UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal year ended December 31, 2020
OR
☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to __________
Commission File Number 333-207889
GROWGENERATION CORP.
(Exact name of registrant as specified in its charter)
Colorado
(State or Other Jurisdiction of
Incorporation or Organization)
930 W 7th Ave, Suite A
Denver, Colorado
(Address of Principal Executive Offices)
46-5008129
(I.R.S. Employer
Identification No.)
80204
(Zip Code)
(800) 935-8420
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, par value $0.001 per share
Trading symbol
GRWG
Name of each exchange on which registered
The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act:
Title of class
Not Applicable
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ☐
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth
company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange
Act.
Large accelerated filer
Non-accelerated filer
☐
☒
Accelerated filer
Smaller reporting company
Emerging Growth Company
☐
☒
☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was
last sold, or the average bid and asked price of such common equity, as of June 30, 2020: $236,600,250.
As of March 26, the Company had 58,459,742 shares of its common stock issued and outstanding, par value $0.001 per share.
Document Incorporated by Reference
Portions of a definitive proxy relating to the registrant’s 2021 Annual Meeting of Shareholders, which will be filed with the Securities and Exchange Commission within
120 days after the close of the fiscal year covered by this Form 10-K, are incorporated into Part III of this Form 10-K.
TABLE OF CONTENTS
PART I
Item 1.
Item 1A.
Business
Risk Factors
Page
1
9
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
PART II
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
PART III
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
PART IV
Item 15.
Exhibits, Financial Statement Schedules
Signatures
i
PART I
Forward-Looking Information
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This Annual Report of GrowGeneration Corp. on Form 10-K contains forward-looking statements, particularly those identified with the words, “anticipates,” “believes,”
“expects,” “plans,” “intends,” “objectives,” and similar expressions. These statements reflect management’s best judgment based on factors known at the time of such
statements. The reader may find discussions containing such forward-looking statements in the material set forth under “Management’s Discussion and Analysis and Plan of
Operations,” generally, and specifically therein under the captions “Liquidity and Capital Resources” as well as elsewhere in this Annual Report on Form 10-K. Actual events
or results may differ materially from those discussed herein. The forward-looking statements specified in the following information have been compiled by our management on
the basis of assumptions made by management and considered by management to be reasonable. Our future operating results, however, are impossible to predict and no
representation, guaranty, or warranty is to be inferred from those forward-looking statements. The assumptions used for purposes of the forward-looking statements specified in
the following information represent estimates of future events and are subject to uncertainty as to possible changes in economic, legislative, industry, and other circumstances.
As a result, the identification and interpretation of data and other information and their use in developing and selecting assumptions from and among reasonable alternatives
require the exercise of judgment. To the extent that the assumed events do not occur, the outcome may vary substantially from anticipated or projected results, and, accordingly,
no opinion is expressed on the achievability of those forward-looking statements. No assurance can be given that any of the assumptions relating to the forward-looking
statements specified in the following information are accurate, and we assume no obligation to update any such forward-looking statements.
Unless the context otherwise requires, the terms “we”, “our”, “ours” “us” and “GrowGeneration”, refer to GrowGeneration Corp. and its subsidiaries, including
GrowGeneration Pueblo Corp, GrowGeneration California Corp., Grow Generation Nevada Corp., GrowGeneration Washington Corp., GrowGeneration Rhode Island Corp.,
GrowGeneration Michigan Corp, GrowGeneration Oklahoma Corp, GrowGeneration New England Corp, GrowGeneration Canada Corp, GrowGeneration HG Corp,
GrowGeneration Hemp Corp, GGen Distribution Corp., GrowGeneration Management Corp., GrowGeneration Florida Corp., and Charcoir, Inc. on a combined basis.
ITEM 1. BUSINESS
Background
GrowGeneration Corp. (together with all of its 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. Currently, the Company owns and operates a chain of fifty two (52) retail hydroponic/gardening
stores across 12 states, with eighteen (18) in the state of California, six (6) in the state of Michigan, eight (8) located in the state of Colorado, five (5) in the State of Oklahoma,
five (5) in Maine, two (2) in the state of Nevada, two (2) in the state of Washington, two (2) in the state of Oregon, one (1) in the state of Rhode Island, one (1) in the state of
Florida, one (1) in the state of Arizona, one (1) in the state of Massachusetts, one (1) in the state of Arizona, an online e-commerce store, GrowGeneration.com and a
commercial e-commerce platform, Agron.io. We recently announced the signing of two leases in Los Angeles and Rancho Dominguez, CA, which are our 53 rd and 54th
locations. Proprietary brands owned by the Company include Canopy Crop Management Corp, CharCoir Inc, and the Company introduced several private-label brands across
multiple product categories from LED lighting to nutrients and additives and other products for indoor cultivation.
Our plan is to continue to acquire, open and operate hydroponic/gardening stores and related businesses throughout North America.
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Markets
GrowGeneration sell 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. Hydroponics is
a specialized method of growing plants using mineral nutrient solutions in a water solvent, as opposed to soil. This method is typically used for indoor cultivation to give
growers the ability to better regulate and control nutrient delivery, light, air, water, humidity, pests, and temperature. Hydroponic growers benefit from these techniques by
producing crops faster and with higher crop yields per acre as compared to traditional soil-based growers. Indoor growing techniques and hydroponic products are being utilized
in new and emerging industries or segments, including the growing of cannabis and hemp. 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.
GrowGeneration serves a new, yet sophisticated community of commercial and urban cultivators growing specialty crops including organics, greens and plant-based medicines.
Unlike the traditional agricultural industry, these cultivators use innovative indoor and outdoor growing techniques to produce specialty crops in highly controlled environments.
This enables them to produce crops at higher yields without having to compromise quality, regardless of the season or weather and drought conditions.
Controlled-environment agriculture (CEA) is a technology-based approach to maintain optimal growing conditions throughout the development of the crop. Production takes
place within an enclosed growing structure such as a greenhouse or building. Plants are often grown using hydroponic methods in order to supply the proper amounts of water
and nutrients to the root zone. CEA optimizes the use of resources such as water, energy, space, capital and labor. Different techniques are available for growing in controlled
environment agriculture. The more viable option is vertical farming. Vertical farming has the ability to produce crops all year round in a controlled environment, with the
possibility of increased yield by adjusting the amount of carbon and nutrients the plants receive.
Our target customer segments include the commercial growers in the plant-based medicine market, the craft grower and vertical farms who grow organically grown herbs and
leafy green vegetables. The landscape for hydroponic retail stores is very fragmented, with numerous single stores which we consider “targets” for our acquisition strategy.
Further, the products we sell are in demand due to the ever-increasing legalization of plant-based medicines, primarily cannabis and hemp, and the increasing number of
licensed cultivation facilities in North America. Total sales for the hydroponic equipment industry are projected to surpass $16 billion by 2025. The Company believes there are
over 15,000 active cannabis cultivation licenses in North America. The average cultivation facility is approximately 36,000 sq. ft. and over 34,000,000 pounds of cannabis is
projected to be cultivated by 2025.
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 employ approximately 590 employees, a majority of them we have branded as “Grow Pros”. Currently, our operations span over 800,000 square feet of retail and warehouse
space.
We operate our business through the following business units:
● Retail: 52 hydroponic/gardening centers focused on serving growers and cultivators.
● Commercial: Sales to commercial customers, including large multi-state operators and cultivators.
●
E-Commerce/Omni-channel: Our e-commerce operation, includes GrowGeneration.com and Agron.io, a business-to-business (B2B) online portal for commercial
growers. GrowGeneration.com is currently adding “Buy online/Pick up in store” same day pick up service.
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● Distribution/Supply Chain: 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.
●
Proprietary Brands and Private Label: GrowGeneration sells a variety of products, including nutrients, growing media, advanced indoor and greenhouse lighting,
ventilation systems, vertical benching, environmental control systems and accessories for hydroponic gardening. Our supply chain includes thousand’s stock keeping
units (“SKUs”) across 16 product departments. Over 60% of our products are consumables, that feed the plants, generating recurring orders by our customers. Our
strategy is to supply products to two groups of customers: commercial growers and craft growers that require a local center to fulfill their daily and weekly growing
needs. We have developed a line of private label products that we are selling through our garden centers under proprietary brands we own and trademarked. Our strategy
is to deliver a one-stop shopping experience, through selection, service and solutions for our customers.
Store Acquisitions and New Store Openings
Core to our growth strategy is to expand the number of our retail garden centers throughout North America. The hydroponic retail landscape is fragmented, which allows us to
acquire the “best of breed” hydroponic operations. In addition to the 12 states we are currently operating in, we have identified new market opportunities in states that include
Ohio, Illinois, Pennsylvania, New York, New Jersey, Mississippi and Missouri. In 2020, we opened a second hydroponic/gardening center in Tulsa, Oklahoma, a 40,000 square
feet store operation and fulfillment center, and completed eight (8) acquisitions, adding 14 new locations in 2020. The Company acquired 14 new locations in the first quarter of
2021 and has an active target pipeline of acquisitions which are planned to close in 2021.
Commercial Sales Division
Our commercial division is focused on selling end to end solutions for large commercial cultivators. When a commercial customer gains a new cultivation license, they will
need to purchase lighting, benching, environmental control systems, irrigation, fertigation and other products to outfit their cultivation facility. Commercial customers typically
purchase in larger dollar amounts and sizes of products. We offer commercial customers volume pricing, terms and financing. Our commercial team manages thousands of
commercial accounts across North America. Our commercial division collectively contributed approximately $49 million in revenue for 2020 compared to approximately $17
million for 2019, a 189% year over year increase. We have identified over 15,000 active licensed growers in North America and believe there is significant room for us to
expand our base of commercial customers.
E-Commerce/Omni-Channel Division
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 offer customers the option to have their orders shipped directly to their locations, anywhere in North America or alternatively customers
can buy online and pick up in store. Revenue for 2020 was approximately $10.6 million compared to approximately $4.8 million for 2019, an increase of 123%. New visitors to
our website were 1.2 million in 2020 versus 477,000 in 2019, an increase of 152% year over year. Our online garden center closed 17,000 transactions in 2020 versus 6,300 in
2019, an increase of 170%. On March 19, 2021, the Company purchased, Agron.io. a leading wholesale agriculture portal that allows commercial growers to manage their
purchasing and logistics in one platform. Powered by proprietary ERP technology, Agron.io offers commercial pricing, real-time inventory and one of the largest product
catalog in the industry, with over 10,000 products in over 60 categories, including greenhouses, extraction, hemp, and commercial equipment. The platform manages real-time
product updates, tier-pricing changes, case quantities, pallet quantities, profit margin projections, hazmat fees, ETL/UL listings and state chemical regulations, as well as
guarantees the latest shipping rates using API Pallet.
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Supply Chain
Our supply chain currently spans 800,000 sq. ft. of retail and warehouse space, across 52 locations and 12 states. Today, we operate distribution and fulfillment out of our
60,000 sq. ft location in Sacramento, CA and 40,000 sq. ft. in Tulsa, OK. The Company announced on March,9, 2021 the addition of a total of 122,000 sq. ft., including 52,000
sq. ft. in downtown Los Angeles, CA and 70,000 sq. ft. in Rancho Dominguez, CA, that will serve as warehousing for our private-label products, distribution and fulfillment for
the Company. We are in the process of building several additional locations that will serve as fulfillment service centers, that include a 25,000 sq. ft. location in Phoenix, AZ.
and a 58,000 sq. ft. location in Medley, FL. The Company expects these locations to be open by the summer of 2021.
Proprietary Brands and Private Label
GrowGeneration purchased Canopy Crop Management Corp., in December 2020, 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. Both Power Si and Char Coir are brands
that generate over $10,000,000 in annual sales. 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, 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, and Durabreeze fans and dehumidifiers. 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 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.
Community Service and Charity
The Company has recently announced its partnership with Whole Cities Foundation. Founded by Whole Foods Market in 2014, the independent, nonprofit organization is
based in Austin, Texas, and has partnered with more than 190 community organizations in 100 cities across the U.S. to build thriving local food systems and improve health.
The first project, with Whole Cities, through its Fresh, Healthy Food Access Grant program, has been with Newark Science & Sustainability and Greater Newark Conservancy
over the past 4 years. Both organizations had identified hydroponic growing as a goal for their community plans. Each group will benefit from an equipment grant. These first
two opportunities are part of a pilot that we expect will yield learnings over the course of the year. GrowGeneration will provide equipment and expertise and partner with
Whole Cities to evaluate community impact.
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As we have built a national chain of hydroponic garden centers, it has always been our mission to give back to the local communities. In our day-to-day operations, we see the
results growing hydroponically. We could not be prouder to partner with Whole Cities to donate hydroponic equipment and supplies to their local communities to help them
with their gardens and increase the quality of their food production. Our staff of approximately 590 dedicated team members, the majority of whom are experienced in how to
grow hydroponically, are energized to lend a hand and their personal time to support Whole Cities. It is rewarding to watch a community, come together, parents and children,
and produce the largest tomatoes and produce in their community!
Further, in December 2020, the Company donated $10,000 to the Make- A- Wish Foundation to grant “a wish” to a child. The Company is an active contributor and supporter
of the Make-A-Wish Foundation.
How We Evaluate Our Operations
Sales
The Company generates sales primarily from the sale of hydroponic garden 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. 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. Customer deposits and lay away sales are not reported as
revenue until final payment is received and the merchandise has been delivered.
Our sales depend on the type of products we sell and the mix between consumables and non-consumables. Due to their nature, purchases of consumables result in repeat orders
as customers seek to replenish their supplies. In 2020, approximately 60% of our sales were consumables. Generally, in new markets where legalization of plant-based
medicines is recent and licensors are ramping up their grow operations, there are more purchases of non-consumables for buildouts compared to purchases of consumables. In
more mature markets, there are generally more purchases of consumables than non-consumables. Our sales are also impacted by our customer mix of commercial and non-
commercial customers, as larger commercial customers may receive volume discounts. More than a majority of our sales are derived from our commercial customers.
Gross Profit
We calculate gross profit as sales less cost of goods sold. Cost of goods sold consists of cost of product sold and freight. Gross profit excludes depreciation and amortization,
which are presented separately in our consolidated statement of operations.
Our overall gross profit margin varies with our product mix, in particular the percentage of sales of consumable products versus non-consumables, such as in connection with
buildouts, during a particular quarter. In addition, our customer mix impacts gross profit margin due to larger commercial customers receiving discounts.
Operating Expenses
Operating expenses are comprised of store operations, primarily payroll, rent and utilities, and corporate overhead. Corporate overhead is comprised of share-based
compensation, depreciation and amortization, general and administrative costs and corporate salaries and related expenses. General and administrative expenses (“G&A”)
consist mainly of advertising and promotions, travel & entertainment, professional fees and insurance. G&A as a percentage of sales does not increase commensurate with an
increase in sales. Our largest expenses are payroll and rent and these are largely fixed and not variable. Our advertising and marketing expenses are controllable and variable
depending on the particular market.
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Same-Store Sales
We assess the organic growth of our sales on a same-store basis. We believe that our assessment on a same-store basis represents an important indicator of comparative financial
results and provides relevant information to assess our performance. New and acquired stores become eligible for inclusion in the comparable store base if the store has been
under our ownership for the entire period in the same-store base periods for which we are including the store. For example, our same store sales for the full year 2020 and 2019
includes 21 stores that operated for the entire year. We do not include any stores that were closed or consolidated during a particular period.
Research and Development
The Company has not incurred any research and development expenses during the period covered by this report.
Customers and Suppliers
Our key customers vary by state and are expected to be more defined as the Company moves from its retail walk-in purchasing sales strategy to serving cultivation facilities
directly and under predictable purchasing activity. Currently, none of our customers accounted for more than 5% of our sales in 2020 or 2019.
Our key suppliers include several manufacturers and distributors such as Hawthorne Garden Supply, Hydrofarm, Fluence Engineering, Advanced Nutrients, House and Gardens,
FoxFarm Fertilizer, Canna, USA, and others. All the products purchased and sold are applicable to indoor and outdoor growing for organics, greens, and plant-based medicines.
As of December 31, 2020, two suppliers represented 41% of all our purchases, a decrease of 18% from 2019. The Company is of the opinion that the loss of either supplier
would not have a material adverse impact on our business. The Company maintains direct manufacturing agreements with many vendors.
Acquisitions
The Company purchased a total of 14 stores in 2020 and 14 stores through March 12, 2021. The Company also completed the acquisitions of two leading product companies,
Canopy Crop Management in December 2020 and Char Coir, on March 14, 2021.
Acquisition completed in 2021, Subsequent to year-end December 31, 2020
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 $11.3 million, including $6 million in cash and common stock valued at approximately $5.3 million.
On March 15, 2021 the Company purchased the assets of 55 Hydroponics, a hydroponic and organic superstore located in Santa Ana, CA. The total consideration for the
purchase of 55 Hydroponics was approximately $6.1 million, including $5 million in cash and common stock valued at approximately $1.1 million.
On March 15, 2021 the Company purchased the assets of Aquarius, a hydroponic and organic garden store in Springfield, MA. The total consideration for the purchase of
Aquarius was approximately $3.6 million, including $2.4 million in cash and common stock valued at approximately $1.2 million.
On March 12, 2021 the Company purchased the assets of Charcoir Corporation, who sells an RHP-certified growing medium made from the highest-grade coconut fiber. The
total consideration for the purchase of Charcoir was approximately $16.3 million, including $9.8 million in cash and common stock valued at approximately $6.5 million.
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, CA.
The total consideration for the purchase of San Diego Hydroponics was approximately $9.3 million, including $4.8 million in cash and common stock valued at approximately
$4.5 million.
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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 stores) and
Oklahoma (1 store). The total consideration for the purchase of Grow Warehouse LLC was approximately $17.8 million, including $8.1 million in cash and common stock
valued at approximately $9.7 million.
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 $1.7 million in cash and common stock valued at approximately $411,000.
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 $1.63 million, including $1.1 million in
cash and common stock valued at approximately $526,000.
Acquisitions completed in 2020
On December 23, 2020, the Company acquired the assets of Canopy Crop Management and its complete portfolio of products including the Power SI brand of momo-silicic
acid-enriched fertilizers. The total consideration for the purchase of Canopy Crop was approximately $9.2 million, including $5.4 million in cash and common stock valued at
approximately $3.8 million.
On December 14, 2020, the Company acquired the assets of Grassroots, a three-store chain in California. The total consideration for the purchase of Grassroots was
approximately $10 million, including $7.5 million in cash and common stock valued at approximately $2.5 million.
On November 17, 2020, the Company acquired the assets of The GrowBiz, a five-store chain with four stores in California and one store in Oregon. The total consideration for
the purchase of The GrowBiz was approximately $44.7 million, including $17.4 million in cash and common stock valued at approximately $27.3 million.
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 for
the purchase of BGT was approximately $9.1 million, including $6.0 in cash and common stock valued at approximately $3.1 million.
On October 12, 2020, the Company acquired the assets of Hydroponics Depot, LLC, a single store located in Phoenix Arizona. The total consideration for the purchase of
Hydroponics Depot, LLC was approximately $1.54 million, including $987,500 in cash and common stock valued at approximately $548,000.
On August 10, 2020 the Company acquired certain assets of Benzakry Family Corp, d/b/a Emerald City Garden, in a transaction valued at $1 million. Acquired goodwill of
approximately $618,000 represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company. Cash
consideration was funded from the Company’s existing working capital.
On June 16, 2020 the Company acquired certain assets of H2O Hydroponics, LLC in a transaction valued at approximately $1.99 million. Acquired goodwill of approximately
$1 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company. Cash consideration was
funded from the Company’s existing working capital.
On February 26, 2020, the Company entered into an asset purchase agreement through its wholly-owned subsidiary, GrowGeneration Florida Corp, to purchase the assets of
Healthy & Harvest, LLC, with one location in Pembroke Pines, FL. The total consideration for the purchase of Healthy Harvest was approximately $2.9 million, including $1.8
million in cash and common stock valued at approximately $1.1 million. In connection with the purchase of the assets, the Company also entered a three-year commercial lease
for warehouse space, effective February 26, 2020 and subleased the store space whose current lease expires July 31, 2021.
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Seasonality
Our business is subject to some seasonal influences. Historically, our highest volume of sales occurs in our second and third fiscal quarters, and the lower volume occurs during
our first or fourth fiscal quarter.
Competition
The markets in which we sell our products are highly competitive. Our key competitors include many local and national vendors of gardening supplies, local product resellers of
hydroponic and other specialty growing equipment, as well as online product resellers and large online marketplaces such as Amazon.com and eBay. Our industry is a highly
fragmented industry with over 1,000 retail hydroponic retailers throughout the U.S.
Notwithstanding the foregoing, we are the largest chain of hydroponic garden centers in North America and our pricing, inventory and product availability and overall customer
service, provide us with the ability to compete in our industry. In addition, as we continue to increase the number of garden centers and inventory per store, we expect to be able
to continue to purchase inventory at lower volume prices, which we expect will enable us to price competitively and deliver the products that our customers are seeking. The
Company competes by delivering the widest selection of hydroponics products, end to end solutions for all types of cultivation environments, in-store sales and product support,
direct manufacturer pricing and world-class customer service.
Intellectual Property and Proprietary Rights
Our intellectual property consists of our brands and their related trademarks, domain names and websites, customer lists and affiliations, product knowledge and technology, and
marketing intangibles. We also hold rights to website addresses related to our business including websites that are actively used in our day-to-day business such as
www.GrowGeneration.com. We own the federally registered trademark for “GrowGeneration®” “Where the Pros Go to Grow®”. In addition, we own several registered
trademarks acquired in March 2019.
Government Regulation
We sell products, including hydroponic gardening products, that end users may purchase for use in new and emerging industries or segments, including the growing of cannabis
and hemp, that may not grow or achieve market acceptance in a manner that we can predict. The demand for these products depends on the uncertain growth of these industries
or segments.
In addition, we sell products that end users may purchase for use in industries or segments, including the growing of cannabis and hemp, that are subject to varying,
inconsistent, and rapidly changing laws, regulations, administrative practices, enforcement approaches, judicial interpretations, and consumer perceptions. For example, certain
countries and 36 U.S. states have adopted frameworks that authorize, regulate, and tax the cultivation, processing, sale, and use of cannabis for medicinal and/or non-medicinal
use, while the U.S. Controlled Substances Act and the laws of other U.S. states prohibit growing cannabis. In addition, with the passage of the Farm Bill in December 2018,
hemp cultivation is now broadly permitted. The Farm Bill explicitly allows the transfer of hemp-derived products across state lines for commercial or other purposes. It also
removes restrictions on the sale, transport, or possession of hemp-derived products, so long as those items are produced in a manner consistent with the law. We believe the
recent passage of the 2018 Farm Bill will allow the Company to expand its marketplace opportunities.
Our gardening products, including our hydroponic gardening products, are multi-purpose products designed and intended for growing a wide range of plants and are purchased
by cultivators who may grow any variety of plants, including cannabis and hemp. Although the demand for our products may be negatively impacted depending on how laws,
regulations, administrative practices, enforcement approaches, judicial interpretations, and consumer perceptions develop, we cannot reasonably predict the nature of such
developments or the effect, if any, that such developments could have on our business.
8
Employees
As of December 31, 2020, we had 360 full time employees and 47 part-time employees. No employees are subject to collective bargaining agreements. As of March 19, 2021,
the Company has 590 employees.
Principal Offices
Our principal offices are located at 930 W 7th Ave, Suite A., Denver, CO 80204. Currently, we lease ten (10) facilities in the State of Colorado, twenty (20) in the State of
California, three (3) in the State of Nevada, two (2) in the State of Washington, two (2) in the State of Oregon, two (2) in the state of Arizona, one (1) in the State of Rhode
Island, six (6) in the State of Oklahoma, six (6) in the State of Michigan, five (5) in the State of Maine, three (3) in the State of Florida, all for our corporate and retail operations.
In total the Company currently leases approximately 800,000 square feet of space, which consists primarily of 9,000 feet of corporate office space, 100,000 square feet of
warehouse space and approximately 700,000 square feet of store space.
ITEM 1A. RISK FACTORS
The risks and uncertainties described below could materially and adversely affect our business, financial condition and results of operations and could cause actual results to
differ materially from our expectations and projections. You should read these Risk Factors in conjunction with “Management’s Discussion and Analysis of Financial Condition
and Results of Operations” in Item 7 and our Consolidated Financial Statements and related notes in Item 8. There also may be other factors that we cannot anticipate or that
are not described in this report generally because we do not currently perceive them to be material. Those factors could cause results to differ materially from our expectations.
The COVID-19 pandemic and the efforts to mitigate its impact may have an adverse effect on our business, liquidity, results of operations, financial condition and price of
our securities.
The pandemic involving the novel strain of coronavirus, or COVID-19, and the measures taken to combat it, may have adverse effect on our business. Public health authorities
and governments at local, national and international levels have announced various measures to respond to this pandemic. Some measures that directly or indirectly impact our
business include:
●
●
●
voluntary or mandatory quarantines;
restrictions on travel;
limiting gatherings of people in public places: and
Congestion at all ports, product delays from overseas.
Although we have been deemed an “essential” business by state and local authorities in the areas in which we operate, we have undertaken the following measures in an effort
to mitigate the spread of COVID-19 including limiting store business hours and encouraging employees to work remotely if possible. We also have enacted our business
continuity plans, including implementing procedures requiring employees working remotely where possible which may make maintaining our normal level of corporate
operations, quality controls and internal controls difficult. Moreover, the COVID-19 pandemic has caused temporary or long-term disruptions in our supply chains and/or delays
in the delivery of our inventory. Further, the COVID-19 pandemic and mitigation efforts have also adversely affected our customers’ financial condition, resulting in reduced
spending for the products we sell.
As events are rapidly changing, we do not know how long the COVID-19 pandemic and the measures that have been introduced to respond to it will disrupt our operations or
the full extent of that disruption. Further, once we are able to restart normal business hours and operations doing so may take time and will involve costs and uncertainty. We
also cannot predict how long the effects of COVID-19 and the efforts to contain it will continue to impact our business after the pandemic is under control. Governments could
take additional restrictive measures to combat the pandemic that could further impact our business or the economy in the geographies in which we operate. It is also possible
that the impact of the pandemic and response on our suppliers, customers and markets will persist for some time after governments ease their restrictions. These measures have
negatively impacted, and may continue to impact, our business and financial condition as the responses to control COVID-19 continue.
9
Economic conditions could adversely affect our business.
Uncertain global economic conditions, in particular in light of the COVID-19 pandemic, could adversely affect our business. Negative global economic trends, such as
decreased consumer and business spending, high unemployment levels and declining consumer and business confidence, pose challenges to our business and could result in
declining revenues, profitability and cash flow. Although we continue to devote significant resources to support our brands, unfavorable economic conditions may negatively
affect demand for our products.
We face competition that could prohibit us from developing or increasing our customer base.
The specialty gardening and hydroponic product industry is highly competitive. More established gardening companies with much greater financial resources which do not
currently compete with us may be able to easily adapt their existing operations to sales of hydroponic growing equipment. Our competitors may also introduce new hydroponic
growing equipment, and manufacturers may sell equipment direct to consumers. Due to this competition, there is no assurance that we will not encounter difficulties in
increasing revenues and maintaining and/or increasing market share. In addition, increased competition may lead to reduced prices and/or margins for products we sell.
Our business depends substantially on the continuing efforts of our executive officers and our business may be severely disrupted if we lose their services.
Our future success depends substantially on the continued services of our executive officers, especially our Chief Executive Officer, Darren Lampert, our President, Michael
Salaman, and our Chief Operating Officer, Tony Sullivan. We do not maintain key man life insurance on any of our executive officers and directors. If one or more of our
executive officers are unable or unwilling to continue in their present positions, we may not be able to replace them readily, if at all. Therefore, our business may be severely
disrupted, and we may incur additional expenses to recruit and retain new officers.
Litigation may adversely affect our business, financial condition and results of operations.
From time to time in the normal course of our business operations, we may become subject to litigation that may result in liability material to our financial statements as a whole
or may negatively affect our operating results if changes to our business operation are required. The cost to defend such litigation may be significant and may require a
diversion of our resources. There also may be adverse publicity associated with litigation that could negatively affect customer perception of our business, regardless of whether
the allegations are valid or whether we are ultimately found liable. As a result, litigation may adversely affect our business, financial condition and results of operations.
Certain of our products may be purchased for use in new and emerging industries or segments and/or be subject to varying, inconsistent, and rapidly changing laws,
regulations, administrative practices, enforcement approaches, judicial interpretations, and consumer perceptions.
We sell hydroponic gardening products that end users may purchase for use in new and emerging industries or segments, including the growing of cannabis, that may not grow
or achieve market acceptance in a manner that we can predict. The demand for these products depends on the uncertain growth of these industries or segments.
In addition, we sell products that end users may purchase for use in industries or segments, including the growing of cannabis, that are subject to varying, inconsistent, and
rapidly changing laws, regulations, administrative practices, enforcement approaches, judicial interpretations, and consumer perceptions. For example, certain countries and 34
U.S. states have adopted frameworks that authorize, regulate, and tax the cultivation, processing, sale, and use of cannabis for medicinal and/or non-medicinal use, while the
U.S. Controlled Substances Act and the laws of other U.S. states prohibit growing cannabis.
10
Our hydroponic gardening products are multi-purpose products designed and intended for growing a wide range of plants and are generally purchased from retailers by end
users who may grow any variety of plants, including cannabis. Although the demand for our products may be negatively impacted depending on how laws, regulations,
administrative practices, enforcement approaches, judicial interpretations, and consumer perceptions develop, we cannot reasonably predict the nature of such developments or
the effect, if any, that such developments could have on our business.
Acquisitions, other strategic alliances and investments could result in operating difficulties, dilution, and other harmful consequences that may adversely impact our
business and results of operations.
Acquisitions are an important element of our overall corporate strategy and use of capital, and these transactions could be material to our financial condition and results of
operations. We expect to continue to evaluate and enter into discussions regarding a wide array of potential acquisitions and strategic transactions. The areas where we may face
risks in connection with acquisitions include, but are not limited to, the failure to successfully further develop the acquired business, the implementation or remediation of
controls, procedures and policies at the acquired business, the transition of operations, users and customers onto our existing platforms, and cultural challenges associated with
integrating employees from the acquired business into our organization, and retention of employees from the businesses we acquire. Our failure to address these risks or other
problems encountered in connection with our acquisitions could cause us to fail to realize the anticipated benefits of such acquisitions, investments or alliances, incur
unanticipated liabilities, and harm our business generally.
Our acquisitions could also result in dilutive issuances of our equity securities, the incurrence of debt, contingent liabilities or amortization expenses, or impairment of goodwill
and purchased long-lived assets, and restructuring charges, any of which could harm our financial condition or results of operations and cash flows. Also, the anticipated
benefits and synergies of many of our acquisitions may not materialize.
If product liability lawsuits are brought against us, we may incur substantial liabilities.
We face a potential risk of product liability as a result of any of the products that we offer for sale. For example, we may be sued if any product we sell allegedly causes injury
or is found to be otherwise unsuitable during product testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in
manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability and a breach of warranties. Claims could also be asserted under
state consumer protection acts. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities. Even successful defense would
require significant financial and management resources. Regardless of the merits or eventual outcome, liability claims may result in:
●
●
●
●
●
●
●
decreased demand for products that we may offer for sale;
injury to our reputation;
costs to defend the related litigation;
a diversion of management’s time and our resources;
substantial monetary awards to trial participants or patients;
product recalls, withdrawals or labeling, marketing or promotional restrictions; and
a decline in our stock price.
We do not maintain any product liability insurance. Our inability to obtain and retain sufficient product liability insurance at an acceptable cost to protect against potential
product liability claims could prevent or inhibit the commercialization of products we developed. Even if we obtain product liability insurance in the future, we may have to pay
amounts awarded by a court or negotiated in a settlement that exceed our coverage limitations or that are not covered by our insurance, and we may not have, or be able to
obtain, sufficient capital to pay such amounts.
11
We may acquire businesses or products, or form strategic alliances, in the future, and we may not realize the benefits of such acquisitions.
We may acquire additional businesses or products, form strategic alliances or create joint ventures with third parties that we believe will complement or augment our existing
business. If we acquire businesses with promising markets or products, we may not be able to realize the benefit of acquiring such businesses if we are unable to successfully
integrate them with our existing operations and company culture. We may encounter numerous difficulties in developing, manufacturing and/or marketing any new products
resulting from a strategic alliance or acquisition that delay or prevent us from realizing their expected benefits or enhancing our business. We cannot assure you that, following
any such acquisition, we will achieve the expected synergies to justify the transaction.
Risks Related to Our Common Stock
There are risks, including stock market volatility, inherent in owning our common stock.
The market price and volume of our common stock have been, and may continue to be, subject to significant fluctuations. These fluctuations may arise from general stock
market conditions, the impact of risk factors described herein on our results of operations and financial position, or a change in opinion in the market regarding our business
prospects or other factors, many of which may be outside our immediate control.
The shares of our common stock may experience substantial dilution by exercises of outstanding warrants and options.
As of the date hereof, we had outstanding warrants to purchase an aggregate of 1,393,472 shares of our common stock at a weighted average exercise price of $7.49 per share,
and options to purchase an aggregate of 1,803,108 shares of our common stock (out of which 1,057,734 are vested as of this date) at a weighted average exercise prices of $3.92
per share. The exercise of such outstanding options and warrants will result in substantial dilution of your investment. In addition, our shareholders may experience additional
dilution if we issue common stock in the future. Any of such dilution may have adverse effect on the price of our common stock.
We are an “emerging growth company,” and will be able take advantage of reduced disclosure requirements applicable to “emerging growth companies,” which could
make our common stock less attractive to investors.
We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or JOBS Act, and, for as long as we continue to be an “emerging growth
company,” we intend to take advantage of certain exemptions from various reporting requirements applicable to other public companies but not to “emerging growth
companies,” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure
obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on
executive compensation and stockholder approval of any golden parachute payments not previously approved. We could be an “emerging growth company” for up to five years,
or until the earliest of (i) the last day of the first fiscal year in which our annual gross revenues exceed $1 billion, (ii) the date that we become a “large accelerated filer” as
defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last
business day of our most recently completed second fiscal quarter, or (iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding
three year period.
For as long as we remain an “emerging growth company” as defined in the JOBS Act, we intend to take advantage of certain exemptions from various reporting requirements
that are applicable to other public companies that are not “emerging growth companies.”
12
Additionally, we are a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced
disclosure obligations, including, among other things, providing only two years of audited financial statements. We will remain a smaller reporting company until the last day of
the fiscal year in which (1) the market value of our ordinary shares held by non-affiliates exceeds $250 million as of the prior June 30, or (2) our annual revenues exceeded $100
million during such completed fiscal year and the market value of our ordinary shares held by non-affiliates exceeds $700 million as of the prior June 30. To the extent we take
advantage of such reduced disclosure obligations, it may also make comparison of our financial statements with other public companies difficult or impossible.
After we are no longer an “emerging growth company,” we expect to incur additional management time and cost to comply with the more stringent reporting requirements
applicable to companies that are deemed accelerated filers or large accelerated filers, including complying with the auditor attestation requirements of Section 404 of the
Sarbanes-Oxley Act. We cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Description of Property
Our principal offices are located at 930 W 7th Ave, Suite A., Denver, CO 80204. Currently, we lease ten (10) facilities in the State of Colorado, twenty (20) in the State of
California, three (3) in the State of Nevada, two (2) in the State of Washington, two (2) in the State of Oregon, two (2) in the state of Arizona, one (1) in the State of Rhode
Island, five (5) in the State of Oklahoma, six (6) in the State of Michigan, five (5) in the State of Maine, three (3) in the State of Florida, all for our corporate and retail
operations. In total the Company currently leases approximately 800,000 square feet of space, which consists primarily of 9,000 feet of corporate office space, 100,000 square
feet of warehouse space and 691,000 square feet of store space. The Company also owns a 10,000 square foot store in Battle Creek, MI acquired in 2020.
Colorado
California
Nevada
Washington
Rhode Island
Michigan
Maine
Oklahoma
Arizona
Oregon
Florida
ITEM 3. LEGAL PROCEEDINGS
Number of Locations
10
20
3
2
1
6
5
5
2
2
3
Square feet
3,000-13,000
3,300-70,000
5,000-8,800
2,000-8000
9,000
5,300-22,700
4,000-8,500
5,000-40,700
7,000-25,400
8,000 - 15,000
5,000 – 59000
Lease Expiration Dates
January 2022 to April 2026
Jan 2022 to June 2031
Nov 2021-February 2022
Jan 2022 – Aug 2022
January 2023
March 2023 to October 2030
February 2023 to June 2024
September 2023 to February 2026
April 2021 to May 2031
Aug 2024 to Dec 2026
July 2020 to June 2031
There are no current, past, pending or threatened legal proceedings or administrative actions either by or against the issuer that could have a material effect on the issuer’s
business, financial condition, or operations.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
13
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES
MARKET INFORMATION
The Company commenced trading on the Nasdaq Capital Market on December 2, 2019 under the symbol “GRWG”. Prior to that date, our stock traded on the OTCQX Best
Market since October 10, 2017, prior to which it was traded on the OTCQB Market since November 11, 2016.
The following table sets forth, for each quarter for the years ended December 31, 2020 and 2019, the reported high and low bid prices of our Common Stock.
Quarter Ended
December 31, 2020
September 30, 2020
June 30, 2020
March 31, 2020
December 31, 2019
September 30, 2019
High Bid
Low Bid
$
$
$
$
$
$
43.14 $
22.88 $
7.81 $
6.78 $
5.06 $
5.75 $
14.52
6.47
3.06
2.62
3.45
3.10
June 30, 2019
March 31, 2019
$
$
3.79 $
3.62 $
2.53
2.18
Future sales of substantial amounts of our shares in the public market could adversely affect market prices prevailing from time to time and could impair our ability to raise
capital through the sale of our equity securities.
HOLDERS
The approximate number of stockholders of record as of March 24, 2021 was 114. The number of stockholders of record does not include beneficial owners of our Common
Stock, whose shares are held in the names of various dealers, clearing agencies, banks, brokers and other fiduciaries.
DIVIDEND POLICY
We have never paid any cash dividends on our Common Stock. We anticipate that we will retain funds and future earnings to support operations and to finance the growth and
development of our business. Therefore, we do not expect to pay cash dividends in the foreseeable future. Any future determination to pay dividends will be at the discretion of
our board of directors and will depend on our financial condition, results of operations, capital requirements and other factors that our board of directors deems relevant. In
addition, the terms of any future debt or credit financings may preclude us from paying dividends.
RECENT SALES OF UNREGISTERED SECURITIES
2019 Private Placement
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.
14
2018 Private Placement
On January 17, 2018, the Company completed a private placement of a total of 36 units of its securities at the price of $250,000 per unit. Each unit consists 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 Common Stock, at a price
of $.01 per share or through cashless exercise. The Company raised gross proceeds of $9,000,000 from 23 accredited investors in the offering.
On May 9, 2018, the Company completed a private placement of a total of 33.33 units of its securities at a price of $300,000 per unit to 3 accredited investors. Each unit
consists of (i) 100,000 share of the Company’s Common Stock and (ii) 50,000 3-year warrant to purchase one share of Common Stock at an exercise price of $.35 per share.
The Company raised an aggregate of $10,000,000 gross proceeds in the offering.
Stock Options and Stock Awards
The Company has a 2014 Equity Compensation Plan (the “2014 Plan”) and an Amended and Restated 2018 Equity Compensation Plan (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.
From inception to December 31, 2020, we have granted stock options under our 2014 Plan to purchase an aggregate of 2,113,833 shares at exercise prices ranging from $0.60
to $5.11 per share. Of the total options granted as of December 31, 2020, 2,058,833 have been exercised and 5,000 have been forfeited, resulting in 50,000 options outstanding.
In addition, as of December 31, 2020, 375,000 stock awards have been issued under our 2014 Plan.
From inception to December 31, 2020, we have granted stock options under our 2018 Plan to purchase an aggregate of 1,963,000 shares at exercise prices ranging from $2.25
to $17.39 per share. As of December 31, 2020, 438,895 options have been exercised and 37,667 forfeited under the 2018 Plan. In addition, as of December 31, 2020, 1,112,979
stock awards have been issued under our 2018 Plan.
ITEM 6. SELECTED FINANCIAL DATA
Not applicable.
15
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 financial 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 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 and
www.agron.io, Canopy Crop Management Corp, CharCoir Inc, and several proprietary private-label brands across multiple product categories from LED lighting to nutrients
and additives and environmental control systems for indoor cultivation.
2020 Store Footprint
Currently, the Company owns and operates a chain of fifty two (52) retail hydroponic/gardening stores, with eighteen (18) in the state of California, six (6) in the state of
Michigan, eight (8) located in the state of Colorado, five (5) in the State of Oklahoma, five (5) in Maine, two (2) in the state of Nevada, two (2) in the state of Washington, two
(2) in the state of Oregon, one (1) in the state of Rhode Island, one (1) in the state of Florida, one (1) in the state of Arizona, one (1) in the state of Massachusetts, an online e-
commerce store, GrowGeneration.com and a B2B e-commerce platform, agron.io We recently announced the signing of two leases in downtown Los Angeles and Rancho
Dominguez, CA, which are our 53rd and 54th locations. Our plan is to continue to acquire, open and operate hydroponic/gardening stores and related businesses throughout
North America. Revenue in 2020 was up 142.5% year over year, to $193.4 million. Adjusted EBITDA, for 2020 was approximately $19.2 million an increase of approximately
$13.9 million over 2019, a 265% increase. We saw significant revenue increases in all key markets, Maine was up 144%, Oklahoma was up 255%, Michigan was up 243%, and
Rhode Island was up 150%. Same store revenues include 13 stores that generated $72.3 million in revenues for the year ended December 31, 2020, compared to $44.3 million
in revenues for 2019, an increase of 63%.
Store Acquisitions and New Store Openings
Core to our growth strategy is to expand the number of our retail garden centers throughout North America. The hydroponic retail landscape is fragmented, which allows us to
acquire the “best of breed” hydroponic operations. In addition to the 12 states we are currently operating, we have identified new market opportunities in states that include
Ohio, Illinois, Pennsylvania, New York, New Jersey, Mississippi and Missouri. In 2020, we opened a second hydroponic/gardening center in Tulsa, Oklahoma, a 40,000 square
feet store operation and fulfillment center, and completed eight (8) acquisitions, adding 14 locations in 2020. To-date, the Company has acquired 14 new locations in the first
quarter of 2021 and has an active target pipeline of acquisitions for the remainder of the year.
Commercial Sales Division
Our commercial division is focused on selling end-to-end solutions for large commercial cultivators. When a commercial customer gains a new cultivation license, they will
need to purchase lighting, benching, environmental control systems, irrigation, fertigation and other products to outfit their cultivation facility. Commercial customers typically
purchase larger amounts and sizes of products. We offer commercial customers volume pricing, terms and financing. Our commercial team manages thousands of commercial
accounts across North America. Our commercial division collectively contributed approximately $49 million in revenue for 2020 compared to approximately $17 million for
2019, a 189% year over year increase. We have identified over 15,000 active licensed growers in North America and believe there is significant room for us to expand our base
of commercial customers.
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E-Commerce/Omni Channel Division
Our digital strategy is focused on capturing the home, craft and commercial growers online. GrowGeneration.com offers over 10,000 hydroponic products all curated by our
product team. GrowGeneration.com offer customers the option to have their orders shipped directly to their locations, anywhere in North America or alternatively customers
can buy online and pick up in store. Revenues for 2020 was approximately $10.6 million compared to $4.8 million for 2019, an increase of 123%. New visitors to our website
were 1.2 million versus 477,000, an increase of 152% year over year. Our online garden center closed 17,000 transaction versus 6,300, an increase of 170%. On March 19,
2021, the Company purchased the business-to-business ERP platform, Agron.io. a leading wholesale agriculture portal that allows commercial growers to manage their
purchasing and logistics in one platform. Agron.io offers commercial pricing, real-time inventory, and the largest product catalog in the industry, with over 10,000 products in
over 60 categories, including greenhouses, extraction, hemp, and commercial equipment. The platform manages real-time product updates, tier-pricing changes, case quantities,
pallet quantities, profit margin projections, hazmat fees, ETL/UL listings and state chemical regulations, as well as guarantees the latest shipping rates using API Pallet.
Supply Chain
Our supply chain currently spans approximately 800,000 sq. ft. of retail and warehouse space, across 52 locations and 12 states. Today, we operate distribution and fulfillment
out of our 60,000 sq. ft location in Sacramento, CA and 40,000 sq. ft. in Tulsa, OK. We announced on March 9, 2021, the addition of a total of 122,000 sq. ft., including 52,000
sq. ft. in downtown Los Angeles, CA and 70,000 sq. ft. in Rancho Dominguez, CA that will serve as distribution and fulfillment locations for the Company. We are in the
process of building several additional locations that will serve as fulfillment service centers, that includes a 25,000 sq. ft. location in Phoenix, AZ. and a 58,000 sq. ft. location in
Medley, FL. We expect these locations to be opened by the summer of 2021.
Proprietary Brands and Private Label
GrowGeneration purchased Canopy Crop Management Corp., in December 2020, the developer of the popular Power Si line of monosilicic acids products, a nutrient additive
for plants On March 12, 2021, the Company purchased Char Coir, a line of premium coco pots, cubes and medium. Both Power Si and Char Coir are brands that generate over
$10,000,000 in annual sales. 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, trade names and service marks in our private- label business, including Ion Lighting, Sunleaves, powder nutrient and additive line, Optilume Bulbs, Blueprint
controllers and timers, Growxcess pots and containers, Harvest Edge, pruners, trellis and other gardening accessories, and Durabreeze fans and dehumidifiers. Both
GrowGeneration and Where the Pros Go to Grow are the trademarks used brand and market our garden centers across North America.
2020 Financial Results
Revenue in 2020 was up 142.5% year over year, to $193.4 million. Adjusted EBITDA, for 2020 was approximately $19.2 million an increase of approximately $13.9 million or
265% over 2019. Adjusted EBITDA per basic share, for 2020 was $0.44 compared to $0.16 for 2019. Our same store sales were up approximately 63% year over year. Store
income as a percentage of revenue increased from 14.9% of revenues in 2019 to 16.7 % of revenues in 2020. Income from store operations increased $20.4 million, from $11.9
million in 2019 to $32.3 million in 2020. We saw significant revenue increases in all key markets, Maine up 144%, Oklahoma up 255%, Michigan up 243%, and Rhode Island
up 150%. Our e-commerce store, GrowGeneration.com had revenues of approximately $10.6 million in 2020 up 123% from 2019. Our commercial division generated
approximately $49 million in revenue all of which is reflected in store revenues versus $17 million in 2019, an increase of 188%. With our significant top line revenue growth,
we reduced our store operating expenses to 9.7% of revenues in 2020 compared to 12.7% in 2019 and our corporate overhead, excluding non-cash share-based compensation
and depreciation, declined to 7% as a percentage of our revenue for 2020 compared to 8.5% of revenues for 2019.
Acquisitions
The Company purchased a total of 14 stores in 2020 and 12 stores in 2021, as of March 19, 2021. The Company also completed the acquisitions of two leading product
companies, Canopy Crop Management in December 2020 and Char Coir in March 2021.
On February 26, 2020, the Company entered into an asset purchase agreement through its wholly owned subsidiary, GrowGeneration Florida Corp, to purchase the assets of
Healthy & Harvest, LLC, with one location in Pembroke Pines, FL. In connection with the purchase of the assets, the Company also entered a three-year commercial lease for
warehouse space, effective February 26, 2020 and subleased the store space whose current lease expires July 31, 2020.
On June 16, 2020 we acquired certain assets of H2O Hydroponics, LLC in a transaction valued at approximately $1.99 million. Acquired intangibles and goodwill of
approximately $1.4 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company. Cash
consideration was funded from the Company’s existing working capital.
17
On August 10, 2020 we acquired certain assets of Benzakry Family Corp, d/b/a Emerald City Garden, in a transaction valued at $1 million. Acquired intangibles and goodwill
of approximately $840,000 represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company. Cash
consideration was funded from the Company’s existing working capital.
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 for the
purchase of BGT was approximately $9.1 million, including $6.0 in cash and common stock valued at approximately $3.1 million.
On October 12, 2020, the Company acquired the assets of Hydroponics Depot, LLC, a single store located in Phoenix Arizona. The total consideration for the purchase of
Hydroponics Depots LLC was approximately $1.54 million, including $987,500 in cash and common stock valued at approximately $548,000.
On November 17, 2020, the Company acquired the assets of The GrowBiz, a five-store chain with four stores in California and one store in Oregon. The total consideration for
the purchase of The GrowBiz was approximately $44.7 million, including $17.4 million in cash and common stock valued at approximately $27.3 million.
On December 14, 2020, the Company acquired the assets of Grassroots, a three-store chain in California. The total consideration for the purchase of Grassroots was
approximately $10 million, including $7.5 million in cash and common stock valued at approximately $2.5 million.
On December 23, 2020, the Company acquired the assets of Canopy Crop Management and its complete portfolio of products including the Power SI brand of mono-silicic
acid-enriched fertilizers. The total consideration for the purchase of Canopy Crop was approximately $9.2 million, including $5.4 million in cash and common stock valued at
approximately $3.8 million.
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 $1.63 million, including $1.1 million in
cash and common stock valued at approximately $526,000.
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 $1.7 million in cash and common stock valued at approximately $411,000.
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 $8.1 million in cash and common stock valued at
approximately $9.7 million.
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, CA.
The total consideration for the purchase of San Diego Hydroponics was approximately $9.3 million, including $4.8 million in cash and common stock valued at approximately
$4.5 million.
On March 12, 2021 the Company purchased the assets of Charcoir Corporation, who sells an RHP-certified growing medium made from the highest-grade coconut fiber. The
total consideration for the purchase of Charcoir was approximately $16.3 million, including $9.8 million in cash and common stock valued at approximately $6.5 million.
On March 15, 2021 the Company purchased the assets of 55 Hydroponics, a hydroponic and organic superstore located in Santa Ana, CA. The total consideration for the
purchase of 55 Hydroponics was approximately $6.1 million, including $5 million in cash and common stock valued at approximately $1.1 million.
18
On March 15, 2021 the Company purchased the assets of Aquarius, a hydroponic and organic garden store in Springfield, MA. The total consideration for the purchase of
Aquarius was approximately $3.6 million, including $2.4 million in cash and common stock valued at approximately $1.2 million.
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 $11.3 million, including $6 million in cash and common stock valued at approximately $5.3 million.
CONDENSED RESULTS OF OPERATIONS
Sales
Cost of Sales
Gross profit
Operating expenses
Income from operations
Other income (expense)
Pre-tax net income
Income taxes
Net income
Revenue
For the Year Ended
December 31,
2020
2019
Year to Year Comparison
Increase/
(decrease)
Percentage
Change
$
$
$
193,365,479 $
142,317,178
51,048,301
42,610,712
8,437,589
141,680
8,579,269 $
(3,250,891)
5,328,378 $
79,733,568 $
57,728,683
22,004,885
20,421,726
1,583,159
(261,317)
1,321,842 $
-
1,321,842
113,631,911
84,588,495
29,043,416
22,188,986
6,854,430
402,997
7,257,427
(3,250,891)
4,006,536
142.5%
146.5%
132.0%
108.7%
433.0%
549.0%
303.1%
Net revenues for the year ended December 31, 2020 were approximately $193.4 million, compared to approximately $79.7 million for the year ended December 31, 2019, an
increase of approximately $113.6 million, or 142.5%. The increase in revenues is due to 1) the addition of 14 new retail stores opened or acquired during 2020 for which
revenues were $31 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 increase 63% comparing 2020 to 2019, which had an increase in revenues of approximately $28 million, 4) an increase in our ecommerce sales of $5.9
million from 2019 to 2020 and 5) revenues of $300,000 from Canopy Crop Management Corp/Power SI, acquired in later December 2020.
While the Company continues to focus on the 11 geographic markets noted below and the growth opportunities that exist in each market, we also are focusing on new store
acquisitions, proprietary products, private label products, and developing our online revenues with GrowGeneration.com and Amazon revenues.
Colorado market
California market
Rhode Island market
Michigan market
Maine market
Nevada market
Washington market
Oklahoma market
Florida market
Oregon market
Arizona market
E-commerce site
Distribution
Hemp market
Closed/consolidated locations
Total revenues
19
Revenue by Market
Year Ended
December 31,
2020
19,642,710 $
26,791,509
20,970,993
31,834,740
15,159,115
4,950,223
1,545,641
41,837,827
8,994,926
8,237,695
2,418,102
10,629,045
300,459
-
52,494
193,365,479 $
Year Ended
December 31,
2019
15,446,094 $
15,409,573
8,395,123
9,268,460
6,203,649
4,360,012
1,283,169
11,793,303
-
153,856
-
4,763,738
-
1,583,176
1,073,415
79,733,568 $
$
$
Variance
% Variance
4,196,616
11,381,936
12,575,870
22,566,280
8,955,466
590,211
262,472
30,044,524
8,994,926
8,083,839
2,418,102
5,865,307
300,549
(1,583,176)
(1,020,921)
113,631,911
27.2%
73.9%
149.8%
243.5%
144.4%
13.5%
20.5%
254.8%
-
5454.2%
-
123.1%
-
-
95.1%
142.5%
Overall revenues in the Colorado market increased approximately $4.2 million or 27%, as noted above, comparing the year ended December 31, 2020 to the year ended
December 31, 2019. The increase in revenues was due to our continued focus on selling efforts in building growth in this market primarily the commercial market.
Our revenues in the California market have seen growth of approximately $11.4 million or 74% and the increase was primarily from 1) the addition of 8 new stores through
acquisitions during 2020 that contributed $5 million in revenues, 2) 3 stores that comprise same store sales that had an increase in revenues of $4.4 million and 3) 1 store
acquired in 2019 that had an increase in revenues of $2 million. The California market is the largest market in the US and is a continuous focus of the Company relative to its
growth strategy.
Revenues in the Rhode Island market increased approximately $12.6 million or 150%. The primary reason for the increase in revenues in the Rhode Island market was primarily
due to an increase in commercial sales with new regional and multi-state commercial customers.
Revenues in the Michigan market increased approximately $22.6 million or 244%. The increase was primarily from 1) increase in same store sales of $4.6 million, 2) two new
stores acquired in 2020, that had revenues of $1.9 million, 3) one acquisition in the third quarter of 2019 that resulted in an increase in revenues of $9.7 million and 4) an
acquisition of a new store in Lansing in 2020 that was consolidated with an existing store in Lansing that had an increase in revenues of $6.4 million.
Revenues in the Maine market increased approximately $8.9 million or 144%. Maine was a new market in 2019 as a result of a new store opening in February 2019 and the
acquisition of two stores in May 2019. 2020 represented a full year of revenues for the three stores.
Our revenues in the Nevada market increased by approximately $590,000 or 13.5%, with the increase pretty evenly split between or Las Vegas and Reno stores.
Revenues in the Washington market increased $262,000 or 21%, as the Company continues to focus on adding commercial customers in this market.
20
The Company opened its first store in Oklahoma in October 2018, followed by new store openings in February 2019, November 2019 and March 2021. Oklahoma has been a
significant new market for the Company contributing sales of $41.8 million in 2020 compared to $11.8 million for 2019, an increase for $30 million or 255%. The Company
has a very strong presence in this market and has generated strong sales in both commercial and non-commercial customers.
Florida was a new market for us in 2020 as a result of an acquisition in that market in February 2020. Revenues were approximately $9 million for 2020. The market serves a
large number of commercial customers.
Revenues in the Oregon market were $8.2 million in 2020 compared to $154,000 in 2019. Oregon was a new market with an acquisition in late December 2019, and an
additional acquisition in November 2020.
Arizona was also a new market for the Company in 2020, with an acquisition in October 2020. Revenues were $2.4 million, and we service both commercial and retail
customers from this location.
The ecommerce revenues generated for GrowGeneration.com had an increase in revenue in 2020 of approximately $5.9 million or 123% from $4.8 million in 2019 to $10.6
million in 2020. The ecommerce growth is a result of marketing driving a significant number of new customers to the website.
Same Store Sales
The Company had the same 13 stores (4 in Colorado, 3 in California, 2 in Michigan, 1 in Washington, 1 in Oklahoma, 1 in Rhode Island and 1 in Nevada) opened for the entire
year ended December 31, 2020 and 2019. These same stores generated $72.3 million in revenues for the year ended December 31, 2020, compared to $44.3 million in revenues
for 2019, an increase of 63%. The increase in revenues in these 13 same store sales was primarily an increase in commercial sales and from an increase in walk in traffic.
Net revenue
13 Same Stores
Year ended
December 31,
2020
72,262,535
Year ended
December 31,
2019
44,311,920 $
$
$
Variance
27,950,615
Cost of Sales
Cost of sales for the year ended December 31, 2020 increased approximately $84.6 million or 146.5%, to approximately $142.3 million, compared to $57.7 million for 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 $51 million for the year ended December 31, 2020, as compared to $22 million for the year ended December 31, 2019, an increase of approximately $29
million or 132%. 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. The
decrease in the gross profit margin percentage in 2020 was due to a greater percentage of commercial and ecommerce revenues as a percent of total revenue both of which have
lower margins than in retail sales. Commercial and ecommerce represented 31% of all revenues for the year ended December 31, 2020 compared to 28% for the year ended
December 31, 2019.
21
Operating Expenses
Operating expenses are comprised of store operations, primarily payroll, rent and utilities, and corporate overhead. Store operating costs were approximately $18.7 million for
the year ended December 31, 2020 and approximately $10.1 million for the year ended December 31, 2019, an increase of approximately $8.6 million or 85%. 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, a 24% reduction. 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.
Corporate overhead, comprised of general and administrative costs, share based compensation, depreciation and amortization and corporate salaries, was approximately $23.9
million for the year ended December 31, 2020, compared to approximately $10.3 million for the year ended December 31, 2019. Corporate overhead was 12.4% of revenue for
the year ended December 31, 2020 and 13% for the year ended December 31, 2019. Corporate overhead, excluding non-cash share-based compensation and depreciation and
amortization, was 7.0% of revenues compared to 8.5% 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 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 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.
22
Net Income
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 million. Net income for 2020 compared to 2019 was primarily impacted by a 142.5% increase in revenues, offset slightly by an increase in cost of goods
sold of 147%. 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. Store income as a percentage
of revenue increased from 14.9% of revenues in 2019 to 16.7 % of revenues in 2020. Income from store operations increased $20.4 million, from $11.9 million in 2019 to $32.3
million in 2020. Corporate overhead, including non-cash costs, increased $13.6 million from $10.3 million in 2019 to $23.9 million in 2020. In addition, net income was
impacted by the provision for income taxes which was $3.3 million for 2020 compared to $0 for 2019. The Company had significant net operating loss carryforwards which
offset taxable income in 2019 thus resulting in no provision for income taxes.
CONDENSED Q4 2020 AND Q4 2019 RESULTS OF OPERATIONS
Sales
Cost of Sales
Gross profit
Operating expenses
Income (loss) from operations
Other income (expense)
For the Quarter Ended
December 31,
2020
2019
Year to Year Comparison
Increase/
(decrease)
Percentage
Change
$
61,924,659 $
45,978,711
15,945,948
13,303,502
25,384,476 $
19,338,013
5,996,463
7,068,866
36,540,183
26,590,698
9,949,485
6,234,636
2,642,446
163,952
(1,072,403)
53,125
3,714,849
110,827
144%
137%
166%
88%
346%
Pre-tax net income
Income taxes
Net income
Adjusted EBITDA
Adjusted EBITDA per share, basic
$
$
$
$
2,806,398 $
(1,295,778)
1,510,620 $
(1,019,278) $
-
(1,019,278)
3,825,676
(1,295,7789)
2,529,898
5,604,131 $
.11 $
910,662 $
.02 $
4,693,469
.09
375%
248%
515%
450%
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, both store operating costs and corporate overhead decreased substantially as a percentage of revenue. Store operating costs were 10% 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 -4% 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 $5.6 million for Q4 2020 compared to $911,000 for Q4 2019, an increase of 515%
23
Cash Flow
Net cash used in operating activities for the year ended December 31, 2020 was approximately $214,000, 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 adjustment totaled approximately $11.1 million and approximately $4.4 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 million, offset by increases in trade accounts payable of $10 million,
customer deposits of $2.6 million and other current liabilities of $3.3 million. Despite net income of $1.3 million for the year ended December 31, 2019 and non-cash
adjustments totaling $4.4 million, these positive adjustments were offset by increases in inventory of $10 million, increases in trade receivable of $3.8 million and increases in
prepaids and other current assets of $2.1 million, offset by increases in trade accounts payable of $4.2 million, customer deposits of $2 million and other current liabilities of
$495,000.
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
$40.8 million and the purchase of vehicles and store equipment to support new store operations of approximately $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 the purchase of vehicles and store equipment to support new store operations of
approximately $2.2 million.
Net cash provided by financing activities for the year ended December 31, 2020 was approximately $211 million and represented proceeds from the sale of Common Stock and
exercise of warrants, net of offering costs of $211.2 million, offset by payments of long-term debt of approximately $114,400 and stock redemptions of approximately
$118,800. 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, net of offering costs of $13.9 million, net of payments of long-term debt of $460,000.
24
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.
As previously note, the Company has not been materially impacted by COVID, as such EBITDA has been adjusted to show the impact of covid costs which we believe to be
non-recurring.
Set forth below is a reconciliation of Adjusted EBITDA to net income (loss):
Net Income
Income taxes
Interest
Depreciation and Amortization
EBITDA
COVID costs
Share based compensation (option compensation, warrant compensation, stock issued for services)
Adjusted EBITDA
Adjusted EBITDA per share, basic
Year ended
December 31,
2020
December 31,
2019
$
$
$
5,328,378 $
3,250,891
14,053
2,435,965
11,029,287
293,152
7,856,163
1,321,842
-
401,497
1,044,553
2,767,892
-
2,490,535
19,178,602 $
5,258,427
.44 $
.16
Adjusted EBITDA per share, diluted
$
.41 $
.16
25
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2020, we had working capital of approximately $222.9 million, compared to working capital of approximately $29 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 net proceeds from the sale
of Common Stock of $207.1 million and exercise of warrants totaling approximately $3.8 million. At December 31, 2020, we had cash and cash equivalents of approximately
$177.9 million. Currently, we have no 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. We believe that some of our store acquisitions and new store openings can come from cash flow from operations.
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.
Financing Activities
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 $12,782,099 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.
26
RECENTLY ISSUED ACCOUNTING STANDARDS
Recently Adopted Accounting Pronouncements
As of January 1, 2019, the Company adopted the FASB ASU 2016-02, 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.
On January 1, 2019, the Company also adopted ASU 2018-07, “Improvements to Nonemployee Share-Based Payment Accounting.” ASU 2018-07 more closely aligns the
accounting for employee and nonemployee share-based payments. The amendment is effective commencing in 2019 with early adoption permitted. The adoption of this new
guidance did not have a material impact on our Financial Statements.
In August 2018, the SEC adopted amendments to certain disclosure requirements in Securities Act Release No. 33-10532, Disclosure Update and Simplification. These
amendments eliminate, modify, or integrate into other SEC requirements certain disclosure rules. Among the amendments is the requirement to present an analysis of changes
in stockholders’ equity in the interim financial statements included in Quarterly Reports on Form 10-Q. The analysis, which can be presented as a footnote or separate
statement, is required for the current and comparative quarter and year-to-date interim periods. The amendments are effective for all filings made on or after November 5, 2018.
The Company adopted these amendments in its Quarterly Report on Form 10-Q for the quarter ended March 31, 2019.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value
Measurement. The new guidance modifies the disclosure requirements on fair value measurements in Topic 820. The amendments in ASU 2018-13 are effective for all entities
for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The adoption of this new guidance, effective January 1, 2020, did not have a
material impact on our Financial Statements.
Recently Issued Accounting Pronouncements – Pending Adoption
As an emerging growth company, the Company is permitted to delay the adoption of new or revised accounting standards until such time as those standards apply to private
companies. The Company has chosen to take advantage of the extended transition period for complying with new or revised accounting standards.
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. In November 2019, the FASB issued ASU No. 2019-10, changing effective dates for the new
standards to give implementation relief to certain types of entities. The Company is required to adopt the new standards no later than January 1, 2023 according to ASU 2019-
10, with early adoption allowed. We are currently evaluating the impact of adopting this new accounting guidance on our condensed consolidated financial statements.
27
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The guidance in ASU 2017-04
eliminates the requirement to determine the fair value of individual assets and liabilities of a reporting unit to measure goodwill impairment. Under the amendments in the new
ASU, goodwill impairment testing will be performed by comparing the fair value of the reporting unit with its carrying amount and recognizing an impairment charge for the
amount by which the carrying amount exceeds the reporting unit’s fair value. ASU 2017-04 is effective for annual and interim goodwill impairment tests in fiscal years
beginning after December 15, 2022 and should be applied on a prospective basis. The Company is currently evaluating the impact of adopting this guidance on the Company’s
consolidated financial statements.
In December 2019, the FASB issued ASU 2019-02, Simplifying the Accounting for Income Taxes, to simplify the accounting for income taxes by removing certain exceptions
to the general principles and also simplification of areas such as franchise taxes, step-up in tax basis goodwill, separate entity financial statements and interim recognition of
enactment of tax laws or rate changes. The standard will be effective for annual reporting periods beginning after December 15, 2020, including interim reporting periods within
those periods. We are currently evaluating the impact of adopting this new accounting guidance on our condensed consolidated financial statements.
In August 2020, the FASB issued ASU 2020-06, Debt with Conversion and Other Options: Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity,
which simplifies the accounting for certain instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity.
ASU 2020-06 removes from U.S. GAAP the separation models for (1) convertible debt with a cash conversion feature and (2) convertible instruments with a beneficial
conversion feature. ASU 2020-06 requires entities to provide expanded disclosures about “the terms and features of convertible instruments,” how the instruments have been
reported in the entity’s financial statements, and “information about events, conditions, and circumstances that can affect how to assess the amount or timing of an entity’s
future cash flows related to those instruments.”
ASU 2020-06 is effective for public business entities that are not smaller reporting companies for fiscal years beginning after December 15, 2021 and interim periods within
those fiscal years. For all other entities, ASU 2020-06 is effective for fiscal years beginning after December 15, 2023 and interim periods within those fiscal years. We are
currently evaluating the impact of adopting this new accounting guidance on our condensed consolidated financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
28
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
TABLE OF CONTENTS
Reports of Independent Registered Public Accounting Firms
Consolidated Balance Sheets as of December 31, 2020 and 2019
Consolidated Statements of Operations for the Years Ended December 31, 2020 and 2019
Consolidated Statements of Equity for the Years Ended December 31, 2020 and 2019
Consolidated Statements of Cash Flows for Years Ended December 31, 2020 and 2019
Notes to Consolidated Financial Statements
F-2 to F-3
F-4
F-5
F-6
F-7
F-8 to F-35
F-1
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, 2020, the related consolidated statements of
operations, stockholders' equity, and cash flows for the year ended December 31, 2020, 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, 2020, and the results of its
operations and its cash flows for the year ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
The Company's management is responsible for these financial statements. Our responsibility is to express an opinion on the Company’s financial statements based on our audit.
We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect
to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement, whether due to error or fraud. 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 audit 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 audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe
that our audit provides a reasonable basis for our opinion.
/s/ Plante & Moran, PLLC
We have served as the Company’s auditor since 2020.
Denver, Colorado
March 28, 2021
F-2
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
F-3
GROWGENERATION CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable, net of allowance for doubtful accounts of $192,193 and $291,372 at December 31, 2020 and 2019
Notes receivable, current, net of allowance for doubtful accounts of $292,050 and $0 at December 31, 2020 and 2019
Inventory
Income tax receivable
$
177,911,511 $
3,900,519
2,612,134
54,024,491
655,253
12,979,444
2,953,921
1,037,541
21,576,609
-
December 31,
2020
December 31,
2019
Prepaids and other current assets
Total current assets
Property and equipment, net
Operating leases right-of-use assets, net
Notes receivables, net of current portion
Intangible assets, net
Goodwill
Other assets
TOTAL ASSETS
LIABILITIES & STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
Accrued liabilities
Payroll and payroll tax liabilities
Customer deposits
Sales tax payable
Current maturities of lease liability
Current portion of long-term debt
Total current liabilities
Deferred tax liability
Operating lease liability, net of current maturities
Long-term debt, net of current portion
Total liabilities
Commitments and contingencies
Stockholders’ Equity:
Common stock; $.001 par value; 100,000,000 shares authorized; 57,150,998 and 36,876,305 shares issued and outstanding as of
December 31, 2020 and 2019, respectively
Additional paid-in capital
Accumulated deficit
Total stockholders’ equity
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
$
11,124,752
250,228,660
2,549,559
41,097,074
6,475,130
12,088,390
1,199,743
21,489,544
62,951,461
300,767
354,733,695 $
3,340,616
7,628,591
463,747
233,280
17,798,932
377,364
70,939,604
14,623,107 $
672,103
2,655,427
5,154,524
1,160,752
3,000,684
82,877
27,349,474
750,430
9,478,553
157,987
37,736,444
6,024,750
-
1,072,142
2,503,785
533,656
1,836,700
110,231
12,081,264
5,807,266
242,079
18,130,609
57,152
319,581,657
(2,641,558)
316,997,251
354,733,695 $
36,876
60,742,055
(7,969,936)
52,808,995
70,939,604
$
The accompanying notes are an integral part of these audited consolidated financial statements.
F-4
GROWGENERATION CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Sales
Cost of sales
Gross profit
Operating expenses:
Store operations
General and administrative
Share based compensation
Depreciation and amortization
Salaries and related expenses
Total operating expenses
Net income from operations
Other income (expense):
Miscellaneous income (expense)
Interest income
Interest expense
Total non-operating income (expense), net
Net income before taxes
Provision for income taxes
Net income
Net income per share, basic
Net income per share, diluted
For the Years Ended
December 31,
2020
2019
$
193,365,479 $
142,317,178
51,048,301
79,733,568
57,728,683
22,004,885
18,723,794
5,009,710
7,856,163
2,435,965
8,585,080
42,610,712
10,095,422
3,172,019
2,490,535
1,044,553
3,619,197
20,421,726
8,437,589
1,583,159
111,807
43,926
(14,053)
141,680
(4,545)
144,725
(401,497)
(261,317)
8,579,269
1,321,842
(3,250,891)
-
5,328,378 $
1,321,842
.12 $
.11 $
.04
.04
$
$
$
Weighted average shares outstanding, basic
Weighted average shares outstanding, diluted
43,944,879
46,456,249
32,833,594
33,910,154
The accompanying notes are an integral part of these audited consolidated financial statements.
F-5
GROWGENERATION CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2020 and 2019
Balances, December 31, 2018
Sale of Common stock and warrants, net of fees
Share based compensation
Common stock issued upon warrant exercise
Common stock issued upon exercise of options
Common stock issued upon cashless exercise of options
Common stock issued in connection with business combinations
Common stock issued upon conversion of convertible debt
Common stock issued for services
Common stock issued for accrued share-based compensation
Net income, As restated
Balances, December 31, 2019
Sale of common stock, net of fees
Common stock issued upon warrant exercise
Common stock issued upon cashless exercise of warrants
Common stock issued upon exercise of options
Common stock issued upon cashless exercise of options
Common stock issued in connection with business combinations
Common stock issued for assets
Common stock issued for services
Common stock issued for accrued payroll
Common stock issued for accrued share-based compensation
Common stock redemption
Share based compensation
Net income
Balances, December 31, 2020
Common Stock
Shares
27,948,609
$
Amount
27,949
Additional
Paid-In
Capital
38,796,562 $
Accumulated
Deficit
4,123,254
1,757,913
10,000
505,868
969,553
1,258,608
202,500
100,000
4,123
1,758
10
506
969
1,259
202
100
12,639,510
1,215,273
1,298,141
5,990
(506)
3,624,411
2,404,010
548,564
210,100
36,876,305
$
36,876 $
60,742,055 $
14,375,000
1,369,754
918,186
70,562
694,281
1,730,431
20,000
50,000
324,674
729,325
(7,520 )
14,375
1,370
918
71
694
1,731
20
50
325
722
207,120,290
3,840,401
(918)
229,783
(694)
39,144,315
136,180
(50)
717,206
3,796,901
(118,785)
3,974,973
(9,291,778) $
-
-
1,321,842
(7,969,936) $
-
Total
Stockholders’
Equity
29,523,733
12,643,633
1,215,273
1,299,899
6,000
-
3,625,380
2,405,269
548,766
210,200
1,321,842
52,808,995
207,134,665
3,841,771
-
229,854
-
39,146,046
136,200
-
717,531
3,797,623
(118,785)
3,974,973
5,328,378
316,997,251
57,150,998
$
57,152 $
319,581,657 $
5,328,378
(2,641,558) $
The accompanying notes are an integral part of theses audited consolidated financial statements.
F-6
GROWGENERATION CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash Flows from Operating Activities:
Net income
Adjustments to reconcile net income to net cash used in operating Activities:
Depreciation and amortization
Provision for doubtful accounts and notes receivable
Inventory valuation reserve
Amortization of debt discount
Stock based compensation
Deferred income taxes
Other
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts and notes receivable
Inventory
Prepaid expenses and other assets
Increase (decrease) in:
Accounts payable and accrued liabilities
Operating leases
Customer deposits
Payroll and payroll tax liabilities
Years Ended December 31,
2019
2020
$
5,328,378 $
1,321,842
2,435,965
213,503
4,390
-
7,856,163
750,430
(126,694)
(3,470,690)
(19,192,401)
(9,237,416)
9,987,990
375,472
2,650,739
1,583,285
1,044,553
172,135
429,126
356,306
2,490,535
-
(66,536)
(3,764,947)
(9,925,052)
(2,061,701)
4,165,188
15,375
1,987,747
154,471
Sales taxes payable
Net Cash and Cash Equivalents (Used In) Operating Activities
Cash Flows from Investing Activities:
Assets acquired in business combinations
Purchase of property and equipment
Purchase of intangibles
Net Cash and Cash Equivalents (Used In) Investing Activities
Cash Flows from Financing Activities:
Principal payments on long term debt
Stock redemptions
Proceeds from the sales of common stock and exercise of warrants and options, net of expenses
Net Cash and Cash Equivalents Provided by Financing Activities
Net Increase (decrease) in Cash and Cash Equivalents
Cash and Cash Equivalents at Beginning of year
Cash and Cash Equivalents at End of year
Supplemental Information:
Common stock and warrants issued for prepaid services
Common stock issued for accrued payroll liability
Debt converted to equity
Assets acquired by issuance of stock
Cash paid for interest
Right to use assets acquired under new operating leases
627,096
(213,790)
341,698
(3,339,260)
(41,400,900)
(3,401,755)
(1,027,548)
(45,830,203)
(9,458,743)
(2,232,812)
(119,125)
(11,810,680)
(111,445)
(118,785)
211,206,290
210,976,060
164,932,067
12,979,444
177,911,511 $
- $
717,531 $
- $
39,282,246 $
14,053 $
7,887,344 $
(460,129)
-
13,949,532
13,489,403
(1,660,537)
14,639,981
12,979,444
96,000
210,200
2,310,832
3,625,380
45,191
6,210,395
$
$
$
$
$
$
$
The accompanying notes are an integral part of these audited consolidated financial statements.
F-7
1. NATURE OF OPERATIONS
GROWGENERATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 and 2019
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 fifty two (52) retail
hydroponic/gardening stores across 12 states, with eighteen (18) in the state of California, six (6) in the state of Michigan, eight (8) located in the state of Colorado, five (5) in
the State of Oklahoma, five (5) in Maine, two (2) in the state of Nevada, two (2) in the state of Washington, two (2) in the state of Oregon, one (1) in the state of Rhode Island,
one (1) in the state of Florida, one (1) in the state of Massachusetts, one (1) in the state of Arizona, an online e-commerce store, GrowGeneration.com and a commercial e-
commerce platform, Agron.io The Company’s plan is to continue to acquire, open and operate hydroponic/gardening stores and related businesses throughout the United
States and Canada.
The Company engages in its business through its wholly-owned subsidiaries, GrowGeneration Pueblo Corp, GrowGeneration California Corp, GrowGeneration Nevada
Corp, GrowGeneration Washington Corp, GrowGeneration Rhode Island Corp, GrowGeneration Oklahoma Corp, GrowGeneration Canada, GrowGeneration HG Corp,
GrowGeneration Hemp Corp, GGen Distribution Corp, GrowGeneration Michigan Corp, GrowGeneration New England Corp, GrowGeneration Florida Corp and
GrowGeneration Management Corp.
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.
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.
F-8
GROWGENERATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 and 2019
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
Use of Estimates, continued
Additionally, the full impact of COVID-19 is unknown and cannot be reasonably estimated. However, we have made appropriate accounting estimates based on the facts and
circumstances available as of the reporting date. To the extent there are differences between these estimates and actual results, our consolidated financial statements may be
materially affected.
As we continue to monitor the COVID-19 situation, the Company is considered an “essential” supplier to the agricultural industry, suppling the nutrients and nourishment
required to feed their plants. The Company has remained open during this difficult time. We have plans and procedures in place to ensure our customers and employees stay
safe during this time of uncertainty. As a result of COVID-19 we reduced some hours of operations at the store level and some stores were closed on the weekends, primarily
in the later part of the first quarter of 2020. There have been some minor delays in vendor shipments as their warehouses and supply chain were affected by staffing shortages.
The Company successfully implemented a will call and curb side pick-up process that is working well. Other than what has been disclosed above, we have not experienced
adverse effects from COVID-19.
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 reportable operating segment as under guidance in the Financial Accounting Standards Board (the “FASB”)
Accounting Standards Codification (“ASC or 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 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.
F-9
GROWGENERATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 and 2019
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
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 are
carried at fair market value and 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, 2020 and 2019, the Company had approximately $174 million
and $11 million, respectively, in excess of the FDIC insurance limit.
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. At
December 31, 2020 and 2019, the Company established an allowance for doubtful accounts of $192,193 and $291,372, respectively.
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
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, 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 12-18 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. At December 31, 2020 and 2019, the Company established an allowance for doubtful accounts of $292,050 and $0,
respectively.
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, 2020 and 2019, 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. 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:
Vehicle
Building
Furniture and fixtures
Computers and equipment
Leasehold improvements
Estimated Lives
5 years
20 years
5-7 years
3-5 years
10 years not to exceed lease term
F-10
GROWGENERATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 and 2019
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
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 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 intangible assets 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.
As of December 31, 2020 and 2019, capitalized software cost were $1,162,603 and $138,280, respectively, before accumulated amortization of $221,885 and $5,000,
respectively.
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. 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 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, the first step of the two-step 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.
F-11
GROWGENERATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 and 2019
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
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 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.
Cash equivalents
Notes receivable
Notes receivable impaired
Accounts receivable
Level
2
2
3
2
$
December 31,
2020
163,418,055
2,937,499
874,378
3,900,519
December 31,
2019
-
1,501,288
-
2,953,921
For the Level 3 assets measured at fair value on a non-recurring base at December 31, 2020, the significant unobservable inputs include the notes receivable effective interest
rate of 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 bases 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. In 2019 and as of September 30, 2020, a valuation allowance was provided for the amount of deferred tax assets that would otherwise be recorded for
income tax benefits primarily relating to operating loss carryforwards as realization could not be determined to be more likely than not.
F-12
GROWGENERATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 and 2019
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
The Company adopted the provisions of FASB ASC 740-10-25, which prescribes a recognition threshold and measurement attribute for the recognition and measurement of
tax positions taken or expected to be taken in income tax returns. FASB ASC 740-10-25 also provides guidance on recognition of income tax assets and liabilities,
classification of current and deferred income tax assets and liabilities, and accounting for interest and penalties associated with tax positions. The Company’s tax returns are
subject to tax examinations by U.S. federal and state authorities until their respective statute of limitation. Currently, the 2019, 2018 and 2017 tax years are open and subject
to examination by taxing authorities. However, the Company is not currently under audit nor has the Company been contacted by any of the taxing authorities. The Company
does not have any accrual for uncertain tax positions as of December 31, 2020.
Advertising
The Company expenses advertising and promotional costs when incurred. Advertising and promotional expenses for the years ended December 31, 2020 and 2019 amounted
to $996,420 and $736,656, 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.
F-13
GROWGENERATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 and 2019
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.
As an emerging growth company, the Company is permitted to delay the adoption of new or revised accounting standards until such time as those standards apply to private
companies. The Company has chosen to take advantage of the extended transition period for complying with new or revised accounting standards.
Recently Adopted Accounting Pronouncements
As of January 1, 2019, the Company adopted the FASB ASU 2016-02, 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.
On January 1, 2019, the Company also adopted ASU 2018-07, “Improvements to Nonemployee Share-Based Payment Accounting.” ASU 2018-07 more closely aligns the
accounting for employee and nonemployee share-based payments. The amendment is effective commencing in 2019 with early adoption permitted. The adoption of this new
guidance did not have a material impact on our Financial Statements.
In August 2018, the SEC adopted amendments to certain disclosure requirements in Securities Act Release No. 33-10532, Disclosure Update and Simplification. These
amendments eliminate, modify, or integrate into other SEC requirements certain disclosure rules. Among the amendments is the requirement to present an analysis of
changes in stockholders’ equity in the interim financial statements included in Quarterly Reports on Form 10-Q. The analysis, which can be presented as a footnote or
separate statement, is required for the current and comparative quarter and year-to-date interim periods. The amendments are effective for all filings made on or after
November 5, 2018. The Company adopted these amendments in its Quarterly Report on Form 10-Q for the quarter ended March 31, 2019.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value
Measurement. The new guidance modifies the disclosure requirements on fair value measurements in Topic 820. The amendments in ASU 2018-13 are effective for all
entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The adoption of this new guidance, effective January 1, 2020, did
not have a material impact on our Financial Statements.
F-14
GROWGENERATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 and 2019
3. RECENT ACCOUNTING PRONOUNCEMENTS, Continued
Recently Issued Accounting Pronouncements – Pending Adoption
In October 2020, the Financial Accounting Standards Board (“FASB”) issued new guidance that updates various codification topics by clarifying or improving disclosure
requirements. The standard is effective for annual periods beginning after December 15, 2020. The Company does not expect the adoption of this new guidance to have a
material impact on the Company’s financial conditions, results or operations, cash flows or disclosures.
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. In November 2019, the FASB issued ASU No. 2019-10, changing effective dates
for the new standards to give implementation relief to certain types of entities. The Company is required to adopt the new standards no later than January 1, 2023 according to
ASU 2019-10, with early adoption allowed. We are currently evaluating the impact of adopting this new accounting guidance on our consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The guidance in ASU 2017-
04 eliminates the requirement to determine the fair value of individual assets and liabilities of a reporting unit to measure goodwill impairment. Under the amendments in the
new ASU, goodwill impairment testing will be performed by comparing the fair value of the reporting unit with its carrying amount and recognizing an impairment charge
for the amount by which the carrying amount exceeds the reporting unit’s fair value. ASU 2017-04 is effective for annual and interim goodwill impairment tests in fiscal
years beginning after December 15, 2022 and should be applied on a prospective basis. The Company is currently evaluating the impact of adopting this guidance on the
Company’s consolidated financial statements.
In December 2019, the FASB issued ASU 2019-02, Simplifying the Accounting for Income Taxes, to simplify the accounting for income taxes by removing certain
exceptions to the general principles and also simplification of areas such as franchise taxes, step-up in tax basis goodwill, separate entity financial statements and interim
recognition of enactment of tax laws or rate changes. The standard will be effective for annual reporting periods beginning after December 15, 2020, including interim
reporting periods within those periods. We are currently evaluating the impact of adopting this new accounting guidance on our condensed consolidated financial statements.
In August 2020, the FASB issued ASU 2020-06, Debt with Conversion and Other Options: Accounting for Convertible Instruments and Contracts in an Entity’s Own
Equity, which simplifies the accounting for certain instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s
own equity. ASU 2020-06 removes from U.S. GAAP the separation models for (1) convertible debt with a cash conversion feature and (2) convertible instruments with a
beneficial conversion feature. ASU 2020-06 requires entities to provide expanded disclosures about “the terms and features of convertible instruments,” how the instruments
have been reported in the entity’s financial statements, and “information about events, conditions, and circumstances that can affect how to assess the amount or timing of an
entity’s future cash flows related to those instruments.”
F-15
GROWGENERATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 and 2019
3. RECENT ACCOUNTING PRONOUNCEMENTS, Continued
ASU 2020-06 is effective for public business entities that are not smaller reporting companies for fiscal years beginning after December 15, 2021 and interim periods within
those fiscal years. For all other entities, ASU 2020-06 is effective for fiscal years beginning after December 15, 2023 and interim periods within those fiscal years. We are
currently evaluating the impact of adopting this new accounting guidance on our condensed consolidated financial statements.
4. REVENUE RECOGNITION
Disaggregation of Revenues
The following table disaggregates revenue by source:
Sales at company owned stores
E-commerce sales
Total Revenues
Contract Balances
Year Ended
December 31,
2020
182,736,434 $
Year Ended
December 31,
2019
74,969,830
10,629,045
193,365,479 $
4,763,738
79,733,568
$
$
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, 2020 and 2019.
The opening and closing balances of the Company’s customer trade receivables and customer deposit liability are as follows:
Opening balance, 1/1/2020
Closing balance, 12/31/2020
Increase (decrease)
Opening balance, 1/1/2019
Closing balance, 12/31/2019
Increase (decrease)
F-16
GROWGENERATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 and 2019
4. REVENUE RECOGNITION, Continued
Receivables
$
$
$
$
4,455,209 $
7,712,396
3,257,187
862,397 $
4,455,209
3,592,812 $
Customer
Deposit
Liability
2,503,785
5,154,524
2,650,739
516,038
2,503,785
1,987,747
The Company also has customer trade receivables under longer term financing arrangements at interest rates ranging from 9% to 12% with repayment terms ranging for 12 to
18 months. Long term trade receivables at December 31, 2020 and 2019 are as follows:
$
$
$
$
$
December 31,
2020
December 31,
2019
4,103,927 $
(292,050)
3,811,877
1,501,288
-
1,501,288
December 31,
2020
December 31,
2019
1,166,428 $
(292,050)
874,378
1,501,288
-
1,501,288
December 31,
2020
1,342,127 $
477,280
1,987,991
5,738,798
9,546,196
(3,071,066)
2019
1,148,993
-
884,685
2,858,777
4,892,455
(1,551,839)
$
6,475,130 $
3,340,616
December 31,
2020
17,798,932 $
45,152,529
-
62,951,461 $
$
$
December 31,
2019
8,752,909
9,046,023
-
17,798,932
Note receivable
Allowance for losses
Notes receivable, net
The following table summarizes changes in notes receivable balances that have been deemed impaired.
Note receivable
Allowance for loses
Notes receivable, net
5. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 2020 and 2019 consists of the following:
Vehicle
Building
Leasehold improvements
Furniture, fixtures and equipment
Accumulated depreciation and amortization
Property and equipment, net
Depreciation expense was $1,646,907 and $1,046,328 for the years ended December 31, 2020 and 2019, respectively.
6. GOODWILL AND INTANGIBLE ASSETS
The changes in goodwill are as follows:
Balance, beginning of period
Goodwill additions
Impairments
Balance, end of period
F-17
GROWGENERATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 and 2019
6. GOODWILL AND INTANGIBLE ASSETS, Continued
Intangible assets on the Company’s consolidated balance sheets consist of the following:
Tradenames
Patents, trademarks
Customer relationships
Non-competes
Capitalized software
December 31, 2020
December 31, 2019
Gross
Carrying
Amount
Accumulated
Amortization
Gross
Carrying
Amount
$
$
13,923,000 $
100,000
6,297,000
796,000
1,162,603
22,278,603 $
(398,567) $
(9,051)
(137,814)
(21,743)
(221,884)
(789,059) $
- $
100,000
-
-
138,280
238,280 $
Accumulated
Amortization
-
-
---
-
(5,000)
(5,000)
Amortization expense for the years ended December 31, 2020 and 2019 was $789,058 and $5,000, respectively.
Future amortization expense is as follows:
2021
2022
2023
2024
2025
$
4,378,876
4,396,281
4,169,321
4,069,439
3,563,940
2026
Total
$
911,687
21,489,544
F-18
GROWGENERATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 and 2019
7.
INCOME TAXES
The provision (benefit) for income taxes for the years ended December 31, 2020 and 2019 consisted of the following:
Income Tax Expense (benefit)
Current federal tax expense
Federal
State
Deferred tax (benefit)
Federal
State
Valuation allowance
Total
A summary of deferred tax assets and liabilities as of December 31, 2020 and 2019 is as follows:
Deferred tax assets:
Net operating losses
Deferred right to use lease liabilities
Stock based compensation
Inventory reserves
Warranty reserves
Accruals and other
Deferred tax liabilities:
Deferred right to use lease assets
Accumulated depreciation and amortization
Gross deferred tax asset (liability)
Valuation Allowance
Deferred tax asset (liability), net
Year Ended
December 31,
2020
December 31,
2019
1,732,230 $
768,231
1,705,540 $
226,590
(1,181,700)
3,250,891 $
479,000
-
(479,000)
-
-
Year Ended
December 31,
2020
December 31,
2019
- $
3,248,501
756,789
235,612
146,472
180,345
4,567,719
(3,146,758)
(2,171,391) $
(5,318,149)
(750,430)
-
(750,430) $
1,033,300
1,671,700
354,800
-
-
160,200
3,220,000
(1,678,300)
(360,000)
2,038,300
1,181,700
(1,181,700)
-
$
$
$
$
$
$
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 will 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.
F-19
GROWGENERATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 and 2019
7.
INCOME TAXES, Continued
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, 2020 and 2019:
Federal statutory tax rate
State and local income taxes (net of federal tax benefit)
Other
Non-deductible compensation
Incentive stock options
Basis adjustments
Years Ended December 31,
2019
2020
21%
6%
27%
21%
4%
25%
6%
3%
4%
12%
-
-
-
Valuation allowance
8. LONG-TERM DEBT
(14)%
38%
(25)%
0%
December 31,
2020
2019
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
$
1,032 $
7,109
Notes payable issued in connection with seller financing of assets acquired, interest at 1%, payable in 24 installments of $24,996, due
and paid in full in February 2020
-
24,997
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
Less Current Maturities
Total Long-Term Debt
Debt maturities as of December 31, 2020 are as follows:
2021
2022
2023
$
$
239,832
240,864 $
(82,877)
157,987 $
320,204
352,310
(110,231)
242,079
$
$
82,877
99,184
58,803
240,864
Interest expense for the years ended December 31, 2020 and 2019 was $14,053 and $45,191, respectively.
F-20
GROWGENERATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 and 2019
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 1-10 years, most of which include options to extend the leases for additional 3 to 5-year periods. Generally, the lease term is the minimum of the
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 payments not yet paid, we estimate incremental secured
borrowing rates corresponding to the maturities of the leases. Our leases typically contain rent escalations over the lease term. We recognize expense for these leases on a
straight-line basis over the lease term.
We have elected the practical expedient to account for lease and non-lease components as a single component for our entire population of leases.
Short-term disclosures include only those leases with a term greater than one month and 12 months or less, and expense is recognized on a straight-line basis over the lease
term. Leases with an initial term of 12 months or less, that do not include an option to purchase the underlying asset that we are reasonably certain to exercise, are not
recorded on the balance sheet.
Lease expense is recorded within our consolidated statements of operations based upon the nature of the assets. Where assets are used to directly serve our customers, such as
facilities dedicated to customer contracts, lease costs are recorded in “store operating costs.” Facilities and assets which serve management and support functions are
expensed through general and administrative expenses.
Right to use assets, operating lease assets
Current lease liability
Non-current lease liability
Weighted average remaining lease term
Weighted average discount rate
Operating lease costs
Variable lease costs
Short-term lease costs
Total operating lease costs
December 31,
2020
12,088,390 $
December 31,
2019
7,628,591
3,000,684 $
9,478,553
12,479,237 $
1,836,700
5,807,266
7,643,966
$
$
$
December 31,
2020
December 31,
2019
3.5 years
7.6%
3.9 years
7.6%
Year Ended December 31,
2019
2020
$
$
2,800,535 $
1,071,089
94,561
3,966,185 $
1,914,161
525,292
29,400
2,468,853
F-21
GROWGENERATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 and 2019
9. LEASES, Continued
The following table presents the maturity of the Company’s operating lease liabilities as of December 31, 2020:
2021
2022
2023
2024
2025
Thereafter
Total lease payments
Less: Imputed interest
Lease Liability at December 31, 2020
10. CONVERTIBLE DEBT
$
$
4,118,220
3,542,939
3,025,729
2,041,096
1,676,619
2,379,935
16,784,538
(4,305,301)
12,479,237
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 is 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 will automatically convert 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 $2,405,269, net of unamortized debt discount of $674,581, 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.
Amortization of debt discount for the years ended December 31, 2020 and 2019 was $0 and $356,306, respectively.
At December 31, 2020 and 2019 there were 93,750 and 131,250 warrants outstanding, respectively, related to the issuance of convertible debt.
F-22
GROWGENERATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 and 2019
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.
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.
F-23
GROWGENERATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 and 2019
11. SHARE BASED PAYMENTS, Continued
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, 2020 and 2019.
Restricted stock
Stock options
Warrants
Total
December 31,
2020
2019
$
$
5,164,133 $
2,250,662
441,368
7,856,163 $
1,419,323
1,071,212
-
2,490,535
As of December 31, 2020, the Company had approximately $3.7 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 two years. As of December 31, 2020, the Company also had approximately $4 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 3 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 activity for the years ended December 31, 2020 and 2019 is presented in the following table:
Nonvested, January 1, 2019
Granted
Vested
Forfeited
Nonvested, December 31, 2019
Granted
Vested
Forfeited
Nonvested, December 31, 2020
F-24
GROWGENERATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 and 2019
11. SHARE BASED PAYMENTS, Continued
Stock Option
Awards issued under the 2014 Plan as of December 31, 2020 are summarized below:
Total Shares available for issuance pursuant to the 2014 Plan
Options outstanding, December 31 2020
Total options exercised under 2014 Plan
Total shares issued pursuant to the 2014 Plan
Awards available for issuance under the 2014 Plan, December 31, 2020
Total Shares available for issuance pursuant to the 2018 Plan, as amended
Options outstanding, December 31 2020
Total options exercised under 2018 Plan
Total shares issued pursuant to the 2018 Plan
Awards available for issuance under the 2018 Plan, December 31, 2020
Weighted
Average Grant
Date Fair Value
3.35
2.50
3.02
5.91
3.82
4.90
5.16
4.15
4.51
Shares
55,000 $
353,500
(201,000)
(3,500)
204,000 $
1,293,000
(799,833)
(66,667)
630,500 $
2020
2,500,000
(50,000)
(2,058,833)
(375,000)
16,167
2020
5,000,000
(1,486,438)
(438,895)
(1,112,979)
1,961,688
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.
Expected volatility
Expected dividends
Expected term
Risk-free rate
Options outstanding pursuant to 2014 Plan
Options outstanding pursuant to 2018 Plan
Options issued outside of 2014 and 2018 Plans
Total options outstanding December 31, 2020
F-25
GROWGENERATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 and 2019
11. SHARE BASED PAYMENTS, Continued
The table below summarizes all the options granted by the Company during years ended December 31, 2020 and 2019:
2020
77.75-80.7%
None
2-5 years
1.64-1.75%
2019
87.8%-92.7%
None
2-5 years
1.64%
50,000
1,486,438
266,670
1,803,108
Options
Outstanding at January 1, 2019
Granted
Exercised
Forfeited or expired
Outstanding at December 31, 2019
Vested and exercisable at December 31, 2019
Outstanding at January 1, 2020
Granted
Exercised
Forfeited or expired
Outstanding at December 31, 2020
Vested and exercisable at December 31, 2020
12. STOCK PURCHASE WARRANTS
Weighted-
Average Exercise
Price
Weighted-
Average
Remaining
Contractual Term
Weighted-
Average Grant
Date Fair Value
Shares
1,815,500 $
795,000 $
(667,500) $
(17,667) $
1,925,333 $
1,346,333 $
1,925,333 $
891,500 $
(983,725) $
(30,000) $
1,803,108 $
1,057,734 $
1.66
3.42
.72
2.78
2.71
2.36
2.71
4.75
2.59
2.75
3.92
3.55
2.65 years
3.60 years
3.25 years
3.60 years
3.47 years
3.13 Years
$
$
$
$
$
$
$
$
$
$
$
$
.78
2.31
.16
1.49
1.71
1.32
1.71
2.67
1.35
1.63
2.38
2.00
A summary of the status of the Company’s outstanding stock warrants as of December 31, 2020 and 2019 is as follows:
Outstanding January 1, 2019
Granted/issued
Exercised
Forfeited
Outstanding December 31, 2019
Granted/issued
Exercised
Forfeited
Outstanding December 31, 2020
Weighted
Average
Exercise
Price
1.94
3.50
.79
3.25
24.66
3.05
5.75
8.03
3,295,667 $
2,061,629 $
(1,643,610) $
-
3,713,686 $
305,000 $
(2,468,963) $
(250,000)
1,299,723 $
F-26
GROWGENERATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 and 2019
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, 2020 and 2019.
Year Ended December 31,
2019
2020
Net income
Weighted average shares outstanding, basic
Effect of dilutive outstanding warrants and stock options
Adjusted weighted average shares outstanding, dilutive
Basic income per shares
Dilutive income per share
14. EMPLOYEE BENEFIT PLAN
$
5,328,378 $
1,321,842
43,944,879
2,511,370
46,456,249
.12 $
.11 $
32,833,594
1,076,560
33,910,154
.04
.04
$
$
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 $169,327 and $83,158 for the years ended December 31, 2020 and 2019,
respectively.
15. VENDOR CONCENTRATIONS
As of December 31, 2020, and 2019, two suppliers represent 41% and 51% of our total vendor purchases, respectively. Although the Company expects to maintain
relationships with these vendors, the loss of either supplier would not have a material adverse impact on our business, because both suppliers provide the same products.
16. ACQUISITIONS
Our acquisition strategy is to acquire well established profitable hydroponic garden centers in markets where the Company does not have a market presence or in markets
where it is increasing its market presence. 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. All acquisition costs are
expensed as incurred and recorded in general and administrative expenses in the consolidated statements of operations. Transaction cost were approximately $227,000 for all
acquisitions in 2020. To date all goodwill recorded as a result of business combinations is deductible for income tax purposes. The Company issued 23,892 shares of
common stock valued at $100,829 to settle as contingent consideration related to the Heavy Gardens 2018 business combination.
On February 26, 2020 we acquired certain assets of Health & Harvest LLC in a transaction valued at approximately $2.85 million. Acquired goodwill of approximately $1.1
million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company. Cash consideration was
funded from the Company’s existing working capital.
F-27
GROWGENERATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 and 2019
16. ACQUISITIONS, Continued
On June 16, 2020 we acquired certain assets of H2O Hydroponics, LLC (“H2O Hydro”) in a transaction valued at approximately $1.99 million. Acquired goodwill of
approximately $1 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company. Cash
consideration was funded from the Company’s existing working capital.
On August 10, 2020 we acquired certain assets of Benzakry Family Corp, d/b/a Emerald City Garden (“Emerald City”), in a transaction valued at $1 million. Acquired
goodwill of approximately $620,000 represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company.
Cash consideration was funded from the Company’s existing working capital.
On October 12, 2020, the Company acquired the assets of Hydroponics Depot, LLC (“Hydro Depot”), a single store located in Phoenix Arizona for $987,500 in cash and
shares of the Company’s common stock valued at approximately $548,000. Acquired goodwill of approximately $798,000 represents the value expected to rise from organic
growth and an 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 for approximately $6.0 in cash
and shares of common stock valued at approximately $3.1 million. Acquired goodwill of approximately $4 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 $44.7 million, $17.4 million in cash and common stock valued at approximately $27.3 million. Acquired
goodwill of approximately $28.3 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, a three-store chain in California. The total consideration for the purchase of Grassroots was
approximately $10 million, $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, $5.4 million in cash and common stock valued at
approximately $3.8 million. Acquired goodwill of approximately $4.9 million represents the value expected to rise from organic growth and an opportunity to expand into a
well-established product distribution market for the Company.
F-28
GROWGENERATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 and 2019
16. ACQUISITIONS, Continued
The table below represents the allocation of the purchase price to the acquired net assets during the year ended December 31, 2020.
Inventory
Prepaids and other current assets
Building
Furniture and equipment
Operating lease right to use asset
Operating lease liability
Customer relationships
Trade name
Non-compete
Goodwill
Total
BGT
-
-
150,000
898,700 $ 2,348,200 $ 6,285,900 $ 1,595,000 $
Canopy Grassroots GrowBiz
$
H2O
Emerald
Hydro
City
LLC
150,000 $
497,600 $ 1,053,900 $ 13,162,600
-
4,600
-
-
477,300
-
10,000
736,000
51,000
-
192,600 6,417,600
-
(192,600)
(6,417,600)
208,000
246,000 6,297,000
-
431,000 13,923,000
796,000
14,000
620,000 1,007,700 1,065,600 45,051,700
$ 9,239,600 $ 10,000,200 $ 44,786,300 $ 9,043,900 $ 1,535,800 $ 1,000,000 $ 1,986,900 $ 2,853,500 $ 80,446,200
-
477,300
-
-
250,000
-
200,000
245,500
- 1,436,800 3,640,700
(245,500)
(3,640,700)
-
2,267,000
601,000
767,000 1,910,000
1,138,000 2,138,000 7,745,000 2,025,000
94,000
4,822,900 4,464,000 28,271,400 4,001,600
Hydro
Depot
333,300 $
-
-
25,000
-
-
148,000
212,000
19,000
798,500
4,600
-
50,000
902,000
(902,000)
150,000
234,000
43,000
Health &
Harvest
LLC
(1,436,800)
133,000
374,000
113,000
6,000
Total
The table below represents the consideration paid for the net assets acquired in business combinations.
Cash
Common stock
Total
Canopy Grassroots GrowBiz
$ 5,423,600 $ 7,498,900 $ 17,486,900 $ 5,972,300 $
3,816,000 2,501,300 27,299,400 3,071,600
Hydro
Depot
987,500 $ 1,000,000 $ 1,281,700 $ 1,750,000 $ 41,400,900
705,200 1,103,500 39,045,300
548,300
$ 9,239,600 $ 10,000,200 $ 44,786,300 $ 9,043,900 $ 1,535,800 $ 1,000,000 $ 1,986,900 $ 2,853,500 $ 80,446,200
Emerald
City
Total
BGT
-
H2O
Hydro
LLC
Health &
Harvest
LLC
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.
Acquisition date
Revenue
Net Income
Canopy Grassroots GrowBiz
12/23/2020 12/14/2020 11/17/2020 10/20/2020 10/12/2020 8/10/2020 6/16/2020 2/26/2020
$
$
531,800 $ 3,852,100 $ 1,859,200 $ 1,244,600 $ 5,634,800 $ 2,418,100 $ 8,994,900 $ 24,836,000
561,800 $ 1,065,600 $ 3,920,400
74,400 $
148,800 $ 1,005,000 $
300,500 $
141,100 $
735,900 $
187,800 $
Total
BGT
Hydro
Depot
Emerald
City
H2O
Hydro
LLC
Health &
Harvest
LLC
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 year ended December 31, 2020 and 2019.
December 31,
2020
December 31,
2019
(Unaudited)
$ 116,120,116 $ 71,649,931
689,728
$
(Unaudited)
12,979,881 $
Revenue
Net income
F-29
GROWGENERATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 and 2019
16. ACQUISITIONS, Continued
The table below represents the allocation of the purchase price to the acquired net assets during the year ended December 31, 2019.
Inventory
Prepaids and other current assets
Furniture and equipment
Goodwill
Total
$
Green
Life
Grand
Rapids
Hydro
Grow
World
LLC
553,900 $ 1,453,100 $ 1,038,600 $ 1,441,000 $
22,000
100,000
2,596,100
$ 1,285,800 $ 3,880,000 $ 3,458,600 $ 4,159,100 $
14,100
-
35,000
100,000
50,000
696,900 2,376,900 2,305,900
Garden Chlorophyll
Reno
Palm
Springs
Hydroponics
Hydroponics
Total
238,000 $
-
25,000
516,300
779,300 $
465,500 $ 5,190,100
36,100
335,000
25,000
554,000 9,046,100
1,044,500 $ 14,607,300
The table below represents the consideration paid for the net assets acquired in business combinations.
Grow
World
LLC
Grand
Rapids
Hydro
Green
Life
Reno
Palm
Springs
Garden Chlorophyll
Hydroponics
Hydroponics
Total
Cash
Common stock
Total
$ 1,000,000 $ 2,350,000 $ 2,647,700 $ 3,659,100 $
500,000
$ 1,285,800 $ 3,880,000 $ 3,458,600 $ 4,159,100 $
285,800 1,530,000
810,900
525,000 $
254,300
779,300 $
800,000 $ 10,981,800
244,500 3,625,500
1,044,500 $ 14,607,300
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, 2019.
Grow
World
LLC
Grand
Rapids
Hydro
Green
Life
Garden
Chlorophyll
Reno
Hydroponics
Palm
Springs
Hydroponics
Total
Acquisition
date
Revenue
Earnings
$
$
12/16/19
9/3/2019
5/14/2019
1/21/2019
2/11/2019
2/7/2019
153,900 $
6,400 $
2,412,700 $
444,500 $
4,829,800 $
998,700 $
6,030,500 $
936,600 $
2,106,900 $
366,742 $
3,075,300 $
651,400 $
18,609,100
3,404,342
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 and 2018.
December 31,
2019
(Unaudited)
December 31,
2018
(Unaudited)
$
$
31,300,425 $
4,750,591 $
59,650,900
(2,087,900)
Revenue
Earnings
17. STOCKHOLDERS EQUITY
2020
F-30
GROWGENERATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 and 2019
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 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.
18. CORRECTION OF ERROR IN PREVIOUSLY REPORTED CONSOLIDATED FINANCIAL STATEMENTS
Revision
During the fourth quarter of 2020, we identified amounts presented in our inventory and costs of sales reported in prior years that required revision. The revised amounts
resulted from an accumulation of errors related to rebates issued from vendors. We determined these errors accumulated in 2019 and prior years. Retained earnings as of
January 1, 2019, was also revised to reflect the impact of the error on prior periods. The impact of the error for periods prior 2019 was $525,786.
Pursuant to the guidance of Staff Accounting Bulletin No. 99, Materiality, we concluded that the errors were not material to any of our prior year consolidated financial
statements. The accompanying consolidated balance sheet and income statement as of December 31, 2019 includes a cumulative revision relating to this error.
This revision did not have any material effect on income from operations, net income, or cash flows. This revision had no effect on our cash balances.
The following table compares previously reported balances, adjustments, and revised balances as of December 31, 2019.
F-31
GROWGENERATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 and 2019
18. CORRECTION OF ERROR IN PREVIOUSLY REPORTED CONSOLIDATED FINANCIAL STATEMENTS, Continued
The revised consolidated financial statements for the year ended December 31, 2019 with the adjustment is detailed below.
ASSETS
December 31, 2019
As Previously
Reported
Adjustment
Revised
Current assets:
Cash and cash equivalents
Accounts receivable, net
Notes receivable, net
Inventory
Prepaids and other current assets
Total current assets
Property and equipment, net
Operating leases right-of-use assets, net
Notes receivable
Intangible assets, net
Goodwill
Other assets
TOTAL ASSETS
LIABILITIES & STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
Payroll and payroll tax liabilities
Customer deposits
Sales tax payable
Current maturities of right-of-use assets
Current portion of long-term debt
Total current liabilities
Operating leases right-of-use assets, net of current maturities
Long-term debt, net of current portion
Total liabilities
$
(1,082,748)
$
$
$
$
12,979,444
2,953,921
1,037,541
22,659,357
2,549,559
42,171,822
3,340,616
7,628,591
463,747
233,280
17,798,932
377,364
72,022,352
6,024,750
1,072,142
2,503,785
533,656
1,836,700
110,231
12,081,264
5,807,266
242,079
18,130,609
Stockholders’ Equity:
Common stock; $.001 par value; 100,000,000 shares 36,876,305 shares issued and outstanding as of December
31, 2019
Additional paid-in capital
Accumulated deficit
Total stockholders’ equity
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
36,876
60,742,055
(6,887,188)
53,891,743
72,022,352
$
(1,082,748)
$
F-32
GROWGENERATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 and 2019
18. CORRECTION OF ERROR IN PREVIOUSLY REPORTED CONSOLIDATED FINANCIAL STATEMENTS, Continued
Year Ended December 31, 2019
12,979,444
2,953,921
1,037,541
21,576,609
2,549,559
41,097,074
3,340,616
7,628,591
463,747
233,280
17,798,932
377,364
70,939,604
6,024,750
1,072,142
2,503,785
533,656
1,836,700
110,231
12,081,264
5,807,266
242,079
18,130,609
36,876
60,742,055
(7,969,936)
52,808,995
70,939,604
Sales
Cost of sales
Gross profit
Operating expenses:
Store operations
General and administrative
Share based compensation
Depreciation and amortization
Salaries and related expenses
Total operating expenses
Net income from operations
Other income (expense):
Miscellaneous income (expense)
Interest income
Interest expense
Total non-operating income (expense), net
Net income before taxes
Provision for income taxes
Net income
Adjustment
Revised
As Previously
Reported
$
79,733,568
57,171,721
22,561,847
10,095,422
3,172,019
2,490,535
1,044,553
3,619,197
20,421,726
2,140,121
(4,545)
144,725
(401,497)
(261,317)
1,878,804
0
$
1,878,804
$
556,962
79,733,568
57,728,683
22,004,885
10,095,422
3,172,019
2,490,535
1,044,553
3,619,197
20,421,726
1,583,159
(4,545)
144,725
(401,497)
(261,317)
1,321,842
0
1,321,842
Net income per share, basic
Net income per share, diluted
Weighted average shares outstanding, basic
Weighted average shares outstanding, diluted
$
$
0.06
0.06
$
$
0.04
0.04
32,833,594
33,910,154
32,833,594
33,910,154
F-33
GROWGENERATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 and 2019
18. CORRECTION OF ERROR IN PREVIOUSLY REPORTED CONSOLIDATED FINANCIAL STATEMENTS, Continued
Cash Flows from Operating Activities:
Net income
Adjustments to reconcile net income to net cash used in operating Activities:
Depreciation and amortization
Provision for doubtful accounts receivable
Inventory valuation reserve
Amortization of debt discount
Stock based compensation
Other
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable
Inventory
Prepaid expenses and other assets
Increase (decrease) in:
Accounts payable and accrued liabilities
Operating leases
Customer deposits
Income taxes
Payroll and payroll tax liabilities
Sales taxes payable
Net Cash and Cash Equivalents (Used In) Operating Activities
Cash Flows from Investing Activities:
Assets acquired in business combinations
Purchase of property and equipment
Purchase of goodwill and other intangibles
Net Cash and Cash Equivalents (Used In) Investing Activities
Cash Flows from Financing Activities:
Principal payments on long term debt
Stock redemptions
Proceeds from the sales of common stock and exercise of warrants and options, net of expenses
Net Cash and Cash Equivalents Provided by Financing Activities
Net Increase(decrease) in Cash and Cash Equivalents
Cash and Cash Equivalents at Beginning of year
Cash and Cash Equivalents at End of year
19. SUBSEQUENT EVENTS
For The Year Ended December 31, 2019
As Previously
Reported
Adjustment
Revised
$
1,878,804
(556,962) $
1,044,553
172,135
429,126
356,306
2,490,535
(66,536)
(3,764,947)
(10,482,014)
(2,061,701)
4,165,188
15,375
1,987,747
-
154,471
341,698
(3,339,260)
(9,458,743)
(2,232,812)
(119,125)
(11,810,680)
(460,129)
-
13,949,532
13,489,403
(1,660,537)
14,639,981
12,979,444
$
556,962
$
1,321,842
-
1,044,553
172,135
429,126
356,306
2,490,535
(66,536)
-
-
(3,764,947)
(9,925,052)
(2,061,701)
-
4,165,188
15,375
1,987,747
-
154,471
341,698
(3,339,260)
(9,458,743)
(2,232,812)
(119,125)
(11,810,680)
(460,129)
-
13,949,532
13,489,403
(1,660,537)
14,639,981
12,979,444
The Company has evaluated events and transaction occurring subsequent to December 31, 2020 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 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 $1.63 million, including $1.1 million in
cash and common stock valued at approximately $526,000.
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 $1.7 million in cash and common stock valued at approximately $411,000.
F-34
GROWGENERATION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 and 2019
19. SUBSEQUENT EVENTS, Continued
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 $8.1 million in cash and common stock valued
at approximately $9.7 million.
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,
CA. The total consideration for the purchase of San Diego Hydroponics was approximately $9.3 million, including $4.8 million in cash and common stock valued at
approximately $4.5 million.
On March 12, 2021 the Company purchased the assets of Charcoir Corporation, who sells an RHP-certified growing medium made from the highest-grade coconut fiber. The
total consideration for the purchase of Charcoir was approximately $16.3 million, including $9.8 million in cash and common stock valued at approximately $6.5 million.
On March 15, 2021 the Company purchased the assets of 55 Hydroponics, a hydroponic and organic superstore located in Santa Ana, CA. The total consideration for the
purchase of 55 Hydroponics was approximately $6.1 million, including $5 million in cash and common stock valued at approximately $1.1 million.
On March 15, 2021 the Company purchased the assets of Aquarius, a hydroponic and organic garden store in Springfield, MA. The total consideration for the purchase of
Aquarius was approximately $3.6 million, including $2.4 million in cash and common stock valued at approximately $1.2 million.
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 $11.3 million, including $6 million in cash and common stock valued at approximately $5.3 million.
F-35
ITEM 9. CHANGES AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
See report on Form 8-K filed on March 27, 2020 regarding change in Accountants.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that
are designed to be effective in providing reasonable assurance that information required to be disclosed in our reports under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management
to allow timely decisions regarding required disclosure.
As of December 31, 2020, an evaluation was conducted under the supervision and with the participation of our management, including our Chief Executive Officer and Chief
Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based on this
evaluation, such officers have concluded that our disclosure controls and procedures were not effective as of December 31, 2020 (the “Evaluation Date”), because of the
material weaknesses in our internal control over financial reporting described below.
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange
Act) and based upon the criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission (“the COSO framework”). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of our
financial reporting and the preparation of our financial statements for external purposes in accordance with GAAP.
An effective internal control system, no matter how well designed, has inherent limitations, including the possibility of human error or overriding of controls, and therefore can
provide only reasonable assurance with respect to reliable financial reporting. Because of its inherent limitations, our internal control over financial reporting may not prevent
or detect all misstatements, including the possibility of human error, the circumvention or overriding of controls, or fraud. Effective internal controls can provide only
reasonable assurance with respect to the preparation and fair presentation of financial statements.
Management, including our Chief Executive Officer and Chief Financial Officer, assessed the Company’s internal control over financial reporting and concluded that they were
not effective as of December 31, 2020.
In making this assessment, management used the criteria set forth by the COSO framework. Based on evaluation under these criteria, management determined, based upon the
existence of the material weaknesses described below, that we did not maintain effective internal control over financial reporting as of the Evaluation Date.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that a reasonable possibility exists that a material
misstatement of our annual or interim financial statements would not be prevented or detected on a timely basis.
29
Controls Environment
The Company did not design and implement effective control activities based on the criteria established in the COSO framework. Specifically, these control deficiencies
constitute material weaknesses, either individually or in the aggregate, relating to: (i) selecting and developing control activities and information technology that contribute to
the mitigation of risks and support achievement of objectives; and (ii) deploying control activities through policies that establish what is expected and procedures that put
policies into action.
The following were contributing factors to the material weaknesses in control activities:
●
Insufficient resources within the accounting and financial reporting department to review the accounting for warrant compensation accounting, share-based
compensation accounting, and accounting for rebates.
●
●
Inadequate segregation of duties within the bank accounts.
Ineffective information technology general controls (ITGCs) in the areas of user access over certain information technology (IT) systems that support the Company’s
financial reporting processes.
Deficiencies in control activities contributed to material accounting errors identified and corrected through 2020 and prior years. These design deficiencies in control activities
contributed to the potential for there to have been material accounting errors in multiple financial statement account balances and disclosures.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the most recent fiscal quarter, that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting, except for the implementation of remediation plans for the deficiency to address the material weakness identified.
Remediation Plan and Status
Our remediation efforts are ongoing and we will continue our initiatives to implement and document policies, procedures, and internal controls.
Remediation of the identified material weaknesses and strengthening our internal control environment will require a substantial effort throughout 2021 and beyond, as
necessary. We will test the ongoing operating effectiveness of the new and existing controls in future periods. The material weaknesses cannot be considered completely
remediated until the applicable controls have operated for a sufficient period of time and management has concluded, through testing, that these controls are operating
effectively.
While we believe the steps taken to date and those planned for implementation will improve the effectiveness of our internal control over financial reporting, we have not
completed all remediation efforts identified herein. Accordingly, as we continue to monitor the effectiveness of our internal control over financial reporting in the areas affected
by the material weaknesses described above, we have and will continue to perform additional procedures prescribed by management, including the use of manual mitigating
control procedures and employing any additional tools and resources deemed necessary, to ensure that our consolidated financial statements are fairly stated in all material
respects.
Inherent Limitations on Effectiveness of Controls
Management, including our CEO, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud.
A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further,
the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the
inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, misstatements, errors, and instances of fraud, if any,
within our organization have been or will be prevented or detected.
These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls also
can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of
controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals
under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, internal controls may become
inadequate as a result of changes in conditions, or through the deterioration of the degree of compliance with policies or procedures.
Item 9B. Other Information.
None
30
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Other than provided below, the information required by Items 401, 405, 406 and 407 (c)(3); (d)(4) and (d)(5) of Regulation S-K is incorporated into this Annual Report on Form
10-K by reference to the Company’s Definitive Proxy Statement for its 2021 Annual Meeting of Shareholders to be filed within 120 days following December 31, 2020.
All directors of the Company hold office for one-year terms until the election and qualification of their successors. Officers are appointed by our Board and serve at the
discretion of the board, subject to applicable employment agreements. The following table sets forth information regarding our executive officers and the members of our
Board.
Name
Darren Lampert
Michael Salaman
Tony Sullivan
Monty Lamirato
Stephen Aiello
Paul Ciasullo
Sean Stiefel
Age
60
58
56
65
60
62
33
Position
Chief Executive Officer and Director
President and Director
Chief Operating Officer, Executive Vice President
Chief Financial Officer and Secretary
Director
Director
Director
Darren Lampert has been our Chief Executive Officer and a Director since our inception in 2014. Mr. Lampert began his career in 1986 as a founding member of the law firm
of Lampert and Lampert (1986-1999), where he concentrated on securities litigation, NASD (now FINRA) compliance and arbitration and corporate finance matters. Mr.
Lampert has represented clients in actions and investigations brought before government agencies and self-regulatory bodies. Mr. Lampert has spent 15 years working as a
portfolio manager and proprietary trader at Schonfeld Securities (1999-2005), Schottenfeld Group (2007) and Incremental Capital (2008-2010). From 2010 to 2014, Mr.
Lampert was a private investor. Mr. Lampert graduated in 1982 with a Bachelor of Science degree in business administration from Ithaca College. Mr. Lampert received a JD
from Bridgeport University School of Law in 1985. Mr. Lampert was admitted to practice law in New York in 1986 and is also admitted to practice before the United States
District Courts for the Southern and Eastern Districts of New York.
Michael Salaman has been our President and a Director since our inception. Mr. Salaman served as the Chairman of Skinny Nutritional Corp. from January 2002 to March
2014 and as Chief Executive Officer and President of Skinny Nutritional Corp. from June 2010 to March 2014. He also served as Chief Executive Officer of Skinny Nutritional
Corp. Skinny Nutritional Corp. filed for Chapter 11 Bankruptcy protection in 2013 and the assets were sold to a private equity firm in March 2014. Mr. Salaman has over 20
years’ experience in the area of start-ups, new product development, distribution and marketing. Mr. Salaman began his business career as Vice President of Business
Development for National Media Corp., an infomercial marketing company in the United States from 1985-1993. From 1995-2001, Mr. Salaman started a Digital Media
company called American Interactive Media, Inc., a developer of Web TV set-top boxes and ISP services. In 2002, Mr. Salaman became the principal officer of that entity and
directed its operations as a marketing and distribution company and in 2005 focused its efforts in the enhanced water business. Mr. Salaman received a Bachelor of Business
Administration degree in business from Temple University in 1986.
31
Tony Sullivan joined the Company as Chief Operating Officer and Executive Vice President in November 2019. From 2017 to recently, Mr. Sullivan served as Executive Vice
President and Chief Operating Officer of Forman Mills, a $300 million Private Equity sponsored business. From 2015 to 2017, he was Senior Vice President Operations for
Dollar Express, a $500 million carve-out of 330 Family Dollar stores in 36 states, Private Equity sponsored business. From 2006 to 2015, he was employed at Anna’s Linens
for 9+ years where he served in several operating roles, most recently as SVP, Chief Operating Officer. Previously Mr. Sullivan served for 20+ years at Foot Locker Inc.
leading 2100 + stores, 3 Divisions (Foot Locker, Kids Foot Locker and Foot Action) over $2.5B in sales as VP Store Operations. Mr. Sullivan is known and respected for his
expertise in wide-range governance, hypergrowth, and macro-level strategic management methodologies, with an emphasis on identifying and addressing business infrastructure
to position organizations for expansion and profitability. He has achieved outstanding success scaling businesses for rapid profits and market dominance in start-ups, private,
PE-backed, and public companies with revenues up to $2.5 billion.
Monty Lamirato joined the Company as Chief Financial Officer and Secretary in May 2017. From March 2009 to just prior to joining the Company, Mr. Lamirato worked as
an independent consultant providing chief financial officer and financial reporting consulting services to companies of various sizes in a variety of industries. In this capacity,
he prepared and reviewed SEC filings and GAAP-compliant financial statements, provided technical accounting assistance, designed and developed inventory and logistics
systems for inventory management, developed scalable accounting and reporting systems, internal accounting controls and annual budgets and evaluated short-term investment
alternatives for idle cash. From March 2013 until November 2016, Mr. Lamirato served as Chief Financial Officer of Strategic Environmental & Energy Resources, Inc., a
publicly traded holding company that provides a wide range of environmental, renewable fuels and industrial waste stream management services, where he was responsible for
all SEC filings, prepared all GAAP and SEC compliant financial statements and developed financial and operating metrics and other key performance indicators for evaluation
of business results by management. Mr. Lamirato has also served as Chief Financial Officer and Treasurer of ARC Group Worldwide, Inc. from June 2001 to March 2009, Vice
President of Finance at GS2.net, LLC from November 2000 to May 2001, and also Vice President of Finance for PlanetOutdoors.com, Inc. from June 1999 to October 2000. He
began his career as an audit staff member with Coopers & Lybrand in 1977, where he remained until he served as an Audit Manager and Audit Partner with Mitchell Finley and
Company, P.C. from 1986 to 1993. Mr. Lamirato received a Bachelor of Science, cum laude, from Regis College in Denver and is a Certified Public Accountant.
Stephen Aiello has been a Director of the Company since May 2014. Mr. Aiello was a partner at Jones and Company from 2004-2008. From 2001-2003, he worked at 033
Asset Management. From 1986-2001, he was a partner at Montgomery Securities. Mr. Aiello received a B.A. in Psychology from Ithaca College and an MBA from Fordham
University. Since 2010, Mr. Aiello has been a private investor and owner of real estate properties.
Paul Ciasullo has been a Director of the Company since May 2020. He has also been a board member of Leafline Labs, LLC since 2018, which is a provider, manufacturer
and distributor of medical cannabis in Minnesota. In 2010, Mr. Ciasullo founded Wallstreet Research Solutions, LLC, which provided sales, marketing and customer account
services primarily in partnership with and to build a fixed income research firm specializing in bond and loan covenants called Covenant Review, LLC (with which he had been
working to build the business since 2007). Covenant Review and Wallstreet Research Solutions merged and later re-branded as Fulcrum Financial Data LLC and Mr. Ciasullo
acted as President of Global Marketing and Sales and was a board member from 2014 to 2018 when the company was sold to Fitch Ratings Services. While working with
Covenant Review, Mr. Ciasullo built a sales force in the U.S. and London including assimilation of the purchase of a UK company Capital Structure Ltd where he was also on
the Board. From 2005 to 2006, Mr. Ciasullo was a Managing Director at Soleil Securities Group Inc., responsible for developing a strategy for bringing alternative research
such as industry knowledge into a stock research environment. In 2000, Mr. Ciasullo was a founder of and acted as President of CreditSights, Inc., an institutional investment
research firm specializing in fixed income research for institutional investors where, until 2004, he built a global salesforce after overseeing the design and build of the original
website which was amongst the first in the industry to deliver research over the internet. Prior to that, Mr Ciasullo held a number of Managing Director positions as head of
trading at large brokerage firms. Mr. Ciasullo graduated from Brown University in 1981 with a Bachelor of Arts in Economics and International Relations.
Sean Stiefel has been a Director of the Company since January 2018. Mr. Stiefel founded Navy Capital LLC in 2014, where he is currently a Portfolio Manager and is
responsible for all aspects of stock selection, investment due diligence and portfolio construction. Mr. Stiefel launched the Navy Capital Green Fund, LP in 2017 as a global
public equity focused cannabis dedicated fund. Navy Capital has been involved in cannabis related investing since early 2016. Prior to founding Navy Capital, Mr. Stiefel was a
research analyst and trader for Northwoods Capital Management Partners, a global equity fund with a fundamental value and special situations investment strategy. Mr. Stiefel
had previously served as an associate within an equity long/short fund at Millennium Partners, and he began his career as an equities trading analyst for Barclays Capital. He is
a graduate of the University of Southern California’s Marshall school of Business.
32
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 402 of Regulation S-K is incorporated into this Annual Report Form 10-K by reference to the Definitive Proxy Statement for its 2021 Annual
Meeting of Shareholders to be filed within 120 days following December 31, 2020.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by Item 201(d) and Item 403 of Regulation S-K is incorporated into this Annual Report Form 10-K by reference to the Definitive Proxy Statement for
its 2021 Annual Meeting of Shareholders to be filed within 120 days following December 31, 2020.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
The information required by Items 404 and 407(a) of Regulation S-K is incorporated into this Annual Report Form 10-K by reference to the Definitive Proxy Statement for its
2021 Annual Meeting of Shareholders to be filed within 120 days following December 31, 2020.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by Item 9(e) of Schedule 14A is incorporated into this Annual Report Form 10-K by reference to the Definitive Proxy Statement for its 2021 Annual
Meeting of Shareholders to be filed within 120 days following December 31, 2020.
33
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
PART IV
3.1
3.2
4.1
4.2
4.3
4.4
4.5
4.6
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
Certificate of Incorporation of GrowGeneration Corp. (Incorporated by reference to Exhibit 3.1 to the Registration Statement on Form S-1 as filed on November
9, 2015)
Amended and Restated Bylaws of GrowGeneration Corp. (Incorporated by reference to Exhibit 3(ii) to Form 8-K filed on March 11, 2020
Form of Warrant for private placement in March 2017 (Incorporated by reference to Exhibit 99.2 to the Current Report on Form 8-K as filed on March 16, 2017)
Form of Investor Warrant for second 2017 private placement (Incorporated by reference to Exhibit 99.2 to the Current Report on Form 8-K as filed on May 19,
2017)
Form of Placement Agent Warrant ($2.75 Per Share) for second 2017 private placement (Incorporated by reference to Exhibit 99.4 to the Current Report on
Form 8-K as filed on May 19, 2017)
Form of .1% Unsecured Convertible Promissory Note for private placement in January 2018 (Incorporated by reference to Exhibit 99.3 to the Current Report on
Form 8-K as filed on January 12, 2018)
Form of Warrant for private placement in January 2018 (Incorporated by reference to Exhibit 99.4 to the Current Report on Form 8-K as filed on January 12,
2018)
Form of Promissory Note issued to Santa Rosa Hydroponics & Grower Supply, Inc. (Incorporated by reference to Exhibit 99.3 to the Current Report on Form 8-
K as filed on July 16, 2018)
GrowGeneration Corp. 2014 Equity Incentive Plan (Incorporated by reference to Exhibit 10.5 to the Registration Statement on Form S-1 as filed on November
9, 2015)
Form of GrowGeneration Corp. Stock Option Agreement in connection with the 2014 Equity Incentive Plan (Incorporated by reference to Exhibit 10.6 to
the Registration Statement on Form S-1 as filed on November 9, 2015)
GrowGeneration Corp. Amended and Restated 2018 Equity Incentive Plan (Incorporated by reference to Exhibit 10.3 to the Annual Report on Form 10-K for
fiscal year ended December 31, 2019 as filed on March 27, 2020)
Form of GrowGeneration Corp. Stock Option Agreement in connection with the Amended and Restated 2018 Equity Incentive Plan (Incorporated by reference
to Exhibit 10.4 to the Annual Report on Form 10-K for fiscal year ended December 31, 2019 as filed on March 27, 2020)
34
Form of Securities Purchase Agreement for first 2017 private placement (Incorporated by reference to Exhibit 99.1 to the Current Report on Form 8-K as filed
on March 16, 2017)
Form of Subscription Agreement for second 2017 private placement (Incorporated by reference to Exhibit 99.1 to the Current Report on Form 8-K as filed on
May 19, 2017)
Form of Securities Purchase Agreement for 2018 private placement (Incorporated by reference to Exhibit 99.1 to the Current Report on Form 8-K as filed on
January 12, 2018)
Form of Supplement to Securities Purchase Agreement for 2018 private placement (Incorporated by reference to Exhibit 99.2 to the Current Report on Form 8-K
as filed on January 12, 2018)
Form of Asset Purchase Agreement, dated April 12, 2018, by and among GrowGeneration, Corp., GrowGeneration Michigan Corp. and Superior Growers
Supply, Inc. (Incorporated by reference to Exhibit 99.1 to the Current Report on Form 8-K as filed on April 16, 2018)
10.10
Form of Securities Purchase Agreement for second 2018 private placement (Incorporated by reference to Exhibit 99.1 to the Current Report on Form 8-K as filed
on May 9, 2018)
10.11
Form of Side Letter by and between GrowGeneration Corp. and Gotham Green Fund 1, L.P. (Incorporated by reference to Exhibit 99.2 to the Current Report on
Form 8-K as filed on May 9, 2018)
10.12
10.13
10.14
Form of Warrant to Purchase Common Stock (Incorporated by reference to Exhibit 99.3 to the Current Report on Form 8-K as filed on May 9, 2018)
Form of Indemnification Agreement (Incorporated by reference to Exhibit 10.10 to the Registration Statement on Form S-1 as filed on November 9, 2015)
Consulting Agreement with Merida Capital Partners, LP, dated April 3, 2017 (Incorporated by reference to Exhibit 99.1 to the Current Report on Form 8-K as
filed on April 5, 2017)
10.15
Separation and Release Agreement with Jason Dawson, dated April 10, 2017 (Incorporated by reference to Exhibit 99.2 to the Current Report on Form 8-K as
filed on April 14, 2017)
35
10.16
Form of Revised Asset Purchase Agreement, dated June 28, 2018, by and among GrowGeneration Corp., Santa Rosa Hydroponics & Grower Supply Inc., Rick
Barretta and Jason Barretta (Incorporated by reference to Exhibit 99.1 to the Current Report on Form 8-K as filed on July 16, 2018)
10.17
Form of Amendment to Revised Asset Purchase Agreement, dated July 13, 2018 (Incorporated by reference to Exhibit 99.2 to the Current Report on Form 8-K
as filed on July 16, 2018)
10.18
Form of Asset Purchase Agreement, dated August 30, 2018, by and among GrowGeneration Corp., GrowGeneration HG Corp. and Virgus, Inc. d/b/a/ Heavy
Gardens (Incorporated by reference to Exhibit 99.1 to the Current Report on Form 8-K as filed on September 20, 2018)
10.19
Form of Asset Purchase Agreement, dated November 28, 2018, by and among GrowGeneration Corp., GrowGeneration Pueblo Corp. and Chlorophyll, Inc.
(Incorporated by reference to Exhibit 99.1 to the Current Report on Form 8-K as filed on January 22, 2019)
10.20
Form of Asset Purchase Agreement, dated January 26, 2019, by and among GrowGeneration Corp., GrowGeneration California Corp. and Palm Springs
Hydroponics, Inc. (Incorporated by reference to Exhibit 99.1 to the Current Report on Form 8-K as filed on February 12, 2019)
10.21
Form of Asset Purchase Agreement, dated January 26, 2019, by and among GrowGeneration Corp., GrowGeneration Nevada Corp. and Reno Hydroponics, Inc.
(Incorporated by reference to Exhibit 99.4 to the Current Report on Form 8-K as filed on February 12, 2019)
10.22
Form of Asset Purchase Agreement, dated April 23, 2019, by and among GrowGeneration Corp., GrowGeneration Rhode Island Corp. and GreenLife Garden
Supply Corp (Incorporated by reference to Exhibit 99.1 to the Current Report on Form 8-K as filed on May 14, 2019)
10.23
Form of Subscription Agreement for 2019 private placement (Incorporated by reference to Exhibit 99.1 to the Current Report on Form 8-K as filed on June 26,
2019)
10.24
Form of Subscription Warrant to Purchase Common Stock (Incorporated by reference to Exhibit 99.2 to the Current Report on Form 8-K as filed on June 26,
2019)
10.25
Employment Agreement dated November 4, 2019 between GrowGeneration Corp and Tony Sullivan (Incorporated by reference to Exhibit 10.1 to the Current
Report on Form 10-Q as filed on November 12, 2019)
10.26
Form of Employment Agreement dated November 5, 2019 between GrowGeneration Corp and Monty Lamirato (Incorporated by reference to Exhibit 10.28 to
the Annual Report on Form 10-K for fiscal year ended December 31, 2019 as filed on March 27, 2020)
36
21.1
31.1
31.2
32.1
32.2
List of Subsidiaries of GrowGeneration Corp. (Incorporated by reference to Exhibit 21.1 to the Annual Report on Form 10-K for fiscal year ended December
31, 2019 as filed on March 27, 2020)
Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer (Filed herewith.)
Rule 13a-14(a)/15d-14(a) Certification of Principal Financial and Accounting Officer (Filed herewith.)
Section 1350 Certification of Principal Executive Officer (Filed herewith.)
Section 1350 Certification of Principal Financial and Accounting Officer (Filed herewith.)
101.INS
XBRL Instance Document (Filed herewith.)
101.SCH
XBRL Taxonomy Extension Schema Document (Filed herewith.)
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document (Filed herewith.)
101.LAB
XBRL Taxonomy Extension Label Linkbase Document (Filed herewith.)
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document (Filed herewith.)
101.DEF
XBRL Taxonomy Extension Definition Linkbase Definition (Filed herewith.)
37
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized on March 28,
2021.
GROWGENERATION CORP.
By:
By:
/s/ Darren Lampert
Name: Darren Lampert
Title: Chief Executive Officer
(Principal Executive Officer)
/s/ Monty Lamirato
Name: Monty Lamirato
Title: Chief Financial Officer
(Principal Financial Officer)
KNOW ALL MEN BY THESE PRESENTS, that we, the undersigned officers and directors GrowGeneration Corp., a Colorado corporation (the “Registrant”), do
hereby constitute and appoint Darren Lampert and Monty Lamirato, and each of them, as his or her true and lawful attorney-in-fact and agents, with full power of substitution
and re-substitution, for him and in his name, place, and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the
same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and
each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming that all said attorneys-in-fact and agents, or any of them or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
Person
Capacity
/s/ Darren Lampert
Darren Lampert
/s/ Monty Lamirato
Monty Lamirato
/s/ Michael Salaman
Michael Salaman
/s/ Stephen Aiello
Stephen Aiello
/s/ Paul Ciasullo
Paul Ciasullo
/s/ Sean Stiefel
Sean Stiefel
Chief Executive Officer and Director
(Principal Executive Officer)
Chief Financial Officer
(Principal Financial and Accounting Officer)
President and Director
Director
Director
Director
38
Date
March 28, 2021
March 28, 2021
March 28, 2021
March 28, 2021
March 28, 2021
March 28, 2021
Exhibit 31.1
I, Darren Lampert, the Principal Executive Officer of GrowGeneration Corp. (the “Company”), certify that:
1. I have reviewed this Form 10-K of the Company for the year ended December 31, 2020;
OFFICER’S CERTIFICATE PURSUANT TO SECTION 302
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results
of operations and cash flows of the Company as of, and for, the periods presented in this report;
4. The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material
information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this
report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
c. Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter (the Company’s
fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial
reporting; and
5. The Company’s other certifying officer and I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the Company’s auditors and
the audit committee of the Company’s board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the
Company’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.
Dated: March 28, 2021
By:
/s/ Darren Lampert
Darren Lampert
Chief Executive Officer
(Principal Executive Officer)
Exhibit 31.2
I, Monty Lamirato, the Principal Financial Officer of GrowGeneration Corp. (the “Company”), certify that:
1. I have reviewed this Form 10-K of the Company for the year ended December 31, 2020;
OFFICER’S CERTIFICATE PURSUANT TO SECTION 302
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results
of operations and cash flows of the Company as of, and for, the periods presented in this report;
4. The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material
information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this
report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
c. Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter (the Company’s
fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial
reporting; and
5. The Company’s other certifying officer and I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the Company’s auditors and
the audit committee of the Company’s board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the
Company’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.
Dated: March 28, 2021
By:
/s/ Monty Lamirato
Monty Lamirato
Chief Financial Officer
(Principal Financial Officer)
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the Annual Report of GrowGeneration Corp. (the “Company”) on Form 10-K for the year ended December 31, 2020 as filed with the Securities and
Exchange Commission on the date hereof (the “Report”), I, Darren Lampert, Principal Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss.1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
A signed original of this written statement required by Section 906 has been provided to the undersigned and will be retained by the Company and furnished to the Securities
and Exchange Commission or its staff upon request.
Dated: March 28, 2021
By:
/s/ Darren Lampert
Darren Lampert
Chief Executive Officer
(Principal Executive Officer)
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
In connection with the Annual Report of GrowGeneration Corp. (the “Company”) on Form 10-K for the year ended December 31, 2020 as filed with the Securities and
Exchange Commission on the date hereof (the “Report”), I, Monty Lamirato, Principal Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss.1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
A signed original of this written statement required by Section 906 has been provided to the undersigned and will be retained by the Company and furnished to the Securities
and Exchange Commission or its staff upon request.
Dated: March 28, 2021
By:
/s/ Monty Lamirato
Monty Lamirato
Chief Financial Officer
(Principal Financial Officer)