grwg-20220331

U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For Quarter Ended: March 31, 2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to

Commission File Number: 333-207889

GROWGENERATION CORP.

(Exact name of small business issuer as specified in its charter)


Colorado						46-5008129
(State of other jurisdiction of incorporation)						(IRS Employer ID No.)

5619 DTC Parkway, Suite 900

Greenwood Village, Colorado 80111

(Address of principal executive offices)

(800) 935-8420

(Issuer’s Telephone Number)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading symbol

Name of each exchange on which registered

Common Stock, par value $0.001 per share

GRWG

The NASDAQ Stock Market LLC

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of May 16, 2022 there were 60,744,195 shares of the registrant’s common stock issued and outstanding.

TABLE OF CONTENTS


		Page No.

	PART I FINANCIAL INFORMATION

Item 1.	Unaudited Interim Condensed Consolidated Financial Statements	1
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Operations	2
	Condensed Consolidated Statements of Stockholders' Equity	3
	Condensed Consolidated Statements of Cash Flows	4
	Notes to Condensed Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24
Item 4.	Controls and Procedures	24

PART II OTHER INFORMATION

Item 1.	Legal Proceedings	26
Item 1A.	Risk Factors	26
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	26
Item 3.	Defaults Upon Senior Securities	26
Item 4.	Mine Safety Disclosures	26
Item 5.	Other Information	26
Item 6.	Exhibits	27
	Signatures	28

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

GROWGENERATION CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands, except shares and per share amounts)


	March 31, 2022		December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	47,273	$	41,372
Marketable securities	19,035		39,793
Accounts receivable, net of allowance for doubtful accounts of $0.6 million and $0.6 million at March 31, 2022 and December 31, 2021	7,386		5,741
Notes receivable, current, net of allowance for doubtful accounts of $0.9 million and $0.5 million at March 31, 2022 and December 31, 2021	1,967		2,440
Inventory	105,941		105,571
Prepaid income taxes	5,856		5,856
Prepaids and other current assets	7,035		16,116
Total current assets	194,493		216,889

Property and equipment, net	26,928		24,116
Operating leases right-of-use assets	45,839		43,730
Intangible assets, net	48,786		48,402
Goodwill	132,500		125,401
Other assets	807		800
TOTAL ASSETS	$	449,353	$	459,338

LIABILITIES & STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	14,221	$	17,033
Accrued liabilities	1,143		2,044
Payroll and payroll tax liabilities	4,302		7,440
Customer deposits	7,190		11,686
Sales tax payable	1,928		1,923
Current maturities of lease liability	7,740		6,858
Current portion of long-term debt	94		92
Total current liabilities	36,618		47,076
Commitments and ontingencies (Note 15)
Deferred tax liability	723		2,359
Operating lease liability, net of current maturities	39,879		38,546
Long-term debt, net of current portion	41		66
Total liabilities	77,261		88,047

Stockholders’ equity:
Common stock; $0.001 par value; 100,000,000 shares authorized, 60,727,888 and 59,928,564 shares issued and outstanding as of March 31, 2022 and December 31, 2021	61		60
Additional paid-in capital	367,064		361,087
Retained earnings	4,967		10,144
Total stockholders’ equity	372,092		371,291
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	449,353	$	459,338

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

GROWGENERATION CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(Unaudited)


	Three Months Ended March 31,
	2022		2021

Net sales	$	81,767	$	90,022
Cost of sales	59,627		64,645
Gross profit	22,140		25,377

Operating expenses:
Store operations and other operational expenses	14,532		8,182
Selling, general, and administrative	10,323		7,405
Depreciation and amortization	4,506		2,054
Total operating expenses	29,361		17,641

Income (Loss) from operations	(7,221)		7,736

Other income (expense):
Other income (expense)	409		(38)
Interest income	2		4
Interest expense	(3)		(2)
Total non-operating income (expense), net	408		(36)

Net income (loss) before taxes	(6,813)		7,700

Benefit (provision) for income taxes	1,636		(1,553)

Net income (loss)	$	(5,177)	$	6,147

Net income (loss) per share, basic	$	(0.09)	$	0.11
Net income (loss) per share, diluted	$	(0.09)	$	0.10

Weighted average shares outstanding, basic	60,126		58,394
Weighted average shares outstanding, diluted	60,126		60,317

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

GROWGENERATION CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

THREE MONTHS ENDED MARCH 31, 2022 AND 2021

(in thousands)

(Unaudited)


	Common Stock			Additional Paid-In Capital		Retained Earnings (Deficit)		Total Stockholders’ Equity
	Shares	Amount
Balances, December 31, 2021	59,929	$	60	$	361,087	$	10,144	$	371,291
Common stock issued in connection with business combination	650	1		5,749				5,750
Common stock issued for share based compensation	149	—		—				—
Common stock withheld for employee payroll taxes				(1,355)				(1,355)
Share based compensation				1,583				1,583
Net income (loss)						(5,177)		(5,177)
Balances, March 31, 2022	60,728	$	61	$	367,064	$	4,967	$	372,092


	Common Stock			Additional Paid-In Capital		Retained Earnings (Deficit)		Total Stockholders’ Equity
	Shares	Amount
Balances, December 31, 2020	57,151	$	57	$	319,582	$	(2,642)	$	316,997
Common stock issued upon warrant exercise	40	—		111		—		111
Common stock issued upon cashless warrant exercise	535	1		(1)		—		—
Common stock issued upon exercise of options	1	—		2		—		2
Common stock issued upon cashless exercise of options	5	—		—		—		—
Common stock issued in connection with business combinations	548	—		29,249		—		29,249
Common stock issued for assets	300	—		—		—		—
Common stock issued for services	(90)	—		—		—		—
Common stock issued for share based compensation	(96)	—		(3,954)		—		(3,954)
Share based compensation	—	—		1,187		—		1,187
Net income (loss)	—	—		—		6,147		6,147
Balances, March 31, 2021	58,394	$	58	$	346,176	$	3,505	$	349,739

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

GROWGENERATION CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)


	Three Months Ended March 31,
	2022		2021
Cash flows from operating activities:
Net income (loss)	$	(5,177)	$	6,147
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	4,506		2,054
Stock-based compensation expense	1,583		1,327
Bad debt expense, net of recoveries	(471)		(184)
Gain on asset disposition	20		—
Deferred taxes	(1,636)		384
Changes in operating assets and liabilities (net of the effect of acquisitions):
Accounts and notes receivable	(701)		(1,165)
Inventory	3,761		(16,716)
Prepaid expenses and other assets	9,740		(8,175)
Accounts payable and accrued liabilities	(5,082)		10,613
Operating leases	106		(87)
Payroll and payroll tax liabilities	(3,138)		261
Income taxes payable	—		455
Customer deposits	(5,738)		4,615
Sales tax payable	5		1,213
Net cash provided by (used in) operating activities	(2,222)		742
Cash flows from investing activities:
Acquisitions, net of cash acquired	(6,806)		(39,307)
Purchase of marketable securities	—		(41,077)
Maturities from marketable securities	20,758		—
Purchase of property and equipment	(4,451)		(1,679)
Purchase of intangibles	—		(681)
Net cash provided by (used in) investing activities	9,501		(82,744)
Cash flows from financing activities:
Principal payments on long term debt	(23)		(27)
Common stock withheld for employee payroll taxes	(1,355)		(3,954)
Proceeds from the sale of common stock and exercise of warrants, net of expenses	—		113
Net cash provided by (used in) financing activities	(1,378)		(3,868)
Net change	5,901		(85,870)
Cash and cash equivalents at the beginning of period	41,372		177,912
Cash and cash equivalents at the end of period	$	47,273	$	92,042

Supplemental disclosures of non-cash activities:
Cash paid for interest	$	3	$	2
Common stock issued for business combination	$	5,750	$	29,249
Right of use assets acquired under new operating leases	$	2,703	$	3,220

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

GrowGeneration Corp.

Notes To Condensed Consolidated Financial Statements

March 31, 2022

(Unaudited)

1.GENERAL

GrowGeneration Corp. (the “Company”, “we”, or “our”) is the largest chain of hydroponic garden centers in North America and is a leading marketer and distributor of nutrients, growing media, advanced indoor and greenhouse lighting, ventilation systems, and accessories for hydroponic gardening. Currently, the Company owns and operates a chain of sixty-three (63) retail hydroponic/gardening stores across 13 states, an online e-commerce platform, and proprietary businesses that market grow solutions through our platforms and other wholesale customers. The Company’s plan is to continue to acquire, open and operate hydroponic/gardening stores and related businesses throughout the United States.

Basis of Presentation

The accompanying interim unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. These statements should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended December 31, 2021. There were no significant changes to our significant accounting policies as disclosed in our 2021 Form 10-K, except for the immaterial out-of-period adjustments discussed below. The results of operations for our interim periods are not necessarily indicative of results for the full fiscal year.

All amounts included in the accompanying footnotes to the consolidated financial statements, except per share data, are in thousands (000).

Risk and Uncertainties

The COVID-19 pandemic has created significant public health concerns as well as economic disruption, uncertainty, and volatility that may negatively affect our business operations and financial results. As a result, if the pandemic or its effects persist or worsen, our accounting estimates and assumptions could be impacted in subsequent interim reports and upon final determination at year-end, and it is reasonably possible such changes could be significant (although the potential effects cannot be estimated at this time). The Company has experienced minimal business interruption as a result of the COVID-19 pandemic. We have been deemed an “essential” business by state and local authorities in the areas in which we operate and as such have not been subject to business closures. The COVID-19 pandemic to date has resulted in supply chain delays of our inventory, higher operating costs and increased shipping costs, among other impacts. As events surrounding the COVID-19 pandemic can change rapidly we cannot predict how it may disrupt our operations or the full extent of the disruption.

Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments — Credit Losses (Topic 326),” changing the impairment model for most financial instruments by requiring companies to recognize an allowance for expected losses, rather than incurred losses as required currently by the other-than-temporary impairment model. The ASU will apply to most financial assets measured at amortized cost and certain other instruments, including trade and other receivables, loans, available-for-sale and held-to-maturity debt securities, net investments in leases, and off-balance sheet credit exposures. The Company is in the process of evaluating the impact of this standard.

Immaterial out-of-period adjustments

During the three months ended March 31, 2022, the Company recorded an immaterial out-of period adjustment that impacted the prior year Consolidated Balance Sheets. The adjustment related to a change in the calculation of operating lease right-of-use assets and operating lease liabilities. This adjustment corrected an understatement of operating lease right-of-use assets of $1.3 million and an understatement of operating lease liabilities of $1.3 million as of December 31, 2021 during the period ended March 31, 2022. The Company assessed the materiality of this adjustment on the previously issued annual financial statements in accordance with SEC Staff Accounting Bulletin No. 99. The Company concluded that the changes were not material to any of the previously issued consolidated financial statements.

During the three months ended March 31, 2022, the Company identified an omission regarding the disclosure of reportable segments under ASC 280 related to the year ended December 31, 2021. During the year ended December 31, 2021 the Company inappropriately reported a single segment, aggregating multiple operating segments. The impact at March 31, 2021 was that $8.8 million of revenue, $3.5 million of gross margin, and $1.5 million of operating income should have been reported as a separate “Distribution and other segment”. The Company assessed the materiality of this omission on the previously issued interim and annual financial statements in accordance with SEC Staff Accounting Bulletin No. 99. The Company concluded that the ommission was not material to any of the previously issued consolidated financial statements and will begin reporting segments results in accordance with ASC 280 on a prospective basis starting with the quarter ending March 31, 2022.

GrowGeneration Corp.

Notes To Unaudited Condensed Consolidated Financial Statements

March 31, 2022

2.FAIR VALUE MEASUREMENTS

Fair Value Measurements

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:

•Level 1—Quoted prices in active markets for identical assets or liabilities.

•Level 2—Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.

•Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.

To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

The carrying amounts of cash and cash equivalents, accounts receivable, available for sale securities, accounts payable and all other current liabilities approximate fair values due to their short-term nature. The fair value of notes receivable approximates the outstanding balance and are reviewed for impairment at least annually. The fair value of impaired notes receivable is determined based on estimated future payments discounted back to present value using the notes' effective interest rate.


	Level	March 31, 2022		December 31, 2021
Cash and cash equivalents	1	$	47,273	$	41,372
Marketable securities	2	$	19,035	$	39,793

GrowGeneration Corp.

Notes To Unaudited Condensed Consolidated Financial Statements

March 31, 2022

3.RECENT ACCOUNTING PRONOUNCEMENTS

New Accounting Pronouncements

From time to time, the Financial Accounting Standards Board (“FASB”) or other standard setting bodies issue new accounting pronouncements. Updates to the FASB Accounting Standards Codification (“ASC”) are communicated through issuance of an Accounting Standards Update (“ASU”). We have implemented all new accounting pronouncements that are in effect and that may impact our financial statements. We have evaluated recently issued accounting pronouncements and determined that there is no material impact on our financial position or results of operations.

Refer to Note 3 to the Consolidated Financial Statements reported in Form 10-K for the year ended December 31, 2021 for recently issued accounting pronouncements that are pending adoption.

4.REVENUE RECOGNITION

The following table disaggregates revenue by source:


	Three Months Ended March 31, 2022		Three Months Ended March 31, 2021
Sales at company owned stores	$	64,296	$	81,227
Distribution and other	12,203		2,835
E-commerce sales	5,268		5,960
Total Net Sales	$	81,767	$	90,022

The opening and closing balances of the Company’s customer trade receivables and customer deposit liability are as follows:


	Receivables		Customer Deposit Liability
Opening balance, January 1, 2022	$	5,741	$	11,686
Closing balance, March 31, 2022	7,386		7,190
Increase (decrease)	$	1,645	$	(4,496)

Opening balance, January 1, 2021	$	3,901	$	5,155
Closing balance, March 31, 2021	4,276		9,939
Increase (decrease)	$	375	$	4,784

Of the total amount of customer deposit liability as of January 1, 2022, $7.6 million was reported as revenue during the three months ended March 31, 2022. Of the total amount of customer deposit liability as of January 1, 2021, $2.1 million was reported as revenue during the three months ended March 31, 2021.

GrowGeneration Corp.

Notes To Unaudited Condensed Consolidated Financial Statements

March 31, 2022

5.INVESTMENTS

Marketable securities have maturities of less than one year as of March 31, 2022. There were no significant realized or unrealized gains or losses for the three months ended March 31, 2022.

The components of investments, available for sale securities, as of March 31, 2022 were as follows:


	Adjusted Cost Basis		Unrealized Gain (Loss)		Recorded Basis
Corporate notes and bonds	$	19,035	$	—	$	19,035

6.NOTES RECEIVABLE

The Company also has notes receivables under longer term financing arrangements at interest rates ranging from 8% to 12% with repayment terms ranging for 12 to 18 months. Notes receivables as of March 31, 2022 and December 31, 2021 are as follows:


	March 31, 2022		December 31, 2021
Notes receivable	$	2,843	$	2,962
Allowance for losses	(876)		(522)
Notes receivable, net	$	1,967	2,440

The following table summarizes changes in notes receivable balances that have been deemed impaired:


	March 31, 2022		December 31, 2021
Note receivable	$	1,500	$	1,500
Allowance for losses	(876)		(522)
Notes receivable, net	$	624	978

7.PROPERTY AND EQUIPMENT


	March 31, 2022		December 31, 2021
Vehicles	$	2,442	$	2,258
Building	2,121		1,187
Leasehold improvements	11,282		9,186
Furniture, fixtures and equipment	12,153		10,992
Capitalized software	2,575		4,753
Construction-in-progress	5,311		2,948
Total property and equipment, gross	35,884		31,324
Accumulated depreciation and amortization	(8,956)		(7,208)
Property and equipment, net	$	26,928	$	24,116

Depreciation expense for the three months ended March 31, 2022 and 2021 was $1.8 million, and $0.7 million, respectively.

GrowGeneration Corp.

Notes To Unaudited Condensed Consolidated Financial Statements

March 31, 2022

8.GOODWILL AND INTANGIBLE ASSETS

The changes in goodwill are as follows:


	March 31, 2022		December 31, 2021
Balance, beginning of period	$	125,401	$	62,951
Goodwill additions and measurement period adjustments	7,099		62,450
Balance, end of period	$	132,500	$	125,401

A summary of intangible assets is as follows:


						Weighted-Average
						Amortization Period
						of Intangible Assets
						as of March 31, 2022
						(in years)
Trade names						3.92
Patents						3.83
Customer relationships						5.12
Non-competes						3.20
Intellectual property						3.92
Total						4.34

Intangible assets consist of the following:


	March 31, 2022				December 31, 2021
	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Trade names	$	28,774	$	(6,377)	$	28,300	$	(4,948)
Patents	100		(45)		100		(42)
Customer relationships	27,569		(4,157)		25,175		(3,055)
Non-competes	1,639		(335)		1,384		(233)
Intellectual property	2,065		(447)		2,065		(344)
Total	$	60,147	$	(11,361)	$	57,024	$	(8,622)

Amortization expense for the three months ended March 31, 2022 and 2021 was $2.7 million and $1.4 million, respectively.


Future amortization expense is as follows:
2022, remainder	$	8,414
2023	11,217
2024	11,094
2025	10,700
2026	5,654
Thereafter	1,707
Total	$	48,786

GrowGeneration Corp.

Notes To Unaudited Condensed Consolidated Financial Statements

March 31, 2022

9. INCOME TAXES

For the three months ended March 31, 2022, the effective tax rate is 24.02%, which increased from 20.17% at March 31, 2021. The increase in rate is primarily due to the effect of stock based compensation. The three months ended March 31, 2022 effective tax rate is higher than the US federal statutory rate of 21.00%, which is also primarily due to stock compensation.

10. LEASES

We determine if a contract contains a lease at inception. Our material operating leases consist of retail and warehouse locations as well as office space. Our leases generally have remaining terms of 1-10 years, most of which include options to extend the leases for additional 3 to 5-year periods. Generally, the lease term is the minimum of the non-cancelable period of the lease or the lease term inclusive of reasonably certain renewal periods.

Operating lease assets and liabilities are recognized at the lease commencement date. Operating lease liabilities represent the present value of remaining lease payments over the lease term. Operating lease assets represent our right to use an underlying asset and are based upon the operating lease liabilities adjusted for prepayments or accrued lease payments, initial direct costs, lease incentives, and impairment of operating lease assets. To determine the present value of lease payments not yet paid, we estimate incremental secured borrowing rates corresponding to the maturities of the leases. Our leases typically contain rent escalations over the lease term. We recognize expense for these leases on a straight-line basis over the lease term.

We have elected the practical expedient to account for lease and non-lease components as a single component for our entire population of leases.

Short-term disclosures include only those leases with a term greater than one month and 12 months or less, and expense is recognized on a straight-line basis over the lease term. Leases with an initial term of 12 months or less that do not include an option to purchase the underlying asset that we are reasonably certain to exercise are not recorded on the balance sheet.

Lease expense is recorded within our consolidated statements of operations based upon the nature of the assets. Where assets are used to directly serve our customers, such as facilities dedicated to customer contracts, lease costs are recorded in “store operating costs.” Facilities and assets which serve management and support functions are expensed through general and administrative expenses.


	March 31, 2022		December 31, 2021
Right of use assets, operating lease assets	$	45,839	$	43,730

Current lease liability	$	7,740	$	6,858
Non-current lease liability	39,879		38,546
	$	47,619	$	45,404


	March 31, 2022		March 31, 2021
Weighted average remaining lease term	6.85 years		3.34 years
Weighted average discount rate	5.5	%	6.0	%


	Three Months Ended March 31,
	2022		2021
Operating lease costs	$	2,662	$	1,541
Variable lease costs	863		—
Short-term lease costs	126		141
Total operating lease costs	$	3,651	$	1,682

GrowGeneration Corp.

Notes To Unaudited Condensed Consolidated Financial Statements

March 31, 2022

The following table presents the maturity of the Company’s operating lease liabilities as of March 31, 2022:


2022 (remainder of the year)	$	7,641
2023	9,711
2024	8,519
2025	7,478
2026	5,841
Thereafter	18,525
Total lease payments	57,715
Less: Imputed interest	(10,096)
Lease Liability at March 31, 2022	$	47,619

11. SHARE BASED PAYMENTS

The Company maintains long-term incentive plans for employees, non-employee members of our Board of Directors and consultants. The plans allows us to grant equity-based compensation awards, including stock options, stock appreciation rights, performance share units, restricted stock units, restricted stock awards, or a combination of awards (collectively, share-based awards).

The Company accounts for share-based payments through the measurement and recognition of compensation expense for share-based payment awards made to employees and directors of the Company, including stock options and restricted shares. The Company also issues share based payments in the form of common stock warrants to non-employees.

The following table presents share-based payment expense for the three months ended March 31, 2022 and 2021:


	Three months ended March 31,
	2022		2021
Restricted stock	$	1,201	$	645
Stock options	43		308
Warrants	339		374
Total	$	1,583	$	1,327

As of March 31, 2022, the Company had approximately $12.9 million of unamortized share-based compensation for option awards and restricted stock awards, which is expected to be recognized over a weighted average period of approximately 3.7 years. As of March 31, 2022, the Company also had approximately $2.2 million of unamortized share-based compensation for common stock warrants issued to consultants, which is expected to be recognized over a weighted average period of 1.7 years.

Restricted Stock

The Company issues shares of restricted stock to eligible employees, which are subject to forfeiture until the end of an applicable vesting period. The awards generally vest on the first, second, third, or fourth anniversary of the date of grant, subject to the employee’s continuing employment as of that date.

GrowGeneration Corp.

Notes To Unaudited Condensed Consolidated Financial Statements

March 31, 2022

Restricted stock activity for the three months ended March 31, 2022 is presented in the following table:


	Shares	Weighted Average Grant Date Fair Value
Nonvested, December 31, 2021	483,750	$	20.19
Granted	595,500	$	10.84
Vested	(247,000)	$	4.40
Forfeited	(13,750)	$	5.72
Nonvested, March 31, 2022	818,500	$	18.18

The table below summarizes all option activity under all plans during the three months ended March 31, 2022:


Options	Shares	Weight - Average Exercise Price		Weighted - Average Remaining Contractual Term	Weighted - Average Grant Date Fair Value
Outstanding at December 31, 2021	906,425	$	4.38	2.85	$	2.45
Granted	—	—		—	—
Exercised	—	—		—	—
Forfeited or expired	(187,427)	5.12		—	2.89
Outstanding at March 31, 2022	718,998	$	4.02	2.59	$	4.02
Options vested at March 31, 2022	679,000	$	4.35	2.52	$	2.44

A summary of the status of the Company’s outstanding stock purchase warrants for the three months ended March 31, 2022 is as follows:


	Warrants	Weighted Average Exercise Price
Outstanding at December 31, 2021	330,884	$	22.14
Issued	—	—
Exercised	—	—
Forfeited	—	—
Outstanding at March 31, 2022	330,884	$	22.14

GrowGeneration Corp.

Notes To Unaudited Condensed Consolidated Financial Statements

March 31, 2022

12. EARNINGS PER SHARE

The following table sets forth the composition of the weighted average shares (denominator) used in the basic and dilutive earnings per share computation for the three months ended March 31, 2022 and 2021:


	Three Months Ended
	March 31, 2022		March 31, 2021
Net income (loss)	$	(5,177)	$	6,147
Weighted average shares outstanding, basic	60,126		58,394
Effect of dilution	—		1,923
Adjusted weighted average shares outstanding, dilutive	60,126		60,317
Basic earnings per share	$	(0.09)	$	0.11
Dilutive earnings per share	$	(0.09)	$	0.10

The following potentially outstanding restricted stock, stock options, and warrants were excluded from the computation of diluted EPS because the effect would have been antidilutive:


	Three Months Ended
	March 31, 2022	March 31, 2021
Restricted stock	1,336	—
Stock options	393	—
Warrants	819	—
Total	2,548	—

13. 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 three months ended March 31, 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.

Acquisitions during the three months ended March 31, 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 Company's preliminary estimates of fair values of the net assets acquired are based on the information that was available at the date of the acquisition, and the Company is continuing to evaluate the underlying inputs and assumptions used in its valuations.

GrowGeneration Corp.

Notes To Unaudited Condensed Consolidated Financial Statements

March 31, 2022

The table below represents the allocation of the purchase price to the acquired net assets during the three months ended March 31, 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 March 31, 2022.


			HRG
Acquisition date			February 1, 2022
Revenue			3,436
Net Income			—

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 months ended March 31, 2022 and 2021.


	Three Months Ended		Three Months Ended
	March 31, 2022 (Unaudited)		March 31, 2021 (Unaudited)
Revenue	$	83,603	$	93,458
Net income	$	(5,176)	$	6,147

Acquisitions during the three months ended March 31, 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.

GrowGeneration Corp.

Notes To Unaudited Condensed Consolidated Financial Statements

March 31, 2022

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 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.

GrowGeneration Corp.

Notes To Unaudited Condensed Consolidated Financial Statements

March 31, 2022

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	$	2,450	$	326	$	372	$	7,124
Prepaids and other current assets	46		12		29		534		36		30		3		—		690
Furniture and equipment	29		63		50		—		315		250		25		94		826
Liabilities	—		—		—		—		—		(169)		—		—		(169)
Operating lease right of use asset	98		108		861		—		1,079		641		92		137		3,016
Operating lease liability	(98)		(108)		(861)		—		(1,079)		(641)		(92)		(137)		(3,016)
Customer relationships	832		339		809		5,712		605		1,256		549		210		10,312
Trade name	1,530		485		870		1,099		1,192		2,748		344		353		8,621
Non-compete	139		—		26		—		6		94		36		2		303
Intellectual property	—		—		—		2,065		—		—		—		—		2,065
Goodwill	8,673		1,702		3,915		6,119		5,728		11,120		866		661		38,784
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 for 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

3/12/2021

2/22/2021

2/15/2021

2/1/2021

1/25/2021

Revenue

230

185

328

276

1,001