Quarterly report pursuant to Section 13 or 15(d)

Acquisitions

v3.20.2
Acquisitions
6 Months Ended
Jun. 30, 2020
Business Combinations [Abstract]  
ACQUISITIONS

13. 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. The Company has not made any adjustments to the preliminary valuations.

 

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 $1.75 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. Transaction costs incurred in connection with this acquisition were not significant.

 

On June 16, 2020 we acquired certain assets of H2O Hydroponics, LLC in a transaction valued at approximately $1.99 million. Acquired 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. Transaction costs incurred in connection with this acquisition were not significant.

 

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

 

    H2O
Hydroponics
LLC
    Health &
Harvest
LLC
    Total  
Inventory   $ 497,600     $ 1,051,900     $ 1,549,500  
Prepaids and other current assets     4,600       -       4,600  
Furniture and equipment     50,000       50,000       100,000  
Right to use asset     902,000       192,600       1,094,600  
Lease liability     (902,000 )     (192,600 )     (1,094,600 )
Goodwill     1,434,700       1,750,600       3,185,300  
Total     1,986,900     $ 2,852,500     $ 4,839,400  

 

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

 

    H2O
Hydroponics
LLC
    Health &
Harvest
LLC
    Total  
Cash   $ 1,281,700     $ 1,750,000     $ 3,031,700  
Common stock     705,200       1,102,500       1,807,700  
Total   $ 1,986,900     $ 2,852,500     $ 4,839,400  

 

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 June 30, 2020.

 

    H2O
Hydroponics
LLC
    Health &
Harvest
LLC
    Total  
Acquisition date   6/26/2020     2/26/2020        
Revenue   $ 227,100     $ 2,299,600     $ 2,526,700  
Earnings   $ 27,800     $ 461,500     $ 489,300  

 

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 and six months ended June 30, 2019.

 

    Three Months
Ended
June 30,
2019
    Six Months
Ended
June 30,
2019
 
Revenue   $ 2,275,700     $ 4,551,478  
Earnings   $ 87,200     $ 174,476  

 

The table below represents the allocation of the preliminary purchase price to the acquired net assets during the six months ended June 30, 2019.

 

    Green Life
Garden
    Chlorophyll     Reno
Hydroponics
    Palm
Springs
Hydroponics
    Total  
Inventory   $ 1,038,600     $ 1,441,000     $ 238,000     $ 465,500     $ 3,183,100  
Prepaids and other current assets     14,100       22,000       -               36,100  
Furniture and equipment     100,000       100,000       25,000       25,000       250,000  
Right to use asset     809,600       701,900       -       329,300       1,840,800  
Lease liability     (809,600 )     (701,900 )     -       (329,300 )     (1,840,800 )
Goodwill     2,305,900       2,596,100       516,300       554,000       5,972,300  
Total   $ 3,458,600     $ 4,159,100     $ 779,300     $ 1,044,500     $ 9,441,500  

 

The table below represents the consideration paid for the net assets acquired in business combinations for the period ended June 30, 2019. 

 

    Green Life
Garden
    Chlorophyll     Reno
Hydroponics
    Palm
Springs
Hydroponics
    Total  
Cash   $ 2,647,700     $ 3,659,100     $ 525,000     $ 800,000     $ 7,631,800  
Common stock     810,900       500,000       254,300       244,500       1,809,700  
Total   $ 3,458,600     $ 4,159,100     $ 779,300     $ 1,044,500     $ 9,441,500  

 

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 June 30, 2019. 

 

    Green Life
Garden
    Chlorophyll     Reno
Hydroponics
    Palm
Springs
Hydroponics
    Total  
Acquisition date   5/14/2019     1/21/2019     2/11/2019     2/7/2019        
Revenue   $ 1,056,200     $ 3,450,600     $ 880,400     $ 1,326,400     $ 6,713,600  
Earnings   $ 234,700     $ 613,000     $ 151,100     $ 271,600     $ 1,270,400  

 

The following represents the proforma 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 and six months ended June 30, 2018.

 

    Three Months
Ended
June 30,
2018
    Six Months Ended
June 30,
2018
 
Revenue   $ 4,937,000     $ 9,873,500  
Earnings   $ 537,000     $ 1,073,800