Quarterly report pursuant to Section 13 or 15(d)

Acquisitions

v3.20.2
Acquisitions
9 Months Ended
Sep. 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.

 

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 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. 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 during the nine months ended September 30, 2020.

 

    Emerald
City Garden
    H2O
Hydroponics
LLC
    Health &
Harvest
LLC
    Total  
Inventory   $ 150,000     $ 497,600     $ 1,051,900     $ 1,699,500  
Prepaids and other current assets     -       4,600       -       4,600  

Property and equipment

    10,000       50,000       50,000       110,000  

Operating leases right to use asset

    -       902,000       192,600       1,094,600  

Operating lease liability

    -       (902,000 )     (192,600 )     (1,094,600 )
Goodwill     840,000       1,434,700       1,750,600       4,025,300  
Total   $ 1,000,000     $ 1,986,900     $ 2,852,500     $ 5,839,400  

 

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

 

    Emerald
City Garden
    H2O
Hydroponics
LLC
    Health &
Harvest
LLC
    Total  
Cash   $ 1,000,000     $ 1,281,700     $ 1,750,000     $ 4,031,700  
Common stock     -       705,200       1,102,500       1,807,700  
Total   $ 1,000,000     $ 1,986,900     $ 2,852,500     $ 5,839,400  

 

The following table discloses the date of the acquisitions noted above and the revenue and earnings included in the consolidated statement of operations from the date of acquisition through September 30, 2020.

 

    Emerald
City Garden
    H2O
Hydroponics
LLC
    Health &
Harvest
LLC
    Total  
Acquisition date     8/10/2020     6/26/2020     2/26/2020        
Revenue   $ 472,000     $ 2,768,800     $ 5,887,400     $ 9,128,200  
Net income   $ 74,200     $ 504,300     $ 830,700     $ 1,409,200  

 

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 nine months ended September 30, 2019.

 

    Three Months
Ended
September 30,
2019
    Nine Months
Ended
September 30,
2019
 
Revenue   $ 2,873,178     $ 6,827,217  

Net income

  $

169,820

    $

261,714

 

 

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

 

    Grand
Rapids
Hydro
    Green
Life
Garden
    Chlorophyll     Reno Hydroponics     Palm
Springs
Hydroponics
    Total  
Inventory   $ 1,453,100     $ 1,038,600     $ 1,441,000     $ 238,000     $ 465,500     $ 4,636,200  
Prepaids and other current assets             14,100       22,000       -               36,100  
Property and equipment     50,000       100,000       100,000       25,000       25,000       300,000  
Operating right to use asset     1,004,200       809,600       701,900       -       329,300       2,845,000  
Operating lease liability     (1,004,200 )     (809,600 )     (701,900 )     -       (329,300 )     (2,845,000 )
Goodwill     2,376,900       2,305,900       2,596,100       516,300       554,000       8,349,200  
Total   $ 3,880,000     $ 3,458,600     $ 4,159,100     $ 779,300     $ 1,044,500     $ 13,321,500  

 

The table below represents the consideration paid for the net assets acquired in business combinations for the nine months ended September 30, 2019. 

 

    Grand
Rapids
Hydro
    Green
Life
Garden
    Chlorophyll     Reno Hydroponics     Palm
Springs
Hydroponics
    Total  
Cash   $ 2,350,000     $ 2,647,700     $ 3,659,100     $ 525,000     $ 800,000     $ 9,981,800  
Common stock     1,530,000       810,900       500,000       254,300       244,500       3,339,700  
Total   $ 3,880,000     $ 3,458,600     $ 4,159,100     $ 779,300     $ 1,044,500     $ 13,321,500  

 

The following table discloses the date of the acquisitions noted above and the revenue and earnings included in the consolidated statement of operations from the date of acquisition to the period ended September 30, 2019. 

 

    Grand Rapids Hydro   Green
Life
Garden
  Chlorophyll   Reno Hydroponics   Palm
Springs
Hydroponics
  Total  
Acquisition date     9/3/2019   5/14/2019   1/21/2019   2/11/2019   2/7/2019      
Revenue   $ 612,900   $ 3,006,100   $ 4,489,000   $ 1,427,600   $ 2,318,500   $ 11,854,100  
Earnings   $ 121,400   $ 703,100   $ 668,900   $ 233,600   $ 497,500   $ 2,224,500  

 

The following represents the proforma consolidated statement of operations as if the acquisitions had been included in the consolidated results of the Company for the entire period for the three months and nine months ended September 30, 2018.

 

    Three Months
Ended
September 30,
2018
    Nine Months Ended
September 30,
2018
 
Revenue   $ 1,850,700       5,552,000  
Earnings   $ 168,100       504,400