Quarterly report pursuant to Section 13 or 15(d)

Acquisitions

v3.21.1
Acquisitions
3 Months Ended
Mar. 31, 2021
Business Combinations [Abstract]  
ACQUISITIONS
13. ACQUISITIONS

Our acquisition strategy is to acquire (i) well established profitable hydroponic garden centers in markets where the Company does not have a market presence or in markets where it is increasing its market presence; and (ii) proprietary brands and private label brands. 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. The Company has made any adjustments to the preliminary valuations on four of the eight acquisition based on valuation analysis prepared by independent third-party valuation consultants. The acquisitions for which an independent third-party valuation analysis has been competed includes Agron, LLC, Charcoir, Grow Warehouse and San Diego Hydro. The remaining four valuations, Aquarius, 55 Hydro, Grow Depot Maine and Indoor Garden, are expected to be completed by June 30, 2021. 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.


Acquisitions during the three months ended March 31, 2021.


On January 25, 2021, the Company purchased the assets of Indoor Garden & Lighting, Inc, a two-store chain of hydroponic and equipment and indoor gardening supply stores serving the Seattle and Tacoma, Washington area. The total consideration for the purchase of Garden & Lighting was approximately $1.7 million, including $1.2 million in cash and common stock valued at approximately $0.5 million. Acquired goodwill of approximately $0.8 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company.


On February 1, 2021, the Company purchased the assets of J.A.R.B., Inc d/b/a Grow Depot Maine, a two-store chain in Auburn and Augusta, Maine. The total consideration for the purchase of Grow Depot Maine was approximately $2.1 million, including $1.7 million in cash and common stock valued at approximately $0.4 million. Acquired goodwill of approximately $1.3 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company.


On 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. Acquired goodwill of approximately $9.6 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company.


On February 22, 2021, the Company purchased the assets of San Diego Hydroponics & Organics, a four-store chain of hydroponic and organic garden stores in San Diego, 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. Acquired goodwill of approximately $5.6 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company.


On March 12, 2021, the Company purchased the assets of Charcoir Corporation, who sells an RHP-certified growing medium made from the highest-grade coconut fiber. The total consideration for the purchase of Charcoir was approximately $16.4 million, including $9.9 million in cash and common stock valued at approximately $6.5 million. Acquired goodwill of approximately $7.1 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established distribution market for the Company of a proprietary brand.


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 $6.5 million, including $5.4 million in cash and common stock valued at approximately $1.1 million. Acquired goodwill of approximately $3.8 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company.


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. Acquired goodwill of approximately $1.6 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company.


On March 19, 2021, the Company purchased the assets of Agron, LLC, an online seller of growing equipment. The total consideration for the purchase of Agron was approximately $11.3 million, including $6 million in cash and common stock valued at approximately $5.3 million. Acquired goodwill of approximately $8.3 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established e-commerce market for the Company targeting the commercial customer.


The table below represents the allocation of the purchase price to the acquired net assets during the three months ended March 31, 2021.


    Agron     Aquarius     55 Hydro     Charcoir     San Diego Hydro     Grow Warehouse     Grow Depot Maine     Indoor Garden     Total  
Inventory   $ -     $ 957     $ 780     $ 839     $ 1,400     $ 2,448     $ 326     $ 372     $ 7,122  
Prepaids and other current assets     29       12       29       534       36       30       3       -       673  
Furniture and equipment     46       63       50       -       315       250       25       94       843  
Liabilities     -       -       -       -       -       (169 )     -       -       (169 )
Operating lease right to use asset     87       -       853             970       94       91       129       2,224  
Operating lease liability     (87 )     -       (853 )           (970 )     (94 )     (91 )     (129 )     (2,224 )
Customer relationships     858       356       453       6,454       533       1,136       215       163       10,168  
Trade name     1,824       498       1,296       1,466       1,412       4,393       301       235       11,425  
Non-compete     160       36       65       -       5       94       21       21       402  
Goodwill     8,332       1,636       3,806       7,075       5,581       9,597       1,258       807       38,092  
Total   $ 11,249     $ 3,558     $ 6,479     $ 16,368     $ 9,282     $ 17,779     $ 2,149     $ 1,692     $ 68,556  

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


    Agron     Aquarius     55 Hydro     Charcoir     San Diego Hydro     Grow Warehouse     Grow
Depot Maine
    Indoor Garden     Total  
Cash   $ 5,973     $ 2,331     $ 5,347     $ 9,902     $ 4,751     $ 8,100     $ 1,738     $ 1,165     $ 39,307  
Common stock     5,276       1,227       1,132       6,466       4,531       9,679       411       527       29,249  
Total   $ 11,249     $ 3,558     $ 6,479     $ 16,368     $ 9,282     $ 17,779     $ 2,149     $ 1,692     $ 68,556  

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 March 31, 2021.


    Agron     Aquarius     55 Hydro     Charcoir     San Diego Hydro     Grow Warehouse     Grow Depot Maine     Indoor Garden     Total  
Acquisition date     3/19/2021       3/15/2021       3/15/2021       3/12/2021       2/22/2021       2/15/2021       2/1/2021       1/25/2021          
Revenue   $ 230     $ 185     $ 328     $ 276     $ 1,001     $ 2,168     $ 993     $ 805     $ 5,986  
Net Income   $ 22     $ 16     $ 32     $ 101     $ 117     $ 294     $ 205     $ 118     $ 905  

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 quarter ended March 31, 2021 and 2020.


    March 31, 2021
(Unaudited)
    March 31, 2020
(Unaudited)
 
Revenue   $ 99,095     $ 49,625  
Net income   $ 7,403     $ 503  

Acquisitions during the three months ended March 31, 2020.


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 represented 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.


The table below represents the allocation of the purchase price to the acquired net assets during the three months ended March 31, 2020.


    Health & Harvest LLC  
Inventory   $ 1,054  
Furniture and equipment     51  
Right to use asset     192  
Lease liability     (192 )
Customer relationships     246  
Trade name     431  
Non-compete     6  
Goodwill     1,065  
Total   $ 2,853  

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


    Health & Harvest LLC  
Cash   $ 1,750  
Common stock     1,103  
Total   $ 2,853  

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 March 31, 2020.


    Health & Harvest LLC  
Acquisition date     2/26/2020  
Revenue   $ 559  
Earnings   $ 112  

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 three months ended March 31, 2020 and 2019.


Pro forma consolidated income statement:


    March 31, 2020     March 31,
2019
 
Revenue   $ 34,076     $ 14,579  
Earnings   $ (1,873 )   $ 688