ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
The following discussion and analysis of our financial condition and results of operations should be read together with our financial statements and the related notes and the other information included elsewhere in this report. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed below and elsewhere in this report, particularly those under “Risk Factors.” Dollars in tabular format are presented in thousands, except per share data, or otherwise indicated.
OVERVIEW
GrowGeneration Corp. (together with all of its direct and indirect wholly owned subsidiaries, collectively “GrowGeneration” or the “Company”) was incorporated in Colorado in 2014 and is the largest chain of hydroponic garden centers in North America and is a leading marketer and distributor of nutrients, growing media, advanced indoor and greenhouse lighting, environmental control systems and accessories for hydroponic gardening. GrowGeneration also owns and operates e-commerce platforms, www.growgeneration.com, Mobile Media, a vertical racking and storage solutions business, Horticultural Rep Group, a horticultural products sales representative and distributor organization, and Canopy Crop Management, CharCoir, and several other proprietary private-label brands across multiple product categories from LED lighting to nutrients and additives and environmental control systems for indoor cultivation.
MARKETS
GrowGeneration sells thousands of products, including nutrients, growing media, advanced indoor and greenhouse lighting, environmental control systems, vertical benching and accessories for hydroponic gardening, as well as other indoor and outdoor growing products, that are designed and intended for growing a wide range of plants. In addition, vertical farms producing organic fruits and vegetables also utilize hydroponics due to a rising shortage of farmland as well as environmental vulnerabilities including drought, other severe weather conditions and insect pests.
Our retail operations are driven by a wide selection of all hydroponic products, service and solutions driven staff and pick, pack and ship distribution and fulfillment capabilities. We employed approximately 702 employees as of December 31, 2021, a majority of them we have branded as “Grow Pros.” Currently, our operations span over 895,000 square feet of retail and warehouse space.
We operate our business through the following business units:
Retail
Currently, the Company owns and operates a chain of 62 hydroponic/gardening centers focused on serving growers and cultivators. Inclusive of commercial sales organizations selling directly to customers outside of the physical retail network. Some of our garden centers have multi-functions, with added capabilities that include warehousing, distribution and fulfillment for direct shipments of products to garden center locations, pick, pack and ship for our online platforms and direct fulfillment to our commercial customers.
E-Commerce/Omni Channel
Our digital strategy is focused on capturing the home, craft and commercial grower online. GrowGeneration.com offers over 10,000 hydroponic products, all curated by our product team. GrowGeneration.com offers customers the option to have their orders shipped directly to their locations, anywhere in North America.
Proprietary Brands and Private Label
In December 2020, GrowGeneration purchased the business of Canopy Crop Management Corp., the developer of the popular Power Si line of monosilicic acid products, a widely used nutrient additive for plants. On March 12, 2021, the Company purchased Char Coir, a line of premium coco pots, cubes and medium. We believe that expanding our private label offerings will have a positive impact on our margins and profitability in the near term. We use various trademarks and trade names in our private-label business, including Ion Lighting, Sunleaves powder nutrients and additive line, Optilime Bulbs, Blueprint controllers and timers, Growxcess pots and containers, Harvest Edge pruners, trellis and other gardening accessories, Durabreeze fans and dehumidifiers, and Drip Hydro nutrients. Both “GrowGeneration” and “Where the Pros Go to Grow” are trademarks used to brand and market our garden centers across North America.
Competitive Advantages
As the largest chain of hydroponic garden centers by revenue and number of stores in the United States based on management’s estimates, we believe that we have the following core competitive advantages over our competitors:
•We offer a one-stop shopping experience to all types of growers by providing “selection, service, and solutions”;
•We provide end-to-end solutions for our commercial customers from capex built-out to consumables to nourish their plants;
•We have a knowledge-based sales team, all with horticultural experience;
•We offer the options to transact online, in store, or buy online and pick up;
•We consider ourselves to be a leader of the products we offer, from launching new technologies to the development of our private label products;
•We have a professional team for mergers and acquisitions and to acquire and open new locations and successfully add them to our company portfolio; and
•We offer a program of issuing credit to licensed commercial customers based on a credit evaluation process.
Growth Strategy - Store Acquisitions and New Store Openings
Core to our growth strategy is to expand the number of our retail garden centers throughout North America. In addition to the 13 states in which we are currently operating, we have identified new market opportunities in states that include Connecticut, Ohio, Illinois, Pennsylvania, New York, New Jersey, Mississippi, Missouri and Virginia. The Company acquired 23 new locations in 2021 and expects to open many new stores in 2022.
Secondary to this growth strategy is the expansion of distribution and sales capabilities for products that the company owns, distributes, or represents to independent retail garden centers for resale.
RESULTS OF OPERATIONS
Revenue
Net revenues for the year ended December 31, 2021, were approximately $422.5 million, an increase of 118.5% over the year ended December 31, 2020, which were approximately $193.4 million. 2020 net revenue increased approximately 142.5% over the year ended December 31, 2019, which were approximately $79.7 million.
The increase in net revenues for the year ended December 31, 2021 compared to the year ended December 31, 2020 included an increase in same store sales of approximately $40.1 million which represented 24.4% growth year over year. Distributed sales were $17.1 million, from acquisitions of Power Si and Charcoir. E-commerce sales increased from $10.6 million, to $36.2 million, primarily attributable to $11.2 million growth in owned e-commerce sites and $14.4 million from the Agron acquisition.
The increase in 2020 revenues over 2019 is due to 1) the addition of 14 new retail stores opened or acquired during 2020 for which revenues were $24.8 million, 2) 11 stores opened or acquired at various times during 2019 that were open for all of 2020 which had an increase in revenues of $51 million, 3) same store sales which increased 63% comparing 2020 to 2019, which had an increase in revenues of approximately $28 million, 4) an increase in our e-commerce sales of $5.9 million, from 2019 to 2020 and 5) revenues of $300,000 from Canopy Crop Management/Power SI, acquired in later December 2020.
Cost of Sales
Cost of sales for the year ended December 31, 2021 increased approximately $161.9 million or 113.8% compared to the year ended December 31, 2020. The increase in cost of goods sold is primarily due to the 118.5% increase in sales.
Cost of sales for the year ended December 31, 2020 increased approximately $84.6 million or 146.5% compared to the year ended December 31, 2019. The increase in cost of goods sold was directly attributable to the 142.5% increase in revenues, as detailed above, comparing the year ended December 31, 2020 to 2019.
Gross profit was approximately $118.2 million for the year ended December 31, 2021, compared to approximately $51.0 million for the December 31, 2020, an increase of approximately $67.2 million or 131.6%. The increase in gross profit is primarily related to the 118.5% increase in revenues. Gross profit as a percentage of revenues was 28.0% for the year
ended December 31, 2021, compared to 26.4% for 2020. The increase in the gross profit margin percentage is primarily due to higher increases in revenues from both private label products and distributed products which were 7.5% of revenues for 2021 and approximately 1.0% of revenues for 2020.
Gross profit for the year ended December 31, 2020 increased, approximately $29.0 million or 132.0% compared to the year ended December 31, 2019. Gross profit as a percentage of sales was 26.4% for the year ended December 31, 2020, compared to 27.6% for the year ended December 31, 2019.
Operating Expenses
Operating expenses are comprised of store operations, selling, general, and administrative, and depreciation and amortization. Operating costs were approximately $103.2 million for the year ended December 31, 2021 and approximately $42.6 million for the year ended December 31, 2020, an increase of approximately $60.6 million or 142.3%.
Operating expenses for the year ended December 31, 2020 increased approximately $22.2 million or 108.7% compared to the year ended December 31, 2019.
Store operating costs, primarily payroll, rent and utilities, and allocated corporate overhead costs, were approximately $49.7 million for the year ended December 31, 2021, compared to $18.7 million for the year ended December 31, 2020, an increase of $31.0 million or 165.7%. The increase in store operating costs was directly attributable to the 118.5% increase in revenues and the addition of 23 locations that were added during 2021. Pre-opening expenses for new stores opened during the period increased approximately $0.9 million during 2021.
During 2020, store operating costs increased approximately $8.6 million or 85.5% compared to the year ended December 31, 2019. The increase in store operating costs was directly attributable to 1) the addition of 14 new retail stores opened or acquired during 2020 and 2) 11 stores opened or acquired at various times during 2019 that were open for all of 2020. The addition of these stores, as discussed above, were the primary reasons for the increase in store operating costs. Store operating costs as a percentage of revenues were 9.7% for the year ended December 31, 2020, compared to 12.7% for the year ended December 31, 2019. Store operating costs were positively impacted by 1) the opening of new and acquired stores throughout 2020 which have lower percentage of operating costs to revenues due to their larger size and higher volume and 2) same store revenues increased 63% comparing the year ended December 31, 2020 to the year ended December 31, 2019, which also contributed significantly to lowering of the store operating costs as a percentage of revenues since the majority of store operating costs are fixed.
Total corporate overhead was approximately $53.5 million for the year ended December 31, 2021, compared to $23.9 million for the year ended December 31, 2020, an increase of $29.6 million or 124.0%. Selling, general, and administrative costs were approximately $40.9 million for the year ended December 31, 2021, compared to approximately $21.5 million for the year ended December 31, 2020. Salaries expense increased to $20.0 million from $8.6 million primarily due to an increase in corporate staff and general and administrative expenses increased to $14.3 million from $5.0 million to support expanding operations. These increases were partially offset by a decrease in share-based compensation to $6.6 million from $7.9 million primarily due to new executive compensation agreements effective January 1, 2020 that had front loaded vesting provisions for shares and options that were granted January 1, 2020 for which the remaining vesting was over a two-year period.
During 2020, total corporate overhead increased $13.6 million or 131.3% compared to the year ended December 31, 2019. Corporate overhead was 12.4% of revenue for the year ended December 31, 2020 and 13.0% for the year ended December 31, 2019. Corporate overhead, excluding non-cash share-based compensation and depreciation and amortization, was 8.3% of revenues compared to 9.8% of revenues for 2019 shows that non-cash expenses was a larger component of overhead cost in 2020 compared to 2019. Non-cash costs included in corporate overhead was 5.3% of revenues for 2020 compared to 4.4% of revenues for 2019. The increase in non-cash expenses in corporate overhead as a percentage of revenues for the year ended December 31, 2020 was primarily due to 1) the increase in non-cash share-based compensation from approximately $2.5 million for the year ended December 31, 2019 to approximately $7.9 million for the year ended December 31, 2020, an increase of $5.4 million and 2) the increase in depreciation and amortization from approximately $1.0 million for the year ended December 31, 2019 to approximately $2.4 million for the year ended December 31, 2020. The increase in non-cash share-based compensation was primarily the result of several new executive employment agreements which became effective January 1, 2020, which resulted in the vesting of common stock and common stock options at the start of the first quarter, as well as options issued in 2018 and 2019 for options vesting in 2020. The share-based awards associated with the new executive employment agreements resulted in approximately one-third of the award being recognized as an expense in the first three months of 2020, due to vesting, and the remaining two-thirds on the share-based awards are being recognized over a 24-month period commencing January 2020 and ending December 2021, based
on shared based award vesting in future periods. The vesting of these shares and options was significantly higher in 2020 than they will be in the periods subsequent to 2020. The increase in depreciation and amortization is due to the significant increase in both depreciable assets and acquired intangible assets being amortized over their useful lives. Salaries as a percentage of revenues were 4.4% for 2020 and 4.5% for 2019. The increase in salaries expense from 2019 to 2020, which increased $5.0 million, from $3.6 million for the year ended December 31, 2019 to $8.6 million for the year ended December 31, 2020 was due primarily to the increase in corporate staff to support expanding store operations, including management, purchased store integrations, accounting and finance, information systems, purchasing and commercial revenues support staff. It should be noted that when we consummate a new acquisition, purchasing and back-office accounting functions are stripped from the new acquisitions and those functions are absorbed into our existing centralized purchasing and centralized accounting and finance departments, thus delivering cost savings.
General and administrative expenses comprised mainly of marketing, travel & entertainment, professional fees and insurance, was approximately $5.0 million for the year ended December 31, 2020 and approximately $3.2 million for the year ended December 31, 2019, with a majority of the increase related to marketing, insurance (both property and casualty and director and officers liability insurance), professional and legal fees. The increase in professional and legal fees was due to the increase in acquisitions in 2020 and consulting fees for SOX 404 compliance. General and administrative costs as a percentage of revenue were 2.6% for the year ended December 31, 2020, and 4% for the year ended December 31, 2019.
Net Income
Net income for the year ended December 31, 2021 was approximately $12.8 million, compared to net income of approximately $5.3 million for the year ended December 31, 2020, an increase of approximately $7.5 million.
Net income for the year ended December 31, 2020 was approximately $5.3 million, compared to net income of approximately $1.3 million for the year ended December 31, 2019, an increase of $4.0 million. Net income for 2020 compared to 2019 was primarily impacted by a 142.5% increase in revenues, offset slightly by increased cost of goods sold of 146.5%. Store operating costs as a percentage of revenue was 9.7% in 2020, compared to 12.7% offsetting the increase in cost of goods sold.
CONDENSED 2021, 2020, AND 2019 RESULTS OF OPERATIONS (in thousands except per share data)
| | | | | | | | | | | | | | | | | | | | |
| For the Year Ended | |
| December 31, | |
| 2021 | | 2020 | | 2019 | |
Sales | $ | 422,489 | | | $ | 193,365 | | | $ | 79,734 | | |
Cost of Sales | 304,248 | | | 142,317 | | | 57,729 | | |
Gross profit | 118,241 | | | 51,048 | | | 22,005 | | |
Operating expenses | 103,239 | | | 42,611 | | | 20,422 | | |
Income (loss) from operations | 15,002 | | | 8,437 | | | 1,583 | | |
Other income (expense) | 227 | | | 142 | | | (261) | | |
Pre-tax net income | 15,229 | | | 8,579 | | | 1,322 | | |
Income taxes | (2,443) | | | (3,251) | | | — | | |
Net income | $ | 12,786 | | | $ | 5,328 | | | $ | 1,322 | | |
| | | | | | |
CONDENSED Q4 2021, Q4 2020, AND Q4 2019 RESULTS OF OPERATIONS
| | | | | | | | | | | | | | | | | | | | |
| For the Quarter Ended | |
| December 31, | |
| 2021 | | 2020 | | 2019 | |
Sales | $ | 90,579 | | | $ | 61,925 | | | $ | 25,385 | | |
Cost of Sales | $ | 67,490 | | | $ | 45,979 | | | $ | 19,388 | | |
Gross profit | 23,089 | | | 15,946 | | | 5,997 | | |
Operating expenses | 30,106 | | | 13,304 | | | 7,069 | | |
Income (loss) from operations | (7,017) | | | 2,642 | | | (1,072) | | |
Other income (expense) | (209) | | | 164 | | | 54 | | |
Pre-tax net income | (7,226) | | | 2,806 | | | (1,018) | | |
Income taxes | $ | 3,126 | | | $ | (1,296) | | | $ | — | | |
Net income (loss) | $ | (4,100) | | | 1,510 | | | (1,018) | | |
| | | | | | |
Highlights of Results of Operations Comparing Q4 2021 to Q4 2020.
•Net revenues increased 46% to $90.6 million for fourth quarter 2021, compared to $61.9 million for the same period last year.
•Same-store sales at 26 locations open for the same period in 2020 and 2021 were $40.3 million in fourth quarter 2021, compared to $46.0 million in the same period last year, representing a 12.3% year-over-year decline.
•Gross profit margin for the fourth quarter 2021 was 25.5%, compared to 25.8% in the same period last year, a decrease of 30 basis points.
•GAAP net loss was $4.1 million or $(0.07) per share based on a diluted share count of 58.4 million, compared to net income of $1.5 million in the same period last year, or $0.03 per share on a diluted share count of 51.6 million.
•Adjusted EBITDA was a loss was $1.9 million for the fourth quarter 2021, versus earnings of $5.5 million in the same period last year.
•Private label and proprietary brand sales, inclusive of Power Si and Char Coir, were 7.5% of revenue in the fourth quarter of 2021 compared to 0.5% in the same period last year.
•E-commerce revenue, inclusive of Agron revenue, was $7.7 million, compared to $3.2 million in the same period last year.
•Cash and short-term securities as of December 31, 2021 was $81.2 million.
Highlights of Results of Operations Comparing Q4 2020 to Q4 2019.
•Revenues in Q4 2020 were $62 million, an increase of 144% primarily the result of the addition of 14 stores in 2020 and an increase in same store sales of 58%
•Margins were 25.8% in Q4 2020 compared to 23.6% Q4 2019. Q4 2020 had lower write-offs from physical inventories, resulting in slightly higher margins.
•Operating cost, including both store operating costs and corporate overhead, decreased substantially as a percentage of revenue. Store operating costs were 10.0% of revenues for Q4 2020 compared to 10.8% for Q4 2019. The decrease is due to a 58% increase in same store sales which reduces stores operating costs as a percentage of revenues. Corporate overhead was 11.5% of revenues for Q4 2020 compared to 17.1% for Q4 2019, a decrease of 33%, and corporate overhead costs do not rise commensurate with the increase in revenues.
•Pre-tax net income was 4.5% of revenue for Q4 2020 compared to pre-tax net loss of 4.0% for Q4 2019. The increase in margin and the decrease in both store operating costs and corporate overhead as a percentage of revenues resulted in the pre-tax net income of 4.5% of revenue.
•Adjusted EBITDA was $5.5 million for Q4 2020 compared to $911 thousand for Q4 2019, an increase of 515%
Use of Non-GAAP Financial Information
The Company believes that the presentation of results excluding certain items in “Adjusted EBITDA,” such as non-cash equity compensation charges, provides meaningful supplemental information to both management and investors, facilitating the evaluation of performance across reporting periods. The Company uses these non-GAAP measures for internal planning and reporting purposes. These non-GAAP measures are not in accordance with, or an alternative for, generally accepted accounting principles and may be different from non-GAAP measures used by other companies. The presentation of this additional information is not meant to be considered in isolation or as a substitute for net income or net income per share prepared in accordance with generally accepted accounting principles.
Set forth below is a reconciliation of Adjusted EBITDA to net income (in thousands except per share data):
| | | | | | | | | | | | | | | | | |
| Year ended December 31, |
| 2021 | | 2020 | | 2019 |
Net Income | $ | 12,786 | | | $ | 5,328 | | | $ | 1,322 | |
Income taxes | 2,443 | | | 3,251 | | | — | |
Interest | 43 | | | 14 | | | 401 | |
Depreciation and Amortization | 12,600 | | | 2,436 | | | 1,045 | |
EBITDA | $ | 27,872 | | | $ | 11,029 | | | $ | 2,768 | |
Share based compensation (option compensation, warrant compensation, stock issued for services) | 6,585 | | | 7,856 | | | 2,491 | |
| | | | | |
Adjusted EBITDA | $ | 34,457 | | | $ | 18,885 | | | $ | 5,259 | |
| | | | | |
Adjusted EBITDA per share, basic | $ | 0.58 | | | $ | 0.43 | | | $ | 0.16 | |
Adjusted EBITDA per share, diluted | $ | 0.57 | | | $ | 0.41 | | | $ | 0.16 | |
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2021, we had working capital of approximately $169.8 million, compared to working capital of approximately $222.9 million as of December 31, 2020, a decrease of approximately $53.1 million. The decrease in working capital from December 31, 2020 to December 31, 2021 was due primarily to business acquisitions completed during the year ended December 31, 2021 for which the cash consideration was approximately $80.8 million. This decrease in working capital related to business acquisitions was partially offset by an increase in inventory associated with more locations and our ability to leverage greater bulk purchasing due to our growth. At December 31, 2021, we had cash and cash equivalents of approximately $41.4 million and available for sale debt securities of $39.8 million. Currently, we have no extraordinary demands, commitments or uncertainties that would reduce our current working capital. Our core strategy
continues to focus on expanding our geographic reach across the United States through organic growth and acquisitions. Based on our strategy we may need to raise additional capital in the future through equity offerings and/or debt financings, however our ability to do so on acceptable terms is uncertain. We believe that some of our store acquisitions and new store openings can come from cash flow from operations.
As of December 31, 2020, we had working capital of approximately $222.9 million, compared to working capital of approximately $29.0 million as of December 31, 2019, an increase of approximately $193.9 million. The increase in working capital from December 31, 2019 to December 31, 2020 was due primarily to the proceeds from the sale of common stock and exercise of warrants of $211.2 million. At December 31, 2020, we had cash and cash equivalents of approximately $177.9 million.
We anticipate that we will need additional financing in the future to continue to acquire and open new stores. To date we have financed our operations through the issuance of the sale of common stock, warrants and convertible debentures as discussed below.
Operating Activities
Net cash provided by operating activities for year ended December 31, 2021 was approximately $5.2 million compared to net cash used of $213 thousand for the year ended December 31, 2020. Cashed used in operations as a result of an inventory increase was primarily attributable to our additional store count. In addition, we have used our capital capabilities to secure production of product overseas through prepaid inventory purchase commitments with long lead times in advance of spring 2022 needs. Cash used in accounts and notes receivable decreases were primarily driven by increased revenues partially offset by the collection of notes receivable. Cash provided by the increase in accounts payable and accrued liabilities and customer deposits are attributable to our increased store count and related increase in cost of sales. The increase in payroll liability is primarily driven by increased headcount related to our increased operations.
Net cash used in operating activities for the year ended December 31, 2020 was approximately $213 thousand, compared to $3.3 million for the year ended December 31, 2019, a decrease of approximately $3.1 million. Cash provided by operating activities is driven by our net income and adjusted by non-cash items as well as changes in operating assets and liabilities. Non-cash adjustments primarily include depreciation, amortization of intangible assets, share based compensation expense and changes in valuation allowances. Non-cash adjustments totaled approximately $11.1 million and approximately $4.0 million for the years ended December 31, 2020 and 2019, respectively, so non-cash adjustments had a greater positive impact on net cash used in operating activities for the year ended December 31, 2020 than the same period in 2019. Despite net income of approximately $5.3 million and non-cash adjustments of $11.1 million for 2020, these positive adjustments were offset by increases in inventory of $19.2 million, increases in trade accounts and notes receivable of $3.5 million and increases in prepaids and other current assets of $9.2 million. Despite net income of $1.3 million for the year ended December 31, 2019 and non-cash adjustments totaling $4.0 million, these positive adjustments were offset by increases in inventory of $9.5 million, increases in trade receivable of $3.8 million and increases in prepaids and other current assets of $2.1 million.
Investing Activities
Net cash used in investing activities was approximately $139.3 million for the year ended December 31, 2021 and approximately $45.8 million for the year ended December 31, 2020. Investing activities in 2021 were primarily attributable to acquisitions of $80.8 million, purchase of marketable securities of $75.0 million, and purchase of vehicles and store equipment of $18.7 million, partially offset by $35.2 million of marketable security maturities. Investing activities for the year ended December 31, 2020 were primarily related to store acquisitions of $41.4 million and the purchase of vehicles and store equipment of $3.4 million.
Net cash used in investing activities was approximately $45.8 million for the year ended December 31, 2020 and approximately $11.8 million for the year ended December 31, 2019. The increase in 2020 was due to the multiple asset acquisitions throughout 2020, 8 in total, in which we acquired inventory, fixed assets, goodwill and other intangibles of $41.4 million, and purchased vehicles and store equipment of approximately $3.4 million. During 2019, we acquired 8 new stores in which we purchased inventory, fixed assets, goodwill and other intangibles of $9.5 million and purchased vehicles and store equipment of approximately $2.2 million.
Financing Activities
Net cash used in financing activities for the year ended December 31, 2021 was approximately $2.4 million and was primarily attributable to stock redemptions partially offset by the proceeds from the sales of common stock and exercise of
warrants and options. Net cash provided by financing activities for the year ended December 31, 2020 was $211.0 million and was primarily from proceeds from the sale of common stock and exercise of warrants and options.
Net cash provided by financing activities for the year ended December 31, 2020 was approximately $211.0 million and represented proceeds from the sale of common stock and exercise of warrants and options, net of offering costs of $211.2 million. Net cash provided by financing activities for the year ended December 31, 2019 was approximately $13.5 million and was comprised of primarily proceeds from the sales of common stock and exercise of warrants and options.
2020 Offerings
On December 11, 2020, the Company consummated an underwritten public offering of 5,750,000 shares of its common stock, which included the exercise in full of the underwriters’ option to purchase an additional 750,000 shares of common stock to cover over-allotments. The shares were sold at a public offering price of $30 per share, generating gross proceeds of $172.5 million, before deducting the underwriting discounts and commissions and other offering expenses. Net proceeds from the sales of common stock, net of all offering costs and expenses, was approximately $162.5 million.
On July 2, 2020, the Company consummated an underwritten public offering of 8,625,000 shares of its common stock, which included the exercise in full of the underwriters’ option to purchase an additional 1,125,000 shares of common stock to cover over-allotments. The shares were sold at a public offering price of $5.60 per share, generating gross proceeds of $48.3 million, before deducting the underwriting discounts and commissions and other offering expenses. Net proceeds from the sales of common stock, net of all offering costs and expenses, was approximately $44.6 million.
2019 Offerings
On June 26, 2019, the Company completed a private placement of a total of 4,123,257 units of the Company’s securities at the price of $3.10 per unit pursuant to Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D promulgated under the Securities Act. Each unit consisted of (i) one share of common stock and (ii) one 3-year warrant, each entitling the holder to purchase one half share of common stock, at a price of $3.50 per share. The Company raised a total of $12.8 million from 19 accredited investors.
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements (as that term is defined in Item 303 of Regulation S-K) that are reasonably likely to have a current or future material effect on our financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
TABLE OF CONTENTS
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 balance sheets of GrowGeneration Corp. (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations, stockholders' equity, and cash flows for each of the years in the two-year period 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 financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2021, 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, 2021 based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated March 9, 2022 expressed an adverse opinion thereon.
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 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. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits 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 audits 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 audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. 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.
Critical Audit Matter Description
As described in Notes 2 and 16 to the consolidated financial statements, the Company completed 16 business acquisitions during the year.
Management estimated the fair value of the intangible assets using discounted cash flow analyses, which were based on the Company’s best estimates of future sales, earnings, and cash flows after considering such factors as general market conditions, anticipated customer demand, changes in working capital, long term business plans and recent operating performance. Determining the fair value of the intangible assets acquired required significant judgment, including the amount and timing of expected future cash flows, selected discount rates, expected future sales to existing customers, customer attrition, and royalty rates.
We identified the Company's assumptions used to estimate the fair value of acquired intangible assets as a critical audit matter. The principal considerations for our determination include the inherent judgment involved in estimating these amounts.
How the Critical Audit Matter was Addressed in the Audit
The primary procedures we performed to audit this critical audit matter included the following:
•We obtained an understanding of the Company's accounting and control procedures for acquired intangible assets within both IT and manual systems by which those transactions are initiated, authorized, recorded, processed, corrected as necessary, transferred to the general ledger, and reported in the financial statements.
•We tested the effectiveness of controls over the valuation of intangibles, including management’s controls over the amount and timing of expected future cash flows and the selection of discount rates.
•We assessed the reasonableness of management’s forecasts of future cash flows by performing inquiries of appropriate individuals outside of the finance organization, and comparing the projections to historical results, contractual agreements, certain peer companies, third-party industry forecasts, and reviewing internal communications to management and the board of directors.
•With the assistance of our fair value specialists, we evaluated the reasonableness of the calculated amount of fair value of the intangible assets and goodwill. Specifically, we considered both the valuation methodology and the discount rates utilized, including testing the source information underlying the determination of the discount rates, testing the mathematical accuracy of the calculation, and developing a range of independent estimates and comparing those to the discount rates selected by management.
•We evaluated whether the estimated future cash flows were consistent with evidence obtained in other areas of the audit.
•We evaluated the Company’s disclosures related to the business combinations.
/s/ Plante & Moran, PLLC
We have served as the Company’s auditor since 2020.
Denver, Colorado
March 9, 2022
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors of GrowGeneration Corp.
Adverse Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting as of December 31, 2021 of GrowGeneration Corp. (the “Company”), based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO framework”). In our opinion, because of the effect of the material weaknesses described in the following paragraph 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, 2021, based on criteria established in the COSO framework.
A material weakness is a control deficiency, or combination of 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. Management has identified material weaknesses in controls related to (1) ineffective controls in accounting and financial reporting for complex financial reporting transactions including areas such as business combinations, share based compensation, and the related income tax reporting, (2) the design of its controls to consider segregation of duties within the various bank accounts, internal technology, human resources, and manual journal entry posting processes, (3) 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, and (4) inadequate controls over physical inventory counts.
These material weaknesses were considered in determining the nature, timing, and extent of audit tests applied in our audit of the December 31, 2021 financial statements, and this report does not affect our report dated March 9, 2022, on those financial statements.
We also have audited the accompanying consolidated balance sheets of the Company as of December 31, 2021 and 2020, the related consolidated statements of operations, stockholders' equity, and cash flows for each of the years in the two-year period ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”), in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our report dated March 9, 2022, expresses an unqualified opinion.
Basis for Opinion
The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit. 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. 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 effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Our audit of, and opinion on, the Company’s internal control over financial reporting does not include the internal control over financial reporting of Charcoir Corporation, Agron LLC, and MMI, which were acquired during 2021. These acquisitions constituted 10% of total assets and 5% of total revenues as of and for the year ended December 31, 2021. Management’s assertion on the effectiveness of the Company’s internal control over financial reporting excluded internal control over financial reporting of Charcoir Corporation, Agron, LLC, and MMI.
Definition and Limitations of Internal Control over Financial Reporting
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Plante & Moran, PLLC
Denver, Colorado
March 9, 2022
We have served as the Company’s auditor since 2020.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of GrowGeneration Corp and Subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of GrowGeneration Corp and Subsidiaries (the Company) as of December 31, 2019, and the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for the year then ended 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, 2019, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
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. 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 audits 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 consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
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 consolidated financial statements. Our audits 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 audits provide a reasonable basis for our opinion.
/s/ Connolly Grady & Cha, P.C
Certified Public Accountants
Springfield, Pennsylvania
March 27, 2020
We have served as the Company's auditor since 2014
GROWGENERATION CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands except shares)
| | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 |
ASSETS | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 41,372 | | | $ | 177,912 | |
Marketable securities | 39,793 | | | — | |
Accounts receivable, net of allowance for doubtful accounts of $581 and $192 at December 31, 2021 and 2020 | 5,741 | | | 3,901 | |
Notes receivable, current, net of allowance for doubtful accounts of $522 and $292 at December 31, 2021 and 2020 | 2,440 | | | 2,612 | |
Inventory | 105,571 | | | 54,024 | |
Prepaid income taxes | 5,856 | | | 655 | |
Prepaids and other current assets | 16,116 | | | 11,125 | |
Total current assets | 216,889 | | | 250,229 | |
| | | |
Property and equipment, net | 24,116 | | | 7,416 | |
Operating leases right-of-use assets, net | 43,730 | | | 12,088 | |
Notes receivables, net of current portion | — | | | 1,200 | |
Intangible assets, net | 48,402 | | | 20,549 | |
Goodwill | 125,401 | | | 62,951 | |
Other assets | 800 | | | 301 | |
TOTAL ASSETS | $ | 459,338 | | | $ | 354,734 | |
| | | |
LIABILITIES & STOCKHOLDERS’ EQUITY | | | |
Current liabilities: | | | |
Accounts payable | $ | 17,033 | | | $ | 14,623 | |
Accrued liabilities | 2,044 | | | 672 | |
Payroll and payroll tax liabilities | 7,440 | | | 2,655 | |
Customer deposits | 11,686 | | | 5,155 | |
Sales tax payable | 1,923 | | | 1,161 | |
Current maturities of lease liability | 6,858 | | | 3,001 | |
Current portion of long-term debt | 92 | | | 83 | |
Total current liabilities | 47,076 | | | 27,350 | |
| | | |
Deferred tax liability | 2,359 | | | 750 | |
Operating lease liability, net of current maturities | 38,546 | | | 9,479 | |
Long-term debt, net of current portion | 66 | | | 158 | |
Total liabilities | 88,047 | | | 37,737 | |
| | | |
Commitments and contingencies | | | |
| | | |
Stockholders’ Equity: | | | |
Common stock; $.001 par value; 100,000,000 shares authorized; 59,928,564 and 57,150,998 shares issued and outstanding as of December 31, 2021 and 2020, respectively | 60 | | | 57 | |
Additional paid-in capital | 361,087 | | | 319,582 | |
Retained earnings (deficit) | 10,144 | | | (2,642) | |
Total stockholders’ equity | 371,291 | | | 316,997 | |
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 459,338 | | | $ | 354,734 | |
The accompanying notes are an integral part of these audited consolidated financial statements.
GROWGENERATION CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share)
| | | | | | | | | | | | | | | | | |
| For the Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
Sales | $ | 422,489 | | | $ | 193,365 | | | $ | 79,734 | |
Cost of sales | 304,248 | | | 142,317 | | | 57,729 | |
Gross profit | 118,241 | | | 51,048 | | | 22,005 | |
| | | | | |
Operating expenses: | | | | | |
Store operations | 49,742 | | | 18,724 | | | 10,095 | |
Selling, general, and administrative | 40,897 | | | 21,451 | | | 9,282 | |
Depreciation and amortization | 12,600 | | | 2,436 | | | 1,045 | |
Total operating expenses | 103,239 | | | 42,611 | | | 20,422 | |
| | | | | |
Income from operations | 15,002 | | | 8,437 | | | 1,583 | |
| | | | | |
Other income (expense): | | | | | |
Miscellaneous income (expense) | (216) | | | 112 | | | (5) | |
Interest income | 486 | | | 44 | | | 145 | |
Interest expense | (43) | | | (14) | | | (401) | |
Total non-operating income (expense), net | 227 | | | 142 | | | (261) | |
| | | | | |
Net income before taxes | 15,229 | | | 8,579 | | | 1,322 | |
| | | | | |
Provision for income taxes | (2,443) | | | (3,251) | | | — | |
| | | | | |
Net income | $ | 12,786 | | | $ | 5,328 | | | $ | 1,322 | |
| | | | | |
Net income per share, basic | $ | 0.22 | | | $ | 0.12 | | | $ | 0.04 | |
Net income per share, diluted | $ | 0.21 | | | $ | 0.11 | | | $ | 0.04 | |
| | | | | |
Weighted average shares outstanding, basic | 59,223 | | | 43,945 | | | 32,834 | |
Weighted average shares outstanding, diluted | 60,464 | | | 46,456 | | | 33,910 | |
The accompanying notes are an integral part of these audited consolidated financial statements.
GROWGENERATION CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2021, 2020, and 2019
(in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-In Capital | | Retained Earnings (Deficit) | | Total Stockholders’ Equity |
| Shares | | Amount | | | |
Balances, December 31, 2018 | 27,949 | | | $ | 28 | | | $ | 38,797 | | | $ | (9,292) | | | $ | 29,533 | |
| | | | | | | | | |
Sale of Common stock and warrants, net of fees | 4,123 | | | 4 | | | $ | 12,640 | | | — | | | 12,644 | |
Share based compensation | | | 0 | | | $ | 1,215 | | | — | | | 1,215 | |
Common stock issued upon warrant exercise | 1,758 | | | 2 | | | $ | 1,298 | | | — | | | 1,300 | |
Common stock issued upon exercise of options | 10 | | | 0 | | | $ | 6 | | | — | | | 6 | |
Common stock issued upon cashless exercise of options | 506 | | | 1 | | | $ | (1) | | | — | | | 0 | |
Common stock issued in connection with business combinations | 970 | | | 1 | | | $ | 3,624 | | | — | | | 3,625 | |
Common stock issued upon conversion of convertible debt | 1,259 | | | 1 | | | $ | 2,404 | | | — | | | 2,405 | |
Common stock issued for services | 203 | | | 0 | | | $ | 549 | | | — | | | 549 | |
Common stock issued for accrued share-based compensation | 100 | | | 0 | | | $ | 210 | | | — | | | 210 | |
Net income | | | — | | | $ | 0 | | | 1,322 | | | 1,322 | |
Balances, December 31, 2019 | 36,878 | | | $ | 37 | | | $ | 60,742 | | | $ | (7,970) | | | $ | 52,809 | |
| | | | | | | | | |
Sale of common stock, net of fees | 14,375 | | | 14 | | | 207,120 | | | — | | | 207,134 | |
Common stock issued upon warrant exercise | 1,370 | | | 1 | | | 3,841 | | | — | | | 3,842 | |
Common stock issued upon cashless exercise of warrants | 918 | | | 1 | | | (1) | | | — | | | 0 | |
Common stock issued upon exercise of options | 71 | | | 0 | | | 230 | | | — | | | 230 | |
Common stock issued upon cashless exercise of options | 694 | | | 1 | | | (1) | | | — | | | 0 | |
Common stock issued in connection with business combinations | 1,730 | | | 2 | | | 39,145 | | | — | | | 39,147 | |
Common stock issued for assets | 20 | | | 0 | | | 136 | | | — | | | 136 | |
Common stock issued for services | 50 | | | 0 | | | 0 | | | — | | | 0 | |
Common stock issued for accrued payroll | 325 | | | 0 | | | 717 | | | — | | | 717 | |
Common stock issued for accrued share-based compensation | 729 | | | 1 | | | 3,797 | | | — | | | 3,798 | |
Share based compensation, net of shares withheld for employee tax liability | (8) | | | — | | | 3,856 | | | — | | | 3,856 | |
Net income | | | 0 | | | 0 | | | 5,328 | | | 5,328 | |
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, net of shares withheld for employee tax liability | — | | | — | | | 1,258 | | | — | | | 1,258 | |
Net income | — | | | — | | | — | | | 12,786 | | | 12,786 | |
Balances, December 31, 2021 | 59,929 | | | $ | 60 | | | $ | 361,087 | | | $ | 10,144 | | | $ | 371,291 | |
| | | | | | | | | |
The accompanying notes are an integral part of theses audited consolidated financial statements.
GROWGENERATION CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
Cash Flows from Operating Activities: | | | | | |
Net income | $ | 12,786 | | | $ | 5,328 | | | $ | 1,322 | |
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | | | | | |
Depreciation and amortization | 12,600 | | | 2,436 | | | 1,045 | |
Provision for doubtful accounts and notes receivable | 619 | | | 214 | | | 172 | |
Amortization of debt discount | — | | | — | | | 356 | |
Stock based compensation | 6,585 | | | 7,856 | | | 2,491 | |
Deferred income taxes | 1,609 | | | 750 | | | — | |
Loss on disposal of fixed assets | 198 | | | — | | | — | |
Other | — | | | (127) | | | (67) | |
Changes in operating assets and liabilities: | | | | | |
(Increase) decrease in: | | | | | |
Accounts and notes receivable | (1,087) | | | (3,471) | | | (3,765) | |
Inventory | (34,690) | | | (19,188) | | | (9,496) | |
Prepaid expenses and other assets | (9,937) | | | (9,236) | | | (2,062) | |
Increase (decrease) in: | | | | | |
Accounts payable and accrued liabilities | 3,285 | | | 9,989 | | | 4,165 | |
Operating leases | 1,282 | | | 375 | | | 15 | |
Customer deposits | 6,362 | | | 2,651 | | | 1,988 | |
Payroll and payroll tax liabilities | 4,785 | | | 1,583 | | | 154 | |
Sales taxes payable | 762 | | | 627 | | | 342 | |
Net Cash and Cash Equivalents Provided By (Used In) Operating Activities | 5,159 | | | (213) | | | (3,340) | |
Cash Flows from Investing Activities: | | | | | |
Assets acquired in business combinations | (80,784) | | | (41,402) | | | (9,459) | |
Purchase of property and equipment | (18,740) | | | (3,401) | | | (2,233) | |
Purchase of marketable securities | (75,000) | | | — | | | — | |
Maturities of marketable securities | 35,207 | | | — | | | — | |
Purchase of intangibles | — | | | (1,027) | | | (119) | |
Net Cash and Cash Equivalents (Used In) Investing Activities | (139,317) | | | (45,830) | | | (11,811) | |
Cash Flows from Financing Activities: | | | | | |
Principal payments on long term debt | (83) | | | (111) | | | (460) | |
Payments to tax authorities for stock-based compensation | (4,391) | | | (119) | | | — | |
Proceeds from the sales of common stock and exercise of warrants and options, net of expenses | 2,092 | | | 211,206 | | | 13,950 | |
Net Cash and Cash Equivalents (Used In) Provided by Financing Activities | (2,382) | | | 210,976 | | | 13,490 | |
| | | | | |
Net Increase (decrease) in Cash and Cash Equivalents | (136,540) | | | 164,933 | | | (1,661) | |
Cash and Cash Equivalents at Beginning of year | 177,912 | | | 12,979 | | | 14,640 | |
Cash and Cash Equivalents at End of year | $ | 41,372 | | | $ | 177,912 | | | $ | 12,979 | |
| | | | | |
Supplemental Information: | | | | | |
Common stock and warrants issued for prepaid services | $ | — | | | $ | — | | | $ | 96 | |
Common stock issued for intangible assets | $ | 168 | | | $ | — | | | $ | — | |
Common stock issued for accrued payroll liability | $ | — | | | $ | 718 | | | $ | 210 | |
Debt converted to equity | $ | — | | | $ | — | | | $ | 2,311 | |
Assets acquired by issuance of stock | $ | 37,272 | | | $ | 39,282 | | | $ | 3,625 | |
Cash paid for interest | $ | 43 | | | $ | 14 | | | $ | 45 | |
Right to use assets acquired under new operating leases | $ | 32,875 | | | $ | 7,887 | | | $ | 6,210 | |
Cash paid for income taxes | $ | 6,072 | | | $ | 3,156 | | | $ | — | |
The accompanying notes are an integral part of these audited consolidated financial statements.
GROWGENERATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2021 and DECEMBER 31, 2020
1. NATURE OF OPERATIONS
GrowGeneration Corp. (the “Company”) was incorporated on March 6, 2014 in Colorado under the name of Easylife Corp and changed its name to GrowGeneration Corp. It maintains its principal office in Denver, Colorado.
GrowGeneration is the largest chain of hydroponic garden centers in North America and is a leading marketer and distributor of nutrients, growing media, advanced indoor and greenhouse lighting, ventilation systems and accessories for hydroponic gardening. Currently, the Company owns and operates a chain of 62 retail hydroponic/gardening stores across 13 states, an online e-commerce platform, and propriety businesses that market grow solutions through our platforms and other wholesale customers. The Company’s plan is to continue to acquire, open and operate hydroponic/gardening stores and related businesses throughout the United States and Canada.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Consolidation
The financial statements are prepared under the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 105-10, Generally Accepted Accounting Principles, in accordance with accounting principles generally accepted in the U.S. (“GAAP”).
The consolidated financial statements include the Company and its wholly-owned subsidiaries. All intercompany balances and transactions are eliminated in consolidation.
All amounts included in the accompanying footnotes to the consolidated financial statements, except per share data, are in thousands (000).
Reclassifications
Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation. These reclassifications had no effect on reported consolidated net income.
Use of Estimates
Management uses estimates and assumptions in preparing these consolidated financial statements in accordance with generally accepted accounting principles. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported revenues and expenses during the reporting period. Actual results could vary from the estimates that were used.
The COVID-19 pandemic has created significant public health concerns as well as economic disruption, uncertainty, and volatility which may negatively affect our business operations. As a result, if the pandemic or its effects persist or worsen, our accounting estimates and assumptions could be impacted in subsequent interim reports and upon final determination at year-end, and it is reasonably possible such changes could be significant (although the potential effects cannot be estimated at this time). The Company has experienced minimal business interruption as a result of the COVID-19 pandemic. We have been deemed an “essential” business by state and local authorities in the areas in which we operate and as such have not been subject to business closures. The COVID-19 pandemic to date has resulted in temporary supply chain delays of our inventory and increased shipping cost among other impacts. As events surrounding the COVID-19 pandemic can change rapidly we cannot predict how it may disrupt our operations or the full extent of the disruption.
Segment Reporting
Management makes significant operating decisions based upon the analysis of the entire Company and financial performance is evaluated on a company-wide basis. Accordingly, the various products sold are aggregated into one
GROWGENERATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2021 and DECEMBER 31, 2020
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
reportable operating segment as under guidance in the Financial Accounting Standards Board Accounting Standards Codification Topic 280 for segment reporting.
Revenue Recognition
The Company recognizes revenue, net of estimated returns and sales tax, at the time the customer takes possession of merchandise or receives services at which point, the performance obligation is satisfied. Sales and other taxes collected concurrent with revenue producing activities are excluded from revenue. In the normal course of business, the Company does not accept product returns unless the item is defective as manufactured. The Company monitors provisions for estimated returns. Payment for goods and services sold by the Company is typically due upon satisfaction of the performance obligations. Under certain circumstances, the Company does provide goods and services to customers on a credit basis (see Accounts Receivable, Notes Receivable and Concentration of Credit Risk below). The Company accounts for shipping and handling activities as a fulfillment costs rather than as a separate performance obligation. When the Company receives payment from customers before the customer has taken possession of the merchandise or the service has been performed, the amount received is recorded as a customer deposit in the accompanying consolidated balance sheets until the sale or service is complete.
Vendor Allowances
Vendor allowances primarily consist of volume rebates that are earned as a result of attaining certain purchase levels. These vendor allowances are accrued as earned, with those allowances received as a result of attaining certain purchase levels accrued over the incentive period based on estimates of purchases.
Volume rebates, when earned, are recorded as a reduction in cost of sales or cost of inventory.
Cash Equivalents
The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. The Company’s cash equivalents consist primarily of money market funds.
Financial instruments that potentially expose us to concentrations of risk consist primarily of cash and cash equivalents and accounts receivable, which are generally not collateralized. Our policy is to place our cash and cash equivalents with high quality financial institutions, in order to limit the amount of credit exposure. Accounts at each institution are insured by the Federal Deposit Insurance Corporation (FDIC), up to $250,000. At December 31, 2021 and 2020, the Company had approximately $38 million and $174 million, respectively, in excess of the FDIC insurance limit.
Securities
The Company classifies its commercial paper and debt securities as marketable securities. Marketable securities with available fair market values are stated at fair market values. Unrealized gains and losses on these marketable securities are reported, net of applicable income taxes, in other comprehensive income. Realized gains or losses on sale of marketable securities are computed using primarily the moving average cost and reported in net income. For the year ended December 31, 2021, there were no significant unrealized gains or losses incurred.
Accounts Receivable, Notes Receivable and Concentration of Credit Risk
Accounts receivable are stated at the amount the Company expects to collect from balances outstanding at period-end, based on the Company’s assessment of the credit history with customers having outstanding balances and current relationships with them. A reserve for uncollectable receivables is established when collection of amounts due is deemed improbable. Indicators of improbable collection include client bankruptcy, client litigation, client cash flow difficulties or ongoing service or billing disputes. Credit is generally extended on a short-term basis thus receivables do not bear interest. Interest on past due balances are subject to an interest charge of 1.5% per month.
Notes receivable are stated at the amount the Company expects to collect from balances outstanding at period-end, based on the Company’s assessment of the credit history with customers having outstanding balances and current relationships with them. A reserve for uncollectable receivables is established when collection of amounts due is
GROWGENERATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2021 and DECEMBER 31, 2020
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
deemed improbable. Indicators of improbable collection include client bankruptcy, client litigation, client cash flow difficulties or ongoing service or billing disputes. A note is placed on non-accrual status when management determines, after considering economic and business conditions and collection efforts, that the note is impaired or collection of interest is doubtful. The accrual of interest on the instrument ceases when there is concern that principal or interest due according to the note agreement will not be collected. Any payment received on such non-accrual notes are recorded as interest income when the payment is received. The note is reclassified as accrual-basis once interest and principal payments become current. The Company periodically reviews the value of the underlying collateral for the note receivable and evaluates whether the value of the collateral continues to provide adequate security for the note. Should the value of the underlying collateral become less than the outstanding principal and interest, the Company will determine whether an allowance is necessary. Any uncollectible interest previously accrued is also charged off. As of December 31, 2021 and 2020, the Company believes the value of the underlying collateral for each of the notes to be sufficient and in excess of the respective outstanding principal and accrued interest, net of recognized allowance.
Notes receivable generally have terms of 12 months to 18 months and bear interest from 9-12% per annum. Generally, product sales that are the basis for the note receivable are collateral on the note receivable until the note is paid off.
We are exposed to credit risk in the normal course of business, primarily related to accounts and notes receivable. We are affected by general economic conditions in the United States. To limit credit risk, management periodically reviews and evaluates the financial condition of its customers and maintains an allowance for doubtful accounts. As of December 31, 2021 and 2020, we do not believe that we have significant credit risk.
Inventory
Inventory consists primarily of gardening supplies and materials and is recorded at the lower of cost (weighted average cost method) or net realizable value. 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. Write-downs and write-offs are charged to cost of goods sold.
Property and Equipment
Property and equipment are carried at cost. Leasehold improvements are amortized using the straight-line method over the original term of the lease or the useful life of the improvement, whichever is shorter. Renewals and betterment that materially extend the life of the asset are capitalized. With respect to constructed assets, all materials, direct labor, contract services as well as certain indirect costs are capitalized. Expenditures for maintenance and repairs are charged against operations. Depreciation of property and equipment is provided on the straight-line method for financial reporting purposes at rates based on the following estimated useful lives:
| | | | | |
| Estimated Lives |
Vehicles | 5 years |
Buildings | 20 years |
Furniture and fixtures | 5-7 years |
Computers and equipment | 3-5 years |
Leasehold improvements | 5 years not to exceed lease term |
Software and Website Development Costs
The Company accounts for the costs of computer software obtained or developed for internal use in accordance with FASB ASC 350, Intangibles — Goodwill and Other. 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 as described below, and include certain employee related expenses, including salaries, bonuses, benefits
GROWGENERATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2021 and DECEMBER 31, 2020
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
and stock-based compensation expenses; costs of computer hardware and software; and costs incurred in developing features and functionality. These capitalized costs are included in property and equipment on the consolidated balance sheets.
•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.
•Software costs are amortized using the straight-line method over an estimated useful life of three years commencing when the software project is ready for its intended use.
•Costs incurred related to less significant modifications and enhancements as well as maintenance are expensed as incurred.
Intangible Assets Acquired in Business Combinations
The Company values assets acquired and liabilities assumed on each acquisition accounted for as a business combination, and allocates the purchase price to the tangible and intangible assets acquired and liabilities assumed based on its best estimate of fair value. Acquired intangible assets include trade names, customer relationships, non-compete agreements, and intellectual property. The Company determines the appropriate useful life of intangible assets by performing an analysis of cash flows based on historical experience of the acquired businesses. Intangible assets are amortized over their estimated useful lives based on the pattern in which the economic benefits associated with the asset are expected to be consumed, which to date has approximated the straight-line method of amortization. The estimated useful lives for trade names, customer relationships, non-compete agreements, and intellectual property are generally, five to six years.
Goodwill
Goodwill represents the excess of purchase price over the fair value of net assets. Goodwill is not amortized but is reviewed for potential impairment on an annual basis, or if events or circumstances indicate a potential impairment, at the reporting unit level. The Company’s review for impairment includes an assessment of qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value, including goodwill. If it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying value, including goodwill, a quantitative goodwill impairment test is performed, which compares the fair value of the reporting unit with its carrying amounts, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired. However, if the carrying amount of the reporting unit exceeds its fair value, additional procedures must be performed. That additional procedure compares the implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill. An impairment loss is recorded to the extent that the carrying amount of goodwill exceeds its implied fair value.
Long-lived assets
The Company reviews the recoverability of long-lived assets, including buildings, furniture and fixtures, computers and equipment, leasehold improvements, and other intangible assets, when events or changes in circumstances occur that indicate the carrying value of the asset may not be recoverable. The assessment of possible impairment is based on the ability to recover the carrying value of the asset from the expected future pretax cash flows (undiscounted and without interest charges) of the related operations. 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. 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. As of December 31, 2021, there were no indicators of impairment.
Leases
We account for leases in accordance with the FASB ASC 842, Leases. We assess whether an arrangement is a lease at inception. Leases with an initial term of 12 months or less are not recorded on the balance sheet. We have elected the practical expedient to not separate lease and non-lease components for all assets. Operating lease assets and operating
GROWGENERATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2021 and DECEMBER 31, 2020
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
lease liabilities are calculated based on the present value of the future minimum lease payments over the lease term at the lease start date. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the lease start date in determining the present value of future payments. The operating lease asset is increased by any lease payments made at or before the lease start date and reduced by lease incentives and initial direct costs incurred. The lease term includes options to renew or terminate the lease when it is reasonably certain that we will exercise that option. The exercise of lease renewal options is at our sole discretion. The depreciable life of lease assets and leasehold improvements are limited by the lease term. Lease expense for operating leases is recognized on a straight-line basis over the lease term.
Fair Value Measurements
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:
•Level 1—Quoted prices in active markets for identical assets or liabilities.
•Level 2—Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.
•Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.
To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and all other current liabilities approximate fair values due to their short-term nature. The fair value of notes receivable approximates the outstanding balance and are reviewed for impairment at least annually. The fair value of impaired notes receivable are determined based on estimated future payments discounted back to present value using the notes effective interest rate.
| | | | | | | | | | | | | | | | | |
| Level | | December 31, 2021 | | December 31, 2020 |
Cash equivalents | 2 | | $ | 41,372 | | | 177,912 | |
Marketable securities | 2 | | $ | 39,793 | | | — | |
Notes receivable impaired | 3 | | $ | 978 | | | 874 | |
For the Level 3 assets measured at fair value on a non-recurring basis at December 31, 2021, the significant unobservable inputs include the notes receivable effective interest rates of 8% to 10%.
Income Taxes
The Company accounts for income taxes in accordance with FASB ASC 740, Income Taxes, which requires the recognition of deferred tax assets and liabilities for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date.
GROWGENERATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2021 and DECEMBER 31, 2020
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
Valuation allowances are established to reduce deferred tax assets to the amount that will more likely than not be realized. To the extent that a determination was made to establish or adjust a valuation allowance, the expense or benefit is recorded in the period in which the determination is made.
From time to time, the Company engages in transactions in which the tax consequences may be subject to uncertainty. Significant judgment is required in assessing and estimating the tax consequences of these transactions. The Company prepares and files tax returns based on its interpretation of tax laws and regulations. In the normal course of business, the tax returns are subject to examination by various taxing authorities. Such examinations may result in future tax, interest and penalty assessments by these taxing authorities. In determining the Company’s income tax provision for financial reporting purposes, the Company establishes a reserve for uncertain income tax positions unless such positions are determined to be more likely than not of being sustained upon examination, based on their technical merits. That is, for financial reporting purposes, the Company only recognizes tax benefits taken on the tax return that the Company believes are more likely than not of being sustained upon examination. There is considerable judgment involved in determining whether a position taken on the tax return is more likely than not of being sustained.
The Company adjusts its tax reserve estimates periodically because of ongoing examinations by, and settlements with, the various taxing authorities, as well as changes in tax laws, regulations and interpretations. The consolidated income tax provision of any given year includes adjustments to prior year income tax accruals that are considered appropriate and any related estimated interest and penalties. The Company’s policy is to recognize, when applicable, interest and penalties on uncertain income tax positions as part of its income tax provision
Advertising
The Company expenses advertising and promotional costs when incurred. Advertising and promotional expenses for the years ended December 31, 2021, 2020, and 2019 amounted to $4.0 million, $996 thousand, and $737 thousand respectively.
Earnings Per Share
The Company computes net earnings per share under Accounting Standards Codification subtopic 260-10, Earnings Per Share (“ASC 260-10”). 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 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 share purchase warrants, which assumes that any proceeds received from the exercise of in-the-money stock options, restricted stock and share purchase warrants, would be used to purchase common shares at the average market price for the period.
Stock Based Compensation
The Company records stock-based compensation in accordance with FASB ASC Topic 718, Compensation-Stock Compensation (“ASC 718”). The Company estimates the fair value of stock options and warrants using the Black-Scholes option pricing model. The fair value of stock options and warrants granted is recognized as an expense over the requisite service period. Stock-based compensation expense for all share-based payment awards is recognized using the straight-line single-option method.
The Black-Scholes option pricing model requires subjective assumptions, including future stock price volatility and expected time to exercise, which greatly affect the calculated values. The expected term of options granted is derived from historical data on employee exercises and post-vesting employment termination behavior. The risk-free rate selected to value any particular grant is based on the U.S. Treasury rate that corresponds to the expected life of the grant effective as of the date of the grant. The expected volatility is based on the historical volatility of the Company’s stock price. These factors could change in the future, affecting the determination of stock-based compensation expense in future periods.
GROWGENERATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2021 and DECEMBER 31, 2020
3. RECENT ACCOUNTING PRONOUNCEMENTS
From time to time, the Financial Accounting Standards Board (“FASB”) or other standard setting bodies issue new accounting pronouncements. Updates to the FASB Accounting Standards Codification are communicated through issuance of an Accounting Standards Update (“ASU”). We have implemented all new accounting pronouncements that are in effect and that may impact our financial statements. We have evaluated recently issued accounting pronouncements and determined that there is no material impact on our financial position or results of operations.
Recently Adopted Accounting Pronouncements
As of January 1, 2019, the Company adopted the FASB ASU 2016-2, Leases (ASC 842), which introduces the balance sheet recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous guidance. The Company has adopted the new lease standard using the new transition option issued under the amendments in ASU 2018-11, Leases, which allowed the Company to continue to apply the legacy guidance in ASC 840, Leases, in the comparative periods presented in the year of adoption. The Company elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed the Company to carry forward the historical lease classification. The Company made an accounting policy election to keep leases with an initial term of 12 months or less off the balance sheet. The Company will recognize those lease payments on a straight-line basis over the lease term. The impact of the adoption was an increase to the Company’s operating lease assets and liabilities on January 1, 2019 of $3.2 million.
Recently Issued Accounting Pronouncements – Pending Adoption
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments — Credit Losses (Topic 326),” changing the impairment model for most financial instruments by requiring companies to recognize an allowance for expected losses, rather than incurred losses as required currently by the other-than-temporary impairment model. The ASU will apply to most financial assets measured at amortized cost and certain other instruments, including trade and other receivables, loans, available-for-sale and held-to-maturity debt securities, net investments in leases, and off-balance-sheet credit exposures. The Company is in the process of evaluating the impact of this standard.
4. REVENUE RECOGNITION
Disaggregation of Revenues
The following table disaggregates revenue by source:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2021 | | Year Ended December 31, 2020 | | Year Ended December 31, 2019 |
Sales at company owned stores | $ | 369,199 | | | $ | 182,736 | | | $ | 74,970 | |
Distribution | 17,087 | | | — | | | — | |
E-commerce sales | 36,203 | | | 10,629 | | | 4,764 | |
Total Revenues | $ | 422,489 | | | $ | 193,365 | | | $ | 79,734 | |
Contract Balances
Depending on the timing of when a customer takes possession of product and when a customer makes payments for such product, the Company recognizes a customer trade receivable (asset) or a customer deposit (liability). The difference between the opening and closing balances of the Company’s customer trade receivables and the customer deposit liability results from timing differences between the Company’s performance and the customer’s payment and due to the acquisitions for the years ended December 31, 2021 and 2020.
GROWGENERATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2021 and DECEMBER 31, 2020
4. REVENUE RECOGNITION, Continued
The opening and closing balances of the Company’s customer trade receivables and customer deposit liability are as follows:
| | | | | | | | | | | |
| Receivables | | Customer Deposit Liability |
Opening balance, 1/1/2021 | $ | 7,713 | | | $ | 5,155 | |
Closing balance, 12/31/2021 | 8,181 | | | 11,686 | |
Increase (decrease) | $ | 468 | | | $ | 6,531 | |
| | | |
Opening balance, 1/1/2020 | $ | 4,455 | | | $ | 2,504 | |
Closing balance, 12/31/2020 | 7,713 | | | 5,155 | |
Increase (decrease) | $ | 3,258 | | | $ | 2,651 | |
The Company also has customer trade receivables under longer term financing arrangements at interest rates ranging from 8% to 12% with repayment terms ranging for 12 to 18 months. Notes receivable at December 31, 2021 and 2020 are as follows:
| | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 |
Note receivable | $ | 2,962 | | | $ | 4,104 | |
Allowance for losses | (522) | | | (292) | |
Notes receivable, net | $ | 2,440 | | | $ | 3,812 | |
The following table summarizes changes in notes receivable balances that have been deemed impaired.
| | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 |
Note receivable | $ | 1,500 | | | $ | 1,166 | |
Allowance for loses | (522) | | | (292) | |
Notes receivable, net | $ | 978 | | | 874 | |
GROWGENERATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2021 and DECEMBER 31, 2020
5. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 2021 and 2020 consists of the following:
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
Vehicles | $ | 2,258 | | | $ | 1,342 | |
Buildings | 1,187 | | | 477 | |
Leasehold improvements | 9,186 | | | 1,988 | |
Furniture, fixtures and equipment | 10,992 | | | 5,739 | |
Capitalized software | 4,753 | | | 1,163 | |
Construction-in-progress | 2,948 | | | — | |
| 31,324 | | | 10,709 | |
Accumulated depreciation and amortization | (7,208) | | | (3,293) | |
| | | |
Property and equipment, net | $ | 24,116 | | | $ | 7,416 | |
Depreciation expense was $3.7 million, $1.6 million, and $1.0 million for the years ended December 31, 2021, 2020, and 2019, respectively.
6. GOODWILL AND INTANGIBLE ASSETS
The changes in goodwill are as follows:
| | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 |
Balance, beginning of period | $ | 62,951 | | | $ | 17,799 | |
Goodwill additions and measurement period adjustments | $ | 62,450 | | | $ | 45,152 | |
Balance, end of period | $ | 125,401 | | | $ | 62,951 | |
GROWGENERATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2021 and DECEMBER 31, 2020
A summary of intangible assets as of follows:
| | | | | | | | |
| | Weighted-Average |
| | Amortization Period |
| | of Intangible Assets |
| | as of December 31, 2021 |
| | (in years) |
Tradenames | | 4.15 years |
Patents, trademarks | | 4.08 years |
Customer relationships | | 5.30 years |
Non-competes | | 3.74 years |
Intellectual property | | 4.16 years |
Intangible assets on the Company’s consolidated balance sheets consist of the following:
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 |
| Gross Carrying Amount | | Accumulated Amortization | | Gross Carrying Amount | | Accumulated Amortization |
Tradenames | $ | 28,300 | | | $ | (4,948) | | | $ | 13,923 | | | $ | (398) | |
Patents, trademarks | 100 | | | (42) | | | 100 | | | (9) | |
Customer relationships | 25,175 | | | (3,055) | | | 6,297 | | | (138) | |
Non-competes | 1,384 | | | (233) | | | 796 | | | (22) | |
Intellectual property | 2,065 | | | (344) | | | — | | | — | |
| $ | 57,024 | | | $ | (8,622) | | | $ | 21,116 | | | $ | (567) | |
Amortization expense for the years ended December 31, 2021, 2020, and 2019 was $8.9 million, $789 thousand, and $5 thousand respectively.
| | | | | | | | |
Future amortization expense is as follows: | | |
2022 | | $ | 10,597 | |
2023 | | 10,596 | |
2024 | | 10,590 | |
2025 | | 10,206 | |
2026 | | 5,159 | |
Thereafter | | 1,254 | |
Total | | $ | 48,402 | |
GROWGENERATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 and DECEMBER 31, 2019
7.INCOME TAXES
The provision (benefit) for income taxes for the years ended December 31, 2021 and 2020 consisted of the following:
| | | | | | | | | | | | | | | | | |
| Year Ended |
| December 31, 2021 | | December 31, 2020 | | December 31, 2019 |
Income Tax Expense (benefit) | | | | | |
Current federal tax expense (benefit) | | | | | |
Federal | $ | (115) | | | $ | 1,732 | | | $ | 479 | |
State | 949 | | | 768 | | | — | |
Deferred tax (benefit) | | | | | |
Federal | 1,473 | | | 1,706 | | | (479) | |
State | 136 | | | 227 | | | — | |
Valuation allowance | — | | | (1,182) | | | — | |
Total | $ | 2,443 | | | $ | 3,251 | | | $ | — | |
A summary of deferred tax assets and liabilities as of December 31, 2021 and 2020 is as follows:
| | | | | | | | | | | |
| Year Ended |
| December 31, 2021 | | December 31, 2020 |
Deferred tax assets: | | | |
Deferred right to use lease liabilities | 11,573 | | | 3,249 | |
Stock based compensation | 974 | | | 757 | |
Inventory reserves | 239 | | | 236 | |
Warranty reserves | 128 | | | 146 | |
Accruals and other | 1,266 | | | 180 | |
| 14,180 | | | 4,568 | |
Deferred tax liabilities: | | | |
Deferred right to use lease assets | (11,147) | | | (3,147) | |
Accumulated depreciation and amortization | (5,392) | | | (2,171) | |
| (16,539) | | | (5,318) | |
Deferred tax asset (liability) | (2,359) | | | (750) | |
Valuation Allowance | — | | | — | |
Deferred tax asset (liability), net | $ | (2,359) | | | $ | (750) | |
We recorded a valuation allowance against all of our deferred tax assets as of December 31, 2019. Given our current earnings and anticipated future earnings, we believe that there was sufficient positive evidence available that allowed us to reach the conclusion that the valuation allowance was no longer be needed as of December 31, 2020. Release of the valuation allowance in 2020 resulted in the recognition of certain deferred tax assets and a decrease to income tax expense for the period the release is recorded.
As of December 31, 2021 and 2020 the Company had cumulative state net operating loss carryforwards of $1.6 million and $0.1 million. State net operating loss carryforwards will begin to expire in calendar year 2036.
GROWGENERATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2021 and DECEMBER 31, 2020
The differences between the U.S. Federal statutory income tax rate and the Company’s effective tax rate were as follows for the years ended December 31, 2021 and 2020, and 2019:
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
Federal statutory tax rate | 21 | % | | 21 | % | | 21 | % |
State and local income taxes (net of federal tax benefit) | 7 | % | | 6 | % | | 4 | % |
| 28 | % | | 27 | % | | 25 | % |
| | | | | |
Other | — | % | | 6 | % | | — | % |
Stock-based compensation | (8) | % | | 7 | % | | — | % |
Return to provision adjustments | (4) | % | | 12 | % | | — | % |
Valuation allowance | — | % | | (14) | % | | (25) | % |
| 16 | % | | 38 | % | | — | % |
8.LONG-TERM DEBT
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
Long term debt is as follows: | | | |
Wells Fargo Equipment Finance, interest at 3.5% per annum, payable in monthly installments of $518.96 beginning April 2016 through March 2021, secured by warehouse equipment with a book value of $25,437 | $ | — | | | $ | 1 | |
| | | |
Notes payable issued in connection with seller financing of assets acquired, interest at 8.125%, payable in 60 installments of $8,440, due August 2023 | 158 | | | 240 | |
| $ | 158 | | | $ | 241 | |
Less Current Maturities | (92) | | | (83) | |
Total Long-Term Debt | $ | 66 | | | $ | 158 | |
| | | | | |
Debt maturities as of December 31, 2021 are as follows: | |
2022 | $ | 92 | |
2023 | 66 | |
| $ | 158 | |
Interest expense for the years ended December 31, 2021, 2020, and 2019 was $43 thousand, $14 thousand, and $45 thousand, respectively.
9.LEASES
We determine if a contract contains a lease at inception. Our material operating leases consist of retail and warehouse locations as well as office space. Our leases generally have remaining terms of 1-7 years, most of which include options to extend the leases for additional 3 to 5-year periods. Generally, the lease term is the minimum of the noncancelable period of the lease or the lease term inclusive of reasonably certain renewal periods.
Operating lease assets and liabilities are recognized at the lease commencement date. Operating lease liabilities represent the present value of lease payments not yet paid. Operating lease assets represent our right to use an underlying asset and are based upon the operating lease liabilities adjusted for prepayments or accrued lease payments, initial direct costs, lease incentives, and impairment of operating lease assets. To determine the present value of lease
GROWGENERATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2021 and DECEMBER 31, 2020
9. LEASES, Continued
payments not yet paid, we estimate incremental secured borrowing rates corresponding to the maturities of the leases. Our leases typically contain rent escalations over the lease term. We recognize expense for these leases on a straight-line basis over the lease term.
We have elected the practical expedient to account for lease and non-lease components as a single component for our entire population of leases.
Short-term expenses include only those leases with a term greater than one month and 12 months or less, and expense is recognized on a straight-line basis over the lease term. Leases with an initial term of 12 months or less, that do not include an option to purchase the underlying asset that we are reasonably certain to exercise, are not recorded on the balance sheet.
Lease expense is recorded within our consolidated statements of operations based upon the nature of the assets. Where assets are used to directly serve our customers, such as facilities dedicated to customer contracts, lease costs are recorded in “store operating costs.” Facilities and assets which serve management and support functions are expensed through general and administrative expenses.
| | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 |
Right to use assets, operating lease assets | $ | 43,730 | | | $ | 12,088 | |
| | | |
Current lease liability | $ | 6,858 | | | $ | 3,001 | |
Non-current lease liability | 38,546 | | | 9,479 | |
| $ | 45,404 | | | $ | 12,480 | |
| | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 |
Weighted average remaining lease term | 7.1 years | | 3.5 years |
Weighted average discount rate | 6.5 | % | | 7.6 | % |
| | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 |
Operating lease costs | $ | 8,205 | | | $ | 2,801 | |
Variable lease costs | 2,130 | | 1,071 |
Short-term lease costs | 205 | | 95 |
Total operating lease costs | $ | 10,540 | | | $ | 3,967 | |
The following table presents the maturity of the Company’s operating lease liabilities as of December 31, 2021:
| | | | | |
2022 | $ | 9,544 | |
2023 | 9,024 | |
2024 | 7,818 | |
2025 | 6,875 | |
2026 | 5,324 | |
Thereafter | 18,466 | |
Total lease payments | 57,051 | |
Less: Imputed interest | (11,647) | |
Lease Liability at December 31, 2021 | $ | 45,404 | |
GROWGENERATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2021 and DECEMBER 31, 2020
10. CONVERTIBLE DEBT, Continued
10.CONVERTIBLE DEBT
On January 12, 2018, the Company completed a private placement of a total of 36 units of the Company’s securities at the price of $250,000 per unit pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”) and Rule 506 of Regulation D promulgated thereunder. Each unit consisted of (i) a .1% unsecured convertible promissory note of the principal amount of 250,000, and (ii) a 3-year warrant entitling the holder to purchase 37,500 shares of the Company’s common stock, par value $.001 per share, at a price of $.01 per share or through cashless exercise.
The convertible debt had a maturity date of January 12, 2021 and the principal balance and any accrued interest was convertible by the holder at any time into common stock of the Company at conversion price of $3.00 a share. Principal due and interest accrued on the notes automatically converted into shares of common stock, at the conversion price, if at any time during the term of the notes, commencing twelve (12) months from the date of issuance, the common stock trades minimum daily volume of at least 50,000 shares for twenty (20) consecutive days with a volume weighted average price of at least $4.00 per share.
During the year ended December 31, 2019, convertible debt and accrued interest of $2.4 million, net of unamortized debt discount of $675 thousand, was converted into 1,258,608 shares of common stock at the conversion rate of $3.00 per share. As of December 31, 2019, there was no convertible debt remaining.
There was no amortization of debt discount for the years ended December 31, 2021 and 2020. Amortization of debt discount for the years ended December 31, 2019, was $0.4 million.
At December 31, 2021 and 2020 there were 93,750 and 93,750 warrants outstanding, respectively, related to the issuance of convertible debt.
11.SHARE BASED PAYMENTS
The Company maintains long-term incentive plans for employee, non-employee members of our Board of Directors, and consultants. The Plans allows us to grant equity-based compensation awards, including stock options, stock appreciation rights, performance share units, restricted stock units, restricted stock awards, or a combination of awards (collectively, share-based awards).
On March 6, 2014, the Company’s Board of Directors (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, nonemployee members of our 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.
On January 7, 2018, the Board adopted the 2018 Equity Compensation 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. The 2018 Plan will be administered by the Board. The Board may grant options to purchase shares of common stock, stock appreciation rights, restricted stock units, restricted or unrestricted shares of common stock, performance shares, performance units, other cash-based awards and other stock-based awards. The Board also has broad authority to determine the terms and conditions of each option or other kind of equity award, adopt, amend and rescind rules and regulations for the administration of the 2018 Plan and amend or modify outstanding options, grants and awards.
GROWGENERATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2021 and DECEMBER 31, 2020
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, as amended (the "Code") or "nonstatutory 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. The exercise price of stock options may not be less than the fair market value, on the date of grant, per share of our common stock issuable upon exercise of the option (or 110% of fair market value in the case of incentive options granted to a 10% stockholder). 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 accounts for share-based payments through the measurement and recognition of compensation expense for share-based payment awards made to employees and directors of the Company, including stock options and restricted shares. The Company also issues share based payments in the form of common stock warrants to non-employees.
The following table presents share-based payment expense for the years ended December 31, 2021, 2020, and 2019.
| | | | | | | | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 | | 2019 |
Restricted stock | $ | 4,349 | | | $ | 5,164 | | | $ | 1,420 | |
Stock options | 781 | | | 2,251 | | | 1,071 | |
Warrants | 1,455 | | | 441 | | | — | |
Total | $ | 6,585 | | | $ | 7,856 | | | $ | 2,491 | |
As of December 31, 2021, the Company had approximately $7.9 million of unamortized share-based compensation for option awards and restricted stock awards, which is expected to be recognized over a weighted average period of 2.9 years. As of December 31, 2021, the Company also had approximately $2.5 million of unamortized share-based compensation for common stock warrants issued to consultants, which is expected to be recognized over a weighted average period of 1.91 years.
Restricted Stock
The Company issues shares of restricted stock to eligible employees, which are subject to forfeiture until the end of an applicable vesting period. The awards generally vest on the second or third 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.
GROWGENERATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2021 and DECEMBER 31, 2020
Restricted stock activity for the years ended December 31, 2021 and 2020 is presented in the following table:
| | | | | | | | | | | |
| Shares | | Weighted Average Grant Date Fair Value |
Nonvested, January 1, 2020 | 204 | | | $ | 3.82 | |
Granted | 1,293 | | | 4.90 | |
Vested | (800) | | | 5.16 | |
Forfeited | (67) | | | 4.15 | |
Nonvested, December 31, 2020 | 630 | | | $ | 4.51 | |
Granted | 265 | | | 36.98 | |
Vested | (360) | | | 8.47 | |
Forfeited | (51) | | | 18.54 | |
Nonvested, December 31, 2021 | 484 | | | $ | 20.19 | |
Stock Option
Awards issued under the 2014 and 2018 Plan as of December 31, 2021 are summarized below:
| | | | | |
| 2021 |
Total shares available for issuance pursuant to the 2014 Plan | 2,500 | |
Options outstanding, December 31 2021 | (20) | |
Total options exercised under 2014 Plan | (2,089) | |
Total shares issued pursuant to the 2014 Plan | (375) | |
Awards available for issuance under the 2014 Plan, December 31, 2021 | 16 |
| | | | | |
| 2021 |
Total shares available for issuance pursuant to the 2018 Plan, as amended | 5,000 | |
Options outstanding, December 31 2021 | (886) | |
Total options exercised under 2018 Plan | (964) | |
Total shares issued pursuant to the 2018 Plan | (1,452) | |
Awards available for issuance under the 2018 Plan, December 31, 2021 | 1,698 | |
The fair value of each stock option and warrant granted is estimated on the grant date using the Black-Scholes option valuation model. The assumptions used to calculate the fair value of options and warrants granted are evaluated and revised, as necessary, to reflect market conditions and the Company’s experience. Stock options and warrants are expensed on a straight-line basis over the vesting period, which is considered to be the requisite service period. There were no options or warrants issued during 2021.
GROWGENERATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2021 and DECEMBER 31, 2020
| | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
Expected volatility | N/A | | 77.75-80.7% | | 87.8-92.70% |
Expected dividends | N/A | | None | | None |
Expected term | N/A | | 2-5 years | | 2-5 years |
Risk-free rate | N/A | | 1.64-1.75% | | 1.64 | % |
| | | | | |
| | | | | |
Options outstanding pursuant to 2014 Plan | | | | | 20 | |
Options outstanding pursuant to 2018 Plan | | | | | 886 | |
Options issued outside of 2014 and 2018 Plans | | | | | — | |
Total options outstanding December 31, 2021 | | | | | 906 | |
The table below summarizes all the options granted by the Company during years ended December 31, 2021 and 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Options | | Shares | | Weighted- Average Exercise Price | | Weighted- Average Remaining Contractual Term | | Weighted- Average Grant Date Fair Value |
| | | | | | | | |
Outstanding at January 1, 2020 | | 1,925 | | | $ | 2.71 | | | 3.60 years | | $ | 1.71 | |
Granted | | 892 | | | $ | 4.75 | | | | | $ | 2.67 | |
Exercised | | (984) | | | $ | 2.59 | | | | | $ | 1.35 | |
Forfeited or expired | | (30) | | | $ | 2.75 | | | | | $ | 1.63 | |
Outstanding at December 31, 2020 | | 1,803 | | | $ | 3.92 | | | 3.47 years | | $ | 2.38 | |
Vested and exercisable at December 31, 2020 | | 1,058 | | | $ | 3.55 | | | 3.13 years | | $ | 2.00 | |
| | | | | | | | |
Outstanding at January 1, 2021 | | 1,803 | | | $ | 3.92 | | | 3.47 years | | $ | 2.38 | |
Granted | | 0 | | | $ | 0.00 | | | | | $ | 0.00 | |
Exercised | | (822) | | | $ | 3.20 | | | | | $ | 1.71 | |
Forfeited or expired | | (75) | | | $ | 7.60 | | | | | $ | 4.53 | |
Outstanding at December 31, 2021 | | 906 | | | $ | 4.38 | | | 2.85 years | | $ | 2.45 | |
Vested and exercisable at December 31, 2021 | | 836 | | | $ | 4.36 | | | 2.81 years | | $ | 2.45 | |
Liability Awards
The Company issued stock awards classified as liabilities based on guidance set forth at ASC 480-10-25 and ASC 718-10-25. These awards entitled the employees to receive a specified dollar value of common stock on the vesting date and generally vested between 8 and 14 months, subject to the employee’s continuing employment as of that date. Due to their short-term nature these awards were all valued at the face value of the award. All liability awards vested at December 31, 2021 and resulted in the issuance of 34,538 shares of common stock. The expense related to the liability awards for the years ended December 31, 2021 and 2020, was $0.7 million and $29.9 thousand. There was zero expense related to liability awards for the year ended December 31, 2019.
GROWGENERATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2021 and DECEMBER 31, 2020
12.STOCK PURCHASE WARRANTS
A summary of the status of the Company’s outstanding stock warrants as of December 31, 2021 and 2020 is as follows:
| | | | | | | | | | | |
| | | Weighted Average Exercise Price |
Outstanding January 1, 2020 | 3,714 | | | $ | 3.25 | |
Granted/issued | 305 | | | $ | 24.66 | |
Exercised | (2,469) | | | $ | 3.05 | |
Forfeited | (250) | | | $ | 5.75 | |
Outstanding December 31, 2020 | 1,300 | | | $ | 8.03 | |
Granted/issued | 0 | | | $ | 0.00 | |
Exercised | (969) | | | $ | 2.84 | |
Forfeited | 0 | | | $ | 0.00 | |
Outstanding December 31, 2021 | 331 | | | $ | 22.14 | |
13.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, 2021, 2020, and 2019. For the year ended December 31, 2021, there were no anti-dilutive shares outstanding that were excluded from the dilutive income per share calculation. For the years ended December 31, 2020 and 2019, options to purchase 30 thousand and 220 thousand shares of common stock were excluded from the dilutive income per share calculation because including such shares would be anti-dilutive.
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
Net income | $ | 12,786 | | | $ | 5,328 | | | $ | 1,322 | |
Weighted-average shares outstanding, basic | 59,223 | | | 43,945 | | | 32,834 | |
Effect of dilutive outstanding warrants and stock options | 1,241 | | | 2,511 | | | 1,076 | |
Weighted-average shares outstanding, dilutive | 60,464 | | | 46,456 | | | 33,910 | |
Basic income per share | $ | 0.22 | | | $ | 0.12 | | | $ | 0.04 | |
Dilutive income per share | $ | 0.21 | | | $ | 0.11 | | | $ | 0.04 | |
14.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 $419 thousand, $169 thousand, and $83 thousand for the years ended December 31, 2021, 2020, and 2019, respectively.
15.VENDOR CONCENTRATIONS
One supplier represented 28% of our total vendor purchases for the year ended December 31, 2021, and two suppliers represented 41% and 51% of our total vendor purchases for the years ended December 31, 2020 and 2019, respectively. Although the Company expects to maintain relationships with these vendors, the loss of either supplier would not be expected to have a material adverse impact on our business, because of the competitive nature of the products that we sell.
GROWGENERATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2021 and DECEMBER 31, 2020
16.ACQUISITIONS
The Company accounts for acquisitions in accordance with ASC 805 “Business Combinations.” Assets acquired and liabilities assumed are recorded in the accompanying consolidated balance sheets at their estimated fair values, 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 within the measurement period as valuations are finalized. Any changes to these estimates may have a material impact on the Company’s operating results or financial position. The Company has made adjustments to the preliminary valuations of the acquisition based on valuation analysis prepared by independent third-party valuation consultants. During the year ended December 31, 2021, our measurement period adjustments included reducing intangible assets by $1.0 million and increasing goodwill by the same amount. As a result of these measurement period adjustments, we made an insignificant reduction in amortization expense which is included in the income statement. All acquisition costs are expensed as incurred and recorded in general and administrative expenses in the consolidated statements of operations. Acquisition costs were approximately $0.7 million, $0.2 million, and $0.1 million for the years ended December 31, 2021, 2020, and 2019.
2021 Acquisitions
On January 25, 2021, the Company purchased the assets of Indoor Garden & Lighting, Inc, 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 represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company.
On February 1, 2021, the Company purchased the assets of J.A.R.B., Inc d/b/a 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 represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company.
On February 15, 2021, the Company purchased the assets of Grow Warehouse LLC, 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 LLC was approximately $17.8 million, including approximately $8.1 million in cash and common stock valued at approximately $9.7 million. Acquired goodwill represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company.
On February 22, 2021, the Company purchased the assets of San Diego Hydroponics & Organics, a four-store chain of hydroponic and organic garden stores in San Diego, California. The total consideration for the purchase of San Diego Hydroponics 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 represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company.
On March 12, 2021, the Company purchased the assets of Charcoir Corporation, 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 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.
On March 15, 2021, the Company purchased the assets of 55 Hydroponics, a hydroponic and organic superstore located in Santa Ana, California. The total consideration for the purchase of 55 Hydroponics was approximately $6.5 million, including approximately $5.3 million in cash and common stock valued at approximately $1.1 million. Acquired goodwill represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company.
GROWGENERATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2021 and DECEMBER 31, 2020
On March 15, 2021, the Company purchased the assets of Aquarius Hydroponics, 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 represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company.
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 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.
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 represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company.
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 represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company.
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 represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company.
On July 3, 2021, the Company purchased the assets of Mendocino Greenhouse & Garden Supply, Inc, 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 approximately $4.0 million in cash. This acquisition allows the Company to expand its footprint in the Northern California. Acquired goodwill represents the value expected to rise from organic growth and an opportunity to expand into a well established market for the Company.
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 represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company.
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 approximately $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. This acquisition expands our footprint in the Pacific Northwest. Acquired goodwill represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company.
GROWGENERATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2021 and DECEMBER 31, 2020
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 represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company.
On December 31, 2021, the Company purchased the assets of Mobile Media, Inc and MMI Agriculture ("MMI"), a mobile shelving design and build 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 represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company. The measurement of the intangible assets for MMI is still provisional and may be subject to future adjustments as the Company obtains additional information to finalize the accounting for the acquisition.
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 to 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 | |
GROWGENERATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2021 and DECEMBER 31, 2020
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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 to 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 | | 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 | | | | |
Revenue | $ | 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
FOR THE YEARS ENDED DECEMBER 31, 2021 and DECEMBER 31, 2020
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, 2021, 2020, and 2019.
| | | | | | | | | | | | | | | | | |
| December 31, 2021 (Unaudited) | | December 31, 2020 (Unaudited) | | December 31, 2019 (Unaudited) |
Revenue | $ | 452,126 | | | $ | 310,947 | | | $ | 197,315 | |
Net income | $ | 13,511 | | | $ | 18,480 | | | $ | 14,475 | |
2020 Acquisitions
On February 26, 2020, the Company purchased the assets of Health & Harvest LLC. The total consideration for the purchase was approximately $2.9 million, including approximately $1.8 million in cash and common stock valued at approximately $1.1 million. Acquired goodwill represents the value expected to rise from organic growth and the opportunity to expand into a well-established market for the Company.
On June 16, 2020, we acquired certain assets of H2O Hydroponics, LLC (“H2O Hydro”). The total consideration for the purchase was approximately $2.0 million, including approximately $1.3 million in cash and common stock valued at approximately $0.7 million. Acquired goodwill represents the value expected to rise from organic growth and the opportunity to expand into a well-established market for the Company.
On August 10, 2020, we acquired certain assets of Benzakry Family Corp, d/b/a Emerald City Garden (“Emerald City”). The total consideration for the purchase was approximately $1.0 million. Acquired goodwill represents the value expected to rise from organic growth and the opportunity to expand into a well-established market for the Company.
On October 12, 2020, the Company acquired the assets of Hydroponics Depot, LLC (“Hydro Depot”), a single store located in Phoenix, AZ. The total consideration for the purchase was approximately $1.5 million, including approximately $1.0 million in cash and common stock valued at approximately $0.5 million. Acquired goodwill represents the value expected to rise from organic growth and the opportunity to expand into a well-established market for the Company.
On October 20, 2020 the Company acquired the assets of Big Green Tomato (“BGT”), a two-store chain in Battle Creek and Taylor, Michigan. The total consideration was approximately $9.0 million, including approximately $6.0 million in cash and shares of common stock valued at approximately $3.1 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.
On November 17, 2020, the Company acquired the assets of The GrowBiz (“GrowBiz”), a five-store chain with four stores in California and one store in Oregon. The total consideration for the purchase of GrowBiz was approximately $44.8 million, including approximately $17.5 million in cash and common stock valued at approximately $27.3 million. Acquired goodwill of approximately $28.5 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company.
On December 14, 2020, the Company acquired the assets of Grassroots Hydroponics, Inc., a three-store chain in California. The total consideration for the purchase of Grassroots was approximately $10.0 million, approximately $7.5 million in cash and common stock valued at approximately $2.5 million. Acquired goodwill of approximately $4.5 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company.
On December 23, 2020, the Company acquired the assets of Canopy Crop Management (“Canopy”) and its complete portfolio of products including the Power SI brand of silicic acid-enriched fertilizers. The total consideration for the purchase of Canopy Crop was approximately $9.2 million, including approximately $5.4 million in cash and common stock valued at approximately $3.8 million. Acquired goodwill of approximately $4.9 million represents the value
GROWGENERATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2021 and DECEMBER 31, 2020
expected to rise from organic growth and an opportunity to expand into a well-established product distribution market for the Company.
The table below represents the allocation of the purchase price to the acquired net assets during the year ended December 31, 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Canopy | | Grassroots | | GrowBiz | | BGT | | Hydro Depot | | Emerald City | | H2O Hydro LLC | | Health & Harvest LLC | | Total |
Inventory | $ | 899 | | | $ | 2,348 | | | $ | 6,286 | | | $ | 1,595 | | | $ | 333 | | | $ | 150 | | | $ | 498 | | | $ | 1,054 | | | $ | 13,163 | |
Prepaids and other current assets | — | | | — | | | — | | | — | | | — | | | — | | | 4 | | | — | | | 4 | |
Building | — | | | — | | | — | | | 477 | | | — | | | — | | | 0 | | | — | | | 477 | |
Furniture and equipment | — | | | 150 | | | 200 | | | 250 | | | 25 | | | 10 | | | 50 | | | 51 | | | 736 | |
Operating lease right to use asset | — | | | 1,437 | | | 3,641 | | | 246 | | | — | | | 140 | | | 906 | | | 324 | | | 6,694 | |
Operating lease liability | — | | | (1,437) | | | (3,641) | | | (246) | | | — | | | (140) | | | (906) | | | (324) | | | (6,694) | |
Customer relationships | 2,274 | | | 768 | | | 1,969 | | | 634 | | | 148 | | | 212 | | | 150 | | | 255 | | | 6,410 | |
Trade name | 1,094 | | | 2,140 | | | 7,483 | | | 1,953 | | | 212 | | | — | | | 234 | | | 357 | | | 13,473 | |
Non-compete | 113 | | | 133 | | | 372 | | | 96 | | | 19 | | | 14 | | | 43 | | | 6 | | | 796 | |
Goodwill | 4,860 | | | 4,461 | | | 28,476 | | | 4,039 | | | 799 | | | 614 | | | 1,008 | | | 1,131 | | | 45,388 | |
Total | $ | 9,240 | | | $ | 10,000 | | | $ | 44,786 | | | $ | 9,044 | | | $ | 1,536 | | | $ | 1,000 | | | $ | 1,987 | | | $ | 2,854 | | | $ | 80,447 | |
The table below represents the consideration paid for the net assets acquired in business combinations during 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Canopy | | Grassroots | | GrowBiz | | BGT | | Hydro Depot | | Emerald City | | H2O Hydro LLC | | Health & Harvest LLC | | Total |
Cash | $ | 5,424 | | | $ | 7,499 | | | $ | 17,487 | | | $ | 5,972 | | | $ | 988 | | | $ | 1,000 | | | $ | 1,282 | | | $ | 1,750 | | | $ | 41,402 | |
Common stock | 3,816 | | | 2,501 | | | 27,299 | | | 3,072 | | | 548 | | | — | | | 705 | | | 1,104 | | | 39,045 | |
Total | $ | 9,240 | | | $ | 10,000 | | | $ | 44,786 | | | $ | 9,044 | | | $ | 1,536 | | | $ | 1,000 | | | $ | 1,987 | | | $ | 2,854 | | | $ | 80,447 | |
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, 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Canopy | | Grassroots | | GrowBiz | | BGT | | Hydro Depot | | Emerald City | | H2O Hydro LLC | | Health & Harvest LLC | | Total |
Acquisition date | 12/23/2020 | | 12/14/2020 | | 11/17/2020 | | 10/20/2020 | | 10/12/2020 | | 8/10/2020 | | 6/16/2020 | | 2/26/2020 | | |
Revenue | $ | 301 | | | $ | 532 | | | $ | 3,852 | | | $ | 1,859 | | | $ | 1,245 | | | $ | 5,635 | | | $ | 2,418 | | | $ | 8,995 | | | $ | 24,837 | |
Net Income | $ | 141 | | | $ | 74 | | | $ | 736 | | | $ | 188 | | | $ | 149 | | | $ | 1,005 | | | $ | 562 | | | $ | 1,066 | | | $ | 3,921 | |
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, 2020 and 2019.
| | | | | | | | | | | | | | |
| December 31, 2020 (Unaudited) | | December 31, 2019 (Unaudited) | |
Revenue | $ | 309,486 | | | $ | 195,854 | | |
Earnings | $ | 18,308 | | | $ | 14,302 | | |
GROWGENERATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2021 and DECEMBER 31, 2020
The table below represents the allocation of the purchase price to the acquired net assets during the year ended December 31, 2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Grow World LLC | | Grand Rapids Hydro | | Green Life Garden | | Chlorophyll | | Reno Hydroponics | | Palm Springs Hydroponics | | Total |
Inventory | $ | 554 | | | $ | 1,453 | | | $ | 1,039 | | | $ | 1,441 | | | $ | 238 | | | $ | 466 | | | $ | 5,191 | |
Prepaids and other current assets | — | | | | | 14 | | | 22 | | | — | | | | | 36 | |
Furniture and equipment | 35 | | | 50 | | | 100 | | | 100 | | | 25 | | | 25 | | | 335 | |
Goodwill | 697 | | | 2,377 | | | 2,306 | | | 2,596 | | | 516 | | | 554 | | | 9,046 | |
Total | $ | 1,286 | | | $ | 3,880 | | | $ | 3,459 | | | $ | 4,159 | | | $ | 779 | | | $ | 1,045 | | | $ | 14,608 | |
The table below represents the consideration paid for the net assets acquired in business combinations.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Grow World LLC | | Grand Rapids Hydro | | Green Life Garden | | Chlorophyll | | Reno Hydroponics | | Palm Springs Hydroponics | | Total |
Cash | $ | 1,000 | | | $ | 2,350 | | | $ | 2,648 | | | $ | 3,659 | | | $ | 525 | | | $ | 800 | | | $ | 10,982 | |
Common stock | 286 | | | 1,530 | | | 811 | | | 500 | | | 254 | | | 245 | | | 3,626 | |
Total | $ | 1,286 | | | $ | 3,880 | | | $ | 3,459 | | | $ | 4,159 | | | $ | 779 | | | $ | 1,045 | | | $ | 14,608 | |
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
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Grow World LLC | | Grand Rapids Hydro | | Green Life Garden | | Chlorophyll | | Reno Hydroponics | | Palm Springs Hydroponics | | Total |
Acquisition date | 12/16/19 | | 09/03/19 | | 05/14/19 | | 01/21/19 | | 02/11/19 | | 02/07/19 | | |
Revenue | $ | 154 | | | $ | 2,413 | | | $ | 4,830 | | | $ | 6,031 | | | $ | 2,107 | | | $ | 3,075 | | | $ | 18,610 | |
Earnings | $ | 6 | | | $ | 445 | | | $ | 999 | | | $ | 937 | | | $ | 367 | | | $ | 651 | | | $ | 3,405 | |
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, 2019 (Unaudited) | December 31, 2018 (Unaudited) |
Revenue | $ | 31,300 | | $ | 59,651 | |
Earnings | $ | 4,751 | | $ | (2,088) | |
17. STOCKHOLDERS EQUITY
2020
On December 11, 2020, the Company consummated an underwritten public offering of 5,750,000 shares of its common stock (the “Shares”), which included the exercise in full of the underwriters’ option to purchase an additional
GROWGENERATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2021 and DECEMBER 31, 2020
750,000 shares of common stock to cover over-allotments. The Shares were sold at a public offering price of $30 per share, generating gross proceeds of $172.5 million, before deducting the underwriting discounts and commissions and other offering expenses. Net proceeds from the sales of common stock, net of all offering costs and expenses, was approximately $162.5 million.
On July 2, 2020, the Company consummated an underwritten public offering of 8,625,000 shares of its common stock (the “Shares”), which included the exercise in full of the underwriters’ option to purchase an additional 1,125,000 shares of common stock to cover over-allotments. The Shares were sold at a public offering price of $5.60 per share, generating gross proceeds of $48.3 million, before deducting the underwriting discounts and commissions and other offering expenses. Net proceeds from the sales of common stock, net of all offering costs and expenses, was approximately $44.6 million.
2019
On June 26, 2019, the Company completed a private placement of a total of 4,123,257 units of the Company’s securities at the price of $3.10 per unit pursuant to Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D promulgated under the Securities Act. Each unit consisted of (i) one share of common stock and (ii) one 3-year warrant, each entitling the holder to purchase one half share of common stock, at a price of $3.50 per share. The Company raised a total of $12,782,099 from 19 accredited investors.
GROWGENERATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2021 and DECEMBER 31, 2020
18. RELATED PARTIES
The Company has engaged with a firm that employs an immediate family member of an officer of the Company as partner. The firm provides certain legal services. Amounts paid to that firm in total were approximately $0.8 million for the year ended December 31, 2021. As of December 31, 2021, there was an outstanding balance of $14 thousand due.
GROWGENERATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2021 and DECEMBER 31, 2020
19. SUBSEQUENT EVENTS
The Company has evaluated events and transaction occurring subsequent to December 31, 2021 up to the date of this filing of these consolidated financial statements. These statements contain all necessary adjustments and disclosures resulting from that evaluation.
For all acquisitions subsequent to year end the Company’s initial accounting for the business combination has not been completed because the valuations have not yet been received from the Company’s independent valuation firm.
On January 31, 2022, the Company acquired Horticultural Rep Group, Inc ("HRG"). HRG is a specialty marketing and sales organization of horticultural products based in Ogden, Utah. HRG represents hundreds of product SKU's for GrowGeneration and other companies that are popular brands in the hydroponics market. In addition, HRG has participated in the sourcing of products across the horticultural and hydroponics industry. Total consideration for the purchase was $12.3 million, including $6.8 million in cash and common stock valued at approximately $5.5 million.