Quarterly report pursuant to Section 13 or 15(d)

ACQUISITIONS

v3.22.2
ACQUISITIONS
6 Months Ended
Jun. 30, 2022
Business Combination and Asset Acquisition [Abstract]  
ACQUISITIONS ACQUISITIONS
 
Our acquisition strategy is primarily to acquire (i) well established profitable hydroponic garden centers in markets where the Company does not have a market presence or in markets where it is increasing its market presence; 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 Condensed Consolidated Balance Sheets at their estimated fair values, as of the acquisition date. For all acquisitions, the preliminary allocation of purchase price was based upon the preliminary valuation, and the Company's estimates and assumptions are subject to change within the measurement period as valuations are finalized, not to exceed one year from the acquisition date. The Company has made adjustments to the preliminary valuations of the acquisitions based on valuation analyses prepared by independent third-party valuation consultants. During the six months ended June 30, 2022 our measurement period adjustments included increasing goodwill by $1.3 million offset with intangible assets. As a result of these measurement period adjustments, we made an insignificant reduction in amortization expense. All acquisition costs are expensed as incurred and recorded in general and administrative expenses in the Condensed Consolidated Statements of Operations.
 
Acquisition during the six months ended June 30, 2022
 
On February 1, 2022, the Company purchased all of the assets of Horticultural Rep Group, Inc. (“HRG”), a specialty marketing and sales organization of horticultural products based in Ogden, Utah. The total consideration for the purchase of HRG was approximately $13.4 million, including $6.8 million in cash and common stock valued at $5.7 million. The Asset Purchase Agreement also provides for an indemnity holdback to be settled in common stock of the Company valued at $0.9 million. Acquired goodwill represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company. HRG is included in our Distribution and other segment.

The table below represents the allocation of the purchase price to the acquired net assets during the six months ended June 30, 2022.

  HRG
Inventory $ 4,170 
Prepaids and other current assets 76 
Furniture and equipment 148 
Operating lease right of use asset 666 
Operating lease liability (666)
Customer relationships 2,430 
Trademark 496 
Non-compete 255 
Goodwill 5,816 
Total $ 13,391 

The table below represents the consideration paid for the net assets acquired in business combinations.
  HRG
Cash $ 6,806 
Indemnity stock holdback 875 
Common stock 5,710 
Total $ 13,391 
The following table discloses the date of the acquisition noted above and the revenue and earnings included in the Condensed Consolidated Statement of Operations for the period ended June 30, 2022. Revenue and earnings amounts include other proprietary brands now being included under HRG for operations.
  HRG
Acquisition date February 1, 2022
Revenue 8,086 
Net Income 130 


The following represents the pro forma Condensed Consolidated Statement of Operations as if the acquisition had been included in the consolidated results of the Company for the entire period for the three and six months ended June 30, 2022 and 2021.

Three Months Ended June 30, Six Months Ended June 30,
  2022 2021 2022 2021
Revenue $ 70,939  $ 130,535  $ 154,542  $ 223,993 
Net income (loss) $ (8,626) $ 6,899  $ (13,802) $ 13,046 

Acquisitions during 2021

On January 25, 2021, the Company purchased all of 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 $0.7 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company. Indoor Garden & Lighting, Inc. is included in our Retail segment.
 
On February 1, 2021, the Company purchased all of 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 $0.9 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company. Grow Depot Maine is included in our Retail segment.

On February 15, 2021, the Company purchased all of 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 $11.1 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company. Grow Warehouse LLC is included in our Retail segment.
 
On February 22, 2021, the Company purchased all of the assets of San Diego Hydroponics & Organics, a four-store chain of hydroponic and organic garden stores in San Diego, California. The total consideration for the purchase of San Diego Hydroponics was approximately $9.3 million, including $4.8 million in cash and common stock valued at approximately $4.5 million. Acquired goodwill of approximately $5.7 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company. San Diego Hydroponics & Organics is included in our Retail segment.
 
On March 12, 2021, the Company purchased all of the assets of Charcoir Corporation, which sells an RHP-certified growing medium made from the highest-grade coconut fiber. The total consideration for the purchase of Charcoir was approximately $16.4 million, including $9.9 million in cash and common stock valued at approximately $6.5 million. Acquired goodwill of approximately $6.1 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established distribution market for the Company of a proprietary brand. Charcoir is included in our Distribution and other segment.
 
On March 15, 2021, the Company purchased all of the assets of 55 Hydroponics, a hydroponic and organic superstore located in Santa Ana, California. The total consideration for the purchase of 55 Hydroponics was approximately $6.5 million, including $5.4 million in cash and common stock valued at approximately $1.1 million. Acquired goodwill of approximately $3.9 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company. 55 Hydroponics is included in our Retail segment.
 
On March 15, 2021, the Company purchased all of the assets of Aquarius, a hydroponic and organic garden store in Springfield, Massachusetts. 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 $1.7 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company. Aquarius is included in our Retail segment.
 
On March 19, 2021, the Company purchased all of 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 $6.0 million in cash and common stock valued at approximately $5.3 million. Acquired goodwill of approximately $8.7 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established e-commerce market for the Company targeting the commercial customer. Agron is included in our E-commerce segment.
On April 19, 2021, the Company purchased the assets of Grow Depot LLC ("Down River Hydro"), a hydroponic and indoor gardening supply store in Brownstown, Michigan. The total consideration for the purchase of Down River Hydro was approximately $4.4 million, including approximately $3.2 million in cash and common stock valued at approximately $1.2 million. Acquired goodwill of approximately $2.1 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company. Down River Hydro is included in our Retail segment.
On May 24, 2021, the Company purchased the assets of The Harvest Company ("Harvest"), a northern California-based hydroponic supply center and cultivation design innovator with stores in Redding and Trinity Counties. The total consideration for the purchase of Harvest was approximately $8.3 million, including approximately $5.6 million in cash and common stock valued at approximately $2.8 million. Acquired goodwill of approximately $4.6 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company. Harvest is included in our Retail segment.
On July 19, 2021, the Company purchased the assets of Aqua Serene, Inc., ("Aqua Serene"), an Oregon corporation which consists of an indoor/outdoor garden center with stores in Eugene and Ashland, Oregon. The total consideration for the purchase was approximately $11.7 million, including approximately $9.9 million in cash and common stock valued at approximately $1.8 million. Acquired goodwill of approximately $7.0 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company. Aqua Serene is included in our Retail segment.
On July 3, 2021, the Company purchased the assets of Mendocino Greenhouse & Garden Supply, Inc, ("Mendocino") a Northern California-based hydroponic garden center located in Mendocino, California. The purchase agreement was modified on July 19, 2021 to amend the purchase price. The total consideration for the purchase was approximately $4.0 million in cash. This acquisition allows the Company to expand its footprint in the Northern California. Acquired goodwill of approximately $2.1 million represents the value expected to rise from organic growth and an opportunity to expand into a well established market for the Company. Mendocino is included in our Retail segment.
On August 24, 2021, the Company purchased the assets of Commercial Grow Supply, Inc. ("CGS"), a hydroponic superstore located in Santa Clarita, California. The total consideration for the purchase was approximately $7.2 million, including approximately $6.0 million in cash and common stock valued at approximately $1.3 million. Acquired goodwill of approximately $4.0 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company. CGS is included in our Retail segment.
On August 23, 2021 the Company purchased the assets of Hoagtech Hydroponics, Inc. ("Hoagtech"), a Washington -based corporation consisting of a hydroponic and garden supply center serving the Bellingham, Washington area. The total consideration for the purchase was approximately $3.9 million in cash. The Asset Purchase Agreement contains a contingent payment equal to approximately $0.6 million to be settled in common stock of the Company if this garden supply center reaches $8.0 million in revenue within a 12-month calendar period from the date of close. The Company used a third-party specialist to value this contingent consideration. The probability that the target will be reached was determined to be 5% which resulted in a value of approximately $28.5 thousand of contingent consideration which was added to
goodwill. This acquisition expands our footprint in the Pacific Northwest. Acquired goodwill represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company. Hoagtech is included in our Retail segment.
On October 15, 2021, the Company purchased the assets of Indoor Store, LLC ("All Seasons Gardening"), an indoor-outdoor garden supply center specializing in hydroponics systems, lighting, and nutrients. All Seasons Gardening is the largest hydroponics retailer in New Mexico. The total consideration for the purchase was approximately $0.9 million, including approximately $0.7 million in cash and common stock valued at approximately $0.2 million. Acquired goodwill of approximately $0.5 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company. All Seasons is included in our Retail segment.
On December 31, 2021, the Company purchased the assets of Mobile Media, Inc and MMI Agriculture ("MMI"), a mobile shelving design and build facility. The total consideration for the purchase was approximately $9.1 million, including approximately $8.3 million in cash and common stock valued at approximately $0.8 million. Acquired goodwill of approximately $1.2 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company. The measurement of the intangible assets for MMI is still provisional and may be subject to future adjustments as the Company obtains additional information to finalize the accounting for the acquisition. MMI is included in our Distribution and other segment.

The table below represents the allocation of the purchase price to the acquired net assets during 2021.

  Agron Aquarius 55 Hydro Charcoir San Diego Hydro Grow Warehouse Grow Depot Maine Indoor Garden Downriver
Inventory $ —  $ 957  $ 780  $ 839  $ 1,400  $ 2,450  $ 326  $ 372  $ 824 
Prepaids and other current assets 46  12  29  534  36  30  — 
Furniture and equipment 29  63  50  —  315  250  25  94  50
Liabilities —  —  —  —  —  (169) —  —  — 
Operating lease right of use asset 98  108  861  —  1,079  641  92  137  273 
Operating lease liability (98) (108) (861) —  (1,079) (641) (92) (137) (273)
Customer relationships 832  339  809  5,712  605  1,256  549  210  634 
Trade name 1,530  485  870  1,099  1,192  2,748  344  353  698 
Non-compete 139  —  26  —  94  36  16 
Intellectual property —  —  —  2,065  —  —  —  —  — 
Goodwill 8,673  1,702  3,915  6,119  5,728  11,120  866  661  2,126 
Total $ 11,249  $ 3,558  $ 6,479  $ 16,368  $ 9,282  $ 17,779  $ 2,149  $ 1,692  $ 4,351 
 
Harvest Aquaserene Mendocino CGS Hoagtech All Seasons MMI Total
Inventory $ 1,204  1,696  753  875  751  100  3,530  $ 16,857 
Prepaids and other current assets 37  —  742 
Furniture and equipment 100  500  160  100  144  25  328  2,233 
Liabilities —  —  —  —  (29) —  (250) (448)
Operating lease right to use asset 3,782  1,177  408  746  1,569  37  2,332  13,340 
Operating lease liability (3,782) (1,177) (408) (746) (1,569) (37) (2,332) (13,340)
Customer relationships 1,016  1,235  575  1,382  493  154  2,964  18,765 
Trade name 1,392  1,231  414  852  428  117  1,039  14,792 
Non-compete —  11  11  —  238  588 
Intellectual property —  —  —  —  —  —  —  2,065 
Goodwill 4,606  6,976  2,091  4,027  2,105  545  1,202  62,462 
Total $ 8,325  11,651  4,000  $ 7,248  3,932  942  9,051  $ 118,056 

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

  Agron Aquarius 55 Hydro Charcoir San Diego Hydro Grow Warehouse Grow
Depot Maine
Indoor Garden Downriver
Cash $ 5,973  $ 2,331  $ 5,347  $ 9,902  $ 4,751  $ 8,100  $ 1,738  $ 1,165  $ 3,177 
Common stock 5,276  1,227  1,132  6,466  4,531  9,679  411  527  1,174 
Total $ 11,249  $ 3,558  $ 6,479  $ 16,368  $ 9,282  $ 17,779  $ 2,149  $ 1,692  $ 4,351 
  
Harvest Aquaserene Mendocino CGS Hoagtech All Seasons MMI Total
Cash $ 5,561  $ 9,860  $ 4,000  $ 5,976  $ 3,932  $ 701  $ 8,270  $ 80,784 
Common stock 2,764  1,791  —  1,272  —  241  781  37,272 
Total $ 8,325  $ 11,651  $ 4,000  $ 7,248  $ 3,932  $ 942  $ 9,051  $ 118,056 
The following table discloses the date of the acquisitions noted above and the revenue and earnings included in the consolidated income statement for the period ended June 30, 2021.
 
  Agron Aquarius 55 Hydro Charcoir San Diego Hydro Grow Warehouse Grow Depot Maine Indoor Garden Downriver
Acquisition date 3/19/2021 3/15/2021 3/15/2021 3/12/2021 2/22/2021 2/15/2021 2/1/2021 1/25/2021 3/31/2021
Revenue $ 6,105  $ 2,684  $ 2,222  $ 1,880  $ 3,446  $ 6,753  $ 2,779  $ 2,308  $ 1,200 
Net Income $ 324  $ 365  $ 314  $ 518  $ 547  $ 1,297  $ 555  $ 433  $ 176 
 
Harvest Aquaserene Mendocino CGS Hoagtech All Seasons MMI Total
Acquisition date 5/3/21 7/19/21 7/19/21 8/24/21 8/23/21 10/15/21 12/31/21
Revenue $ 1,489  —  —  —  —  —  —  $ 30,866 
Net Income (loss) $ 268  —  —  —  —  —  —  $ 4,797 

The following table discloses the pro forma consolidated statement of operations as if the acquisition had been included in the consolidated results of the Company for the six months ended June 30, 2021.

Three Months Ended June 30, 2021 Six Months Ended June 30, 2021
  (Unaudited) (Unaudited)
Revenue $ 130,504  $ 229,599 
Net income $ 12,446  $ 19,849