Quarterly report pursuant to Section 13 or 15(d)

Acquisitions

v3.20.1
Acquisitions
3 Months Ended
Mar. 31, 2020
Business Combinations [Abstract]  
ACQUISITIONS
13. ACQUISITIONS

 

The Company 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. 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 $1,750,600 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 three months ended March 31, 2020.

 

    Health & Harvest LLC  
Inventory   $ 1,052,500  
Prepaids and other current assets     -  
Furniture and equipment     50,000  
Right to use asset     192,600  
Lease liability     (192,600 )
Goodwill     1,750,600  
Total   $ 2,852,500  

  

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

 

    Health & Harvest LLC  
Cash   $ 1,750,000  
Common stock     1,102,500  
Total   $ 2,852,500  

 

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 March 31, 2020.

 

    Health & Harvest LLC  
Acquisition date     2/26/2020  
Revenue   $ 559,340  
Earnings   $ 112,882  

 

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 ended March 31, 2019.

 

Pro forma consolidated income statement:

 

    March 31,
2019
 
Revenue   $ 1,365,700  
Earnings   $ 19,200  

 

The table below represents the allocation of the preliminary purchase price to the acquired net assets during the three months ended March 31, 2019.

 

    Chlorophyll     Reno Hydroponics     Palm Springs Hydroponics     Total  
Inventory   $ 1,441,000     $ 238,000     $ 465,500     $ 2,144,500  
Prepaids and other current assets     22,000       -               22,000  
Furniture and equipment     100,000       25,000       25,000       150,000  
Right to use asset     702,000       -       329,300       1,031,300  
Lease liability     (702,000 )     -       (329,300 )     (1,031,300 )
Goodwill     2,596,100       516,300       554,000       3,666,400  
Total   $ 4,159,100     $ 779,300     $ 1,044,500     $ 5,982,900  

 

The table below represents the consideration paid for the net assets acquired in business combinations for the period ended March 31, 2019. 

 

    Chlorophyll     Reno Hydroponics     Palm Springs Hydroponics     Total  
Cash   $ 3,659,100     $ 525,000     $ 800,000     $ 4,984,100  
                                 
Common stock     500,000       254,300       244,500       998,800  
Total   $ 4,159,100     $ 779,300     $ 1,044,500     $ 5,982,900  

   

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 March 31, 2019. 

 

    Chlorophyll     Reno Hydroponics     Palm Springs Hydroponics     Total  
Acquisition date   1/21/2019     2/11/2019     2/7/2019        
Revenue   $ 3,450,600     $ 1,594,900     $ 121,500     $ 5,167,000  
Earnings   $ 613,000     $ 165,300     $ 5,800     $ 784,100  

  

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 ended March 31, 2018.

 

Pro forma consolidated income statement

 

    March 31,
2018
 
Revenue   $ 2,088,200  
Earnings   $ 389,100