GrowGeneration Corp 10-Q for FY2022 Q1
GrowGeneration Corp. (GRWG)
10-Q
2022-05-16
For: 2022-03-31
View Original
Added on
April 09, 2026
About this 10-Q
GrowGeneration Corp filed this 10-Q on May 16, 2022, covering the quarter ended March 31, 2022 (FY2022 Q1).
Headline figures
Quarter ended March 31, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $81.77M
- down 9.2% from $90.02M a year earlier
- Net loss
- $5.18M
- compared with net income of $6.15M a year earlier
- Diluted EPS
- -$0.09
- compared with $0.10 a year earlier
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||||||
For Quarter Ended: March 31, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to | |||||
Commission File Number: 333-207889
(Exact name of small business issuer as specified in its charter)
| (State of other jurisdiction of incorporation) | (IRS Employer ID No.) | |||||||
(Address of principal executive offices)
(800 ) 935-8420
(Issuer’s Telephone Number)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol | Name of each exchange on which registered | ||||||||||||
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| ☒ | Accelerated filer | ☐ | |||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | |||||||||
| Emerging growth company | |||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of May 16, 2022 there were 60,744,195 shares of the registrant’s common stock issued and outstanding.
TABLE OF CONTENTS
| Page No. | ||||||||
i
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GROWGENERATION CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except shares and per share amounts)
| March 31, 2022 | December 31, 2021 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Marketable securities | |||||||||||
Accounts receivable, net of allowance for doubtful accounts of $ | |||||||||||
Notes receivable, current, net of allowance for doubtful accounts of $ | |||||||||||
| Inventory | |||||||||||
| Prepaid income taxes | |||||||||||
| Prepaids and other current assets | |||||||||||
| Total current assets | |||||||||||
| Property and equipment, net | |||||||||||
| Operating leases right-of-use assets | |||||||||||
| Intangible assets, net | |||||||||||
| Goodwill | |||||||||||
| Other assets | |||||||||||
| TOTAL ASSETS | $ | $ | |||||||||
| LIABILITIES & STOCKHOLDERS’ EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Accrued liabilities | |||||||||||
| Payroll and payroll tax liabilities | |||||||||||
| Customer deposits | |||||||||||
| Sales tax payable | |||||||||||
| Current maturities of lease liability | |||||||||||
| Current portion of long-term debt | |||||||||||
| Total current liabilities | |||||||||||
| Commitments and ontingencies (Note 15) | |||||||||||
| Deferred tax liability | |||||||||||
| Operating lease liability, net of current maturities | |||||||||||
| Long-term debt, net of current portion | |||||||||||
| Total liabilities | |||||||||||
| Stockholders’ equity: | |||||||||||
Common stock; $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Retained earnings | |||||||||||
| Total stockholders’ equity | |||||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | $ | |||||||||
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
1
GROWGENERATION CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(Unaudited)
| Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Net sales | $ | $ | |||||||||
| Cost of sales | |||||||||||
| Gross profit | |||||||||||
| Operating expenses: | |||||||||||
| Store operations and other operational expenses | |||||||||||
| Selling, general, and administrative | |||||||||||
| Depreciation and amortization | |||||||||||
| Total operating expenses | |||||||||||
| Income (Loss) from operations | ( | ||||||||||
| Other income (expense): | |||||||||||
| Other income (expense) | ( | ||||||||||
| Interest income | |||||||||||
| Interest expense | ( | ( | |||||||||
| Total non-operating income (expense), net | ( | ||||||||||
| Net income (loss) before taxes | ( | ||||||||||
| Benefit (provision) for income taxes | ( | ||||||||||
| Net income (loss) | $ | ( | $ | ||||||||
| Net income (loss) per share, basic | $ | ( | $ | ||||||||
| Net income (loss) per share, diluted | $ | ( | $ | ||||||||
| Weighted average shares outstanding, basic | |||||||||||
| Weighted average shares outstanding, diluted | |||||||||||
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
2
GROWGENERATION CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
THREE MONTHS ENDED MARCH 31, 2022 AND 2021
(in thousands)
(Unaudited)
| Common Stock | Additional Paid-In Capital | Retained Earnings (Deficit) | Total Stockholders’ Equity | ||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||
| Balances, December 31, 2021 | $ | $ | $ | $ | |||||||||||||||||||||||||
| Common stock issued in connection with business combination | |||||||||||||||||||||||||||||
| Common stock issued for share based compensation | — | — | |||||||||||||||||||||||||||
| Common stock withheld for employee payroll taxes | ( | ( | |||||||||||||||||||||||||||
| Share based compensation | |||||||||||||||||||||||||||||
| Net income (loss) | ( | ( | |||||||||||||||||||||||||||
| Balances, March 31, 2022 | $ | $ | $ | $ | |||||||||||||||||||||||||
| Common Stock | Additional Paid-In Capital | Retained Earnings (Deficit) | Total Stockholders’ Equity | ||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||
| Balances, December 31, 2020 | $ | $ | $ | ( | $ | ||||||||||||||||||||||||
| Common stock issued upon warrant exercise | — | — | |||||||||||||||||||||||||||
| Common stock issued upon cashless warrant exercise | ( | — | |||||||||||||||||||||||||||
| Common stock issued upon exercise of options | — | — | |||||||||||||||||||||||||||
| Common stock issued upon cashless exercise of options | — | — | — | ||||||||||||||||||||||||||
| Common stock issued in connection with business combinations | — | — | |||||||||||||||||||||||||||
| Common stock issued for assets | — | — | — | ||||||||||||||||||||||||||
| Common stock issued for services | ( | — | — | — | |||||||||||||||||||||||||
| Common stock issued for share based compensation | ( | — | ( | — | ( | ||||||||||||||||||||||||
| Share based compensation | — | — | — | ||||||||||||||||||||||||||
| Net income (loss) | — | — | — | ||||||||||||||||||||||||||
| Balances, March 31, 2021 | $ | $ | $ | $ | |||||||||||||||||||||||||
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
3
GROWGENERATION CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
| Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net income (loss) | $ | ( | $ | ||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Stock-based compensation expense | |||||||||||
| Bad debt expense, net of recoveries | ( | ( | |||||||||
| Gain on asset disposition | |||||||||||
| Deferred taxes | ( | ||||||||||
| Changes in operating assets and liabilities (net of the effect of acquisitions): | |||||||||||
| Accounts and notes receivable | ( | ( | |||||||||
| Inventory | ( | ||||||||||
| Prepaid expenses and other assets | ( | ||||||||||
| Accounts payable and accrued liabilities | ( | ||||||||||
| Operating leases | ( | ||||||||||
| Payroll and payroll tax liabilities | ( | ||||||||||
| Income taxes payable | |||||||||||
| Customer deposits | ( | ||||||||||
| Sales tax payable | |||||||||||
| Net cash provided by (used in) operating activities | ( | ||||||||||
| Cash flows from investing activities: | |||||||||||
| Acquisitions, net of cash acquired | ( | ( | |||||||||
| Purchase of marketable securities | ( | ||||||||||
| Maturities from marketable securities | |||||||||||
| Purchase of property and equipment | ( | ( | |||||||||
| Purchase of intangibles | ( | ||||||||||
| Net cash provided by (used in) investing activities | ( | ||||||||||
| Cash flows from financing activities: | |||||||||||
| Principal payments on long term debt | ( | ( | |||||||||
| Common stock withheld for employee payroll taxes | ( | ( | |||||||||
| Proceeds from the sale of common stock and exercise of warrants, net of expenses | |||||||||||
| Net cash provided by (used in) financing activities | ( | ( | |||||||||
| Net change | ( | ||||||||||
| Cash and cash equivalents at the beginning of period | |||||||||||
| Cash and cash equivalents at the end of period | $ | $ | |||||||||
| Supplemental disclosures of non-cash activities: | |||||||||||
| Cash paid for interest | $ | $ | |||||||||
| Common stock issued for business combination | $ | $ | |||||||||
| Right of use assets acquired under new operating leases | $ | $ | |||||||||
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
4
GrowGeneration Corp.
Notes To Condensed Consolidated Financial Statements
March 31, 2022
(Unaudited)
1.GENERAL
GrowGeneration Corp. (the “Company”, “we”, or “our”) is the largest chain of hydroponic garden centers in North America and is a leading marketer and distributor of nutrients, growing media, advanced indoor and greenhouse lighting, ventilation systems, and accessories for hydroponic gardening. Currently, the Company owns and operates a chain of sixty-three (63 ) retail hydroponic/gardening stores across 13 states, an online e-commerce platform, and proprietary businesses that market grow solutions through our platforms and other wholesale customers. The Company’s plan is to continue to acquire, open and operate hydroponic/gardening stores and related businesses throughout the United States.
Basis of Presentation
The accompanying interim unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. These statements should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended December 31, 2021. There were no significant changes to our significant accounting policies as disclosed in our 2021 Form 10-K, except for the immaterial out-of-period adjustments discussed below. The results of operations for our interim periods are not necessarily indicative of results for the full fiscal year.
All amounts included in the accompanying footnotes to the consolidated financial statements, except per share data, are in thousands (000).
Risk and Uncertainties
The COVID-19 pandemic has created significant public health concerns as well as economic disruption, uncertainty, and volatility that may negatively affect our business operations and financial results. As a result, if the pandemic or its effects persist or worsen, our accounting estimates and assumptions could be impacted in subsequent interim reports and upon final determination at year-end, and it is reasonably possible such changes could be significant (although the potential effects cannot be estimated at this time). The Company has experienced minimal business interruption as a result of the COVID-19 pandemic. We have been deemed an “essential” business by state and local authorities in the areas in which we operate and as such have not been subject to business closures. The COVID-19 pandemic to date has resulted in supply chain delays of our inventory, higher operating costs and increased shipping costs, among other impacts. As events surrounding the COVID-19 pandemic can change rapidly we cannot predict how it may disrupt our operations or the full extent of the disruption.
Accounting Pronouncements Not Yet Adopted
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments — Credit Losses (Topic 326),” changing the impairment model for most financial instruments by requiring companies to recognize an allowance for expected losses, rather than incurred losses as required currently by the other-than-temporary impairment model. The ASU will apply to most financial assets measured at amortized cost and certain other instruments, including trade and other receivables, loans, available-for-sale and held-to-maturity debt securities, net investments in leases, and off-balance sheet credit exposures. The Company is in the process of evaluating the impact of this standard.
5
Immaterial out-of-period adjustments
During the three months ended March 31, 2022, the Company recorded an immaterial out-of period adjustment that impacted the prior year Consolidated Balance Sheets. The adjustment related to a change in the calculation of operating lease right-of-use assets and operating lease liabilities. This adjustment corrected an understatement of operating lease right-of-use assets of $1.3 million and an understatement of operating lease liabilities of $1.3 million as of December 31, 2021 during the period ended March 31, 2022. The Company assessed the materiality of this adjustment on the previously issued annual financial statements in accordance with SEC Staff Accounting Bulletin No. 99. The Company concluded that the changes were not material to any of the previously issued consolidated financial statements.
During the three months ended March 31, 2022, the Company identified an omission regarding the disclosure of reportable segments under ASC 280 related to the year ended December 31, 2021. During the year ended December 31, 2021 the Company inappropriately reported a single segment, aggregating multiple operating segments. The impact at March 31, 2021 was that $8.8 million of revenue, $3.5 million of gross margin, and $1.5 million of operating income should have been reported as a separate “Distribution and other segment”. The Company assessed the materiality of this omission on the previously issued interim and annual financial statements in accordance with SEC Staff Accounting Bulletin No. 99. The Company concluded that the ommission was not material to any of the previously issued consolidated financial statements and will begin reporting segments results in accordance with ASC 280 on a prospective basis starting with the quarter ending March 31, 2022.
6
GrowGeneration Corp.
Notes To Unaudited Condensed Consolidated Financial Statements
March 31, 2022
2.FAIR VALUE MEASUREMENTS
Fair Value Measurements
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:
•Level 1—Quoted prices in active markets for identical assets or liabilities.
•Level 2—Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.
•Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.
To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
The carrying amounts of cash and cash equivalents, accounts receivable, available for sale securities, accounts payable and all other current liabilities approximate fair values due to their short-term nature. The fair value of notes receivable approximates the outstanding balance and are reviewed for impairment at least annually. The fair value of impaired notes receivable is determined based on estimated future payments discounted back to present value using the notes' effective interest rate.
| Level | March 31, 2022 | December 31, 2021 | |||||||||||||||
| Cash and cash equivalents | 1 | $ | $ | ||||||||||||||
| Marketable securities | 2 | $ | $ | ||||||||||||||
7
GrowGeneration Corp.
Notes To Unaudited Condensed Consolidated Financial Statements
March 31, 2022
3.RECENT ACCOUNTING PRONOUNCEMENTS
New Accounting Pronouncements
From time to time, the Financial Accounting Standards Board (“FASB”) or other standard setting bodies issue new accounting pronouncements. Updates to the FASB Accounting Standards Codification (“ASC”) are communicated through issuance of an Accounting Standards Update (“ASU”). We have implemented all new accounting pronouncements that are in effect and that may impact our financial statements. We have evaluated recently issued accounting pronouncements and determined that there is no material impact on our financial position or results of operations.
4.REVENUE RECOGNITION
The following table disaggregates revenue by source:
| Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | ||||||||||
| Sales at company owned stores | $ | $ | |||||||||
| Distribution and other | |||||||||||
| E-commerce sales | |||||||||||
| Total Net Sales | $ | $ | |||||||||
The opening and closing balances of the Company’s customer trade receivables and customer deposit liability are as follows:
| Receivables | Customer Deposit Liability | ||||||||||
| Opening balance, January 1, 2022 | $ | $ | |||||||||
Closing balance, March 31, 2022 | |||||||||||
| Increase (decrease) | $ | $ | ( | ||||||||
| Opening balance, January 1, 2021 | $ | $ | |||||||||
Closing balance, March 31, 2021 | |||||||||||
| Increase (decrease) | $ | $ | |||||||||
Of the total amount of customer deposit liability as of January 1, 2022, $7.6 million was reported as revenue during the three months ended March 31, 2022. Of the total amount of customer deposit liability as of January 1, 2021, $2.1 million was reported as revenue during the three months ended March 31, 2021.
8
GrowGeneration Corp.
Notes To Unaudited Condensed Consolidated Financial Statements
March 31, 2022
5.INVESTMENTS
Marketable securities have maturities of less than one year as of March 31, 2022. There were no significant realized or unrealized gains or losses for the three months ended March 31, 2022.
The components of investments, available for sale securities, as of March 31, 2022 were as follows:
| Adjusted Cost Basis | Unrealized Gain (Loss) | Recorded Basis | |||||||||||||||
| Corporate notes and bonds | $ | $ | $ | ||||||||||||||
6.NOTES RECEIVABLE
The Company also has notes receivables under longer term financing arrangements at interest rates ranging from 8 % to 12 % with repayment terms ranging for 12 to 18 months. Notes receivables as of March 31, 2022 and December 31, 2021 are as follows:
| March 31, 2022 | December 31, 2021 | ||||||||||
| Notes receivable | $ | $ | |||||||||
| Allowance for losses | ( | ( | |||||||||
| Notes receivable, net | $ | ||||||||||
The following table summarizes changes in notes receivable balances that have been deemed impaired:
| March 31, 2022 | December 31, 2021 | ||||||||||
| Note receivable | $ | $ | |||||||||
| Allowance for losses | ( | ( | |||||||||
| Notes receivable, net | $ | ||||||||||
7.PROPERTY AND EQUIPMENT
| March 31, 2022 | December 31, 2021 | ||||||||||
| Vehicles | $ | $ | |||||||||
| Building | |||||||||||
| Leasehold improvements | |||||||||||
| Furniture, fixtures and equipment | |||||||||||
| Capitalized software | |||||||||||
| Construction-in-progress | |||||||||||
| Total property and equipment, gross | |||||||||||
| Accumulated depreciation and amortization | ( | ( | |||||||||
| Property and equipment, net | $ | $ | |||||||||
9
GrowGeneration Corp.
Notes To Unaudited Condensed Consolidated Financial Statements
March 31, 2022
8.GOODWILL AND INTANGIBLE ASSETS
The changes in goodwill are as follows:
| March 31, 2022 | December 31, 2021 | ||||||||||
| Balance, beginning of period | $ | $ | |||||||||
| Goodwill additions and measurement period adjustments | |||||||||||
| Balance, end of period | $ | $ | |||||||||
A summary of intangible assets is as follows:
| Weighted-Average | ||||||||
| Amortization Period | ||||||||
| of Intangible Assets | ||||||||
| as of March 31, 2022 | ||||||||
| (in years) | ||||||||
| Trade names | ||||||||
| Patents | ||||||||
| Customer relationships | ||||||||
| Non-competes | ||||||||
| Intellectual property | ||||||||
| Total | ||||||||
Intangible assets consist of the following:
| March 31, 2022 | December 31, 2021 | ||||||||||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Gross Carrying Amount | Accumulated Amortization | ||||||||||||||||||||
| Trade names | $ | $ | ( | $ | $ | ( | |||||||||||||||||
| Patents | ( | ( | |||||||||||||||||||||
| Customer relationships | ( | ( | |||||||||||||||||||||
| Non-competes | ( | ( | |||||||||||||||||||||
| Intellectual property | ( | ( | |||||||||||||||||||||
| Total | $ | $ | ( | $ | $ | ( | |||||||||||||||||
Amortization expense for the three months ended March 31, 2022 and 2021 was $2.7 million and $1.4 million, respectively.
| Future amortization expense is as follows: | |||||
| 2022, remainder | $ | ||||
| 2023 | |||||
| 2024 | |||||
| 2025 | |||||
| 2026 | |||||
| Thereafter | |||||
| Total | $ | ||||
10
GrowGeneration Corp.
Notes To Unaudited Condensed Consolidated Financial Statements
March 31, 2022
9. INCOME TAXES
10. LEASES
We determine if a contract contains a lease at inception. Our material operating leases consist of retail and warehouse locations as well as office space. Our leases generally have remaining terms of 1 -10 years, most of which include options to extend the leases for additional 3 to 5-year periods. Generally, the lease term is the minimum of the non-cancelable period of the lease or the lease term inclusive of reasonably certain renewal periods.
Operating lease assets and liabilities are recognized at the lease commencement date. Operating lease liabilities represent the present value of remaining lease payments over the lease term. Operating lease assets represent our right to use an underlying asset and are based upon the operating lease liabilities adjusted for prepayments or accrued lease payments, initial direct costs, lease incentives, and impairment of operating lease assets. To determine the present value of lease payments not yet paid, we estimate incremental secured borrowing rates corresponding to the maturities of the leases. Our leases typically contain rent escalations over the lease term. We recognize expense for these leases on a straight-line basis over the lease term.
We have elected the practical expedient to account for lease and non-lease components as a single component for our entire population of leases.
Short-term disclosures include only those leases with a term greater than one month and 12 months or less, and expense is recognized on a straight-line basis over the lease term. Leases with an initial term of 12 months or less that do not include an option to purchase the underlying asset that we are reasonably certain to exercise are not recorded on the balance sheet.
Lease expense is recorded within our consolidated statements of operations based upon the nature of the assets. Where assets are used to directly serve our customers, such as facilities dedicated to customer contracts, lease costs are recorded in “store operating costs.” Facilities and assets which serve management and support functions are expensed through general and administrative expenses.
| March 31, 2022 | December 31, 2021 | ||||||||||
| Right of use assets, operating lease assets | $ | $ | |||||||||
| Current lease liability | $ | $ | |||||||||
| Non-current lease liability | |||||||||||
| $ | $ | ||||||||||
| March 31, 2022 | March 31, 2021 | ||||||||||
| Weighted average remaining lease term | |||||||||||
| Weighted average discount rate | % | % | |||||||||
| Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Operating lease costs | $ | $ | |||||||||
| Variable lease costs | |||||||||||
| Short-term lease costs | |||||||||||
| Total operating lease costs | $ | $ | |||||||||
11
GrowGeneration Corp.
Notes To Unaudited Condensed Consolidated Financial Statements
March 31, 2022
The following table presents the maturity of the Company’s operating lease liabilities as of March 31, 2022:
| 2022 (remainder of the year) | $ | ||||
| 2023 | |||||
| 2024 | |||||
| 2025 | |||||
| 2026 | |||||
| Thereafter | |||||
| Total lease payments | |||||
| Less: Imputed interest | ( | ||||
Lease Liability at March 31, 2022 | $ | ||||
11. SHARE BASED PAYMENTS
The Company maintains long-term incentive plans for employees, non-employee members of our Board of Directors and consultants. The plans allows us to grant equity-based compensation awards, including stock options, stock appreciation rights, performance share units, restricted stock units, restricted stock awards, or a combination of awards (collectively, share-based awards).
The Company accounts for share-based payments through the measurement and recognition of compensation expense for share-based payment awards made to employees and directors of the Company, including stock options and restricted shares. The Company also issues share based payments in the form of common stock warrants to non-employees.
The following table presents share-based payment expense for the three months ended March 31, 2022 and 2021:
| Three months ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Restricted stock | $ | $ | |||||||||
| Stock options | |||||||||||
| Warrants | |||||||||||
| Total | $ | $ | |||||||||
As of March 31, 2022, the Company had approximately $12.9 million of unamortized share-based compensation for option awards and restricted stock awards, which is expected to be recognized over a weighted average period of approximately 3.7 years. As of March 31, 2022, the Company also had approximately $2.2 million of unamortized share-based compensation for common stock warrants issued to consultants, which is expected to be recognized over a weighted average period of 1.7 years.
Restricted Stock
The Company issues shares of restricted stock to eligible employees, which are subject to forfeiture until the end of an applicable vesting period. The awards generally vest on the first, second, third, or fourth anniversary of the date of grant, subject to the employee’s continuing employment as of that date.
12
GrowGeneration Corp.
Notes To Unaudited Condensed Consolidated Financial Statements
March 31, 2022
Restricted stock activity for the three months ended March 31, 2022 is presented in the following table:
| Shares | Weighted Average Grant Date Fair Value | ||||||||||
Nonvested, December 31, 2021 | $ | ||||||||||
| Granted | $ | ||||||||||
| Vested | ( | $ | |||||||||
| Forfeited | ( | $ | |||||||||
Nonvested, March 31, 2022 | $ | ||||||||||
The table below summarizes all option activity under all plans during the three months ended March 31, 2022:
| Options | Shares | Weight - Average Exercise Price | Weighted - Average Remaining Contractual Term | Weighted - Average Grant Date Fair Value | ||||||||||||||||||||||
Outstanding at December 31, 2021 | $ | $ | ||||||||||||||||||||||||
| Granted | — | |||||||||||||||||||||||||
| Exercised | — | |||||||||||||||||||||||||
| Forfeited or expired | ( | — | ||||||||||||||||||||||||
Outstanding at March 31, 2022 | $ | $ | ||||||||||||||||||||||||
Options vested at March 31, 2022 | $ | $ | ||||||||||||||||||||||||
A summary of the status of the Company’s outstanding stock purchase warrants for the three months ended March 31, 2022 is as follows:
| Warrants | Weighted Average Exercise Price | ||||||||||
Outstanding at December 31, 2021 | $ | ||||||||||
| Issued | |||||||||||
| Exercised | |||||||||||
| Forfeited | |||||||||||
Outstanding at March 31, 2022 | $ | ||||||||||
13
GrowGeneration Corp.
Notes To Unaudited Condensed Consolidated Financial Statements
March 31, 2022
12. EARNINGS PER SHARE
The following table sets forth the composition of the weighted average shares (denominator) used in the basic and dilutive earnings per share computation for the three months ended March 31, 2022 and 2021:
| Three Months Ended | |||||||||||
| March 31, 2022 | March 31, 2021 | ||||||||||
| Net income (loss) | $ | ( | $ | ||||||||
| Weighted average shares outstanding, basic | |||||||||||
| Effect of dilution | |||||||||||
| Adjusted weighted average shares outstanding, dilutive | |||||||||||
| Basic earnings per share | $ | ( | $ | ||||||||
| Dilutive earnings per share | $ | ( | $ | ||||||||
The following potentially outstanding restricted stock, stock options, and warrants were excluded from the computation of diluted EPS because the effect would have been antidilutive:
| Three Months Ended | |||||||||||
| March 31, 2022 | March 31, 2021 | ||||||||||
| Restricted stock | |||||||||||
| Stock options | |||||||||||
| Warrants | |||||||||||
| Total | |||||||||||
13. ACQUISITIONS
Our acquisition strategy is primarily to acquire (i) well established profitable hydroponic garden centers in markets where the Company does not have a market presence or in markets where it is increasing its market presence; and (ii) proprietary brands and private label brands. The Company accounts for acquisitions in accordance with ASC 805 “Business Combinations.” Assets acquired and liabilities assumed are recorded in the accompanying Condensed Consolidated Balance Sheets at their estimated fair values, as of the acquisition date. For all acquisitions, the preliminary allocation of purchase price was based upon the preliminary valuation, and the Company's estimates and assumptions are subject to change within the measurement period as valuations are finalized, not to exceed one year from the acquisition date. The Company has made adjustments to the preliminary valuations of the acquisitions based on valuation analyses prepared by independent third-party valuation consultants. During the three months ended March 31, 2022 our measurement period adjustments included increasing goodwill by $1.3 million offset with intangible assets. As a result of these measurement period adjustments, we made an insignificant reduction in amortization expense. All acquisition costs are expensed as incurred and recorded in general and administrative expenses in the Condensed Consolidated Statements of Operations.
Acquisitions during the three months ended March 31, 2022
On February 1, 2022, the Company purchased all of the assets of Horticultural Rep Group, Inc. (“HRG”), a specialty marketing and sales organization of horticultural products based in Ogden, Utah. The total consideration for the purchase of HRG was approximately $13.4 million, including $6.8 million in cash and common stock valued at $5.7 million. The Asset Purchase Agreement also provides for an indemnity holdback to be settled in common stock of the Company valued at $0.9 million. Acquired goodwill represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company. HRG is included in our Distribution and other segment. The Company's preliminary estimates of fair values of the net assets acquired are based on the information that was available at the date of the acquisition, and the Company is continuing to evaluate the underlying inputs and assumptions used in its valuations.
14
GrowGeneration Corp.
Notes To Unaudited Condensed Consolidated Financial Statements
March 31, 2022
The table below represents the allocation of the purchase price to the acquired net assets during the three months ended March 31, 2022.
| HRG | ||||||||||||||||||||||||||
| Inventory | $ | |||||||||||||||||||||||||
| Prepaids and other current assets | ||||||||||||||||||||||||||
| Furniture and equipment | ||||||||||||||||||||||||||
| Operating lease right of use asset | ||||||||||||||||||||||||||
| Operating lease liability | ( | |||||||||||||||||||||||||
| Customer relationships | ||||||||||||||||||||||||||
| Trademark | ||||||||||||||||||||||||||
| Non-compete | ||||||||||||||||||||||||||
| Goodwill | ||||||||||||||||||||||||||
| Total | $ | |||||||||||||||||||||||||
The table below represents the consideration paid for the net assets acquired in business combinations.
| HRG | |||||
| Cash | $ | ||||
| Indemnity stock holdback | |||||
| Common stock | |||||
| Total | $ | ||||
The following table discloses the date of the acquisition noted above and the revenue and earnings included in the Condensed Consolidated Statement of Operations for the period ended March 31, 2022.
| HRG | |||||
| Acquisition date | |||||
| Revenue | |||||
| Net Income | |||||
The following represents the pro forma Condensed Consolidated Statement of Operations as if the acquisition had been included in the consolidated results of the Company for the entire period for the three months ended March 31, 2022 and 2021.
| Three Months Ended | Three Months Ended | |||||||||||||
| March 31, 2022 (Unaudited) | March 31, 2021 (Unaudited) | |||||||||||||
| Revenue | $ | $ | ||||||||||||
| Net income | $ | ( | $ | |||||||||||
Acquisitions during the three months ended March 31, 2021
On January 25, 2021, the Company purchased all of the assets of Indoor Garden & Lighting, Inc, a two-store chain of hydroponic and equipment and indoor gardening supply stores serving the Seattle and Tacoma, Washington area. The total consideration for the purchase of Garden & Lighting was approximately $1.7 million, including $1.2 million in cash and common stock valued at approximately $0.5 million. Acquired goodwill of approximately $0.7 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company. Indoor Garden & Lighting, Inc. is included in our Retail segment.
15
GrowGeneration Corp.
Notes To Unaudited Condensed Consolidated Financial Statements
March 31, 2022
On February 1, 2021, the Company purchased all of the assets of J.A.R.B., Inc d/b/a Grow Depot Maine, a two-store chain in Auburn and Augusta, Maine. The total consideration for the purchase of Grow Depot Maine was approximately $2.1 million, including $1.7 million in cash and common stock valued at approximately $0.4 million. Acquired goodwill of approximately $0.9 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company. Grow Depot Maine is included in our Retail segment.
On February 15, 2021, the Company purchased all of the assets of Grow Warehouse LLC, a four-store chain of hydroponic and organic garden stores in Colorado (3) and Oklahoma (1). The total consideration for the purchase of Grow Warehouse LLC was approximately $17.8 million, including $8.1 million in cash and common stock valued at approximately $9.7 million. Acquired goodwill of approximately $11.1 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company. Grow Warehouse LLC is included in our Retail segment.
On February 22, 2021, the Company purchased all of the assets of San Diego Hydroponics & Organics, a four-store chain of hydroponic and organic garden stores in San Diego, California. The total consideration for the purchase of San Diego Hydroponics was approximately $9.3 million, including $4.8 million in cash and common stock valued at approximately $4.5 million. Acquired goodwill of approximately $5.7 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company. San Diego Hydroponics & Organics is included in our Retail segment.
On March 12, 2021, the Company purchased all of the assets of Charcoir Corporation, which sells an RHP-certified growing medium made from the highest-grade coconut fiber. The total consideration for the purchase of Charcoir was approximately $16.4 million, including $9.9 million in cash and common stock valued at approximately $6.5 million. Acquired goodwill of approximately $6.1 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established distribution market for the Company of a proprietary brand. Charcoir is included in our Distribution and other segment.
On March 15, 2021, the Company purchased all of the assets of 55 Hydroponics, a hydroponic and organic superstore located in Santa Ana, California. The total consideration for the purchase of 55 Hydroponics was approximately $6.5 million, including $5.4 million in cash and common stock valued at approximately $1.1 million. Acquired goodwill of approximately $3.9 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company. 55 Hydroponics is included in our Retail segment.
On March 15, 2021, the Company purchased all of the assets of Aquarius, a hydroponic and organic garden store in Springfield, Massachusetts. The total consideration for the purchase of Aquarius was approximately $3.6 million, including $2.4 million in cash and common stock valued at approximately $1.2 million. Acquired goodwill of approximately $1.7 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company. Aquarius is included in our Retail segment.
On March 19, 2021, the Company purchased all of the assets of Agron, LLC, an online seller of growing equipment. The total consideration for the purchase of Agron was approximately $11.3 million, including $6 million in cash and common stock valued at approximately $5.3 million. Acquired goodwill of approximately $8.7 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established e-commerce market for the Company targeting the commercial customer. Agron is included in our E-commerce segment.
16
GrowGeneration Corp.
Notes To Unaudited Condensed Consolidated Financial Statements
March 31, 2022
The table below represents the allocation of the purchase price to the acquired net assets during the three months ended March 31, 2021.
| Agron | Aquarius | 55 Hydro | Charcoir | San Diego Hydro | Grow Warehouse | Grow Depot Maine | Indoor Garden | Total | |||||||||||||||||||||||||||||||||||||||||||||
| Inventory | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
| Prepaids and other current assets | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Furniture and equipment | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Liabilities | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Operating lease right of use asset | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Operating lease liability | ( | ( | ( | ( | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Customer relationships | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Trade name | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Non-compete | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Intellectual property | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Goodwill | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
The table below represents the consideration paid for the net assets acquired in business combinations.
| Agron | Aquarius | 55 Hydro | Charcoir | San Diego Hydro | Grow Warehouse | Grow Depot Maine | Indoor Garden | Total | |||||||||||||||||||||||||||||||||||||||||||||
| Cash | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
| Common stock | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
The following table discloses the date of the acquisitions noted above and the revenue and earnings included in the consolidated income statement for the period ended March 31, 2021.
| Agron | Aquarius | 55 Hydro | Charcoir | San Diego Hydro | Grow Warehouse | Grow Depot Maine | Indoor Garden | Total | |||||||||||||||||||||||||||||||||||||||||||||
Acquisition date | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Revenue | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
| Net Income | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
The following table discloses the pro forma consolidated statement of operations as if the acquisition had been included in the consolidated results of the Company for the three months ended March 31, 2021.
| Three Months Ended March 31, 2021 | ||||||||
| (Unaudited) | ||||||||
| Revenue | $ | |||||||
| Net income | $ | |||||||
17
GrowGeneration Corp.
Notes To Unaudited Condensed Consolidated Financial Statements
March 31, 2022
14. COMMITMENTS AND CONTINGENCIES
Legal Matters
From time to time, the Company has been, and may again become involved in legal proceedings arising in the ordinary course of its business. The Company is not presently a party to any litigation, and is not aware of any pending or threatened litigation, against the Company that it believes could have a material adverse effect on its business, operating results, financial condition, or cash flows.
Indemnifications
In the ordinary course of its business, the Company makes certain indemnities under which it may be required to make payments in relation to certain transactions. As of March 31, 2022, the Company did not have any liabilities associated with indemnities.
In addition, the Company, as permitted under Colorado law and in accordance with its amended and restated certificate of incorporation and amended and restated bylaws, in each case, as amended to date, indemnifies its officers and directors for certain events or occurrences, subject to certain limits, while the officer or director is or was serving at the Company’s request in such capacity. The duration of these indemnifications varies. The Company has a director and officer insurance policy that may enable it to recover a portion of any future amounts paid. The Company accrues for losses for any known contingent liability, including those that may arise from indemnification provisions, when future payment is probable. No such losses have been recorded to date.
15. SEGMENTS
As discussed in Note ,1 at December 31, 2021 the Company had two reportable segments which increased to three at March 31, 2022 based on quantitative and qualitative analyses the Company now also reports E-commerce as a reportable segment. The Company has three primary reportable segments including retail operations, e-commerce and all other which includes the distribution of proprietary brands to wholesale accounts. The Company has segmented its operations to reflect the manner in which management reviews and evaluates the results of its operations. The structure reflects the manner in which the chief operating decision maker regularly assesses information for decision-making purposes, including the allocation of resources. Shared services and other corporate costs are allocated to individual segments based on that segments profitability.
Retail – Currently, the Company owns and operates a chain of 63 hydroponic/gardening centers focused on serving growers and cultivators. Inclusive of commercial sales organizations selling directly to customers outside of the physical retail network. Some of our garden centers have multi-functions, with added capabilities that include warehousing, distribution and fulfillment for direct shipments of products to garden center locations, pick, pack and ship for our online platforms and direct fulfillment to our commercial customers.
E-commerce – Our digital strategy is focused on capturing the home, craft and commercial grower online. GrowGeneration.com offers over 10,000 hydroponic products, all curated by our product team. GrowGeneration.com offers customers the option to have their orders shipped directly to their locations, anywhere in North America. The Company also sells and distributes product through third-party marketplaces.
Distribution and other – In December 2020, GrowGeneration purchased the business of Canopy Crop Management Corp., the developer of the popular Power Si line of monosilicic acid products, a widely used nutrient additive for plants. On March 12, 2021, the Company purchased Char Coir, a line of premium coco pots, cubes and medium. On December 31, 2021, the Company purchased the assets of Mobile Media, Inc. (“MMI”), a mobile shelving design and build facility. On February 1, 2022, the Company purchased the assets of Horticultural Rep Group, Inc. (“HRG”), a specialty marketing and sales organization of horticultural products based in Ogden, Utah. The Company is in the process of combining the operations and management of these non-retail enterprises. The products these companies provide are integrated into our
18
GrowGeneration Corp.
Notes To Unaudited Condensed Consolidated Financial Statements
March 31, 2022
retail, e-commerce, and direct sales activities and we receive incremental gross profit from the sale of these products. The profit generated from those sales are recorded in our retail and e-commerce segments.
Selected information by segment is presented in the following tables:
| Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Net sales | ||||||||
| Retail | $ | $ | ||||||
| E-Commerce | ||||||||
| Distribution and other | ||||||||
| Total | $ | $ | ||||||
| Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Gross profit | ||||||||
| Retail | $ | $ | ||||||
| E-Commerce | ||||||||
| Distribution and other | ||||||||
| Total | $ | $ | ||||||
| Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Income (Loss) from operations | ||||||||
| Retail | $ | ( | $ | |||||
| E-Commerce | ( | |||||||
| Distribution and other | ||||||||
| Total | $ | ( | $ | |||||
19
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our consolidated financial statements and related notes that appear elsewhere in this report as well as our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on March 10, 2022. We caution readers regarding certain forward looking statements, within the meaning of the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995 in the following discussion and elsewhere in this report. 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.
OVERVIEW
GrowGeneration Corp. (together with all of its direct and indirect wholly owned subsidiaries, collectively “GrowGeneration” or the “Company”) was incorporated in Colorado in 2014 and is the largest chain of hydroponic garden centers in North America and is a leading marketer and distributor of nutrients, growing media, advanced indoor and greenhouse lighting, environmental control systems and accessories for hydroponic gardening. GrowGeneration also owns and operates an e-commerce platform, www.growgeneration.com, Mobile Media, a vertical racking and storage solutions business, Horticultural Rep Group, a horticultural products sales representative and distributor organization, and Power Si, CharCoir, and several other proprietary private-label brands across multiple product categories from LED lighting to nutrients and additives and environmental control systems for indoor cultivation.
Markets
GrowGeneration sells thousands of products, including nutrients, growing media, advanced indoor and greenhouse lighting, environmental control systems, vertical benching and accessories for hydroponic gardening, as well as other indoor and outdoor growing products, that are designed and intended for growing a wide range of plants. In addition, vertical farms producing organic fruits and vegetables also utilize hydroponics due to a rising shortage of farmland as well as environmental vulnerabilities including drought, other severe weather conditions and insect pests.
Our retail operations are driven by a wide selection of all hydroponic products, service and solutions driven staff and pick, pack and ship distribution and fulfillment capabilities. We employed approximately 660 employees as of March 31, 2022, a majority of them we have branded as “Grow Pros.” Currently, our operations span over 1,022,000 square feet of retail and warehouse space.
The Company has three primary reportable segments including retail operations, e-commerce and all other. The Company has segmented its operations to reflect the manner in which management reviews and evaluates the results of its operations. The structure reflects the manner in which the chief operating decision maker regularly assesses information for decision-making purposes, including the allocation of resources.
We recognize specifically identifiable operating costs such as cost of sales, distribution expenses, selling and general administrative expenses within each segment. Certain general and administrative expenses, such as administrative and management expenses, salaries and benefits, share based compensation, director fees, legal expenses, accounting and consulting expenses and technology costs, are not allocated to the specific segments and are reflected in the enterprise results.
Competitive Advantages
As the largest chain of 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;
20
•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; and
•We have a professional team for mergers and acquisitions, and to acquire and open new locations and successfully add them to our company portfolio.
Growth Strategy - Store Acquisitions and New Store Openings
Core to our growth strategy is to expand the number of our retail garden centers throughout North America. In addition to the 13 states in which we are currently operating, we have identified new market opportunities in states that include Connecticut, Ohio, Illinois, Pennsylvania, New York, New Jersey, Mississippi, Missouri and Virginia. The Company acquired 23 new locations in 2021 and expects to open many new stores in 2022.
Secondary to this growth strategy is the expansion of distribution and sales capabilities for products that the company owns, distributes, or represents to independent retail garden centers for resale.
RESULTS OF OPERATIONS
Comparison of the three months ended March 31, 2022 and 2021
Net revenue for the three months ended March 31, 2022 was approximately $81.8 million, compared to $90.0 million for the three months ended March 31, 2021, a decrease of approximately $8.3 million or 9%. The decrease was attributed to a decrease of approximately $26.2 million related to same store sales, which represented 35.5% of the decrease year over year. Overall sales in our retail segment declined from $81.2 million to $64.3 million. Distributed sales were $12.2 million. E-commerce sales decreased from $6.0 million to $5.3 million.
Cost of Goods Sold
Cost of goods sold for the three months ended March 31, 2022 was approximately $59.6 million, compared to approximately $64.6 million for the three months ended March 31, 2021, a decrease of approximately $5.0 million or 8%. The decrease in cost of goods sold was primarily due to the 9% decrease in sales comparing the three months ended March 31, 2022 to the three months ended March 31, 2021.
Gross profit was approximately $22.1 million for the three months ended March 31, 2022, compared to approximately $25.4 million for the three months ended March 31, 2021, a decrease of approximately $3.2 million or 13%. The decrease in gross profit is primarily related to the 9% decrease in revenues comparing the three months ended March 31, 2022 to the three months ended March 31, 2021. Gross profit as a percentage of revenues was 27.1% for the three months ended March 31, 2022, compared to 28.2% for the three months ended March 31, 2021. Gross profit in our retail segment declined from $21.9 million to $15.5 million. Gross profit from distributed sales was $4.9 million and was $1.7 million from e-commerce sales for the three months ended March 31, 2022.
Operating Expenses
Operating expenses are comprised of store operations, selling, general, and administrative, and depreciation and amortization. Operating costs were approximately $29.4 million for the three months ended March 31, 2022 and approximately $17.6 million for the three months ended March 31, 2021, an increase of approximately $11.7 million or 66%.
Store operating costs were approximately $14.5 million for the three months ended March 31, 2022, compared to $8.2 million for the three months ended March 31, 2021, an increase of $6.4 million or 78%. The increase in store operating costs was directly attributable to the addition of 23 locations that were added during 2021, including 16 stores that were added subsequent to March 31, 2021.
Total corporate overhead, which is comprised of Selling, general, and administrative expense and Depreciation and amortization expense, was approximately $14.8 million for the three months ended March 31, 2022, compared to $9.5 million for the three months ended March 31, 2021, an increase of $5.4 million or 57%. Selling, general, and administrative costs were approximately $10.3 million for the three months ended March 31, 2022, compared to approximately $7.4 million for the three months ended March 31, 2021. Salaries expense increased to $5.2 million from $4.0 million primarily due to an increase in corporate staff. General administrative expenses increased to $3.6 million from $2.1 million to support expanding operations.
21
Other Income/Expense
Total other income was approximately $0.4 million for the three months ended March 31, 2022, compared to expense of $36.0 thousand for the three months ended March 31, 2021. This increase is primarily attributable to a gain recorded related to an earnout revaluation adjustment related to The Harvest Company acquisition.
Segment Operating Income
Operating income in our retail segment dropped from $6.3 million to an operating loss of $7.2 million as a result of lower sales volume, lower gross margins and higher expenses at existing stores combined with operating losses at nine stores not in operation in the same period in 2021, including acquired and new retail locations. Operating income in our e-commerce segment declined from $0.4 million to a loss of $0.4 million as a result of lower revenue and higher operating expenses as well as integration costs of Agron.IO that was consolidated with our core e-commerce webstore in the period. Operating income in all other decreased to $0.4 million in the three months ended March 31, 2022 compared to $1.0 million in the three months ended March 31, 2021. Increase in the operating income of the other segment was primarily attributable to the addition of HRG and MMI.
Income Taxes
Income tax benefit was $1.6 million for the three months ended March 31, 2022, compared to income tax expense of $1.6 million for the three months ended March 31, 2021. Effective tax rate is impacted by differences in timing of expenses for share based compensation, depreciation, amortization and the impact of 162(m) on deductible wages. As such, the Company’s taxable income varies from reported income in a material way.
Net Income
Net loss for the three months ended March 31, 2022 was approximately $5.2 million, compared to net income of approximately $6.1 million for the three months ended March 31, 2021, a decrease of approximately $11.3 million.
Operating Activities
Net cash used by operating activities for three months ended March 31, 2022 was approximately $2.2 million compared to $0.7 million provided for the three months ended March 31, 2021. The Company reduced prepaid inventory by $9.1 million in the quarter as well as retail store inventory by $3.8 million, which was more that offset by payments for accounts payable and deferred compensation, including annual cash bonuses.
Net cash provided by investing activities was approximately $9.5 million for the three months ended March 31, 2022 compared to cash used of approximately $82.7 million for the three months ended March 31, 2021. Investing activities in 2022 were primarily attributable to acquisitions of $6.8 million and vehicles and store equipment purchases of $4.5 million partially offset by the maturity of marketable securities of $20.8 million. Investing activities for the three months ended March 31, 2021 were primarily related to store acquisitions of $39.3 million, purchase of marketable securities of $41.1 million, the purchase of vehicles and store equipment to support new store operations of $1.7 million, and intangible assets of $0.7 million.
Net cash used in financing activities for the three months ended March 31, 2022 was approximately $1.4 million and was primarily attributable to stock redemptions. Net cash used by financing activities for three months ended March 31, 2021 was $3.9 million and was primarily attributable to stock redemptions.
Use of Non-GAAP Financial Information
The Company believes that the presentation of results excluding certain items in “Adjusted EBITDA,” such as non-cash equity compensation charges, provides meaningful supplemental information to both management and investors, facilitating the evaluation of performance across reporting periods. The Company uses these non-GAAP measures for internal planning and reporting purposes. These non-GAAP measures are not in accordance with, or an alternative for, generally accepted accounting principles and may be different from non-GAAP measures used by other companies. The presentation of this additional information is not meant to be considered in isolation or as a substitute for net income or net income per share prepared in accordance with generally accepted accounting principles.
Set forth below is a reconciliation of Adjusted EBITDA to net income (loss):
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| Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| (000) | (000) | ||||||||||
| Net income | $ | (5,177) | $ | 6,147 | |||||||
| Income taxes | (1,636) | 1,553 | |||||||||
| Interest | 3 | 2 | |||||||||
| Depreciation and Amortization | 4,506 | 2,054 | |||||||||
| EBITDA | $ | (2,304) | $ | 9,756 | |||||||
| Share based compensation (option compensation, warrant compensation, stock issued for services) | 1,583 | 1,327 | |||||||||
| Adjusted EBITDA | (721) | $ | 11,083 | ||||||||
| Adjusted EBITDA per share, basic | $ | (0.01) | $ | 0.19 | |||||||
| Adjusted EBITDA per share, diluted | $ | (0.01) | $ | 0.18 | |||||||
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2022, we had working capital of approximately $157.9 million, compared to working capital of approximately $169.8 million as of December 31, 2021, a decrease of approximately $11.9 million. The decrease in working capital from December 31, 2021 to March 31, 2022 was due primarily to a decrease in marketable securities, inventory and prepaid inventory partially offset by decreases in current liabilities. At March 31, 2022, we had cash and cash equivalents of approximately $47.3 million and available for sale debt securities of $19.0 million. Currently, we have no extraordinary 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 and building our brand portfolio 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.
We anticipate that we may need additional financing in the future to continue to acquire and open new stores and related businesses. To date we have financed our operations through the issuance and sale of common stock, convertible notes and warrants.
Critical Accounting Policies, Judgements and Estimates
Business Combinations
Note 1 - Operations and Summary of Significant Accounting Policies to the consolidated financial statements included in Part II. Item 8 of our Form 10-K for the year ended December 31, 2021 describes the significant accounting policies used in preparation of these consolidated financial statements. We believe the following critical accounting policy and assumptions may have a material impact on reported financial condition and operating performance and involve significant levels of judgment to account for highly uncertain matters or are susceptible to significant change. In each of these areas, management makes estimates based on historical results, current trends and future projections. Therefore, these are considered to be our critical accounting policies and estimates.
We account for transactions that represent business combinations under the acquisition method of accounting, which requires us to allocate the total consideration paid for each acquisition to the assets we acquire and liabilities we assume based on their fair values as of the date of acquisition, including identifiable intangible assets. The allocation of the purchase price utilizes significant estimates in determining the fair values of identifiable assets acquired and liabilities assumed, especially with respect to intangible assets. We may refine our estimates and make adjustments to the assets acquired and liabilities assumed over a measurement period, not to exceed one year.
The Company has financial liabilities resulting from our business combinations, including contingent consideration arrangements. We estimate the fair value of these financial liabilities using Level 3 inputs that require the use of numerous assumptions, which may change based on the occurrence of future events and lead to increased or decreased operating income in future periods. Estimating the fair value at an acquisition date and in subsequent periods involves significant judgments, including projecting the future financial performance of the acquired businesses. The Company will update its assumptions each reporting period based on new developments and record such amounts at fair value based on the revised assumptions.
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Changes in the fair value of these financial liabilities are recorded in the Consolidated Statements of Operations within other income (expense).
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements (as that term is defined in Item 303 of Regulation S-K) that are reasonably likely to have a current or future material effect on our financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
For a summary of the Company’s quantitative and qualitative disclosures about market risk, please refer to Item 7A of our Form 10-K for the year ended December 31, 2021.
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to be effective in providing reasonable assurance that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management to allow timely decisions regarding required disclosure.
Management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, including the possibility of human error, the circumvention or overriding of controls, or fraud, no evaluation of controls can provide absolute assurance that all control issues, misstatements, errors, and instances of fraud, if any, within our organization have been or will be prevented or detected.
As of the period covered by this Quarterly Report on Form 10-Q, an evaluation was conducted under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act). Our management concluded that as of March 31, 2022, our disclosure controls and procedures were not effective, because of the material weaknesses in our internal control over financial reporting identified by management as of December 31, 2021 (described below). A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that a reasonable possibility exists that a material misstatement of our annual or interim financial statements would not be prevented or detected on a timely basis.
Material Weaknesses in Control Activities
The following were contributing factors to the material weaknesses in control activities as of December 31, 2021, several of which also were determined to be the material weaknesses at December 31, 2020:
•Insufficient resources within the accounting and financial reporting department to review the accounting for complex financial reporting transactions including areas such as business combinations, share based compensation, and the related income tax reporting.
•There are inadequate segregation of duties within the various bank accounts of the Company to prevent and detect unauthorized transactions in a timely manner. Additionally, there are deficiencies in the segregation of duties issues within IT, human resources, and manual journal entry posting processes.
•There are inadequate information and technology general controls, including segregation of duties, change management, and user access, which were inadequate to support financial reporting applications and support automated controls and functionality.
•There are inadequate controls over physical inventory counts.
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Deficiencies in control activities contributed to material accounting errors identified and corrected through 2021 and prior years. These corrected design deficiencies in control activities were previously considered to contribute to the potential for there to have been material accounting errors in multiple financial statement account balances and disclosures.
We have concluded that significant progress has been made toward mitigating the above-mentioned control weakness as of March 31, 2022 and December 31, 2021, but we have not been able to adequately confirm the design and confirm the control weakness has been remediated as of the date of this report. In making this assessment, management used the criteria set forth by the Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, except for the implementation of remediation plans to address the material weaknesses discussed above.
Material Weakness Remediation Plan and Status
Our remediation efforts are ongoing and we will continue our initiatives to implement and document policies, procedures, and internal controls. In 2021, the Company completed the following remedial actions:
•Hired and trained additional resources within the accounting and financial reporting departments to review the accounting for warrant compensation accounting, share-based compensation accounting, and rebates.
•Hired and trained additional resources to specifically manage cash and ensure adequate segregation of duties.
•Implemented numerous general and access controls over all information technology (IT) systems that supports the Company's financial reporting processes.
•Implementation and redesign of controls over inventory count procedures.
Our management believes that these actions, and additional actions to be taken, are reasonably designed to remediate the control deficiencies identified and strengthen our internal control over financial reporting. As we continue to evaluate and work to improve our internal control over financial reporting, management may determine to take additional measures to address control deficiencies or modify certain of the remediation measures described above.
Remediation of the identified material weaknesses and strengthening our internal control environment has continued during the period ended March 31, 2022 and will continue throughout 2022 and beyond, as 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.
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PART II – OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors
For a summary of the Company’s risk factors, please refer to Item 9A of our Form 10-K for the year ended December 31, 2021.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On February 1, 2022, the Company purchased all of the assets of Horticultural Rep Group, Inc. (“HRG”), a specialty marketing and sales organization of horticultural products based in Ogden, Utah. The total consideration for the purchase of HRG was approximately $13.4 million, including $6.8 million in cash and common stock valued at $5.7 million. The Asset Purchase Agreement also provides for an indemnity holdback to be settled in common stock of the Company valued at $0.9 million. Acquired goodwill represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company. HRG is included in our Distribution and other segment. The Company's preliminary estimates of fair values of the net assets acquired are based on the information that was available at the date of the acquisition, and the Company is continuing to evaluate the underlying inputs and assumptions used in its valuations.
The above issuances were made by the Company pursuant to registration exemption provided by Section 4(a)(2) of the Securities Act of 1933, as amended.
Item 3. Defaults upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
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Item 6. Exhibits
The following exhibits are included and filed with this report.
| Exhibit | Exhibit Description | |||||||
| 3.1 | ||||||||
| 3.2 | ||||||||
| 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. | |||||||
27
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized on May 16, 2022.
| GrowGeneration Corporation | ||||||||
| By: | /s/ Darren Lampert | |||||||
| Darren Lampert, Chief Executive Officer (Principal Executive Officer) | ||||||||
| By: | /s/ Jeff Lasher | |||||||
| Jeff Lasher, Chief Financial Officer (Principal Accounting Officer and Principal Financial Officer) | ||||||||
28
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Darren Lampert, certify that:
1. I have reviewed this Form 10-Q for the fiscal quarter ended March 31, 2022 of GrowGeneration Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods present in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13-a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involved management or other employees who have a significant role in the registrant’s internal control over financial reporting.
May 16, 2022
| By: | /s/ Darren Lampert | |||||||
| Darren Lampert, Chief Executive Officer | ||||||||
| (Principal Executive Officer) | ||||||||
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Jeff Lasher, certify that:
1. I have reviewed this Form 10-Q for the fiscal quarter ended March 31, 2022 of GrowGeneration Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods present in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13-a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involved management or other employees who have a significant role in the registrant’s internal control over financial reporting.
May 16, 2022
| By: | /s/ Jeff Lasher | |||||||
| Jeff Lasher, Chief Financial Officer | ||||||||
| (Principal Financial Officer) | ||||||||
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the accompanying Quarterly Report on Form 10-Q of GrowGeneration Corporation (the “Company”) for the fiscal quarter ended March 31, 2022, I, Darren Lampert, Chief Executive Officer of the Company, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge and belief, that:
1. Such Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2022, fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in such Quarterly Report on Form 10-Q for the fiscal quarter March 31, 2022, fairly presents, in all material respects, the financial condition and results of operations of GrowGeneration Corporation.
May 16, 2022
| By: | /s/ Darren Lampert | |||||||
| Darren Lampert, Chief Executive Officer | ||||||||
| (Principal Executive Officer) | ||||||||
Exhibit 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the accompanying Quarterly Report on Form 10-Q of GrowGeneration Corporation (the “Company”) for the fiscal quarter ended March 31, 2022, I, Jeff Lasher, Chief Financial Officer of the Company, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge and belief, that:
1. Such Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2022, fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in such Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2022, fairly presents, in all material respects, the financial condition and results of operations of GrowGeneration Corporation.
May 16, 2022
| By: | /s/ Jeff Lasher | |||||||
| Jeff Lasher, Chief Financial Officer | ||||||||
| (Principal Financial Officer) | ||||||||