ 2.57

GROWGENERATION CORP.

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The weighted-average grant-date fair value of restricted stock units granted during the years ended December 31, 2024, 2023 and 2022 was $ 2.14 , $ 3.73 , and $ 8.85 , respectively.

Stock Options

The table below summarizes all option activity under all plans during the years ended December 31, 2023 and 2022:

The table below summarizes all option activity under all plans during the year ended December 31, 2024:

Options Shares Weighted-

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Price Weighted- Average Remaining

Contractual Term Weighted-

Contractual Term (Years) Weighted-

Average Grant Date Fair Value

Outstanding at December 31, 2021 906 $ 4.38 2.85 years $ 2.45

Granted — $ — $ —

Exercised ( 55 ) $ 4.14 $ 2.22

Forfeited or expired ( 247 ) $ 5.36 $ 2.97

Outstanding at December 31, 2022 604 $ 3.97 1.87 years $ 2.24

Vested and exercisable at December 31, 2022 604 $ 3.97 1.87 years $ 2.24

Outstanding at December 31, 2022 604 $ 3.97 1.87 years $ 2.24

Outstanding, vested and exercisable as of December 31, 2023 577 $ 4.01 0.95 $ 2.25

Granted — $ — $ —

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Forfeited or expired ( 561 ) $ 3.99 $ 2.24

Outstanding at December 31, 2023 577 $ 4.01 0.95 years $ 2.25

Vested and exercisable at December 31, 2023 577 $ 4.01 0.95 years $ 2.25

Outstanding, vested and exercisable as of December 31, 2024 16 $ 4.63 0.36 $ 2.56

The aggregate intrinsic value of stock options is calculated as the amount by which the fair value of the underlying stock exceeds the exercise price of the stock options.

For the years ended December 31, 2023, 2022, and 2021, the aggregate intrinsic value of stock options outstanding, vested, and exercisable was less than $ 0.1 million, $ 0.1 million, and $ 7.9 million, respectively.

Common Stock Warrants

A summary of the status of the Company's outstanding common stock warrants for the years ended December 31, 2023 and 2022 is as follows:

Warrants Weighted Average Exercise Price

Outstanding December 31, 2021 331 $ 22.14

Exercised ( 48 ) 3.50

Forfeited ( 250 ) $ 26.57

Outstanding December 31, 2022 33 $ 10.61

Exercised — —

Forfeited ( 33 ) $ 10.61

Outstanding December 31, 2023 — $ —

On November 17, 2022, the Company settled 250,000 warrants for a cash payment of $ 10 thousand and 10,000 shares of common stock.

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The aggregate intrinsic value of stock options outstanding, vested, and exercisable was less than $ 0.1 million for the years ended December 31, 2024 and 2023, and $ 0.1 million for the year ended December 31, 2022.

Liability Awards

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The liability of $ 0.7 million was relieved to additional paid-in capital, and the incremental expense of $ 0.1 million will be recognized over the remaining term of the modified awards.

The expense related to liability-classified stock awards for the years ended December 31, 2023, 2022 and 2021 was $ 0.2 million, $ 0.5 million, and $ 0.7 million, respectively.

As of December 31, 2023, the Company did not have any outstanding liability-classified stock awards.

As of December 31, 2022, the aggregate face value of the outstanding liability-classified stock awards was $ 5.3 million.

The expense related to liability-classified stock awards for the years ended December 31, 2023 and 2022 was $ 0.2 million, and $ 0.5 million, respectively.

As of December 31, 2024 and 2023, the Company no longer had any outstanding liability-classified stock awards.

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 years ended December 31, 2023, 2022, and 2021.

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 years ended December 31, 2024, 2023, and 2022.

Year Ended December 31,

2024 2023 2022

Net income (loss) $ ( 46,496 ) $ ( 163,747 ) $ 12,786

Net loss $ ( 49,510 ) $ ( 46,496 ) $ ( 163,747 )

Weighted average shares outstanding, basic 60,176 61,181 60,813

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Weighted average shares outstanding, dilutive 60,176 61,181 60,813

Basic earnings (loss) per share $ ( 0.76 ) $ ( 2.69 ) $ 0.22

Diluted earnings (loss) per share $ ( 0.76 ) $ ( 2.69 ) $ 0.21

Diluted earnings per share calculations for the year ended December 31, 2023 excluded 0.6 million shares of common stock issuable upon exercise of stock options and 0.9 million shares of non-vested restricted stock that would have been anti-dilutive.

Diluted earnings per share calculations for the year ended December 31, 2022 excluded 0.6 million shares of common stock issuable upon exercise of stock options, 0.6 million shares of non-vested restricted stock, and 33 thousand shares of common stock issuable upon exercise of the stock purchase warrants that would have been anti-dilutive.

For the year ended December 31, 2021, there were no anti-dilutive shares outstanding that were excluded from the dilutive earnings per share calculation.

Basic loss per share $ ( 0.82 ) $ ( 0.76 ) $ ( 2.69 )

Diluted loss per share $ ( 0.82 ) $ ( 0.76 ) $ ( 2.69 )

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Diluted loss per share calculations for the year ended December 31, 2024 excluded 0.5 million shares of common stock issuable upon exercise of stock options and 0.9 million non-vested restricted stock units that would have been anti-dilutive.

Diluted loss per share calculations for the year ended December 31, 2023 excluded 0.6 million shares of common stock issuable upon exercise of stock options and 1.0 million non-vested restricted stock units.

For the year ended December 31, 2022, there were 0.6 million shares of common stock issuable upon exercise of stock options, 0.6 million 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.

STOCKHOLDERS' EQUITY

On March 20, 2024, the Board authorized a share repurchase program, whereby the Company could repurchase up to $ 6.0 million worth of its common stock in open market transactions pursuant to Rule 10b-18 of the Exchange Act and a 10b5-1 trading plan .

The program began on April 1, 2024.

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

The program did 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 was dependent upon factors such as the stock price, trading volumes, market conditions, and regulatory requirements.

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

During the year ended December 31, 2024, the Company repurchased 2.5 million shares of common stock at an average price of $ 2.38 per share exclusive of incremental direct costs.

As of December 31, 2024, the Company completed all purchases available under the stock repurchase program.

The Company retired all 2.5 million shares of treasury stock acquired under the share repurchase program during the year ended December 31, 2024.

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

EMPLOYEE BENEFIT PLAN

The Company has a 401(k) Savings Retirement Plan that covers substantially all full-time employees who meet the plan's eligibility requirements and provides for an employee elective contribution.

The Company made matching contributions to the plan of $ 0.6 million, $ 0.6 million, and $ 0.4 million for the years ended December 31, 2023, 2022, and 2021, respectively.

The Company made immaterial matching contributions to the plan in the year ended December 31, 2024, and matching contributions of $ 0.6 million for each of the years ended December 31, 2023 and 2022.

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;

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The Company accounts for acquisitions in accordance with ASC 805, Business Combinations .

Assets acquired and liabilities assumed are recognized at their estimated fair values in accordance with ASC 820, Fair Value Measurements , as

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of the acquisition date.

Assets acquired and liabilities assumed are recognized at their estimated fair values in accordance with ASC 820, Fair Value Measurements , as of the acquisition date.

For all acquisitions, the preliminary allocation of the purchase price was based upon a preliminary valuation, and the Company's estimates and assumptions are subject to change as valuations are finalized within the measurement period, which cannot extend beyond one year from the acquisition date.

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Any changes to these estimates may have a material impact on the Company's operating results or financial position.

There were no measurement period adjustments during the year ended December 31, 2023.

There were no measurement period adjustments during the years ended December 31, 2024 and 2023.

During the year ended December 31, 2022, the Company's measurement period adjustments included a $ 1.3 million reduction to estimated fair value of acquired intangible assets with the offset to goodwill.

1 unchanged sentence

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

Acquisition costs were less than $ 0.1 million for the years ended December 31, 2023 and were $ 0.2 million and $ 0.7 million for the years ended December 31, 2022 and 2021, respectively.

The Company incurred no acquisition costs in the year ended December 31, 2024.

Acquisition costs were less than $ 0.1 million for the year ended December 31, 2023 and were $ 0.2 million for the year ended December 31, 2022.

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2024 Acquisitions

The Company had no acquisitions during the year ended December 31, 2024.

2023 Acquisitions

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 represents the value expected to rise from organic growth and an opportunity for the Company to expand into a new market.

The total consideration for the purchase of the SGS assets was $ 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 $ 0.6 million, which represents the value expected to rise from organic growth and an opportunity for the Company to expand into a new market.

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

Additionally, the Company made other, individually immaterial acquisitions during the year ended December 31, 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 represents the value expected to rise from organic growth and an opportunity for the Company to expand into a new market.

Total consideration for these purchases was $ 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 $ 0.3 million, which represents the value expected to rise from organic growth and an opportunity for the Company to expand into a new market.

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

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table discloses the date of the acquisitions noted above and the revenue and earnings included in the Consolidated Statement of Operations for the year ended December 31, 2023.

3 unchanged sentences

Net income (loss) $ 41 $ ( 40 ) $ 1

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following represents the pro forma Consolidated Statement of Operations as if the acquisitions had been included in the consolidated results of the Company for the entire period for the years ended December 31, 2023 and 2022.

December 31, 2023 (Unaudited) December 31, 2022 (Unaudited) December 31, 2021 (Unaudited)

December 31, 2023 (Unaudited) December 31, 2022 (Unaudited)

Net sales $ 228,032 $ 285,524

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("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 approximately $ 5.7 million.

The asset purchase agreement also provided for an indemnity holdback to be settled in common stock of the Company valued at approximately $ 0.9 million.

Acquired goodwill of approximately $ 5.8 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company.

The total consideration for the purchase of the assets of HRG was $ 13.4 million, including $ 6.8 million in cash and common stock valued at $ 5.7 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 of $ 5.8 million 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 the Company's Cultivation and Gardening segment.

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Louis, Missouri.

The total consideration for the purchase of the assets of STL was approximately $ 0.4 million in cash.

Acquired goodwill of approximately $ 0.1 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company.

The total consideration for the purchase of the assets of STL was $ 0.4 million in cash.

Acquired goodwill of $ 0.1 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company.

STL is included in the Company's Cultivation and Gardening segment.

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Total $ 13,391 $ 424 $ 13,815

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

4 unchanged sentences

Total $ 13,391 $ 424 $ 13,815

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table discloses the date of the acquisition noted above and the revenue and earnings included in the Consolidated Statement of Operations for the year ended December 31, 2022.

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Net Income (loss) $ ( 629 ) $ 41 $ ( 588 )

The following represents the pro forma Consolidated Income Statement as if the acquisitions had been included in the consolidated results of the Company for the entire period for the years ended December 31, 2022 and 2021.

2022 (Unaudited) December 31,

2021 (Unaudited)

Revenue $ 280,897 $ 441,906

Net income (loss) $ ( 162,156 ) $ 12,198

2021 Acquisitions

On January 25, 2021, the Company purchased the assets of Indoor Garden & Lighting, Inc ("Indoor Garden"), a two -store chain of hydroponic and equipment and indoor gardening supply stores serving the Seattle and Tacoma, Washington area.

The total consideration for the purchase of Garden & Lighting was approximately $ 1.7 million, including approximately $ 1.2 million in cash and common stock valued at approximately $ 0.5 million.

Acquired goodwill of approximately $ 0.7 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company.

Indoor Garden is included in the Company's Cultivation and Gardening segment.

On February 1, 2021, the Company purchased the assets of J.A.R.B., Inc d/b/a Grow Depot Maine ("Grow Depot Maine"), a two -store chain in Auburn and Augusta, Maine.

The total consideration for the purchase of Grow Depot Maine was approximately $ 2.1 million, including approximately $ 1.7 million in cash and common stock valued at approximately $ 0.4 million.

Acquired goodwill of approximately $ 0.9 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company.

Grow Depot Maine is included in the Company's Cultivation and Gardening segment.

On February 15, 2021, the Company purchased the assets of Grow Warehouse LLC ("Grow Warehouse"), a four -store chain of hydroponic and organic garden stores in Colorado ( 3 ) and Oklahoma ( 1 ).

The total consideration for the purchase of Grow Warehouse was approximately $ 17.8 million, including approximately $ 8.1 million in cash and common stock valued at approximately $ 9.7 million.

Acquired goodwill of approximately $ 11.1 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company.

Grow Warehouse is included in the Company's Cultivation and Gardening segment.

On February 22, 2021, the Company purchased the assets of San Diego Hydroponics & Organics ("San Diego Hydro"), a four -store chain of hydroponic and organic garden stores in San Diego, California.

The total consideration for the purchase of San Diego Hydro was approximately $ 9.3 million, including approximately $ 4.8 million in cash and common stock valued at approximately $ 4.5 million.

Acquired goodwill of approximately $ 5.7 million represents the value expected to

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rise from organic growth and an opportunity to expand into a well-established market for the Company.

San Diego Hydro is included in the Company's Cultivation and Gardening segment.

On March 12, 2021, the Company purchased the assets of Charcoir Corporation ("Charcoir"), which sells an RHP-certified growing medium made from the highest-grade coconut fiber.

The total consideration for the purchase of Charcoir was approximately $ 16.4 million, including approximately $ 9.9 million in cash and common stock valued at approximately $ 6.5 million.

Acquired goodwill of approximately $ 6.1 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established distribution market for the Company of a proprietary brand.

Charcoir is included in the Company's Cultivation and Gardening segment.

On March 15, 2021, the Company purchased the assets of 55 Hydroponics ("55 Hydro"), a hydroponic and organic superstore located in Santa Ana, California.

The total consideration for the purchase of 55 Hydro was approximately $ 6.5 million, including approximately $ 5.3 million in cash and common stock valued at approximately $ 1.1 million.

Acquired goodwill of approximately $ 3.9 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company.

55 Hydro is included in the Company's Cultivation and Gardening segment.

On March 15, 2021, the Company purchased the assets of Aquarius Hydroponics ("Aquarius"), a hydroponic and organic garden store in Springfield, Massachusetts.

The total consideration for the purchase of Aquarius was approximately $ 3.6 million, including approximately $ 2.3 million in cash and common stock valued at approximately $ 1.2 million.

Acquired goodwill of approximately $ 1.7 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company.

Aquarius is included in the Company's Cultivation and Gardening segment.

On March 19, 2021, the Company purchased the assets of Agron, LLC, an online seller of growing equipment.

The total consideration for the purchase of Agron was approximately $ 11.2 million, including approximately $ 6.0 million in cash and common stock valued at approximately $ 5.3 million.

Acquired goodwill of approximately $ 8.7 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established e-commerce market for the Company targeting the commercial customer.

Agron is included in the Company's Cultivation and Gardening segment.

On April 19, 2021, the Company purchased the assets of Grow Depot LLC ("Down River Hydro"), a hydroponic and indoor gardening supply store in Brownstown, Michigan.

The total consideration for the purchase of Down River Hydro was approximately $ 4.4 million, including approximately $ 3.2 million in cash and common stock valued at approximately $ 1.2 million.

Acquired goodwill of approximately $ 2.1 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company.

Down River Hydro is included in the Company's Cultivation and Gardening segment.

On May 24, 2021, the Company purchased the assets of The Harvest Company ("Harvest"), a northern California-based hydroponic supply center and cultivation design innovator with stores in Redding and Trinity Counties.

The total consideration for the purchase of Harvest was approximately $ 8.3 million, including approximately $ 5.6 million in cash and common stock valued at approximately $ 2.8 million.

Acquired goodwill of approximately $ 4.6 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company.

Harvest is included in the Company's Cultivation and Gardening segment.

On July 19, 2021, the Company purchased the assets of Aqua Serene, Inc., ("Aqua Serene"), an Oregon corporation which consists of an indoor/outdoor garden center with stores in Eugene and Ashland, Oregon.

The total consideration for the purchase was approximately $ 11.7 million, including approximately $ 9.9 million in cash and common stock valued at approximately $ 1.8 million.

Acquired goodwill of approximately $ 7.0 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company.

Aqua Serene is included in the Company's Cultivation and Gardening segment.

On July 3, 2021, the Company purchased the assets of Mendocino Greenhouse & Garden Supply, Inc ("Mendocino"), a Northern California-based hydroponic garden center located in Mendocino, California.

The purchase agreement was modified on July 19, 2021 to amend the purchase price.

The total consideration for the purchase was $ 4.0 million in cash.

Acquired goodwill of approximately $ 2.1 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company.

Mendocino is included in the Company's Cultivation and Gardening segment.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On August 24, 2021, the Company purchased the assets of Commercial Grow Supply, Inc.

("CGS"), a hydroponic superstore located in Santa Clarita, California.

The total consideration for the purchase was approximately $ 7.2 million, including approximately $ 6.0 million in cash and common stock valued at approximately $ 1.3 million.

Acquired goodwill of approximately $ 4.0 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company.

CGS is included in the Company's Cultivation and Gardening segment.

On August 23, 2021 the Company purchased the assets of Hoagtech Hydroponics, Inc.

("Hoagtech"), a Washington -based corporation consisting of a hydroponic and garden supply center serving the Bellingham, Washington area.

The total consideration for the purchase was approximately $ 3.9 million in cash.

The Asset Purchase Agreement contains a contingent payment equal to $ 0.6 million to be settled in common stock of the Company if this garden supply center reaches $ 8.0 million in revenue within a 12-month calendar period from the date of close.

The Company used a third-party specialist to value this contingent consideration.

The probability that the target will be reached was determined to be 5 % which resulted in a value of approximately $ 28.5 thousand of contingent consideration which was added to goodwill.

Acquired goodwill of approximately $ 4.6 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company.

Hoagtech is included in the Company's Cultivation and Gardening segment.

On October 15, 2021, the Company purchased the assets of Indoor Store, LLC ("All Seasons Gardening"), an indoor-outdoor garden supply center specializing in hydroponics systems, lighting, and nutrients.

All Seasons Gardening is the largest hydroponics retailer in New Mexico.

The total consideration for the purchase was approximately $ 0.9 million, including approximately $ 0.7 million in cash and common stock valued at approximately $ 0.2 million.

Acquired goodwill of approximately $ 0.5 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company.

All Seasons is included in the Company's Cultivation and Gardening segment.

On December 31, 2021, the Company purchased the assets of Mobile Media, Inc ("MMI"), a mobile shelving manufacturing and warehouse facility.

The total consideration for the purchase was approximately $ 9.1 million, including approximately $ 8.3 million in cash and common stock valued at approximately $ 0.8 million.

Acquired goodwill of approximately $ 1.2 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company.

MMI is included in the Company's Storage Solutions segment.

The table below represents the allocation of the purchase price to the acquired net assets during the year ended December 31, 2021:

Agron Aquarius 55 Hydro Charcoir San Diego Hydro Grow Warehouse Grow Depot Maine Indoor Garden Downriver

Inventory $ — $ 957 $ 780 $ 839 $ 1,400 $ 2,450 $ 326 $ 372 $ 824

Prepaids and other current assets 46 12 29 534 36 30 3 — 3

Furniture and equipment 29 63 50 — 315 250 25 94 50

Liabilities — — — — — ( 169 ) — — —

Operating lease right of use asset 98 108 861 — 1,079 641 92 137 273

Operating lease liability ( 98 ) ( 108 ) ( 861 ) — ( 1,079 ) ( 641 ) ( 92 ) ( 137 ) ( 273 )

Customer relationships 832 339 809 5,712 605 1,256 549 210 634

Trade name 1,530 485 870 1,099 1,192 2,748 344 353 698

Non-compete 139 — 26 — 6 94 36 2 16

Intellectual property — — — 2,065 — — — — —

Goodwill 8,673 1,702 3,915 6,119 5,728 11,120 866 661 2,126

Total $ 11,249 $ 3,558 $ 6,479 $ 16,368 $ 9,282 $ 17,779 $ 2,149 $ 1,692 $ 4,351

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Harvest Aquaserene Mendocino CGS Hoagtech All Seasons MMI Total

Inventory $ 1,204 1,696 753 875 751 100 3,530 $ 16,857

Prepaids and other current assets 7 2 1 1 37 1 — 742

Furniture and equipment 100 500 160 100 144 25 328 2,233

Liabilities — — — — ( 29 ) — ( 250 ) ( 448 )

Operating lease right of use asset 3,782 1,177 408 746 1,569 37 2,332 13,340

Operating lease liability ( 3,782 ) ( 1,177 ) ( 408 ) ( 746 ) ( 1,569 ) ( 37 ) ( 2,332 ) ( 13,340 )

Customer relationships 1,016 1,235 575 1,382 493 154 2,964 18,765

Trade name 1,392 1,231 414 852 428 117 1,039 14,792

Non-compete — 11 6 11 3 — 238 588

Intellectual property — — — — — — — 2,065

Goodwill 4,606 6,976 2,091 4,027 2,105 545 1,202 62,462

Total $ 8,325 11,651 4,000 $ 7,248 3,932 942 $ 9,051 $ 118,056

The table below represents the consideration paid for the net assets acquired in business combinations during 2021:

Agron Aquarius 55 Hydro Charcoir San Diego Hydro Grow Warehouse Grow Depot Maine Indoor Garden Downriver

Cash $ 5,973 $ 2,331 $ 5,347 $ 9,902 $ 4,751 $ 8,100 $ 1,738 $ 1,165 $ 3,177

Common stock 5,276 1,227 1,132 6,466 4,531 9,679 411 527 1,174

Total $ 11,249 $ 3,558 $ 6,479 $ 16,368 $ 9,282 $ 17,779 $ 2,149 $ 1,692 $ 4,351

Harvest Aquaserene Mendocino CGS Hoagtech All Seasons MMI Total

Cash $ 5,561 $ 9,860 $ 4,000 $ 5,976 $ 3,932 $ 701 $ 8,270 $ 80,784

Common stock 2,764 1,791 — 1,272 — 241 781 37,272

Total $ 8,325 $ 11,651 $ 4,000 $ 7,248 $ 3,932 $ 942 $ 9,051 $ 118,056

The following table discloses the date of the acquisitions noted above and the revenue and earnings included in the Consolidated Income Statement from the date of acquisition to the period ended December 31, 2021.

Agron Aquarius 55 Hydro Charcoir San Diego Hydro Grow Warehouse LLC Grow Depot Maine Indoor Garden Downriver

Acquisition date 3/19/2021 3/15/2021 3/15/2021 3/12/2021 2/22/2021 2/15/2021 2/1/2021 1/25/2021 3/31/2021

Revenue $ 14,403 $ 9,640 $ 6,017 $ 6,840 $ 7,173 $ 13,147 $ 6,655 $ 6,265 $ 3,663

Net Income (loss) $ ( 305 ) $ 1,679 $ 399 $ 1,039 $ 906 $ 2,175 $ 1,132 $ 1,088 $ 297

Harvest Aquaserene Mendocino CGS Hoagtech All Seasons MMI Total

Acquisition date

5/3/21 7/19/21 7/19/21 8/24/21 8/23/21 10/15/21 12/31/21

$ 6,706 $ 2,742 $ 1,455 $ 1,534 $ 1,564 $ 187 $ — $ 87,991

Net Income (loss) $ 924 $ 445 $ 106 $ 15 $ 141 $ 52 $ — $ 10,093

GROWGENERATION CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2022 (Unaudited)

Revenue $ 280,897

Net income $ 13,511

Net loss $ ( 162,156 )

RELATED PARTIES

1 unchanged sentence

The firm provides certain legal services.

Amounts paid to that firm in total were approximately $ 0.2 million, $ 0.3 million, and $ 0.8 million for the years ended December 31, 2023, 2022, and 2021, respectively.

Amounts paid to that firm in total were $ 0.2 million, $ 0.2 million, and $ 0.3 million for the years ended December 31, 2024, 2023, and 2022, respectively.

As of December 31, 2024, 2023 and 2022, there was an immaterial amount outstanding due to the firm.

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

Accordingly, the Company identified two operating segments, each its own reportable segment, based on its major lines of business:

The Company has two operating segments, each its own reportable segment, based on its major lines of business:

the Cultivation and Gardening segment, composed of the Company's hydroponic and organic gardening business;

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

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

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.

In addition to sales by operating segment, which represent the Company's principal lines of business, the chief operating decision maker ("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.

Profit measures are evaluated for each reportable segment based on income from operations with identifiable expenses allocated to each reporting unit from which the expense line item was derived.

The CODM compares actual results to prior year and current year budgeted income statements to identify areas for improvement and make capital allocation decisions.

The CODM uses gross profit measures to evaluate pricing decisions and product mix, also reviewing proprietary brand versus non-proprietary brand sales to assess the Company’s progress with key performance initiatives.

The Company's CODM is the chief executive officer.

GROWGENERATION CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Disaggregated revenue by segment is presented in the following tables:

20 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Selected information by segment is presented in the following tables:

Selected disaggregated information by segment is presented in the following tables for the years ended:

December 31, 2024

Cultivation & Gardening Storage Solutions Corporate Total

Net sales $ 163,510 $ 25,356 $ — $ 188,866

Cost of sales 131,346 13,798 — 145,144

Gross profit 32,164 11,558 — 43,722

Operating expenses

Store operations and other operational expenses:

Employee costs 13,720 3,007 — 16,727

Facilities 12,850 1,270 — 14,120

External service providers 1,127 89 — 1,216

Other segment items (1)

7,246 889 — 8,135

Cultivation and Gardening $ 194,464 $ 245,681 $ 422,489

Storage Solutions 31,418 32,485 —

Total net sales 225,882 278,166 422,489

Cultivation and Gardening 47,404 58,837 118,241

Storage Solutions 13,854 11,426 —

Total gross profit 61,258 70,263 118,241

Segment operating profit

Cultivation and Gardening 4,265 8,475 68,499

Storage Solutions 8,911 7,108 —

Total segment operating profit 13,176 15,583 68,499

Corporate expenses

Total store operations and other operational expenses 34,943 5,255 — 40,198

Other operating expenses

Selling, general, and administrative — — 29,243 29,243

2 unchanged sentences

Impairment loss — — 6,875 6,875

Total operating expenses 34,943 5,255 55,496 95,694

(Loss) income from operations ( 2,779 ) 6,303 ( 55,496 ) ( 51,972 )

Other income — — 2,620 2,620

Net (loss) income before taxes $ ( 2,779 ) $ 6,303 $ ( 52,876 ) $ ( 49,352 )

(1) Other segment items for each reportable segment include travel expenses, transaction fees, and other miscellaneous expenses.

GROWGENERATION CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2023

Cultivation & Gardening Storage Solutions Corporate Total

Net sales $ 194,464 $ 31,418 $ — $ 225,882

Cost of sales 147,060 17,564 — 164,624

Gross profit 47,404 13,854 — 61,258

Operating expenses

Store operations and other operational expenses:

Employee costs 18,208 2,962 — 21,170

Facilities 14,145 1,057 — 15,202

External service providers 1,290 61 — 1,351

Other segment items (1)

9,496 863 — 10,359

Total store operations and other operational expenses 43,139 4,943 — 48,082

Other operating expenses

Selling, general, and administrative — — 29,799 29,799

Estimated credit losses — — 955 955

Depreciation and amortization — — 16,607 16,607

Impairment loss — — 15,659 15,659

Total operating expenses 43,139 4,943 63,020 111,102

Income (loss) from operations 4,265 8,911 ( 63,020 ) ( 49,844 )

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

Other income — — 3,380 3,380

Net income (loss) before taxes $ 4,265 $ 8,911 $ ( 59,640 ) $ ( 46,464 )

(1) Other segment items for each reportable segment include marketing costs, travel expenses, transaction fees, and other miscellaneous expenses.

December 31, 2022

Cultivation & Gardening Storage Solutions Corporate Total

Net sales $ 245,681 $ 32,485 $ — $ 278,166

Cost of sales 186,844 21,059 — 207,903

Gross profit 58,837 11,426 — 70,263

Operating expenses

Store operations and other operational expenses:

Employee costs 23,578 2,526 — 26,104

Facilities 14,750 755 — 15,505

External service providers 1,374 76 — 1,450

Other segment items (1)

10,660 961 — 11,621

Total store operations and other operational expenses 50,362 4,318 — 54,680

Other operating expenses

Selling, general, and administrative — — 36,758 36,758

Estimated credit losses — — 1,737 1,737

Depreciation and amortization — — 17,132 17,132

Impairment loss — — 127,831 127,831

Total operating expenses 50,362 4,318 183,458 238,138

Income (loss) from operations 8,475 7,108 ( 183,458 ) ( 167,875 )

Other income — — 1,243 1,243

Net income (loss) before taxes $ 8,475 $ 7,108 $ ( 182,215 ) $ ( 166,632 )

(1) Other segment items for each reportable segment include marketing costs, travel expenses, transaction fees, and other miscellaneous expenses.

GROWGENERATION CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

The CODM neither reviews nor requests this information.

13 unchanged sentences

Total Grow voluntarily filed for bankruptcy in October 2023.

As of December 31, 2023, the Company had accrued a reserve of $ 1.5 million against the Note & Option.

GROWGENERATION CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 year ended December 31, 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.

9 unchanged sentences

No such losses have been recorded to date.

RESTRUCTURING

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 Cultivation and Gardening segment such as its proprietary brands, commercial sales, and e-commerce business.

The restructuring plan primarily included reductions in cost structure by closing and consolidating 12 redundant or underperforming retail locations, workforce reductions, and other operational improvements in inventory management, sales and marketing, and administrative activities.

GROWGENERATION CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Since the restructuring activities were announced in July 2024, the Company incurred aggregate restructuring and restructuring-related costs of $ 2.4 million, presented on the Consolidated Statements of Operations for the year ended December 31, 2024 as follows:

Restructuring

Cultivation and Gardening segment:

Cost of sales (1)

Gross profit ( 1,048 )

Store operations and other operational expenses (2)

Segment operating loss ( 1,890 )

Corporate expenses:

Selling, general, and administrative (3)

Impairment loss (4)

Other expense (5)

Total restructuring and restructuring related charges $ ( 2,365 )

(1) Includes inventory disposal costs

(2) Costs consist of retail location closure costs and employee termination benefits

(3) Includes employee termination benefits and other associated costs

(4) Consists of asset impairments for operating lease right-of-use assets

(5) Includes non-operating losses related to retail location closures

In conjunction with the Company's restructuring activities related to operational and administrative improvements, the Company reassessed and shortened the estimated useful life of certain capitalized software assets, which resulted in an $ 5.3 million increase to depreciation and amortization expense related to property and equipment in the year ended December 31, 2024.

Additionally, certain facilities costs related to closed retail locations for which the Company is pursuing sublease arrangements will be paid over the remaining terms which extend through 2032.

The liabilities associated with restructuring costs are included in Accrued liabilities and Payroll and payroll tax liabilities on the Consolidated Balance Sheets.

Activities related to liabilities incurred under the restructuring plan are as follows:

Retail Location Closures Termination Benefits Other Associated Costs Total

Balance as of January 1, 2024 $ — $ — $ — $ —

Additions 715 317 65 1,097

Payments and other adjustments ( 600 ) ( 308 ) ( 65 ) ( 973 )

Balance as of December 31, 2024 $ 115 $ 9 $ — $ 124

Overall, the Company expects to incur a total of $ 2.7 million in restructuring and restructuring-related costs, including the $ 2.4 million previously incurred.

The remainder of the expected charges primarily relate to corporate operational and administrative contract terminations and other associated costs.

The Company expects that these restructuring activities will be substantially completed by the end of the first quarter of 2025.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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-K

Item 8. Financial Statements and Supplementary Data