2021 80111 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS 2021 Presentation 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 operations. for recently issued accounting pronouncements that are pending adoption. standard. 2021 Depreciation expense for the 2021 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. non-employees. following table: valuations of the acquisition based on valuation analysis prepared by independent third-party valuation consultants. All acquisition costs are expensed as incurred and recorded in general and administrative expenses in the consolidated statements of operations. Property and equipment Operating leases right to use asset Operating lease liability 2021 Net income 169,820 261,714 2021, respectively. As of June 30, 2021, there was no outstanding balance due. approximately $2.3 million. cultivators. 2020. Cost of Goods Sold Cost of Goods Sold 2020. 2020. $1.9 million and was primarily attributable to stock redemptions partially offset by the proceeds from the sales of common stock and exercise of warrants. Net cash provided by financing activities for warrants. June 30, 2021.Quarterly Report Under the Securities Exchange Act of 1934☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 SeptemberJune 30, 2020☐ Colorado46-5008129Colorado 46-5008129 (State of other jurisdiction
of incorporation)(IRS Employer
ID No.)930 W 7th Ave,ADenver,90080204Title 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 Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☒ Smaller reporting company ☒ Emerging growth company ☒ November 11, 2020,August 12, 2021 there were 48,980,111 59,607,234 shares of the registrant’s common stock issued and outstanding. Page No.Page No. 2340404242424242424344i September 30,
2020 December 31,
2019 (Unaudited) ASSETS Current assets: Cash $ 55,347,450 $ 12,979,444 Accounts receivable (net of allowance for credit losses of $364,262 and $291,372, respectively) 5,246,521 4,455,209 Inventory, net 37,847,421 22,659,357 Prepaid expenses and other current assets 5,537,083 2,549,559 Total current assets 103,978,475 42,643,569 Property and equipment, net 4,488,922 3,340,616 Operating leases right-of-use assets, net 8,109,184 7,628,591 Deferred income taxes - - Intangible assets, net 864,219 233,280 Goodwill 21,925,084 17,798,932 Other assets 336,149 377,364 TOTAL ASSETS $ 139,702,033 $ 72,022,352 LIABILITIES & STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 11,452,252 $ 6,024,750 Other accrued liabilities 119,810 - Payroll and payroll tax liabilities 1,943,328 1,072,142 Customer deposits 2,469,581 2,503,785 Sales tax payable 901,900 533,656 Income taxes payable 1,927,805 - Current maturities of operating leases liability 2,037,537 1,836,700 Current maturities of long-term debt 88,049 110,231 Total current liabilities 20,940,262 12,081,264 Operating leases liability, net of current maturities 6,307,463 5,807,266 Long-term debt, net of current maturities 189,333 242,079 Total liabilities 27,437,058 18,130,609 Commitments and contingencies Stockholders’ Equity: Common stock; $.001 par value; 100,000,000 shares authorized; 48,412,292 and 36,876,305 shares issued and outstanding, respectively 48,412 36,876 Additional paid-in capital 115,285,993 60,742,055 Accumulated deficit (3,069,430 ) (6,887,188 ) Total stockholders’ equity 112,264,975 53,891,743 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 139,702,033 $ 72,022,352 See Notes to the Unaudited June 30,
2021December 31,
2020 (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 67,155 $ 177,912 Marketable securities 57,357 0 Accounts receivable, net 4,377 3,901 Notes receivable, current 4,535 2,612 Inventory, net 95,937 54,024 Income taxes receivable 0 655 Prepaids and other current assets 26,286 11,125 Total current assets 255,647 250,229 Property and equipment, net 10,455 6,475 Operating leases right-of-use assets, net 31,661 12,088 Notes receivables, net of current portion 1,371 1,200 Intangible assets, net 44,279 21,490 Goodwill 108,740 62,951 Other assets 694 301 TOTAL ASSETS $ 452,847 $ 354,734 LIABILITIES & STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 36,481 $ 14,623 Accrued liabilities 2,639 672 Payroll and payroll tax liabilities 4,412 2,655 Customer deposits 6,793 5,155 Sales tax payable 2,046 1,161 Income taxes payable 1,846 0 Current maturities of lease liability 5,464 3,001 Current portion of long-term debt 83 83 Total current liabilities 59,764 27,350 Deferred tax liability 1,697 750 Operating lease liability, net of current maturities 27,427 9,479 Long-term debt, net of current portion 106 158 Total liabilities 88,994 37,737 Stockholders’ Equity: Common stock 60 57 Additional paid-in capital 353,575 319,582 Retained earnings (deficit) 10,218 (2,642) Total stockholders’ equity 363,853 316,997 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 452,847 $ 354,734 STATEMENTSTATEMENTS OF OPERATIONS Three Months Ended
September 30, Nine Months Ended
September 30, 2020 2019 2020 2019 Sales $ 55,007,475 $ 21,778,487 $ 131,440,820 $ 54,349,092 Cost of sales 40,436,707 15,276,906 96,338,467 38,340,670 Gross profit 14,570,768 6,501,581 35,102,353 16,008,422 Operating expenses: Store operations 4,972,058 2,744,199 12,523,594 7,360,525 General and administrative 857,943 803,707 3,244,682 1,928,020 Share based compensation 1,022,137 553,492 6,324,109 1,075,735 Depreciation and amortization 443,578 247,715 1,270,398 538,847 Salaries and related expenses 2,175,276 1,020,627 5,944,427 2,449,733 Total operating expenses 9,470,992 5,369,740 29,307,210 13,352,860 Income from operations 5,099,776 1,131,841 5,795,143 2,655,562 Other income (expense): Interest expense (142 ) (141,277 ) (19,728 ) (392,063 ) Interest income 47,562 60,973 72,605 95,256 Other income (expense) (34,062 ) (1,838 ) (75,149 ) (17,635 ) Total non-operating income (expense), net 13,358 (82,142 ) (22,272 ) (314,442 ) Net income before taxes 5,113,134 1,049,699 5,772,871 2,341,120 Provision for income taxes (1,775,801 ) - (1,955,113 ) - Net Income $ 3,337,333 $ 1,049,699 3,817,758 $ 2,341,120 Net income per shares, basic $ .07 $ .03 .09 $ .07 Net income per shares, diluted $ .06 $ .03 .09 $ .07 Weighted average shares outstanding, basic 47,878,011 35,707,788 41,477,438 31,523,679 Weighted average shares outstanding, diluted 51,626,134 37,606,678 44,223,683 32,191,027 See Notes to the Unaudited For the Three Months Ended June 30, For the Six Months Ended June 30, 2021 2020 2021 2020 Sales $ 125,885 $ 43,451 $ 215,907 $ 76,433 Cost of sales 90,172 31,866 154,817 55,902 Gross profit 35,713 11,585 61,090 20,531 Operating expenses: Store operations 12,624 3,877 20,806 7,516 Selling, general, and administrative 10,563 4,431 17,968 11,496 Depreciation and amortization 2,917 468 4,971 827 Total operating expenses 26,104 8,776 43,745 19,839 Income from operations 9,609 2,809 17,345 692 Other income (expense): Other expense (8) (66) (46) (61) Interest income 36 0 40 25 Interest expense (4) (13) (6) (20) Total non-operating income (expense), net 24 (79) (12) (56) Net income before taxes 9,633 2,730 17,333 636 Provision for income taxes (2,920) (156) (4,473) (156) Net income $ 6,713 $ 2,574 $ 12,860 $ 480 Net income per share, basic $ 0.11 $ 0.07 $ 0.22 $ 0.01 Net income per share, diluted $ 0.11 $ 0.06 $ 0.22 $ 0.01 Weighted average shares outstanding, basic 59,061 38,617 58,588 38,224 Weighted average shares outstanding, diluted 60,223 41,016 59,794 40,241 2THREE MONTHS AND NINESEPTEMBERJUNE 30, 2021 AND 2020 Additional Total Common Stock Paid-In Accumulated Stockholders’ Shares Amount Capital (Deficit) Equity Balances, December 31, 2019 36,876,305 $ 36,876 $ 60,742,055 $ (6,887,188 ) $ 53,891,743 Common stock issued upon warrant exercise 191,235 191 509,928 510,119 Common stock issued upon cashless warrant exercise 18,712 19 (19 ) - - Common stock issued upon cashless exercise of options 279,823 280 (280 ) - - Common stock issued in connection with business combinations 250,000 250 1,102,250 - 1,102,500 Common stock issued for assets 23,982 24 100,800 - 100,824 Common stock issued for services 50,000 50 (50 ) - - Common stock issued for share based compensation 519,333 519 1,759,913 - 1,760,432 Share based compensation - 2,208,646 - 2,208,646 Net loss (2,093,518 ) (2,093,518 ) Balances, March 31, 2020 38,209,300 $ 38,209 $ 66,423,243 $ (8,980,706 ) $ 57,480,746 Common stock issued upon warrant exercise 80,646 81 282,180 - 282,261 Common stock issued upon cashless exercise of warrants 77,907 78 (78 ) - - Common stock issued upon cashless exercise of options 29,792 30 (30 ) - - Common stock issued in connection with business combinations 107,500 107 705,093 - 705,200 Common stock issued for assets 10,000 10 67,490 - 67,500 Common stock issued for accrued compensation 324,674 325 717,206 - 717,531 Common stock issued for share-based compensation 5,000 5 24,845 - 24,850 Share-based compensation 1,162,055 1,162,055 Net income 2,573,943 2,573,943 Balances, June 30, 2020 38,844,819 $ 38,845 $ 69,382,004 $ (6,406,763 ) $ 63,014,086 Sale of common stock, net of offering costs 8,625,000 8,625 44,611,040 - 44,619,665 Common stock issued upon warrant exercise 87,823 88 271,665 - 271,753 Common stock issued upon cashless exercise of warrants 570,172 570 (570 ) - - Common stock issued upon cashless exercise of options 164,438 164 (164 ) - - Common stock issued for share-based compensation 120,040 120 43,801 - 43,921 Share-based compensation 978,217 - 978,217 Net income 3,337,333 3,337,333 Balances, September 30, 2020 48,412,292 $ 48,412 $ 115,285,993 $ (3,069,430 ) $ 112,264,975 See Notes to the UnauditedCommon Stock Additional
Paid-In CapitalRetained
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) — 0 Common stock issued upon exercise of options 1 — 2 — 2 Common stock issued upon cashless exercise of options 5 — — — 0 Common stock issued in connection with business combinations 548 — 29,249 — 29,249 Common stock issued for share based compensation 300 — — — 0 Common stock redeemed in litigation settlement (90) — — — 0 Common stock redemption (96) — (3,954) — (3,954) Share based compensation — — 1,187 0 1,187 Net income — — — 6,147 6,147 Balances, March 31, 2021 58,394 $ 58 $ 346,176 $ 3,505 $ 349,739 Common stock issued upon warrant exercise 216 — 224 — 224 Common stock issued upon cashless warrant exercise 119 — — — 0 Common stock issued upon exercise of options 460 1 1,729 — 1,730 Common stock issued upon cashless exercise of options 272 — — — 0 Common stock issued in connection with business combinations 101 1 3,938 — 3,939 Share based compensation — — 1,508 — 1,508 Net income — — — 6,713 6,713 Balances, June 30, 2021 59,562 $ 60 $ 353,575 $ 10,218 $ 363,853 Common Stock Additional
Paid-In CapitalRetained
Earnings (Deficit)Total
Stockholders’ Equity Shares Amount Balances, December 31, 2019 36,876 $ 37 $ 60,742 $ (7,970) $ 52,809 Common stock issued upon warrant exercise 191 — 510 — 510 Common stock issued upon cashless warrant exercise 19 — — — 0 Common stock issued upon cashless exercise of options 280 — — — 0 Common stock issued in connection with business combinations 250 — 1,102 — 1,102 Common stock issued for assets 24 — 101 — 101 Common stock issued for services 50 — — — 0 Common stock issued for share based compensation 519 1 1,760 — 1,761 Share based compensation — — 2,209 — 2,209 Net loss — — — (2,094) (2,094) Balances, March 31, 2020 38,209 $ 38 $ 66,424 $ (10,064) $ 56,398 Common stock issued upon warrant exercise 81 — 282 — 282 Common stock issued upon cashless warrant exercise 78 — — — 0 Common stock issued upon cashless exercise of options 30 — — — 0 Common stock issued in connection with business combinations 108 — 705 — 705 Common stock issued for assets 10 — 67 — 67 Common stock issued for services 325 — 717 — 717 Common stock issued for share based compensation 5 — 25 — 25 Share based compensation — — 1,162 — 1,162 Net income — — — 2,574 2,574 Balances, June 30, 2020 38,846 $ 38 $ 69,382 $ (7,490) $ 61,930 CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITYTHREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2019(Unaudited) Additional Total Common Stock Paid-In Accumulated Stockholders’ Shares Capital (Deficit) (Deficit) Equity Balances, December 31, 2018 27,948,609 $ 27,949 $ 38,796,562 $ (8,765,992 ) $ 30,058,519 Common stock issued upon warrant exercise 172,500 172 1,552 1,724 Common stock issued upon cashless exercise of options 228,890 229 (229 ) - - Common stock issued in connection with business combinations 344,553 345 998,406 - 998,751 Common stock issued for prepaid services 50,000 50 95,950 - 96,000 Common stock issued for accrued share-based compensation 100,000 100 210,100 - 210,200 Share based compensation (8,951 ) - (8,951 ) Net income 229,421 229,421 Balances, March 31, 2019 28,844,552 $ 28,845 $ 40,093,390 $ (8,536,571 ) $ 31,585,664 Sales of common stock, net of fees 4,123,254 4,123 12,661,866 - 12,665,989 Common stock issued upon warrant exercise 1,250,000 1,250 436,250 - 437,500 Common stock issued upon cashless exercise of options 241,154 241 (241 ) - - Common stock issued in connection with business combinations 250,000 250 810,630 - 810,880 Common stock issued for convertible debt 83,451 83 189,485 - 189,568 Common stock issued for share-based compensation 42,500 42 35,758 - 35,800 Share-based compensation 103,275 - 103,275 Net income 1,062,000 1,062,000 Balances, June 30, 2019 34,834,911 $ 34,834 $ 54,330,413 $ (7,474,571 ) $ 46,890,676 Common stock issued for convertible debt and cashless warrant exercise 1,175,157 1,175 2,214,528 - 2,215,703 Common stock issued upon warrant exercise 299,963 300 824,906 - 825,206 Common stock issued upon cashless exercise of options 35,824 36 (36 ) - - Common stock issued in connection with business combinations 300,000 300 1,529,700 - 1,530,000 Common stock issued for accrued share-based compensation 6,250 7 23,941 - 23,948 Share based compensation 255,135 - 255,135 Net income 1,049,699 1,049,699 Balances, September 30, 2019 36,652,105 $ 36,652 $ 59,178,587 $ (6,424,872 ) $ 52,790,367 See Notes to the Unaudited Consolidated Financial Statements.GROWGENERATION CORPORATION AND SUBSIDIARIES For the Nine Months Ended
September 30, 2020 2019 Cash flows from operating activities: Net income $ 3,817,758 $ 2,341,120 Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 1,270,398 538,847 Amortization of debt discount - 356,306 Stock-based compensation expense 6,324,109 1,075,735 Bad debt 93,522 - Gain on asset disposition (27,817 ) - Changes in operating assets and liabilities: (Increase) decrease in: Accounts receivable (884,834 ) (1,307,965 ) Inventory (13,421,096 ) (7,331,270 ) Prepaid expenses and other assets (3,092,297 ) (2,208,060 ) Increase (decrease) in: Accounts payable and accrued liabilities 6,264,843 3,108,049 Operating leases 220,441 137,103 Payroll and payroll tax liabilities 871,186 327,818 Income taxes payable 1,927,805 - Customer deposits (34,204 ) 411,096 Sales tax payable 368,244 271,357 Net cash provided by (used in) operating activities 3,698,058 (2,279,864 ) Cash flows from investing activities: Assets acquired in business combinations (4,027,096 ) (8,528,698 ) Purchase of furniture and equipment (2,115,270 ) (1,536,508 ) Purchase of intangibles (796,556 ) (112,819 ) Net cash used in investing activities (6,938,922 ) (10,178,025 ) Cash flows from financing activities: Principal payments on long term debt (74,928 ) (340,078 ) Proceeds from the sale of common stock and exercise of warrants, net of expenses 45,683,798 14,140,667 Net cash provided by (used in) financing activities 45,608,870 13,800,589 Net increase in cash 42,368,006 1,342,700 Cash at the beginning of period 12,979,444 14,639,981 Cash at the end of period $ 55,347,450 $ 15,982,681 Supplemental disclosures of non-cash financing activities: Cash paid for interest $ 19,728 $ 35,757 Common stock issued for accrued payroll $ 717,531 $ 210,210 Common stock issued for prepaid services $ - $ 96,000 Common stock issued for business combination $ 1,807,700 $ 3,339,631 Assets acquired by issuance of common stock 168,324 - Debt converted to equity $ - $ 2,310,832 Right to use assets acquired under new operating leases $ 2,172,701 $ 6,804,616 See Notes to the Unaudited Six Months Ended June 30, 2021 2020 Cash flows from operating activities: Net income $ 12,860 $ 480 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 4,971 827 Stock-based compensation expense 3,241 5,302 Bad debt expense, net of recoveries 313 195 Deferred taxes 947 0 Changes in operating assets and liabilities: Accounts and notes receivable (2,883) 652 Inventory (32,763) (6,154) Prepaid expenses and other assets (14,487) (2,550) Accounts payable and accrued liabilities 23,280 6,608 Operating leases 838 157 Payroll and payroll tax liabilities 1,757 272 Income taxes payable 1,846 156 Customer deposits 1,469 (169) Sales tax payable 885 345 Net cash provided by operating activities 2,274 6,121 Cash flows from investing activities: Assets acquired in business combinations (48,045) (3,032) Purchase of marketable securities (57,357) 0 Purchase of property and equipment (4,428) (1,280) Purchase of intangibles (1,262) (709) Net cash used in investing activities (111,092) (5,021) Cash flows from financing activities: Principal payments on long term debt (52) (47) Common stock redeemed (3,954) 0 Proceeds from the sale of common stock and exercise of warrants, net of expenses 2,067 792 Net cash provided by (used in) financing activities (1,939) 745 Net change (110,757) 1,845 Cash at the beginning of period 177,912 12,979 Cash at the end of period $ 67,155 $ 14,824 Supplemental disclosures of non-cash activities: Cash paid for interest $ 6 $ 20 Common stock issued for accrued payroll $ 0 $ 718 Common stock issued for business combination $ 33,187 $ 1,808 Assets acquired by issuance of common stock $ 0 $ 168 Right to use assets acquired under new operating leases $ 19,573 $ 1,095 to theTo Unaudited Condensed Consolidated Financial StatementsSeptember20201.NATURE OF OPERATIONSthirty one (31)fifty-eight (58) retail hydroponic/gardening stores with six (6) in the state of California, six (6) in the state of Michigan, five (5) located in the state of Colorado, four (4) in the State of Oklahoma, three (3) in Maine, two (2) in the state of Nevada, one (1) in the state of Washington, one (1) in the state of Oregon, one (1) in the state of Rhode Island, one (1) in the state of Florida, one (1) distribution center in the state of California andacross 12 states, an online e-commerce store, GrowGeneration.com. Ourplatform, 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 and Canada.The Company engages in its business through its wholly-owned subsidiaries, GrowGeneration Pueblo Corp, GrowGeneration California Corp, GrowGeneration Nevada Corp, GrowGeneration Washington Corp, GrowGeneration Rhode Island Corp, GrowGeneration Oklahoma Corp, GrowGeneration Canada, GrowGeneration HG Corp, GrowGeneration Hemp Corp, GGen Distribution Corp, GrowGeneration Michigan Corp, GrowGeneration New England Corp, GrowGeneration Florida Corp and GrowGeneration Management Corp.2.BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESPrinciplesStates. Consolidationcondensed consolidated interim financial statements include our accounts and those of our wholly-owned subsidiaries, and reflect all adjustments which are necessary for a fair statement of the financial position, results of operations, and cash flows for the periods presentedCondensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Such unaudited condensed consolidated interim financial statements have been prepared in accordance with the instructions to Form 10-Q pursuant to and the rules and regulations of the U.S. Securities and Exchange Commission. All significant intercompany balances and transactions are eliminated in consolidation. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. The year-end condensed balance sheet data was derived from audited financial statements but doesCommission (“SEC”). Accordingly, they do not include all disclosuresof the information and notes required by U.S. GAAP. unaudited condensed consolidated interim financial statements should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 (“Annual Report”) filed on March 27, 2020, and have been prepared on a consistent basis with2020. The results of operations for our interim periods are not necessarily indicative of results for the accounting policies describedfull fiscal year.Note 1 of the Notesaccompanying footnotes to the Audited Consolidated Financial Statements includedconsolidated financial statements, except per share data, is in thousands (000).Annual Report. Ourbusiness operations. As a result, if the pandemic persists or worsens, our accounting policies did not change during the nine months ended September 30, 2020.Use of EstimatesManagement uses estimates and assumptions could be impacted in preparingsubsequent 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 temporary supply chain delays of our inventory. 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.financial statementsmarketable securities are reported, net of applicable income taxes, in accordance with U.S. GAAP. These estimatesother comprehensive income. Realized gains or losses on sale of marketable securities are computed using primarily the moving average cost and assumptions affectreported in net income. For the reported amountssix months ended June 30, 2021, there were no significant unrealized gains or losses recorded.the disclosure of contingent assetscarried at fair value are to be classified and liabilities at the datedisclosed in one of the financial statements,following three levels of the fair value hierarchy, of which the first two are considered observable and the reported revenueslast is considered unobservable:expenses duringthat are significant to determining the reporting period. Actual results could vary fromfair value of the estimatesassets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.were used.Additionally, the full impactvaluation is based on models or inputs that are less observable or unobservable in the market, the determination of COVID-19fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is unknown and cannot be reasonably estimated. However, we have made appropriate accounting estimatesgreatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the factslowest level of any input that is significant to the fair value measurement.circumstancescash equivalents, accounts receivable, available asfor sales 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 reporting date. Tooutstanding 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 extent there are differences between these estimates and actual results, our consolidated financial statements may be materially affected.notes effective interest rate. Level June 30,
2021December 31,
2020Cash equivalents 2 $ 67,155 $ 177,912 Marketable securities 2 $ 57,357 $ 0 Notes receivable 2 $ 5,906 $ 2,937 Notes receivable impaired 3 $ 0 $ 875 Accounts receivable 2 $ 4,377 $ 3,901 to theTo Unaudited Condensed Consolidated Financial StatementsSeptember20202.BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continuedAs we continue2021monitor the COVID-19 situation, the Company is considered an “essential” supplier to the agricultural industry, suppling the nutrients and nourishment required to feed their plants. The Company has been opened during this difficult time. We have plans and procedures in place to ensure our customers and employees stay safe during this time, of uncertainty. As a result of COVID-19 we reduced some hours of operations at the store level and some stores were closed on the weekends, primarily in the later part of the first quarter of 2020. There have been some minor delays in vendor shipments as their warehouses and supply chain were affected by staffing shortages. The Company successfully implemented a will call and curb side pick-up process that is working well. Other than what has been disclosed above, we have not experienced adverse effects from COVID-19.LeasesWe account for leases in accordance with the Financial Accounting Standards Board (“FASB”) or other standard setting bodies issue new accounting pronouncements. Updates to the FASB Accounting Standards Codification (“ASC”("ASC") 842, Leases. We assess whetherare communicated through issuance of an arrangement is a lease at inception. Leases with an initial term of 12 months or less are not recorded on the balance sheet.Accounting Standards Update (“ASU”). We have elected the practical expedient to not separate leaseimplemented all new accounting pronouncements that are in effect and non-lease components for all assets. Operating lease assetsthat may impact our financial statements. We have evaluated recently issued accounting pronouncements and operating lease liabilities are calculated based on the present value of the future minimum lease payments over the lease term at the lease start date. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the lease start date in determining the present value of future payments. The operating lease asset is increased by any lease payments made at or before the lease start date and reduced by lease incentives and initial direct costs incurred. The lease term includes options to renew or terminate the lease when it is reasonably certain that we will exercise that option. The exercise of lease renewal options is at our sole discretion. The depreciable life of lease assets and leasehold improvements are limited by the lease term. Lease expense for operating leases is recognized on a straight-line basis over the lease term.Income TaxesThe Company accounts for income taxes in accordance with FASB ASC 740, Income Taxes, which requires the recognition of deferred tax assets and liabilities for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date. In 2019 and as of September 30, 2020, a valuation allowance was provided for the amount of deferred tax assets that would otherwise be recorded for income tax benefits primarily relating to operating loss carryforwards as realization could not be determined to be more likely than not.The Company adopted the provisions of FASB ASC 740-10-25, which prescribes a recognition threshold and measurement attribute for the recognition and measurement of tax positions taken or expected to be taken in income tax returns. FASB ASC 740-10-25 also provides guidance on recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, and accounting for interest and penalties associated with tax positions. The Company’s tax returns are subject to tax examinations by U.S. federal and state authorities until their respective statute of limitation. Currently, the 2019, 2018 and 2017 tax years are open and subject to examination by taxing authorities. However, the Company is not currently under audit nor has the Company been contacted by any of the taxing authorities. The Company does not have any accrual for uncertain tax positions as of September 30, 2020.GrowGeneration Corporation and SubsidiariesNotes to the Unaudited Consolidated Financial StatementsSeptember 30, 20202.BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continuedRevenue RecognitionThe Company recognizes revenue, net of estimated returns and sales tax, at the time the customer takes possession of merchandise or receives services at which point, the performance obligation is satisfied. Sales and other taxes collected concurrent with revenue producing activities are excluded from revenue. In the normal course of business, the Company does not accept product returns unless the item is defective as manufactured. The Company monitors provisions for estimated returns. Payment for goods and services sold by the Company is typically due upon satisfaction of the performance obligations. Under certain circumstances, the Company does provide goods and services to customers on a credit basis (see Accounts Receivable below). The Company accounts for shipping and handling activities as a fulfillment costs rather than as a separate performance obligation. When the Company receives payment from customers before the customer has taken possession of the merchandise or the service has been performed, the amount received is recorded as customer deposit in the accompanying Consolidated Balance Sheets until the sale or service is complete.Accounts Receivable and Concentration of Credit RiskAccounts receivable are stated at the amount the Company expects to collect from balances outstanding at period-end, based on the Company’s assessment of the credit history with customers having outstanding balances and current relationships with them. A reserve for uncollectable receivables is established when collection of amounts due is deemed improbable. Indicators of improbable collection include client bankruptcy, client litigation, client cash flow difficulties or ongoing service or billing disputes. Credit is generally extended on a short-term basis thus receivables do not bear interest. At September 30, 2020 and December 31, 2019, the Company established an allowance for doubtful accounts of $364,262 and $291,372, respectively.We are exposed to credit risk in the normal course of business, primarily related to accounts receivable. We are affected by general economic conditions in the United States. To limit credit risk, management periodically reviews and evaluates the financial condition of its customers and maintains an allowance for doubtful accounts. As of September 30, 2020, and December 31, 2019, we do not believe that we have significant credit risk.InventoryInventory consists primarily of gardening supplies and materials and is recorded at the lower of cost (first-in, first-out method) or net realizable value. The Company periodically reviews the value of items in inventory and provides write-downs or write-offs of inventory based on its assessment of market conditions. Write-downs and write-offs are charged to cost of goods sold.Property and EquipmentProperty and equipment are carried at cost. Leasehold Improvements are amortized using the straight-line method over the original term of the lease or the useful life of the improvement, whichever is shorter. Renewals and betterment that materially extend the life of the asset are capitalized. Expenditures for maintenance and repairs are charged against operations. Depreciation of property and equipment is provided on the straight-line method for financial reporting purposes at rates based on the following estimated useful lives:Estimated LivesVehicle5 yearsFurniture and fixtures5-7 yearsComputers and equipment3-5 yearsLeasehold improvements10 years not toexceed lease term8GrowGeneration Corporation and SubsidiariesNotes to the Unaudited Consolidated Financial StatementsSeptember 30, 20202.BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continuedGoodwillGoodwill represents the excess of purchase price over the fair value of net assets. Goodwill is not amortized but is reviewed for potential impairment on an annual basis, or if events or circumstances indicate a potential impairment, at the reporting unit level. The Company’s review for impairment includes an assessment of qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value, including goodwill. If it is determined that itthere is more likely than not that the fair valueno material impact on our financial position or results of a reporting unit is less than its carrying value, including goodwill, the first step of the two-step quantitative goodwill impairment test is performed, which compares the fair value of the reporting unit with its carrying amounts, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired. However, if the carrying amount of the reporting unit exceeds its fair value, additional procedures must be performed. That additional procedure compares the implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill. An impairment loss is recorded to the extent that the carrying amount of goodwill exceeds its implied fair value.Stock Based CompensationThe Company records stock-based compensation in accordance with FASB ASC Topic 718, Compensation-Stock Compensation (“ASC 718”). The Company estimates the fair value of stock options using the Black-Scholes option pricing model. The fair value of stock options granted is recognized as an expense over the requisite service period. Stock-based compensation expense for all share-based payment awards are recognized using the straight-line single-option method.The Black-Scholes option pricing model requires subjective assumptions, including future stock price volatility and expected time to exercise, which greatly affect the calculated values. The expected term of options granted is derived from historical data on employee exercises and post-vesting employment termination behavior. The risk-free rate selected to value any particular grant is based on the U.S. Treasury rate that corresponds to the expected life of the grant effective as of the date of the grant. The expected volatility is based on the historical volatility of the Company’s stock price. These factors could change in the future, affecting the determination of stock-based compensation expense in future periods.3.RECENT ACCOUNTING PRONOUNCEMENTSNew Accounting PronouncementsGrowGeneration Corporation and SubsidiariesNotesUnaudited Consolidated Financial StatementsSeptember 30, reported in Form 10-K for the year ended December 31, 20203.RECENT ACCOUNTING PRONOUNCEMENTS, continuedDuring the first quarter of 2019, the Company adopted the FASB ASU 2016-02, Leases (ASC 842), which introduces the balance sheet recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous guidance. The Company has adopted the new lease standard using the new transition option issued under the amendments in ASU 2018-11, Leases, which allowed the Company to continue to apply the legacy guidance in ASC 840, Leases, in the comparative periods presented in the year of adoption. The Company elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed the Company to carry forward the historical lease classification. The Company made an accounting policy election to keep leases with an initial term of 12 months or less off the balance sheet. The Company will recognize those lease payments on a straight-line basis over the lease term. The impact of the adoption was an increase to the Company’s operating lease assets and liabilities on January 1, 2019 of $3.2 million.On January 1, 2019, the Company also adopted ASU 2018-07, “Improvements to Nonemployee Share-Based Payment Accounting.” ASU 2018-07 more closely aligns the accounting for employee and nonemployee share-based payments. The amendment is effective commencing in 2019 with early adoption permitted. The adoption of this new guidance did not have a material impact on our Financial Statements.In August 2018, the SEC adopted amendments to certain disclosure requirements in Securities Act Release No. 33-10532, Disclosure Update and Simplification. These amendments eliminate, modify, or integrate into other SEC requirements certain disclosure rules. Among the amendments is the requirement to present an analysis of changes in stockholders’ equity in the interim financial statements included in Quarterly Reports on Form 10-Q. The analysis, which can be presented as a footnote or separate statement, is required for the current and comparative quarter and year-to-date interim periods. The amendments are effective for all filings made on or after November 5, 2018. The Company adopted these amendments in its Quarterly Report on Form 10-Q for the quarter ended March 31, 2019.Recently Issued Accounting Pronouncements – Pending AdoptionIn 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. In November 2019, the FASB issued ASU No. 2019-10, changing effective dates for the new standards to give implementation relief to certain types of entities. The Company is required to adopt the new standards no later than January 1, 2023 according to ASU 2019-10, with early adoption allowed. We are currently evaluating the impact of adopting this new accounting guidance on our condensed consolidated financial statements.GrowGeneration Corporation and SubsidiariesNotes to the Unaudited Consolidated Financial StatementsSeptember 30, 20203.RECENT ACCOUNTING PRONOUNCEMENTS, continuedIn January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The guidance in ASU 2017-04 eliminates the requirement to determine the fair value of individual assets and liabilities of a reporting unit to measure goodwill impairment. Under the amendments in the new ASU, goodwill impairment testing will be performed by comparing the fair value of the reporting unit with its carrying amount and recognizing an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. ASU 2017-04 is effective for annual and interim goodwill impairment tests in fiscal years beginning after December 15, 2022 and should be applied on a prospective basis. The Company is currently evaluating the impact of adopting this guidance on the Company’s consolidated financial statements.2019-02, 2019-12, Simplifying the Accounting for Income Taxes, to simplify the accounting for income taxes by removing certain exceptions to the general principles and also simplification of areas such as franchise taxes, step-up in tax basis goodwill, separate entity financial statements and interim recognition of enactment of tax laws or rate changes. The standard will bewas effective for annual reporting periods beginning after December 15, 2020, including interim reporting periods within those periods. We are currently evaluating theThere was no material impact on our consolidated financial statements and related disclosures as a result of adopting this new accounting guidance on our condensed consolidated financial statements.In August 2020, the FASB issued ASU 2020-06, Debt with Conversion and Other Options: Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies the accounting for certain instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. ASU 2020-06 removes from U.S. GAAP the separation models for (1) convertible debt with a cash conversion feature and (2) convertible instruments with a beneficial conversion feature. ASU 2020-06 requires entities to provide expanded disclosures about “the terms and features of convertible instruments,” how the instruments have been reported in the entity’s financial statements, and “information about events, conditions, and circumstances that can affect how to assess the amount or timing of an entity’s future cash flows related to those instruments.”ASU 2020-06 is effective for public business entities that are not smaller reporting companies for fiscal years beginning after December 15, 2021 and interim periods within those fiscal years. For all other entities, ASU 2020-06 is effective for fiscal years beginning after December 15, 2023 and interim periods within those fiscal years. We are currently evaluating the impact of adopting this new accounting guidance on our condensed consolidated financial statements.4.REVENUE RECOGNITIONDisaggregation of Revenues Three Months
Ended
September 30,
2020 Three Months
Ended
September 30,
2019 Sales at company owned stores $ 52,079,735 $ 20,396,810 E-commerce sales 2,927,740 1,381,677 Total Revenues $ 55,007,475 $ 21,778,487 Nine Months
Ended
September 30,
2020 Nine Months
Ended
September 30,
2019 Sales at company owned stores $ 123,992,048 $ 51,249,782 E-commerce sales 7,448,772 3,099,310 Total Revenues $ 131,440,820 $ 54,349,092 Contract BalancesDepending on the timing of when a customer takes possession of product and when a customer makes payments for such product, the Company recognizes a customer trade receivable (asset) or a customer deposit (liability). The difference between the opening and closing balances of the Company’s customer trade receivables and the customer deposit liability results from timing differences between the Company’s performance and the customer’s payment.11 Three Months Ended
June 30, 2021Three Months Ended
June 30, 2020Six Months Ended June 30, 2021 Six Months Ended June 30, 2020 Sales at company owned stores $ 108,911 $ 40,128 $ 190,138 $ 71,912 Distribution 4,988 0 7,823 0 E-commerce sales 11,986 3,323 17,946 4,521 Total Revenues $ 125,885 $ 43,451 $ 215,907 $ 76,433 to theTo Unaudited Condensed Consolidated Financial StatementsSeptember20204.REVENUE RECOGNITION, continued Receivables Customer Deposit Liability Opening balance, 1/1/2020 $ 4,455,209 $ 2,503,785 Closing balance, 9/30/2020 5,246,521 2,469,581 Increase (decrease) $ 791,312 (34,204 ) Opening balance, 1/1/2019 $ 862,397 $ 516,038 Closing balance, 9/30/2019 2,170,362 927,134 Increase (decrease) $ 1,307,965 $ 411,096 5.PROPERTY AND EQUIPMENT September 30,
2020 December 31,
2019 Vehicles $ 1,106,347 $ 702,447 Leasehold improvements 1,546,875 884,685 Furniture, fixtures and equipment 4,461,743 3,305,323 7,114,965 4,892,455 (Accumulated depreciation) (2,626,043 ) (1,551,839 ) Property and Equipment, net $ 4,488,922 $ 3,340,616 Receivables Customer Deposit Liability Opening balance, January 1, 2021 $ 7,713 $ 5,155 Closing balance, June 30, 2021 10,283 6,793 Increase (decrease) $ 2,570 $ 1,638 Opening balance, January 1, 2020 $ 4,455 $ 2,504 Closing balance, June 30, 2020 3,609 2,335 Increase (decrease) $ (846) $ (169) June 30,
2021December 31,
2020Note receivable $ 6,172 $ 4,104 Allowance for losses (266) (292) Notes receivable, net $ 5,906 3,812 June 30,
2021December 31,
2020Note receivable $ 266 $ 1,166 Allowance for losses (266) (292) Notes receivable, net $ 0 874 Fair Value Level Adjusted Cost Basis Unrealized Gain (Loss) Recorded
BasisCommercial paper Level 2 $ 9,994 $ 0 $ 9,994 Corporate notes and bonds Level 2 47,363 0 47,363 Marketable securities $ 57,357 $ 0 $ 57,357 June 30,
2021December 31,
2020Trade receivables under longer term financing arrangements $ 5,906 $ 3,812 Note receivable, non-customer related 0 0 Subtotal 5,906 3,812 Less, current portion (4,535) (2,612) Notes receivable, noncurrent $ 1,371 1,200 June 30,
2021December 31,
2020Vehicles $ 2,256 $ 1,342 Building 1,107 477 Leasehold improvements 3,381 1,988 Furniture, fixtures and equipment 8,223 5,739 Total property and equipment, gross 14,967 9,546 Accumulated depreciation and amortization (4,512) (3,071) Property and equipment, net $ 10,455 $ 6,475 SeptemberJune 30, 20202021 was $782 thousand and 2019 was $399,482 and $247,715,$1.4 million, respectively.ninethree and six months ended SeptemberJune 30, 2020 was $374 thousand and 2019 was $1,104,781$705 thousand, respectively.$538,847, respectively.6.GOODWILL AND INTANGIBLE ASSETSGoodwill: Subsidiaries September 30,
2020 December 31,
2019 Balance, beginning of period $ 17,798,932 $ 8,752,909 Goodwill additions 4,126,152 9,046,023 Impairments - - Balance, end of period $ 21,925,084 $ 17,798,932 12GrowGeneration Corporation and SubsidiariesNotes to the Unaudited Consolidated Financial StatementsSeptember 30, 20206.GOODWILL AND INTANGIBLE ASSETS, continued June 30, 2021 December 31,
2020Balance, beginning of period $ 62,951 $ 17,799 Goodwill additions and measurement period adjustments 45,789 45,152 Balance, end of period $ 108,740 $ 62,951 on the Company’s consolidated balance sheets consist of the following: September 30,
2020 December 31,
2019 Gross
Carrying
Amount Accumulated
Amortization Gross
Carrying
Amount Accumulated
Amortization Other intangibles, patents and trademarks $ 100,000 $ - $ 100,000 $ - Capitalized software 931,610 167,392 135,030 1,750 $ 1,031,610 $ 167,392 $ 235,030 $ 1,750 June 30, 2021 December 31, 2020 Gross
Carrying
AmountAccumulated
AmortizationGross
Carrying
AmountAccumulated
AmortizationTradenames $ 24,184 $ (2,298) $ 13,923 $ (398) Patents, trademarks 100 (35) 100 (9) Customer relationships 18,372 (1,260) 6,297 (138) Non-competes 1,115 (118) 796 (22) Intellectual property 2,065 (138) 0 0 Capitalized software 2,762 (470) 1,163 (222) $ 48,598 $ (4,319) $ 22,279 $ (789) threesix months ended SeptemberJune 30, 2021 and 2020 was $2,135 and 2019 was $44,097$3,530, respectively.Future amortization expense is as follows: 2021, remainder $ 4,714 2022 9,525 2023 9,164 2024 8,817 2025 8,283 Thereafter 3,776 Total $ 44,279 $0, respectively.Amortization expense for the nine months ended SeptemberSubsidiaries2020 and 2019 was $165,617 and $0, respectively.7.LONG-TERM DEBT September 30, December 31, 2020 2019 Long term debt is as follows: Wells Fargo Equipment Finance, interest at 3.5% per annum, payable in monthly installments of $518.96 beginning April 2016 through March 2021, secured by warehouse equipment with a book value of $25,437 $ 2,572 $ 7,109 Notes payable issued in connection with seller financing of assets acquired, interest at 1%, payable in 24 installments of $24,996, due February 2020 - 24,997 Notes payable issued in connection with seller financing of assets acquired, interest at 8.125%, payable in 60 installments of $8,440, due August 2023 274,810 320,204 $ 277,382 $ 352,310 Less Current Maturities (88,049 ) (110,231 ) Total Long-Term Debt $ 189,333 $ 242,079 June 30,
2021December 31,
2020Long term debt is as follows: Wells Fargo Equipment Finance, interest at 3.5% per annum, payable in monthly installments of $518.96 beginning April 2016 through March 2021, secured by warehouse equipment with a book value of $25 $ 0 $ 1 Notes payable issued in connection with seller financing of assets acquired, interest at 8.125%, payable in 60 installments of $8,440.00, Due August 2023 189 240 $ 189 $ 241 Less Current Maturities (83) (83) Total Long-Term Debt $ 106 $ 158 SeptemberJune 30, 2021 and 2020 was $4 thousand and 2019 was $142 and $27,067,$13 thousand, respectively.ninesix months ended SeptemberJune 30, 2021 and 2020 was $6 thousand and 2019 was $19,728 and $35,757,$20 thousand, respectively.8.LEASES June 30,
2021December 31,
2020Right to use assets, operating lease assets $ 31,661 $ 12,088 Current lease liability $ 5,464 $ 3,001 Non-current lease liability 27,427 9,479 $ 32,891 $ 12,480 June 30,
2021June 30,
2020Weighted average remaining lease term 7.17 years 3.44 years Weighted average discount rate 6.0 % 7.6 % Six Months Ended
June 30, 2021 2020 Operating lease costs $ 3,548 $ 1,714 Short-term lease costs 1,109 31 Total operating lease costs $ 4,657 $ 1,745 to theTo Unaudited Condensed Consolidated Financial StatementsSeptember20208.LEASES, continuedOperating lease assets and liabilities are recognized at2021lease commencement date. Operating lease liabilities representmaturity of the present value of lease payments not yet paid. Operating lease assets represent our right to use an underlying asset and are based upon theCompany’s operating lease liabilities adjustedas of June 30, 2021: 2021 (remainder of the year) $ 3,769 2022 6,720 2023 6,021 2024 4,884 2025 4,246 Thereafter 15,170 Total lease payments 40,810 Less: Imputed interest (7,919) Lease Liability at June 30, 2021 $ 32,891 prepaymentsemployee, 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 accrued lease payments, initial direct costs, lease incentives, and impairmenta combination 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. September 30,
2020 December 31,
2019 Right to use assets, operating lease assets $ 8,109,184 $ 7,628,591 Current lease liability $ 2,037,537 $ 1,836,700 Non-current lease liability 6,307,463 5,807,266 $ 8,345,000 $ 7,643,966 September 30,
2020 September 30,
2019 Weighted average remaining lease term 2.98 3.9 years Weighted average discount rate 7.6 % 7.6 % Three Months Ended September 30,
2020 September 30,
2019 Operating lease costs $ 934,455 $ 724,324 Short-term lease costs 2,450 2,450 Total operating lease costs $ 936,905 $ 726,774 14GrowGeneration Corporation and SubsidiariesNotes to the Unaudited Consolidated Financial StatementsSeptember 30, 20208.LEASES, continued Nine Months Ended September 30,
2020 September 30,
2019 Operating lease costs $ 2,660,291 $ 1,723,075 Short-term lease costs 22,050 22,050 Total operating lease costs $ 2,682,341 $ 1,745,125 The following table presents the maturity of the Company’s operating lease liabilities as of September 30, 2020: 2020 (remainder of the year) $ 728,304 2021 2,882,605 2022 2,442,374 2023 1,907,782 2024 1,121,033 Thereafter 2,963,252 Total lease payments 12,045,350 Less: Imputed interest (3,700,350 ) Lease Liability at September 30, 2020 $ 8,345,000 9.CONVERTIBLE DEBTOn January 12, 2018, the Company completed a private placement of a total of 36 units of the Company’s securities at the price of $250,000 per unit pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”) and Rule 506 of Regulation D promulgated under the Securities Act. Each Unit consisted of (i) a .1% unsecured convertible promissory note of the principal amount of $250,000, and (ii) a 3-year warrant entitling the holder to purchase 37,500 shares of the Company’s common stock, par value $.001 per share, at a price of $.01 per share or through cashless exercise.The convertible debt had a maturity date of January 12, 2021 and the principal balance and any accrued interest is convertible by the holder at any time into common stock of the Company at conversion price of $3.00 a share. Principal due and interest accrued on the notes will automatically convert into shares of common stock, at the conversion price, if at any time during the term of the notes, commencing twelve (12) months from the date of issuance, the common stock trades minimum daily volume of at least 50,000 shares for twenty (20) consecutive days with a volume weighted average price of at least $4.00 per share. As of August 21, 2019, all remaining convertible debt and accrued interest had been converted to equity and no convertible debt remains outstanding.During the nine months ended September 30, 2019, 172,500 warrants issued in connection with the convertible debt were exercised, resulting in the issuance of 172,500 shares of common stock.During the nine months ended September 30, 2020, 37,438 shares were issued upon cashless exercise of convertible debt warrants.15GrowGeneration Corporation and SubsidiariesNotes to the Unaudited Consolidated Financial StatementsSeptember 30, 202010.SHARE BASED PAYMENTS AND STOCK OPTIONSDuring The Company also issues share based payments in the three months ended September 30, 2020 the Company issued 1,000 sharesform of common stock (stock-based awards)warrants to employees that vested immediately resulting in compensation expense of approximately $4,490. During the three months ended September 30, 2019 the Company did not issue any shares of common stock (stock-based awards) to employees that vested immediately.During the nine months ended September 30, 2020 the Company issued 534,333 shares of common stock (stock-based awards) to employees that vested immediately resulting in compensation expense of approximately $2,200,947. During the nine months ended September 30, 2019 the Company issued 17,500 shares of common stock (stock-based awards) to employees that vested immediately resulting in compensation expense of approximately $35,800.During the three months and nine months ended September 30, 2020, the Company recorded $0 and $125,000, respectively, of share-based compensation to executives that is included in payroll and payroll tax liabilities. During the three months and nine months ended September 30, 2019, the Company recorded $217,100 and $716,600, respectively, of share-based compensation to executives that is included in payroll and payroll tax liabilities.and new shares issued for the threesix months ended SeptemberJune 30, 20202021 and 2019. Three Months Ended
September 30, 2020 2019 Total non-cash share-based compensation $ 1,022,137 $ 553,492 The following table presents share-based payment expense and new shares issued for the nine months ended September2020. Six months ended June 30, 2021 2020 Restricted stock $ 1,935 $ 3,316 Stock options 559 1,986 Warrants 747 0 Total $ 3,241 $ 5,302 2020 and 2019. Nine Months Ended
September 30, 2020 2019 Total non-cash share-based compensation $ 6,324,109 $ 1,075,735 GrowGeneration Corporation and SubsidiariesNotes to the Unaudited Consolidated Financial StatementsSeptember 30, 202010.SHARE BASED PAYMENTS AND STOCK OPTIONS, continuedOn March 6, 2014, the Company’s Board of Directors (the “Board”) approved the 2014 Equity Incentive Plan (“2014 Plan”) pursuant to which2021, the Company may grant incentive, non-statutory options, stock appreciation rights,had approximately $10.4 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 3.3 years. As of June 30, 2021, the Company also had approximately $3.3 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 2.5 years.units, performance shares, performance units and other stock or cashto eligible employees, which are subject to forfeiture until the end of an applicable vesting period. The awards to employees, nonemployee members of our Board, consultants and other independent advisors who provide services to the Company. The maximum shares of common stock which may be issued over the term of the 2014 Plan shall not exceed 2,500,000 shares. Awards under the 2014 Plan are made by the Board or a committee designated by the Board. Options under the 2014 Plan are to be issued at the market price of the stockgenerally vest on the day of the grant except to those issued to holders of 10%second or more of the Company’s common stock which is required to be issued at a price not less than 110% of the fair market value on the day of the grant. Each option is exercisable at such time or times, during such period and for such numbers of shares shall be determined by the plan administrator. No option may be exercisable for more than ten years (five years in the case of an incentive stock option granted to a 10% stockholder) from the date of grant.On January 7, 2018, the Board adopted the 2018 Equity Compensation Plan (the “2018 Plan”) and on April 20, 2018, the shareholders approved the 2018 Plan. On February 7, 2020, the Board approved the amendment and restatement of the 2018 Plan to increase the number of shares issuable thereunder from 2,500,000 to 5,000,000, which amendment was approved by shareholders on May 11, 2020. The 2018 Plan will be administered by the Board. The Board may grant options to purchase shares of common stock, stock appreciation rights, restricted stock units, restricted or unrestricted shares of common stock, performance shares, performance units, other cash-based awards and other stock-based awards. The Board also has broad authority to determine the terms and conditions of each option or other kind of equity award, adopt, amend and rescind rules and regulations for the administration of the 2018 Plan and amend or modify outstanding options, grants and awards.No options, stock purchase rights or awards may be made under the 2018 Plan on or after the ten-yearthird anniversary of the adoption of the 2018 Plan by the Board, but the 2018 Plan will continue thereafter while previously granted options, stock appreciation rights or awards remain subject to the 2018 Plan. Options granted under the 2018 Plan may be either “incentive stock options” that are intended to meet the requirements of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”) or “nonstatutory stock options” that do not meet the requirements of Section 422 of the Code. The Board will determine the exercise price of options granted under the 2018 Plan. The exercise price of stock options may not be less than the fair market value, on the date of grant, per share of our Common Stock issuable upon exercise ofsubject to the option (or 110% of fair market value in the case of incentive options granted to a 10% stockholder). No option may be exercisable for more than ten years (five years in the case of an incentive stock option granted to a 10% stockholder) from the date of grant.Unvested Share Based Awardsemployee’s continuing employment as of September 30, 2020 are summarized below: # of
Unvested
Awards $ of
Unvested
Awards Option awards 915,000 $ 1,449,230 Stock Awards 776,667 2,097,035 Total $ 3,546,265 to theTo Unaudited Condensed Consolidated Financial StatementsSeptember202010.SHARE BASED PAYMENTS AND STOCK OPTIONS, continuedAwards issued under20212014 Plan as of Septembersix months ended June 30, 2020 are summarized below:2020Total shares available for issuance pursuant to the 2014 Plan2,500,000Options outstanding, September 30, 2020(110,000)Total options exercised under 2014 Plan(2,003,833)Total shares issued pursuant to the 2014 Plan(375,000)Awards available for issuance under the 2014 Plan, September 30, 202011,167Awards issued under2021 is presented in the 2018 Plan as of September 30, 2020 are summarized below:2020Total shares available for issuance pursuant to the 2018 Plan, after amendment5,000,000Options outstanding, September 30, 2020(1,725,500)Total options exercised under 2018 Plan(164,833)Total shares issued pursuant to the 2018 Plan(693,333)Awards available for issuance under the 2018 Plan, September 30, 20202,416,334 Shares Weighted Average Grant Date Fair Value Nonvested, December 31, 2020 630 $ 4.15 Granted 201 $ 45.56 Vested (291) $ 4.39 Forfeited (9) $ 18.54 Nonvested, June 30, 2021 531 $ 20.40 ninesix months ended SeptemberJune 30, 2020:Options Shares Weight -
Average
Exercise
Price Weighted -
Average
Remaining
Contractual
Term Weighted -
Average
Grant Date
Fair Value Outstanding at December 31, 2019 1,920,333 $ 2.78 3.81 years $ 1.71 Granted 861,500 $ 4.31 $ 2.64 Exercised (654,663 ) $ 2.05 $ 1.04 Forfeited or expired (25,000 ) $ 3.17 $ 2.07 Outstanding at September 30, 2020 2,102,170 $ 3.58 3.65 years $ 2.22 Options vested at September 30, 2020 1,187,170 $ 3.19 3.27 years $ 1.95
2021:September 30,2020Options outstanding pursuant to 2014 Plan110,000Options outstanding pursuant to 2018 Plan1,725,500Options issued outside of 2014 and 2018 Plans266,6702,102,170GrowGeneration Corporation and SubsidiariesNotes to the Unaudited Consolidated Financial StatementsSeptember 30, 202011.STOCK PURCHASE WARRANTSOptions Shares Weight -
Average
Exercise
PriceWeighted -
Average
Remaining
Contractual
TermWeighted -
Average
Grant Date
Fair ValueOutstanding at December 31, 2020 1,803 $ 3.92 3.47 $ 2.38 Granted 0 0 — 0 Exercised (753) 3.05 1.65 Forfeited or expired (50) 4.16 — 2.28 Outstanding at June 30, 2021 1,000 $ 4.56 3.31 $ 2.46 Options vested at June 30, 2021 774 $ 4.29 2.80 $ 3.31 ninesix months ended SeptemberJune 30, 20202021 is as follows: Warrants Weighted Average
Exercise Price Outstanding at December 31, 2019 3,844,935 $ 3.14 Issued - Exercised (1,205,919 ) $ 3.34 Forfeited (250,000 ) 5.75 Outstanding at September 30, 2020 2,389,016 $ 2.81 12.EARNINGS PER SHARE Warrants Weighted Average
Exercise PriceOutstanding at December 31, 2020 1,393 $ 7.49 Issued 0 Exercised (968) $ 2.84 Forfeited 0 Outstanding at June 30, 2021 425 $ 17.25 months and ninesix months ended SeptemberJune 30, 20202021 and 2019. Three months ended September 30,
2020 September 30,
2019 Net income $ 3,337,333 $ 1,049,699 Weighted average shares outstanding, basic 47,878,011 35,707,788 Effect of dilutive outstanding warrants and stock options 3,748,123 1,898,890 Adjusted weighted average shares outstanding, dilutive 51,626,134 37,606,678 Basic income per shares $ .07 $ .03 Dilutive income per share $ .06 $ .03 Nine months ended September 30,
2020 September 30,
2019 Net income $ 3,817,758 $ 2,341,120 Weighted average shares outstanding, basic 41,477,438 31,523,679 Effect of dilutive outstanding warrants and stock options 2,746,245 667,348 Adjusted weighted average shares outstanding, dilutive 44,223,683 32,191,027 Basic income per shares $ .09 $ .07 Dilutive income per share $ .09 $ .07 GrowGeneration Corporation and SubsidiariesNotes to the Unaudited Consolidated Financial StatementsSeptember 30, 202013.ACQUISITIONS Three Months Ended June 30,
2021June 30,
2020Net income $ 6,713 $ 2,574 Weighted average shares outstanding, basic 59,061 38,617 Effect of dilution 1,162 2,399 Adjusted weighted average shares outstanding, dilutive 60,223 41,016 Basic earnings per shares $ 0.11 $ 0.07 Dilutive earnings per share $ 0.11 $ 0.06 Six Months Ended June 30,
2021June 30,
2020Net income $ 12,860 $ 480 Weighted average shares outstanding, basic 58,588 38,224 Effect of dilution 1,206 2,017 Adjusted weighted average shares outstanding, dilutive 59,794 40,241 Basic earnings per shares $ 0.22 $ 0.01 Dilutive earnings per share $ 0.22 $ 0.01 presence.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 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. Agron Aquarius 55 Hydro Charcoir San Diego Hydro Inventory $ 0 $ 957 $ 780 $ 839 $ 1,400 Prepaids and other current assets 29 12 29 534 36 Furniture and equipment 46 63 50 0 315 Liabilities 0 0 0 0 0 Operating lease right to use asset 87 0 853 0 970 Operating lease liability (87) 0 (853) 0 (970) Customer relationships 832 339 809 5,712 605 Trade name 1,530 485 870 1,099 1,192 Non-compete 139 0 26 0 6 Intellectual property 0 0 0 2,065 0 Goodwill 8,673 1,702 3,915 6,119 5,728 Total $ 11,249 $ 3,558 $ 6,479 $ 16,368 $ 9,282 Grow Warehouse Grow Depot Maine Indoor Garden Down River Hydro Harvest Total Inventory $ 2,448 $ 326 $ 372 $ 824 $ 1,204 $ 9,150 Prepaids and other current assets 30 3 0 3 7 683 Furniture and equipment 250 25 94 50 100 993 Liabilities (169) 0 0 0 0 (169) Operating lease right to use asset 94 91 129 0 0 2,224 Operating lease liability (94) (91) (129) 0 0 (2,224) Customer relationships 1,256 549 210 634 1,016 11,962 Trade name 2,748 344 353 698 1,392 10,711 Non-compete 94 36 2 16 0 319 Intellectual property 0 0 0 0 0 2,065 Goodwill 11,122 866 661 2,126 4,606 45,518 Total 17,779 2,149 1,692 $ 4,351 $ 8,325 $ 81,232 Agron Aquarius 55 Hydro Charcoir San Diego Hydro Cash $ 5,973 $ 2,331 $ 5,347 $ 9,902 $ 4,751 Common stock 5,276 1,227 1,132 6,466 4,531 Total $ 11,249 $ 3,558 $ 6,479 $ 16,368 $ 9,282 Grow Warehouse Grow
Depot MaineIndoor Garden Down River Hydro Harvest Total Cash $ 8,100 $ 1,738 $ 1,165 $ 3,177 $ 5,561 $ 48,045 Common stock 9,679 411 527 1,174 2,764 33,187 Total $ 17,779 $ 2,149 $ 1,692 $ 4,351 $ 8,325 $ 81,232 Agron Aquarius 55 Hydro Charcoir San Diego Hydro Acquisition date 3/19/2021 3/15/2021 3/15/2021 3/12/2021 2/22/2021 Revenue $ 6,105 $ 2,684 $ 2,222 $ 1,880 $ 3,446 Net Income $ 324 $ 365 $ 314 $ 518 $ 547 Grow Warehouse Grow Depot Maine Indoor Garden Down River Hydro Harvest Total Acquisition date 2/15/2021 2/1/2021 1/25/2021 4/19/2021 5/24/21 Revenue $ 6,753 $ 2,779 $ 2,308 $ 1,200 $ 1,489 $ 5,986 Net Income $ 1,297 $ 555 $ 433 $ 176 $ 268 $ 905 Three Months Ended Six Months Ended June 30, 2021
(Unaudited)June 30, 2021
(Unaudited)Revenue $ 130,504 $ 229,599 Net income $ 12,446 $ 19,849 Three Months Ended Six Months Ended June 30, 2020
(Unaudited)June 30, 2020
(Unaudited)Revenue $ 40,501 $ 90,126 Net income $ 1,849 $ 2,352 $1.75$1.1 million representsrepresented 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.$1.99$2.0 million. Acquired goodwill of approximately $1.4$1.0 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’sCompany'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.ninesix months ended SeptemberJune 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 10,000 50,000 50,000 110,000 - 902,000 192,600 1,094,600 - (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 H2O Hydroponics LLC Health & Harvest LLC Total Inventory $ 498 $ 1,054 $ 1,552 Prepaids and other current assets 4 0 4 Furniture and equipment 50 51 101 Right to use asset 902 192 1,094 Lease liability (902) (192) (1,094) Customer relationships 150 255 405 Trade name 234 357 591 Non-compete 43 6 49 Goodwill 1,008 1,130 2,138 Total $ 1,987 $ 2,853 $ 4,840 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 to theTo Unaudited Condensed Consolidated Financial StatementsSeptember202013.ACQUISITIONS, continued H2O Hydroponics LLC Health & Harvest LLC Total Cash $ 1,282 $ 1,750 $ 3,032 Common stock 705 1,103 1,808 Total $ 1,987 $ 2,853 $ 4,840 of operations from the date of acquisition through Septemberto the period ended June 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 H2O Hydroponics LLC Health & Harvest LLC Total Acquisition date 6/26/20 2/26/2020 Revenue $ 227 $ 2,300 $ 2,527 Earnings $ 28 $ 462 $ 490 three months and ninesix months ended SeptemberJune 30, 2020 and 2019. Three Months
Ended
September 30,
2019 Nine Months
Ended
September 30,
2019 Revenue $ 2,873,178 $ 6,827,217 $ $ Three Months Ended Six Months Ended June 30, 2019 June 30, 2019 Revenue $ 21,759 $ 37,122 Earnings $ 1,149 $ 1,465 table below represents the allocationCompany has engaged with a firm that employs an immediate family member 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 GrowGeneration Corporation and SubsidiariesNotes to the Unaudited Consolidated Financial StatementsSeptember 30, 202013.ACQUISITIONS, continuedThe 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 resultsan officer of the Company as partner. The firm provides certain legal services. Amounts paid for the entire periodto that firm in total was approximately $0.2 million and $0.4 million for the three months and ninesix months ended SeptemberJune 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 14.SUBSEQUENT EVENTSSeptemberJune 30, 20202021 up to the date of this filing of these consolidated financial statements. These statements contain all necessary adjustments and disclosures resulting from that evaluation. October 12, 2020,July 1, 2021, the Company acquiredpurchased the assets of Hydroponics Depot, LLC, a single store locatedAqua Serene, an indoor/outdoor garden center with stores in Phoenix ArizonaEugene and Ashland, Oregon. The total consideration for $987,500the purchase was $10.0 million, including approximately $7.7 million in cash and 31,027 shares of the Company’s common stock valued at $500,000.On October 20, 2020 the Company acquired the assets of Big Green Tomato, a two-store chain in Battle Creek and Taylor, Michigan for $5,495,000 in cash and 167,11646,554 shares of common stock valued at $2,750,000.October 29, 2020,July 3, 2021, the Company signed an asset purchase agreement with The GrowBiz,purchased the assets of Mendocino Greenhouse & Garden Supply, Inc, a five-store chain with four storesNorthern California-based hydroponic garden center located in California and one store in Oregon. The asset purchase is expected to close by the end of the year.Mendocino, California. The total consideration for the purchase was approximately $4.0 million.The GrowBizasset purchase agreements (the “Purchase Agreements”) through its wholly-owned subsidiary, GrowGeneration Michigan Corp., to purchase the assets from subsidiaries of HGS Hydro (“HGS Hydro”) with 6 stores across the State of Michigan and a seventh store to open in the fall of 2021. This acquisition is expected to close before the end of 2021 fiscal year-end. As consideration for the assets, the Company agreed to pay HGS Hydro an aggregate purchase price of approximately $32$72.2 million $17,000,000which includes $55.2 million in cash and approximately $17.0 million in shares of the Company's restricted common stock valued at $15 million.stock.20192020 filed with the SEC on March 27, 2020.29, 2021. In connection with, and because we desire to take advantage of, the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, we caution readers regarding certain forward looking statements in the following discussion and elsewhere in this report and in any other statement made by, or on our behalf, whether or not in future filings with the SEC. Forward looking statements are statements not based on historical information and which relate to future operations, strategies, financial results or other developments. Forward looking statements, particularly those identified with the words, “anticipates,” “believes,” “expects,” “plans,” “intends,” “objectives,” and similar expressions, are necessarily based upon estimates and assumptions that are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control and many of which, with respect to future business decisions, are subject to change. These uncertainties and contingencies can affect actual results and could cause actual results to differ materially from those expressed in any forward-looking statements made by, or on our behalf. We disclaim any obligation to update forward looking statements, except as required by law.by revenue and number of stores. We are theis a leading marketer and distributor of nutrients, growing media, advanced indoor and greenhouse lighting, ventilationenvironmental control systems and accessories for hydroponic gardening. Currently, the CompanyGrowGeneration also owns and operates a chain of thirty one (31) retail hydroponic/gardening centers, with six (6) in the state of California, six (6) in the state of Michigan, five (5) located in the state of Colorado, four (4) in the State of Oklahoma, three (3) in Maine, two (2) in the state of Nevada, one (1) in the state of Washington, one (1) in the state of Oregon, one (1) in the state of Rhode Island, (1) in the state of Florida, one (1) distribution center in the state of Californiae-commerce platforms, www.growgeneration.com and an online e-commerce store, GrowGeneration.com. Our plan iswww.agron.io, Canopy Crop Management Corp, CharCoir Inc, and several proprietary private-label brands across multiple product categories from LED lighting to continue to acquire, opennutrients and operate hydroponic/gardening centersadditives and related businesses throughout the United States and Canada.MarketOur garden centersenvironmental control systems for indoor cultivation.ventilationenvironmental control systems, vertical benching and accessories for hydroponic gardening, as well as other indoor and outdoor growing products, that serve multi-purposes and are designed and intended for growing a wide range of plants. Hydroponics is a specialized method of growing plants using mineral nutrient solutions in a water solvent, as opposed to soil. This method is typically used inside greenhouses to give growers the ability to better regulate and control nutrient delivery, light, air, water, humidity, pests, and temperature. Hydroponic growers benefit from these techniques by producing crops faster and with higher crop yields per acre as compared to traditional soil-based growers. Indoor growing techniques and hydroponic products are being utilized in new and emerging industries or segments, including the growing of cannabis and hemp. In addition, vertical farms producing organic fruits and vegetables are also beginning to utilize hydroponics due to a rising shortage of farmland as well as environmental vulnerabilities including drought, other severe weather conditions and insect pests.GrowGeneration serves a new, yet sophisticated community of commercial and urban cultivators growing specialty crops including organics, greens and plant-based medicines. Unlike the traditional agricultural industry, these cultivators use innovative indoor and outdoor growing techniques to produce specialty crops in highly controlled environments. This enables them to produce crops at higher yields without having to compromise quality, regardless of the season or weather and drought conditions.Our target market segments include the commercial growers in the plant-based medicine market, the home grower and businesses and individuals who grow organically grown herbs and leafy green vegetables. The landscape for hydroponic retail stores is very fragmented, with numerous single stores which we consider very ripe for our roll up strategy. Further, the products we sell are in demand due to the ever-increasing legalization of plant-based medicines, primarily cannabis and hemp, and the number of licensed cultivation facilities in both the US and Canada. Total sales for the hydroponic equipment industry, projected to surpass $16 billion by 2025.our high-qualitya wide selection of all hydroponic products, value-add knowledgeableservice and solutions driven staff and fastpick, pack and ship distribution and fulfillment capabilities. We employ horticulturists thatapproximately 671 employees, a majority of them we have branded as “Grow Pros”. OurPros.” Currently, our operations span over 400,000875,000 square feet of retail and warehouse space. During COVID-19, we have been deemed an “essential” supplier to the agricultural industry and, as such, we remained open and continued our operations. For the quarter ended September 30, 2020, our revenue was $55 million, which increased 153% from the same period of the prior year. For the nine months ended September 30, 2020, our revenues were $131.4 million, which increased 141.8% compared to the same period 2019. There was a 73% increase in our same store sales comparing the quarter ended September 30, 2020 to the quarter ended September 30, 2019. The Company performed well in all markets, most notably sales in the Oklahoma market up 288%, Michigan market was up 271%, Maine market up 82%, all attributable to gaining more commercial and walk in business in these growth markets. Income from store operations was $9.6 million for the third quarter of 2020, compared to $3.8 million for the third quarter 2019, an increase of 155%. Net income from store operations was approximately $22.6 million for the nine months ended September 30, 2020, compared to approximately $8.6 million for the nine months ended September 30, 2019.Adjusted EBITDA was $6.6 million for the third quarter of 2020 compared to $2 million the same period of 2019, an increase of 230%. The Company is averaging 12,000 walk-in transaction per week.sales channels:●Retail: 31 retail and commercial hydroponic/gardening centers focused on serving growers and cultivators.●Commercialbusiness units: commercial customers, including expert growers and cultivators, and provide them with advice from sales representatives with the requisite expertise (whom we brand as “GrowPros”) to serve their specific needs.●E-Commerce: Our existing e-commerce operation, growgeneration.com (previously HeavyGarden.com and GrowGen.pro), is currently being developed and rebranded into an omni-channel sales approach to enable e-commerce at all of our locations, which ws launched in September 2020.●Distribution: Some of our stores function as warehouse, distribution and fulfillment centers for directing products to other store locations and to the retail, wholesale and mass hydroponic markets.Growth Strategy - Store Acquisitions and New Store OpeningsOur growth strategy is to expand the number of our retail and commercial operations throughout the United States. The hydroponic retail landscape is fragmented, which we believe has allowed us to acquire the “best of breed” locations in the United States. In addition, we have a two-year roadmap to open a number of new locations in markets that we believe are underserved throughout the country. In addition to the 11 states where we are currently operating, we have identified Ohio, Illinois, Pennsylvania, New York, New Jersey and Missouri as new markets where we plan to open a new operation. In the first quarter of 2020, we opened a second hydroponic/gardening center in Tulsa, Oklahoma, a 40,000 square feet store operation and fulfillment center, and acquired Health & Harvest located outside of Miami, FL. On June 16, 2020, we acquired the assets of H2O Hydroponics LLC, a hydroponic garden center in Lansing, MI. In connection with this acquisition, we have consolidated and relocated our current West Lansing location into a newly built 14,000 square foot hydroponic garden center. On August 10, 2020, we purchased the assets of Emerald City Garden located in Concord, CA for $1 million, following which acquisition we opened a new store in the state of California. On October 12, 2020, the Company purchased the assets of Hydroponics Depot, located in Phoenix, AZ, which represents the Company’s 11th state. On October 20, 2020, we purchased the assets of The Big Green Tomato, a two-store chain in Michigan.The Company now owns and operates 6 locations in the state of Michigan. On October 29, 2020, the Company entered into an asset purchase agreement to buy The GrowBiz, the 3rd largest chain of Hydroponic garden centers in the US. The GrowBiz operates five garden centers, four in CA and one in Oregon. We have set a target to be at 50 stores and operate in 15 states by the end of 2021.Commercial Sales DivisionOur commercial division is a dedicated sales and support team to sell and service large commercial customers, who are primarily licensed growers of medicinalincluding large multi-state operators and non-medicinal cannabis. As of the third quarter of 2020, our commercial division services over 1,000 commercial accounts, who collectively contributed $13.2 million in revenue or approximately 24% of our total Q3 2020 revenues. For the nine-month period ended September 30,2020, the commercial division generated revenues of $32.7 million compared to $10.9 million for the same period in 2019, a 200% increase. We have identified over 14,000 licensed hemp and cannabis growers in the United States and believe there is significant room for us to expand our base of commercial customers.E-Commerce Strategy online revenues for the third quarter of 2020 was approximately $2.9 million compared to $1.4 million for the same period in 2019, an increase of 112%. For the nine months ended September 30, 2020, our online revenues were approximately $7.4 million compared to $3.1 million for the same period in 2019, an increase of 140%. New visitors to our website are over 100,000 per month. We rebranded our existing e-commerce operation, HeavyGarden.comincludes GrowGeneration.com and GrowGen.Pro, as growgeneration.com, which will be an omni-channel sales approach to enable e-commerce at all of our locations, providing our customers convenient ways to shop when and how they feel comfortable. We launched this strategy in September 2020. This omni-channel approach will provide 24/7 availability of products and allow our customers to “Buy Online and Pick Up In StoreAgron.io, a business-to-business (B2B) online portal for commercial growers. GrowGeneration.com is currently being testedadding “Buy online/Pick up in several garden centers.” Customers will be able to shop online in all product departments and access descriptions, reviews and pictures of our products. Our customers can order online and they can choose to either have their products delivered directly to their growing facility (usually within 48 hours) or they canstore” same day pick up the products at one of our stores (usually within 24 hours). We believe that this omni-channel initiative will result in a more seamless, convenient shopping experience for our customers and will drive financial results.Distribution ChannelWe have built a supply chain that currently spans through 31 locations across 10 states. We are in the process of building several operations that will serve as fulfillment service centers, in addition to serving the local retail and commercial customers. These garden/fulfillment centers will ship directly to a farm or home as well as to any commercial hydroponic store (including ours and others) in the United States. We have a fleet of trucks that allow us to deliver within the proximity of any of these locations.Productsservice. StrategyWe sellgardening, as well as other indoor and outdoor growing products. Our supply chain includes several thousand stock keeping units (“SKUs”) across 12 product departments. Many of our products are consumables leading to repeat orders by our customers. Consumable products are mainly nutrients and additives that feed the plants on a recurring basis. Our strategy is to supply products to two groups of customers: commercial growers and smaller growers that require a local center to fulfill their daily and weekly growing needs.gardening.We are also actively developing a line of private label products that we intend to sell through our garden centers under brands we own or control. Our strategy is to deliver high-quality products at a lower cost, and higher margin to us. To further our private label strategy, we acquired various trademarks in March 2019 to aid in branding our ‘in house’ products to our customers. We introduced our first private labeled products under the Sunleaves brand in first quarter of 2020. Sales of our various private label products are over $1,000,000. This initial offering encompassed a broad variety of products ranging from trellis netting to plastic pots and organic nutrients. We intend to introduce additional private label products during 2020 and 2021. We believe that expanding our private label offerings will have a positive impact on our margins and profitability in the near term. We use various trademarks, trade names and service marks in our business, including Blueprint Controllers, Carbide, DuraBreeze, Elemental Solutions, GrowGeneration, GrowXcess, GuardenWare, Harvester’s Edge, HeavyGardens, Ion, MixSure+, OptiLUME, Power Matrix, Smart Support, Sunleaves, Sunspot, The Fountain for Automation, VitaPlant, and Where The Pros Go To Grow. For convenience, we may not include the SM, ® or ™ symbols, but such omission is not meant to indicate that we would not protect our intellectual property rights to the fullest extent allowed by law. Any other trademarks, trade names or service marks referred to in this filing are the property of their respective owners.As we continue to monitor the COVID-19 situation, we are considered an “essential” supplier to the agricultural industry, suppling the nutrients and nourishment required to feed their plants. The Company has been opened during this difficult time. We have plans and procedures in place to ensure our customers and employees stay safe during this time of uncertainty. As a result of COVID-19 we reduced some hours of operations at the store level and some stores were closed on the weekends, starting in the later part of the first quarter of 2020. There have been some minor delays in vendor shipments as their warehouses and supply chain were affected by staffing shortages. The Company successfully implemented a will call and curb side pick-up process that is working well. All of us at GrowGeneration remain committed to the safety and well-being of our customers and employees. To do our part, GrowGeneration has committed to donate up to $500,000 of free product to local communities that have been severely affected. To date, COVID-19 related costs are $158,000 for payroll related and $29,000 for store masks, gloves, cleaning supplies and sneeze guards. stand-alone hydroponic garden centers by revenue and number of stores in the United States based on management’s estimates, we believe that we have the following core competitive advantages over our competitors:●We offer a one-stop shopping experience to all types of growers by providing “selection, service, and solutions”;●We provide end-to-end solutions for our commercial customers from capex built-out to consumables to nourish their plants;●We have a knowledge-based sales team, all with horticultural experience;●We offer the options to transact online, in store, or buy online and pick up;●We consider ourselves to be a leader of the products we offer, from launching new technologies to the development of our private label products;●We have a professional team for mergers and acquisitions to acquire and open new locations and successfully add them to our company portfolio; and●We offer a program of issuing credit to licensed commercial customers based on a credit evaluation process.26has recently announced its partnership with Whole Cities Foundation. Founded by Whole Foods Marketacquired 17 new locations in 2014, the independent, nonprofit organization is basedfirst half of 2021, three additional locations in Austin, Texas,July 2021 and has partnered with more than 190 community organizationsan active target pipeline of acquisitions which are planned to close in 100 cities across the U.S. to build thriving local food systems and improve health. The first project, with Whole Cities, through its Fresh, Healthy Food Access Grant program, has been with Newark Science & Sustainability and Greater Newark Conservancy over the past 4 years. Both organizations had identified hydroponic growing as a goal for their community plans. Each group will benefit from an equipment grant. These first two opportunities are part of a pilot that we expect will yield learnings over the course of the next year. GrowGeneration will provide equipment and expertise and partner with Whole Cities to evaluate community impact.As we have built a national chain of hydroponic garden centers, it has always been our mission to give back to the local communities. In our day to day operations, we see the results growing hydroponically. We could not be prouder to partner with Whole Cities to donate hydroponic equipment and supplies to their local communities to help them with their gardens and increase the quality of their food production. Our staff of over 250 dedicated team members, the majority have tremendous knowledge on how to grow hydroponically, are energized to lend a hand and their personal time to support Whole Cities. It is rewarding to watch a community, come together, parents and children, and produce the largest tomatoes and produce in their community!How We Evaluate Our OperationsSalesWe earn our sales primarily from the sale of hydroponic garden products, including nutrients, growing media, advanced indoor and greenhouse lighting, ventilation systems, and accessories for hydroponic gardening, as well as other indoor and outdoor growing products. Revenue on product sales is recognized upon delivery or shipment. Customer deposits and lay away sales are not reported as revenue until final payment is received and the merchandise has been delivery.Our sales depend on the type of products we sell and the mix between consumables and non-consumables. Due to their nature, purchases of consumables results in repeat orders as customers seek to replenish their supplies. In 2020, approximately 60% of our sales were consumables. Generally, in markets where legalization of plant-based medicines is recent and licensors are ramping up their grow operations, there are more purchases of non-consumables for build-outs compared to purchases of consumables. In more mature markets, there are generally more purchases of consumables than non-consumables. Our sales are also impacted by our customer mix of commercial and non-commercial customers, as larger commercial customers may receive volume discounts. More than a majority of our sales is derived from our commercial customers.Gross ProfitWe calculate gross profit as sales less cost of goods sold. Cost of goods sold consists of cost of product sold and freight. Gross profit excludes depreciation and amortization, which is presented separately in our consolidated statements of operations.Our overall gross profit margin varies with our product mix, in particular the percentage of sales of consumable products versus non-consumables, such as in connection with build-outs, during a particular quarter. In addition, our customer mix impacts gross profit margin due to larger commercial customers receiving discounts.Operating ExpensesOperating expenses are comprised of store operations, primarily payroll, rent and utilities, and corporate overhead. Corporate overhead is comprised of share-based compensation, depreciation and amortization, general and administrative costs and corporate salaries and related expenses. General and administrative expenses (“G&A”) consist mainly of advertising and promotions, travel & entertainment, professional fees and insurance. G&A as a percentage of sales does not increase commensurate with an increase in sales. Our largest expenses are payroll and rent and these are largely fixed and not variable. Our advertising and marketing expenses are controllable and variable depending on the particular market.Same-Store SalesWe assess the organic growth of our sales on a same-store basis. We believe that our assessment on a same-store basis represents an important indicator of comparative financial results and provides relevant information to assess our performance. New and acquired stores become eligible for inclusion in the comparable store base if the store has been under our ownership for the entire period in the same-store base periods for which we are including the store. For example, our same store sales for the three months and nine months ended September 30, 2020 and 2019 includes stores that operated for the entire quarter and year to date in both 2020 and 2019. We do not include any stores that were closed or consolidated during a particular period.Adjusted EBITDAWe define Adjusted EBITDA as net income (loss) before interest expense, income taxes, depreciation and amortization, further adjusted for other items such as non-cash equity compensation charges. See “Use of Non-GAAP Financial Measure” for more information and a reconciliation of Adjusted EBITDA to net income (loss), the most directly comparable financial measure calculated and presented in accordance with GAAP.SeptemberJune 30, 20202021 and 2019The following table presents certain consolidated statement of operations information and presentation of that data as a dollar and percentage change from year-to-year. Three Months
Ended
September 30, 2020 Three Months
Ended
September 30, 2019 $
Variance %
Variance Net revenue $ 55,007,475 $ 21,778,487 $ 33,228,988 153 % Cost of goods sold 40,436,707 15,276,906 25,159,801 164 % Gross profit 14,570,768 6,501,581 8,069,187 124 % Store operating costs 4,972,058 2,744,199 2,227,859 81 % Income from store operation 9,598,710 3,757,382 5,841,328 156 % Corporate operating expenses 4,498,934 2,625,541 1,873,393 71 % Operating income 5,099,776 1,131,841 3,967,935 351 % Other income (expense) 13,358 (82,142 ) 95,500 Net income, before taxes 5,113,134 1,049,699 4,063,435 387 % Provision for income taxes (1,775,801 ) - (1,175,801 ) Net income $ 3,337,333 $ 1,049,699 $ 2,287,634 217.9 % SeptemberJune 30, 20202021 was approximately $55$125.9 million, compared to approximately $21.8$43.5 million for the three months ended SeptemberJune 30, 20192020 an increase of approximately $33.2$82.4 million or 153%190%. TheThis increase in revenues inincluded approximately $45.4 million of additional revenue related to 2020 was primarily due to 1) an increase inand 2021 acquisitions and $23.3 million of revenue from same store sales of $14.1 million or 73%, 2) 6 new stores opened or acquired at various times after September 30, 2019 that had revenues of $15.8 million for the quarter ended September 30, 2020 for which there were no revenues for the quarter ended September 30, 2019, 3) 1 store acquired in September 2019, that had revenues of $2.9 million for the quarter ended September 30, 2020, compared to revenues of $646,000 for the quarter ended September 30, 2019 and 4) an increase in e-commerce revenues of $1.5 million or 112% comparing the quarter ended September 30, 2020 to the quarter ended September 30, 2019. As noted in the chart below, the 20 same stores contributed revenue of $33.4 million for the quarter ended September 30, 2020, compared to revenues of $19.2 million for the quarter ended September 30, 2019, a 73% increase.sales.The Company operated the same 20 stores for the entire three months ended September 30, 2020 and 2019: five (5) in Colorado, four (4) in California, two (2) in Michigan, two (2) in Nevada, one (1) in Rhode Island, one (1) in Washington, three (3) in Maine and one (2) in Oklahoma. As the chart shows below, these same stores generated approximately $33.4 million in revenues for the three months ended September 30, 2020, compared to approximately $19.2 million in revenues for the three months ended September 30, 2019, an increase of 73%, primarily due to an increase in the number of commercial customers in those markets. Same store sales increased in all of the markets as noted below comparing September 30, 2020 to September 30, 2019. 20 Same Stores All Markets Three Months Ended Three Months Ended September 30,
2020 September 30,
2019 Variance %
Variance Colorado market $ 5,683,073 $ 4,155,798 1,527,275 37 % Rhode Island 6,936,543 2,177,808 4,758,735 219 % Michigan 2,968,690 1,172,653 1,796,037 153 % Oklahoma 5,081,746 3,361,443 1,720,303 51 % California market 6,557,500 4,457,195 2,100,305 47 % Washington market 404,161 310,699 93,462 30 % Maine market 4,451,835 2,446,502 2,005,333 82 % Nevada market 1,298,607 1,159,576 139,031 12 % Net revenue, all markets $ 33,382,154 $ 19,241,674 $ 14,140,480 73 % The Company currently continues to focus on ten (10) markets and e-commerce noted below and the growth opportunities that exist in each market. We continue to focus on new store acquisitions and openings, proprietary products and the continued development of our online omni-channel and Amazon revenues. In October 2020, the Company purchased the assets of Hydroponics Depot, located in Phoenix, AZ, which represents the Company’s 11th state. Sales by Market Three Months Ended
September 30,
2020 Three Months Ended
September 30,
2019 Variance %
Variance Colorado $ 5,683,073 $ 4,155,798 $ 1,527,275 36.8 % California 7,029,475 4,457,195 2,572,280 57.7 % Rhode Island 6,936,543 2,177,808 4,758,735 218.5 % Michigan 8,396,886 2,259,114 6,137,772 271.7 % Nevada 1,298,607 1,159,576 139,031 12 % Washington 404,161 310,699 93,462 30.1 % Oregon 1,937,185 0 1,937,185 - Oklahoma 13,057,210 3,361,443 9,695,767 288.4 % Maine 4,451,835 2,446,502 2,005,333 82 % Florida 2,885,003 0 2,885,003 - E-commerce 2,927,740 1,381,677 1,546,063 111.9 % Closed/consolidated locations (243 ) 68,676 (68,919 ) - Total revenues $ 55,007,475 $ 21,778,488 $ 33,228,987 152.6 % Revenues in the Colorado market increased approximately $1.5 million or 36.8% comparing the quarter ended September 30, 2020 to September 30, 2019. The increase in sales in the Colorado market is due to 1) the Company’s continued focus on increasing commercial sales, and 2) the acquisition of a new store in mid-January 2019. Revenues in the California market increased approximately $2.6 million, or 57.7%. Same store revenues in the California market increased approximately $2.1 million over the same quarter in 2019 and the Concord, CA acquisition in mid-August 2020 had revenues of approximately $472,000 for the quarter ended September 30, 2020.Revenues in the Rhode Island market increased approximately $4.8 million or 218.5% primarily from its increased focus on commercial and multi-state commercial customers.Revenues in the Michigan market increased approximately $6.1 million or 271.7% due to 1) the increase in same store revenues which increased $1.8 million or 153% primarily due to the increase in commercial accounts, 2) the acquisition of Grand Rapids in September 2019 that contributed $2.9 million in revenue in the quarter ended September 30, 2020 compared to $646,000 for the quarter ended September 30, 2019, 3) the acquisition of the West Lansing store in mid-June 2020 that was consolidated with our existing West Lansing store, that had revenues of $2.6 million for the quarter ended September 30, 2020 compared to $440,000 for the quarter ended September 30, 2019.Revenues in the Nevada market were up 12%. The Las Vegas, Nevada store has been impacted by COVID-19 and their revenues were flat quarter to quarter but same store sales revenue in our Reno store were up 25%.Revenues in the Washington market increased 30% comparing the quarter ended September 30, 2020 to the quarter ended September 30, 2019.Revenues in Oregon were approximately $1.9 million and represents a new market from an acquisition in mid-December 2019.Currently we have 4 stores in the Oklahoma market. Revenues in the Oklahoma market increased $9.7 million or 288% comparing the quarter ended September 30, 2020 to the quarter ended September 30, 2019. Same stores revenues increased 1.7 million or 51% comparing the quarter ended September 30, 2020 to the quarter ended September 30, 2019. The increase in revenues is also related to the addition of two new stores, one in November 2019 and one in March 2020 which contributed revenues of $8 million.Revenues in Maine have increased $2 million or 82% comparing the quarter ended September 30, 2020 to the quarter ended September 30, 2019. The increase in revenues in primarily due to the increase in commercial customers.Florida was a new market resulting from an acquisition in February 2020. Revenues in this market were $2.9 million for the quarter ended September 30, 2020. SeptemberJune 30, 20202021 was approximately $40.4$90.2 million, compared to approximately $15.3$31.9 million for the three months ended SeptemberJune 30, 20192020, an increase of approximately $25.2$58.3 million or 164%183%. The increase in cost of goods sold was primarily due to the 153%190% increase in sales comparing the three months ended SeptemberJune 30, 20202021 to the three months ended SeptemberJune 30, 2019. The increase in cost of goods sold is directly attributable to the increase in the number of stores open during the quarter ended September 30, 2020 compared to the quarter ended September 30, 2019, and an increase in same store sales as discussed in more detail above.2020.$14.6$35.7 million for the three months ended SeptemberJune 30, 2020,2021, compared to approximately $6.5$11.6 million for the three months ended SeptemberJune 30, 2019,2020, an increase of approximately $8.1$24.1 million or 124%208%. The increase in gross profit is primarily related to the 153%190% increase in revenues comparing the quarter ended SeptemberJune 30, 20202021 to the quarter ended SeptemberJune 30, 2019.2020. Gross profit as a percentage of revenues was 26.5%28.4% for the three months ended SeptemberJune 30, 2020,2021, compared to 29.9%26.7% for the three months ended SeptemberJune 30, 2019.2020. The decreaseincrease in the gross profit margin percentage is primarily due to 1) a greater percentagehigher increases in revenues from both private label products and distributed products which were 7.1% of our revenues for the quarter ended SeptemberJune 30, 2020 in commercial2021 and e-commerceless than 1% of revenues as a percentage of overall revenues that have lower margins and 2) in the first quarter of 2019 we acquired a significant amount of inventory from a vendor at a substantial discount, sales of this product in the third quarter of 2019 accounted for 5% of our overall revenue with higher margins. Commercial and e-commerce accounted for approximately 29.3% of overall sales for the quarter ended SeptemberJune 30, 2020 compared to 27.3% for the quarter ended September 30, 2019, resulting in a margin reduction of approximately 1.3 basis points. The Company has maintained a consistent margin for all of 2020.primarily payroll, rentselling, general, and utilities,administrative and corporate overhead.depreciation and amortization. Operating costs were approximately $9.5$26.1 million for the three months ended SeptemberJune 30, 20202021 and approximately $5.4$8.8 million for the three months ended SeptemberJune 30, 2019,2020, an increase of approximately $4.1$17.3 million or 76%197%.$5approximately $12.6 million for the three months ended SeptemberJune 30, 20202021, compared to $2.7$3.9 million for the quarter ended SeptemberJune 30, 2019,2020, an increase of 81%$8.7 million or 226%. The increase in store operating costs was directly attributable to 1) the 153%190% increase in revenues, 2) the addition of five (5) newtwenty-nine (29) locations that were added after SeptemberJune 30, 2019,2020, and 3) two (2)one (1) locations added at various times induring the quarter ended SeptemberJune 30, 20192020 that were open for the entire quarter ended SeptemberJune 30, 2020. The addition of these 7 stores, discussed above, and a new warehouse facility were the primary reasons for the increase in store operating costs. Store operating costs as a percentage of sales were 9% for the three months ended September 30, 2020, compared to 12.6% for the three months ended September 30, 2019, a 28% reduction. Store operating costs were positively impacted by 1) the opening of new and acquired stores throughout 2019 and 2020 which have lower percentage of operating costs to revenues due to their larger size and higher volume, and 2) a 73% increase in same store sales.Corporate2021. comprised of general and administrative costs, share based compensation, depreciation and amortization and corporate salaries, was approximately $4.5$13.5 million for the three months ended SeptemberJune 30, 2021, compared to $4.9 million for the quarter ended June 30, 2020, an increase of $8.6 million or 175%. Selling, general, and administrative costs were approximately $10.6 million for the three months ended June 30, 2021, compared to approximately $4.4 million for the three months ended June 30, 2020. Salaries expense increase to $5.6 million from $2.0 million primarily due to an increase in corporate staff and general and administrative expenses increased to $3.0 million from $1.3 million to support expanding operations. Share-based compensation increased to $1.9 million from $1.2 million primarily due to expanding corporate staff to support the increased operations.SeptemberJune 30, 2019. Corporate overhead was 8.2%2020, a increase of approximately $4.1 million.threesix months ended SeptemberJune 30, 2021 was approximately $215.9 million, compared to $76.4 million for the six months ended June 30, 2020 an increase of approximately $139.5 million or 182%. This increase included $73.4 million of additional revenue from 2020 and 12.1% for the three months ended September 30, 2019. The decrease in corporate overhead as a percentage2021 acquisitions and $37.8 million of revenues for the quarter ended September 30, 2020 compared to the quarter ended September 30, 2019 was primarily due to the leverage we are achieving through the increase in revenues not onlyadditional revenue from same store sales but through revenues from acquired and opened stores. Share based compensation for the three months ended September 30, 2020 was $1 million compared to $553,000 for the three months ended September 30, 2019. The increase in the amount of share-based compensation is primarily due to new executive compensation agreements effective January 1, 2020. Share based compensation as a % of revenues decreased from 2.5% for the three months ended September 30, 2019 to 1.9% for the three months ended September 30, 2020. The increase in salaries expense from approximately $1 million in the three months ended September 30, 2019 to $2.2 million for the three months ended September 30, 2020 was due primarily to the increase in corporate staff to support expanding operations, including purchased store integrations, new store openings, accounting and finance, information systems, purchasing and commercial sales staff. It should be noted that when we consummate a new acquisition, purchasing and back office accounting functions are stripped from the new acquisitions and those functions are absorbed into our existing centralized purchasing and accounting and finance departments, thus delivering cost savings. Corporate salaries and related payroll costs as a percentage of sales were 4% for the three months ended September 30, 2020 compared to 4.7% for the three months ended September 30, 2019. General and administrative expenses comprised mainly of advertising and promotions, travel & entertainment, professional fees, insurance, and bad debt expense was approximately $858,000 for the three months ended September 30, 2020 and approximately $804,000 for the three months ended September 30, 2019, with a majority of the increase related to advertising and promotion, professional and legal fees and insurance. General and administrative costs as a percentage of revenue were 1.6% for the three months ended September 30, 2020, and 3.7% for the three months ended September 30, 2019. As noted earlier, corporate overhead, which includes non-cash expenses consisting primarily of depreciation and share based compensation, was approximately $1.5 million for the three months ended September 30, 2020, compared to approximately $801,000 for the three months ended September 30, 2019.performance. Net IncomeNet income for the three months ended September 30, 2020 was approximately $3.3 million, compared to net income of approximately $1 million for the three months ended September 30, 2019, a positive change of approximately $2.3 million. The increase in net income for the quarter ended September 30, 2020 was primarily due to the 153% increase in revenues while store operating costs increased only 81%. Net income from store operations which was approximately $9.6 million for the quarter ended September 30, 2020, compared to approximately $3.8 million for the quarter ended September 30, 2019, an increase of $5.8 million or 155%. The increase in income from store operations were offset by increased corporate overhead, which was approximately $4.5 million for the quarter ended September 30, 2020, compared to approximately $2.6 million for the quarter ended September 30, 2019, an increase of $1.9 million. In addition, the Company reported a provision for income taxes of approximately $1.8 million for which there was no provision in the comparable period last year. In prior years, the Company was able to offset taxable income with net operating loss carryforwards. Those carryforwards were fully utilized this year, as such we commenced recorded a provision for income taxes. Of the total corporate overhead of $4.5 million, non-cash share-based compensation and depreciation was approximately $1.5 million. Increases in G&A and salaries in the quarter ended September 30, 2020 compared to the quarter ended September 30, 2019 accounted for the remaining increase.Comparison of the nine months ended September 30, 2020 and 2019The following table presents certain consolidated statement of operations information and presentation of that data as a dollar and percentage change from year-to-year. Nine Months
Ended
September 30,
2020 Nine Months
Ended
September 30,
2019 $
Variance %
Variance Net revenue $ 131,440,820 54,349,092 $ 77,091,728 141.8 % Cost of goods sold 96,338,467 38,340,670 57,997,797 151.3 % Gross profit 35,102,353 16,008,422 19,093,931 119.3 % Store operating costs 12,523,594 7,360,525 5,163,069 70.1 % Income from store operations 22,578,759 8,647,897 13,930,862 161.1 % Corporate operating expenses 16,783,616 5,992,335 10,791,281 180.1 % Operating income 5,795,143 2,655,562 3,139,581 118.2 % Other income (expense) (22,272 ) (314,442 ) 292,170 Net income, before taxes $ 5,772,871 2,341,120 3,431,751 146.6 % Provision for income taxes (1,995,113 ) - (1,995,113 ) Net income $ 3,817,758 $ 2,341,120 $ 1,476,638 63.1 % Net revenue for the nine months ended September 30, 2020 was approximately $131 million, compared to approximately $54 million for the nine months ended September 30, 2019 an increase approximately $77 million or 142%. The increase in revenues in 2020 was primarily due to 1) 5 new stores opened or acquired after September 30, 2019 which had revenues of $27 million for the nine months ended September 30, 2020 for which there were no revenues for the nine months ended September 30, 2019, 2) 8 stores opened or acquired in early 2019, that had revenues of $38.7 million for the nine months ended September 30, 2020 compared to revenues of $15.7 million for the nine months ended September 30, 2019, 3) an acquired store June 2020 that was consolidated with an existing store, that on a combined basis had revenues of $5.5 million for the nine months ended September 30, 2020 compared to $1.5 million for the nine months ended September 30, 2019, 4) increase in same store sales of 59% comparing revenues for the nine months ended September 30, 2020 to the nine months ended September 30, 2019 and 5) an increase in e-commerce sales of $4.3 million or 140% comparing the nine months ended September 30, 2020 to the nine months ended September 30, 2019. As noted in the chart below, the 13 same stores contributed revenue of $52.4 million for the nine months ended September 30, 2020 compared to revenues of $33 million for the nine months ended September 30, 2019, a 59% increase.The Company operated the same 13 stores for the entire nine months ended September 30, 2020 and 2019: four (4) in Colorado, six (3) in California, two (2) in Michigan, one (1) in Nevada, one (1) in Rhode Island, one (1) in Washington and one (1) in Oklahoma. These same stores generated approximately $52.4 million in revenues for the nine months ended September 30, 2020, compared to approximately $33 million in revenues for the nine months ended September 30, 2019, an increase of 59%, primarily due to an increase in the number of commercial customers in those markets. Same store sales increased in all of the markets, except for Washington, as noted below comparing September 30, 2020 to September 30, 2019. 13 Same Stores All Markets Nine Months
Ended Nine Months
Ended September 30,
2020 September 30,
2019 Variance %
Variance Colorado $ 10,560,433 $ 6,897,311 $ 3,663,122 53 % Rhode Island 13,999,030 5,735,736 8,263,294 144 % Michigan 6,701,100 3,300,886 3,400,214 103 % Oklahoma 5,544,250 4,630,998 913,252 20 % California 12,912,045 9,909,840 3,002,205 30 % Washington 1,070,141 988,239 81,902 8 % Nevada 1,600,894 1,552,035 48,859 3 % Net revenue $ 52,387,893 $ 33,015,045 $ 19,372,848 59 % The Company currently continues to focus on ten (10) markets and the new e-commerce site noted below and the growth opportunities that exist in each market. We continue to focus on new store acquisitions and openings, proprietary products and the continued development of our online omni-channel and Amazon revenues. Sales by Market Nine Months Ended
September 30,
2020 Nine Months Ended
September 30,
2019 Variance %
Variance Colorado $ 14,441,674 $ 11,392,368 3,049,306 26.8 % California 17,253,908 12,228,377 5,025,531 41.1 % Rhode Island 13,999,030 5,735,736 8,263,294 144.1 % Michigan 20,983,911 5,414,648 15,569,263 287.5 % Nevada 3,444,252 2,979,641 464,611 15.6 % Washington 1,070,141 988,239 81,902 8.3 % Oregon 5,180,343 - 5,180,343 - Oklahoma 30,590,141 7,420,962 23,169,179 312.2 % Maine 11,141,499 4,010,103 7,131,396 177.8 % Florida 5,887,424 - 5,887,424 - E-commerce 7,448,772 3,099,310 4,349,462 140.3 % Closed/consolidated locations (275 ) 1,079,708 (1,079,983 ) - Total revenues $ 131,440,820 $ 54,349,092 $ 77,091,728 141.8 % Revenues in the Colorado market increased approximately $3 million or 26.8% comparing the nine months ended September 30, 2020 to September 30, 2019. The increase in revenues in the Colorado market is due to 1) the Company’s continued focus on increasing commercial revenues, and 2) the acquisition of a new store in mid-January 2019. Same store revenues in Colorado increased approximately $3.7 million or 53%.Revenues in the California market increased approximately $5 million, or 41%. Same store revenues in the California market increased approximately $3 million or 30% over the same nine months in 2019 and the Palm Springs acquisition in mid-February 2019 had revenues of approximately $3.9 million for 2020 compared to $2.3 million for 2019. Revenues in the Rhode Island market increased approximately $8.3 million or 144% primarily from its increased focus on commercial and multi-state commercial customers.Revenues in the Michigan market increased approximately $15.6 million or 288% due to 1) an acquisition in September 2019 that contributed $8.8 million in revenue in the nine months ended September 30, 2020 compared to $646,000 for the nine months ended September 30, 2019, 2) an acquisition in mid-June 2020 that consolidated with an existing store that combined had revenues of $5.5 million for the nine months ended September 30, 2020 compared to $1.5 million for the nine months ended September 30, 2019, and 3) the increase in same store revenues which increased $3.4 million or 103% primarily due to the increase in commercial accounts.Revenues in the Nevada market increased $465,000 or 15.6% due to 1) the acquisition of our Reno store in February 2019 which had revenues of $1.8 million in the nine months ended September 30, 2020 compared to revenues of $1.4 million for the nine months ended September 30, 2019, and 2) a 3% increase in same store revenues in the Las Vegas store.Revenues in the Washington market increased by 8% comparing the nine months ended September 30, 2020 to the nine months ended September 30, 2019. Washington currently is our smallest market.Revenues in Oregon were approximately $5.2 million and represents a new market from an acquisition in mid-December 2019.Currently we have 4 stores in the Oklahoma market. Revenues in the Oklahoma market increased $23.2 million or 312% comparing the nine months ended September 30, 2020 to the nine months ended September 30, 2019. Same stores revenues increased 20% in Oklahoma City, the first store opened in October 2018. Revenue growth in 2020 was greatly enhanced by the addition of two new stores in Oklahoma that opened in mid-November 2019 and March 2020, that combined had revenues of $15.9 million for the nine months ended September 30, 2020 and no revenues for the nine months ended September 30, 2019.Revenues in Maine have increased $7.1 million or 178% comparing the nine months ended September 30, 2020 to the nine months ended September 30, 2019. The increase was primarily due to a new store opened January 31, 2019 and two new stores acquired in May 2019. The new store opened in early 2019 had revenues of $4.1 million in the nine months ended September 30, 2020, compared to $1.1 million for the nine months ended September 30, 2019. The two new stores acquired in May 2019, contributed $7.1 million in revenues for the nine months ended September 30, 2020, compared to $2.9 million for the nine months ended September 30, 2019.Florida was a new market resulting from an acquisition in February 2020. Revenues in this market were $5.9 million for the nine months ended September 30, 2020. ninesix months ended SeptemberJune 30, 20202021 was approximately $96.3$154.8 million, compared to approximately $38.3$55.9 million for the ninesix months ended SeptemberJune 30, 20192020, an increase of approximately $58$98.9 million or 151%177%. The increase in cost of goods sold was primarily due to the 142%182% increase in sales comparing the six months ended June 30, 2021 to the six months ended June 30, 2020.ninesix months ended SeptemberJune 30, 20202021 to the ninesix months ended SeptemberJune 30, 2019. The increase in cost of goods sold is directly attributable to the increase in the number of stores open during the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, as discussed in detail above.Gross profit was approximately $35.1 million for the nine months ended September 30, 2020, compared to approximately $16 million for the nine months ended September 30, 2019, an increase of approximately $19.1 million or 119%. The increase in cost of goods sold is primarily related to the 141.8% increase in revenues comparing the nine months ended September 30, 2020 to the nine months ended September 30, 2019.2020. Gross profit as a percentage of revenues was 26.7%28.3% for the ninesix months ended SeptemberJune 30, 2020,2021, compared to 29.5%26.9% for the ninesix months ended SeptemberJune 30, 2019.2020. The decreaseincrease in the gross profit margin percentage is primarily due to 1) a greater percentagehigher increases in revenues from both private label products and distributed products which were 6.8% of our sale for the nine months ended September 30, 2020 in commercial and e-commerce revenues with lower margins compare to the nine months ended September 30, 2019 (30.6% vs 25.7%, respectively), and 2) in the first quarter of 2019 we acquired a significant amount of inventory from a vendor at a substantial discount, sales of this product during the nine months ended 2019 accounted for 4% of our overall revenue and high margins, resulting in an 1.1 basis points increase in margin. Commercial and e-commerce accounted for approximately 30.6% of overall revenues for the nine monthsquarter ended SeptemberJune 30, 2020 compared to 25.7%2021 and less than 1% of revenues for the nine monthsquarter ended SeptemberJune 30, 2019.primarily payroll, rentselling, general, and utilities,administrative and corporate overhead. depreciation and amortization. Operating costs were approximately $43.7 million for the six months ended June 30, 2021 and approximately $19.8 million for the six months ended June 30, 2020, an increase of approximately $23.9 million or 121%.$12.5$20.8 million for the ninesix months ended SeptemberJune 30, 2020 and approximately $7.42021, compared to $7.5 million for the ninesix months ended SeptemberJune 30, 2019,2020, an increase of approximately $5.2$13.3 million or 70%177%. The increase in store operating costs was directly attributable to 1)the 182% increase in revenues, the addition of five (5) newtwenty-nine (29) locations that were added after SeptemberJune 30, 2019,2020, and 2) eight (8)two (2) locations added at various times during the ninesix months ended SeptemberJune 30, 20192020 that were open for the entire nine monthsquarter ended SeptemberJune 30, 2020. The addition of these 13 stores, as discussed above, and the new warehouse facility were the primary reasons for the increase in store operating costs. Store operating costs as a percentage of revenues were 9.5% for the nine months ended September 30, 2020, compared to 13.5% for the nine months ended September 30, 2019, a 30% reduction. Store operating costs were positively impacted by the opening of new and acquired stores throughout 2019 and acquisitions in 2020 which have lower percentage of operating costs to revenues due to their larger size and higher volume. As noted above, same store revenues increased 59% comparing the nine months ended September 30, 2020 to the nine months ended September 30, 2019, which also contributed significantly to lowering of the store operating costs as a percentage of revenues.Corporate2021. comprised of general and administrative costs, share based compensation, depreciation and amortization and corporate salaries, was approximately $16.8$22.9 million for the ninesix months ended SeptemberJune 30, 2020,2021, compared to approximately $6$12.3 million for the nine monthsquarter ended September 30, 2019. Corporate overhead was 12.8% of revenue for the nine months ended September 30, 2020 and 11% for the nine months ended September 30, 2019. The increase in corporate overhead as a percentage of revenues for the nine months ended September 30, 2020 was primarily due to the increase in non-cash share base compensation from approximately $1.1 million for the nine months ended September 30, 2019 to approximately $6.3 million for the nine months ended SeptemberJune 30, 2020, an increase of $5.2 million. The$10.6 million or 86%. Selling, general, and administrative costs were approximately $18.0 million for the six months ended June 30, 2021, compared to approximately $11.5 million for the six months ended June 30, 2020. Salaries expense increased to $9.6 million from $3.8 million primarily due to an increase in non-cashcorporate staff and general and administrative expenses increased to $5.1 million from $2.4 million to support expanding operations. These increases were partially offset by a decrease in share-based compensation wasto $3.2 million from $5.3 million primarily the result of severaldue to new executive employmentcompensation agreements which became effective January 1, 2020 which resulted in thethat had front loaded vesting of common stock and common stock options at the start of the first quarter, as well as options issued in 2018 and 2019provisions for options vesting in 2020. The shares based awards associated with the new executive employment agreements resulted in approximately one-third of the award being recognized as an expense in the first three months of 2020, due to vesting, and the remaining two-thirds on the share-based awards are being recognized over a 24 month period commencing January 2020 and ending December 2021, based on shared based award vesting in future periods. The vesting of these shares and options that vested January 1, 2020 for which the remaining vesting was significantly higher in the first nine months of 2020 than they will be in the periods subsequent to September 30, 2020. The increase in salaries expense from 2019 to 2020, which increased from $2.5 million for the nine months ended September 30, 2019 to $5.9 million for the nine months ended September 30, 2020 was due primarily to the increase in corporate staff to support expanding store operations, including purchased store integrations, accounting and finance, information systems, purchasing and commercial revenues staff. It should be noted that when we consummateover a new acquisition, purchasing and back office accounting functions are stripped from the new acquisitions and those functions are absorbed into our existing centralized purchasing and accounting and finance departments, thus delivering cost savings. Corporate salaries and related payroll costs as a percentage of revenues were 4.5% for the nine months ended September 30, 2020 and the nine months ended September 30, 2019.two-year period.General and administrative expenses comprised mainly of advertising and promotions, travel & entertainment, professional fees and insurance, was approximately $3.2 million for the nine months ended September 30, 2020 and approximately $1.9 million for the nine months ended September 30, 2019, with a majority of the increase related to advertising and marketing, insurance, consulting and legal fees. General and administrative costs as a percentage of revenue were 2.5% for the nine months ended September 30, 2020, and 3.5% for the nine months ended September 30, 2019. As noted earlier, corporate overhead, which includes non-cash expenses consisting primarily of depreciation and share based compensation, was approximately $7.6 million for the nine months ended September 30, 2020, compared to approximately $1.6 million for the nine months ended September 30, 2019, an increase of $6 million, primarily due to share-based compensation as previously discussed. Corporate overhead, excluding non-cash share-based compensation and depreciation, was $9.2 million for the nine months ended September 30, 2020 or 7% of revenues, compared to $4.4 for the nine months ended September 30, 2019, or 8.1% of revenues.ninesix months ended SeptemberJune 30, 20202021 was approximately $3.8$12.9 million, compared to a net income of approximately $2.3$0.5 million for the ninesix months ended SeptemberJune 30, 2019,2020, a positive changeincrease of approximately $1.5$12.4 million.The net income for the nine months ended September 30, 2020 was primarily due to the 1) a 141.8% increase in revenues, 2) a 161% increase in income from store operations from $8.6 million for the nine months ended September 30, 2019 to $22.6 million for the nine months ended September 30, 2020, offset by 3) a $5.2 million increase in share-based compensation from approximately $1.1 million in 2019 to $6.3 million for the nine months ended September 30, 2020, and 4) income tax expense of $2 million for 2020 compared to $0 for 2019. In prior years, the Company was able to offset taxable income with net operating loss carryforwards. Those carryforwards were fully utilized this year, as such we commenced recorded a provision for income taxes. The total of non-cash expense, share-based compensation and depreciation was $7.6 million for the nine months ended September 30, 2020 compared to $1.6 million for the nine months ended September 30, 2019.ninesix months ended SeptemberJune 30, 20202021 was approximately $3.7$2.3 million compared to net cash used by operating activities of approximately $(2.3) million for nine months ended September 30, 2019. Cash used in operating activities is driven by our net income and adjusted by non-cash items as well as changes in operating assets and liabilities. Non-cash adjustments primarily include depreciation, amortization of intangible assets, share based compensation expense and amortization of debt discount. Non-cash adjustments totaled approximately $7.7 million and approximately $2$6.1 million for the ninesix months ended SeptemberJune 30, 2020 and 2019, respectively, so non-cash adjustments had a far greater positive impact on net cash provided by operating activities for the nine months ended September 30, 2020 than the same period in 2019. The net cash provided by operating activities, $3.7 million, for the nine months ended September 30, 2020 compared to the net cash used in operating activities, $(2.3) million for nine months ended September 30, 2019, a positive difference of $6 million, was primarily related to 1) the net income of approximately $3.8 million for the nine months ended September 30, 2020, 2) net increases in inventory and prepaids of approximately $(16.5) million, which had a negative impact, offset by 3) positive non-cash adjustments of approximately $7.7 million and 4) increases in accounts payable, customer deposits, income taxes and other current liabilities of approximately $9.6 million.Net cash used in operating activities for the nine months ended September 30, 2019 was approximately $(2.3) million. This amount was primarily related to 1) net income of approximately $2.3 million, 2) positive non-cash adjustments of approximately $2 million, 3) increase in accounts payable and other current liabilities of approximately $4.3 million offset by 4) increases of inventory of approximately $7.3 million, accounts receivable of approximately $1.3 million and prepaids of approximately $2.2 million.$6.9$111.1 million for the ninesix months ended SeptemberJune 30, 20202021 and approximately $10.2$5.0 million for the ninesix months ended SeptemberJune 30, 2019.2020. Investing activities in 20202021 were primarily attributable to a store acquisition ($4 million)acquisitions of $48.0 million , purchase of marketable securities of $57.4 million, vehicles and store equipment purchases ($2.1 million)$4.4 million and intangible assets $(.8 million).asset purchases of $1.3 million. Investing activities in for the ninesix months ended SeptemberJune 30, 20192020 were primarily related to store acquisitions approximately $(8.5)of $3.0 million, the purchase of vehicles and store equipment to support new store operations of $1.3 million and intangible assets of $0.7 million. $(1.5) million. the ninesix months ended SeptemberJune 30, 2020 was approximately $45.6 and was primarily attributable to proceeds from the sale of common stock in a public offering, $44.6 million, exercise of warrants of approximately $1.1 million, offset by debt principal payments of approximately $74,000. Net cash provided by financing activities for nine months ended September 30, 2019 was $13.8$0.7 million and was primarily from proceeds from the sale of common stock and exercise of warrants of $14.1 million, offset by debt principal payments of approximately $340,000. Three Months Ended September 30,
2020 September 30,
2019 Net income $ 3,337,333 $ 1,049,699 Income taxes 1,775,801 - Interest 142 27,067 Depreciation and Amortization 443,578 247,715 EBITDA 5,556,854 1,324,481 Share based compensation (option compensation, warrant compensation, stock issued for services) 1,022,137 553,492 Amortization of debt discount - 114,210 Adjusted EBITDA $ 6,578,991 $ 1,992,183 Adjusted EBITDA per share, basic $ .14 $ .06 Adjusted EBITDA per share, diluted $ .13 $ .05 Nine Months Ended September 30, 2020 September 30, 2019 Net income $ 3,817,758 $ 2,341,120 Income taxes 1,955113 - Interest 19,728 35,757 Depreciation and Amortization 1,270,398 538,847 EBITDA 7,062,997 2,915,724 Share based compensation (option compensation, warrant compensation, stock issued for services) 6,324,109 1,075,735 Amortization of debt discount - 356,306 Adjusted EBITDA $ 13,387,106 $ 4,347,765 Adjusted EBITDA per share, basic $ .32 $ .14 Adjusted EBITDA per share, diluted $ .30 $ .13 37 Three Months Ended June 30, 2021 2020 (000) (000) Net income $ 6,713 $ 2,574 Income taxes 2,920 156 Interest expense 4 13 Depreciation and Amortization 2,917 468 EBITDA $ 12,554 $ 3,211 Share based compensation (option compensation, warrant compensation, stock issued for services) 1,914 1,187 Adjusted EBITDA $ 14,468 $ 4,398 Adjusted EBITDA per share, basic $ 0.24 $ 0.11 Adjusted EBITDA per share, diluted $ 0.24 $ 0.11 Six Months Ended
June 30, 2021 2020 (000) (000) Net income $ 12,860 $ 480 Income taxes 4,473 156 Interest 6 20 Depreciation and Amortization 4,971 827 EBITDA $ 22,310 $ 1,483 Share based compensation (option compensation, warrant compensation, stock issued for services) 3,241 5,302 Adjusted EBITDA 25,551 $ 6,785 Adjusted EBITDA per share, basic $ 0.44 $ 0.18 Adjusted EBITDA per share, diluted $ 0.43 $ 0.17 SeptemberJune 30, 2020,2021, we had working capital of approximately $83$195.9 million, compared to working capital of approximately $30.6$222.9 million as of December 31, 2019, an increase2020, a decrease of approximately $52.4 million.$27.0 million.. The increasedecrease in working capital from December 31, 20192020 to SeptemberJune 30, 20202021 was due primarily to 1) proceeds from the a public offering of common stock resulting in net proceeds of $44.6 million, 2) exercise of warrants totaling approximately $1.1 millionten (10) business acquisition completed during the ninesix months ended SeptemberJune 30, 2020 and 3)2021 for which the cash consideration was approximately $48.0 million. This decrease in working capital related to business acquisitions was partially offset by an increase in net cash provided by operations.inventory associated with more locations and our ability to leverage greater bulk purchasing due to our growth. At SeptemberJune 30, 2020,2021, we had cash and cash equivalents of approximately $55.3$67.2 million and available for sale debt securities of $57.4 million. Currently, we have no demands, commitments or uncertainties that would reduce our current working capital. Our core strategy continues to focus on expanding our geographic reach across the United States through organic growth and acquisitions. Based on our strategy we may need to raise additional capital in the future through equity offerings and/or debt financings. We believe that some of our store acquisitions and new store openings can come from cash flow from operations.Financing Activities2020 Public OfferingOn July 2, 2020 the Company consummated an underwritten public offering of 8,625,000 shares of its common stock (the “Shares”), which included the exercise in full of the underwriters’ option to purchase an additional 1,125,000 shares of common stock to cover over-allotments. The Shares were sold atpublic offering price of $5.60 per share, generating gross proceeds of $48.3 million, before deducting the underwriting discounts and commissions and other offering expenses. Net proceeds from the sales of common stock, net of all offering costs and expenses was approximately $44.6 million.2019 Private PlacementOn June 26, 2019, the Company completed a private placement of a total of 4,123,257 unitssummary of the Company’s securities at the price of $3.10 per unit pursuantsignificant accounting policies, please refer to Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D promulgated under the Securities Act. Each unit consisted of (i) one share of common stock and (ii) one 3-year warrant, each entitling the holderNote 2 to purchase one half share of common stock, at a price of $3.50 per share. The Company raised a total of $12,782,099 from 19 accredited investors. 2018 Private PlacementOn January 17, 2018, the Company completed a private placement of a total of 36 units of its securities at the price of $250,000 per unit. Each unit consists of (i) a .1% unsecured convertible promissory note of the principal amount of $250,000, and (ii) a 3-year warrant entitling the holder to purchase 37,500 shares of common stock, at a price of $.01 per share or through cashless exercise. The Company raised gross proceeds of $9,000,000 from 23 accredited investors in the offering. On May 9, 2018, the Company completed a private placement of a total of 33.33 units of its securities at a price of $300,000 per unit to 3 accredited investors. Each unit consists of (i) 100,000 share of the Company’s common stock and (ii) 50,000 3-year warrant to purchase one share of common stock at an exercise price of $.35 per share. The Company raised an aggregate of $10,000,000 gross proceeds in the offering.2017 Private PlacementsOn March 10, 2017, the Company completed a private placement of a total of 825,000 units of its securities to 4 accredited investors. Each unit consists of (i) one share of the Company’s common stock and (ii) one 5-year warrant to purchase one share of common stock at an exercise price of $2.75 per share. The Company raised an aggregate of $1,650,000 gross proceeds in the offering.On May 16, 2017, the Company completed a private placement of a total of 1,000,000 units of its securities to 27 accredited investors through GVC Capital LLC (“GVC Capital”) as its placement agent. Each unit consists of (i) one share of the Company’s common stock and (ii) one 5-year warrant to purchase one share of common stock at an exercise price of $2.75 per share. The Company raised an aggregate of $2,000,000 gross proceeds in the offering. The Company paid GVC Capital total compensation for its services, (i) for a price of $100, 5-year warrants to purchase 75,000 shares at $2.00 per share and 5-year warrants to purchase 75,000 shares at $2.75 per share, (ii) a cash fee of $150,000, (iii) a non-accountable expense allowance of $60,000, and (iv) a warrant exercise fee equal to 3% of all sums received by the Company from the exercise of 750,000 warrants (not including 250,000 warrants issued to one investor) when they are exercised.Critical Accounting Policies, Judgments and EstimatesUse of EstimatesThe preparation of these consolidated financial statements in conformity with accounting principles generally accepted in the United States (U.S. GAAP) requires management to make a number of estimates and assumptions related to the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period. Significant items subject to such estimates and assumptions include the carrying amount of intangible assets; valuation allowances and reserves for receivables, inventory and deferred income taxes; share-based compensation; and loss contingencies, including those related to litigation. Actual results could differ from those estimates.Accounts Receivable and Concentration of Credit RiskAccounts receivable are recorded at the invoiced amounts less an allowance for doubtful accounts and do not bear interest. The allowance for doubtful accounts is basedour Consolidated Financial Statements filed on our estimate ofForm 10-K for the amount of probable credit losses in our accounts receivable. We determine the allowance for doubtful accounts based upon an aging of accounts receivable, historical experience and management judgment. Accounts receivable balances are reviewed individually for collectability, and balances are charged off against the allowance when we determine that the potential for recovery is remote. An allowance for doubtful accounts of approximately $364,262 and $291,372 has been reserved as of September 30, 2020 andyear ended December 31, 2019, respectively.We are exposed to credit risk in the normal course of business, primarily related to accounts receivable. We are affected by general economic conditions in the United States. To limit credit risk, management periodically reviews and evaluates the financial condition of its customers and maintains an allowance for doubtful accounts. As of September 30, 2020, and December 31, 2019, we do not believe that we have significant credit risk.Fair Value of Financial InstrumentsThe carrying amounts of our financial instruments, including accounts receivable and accounts payable, are carried at cost, which approximates their fair value due to their short-term maturities. We believe that the carrying value of notes payable with third parties, including their current portion, approximate their fair value, as those instruments carry market interest rates based on our current financial condition and liquidity.Long-lived AssetsWe evaluate the carrying value of long-lived assets for impairment on an annual basis or whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. An asset is considered to be impaired when the anticipated undiscounted future cash flows of an asset group are estimated to be less than its carrying value. The amount of impairment recognized is the difference between the carrying value of the asset group and its fair value. Fair value estimates are based on assumptions concerning the amount and timing of estimated future cash flows. No impairment was determined as of September 30, 2020 and December 31, 2019.Revenue RecognitionRevenue on product revenues is recognized upon delivery or shipment. Customer deposits and lay away revenues are not reported as revenue until final payment is received and the merchandise has been delivery.Stock-based CompensationWe account for stock-based awards at fair value on the date of grant and recognize compensation over the service period that they are expected to vest. We estimate the fair value of stock options and stock purchase warrants using the Black-Scholes option pricing model. The estimated value of the portion of a stock-based award that is ultimately expected to vest, taking into consideration estimated forfeitures, is recognized as expense over the requisite service periods. The estimate of stock awards that will ultimately vest requires judgment, and to the extent that actual forfeitures differ from estimated forfeitures, such differences are accounted for as a cumulative adjustment to compensation expenses and recorded in the period that estimates are revised.connection withmaking this assessment, management used the preparationcriteria set forth in Internal Control — Integrated Framework (2013) issued by the Committee of this Quarterly Report on Form 10-Q, an evaluation was carried out by management, with the participation of our Chief Executive Officer and Chief Financial Officer,Sponsoring Organizations of the effectivenessTreadway Commission ("COSO"). Based on evaluation under these criteria, management determined, based upon the existence of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2020.Based upon this evaluation, management concludedmaterial weaknesses described below, that our disclosure controls and procedures werewe did not maintain effective due to a deficiency in our internal control over financial reporting. The deficiency relates to proper accounting and valuationreporting as of equity instruments recorded within share-based compensation expense.willwould not be prevented or detected on a timely basis.deficiency described above constitutes aCompany did not design and implement effective control activities based on the criteria established in the COSO framework. Specifically, these control deficiencies constitute material weakness given its potential impact on ourweaknesses, either individually or in the aggregate, relating to: (i) selecting and developing control activities and information technology that contribute to the mitigation of risks and support achievement of objectives; and (ii) deploying control activities through policies that establish what is expected and procedures that put policies into action.anddepartment to review the accounting implications of complex transactions..reporting.Management has evaluated remediation plans forreporting during the deficiency and has implemented changes to address the material weakness identified.However, remedial controls must operate for a sufficient period of time for a definitive conclusion, through testing,most recent fiscal quarter, that the deficiency has been fully remediated and, as such, we can give no assurance that the measures we have undertaken have fully remediated the material weakness that we have identified. We will continue to monitor the effectiveness of these and other processes, procedures, and controls and will make any further changes that management determines to be appropriate.Notwithstanding the material weakness described above, management has concluded that our consolidated financial statements included in the Quarterly Report on Form 10-Q for the three-month period ended September 30, 2020 are fairly stated in all material respects in accordance with generally accepted accounting principles in the United States of America for each of the periods presented and that these financial statements may be relied upon.Changes in Internal Controls over Financial ReportingAs of the end of the period covered by this report, other than as described below, there have been no changes in the internal controls over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, subsequentexcept for the implementation of remediation plans for the deficiency to the date of management’s last evaluation. Management has implemented additional controls to address and remediate the material weakness identified.discussed above.necessary. We will test the ongoing operating effectiveness of the new and existing controls in future periods. The material weaknesses cannot be considered completely remediated until the applicable controls have operated for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.Assmallermaterial negative effect on our results of operations, cash flows, financial position, and business operations.company,could harm our business and financial results.not requiredunable to provideassert that our internal control over financial reporting is effective, or, if applicable, our independent registered public accounting firm is unable to express an opinion on the information required by this item.effectiveness of our internal controls, we could lose investor confidence in the accuracy and completeness of our financial reports, which would cause the price of our Common Stock to decline.None.ExhibitExhibit Description3.1ExhibitExhibit Description 3.1 Certificate of Incorporation of GrowGeneration Corp. (Incorporated by reference to Exhibit 3.1 to the Registration Statement on Form S-1 as filed on November 9, 2015) 3.2 Bylaws of GrowGeneration Corp. (Incorporated by reference to Exhibit 3.2 to the Registration Statement on Form S-1 as filed on November 9, 2015) 31.110.110.2 10.3 10.4 10.5 10.6 10.7 31.1 31.2 32.1 32.2 101 Interactive Data Files 101.INS XBRL Instance Document 101.SCH XBRL Taxonomy Extension Schema Document 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document 101.LAB XBRL Taxonomy Extension Label Linkbase Document 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document 101.DEF XBRL Taxonomy Extension Definition Linkbase Definition ** Furnished and not filed. NovemberAugust 12, 2020.2021.GrowGeneration CorporationGrowGeneration Corporation By:By: /s/ Darren Lampert Darren Lampert, Chief Executive Officer
(Principal Executive Officer)By: /s/ Monty LamiratoJeff LasherMonty Lamirato,Jeff Lasher, Chief Financial Officer
(Principal Accounting Officer and
Principal Financial Officer) 44