Annual report pursuant to Section 13 and 15(d)

Acquisitions

v3.21.1
Acquisitions
12 Months Ended
Dec. 31, 2020
Business Combinations [Abstract]  
ACQUISITIONS
16. 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. 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. Transaction cost were approximately $227,000 for all acquisitions in 2020. To date all goodwill recorded as a result of business combinations is deductible for income tax purposes. The Company issued 23,892 shares of common stock valued at $100,829 to settle as contingent consideration related to the Heavy Gardens 2018 business combination.

 

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 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.

 

On June 16, 2020 we acquired certain assets of H2O Hydroponics, LLC ("H2O Hydro") in a transaction valued at approximately $1.99 million. Acquired goodwill of approximately $1 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.

 

On August 10, 2020 we acquired certain assets of Benzakry Family Corp, d/b/a Emerald City Garden ("Emerald City"), in a transaction valued at $1 million. Acquired goodwill of approximately $620,000 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.

 

On October 12, 2020, the Company acquired the assets of Hydroponics Depot, LLC ("Hydro Depot"), a single store located in Phoenix Arizona for $987,500 in cash and shares of the Company's common stock valued at approximately $548,000. Acquired goodwill of approximately $798,000 represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company.

 

On October 20, 2020 the Company acquired the assets of Big Green Tomato ("BGT"), a two-store chain in Battle Creek and Taylor, Michigan for approximately $6.0 in cash and shares of common stock valued at approximately $3.1 million. Acquired goodwill of approximately $4 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company.

 

On November 17, 2020, the Company acquired the assets of The GrowBiz ("GrowBiz"), a five-store chain with four stores in California and one store in Oregon. The total consideration for the purchase of GrowBiz was approximately $44.7 million, $17.4 million in cash and common stock valued at approximately $27.3 million. Acquired goodwill of approximately $28.3 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company.

 

On December 14, 2020, the Company acquired the assets of Grassroots, a three-store chain in California. The total consideration for the purchase of Grassroots was approximately $10 million, $7.5 million in cash and common stock valued at approximately $2.5 million. Acquired goodwill of approximately $4.5 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company.

 

On December 23, 2020, the Company acquired the assets of Canopy Crop Management ("Canopy") and its complete portfolio of products including the Power SI brand of silicic acid-enriched fertilizers. The total consideration for the purchase of Canopy Crop was approximately $9.2 million, $5.4 million in cash and common stock valued at approximately $3.8 million. Acquired goodwill of approximately $4.9 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established product distribution market for the Company.

 

The table below represents the allocation of the purchase price to the acquired net assets during the year ended December 31, 2020.

 

    Canopy     Grassroots     GrowBiz     BGT     Hydro Depot     Emerald
City
    H2O
Hydro
LLC
    Health &
Harvest
LLC
    Total  
Inventory   $ 898,700     $ 2,348,200     $ 6,285,900     $ 1,595,000     $ 333,300     $ 150,000     $ 497,600     $ 1,053,900     $ 13,162,600  
Prepaids and other current assets     -       -                       -       -       4,600       -       4,600  
Building     -       -       -      

477,300

      -       -       -       -      

477,300

 
Furniture and equipment     -       150,000       200,000       250,000       25,000       10,000       50,000       51,000       736,000  
Operating lease right to use asset     -       1,436,800       3,640,700       245,500       -       -       902,000       192,600       6,417,600  
Operating lease liability     -       (1,436,800 )     (3,640,700 )     (245,500 )     -       -       (902,000 )     (192,600 )     (6,417,600 )
Customer relationships     2,267,000       767,000       1,910,000       601,000       148,000       208,000       150,000       246,000       6,297,000  
Trade name     1,138,000       2,138,000       7,745,000       2,025,000       212,000       -       234,000       431,000       13,923,000  
Non-compete     113,000       133,000       374,000       94,000       19,000       14,000       43,000       6,000       796,000  
Goodwill     4,822,900       4,464,000       28,271,400       4,001,600       798,500       620,000       1,007,700       1,065,600       45,051,700  
Total   $ 9,239,600     $ 10,000,200     $ 44,786,300     $ 9,043,900     $ 1,535,800     $ 1,000,000     $ 1,986,900     $ 2,853,500     $

80,446,200

 

 

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

 

    Canopy     Grassroots     GrowBiz     BGT     Hydro Depot     Emerald
City
    H2O
Hydro
LLC
    Health &
Harvest
LLC
    Total  
Cash   $ 5,423,600     $ 7,498,900     $ 17,486,900     $ 5,972,300     $ 987,500     $ 1,000,000     $ 1,281,700     $ 1,750,000     $ 41,400,900  
Common stock     3,816,000       2,501,300       27,299,400       3,071,600       548,300       -       705,200       1,103,500       39,045,300  
Total   $ 9,239,600     $ 10,000,200     $ 44,786,300     $ 9,043,900     $ 1,535,800     $ 1,000,000     $ 1,986,900     $ 2,853,500     $ 80,446,200  

 

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 December 31, 2020.

 

    Canopy     Grassroots     GrowBiz     BGT     Hydro Depot     Emerald
City
    H2O
Hydro
LLC
    Health &
Harvest
LLC
    Total  
Acquisition date     12/23/2020       12/14/2020       11/17/2020       10/20/2020       10/12/2020       8/10/2020       6/16/2020       2/26/2020          
Revenue   $ 300,500     $ 531,800     $ 3,852,100     $ 1,859,200     $ 1,244,600     $ 5,634,800     $ 2,418,100     $ 8,994,900     $ 24,836,000  
Net Income   $ 141,100     $ 74,400     $ 735,900     $ 187,800     $ 148,800     $ 1,005,000     $ 561,800     $ 1,065,600     $ 3,920,400  

 

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 year ended December 31, 2020 and 2019.

 

    December 31,
2020
(Unaudited)
    December 31,
2019
(Unaudited)
 
Revenue   $ 116,120,116     $ 71,649,931  
Net income   $ 12,979,881     $ 689,728  

 

The table below represents the allocation of the purchase price to the acquired net assets during the year ended December 31, 2019.

 

    Grow
World
LLC
    Grand
Rapids
Hydro
    Green
Life
Garden
    Chlorophyll     Reno
Hydroponics
    Palm
Springs
Hydroponics
    Total  
Inventory   $ 553,900     $ 1,453,100     $ 1,038,600     $ 1,441,000     $ 238,000     $ 465,500     $ 5,190,100  
Prepaids and other current assets     -               14,100       22,000       -               36,100  
Furniture and equipment     35,000       50,000       100,000       100,000       25,000       25,000       335,000  
Goodwill     696,900       2,376,900       2,305,900       2,596,100       516,300       554,000       9,046,100  
Total   $ 1,285,800     $ 3,880,000     $ 3,458,600     $ 4,159,100     $ 779,300     $ 1,044,500     $ 14,607,300  

 

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

 

    Grow
World
LLC
    Grand
Rapids
Hydro
    Green
Life
Garden
    Chlorophyll     Reno
Hydroponics
    Palm
Springs
Hydroponics
    Total  
Cash   $ 1,000,000     $ 2,350,000     $ 2,647,700     $ 3,659,100     $ 525,000     $ 800,000     $ 10,981,800  
Common stock     285,800       1,530,000       810,900       500,000       254,300       244,500       3,625,500  
Total   $ 1,285,800     $ 3,880,000     $ 3,458,600     $ 4,159,100     $ 779,300     $ 1,044,500     $ 14,607,300  

 

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 December 31, 2019.

 

    Grow
World
LLC
    Grand
Rapids
Hydro
    Green
Life
Garden
    Chlorophyll     Reno
Hydroponics
    Palm
Springs
Hydroponics
    Total  
Acquisition date   12/16/19     9/3/2019     5/14/2019     1/21/2019     2/11/2019     2/7/2019        
Revenue   $ 153,900     $ 2,412,700     $ 4,829,800     $ 6,030,500     $ 2,106,900     $ 3,075,300     $ 18,609,100  
Earnings   $ 6,400     $ 444,500     $ 998,700     $ 936,600     $ 366,742     $ 651,400     $ 3,404,342  

 

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 years ended December 31,2019 and 2018.

 

    December 31,
2019 (Unaudited)
    December 31,
2018 (Unaudited)
 
Revenue   $ 31,300,425     $ 59,650,900  
Earnings   $ 4,750,591   $ (2,087,900 )