EXHIBIT 99.3
GROWGENERATION
CORP AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED AND COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed and combined financial information and related notes present the historical condensed combined financial information of GrowGeneration Corp and Subsidiaries (hereinafter referred to as “GrowGeneration”, “we,” “our,” “us” and similar terms unless the context indicates otherwise) and Santa Rosa Hydroponics & Grower Supply LLC. (hereinafter referred to as “Santa Rosa Hydro”), after giving effect to GrowGeneration’s acquisition of certain assets of Santa Rosa Hydro that was completed on July 13, 2018 (the “Acquisition Date”). The unaudited pro forma condensed combined financial information gives effect to our acquisition of Santa Rosa Hydro based on the assumptions, reclassifications and adjustments described in the accompanying notes to the unaudited pro forma condensed combined financial information.
The unaudited pro forma condensed combined balance sheet as of June 30, 2018 reflects the acquisition of certain assets of Santa Rosa Hydro as if the acquisition had occurred on June 30, 2018. The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2017 and the six months ended June 30, 2018 combines GrowGeneration’s and Santa Rosa Hydro’s historical results and are presented as if the acquisition had occurred on January 1, 2017 and 2018, respectively.
The condensed combined financial statements include pro forma adjustments for preliminary valuations of certain tangible and intangible assets by GrowGeneration’s management as of the acquisition date of July 13, 2018. These adjustments are subject to further revision upon finalization of the transaction, the related intangible asset valuations and fair value determinations. The determination and preliminary allocation of the purchase consideration used in the unaudited pro forma condensed combined financial information are based upon preliminary estimates, which are subject to change during the measurement period as we finalize the valuations of the net tangible and intangible assets acquired.
The unaudited pro forma adjustments are not necessarily indicative of or intended to represent the results that would have been achieved had the transaction been consummated as of the dates indicated or that may be achieved in the future. The actual results reported by the combined company in periods following the acquisition may differ significantly from those reflected in these unaudited pro forma condensed combined financial information for a number of reasons, including cost saving synergies from operating efficiencies and the effect of the incremental costs incurred to integrate the two companies.
| F-1 |
GROWGENERATION CORP AND SUBSIDIARIES
UNAUDITED POR FORM CONDENSED COMBINED BALANCE SHEET
AS OF JUNE 30, 2018
| Historical | |||||||||||||||||
GrowGeneration | Santa Rosa Hydro | Pro Forma Adjustments | Pro Forma Combined | ||||||||||||||
| ASSETS | |||||||||||||||||
| Current assets: | |||||||||||||||||
| $ | (276,264 | ) | a | ||||||||||||||
| Cash and cash equivalents | $ | 17,433,339 | $ | 276,264 | (2,424,000 | ) | b | $ | 15,009,339 | ||||||||
| Accounts receivable, net | 954,309 | - | - | 954,309 | |||||||||||||
| Inventory | 8,089,018 | 1,500,000 | - | 9,589,018 | |||||||||||||
| Advances to shareholders | - | 300,000 | (300,000 | ) | a | - | |||||||||||
| Prepaid expenses and other current assets | 610,141 | 32,000 | (32,000 | ) | a | 610,141 | |||||||||||
| Total current assets | 27,086,807 | 2,108,264 | (3,032,264 | ) | 26,162,807 | ||||||||||||
| Property and equipment, net | 1,411,591 | 80,548 | 19,455 | b | 1,511,594 | ||||||||||||
| Intangible assets, net | 60,251 | - | - | 60,251 | |||||||||||||
| Goodwill | 3,399,412 | - | 4,883,497 | b | 8,282,909 | ||||||||||||
| Other assets | 96,589 | - | - | 96,589 | |||||||||||||
| TOTAL ASSETS | $ | 32,054,650 | $ | 2,188,812 | $ | 1,870,688 | $ | 36,114,150 | |||||||||
| LIABILITIES & STOCKHOLDERS’ EQUITY | |||||||||||||||||
| Current liabilities: | |||||||||||||||||
| Accounts payable | $ | 1,754,952 | $ | 75,771 | $ | (75,771 | ) | a | $ | 1,754,952 | |||||||
| Other accrued liabilities | 5,220 | - | - | 5,220 | |||||||||||||
| Payroll and payroll tax liabilities | 163,299 | - | - | 163,299 | |||||||||||||
| Customer deposits | 149,608 | - | - | 149,608 | |||||||||||||
| Sales tax payable | 217,880 | - | - | 217,880 | |||||||||||||
| Current portion of long-term debt | 323,118 | - | 70,100 | b | 393,218 | ||||||||||||
| Total current liabilities | 2,614,077 | 75,771 | (5,671 | ) | 2,684,177 | ||||||||||||
| Long-term convertible debt, net of debt discount and debt issuance costs | 4,516,541 | 4,516,541 | |||||||||||||||
| Long term debt, net of current portion | 286,868 | 344,900 | b | 631,768 | |||||||||||||
| Total liabilities | 7,417,486 | 75,771 | 339,229 | 7,832,486 | |||||||||||||
| Commitments and contingencies | |||||||||||||||||
| Stockholders’ Equity: | |||||||||||||||||
| Common stock | 23,965 | 925 | b | 24,890 | |||||||||||||
| Additional paid-in capital | 30,188,825 | 3,643,575 | b | 33,832,400 | |||||||||||||
| Accumulated equity (deficit) | (5,575,626 | ) | 2,113,041 | (2,113,041 | ) | a | (5,575,626 | ) | |||||||||
| Total stockholders’ equity | 24,637,164 | 2,113,041 | 1,531,459 | 28,281,664 | |||||||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 32,054,650 | $ | 2,188,812 | $ | 1,870,688 | $ | 36,114,150 | |||||||||
| F-2 |
GROWGENERATION CORP AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2017
| Historical | |||||||||||||||||
| GrowGeneration Corp | Santa Rosa Hydro | Pro Forma Adjustments | Pro Forma Combined | ||||||||||||||
| Sales | $ | 14,363,886 | $ | 12,439,511 | $ | - | $ | 26,803,397 | |||||||||
| Cost of sales | 11,094,331 | 10,607,486 | - | 21,701,817 | |||||||||||||
| Gross profit | 3,269,555 | 1,832,025 | 5,101,580 | ||||||||||||||
| Operating expenses: | |||||||||||||||||
| Store operations | 2,963,306 | 267,300 | - | 3,230,606 | |||||||||||||
| General and administrative | 1,022,401 | 450,577 | - | 1,472,978 | |||||||||||||
| Share based compensation | 1,077,932 | - | - | 1,077,932 | |||||||||||||
| (62,494 | ) | d | |||||||||||||||
| Depreciation and amortization | 151,561 | 62,494 | 20,000 | d | 171,561 | ||||||||||||
| Salaries and related expenses | 904,868 | 453,943 | - | 1,358,811 | |||||||||||||
| Total operating expenses | 6,120,068 | 1,234,314 | (42,494 | ) | 7,311,888 | ||||||||||||
| Income (loss) from operations | (2,850,513 | ) | 597,711 | 42,494 | (2,210,308 | ) | |||||||||||
| Other income (expense): | |||||||||||||||||
| Gain on settlements | 322,058 | - | - | 322,058 | |||||||||||||
| Other income | 1,633 | 1,521 | - | 3,154 | |||||||||||||
| Other expense | (421 | ) | - | - | (421 | ) | |||||||||||
| Interest expense | (15,339 | ) | (6,053 | ) | (31,145 | ) | c | (52,537 | ) | ||||||||
| Total non-operating income (expense), net | 307,931 | (4,532 | ) | (31,145 | ) | 272,254 | |||||||||||
| Net income (loss) | $ | (2,542,582 | ) | $ | 593,179 | $ | 11,349 | (1,938,054 | ) | ||||||||
| Net loss per shares, basic and diluted | $ | (.18 | ) | $ | (.13 | ) | |||||||||||
| Weighted average shares outstanding, basic and diluted | 14,510,582 | - | 925,000 | 15,435,582 | |||||||||||||
| F-3 |
GROWGENERATION CORP AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2018
| Historical | |||||||||||||||||
| GrowGeneration Corp | Santa Rosa Hydro | Pro Forma Adjustments | Pro Forma Combined | ||||||||||||||
| Sales | $ | 11,534,558 | $ | 3,527,073 | $ | - | $ | 15,061,631 | |||||||||
| Cost of sales | 8,614,719 | 2,583,068 | - | 11,197,787 | |||||||||||||
| Gross profit | 2,919,839 | 944,005 | - | 3,863,844 | |||||||||||||
| Operating expenses: | |||||||||||||||||
| Store operations | 2,029,848 | 130,500 | - | 2,160,348 | |||||||||||||
| General and administrative | 762,873 | 185,387 | - | 948,260 | |||||||||||||
| Share based compensation | 553,348 | - | - | 553,348 | |||||||||||||
| (25,042 | ) | d | |||||||||||||||
| Depreciation and amortization | 126,994 | 25,042 | 10,000 | d | 136,994 | ||||||||||||
| Salaries and related expenses | 726,810 | 167,412 | - | 894,222 | |||||||||||||
| Total operating expenses | 4,199,873 | 508,341 | (15,042 | ) | 4,693,172 | ||||||||||||
| Income (loss) from operations | (1,280,034 | ) | 435,664 | (15,042 | ) | (829,328 | ) | ||||||||||
| Other income (expense): | |||||||||||||||||
| Amortization of debt discount | (622,096 | ) | - | - | (622,096 | ) | |||||||||||
| Interest income | 29,627 | - | - | 29,627 | |||||||||||||
| Other income (expense) | 8,444 | 7,006 | - | 15,450 | |||||||||||||
| Interest expense | (19,330 | ) | - | (16,282 | ) | c | (35,612 | ) | |||||||||
| Total non-operating income (expense), net | (603,355 | ) | 7,006 | (16,282 | ) | (612,631 | ) | ||||||||||
| Net income (loss) | $ | (1,883,389 | ) | $ | 442,670 | $ | (1,240 | ) | (1,441,959 | ) | |||||||
| Net loss per shares, basic and diluted | $ | (.09 | ) | $ | (.07 | ) | |||||||||||
| Weighted average shares outstanding, basic and diluted | 20,230,146 | 925,000 | 21,155,146 | ||||||||||||||
| F-4 |
GROWGENERATION
CORP
NOTES TO UNAUDITED PRO FORMA
CONDENSED AND COMBINED FINANCIAL STATEMENTS
1. BASIS OF PRO FORMA PRESENTATION
The unaudited pro forma condensed and combined balance sheet as of June 30, 2018 combines GrowGeneration’s historical condensed consolidated balance sheet with the historical balance sheet of SANTA ROSA HYDRO and has been prepared as if our acquisition of certain assets of SANTA ROSA HYDRO occurred on June 30, 2018. The unaudited pro forma condensed and combined statements of operations for the year ended December 31, 2017 and for the six months ended June 30, 2018 combine our historical condensed consolidated statements of operations with SANTA ROSA HYDRO’s historical statements of operations and have been prepared as if the acquisition occurred on January 1, 2017, 2018, respectively. The historical financial information is adjusted in the unaudited pro forma condensed combined financial information to give effect to pro forma events that are (1) directly attributable to the proposed acquisition, (2) factually supportable, and (3) with respect to the condensed combined statements of operations and comprehensive income, expected to have a continuing impact on the combined results.
We have accounted for the asset acquisition in this unaudited pro forma condensed combined financial information using the acquisition method of accounting in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 805 “Business Combinations” (“ASC 805”). In accordance with ASC 805, we use our best estimates and assumptions to assign fair value to the tangible and intangible assets acquired and liabilities assumed at the Acquisition Date. Goodwill as of the Acquisition Date is measured as the excess of purchase consideration over the fair value of net tangible and identifiable intangible assets acquired.
The pro forma adjustments described below were developed based on GrowGeneration management’s assumptions and estimates, including assumptions relating to the consideration paid and the allocation thereof to the assets acquired from SANTA ROSA HYDRO based on preliminary estimates of fair value. The final purchase consideration and the allocation of the purchase consideration will differ from that reflected in the unaudited pro forma condensed combined financial information after final valuation procedures are performed and amounts are finalized following the completion of the acquisition.
The unaudited pro forma condensed combined financial information is provided for illustrative purposes only and does not purport to represent what the actual consolidated results of operations or the consolidated financial position of the combined company would have been had the acquisition occurred on the dates assumed, nor are they necessarily indicative of future consolidated results of operations or financial position.
The unaudited pro forma condensed and combined financial information does not reflect any integration activities or cost savings from operating efficiencies, synergies, asset dispositions or other restructurings that could result from the acquisition.
2. PRELIMINARY PURCHASE CONSIDERATION AND RELATED ALLOCATION
The assets subject to the sale under the Purchase Agreement included inventories, fixed assets, tangible personal property, intangible personal property and contracts. The Company agreed to pay the sellers a total of $1,800,000 and 300,000 shares of common stock of the Company as consideration for the assets.
| Cash at closing | $ | 2,425,000 | ||
| Fair value of common stock issued | 3,645,000 | |||
| Seller financed notes | 415,000 | |||
| Total purchase consideration | $ | 6,485,000 |
| F-5 |
The following table summarizes the preliminary allocation of the assets acquired based on their fair values on the acquisition date.
| Inventory | $ | 1,500,000 | ||
| Property and equipment | 100,000 | |||
| Goodwill | 4,885,000 | |||
| Total | $ | 6,485,000 |
Upon completion of the fair value assessment, it is anticipated that the final purchase price allocation will differ from the preliminary assessment outlined above. The final allocation could differ materially from the preliminary allocation used in the pro forma adjustments. Any changes to the preliminary estimates of the fair value of the assets acquired and liabilities assumed will be recorded as adjustments to those assets and liabilities and residual amounts will be allocated to goodwill.
3. PRO FORMA ADJUSTMENTS
The pro forma adjustments included in the unaudited pro forma condensed and combined financial statements are as follows:
| a) | Eliminate assets and liabilities not acquired in the asset purchase. |
| b) | Record cash issued at closing, fair value of common stock issued and seller financing notes payable to fair market value of assets acquired. |
| c) | Record interest related to seller financing notes payable |
| d) | Adjust depreciation expense for fair market value of property and equipment acquired |
| F-6 |