HYFM 10-Q
Hydrofarm Holdings Group, Inc. (HYFM)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For transition period from to
Commission File Number:
Hydrofarm Holdings Group, Inc.
(Exact name of registrant as specified in its charter)
Former Name or Former Address, if changed since last report: Not Applicable
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) |
(
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
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 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.
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted 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).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
☒ | 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 7(a)(2)(B) of the Securities Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes
As of August 12, 2026, the registrant had
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Condensed Consolidated Statements of Changes in Stockholders' Equity (Deficit) |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements contained in this Quarterly Report on Form 10-Q other than statements of historical fact, including statements concerning our business strategy and plans, future operating results and financial position, as well as our objectives and expectations for our future operations, are forward-looking statements.
In some cases, you can identify forward-looking statements by such terminology as “believe,” “may,” “will,” “potentially,” “estimate,” “continue,” “anticipate,” “intend,” “could,” “would,” “project,” “plan,” “expect” and similar expressions that convey uncertainty of future events or outcomes, although not all forward-looking statements contain these words. Forward-looking statements include, but are not limited to, statements about:
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our ability to continue as a going concern; |
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our current level of indebtedness and compliance with requirements of our existing credit agreement; |
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our liquidity and our ability to resolve claims from unsecured creditors in the ordinary course of business; |
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our ability to regain compliance with the continued listing standards of The Nasdaq Capital Market ("Nasdaq"); |
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the results of and expectations regarding our acquisitions, dispositions and strategic alliances, and our ability to effect strategic transactions in the future; |
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industry conditions, including oversupply and decreasing prices of our customers' products which, in turn, have materially adversely impacted our sales and other results of operations and which may continue to do so in the future; |
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potential tariffs or interruptions to global trade; |
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the potential for future charges associated with the impairment of our long-lived assets, inventory allowances and purchase commitment losses, and accounts receivable reserves; |
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our ability and intent to access bankruptcy courts, receivership or similar processes, or otherwise wind-up our business and liquidate; |
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the anticipated impact of our restructuring activities on our expenses and cash expenditures; |
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potential dilution that may result from equity financings while our stock prices are depressed; |
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the conditions impacting our customers, including related crop prices and other factors impacting growers; |
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the adverse effects of public health epidemics, including the COVID-19 pandemic, on our business, results of operations and financial condition; |
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interruptions in our supply chain; |
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federal and state legislation and regulations pertaining to agricultural products and the use and cultivation of cannabis in the United States and Canada; |
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public perceptions and acceptance of cannabis use; |
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fluctuations in the price of various crops and other factors affecting growers; |
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our long-term non-cancellable leases under which many of our facilities operate, and our ability to renew or terminate our leases; |
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our reliance on, and relationships with, a limited base of key suppliers for certain products; |
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our ability to keep pace with technological advances; |
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our ability to execute our e-commerce business; |
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the costs of being a public company; |
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our ability to successfully identify appropriate acquisition targets, successfully acquire identified targets or successfully integrate the business of acquired companies; |
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the success of our marketing activities; |
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the potential for a disruption or breach of our information technology systems or cyber-attack; |
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our dependence on third parties, or the performance of third parties on which we depend; |
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any change to our reputation or to the reputation of our products; |
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the fluctuation in the prices of the products we distribute; |
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competitive industry pressures; |
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the consolidation of businesses within our industry; |
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compliance with environmental, health and safety laws; |
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our ability to protect and defend against litigation, including claims related to intellectual property rights; |
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product shortages and relationships with key suppliers; |
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our ability to attract and retain key employees; |
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the volatility of the price of our common stock; |
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the marketability of our common stock; and |
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other risks and uncertainties, including those listed herein as well as under the heading “Risk Factors” in our Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 27, 2026 (the “2025 Annual Report”). |
We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations, prospects, and financial needs. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and are subject to a number of risks, uncertainties and assumptions described in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. We disclaim any intention or obligation to publicly update or revise any forward-looking statements for any reason or to conform such statements to actual results or revised expectations, except as required by law.
SPECIAL NOTE REGARDING USE OF TRADE NAMES AND TRADEMARKS
“Hydrofarm” and other trade names and trademarks of ours appearing in this Quarterly Report on Form 10-Q are our property. This Quarterly Report on Form 10-Q contains trade names and trademarks of other companies, which are the property of their respective owners. We do not intend our use or display of other companies’ trade names or trademarks to imply an endorsement or sponsorship of us by such companies, or any relationship with any of these companies.
SPECIAL NOTE REGARDING CERTAIN TERMINOLOGY IN THIS QUARTERLY REPORT ON FORM 10-Q
Unless the context otherwise indicates, references in this Quarterly Report on Form 10-Q to the terms “Hydrofarm,” “the Company,” “we,” “our” and “us” refer to Hydrofarm Holdings Group, Inc. and its subsidiaries.
PART I - FINANCIAL INFORMATION
Hydrofarm Holdings Group, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands, except share and per share amounts)
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| 2026 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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Restricted cash |
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Accounts receivable, net |
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Inventories |
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Prepaid expenses and other current assets |
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Total current assets |
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Property, plant and equipment, net |
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Operating lease right-of-use assets |
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Intangible assets, net |
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Other assets |
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Total assets |
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Liabilities and stockholders’ deficit |
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Current liabilities: |
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Accounts payable |
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Accrued expenses and other current liabilities |
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Deferred revenue |
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Current portion of operating lease liabilities |
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Current portion of finance lease liabilities |
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Current portion of long-term debt |
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Total current liabilities |
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Long-term operating lease liabilities |
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Long-term finance lease liabilities |
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Long-term debt |
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Deferred tax liabilities |
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Other long-term liabilities |
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Total liabilities |
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Commitments and contingencies (Note 15) |
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Stockholders’ deficit |
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Common stock ($ par value; shares authorized; and shares issued and outstanding at June 30, 2026, and December 31, 2025, respectively) |
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Additional paid-in capital |
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Accumulated other comprehensive loss |
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Accumulated deficit |
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Total stockholders’ deficit |
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Total liabilities and stockholders’ deficit |
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The accompanying notes are an integral part of the condensed consolidated financial statements.
Hydrofarm Holdings Group, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands, except share and per share amounts)
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| Three months ended June 30, |
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| 2026 |
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Net sales |
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Cost of goods sold |
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Gross profit |
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Operating expenses: |
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Selling, general and administrative |
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Loss from operations |
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Interest expense |
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Other income (expense), net |
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Loss before tax |
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Income tax benefit |
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Net loss |
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Net loss per share: |
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Basic |
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Diluted |
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Weighted-average shares of common stock outstanding: |
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Basic |
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Diluted |
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The accompanying notes are an integral part of the condensed consolidated financial statements.
Hydrofarm Holdings Group, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (UNAUDITED)
(In thousands)
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| Three months ended June 30, |
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Net loss |
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Other comprehensive (loss) gain: |
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Foreign currency translation (loss) gain |
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Total comprehensive loss |
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The accompanying notes are an integral part of the condensed consolidated financial statements.
Hydrofarm Holdings Group, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT) (UNAUDITED)
(In thousands, except for share amounts)
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| Accumulated |
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| Comprehensive |
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Balance, March 31, 2025 |
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Issuance of common stock for vesting of stock awards |
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Shares repurchased for withholding tax on stock awards |
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Stock-based compensation expense |
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Net loss |
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Foreign currency translation gain |
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Balance, June 30, 2025 |
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Balance, March 31, 2026 |
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Issuance of common stock for vesting of stock awards |
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Stock-based compensation expense |
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Net loss |
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Foreign currency translation loss |
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Balance, June 30, 2026 |
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Balance, December 31, 2024 |
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Issuance of common stock for vesting of stock awards |
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Shares repurchased for withholding tax on stock awards |
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Stock-based compensation expense |
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Net loss |
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Foreign currency translation gain |
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Balance, June 30, 2025 |
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Balance, December 31, 2025 |
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Issuance of common stock for vesting of stock awards |
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Shares repurchased for withholding tax on stock awards |
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Stock-based compensation expense |
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Net loss |
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Foreign currency translation loss |
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Balance, June 30, 2026 |
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The accompanying notes are an integral part of the condensed consolidated financial statements.
Hydrofarm Holdings Group, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
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| Six months ended June 30, |
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| 2026 |
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| 2025 |
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Operating activities |
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Net loss |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation, depletion and amortization |
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Provision for credit losses |
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Provision for inventory obsolescence |
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Restructuring expenses |
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Stock-based compensation expense |
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Non-cash operating lease expense |
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Amortization of deferred financing costs |
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Other |
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Changes in assets and liabilities: |
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Accounts receivable |
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Inventories |
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Prepaid expenses and other current assets |
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Other assets |
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Accounts payable |
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Accrued expenses and other current liabilities |
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Deferred revenue |
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Lease liabilities |
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Other long-term liabilities |
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Net cash used in operating activities |
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Investing activities |
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Capital expenditures of property, plant and equipment |
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Proceeds from sale of property, plant and equipment |
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Net cash from (used in) investing activities |
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Financing activities |
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Borrowings under foreign revolving credit facilities |
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Repayments of foreign revolving credit facilities |
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Repayments of Term Loan |
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|
| ( | ) | |
Payment of withholding tax related to stock awards |
|
| ( | ) |
|
| ( | ) |
Finance lease principal payments |
|
| ( | ) |
|
| ( | ) |
Net cash used in financing activities |
|
| ( | ) |
|
| ( | ) |
Effect of exchange rate changes on cash, cash equivalents and restricted cash |
|
| ( | ) |
|
|
| |
Net increase (decrease) in cash, cash equivalents and restricted cash |
|
|
|
|
| ( | ) | |
Cash, cash equivalents and restricted cash at beginning of period |
|
|
|
|
|
| ||
Cash, cash equivalents and restricted cash at end of period |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activities |
|
|
|
|
|
|
|
|
Right-of-use assets acquired under operating lease obligations, net |
| $ |
|
| $ |
| ||
Capital expenditures included in accounts payable and accrued liabilities |
|
|
|
|
|
| ||
Supplemental information |
|
|
|
|
|
|
|
|
Cash paid for interest |
|
|
|
|
|
| ||
Cash paid for income taxes |
|
|
|
|
|
| ||
The accompanying notes are an integral part of the condensed consolidated financial statements.
5
Hydrofarm Holdings Group, Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(dollars in thousands, except share and per share amounts)
1. DESCRIPTION OF THE BUSINESS
Description of the business
Hydrofarm Holdings Group, Inc. (collectively with its subsidiaries, the "Company") was formed in May 2017 under the laws of the state of Delaware to acquire and continue the business originally founded in 1977. The Company is a leading independent manufacturer and distributor of branded hydroponics equipment and supplies for controlled environment agriculture ("CEA"), including grow lights, climate control solutions, grow media and nutrients, as well as a broad portfolio of innovative, proprietary branded products. Products offered include agricultural lighting devices, indoor climate control equipment, nutrients, and plant additives used to grow, farm and cultivate cannabis, flowers, fruits, plants, vegetables, grains and herbs in controlled environment settings that allow end users to control key farming variables including temperature, humidity, CO2, light intensity and color, nutrient concentration and pH.
2. LIQUIDITY AND GOING CONCERN
Going concern
The accompanying condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.
Management has evaluated whether conditions or events, considered in the aggregate, raise substantial doubt about the Company’s ability to continue as a going concern for a period of one year from the date that these financial statements are issued. As of June 30, 2026, the Company had $
Management’s plans to address these conditions include reducing costs through restructuring and other initiatives, including facility consolidations, headcount reductions, focusing on our proprietary brand offerings and expanding and optimizing our logistics business. To improve liquidity the Company is negotiating with lenders and key vendors, and is pursuing additional financing or strategic alternatives including through an offering of equity securities, the sale of assets or businesses, including the sale of Aurora Peat Products ULC ("APP"). Refer to Note 17 – Subsequent Events for further details. Excluding the sale of APP, these plans are not within the Company’s control, and therefore cannot be deemed probable. As a result, the Company has concluded that management’s plans do not alleviate substantial doubt about the Company’s ability to continue as a going concern.
These condensed consolidated financial statements do not include any adjustments to the specific amounts and classifications of assets and liabilities, which might be necessary should we be unable to continue as a going concern.
Nasdaq listing compliance
On April 1, 2026, the Listing Qualifications Department of The Nasdaq Stock Market LLC (“Nasdaq”) notified the Company that it was not in compliance with the $2.5 million minimum stockholders' equity requirement under Nasdaq Listing Rule 5550(b)(1). Although Nasdaq subsequently granted the Company an extension to regain compliance, on July 2, 2026 Nasdaq determined that the Company had not satisfied the terms of that extension. The Company timely requested a hearing before the Nasdaq Hearing Panel on July 9, 2026, which stayed any further action by Nasdaq pending completion of the hearing process. The Company is evaluating available options to regain compliance; however, there can be no assurance that it will do so or that any additional extension will be granted.
In addition, on July 6, 2026, Nasdaq notified the Company that it was not in compliance with the minimum bid price requirement under Nasdaq Listing Rule 5550(a)(2) because its common stock had not maintained a closing bid price of at least $1.00 per share for 30 consecutive business days. The Company has a 180-day compliance period to regain compliance and is evaluating available alternatives.
3. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the requirements of the SEC for interim financial reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by U.S. GAAP can be condensed or omitted. These condensed consolidated financial statements have been prepared on the same basis as the Company's annual consolidated financial statements and, in the opinion of management, reflect all normal and recurring adjustments which are necessary for the fair statement of the Company’s financial information. These interim results are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2026, or for any other interim period or for any other future year. All intercompany balances and transactions have been eliminated in consolidation.
6
Hydrofarm Holdings Group, Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(dollars in thousands, except share and per share amounts)
The condensed consolidated balance sheet as of December 31, 2025, has been derived from the audited consolidated financial statements of the Company, which is included in the 2025 Annual Report. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto included in the 2025 Annual Report.
Use of estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Significant estimates include provisions for sales returns, rebates and claims from customers, realization of accounts receivable and inventories, fair value of assets acquired and liabilities assumed for business combinations, valuation of intangible assets, estimated useful lives of long-lived assets, incremental borrowing rate applied in lease accounting, valuation of stock-based compensation, recognition of deferred income taxes, classification of debt pursuant to certain terms in the Company's credit agreements, recognition of liabilities related to commitments and contingencies, asset retirement obligations ("AROs"), and valuation allowances. Actual results may differ from these estimates. On an ongoing basis, the Company reviews its estimates to ensure that these estimates appropriately reflect changes in its business or new information available.
Segment and entity-wide information
Segment information
The Company's chief operating decision maker ("CODM") is the Chief Executive Officer (the "CEO") who reviews financial information for the purposes of making operating decisions, assessing financial performance and allocating resources. The business is organized as operating segment managed on a consolidated basis, and reportable segment, which is the distribution and manufacture of CEA equipment and supplies.
For the purposes of making operating decisions, assessing financial performance and allocating resources, the CODM reviews financial statement metrics on a consolidated basis, including net sales, gross profit, SG&A, and net loss as presented in the consolidated statements of operations. Net loss is the primary measure of profit or loss reviewed by the CODM. In addition, the CODM reviews consolidated total assets and significant components such as inventories, cash and other assets for the purpose of evaluating financial performance. Significant expense categories regularly reviewed by the CODM are comprised of cost of goods sold and SG&A. The other components of net loss as disclosed in the statements of operations that are not significant segment expenses are impairments, loss on asset disposition, interest expense, other income (expense), net, and income tax benefit. Since the Company operates as reportable segment, all required segment financial information is found in the condensed consolidated financial statements and notes, and within the entity-wide disclosures presented below.
Entity-wide information
Net sales and property, plant and equipment, net and operating lease right-of-use ("ROU") assets, in the United States and Canada, as determined by the location of the subsidiaries, are shown below. Other foreign locations, which are immaterial, individually and in the aggregate, are included in the United States below.
|
| Three months ended June 30, |
|
| Six months ended June 30, |
| ||||||||||
|
| 2026 |
|
| 2025 |
|
| 2026 |
|
| 2025 |
| ||||
United States |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Canada |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Eliminations |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Total consolidated net sales |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
7
Hydrofarm Holdings Group, Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(dollars in thousands, except share and per share amounts)
|
| June 30, |
|
| December 31, |
| ||
|
| 2026 |
|
| 2025 |
| ||
United States |
| $ |
|
| $ |
| ||
Canada |
|
|
|
|
|
| ||
Total property, plant and equipment, net and operating lease right-of-use assets |
| $ |
|
| $ |
| ||
All of the products sold by the Company are similar and classified as CEA equipment and supplies.
Fair value measurements
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company has applied the framework for measuring fair value which requires a fair value hierarchy to be applied to all fair value measurements. All financial instruments recognized at fair value are classified into one of three levels in the fair value hierarchy as follows:
Level 1 — Valuation based on quoted prices (unadjusted) observed in active markets for identical assets or liabilities.
Level 2 — Valuation techniques based on inputs that are quoted prices of similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not in active markets; inputs other than quoted prices used in a valuation model that are observable for that instrument; and inputs that are derived from or, corroborated by, observable market data by correlation or other means.
Level 3 — Valuation techniques with significant unobservable market inputs.
The Company measures certain non-financial assets and liabilities, including long-lived assets and intangible assets at fair value on a nonrecurring basis.
Inventories
Inventories consist of finished goods, work-in-process, and raw materials used in manufacturing products. Inventories are stated at the lower of cost or net realizable value, principally determined by the first in, first out method of accounting. The Company maintains an allowance for excess and obsolete inventory. The estimate for excess and obsolete inventory is based upon assumptions about current and anticipated demand, customer preferences, business strategies, and market conditions. Management reviews these assumptions periodically to determine if any adjustments are needed to the allowance for excess and obsolete inventory. The establishment of an allowance for excess and obsolete inventory establishes a new cost basis in the inventory. Such allowance is not reduced until the product is sold or otherwise disposed. If inventory is sold, any related reserves would be reversed in the period of sale. The Company estimates inventory markdowns relating to restructuring charges based upon business strategies, management's actions with respect to inventory of raw materials and products and brands being removed from the Company's portfolio, current and anticipated demand, customer preferences, and market conditions.
8
Hydrofarm Holdings Group, Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(dollars in thousands, except share and per share amounts)
Revenue recognition
The Company follows ASC 606 - Revenue from Contracts with Customers which requires that revenue recognized from contracts with customers be disaggregated into categories that depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. The Company has determined that revenue is generated from one category, which is the manufacture and distribution of CEA equipment and supplies.
Revenue is recognized as control of promised goods is transferred to customers, which generally occurs upon receipt at customers’ locations determined by the specific terms of the contract. Arrangements generally have a single performance obligation and revenue is reported net of variable consideration which includes applicable volume rebates, cash discounts and sales returns and allowances. Variable consideration is estimated and recorded at the time of sale.
The amount billed to customers for shipping and handling costs included in net sales was $
Income taxes
The income tax provision is calculated for an interim period by distinguishing between elements recognized in the income tax provision through applying an estimated annual effective tax rate (the “ETR”) to a measure of year-to-date operating results referred to as “ordinary income (or loss),” and discretely recognizing specific events referred to as “discrete items” as they occur. The income tax provision or benefit for each interim period is the difference between the year-to-date amount for the current period and the year-to-date amount for the prior period. Under Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 740-270-30-36, entities subject to income taxes in multiple jurisdictions should apply one overall ETR instead of separate ETRs for each jurisdiction when calculating the interim-period income tax or benefit related to consolidated ordinary income (or loss) for the year-to-date interim period, except in certain circumstances.
9
Hydrofarm Holdings Group, Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(dollars in thousands, except share and per share amounts)
Recent accounting pronouncements
In November 2024, the FASB issued Accounting Standards Update ("ASU") No. 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, which requires a public entity to disclose additional information about specific expense categories in the notes to financial statements on an annual and interim basis. The amendments are effective for annual periods beginning after December 15, 2026, and interim periods beginning after December 15, 2027, with early adoption permitted. A public entity should apply the amendments either prospectively to financial statements issued for reporting periods after the effective date of this ASU or retrospectively to any or all prior periods presented in the financial statements. The Company is currently evaluating the impact that adoption of this accounting standard will have on its financial disclosures.
In July 2025, the FASB issued ASU No. 2025-05, Financial Instruments - Credit Losses: Measurement of Credit Losses for Accounts Receivable and Contract Assets, which provides a practical expedient permitting companies to assume that conditions at the balance sheet date remain unchanged over the life of the asset when estimating expected credit losses for current accounts receivable and current contract assets. This guidance is effective for annual periods beginning after December 15, 2025, and interim reporting periods within those annual reporting periods. Early adoption is permitted and is effective on a prospective basis. The Company elected to apply this practical expedient upon adoption of ASU No. 2025-05, which had no impact on the condensed consolidated financial statements for the period ended June 30, 2026.
In September 2025, the FASB issued ASU No. 2025-06, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software, which makes targeted improvements to the accounting for internal-use software by removing references to “development stages”. The update also clarifies the criteria for capitalization, which begins when both of the following occur: (1) management has authorized and committed to funding the software project and (2) it is probable that the project will be completed and the software will be used to perform the function intended. The guidance is effective for annual reporting periods beginning after December 15, 2027, and for interim periods within those annual reporting periods, with early adoption permitted, and can be applied prospectively, retrospectively, or via a modified prospective transition method. The Company is currently evaluating the impact that adoption of this accounting standard will have on its financial disclosures.
10
Hydrofarm Holdings Group, Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(dollars in thousands, except share and per share amounts)
4. RESTRUCTURING AND ASSET SALES
Restructuring
2023 Restructuring Plan
In the first quarter of 2025, the Company completed the 2023 Restructuring Plan and incurred approximately $
2025 Restructuring Plan
In the second quarter of 2025, the Company initiated a restructuring plan (the "2025 Restructuring Plan") to reduce its product portfolio and operational footprint to decrease costs and improve efficiency. The 2025 Restructuring Plan actions entail (i) eliminating a significant portion of the Company's product portfolio, primarily underperforming distributed brands, to improve supply chain and operational focus, (ii) further reductions in the distribution center network and manufacturing footprint including inventory reductions, and (iii) corresponding headcount reductions.
11
Hydrofarm Holdings Group, Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(dollars in thousands, except share and per share amounts)
The Company incurred the following estimated restructuring costs for the 2025 Restructuring Plan during the three and six months ended June 30, 2026:
|
| Three months ended |
|
| Six months ended |
| ||
|
| June 30, 2026 |
|
| June 30, 2026 |
| ||
Cost of goods sold |
| $ |
|
| $ |
| ||
Selling, general and administrative |
|
|
|
|
|
| ||
Total 2025 Restructuring Plan charges |
| $ |
|
| $ |
| ||
|
|
|
| |
|
|
| |
Cash |
| $ |
|
| $ |
| ||
Non-cash |
|
|
|
|
|
| ||
Total 2025 Restructuring Plan charges |
| $ |
|
| $ |
| ||
Non-cash charges for the three and six months ended June 30, 2026 were primarily associated with the write-down of certain ROU assets which were primarily recorded in SG&A and inventory write-downs which were primarily recorded in cost of goods sold on the condensed consolidated statements of operations. Cash charges were primarily comprised of costs incurred to relocate and terminate certain facilities.
Total costs relating to the 2025 Restructuring Plan incurred since its inception through June 30, 2026 were (i) $
The following tables present the activity in accrued expenses and other current liabilities for restructuring costs related to the 2025 Restructuring Plan for the three and six months ended June 30, 2026:
|
| Three months ended |
| |
|
| June 30, 2026 |
| |
Restructuring Accruals as of March 31, 2026 |
| $ |
| |
Expense |
|
|
| |
Cash Payments |
|
| ( | ) |
Restructuring Accruals as of June 30, 2026 |
| $ |
| |
|
|
|
| |
|
|
|
| |
|
| Six months ended |
| |
|
| June 30, 2026 |
| |
Restructuring Accruals as of December 31, 2025 |
| $ |
| |
Expense |
|
|
| |
Cash Payments |
|
| ( | ) |
Restructuring Accruals as of June 30, 2026 |
| $ |
| |
The Company does anticipate the 2025 Restructuring Plan and related actions will result in material additional restructuring charges. The amounts the Company will ultimately expend could differ from these estimates.
Asset Sales
Goshen:
During the three months ended June 30, 2026, the Company sold approximately
12
Hydrofarm Holdings Group, Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(dollars in thousands, except share and per share amounts)
5. INTANGIBLE ASSETS, NET
Finite lived intangible assets are tested for impairment at least annually, while all intangibles are tested for impairment when events or changes in circumstances indicate that, more-likely-than-not, the carrying amount may not be recoverable. During the fourth quarter of fiscal 2025, as a result of industry conditions, primarily attributable to an agricultural oversupply impacting our market and resulting in a decrease in indoor and outdoor cultivation, as well as continued declines in operating cash flows and profitability, the Company assessed long-lived assets for impairment and recorded an impairment charge of $
The carrying value of intangible assets, net, consisting of an indefinite-lived tradename was $
6. LOSS PER COMMON SHARE
Basic loss per common share is computed using net loss divided by the weighted-average number of common shares outstanding during each period, excluding unvested restricted stock units (“RSUs”) and performance stock units ("PSUs").
Diluted loss per common share represents net loss divided by the weighted-average number of common shares outstanding during the period, including common stock equivalents. Common stock equivalents consist of shares subject to share-based awards with exercise prices less than the average market price of the Company’s common stock for the period, to the extent their inclusion would be dilutive.
The following table presents basic and diluted loss per common share for the three and six months ended June 30, 2026 and 2025:
|
| Three months ended June 30, |
|
| Six months ended June 30, |
| ||||||||||
|
| 2026 |
|
| 2025 |
|
| 2026 |
|
| 2025 |
| ||||
Net loss |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
Weighted-average shares of common stock outstanding |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Dilutive effect of share based compensation awards using the treasury stock method |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Diluted weighted-average shares of common stock outstanding |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic loss per common share |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
Diluted loss per common share |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
13
Hydrofarm Holdings Group, Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(dollars in thousands, except share and per share amounts)
The computation of the weighted-average shares of common stock outstanding for diluted loss per common share excludes the following potential shares of common stock as their inclusion would have an anti-dilutive effect on diluted loss per common share:
|
| Three months ended June 30, |
|
| Six months ended June 30, |
| ||||||||||
|
| 2026 |
|
| 2025 |
|
| 2026 |
|
| 2025 |
| ||||
Shares subject to unvested or deferred performance and restricted stock units |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Shares subject to stock options outstanding |
|
|
|
|
|
|
|
|
|
|
|
| ||||
7. ACCOUNTS RECEIVABLE, NET, AND INVENTORIES
Accounts receivable, net comprised the following:
|
| June 30, |
|
| December 31, |
| ||
|
| 2026 |
|
| 2025 |
| ||
Trade accounts receivable |
| $ |
|
| $ |
| ||
Allowance for credit losses |
|
| ( | ) |
|
| ( | ) |
Other receivables |
|
|
|
|
|
| ||
Total accounts receivable, net |
| $ |
|
| $ |
| ||
The Company maintains an allowance for credit losses to provide for the estimated amount of receivables that will not be collected. To estimate the allowance for credit losses the Company applied the loss-rate method using relevant available information including historical write-off activity and current conditions. The allowance for credit losses is measured on a pooled basis when similar risk characteristics exist. When assessing whether to measure certain financial assets on a pooled basis, the Company considered various risk characteristics, including industry and risk characteristics of the customer. When a specific customer exhibits unique risk characteristics, such as significant deterioration in financial condition or other indicators that it no longer shares similar risk characteristics with the collective pool, that receivable is evaluated individually. Expected credit losses for individually evaluated receivables are measured based on expected cash recoveries, and any resulting specific reserves are included in the allowance for credit losses. Write-offs of accounts receivable are recorded to the allowance for credit losses. Any subsequent recoveries of previously written off balances are recorded as a reduction to credit loss expense.
The change in the allowance for credit losses consisted of the following:
|
| Three months ended June 30, |
|
| Six months ended June 30, |
| ||||||||||
|
| 2026 |
|
| 2025 |
|
| 2026 |
|
| 2025 |
| ||||
Beginning balance |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
Changes in estimates |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
| ( | ) | |
Write-offs |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Collections/Other |
|
| ) |
|
|
|
|
| ) |
|
|
| ||||
Ending balance |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
Inventories comprised the following:
|
| June 30, |
|
| December 31, |
| ||
|
| 2026 |
|
| 2025 |
| ||
Finished goods |
| $ |
|
| $ |
| ||
Work-in-process |
|
|
|
|
|
| ||
Raw materials |
|
|
|
|
|
| ||
Allowance for inventory obsolescence |
|
| ( | ) |
|
| ( | ) |
Total inventories |
| $ |
|
| $ |
| ||
14
Hydrofarm Holdings Group, Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(dollars in thousands, except share and per share amounts)
Inventories are stated at the lower of cost or net realizable value, and the Company maintains an allowance for excess and obsolete inventory that is based upon assumptions about future demand and market conditions. The allowance for excess and obsolete inventory is subject to increase based on changes in estimates and other factors and decrease based on sales of products and disposals.
8. LEASES
The Company leases its distribution centers and manufacturing facilities from third parties under various non-cancelable lease agreements expiring at various dates through 2038. Also, the Company leases some property, plant and equipment under finance leases. Certain leases contain escalation provisions and/or renewal options, giving the Company the right to extend the leases by up to 20 years. However, these options are generally not reflected in the calculation of the ROU assets and lease liabilities due to uncertainty surrounding the likelihood of renewal. The Company recognizes operating lease costs over the respective lease periods, including short-term and month-to-month leases. The Company incurred operating lease costs of $
The Company has operating subleases and logistics agreements which have been accounted for by reference to the underlying asset subject to the lease, primarily as an offset to rent expense, primarily within SG&A. For the three and six months ended June 30, 2026, the Company recorded sublease and logistics income of $
Total ROU assets, finance lease assets, and lease liabilities were as follows:
|
|
|
| June 30, |
|
| December 31, |
| ||
|
| Balance Sheet Classification |
| 2026 |
|
| 2025 |
| ||
Lease assets |
|
|
|
|
|
|
|
|
|
|
Operating lease assets |
| Operating lease right-of-use assets |
| $ |
|
| $ |
| ||
Finance lease assets |
| Property, plant and equipment, net |
|
|
|
|
|
| ||
Total lease assets |
|
|
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
|
|
Lease liabilities |
|
|
|
|
|
|
|
|
|
|
Current: |
|
|
|
|
|
|
|
|
|
|
Operating leases |
| Current portion of operating lease liabilities |
| $ |
|
| $ |
| ||
Finance leases |
| Current portion of finance lease liabilities |
|
|
|
|
|
| ||
Noncurrent: |
|
|
|
|
|
|
|
|
|
|
Operating leases |
| Long-term operating lease liabilities |
|
|
|
|
|
| ||
Finance leases |
| Long-term finance lease liabilities |
|
|
|
|
|
| ||
Total lease liabilities |
|
|
| $ |
|
| $ |
| ||
15
Hydrofarm Holdings Group, Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(dollars in thousands, except share and per share amounts)
The aggregate future minimum lease payments under long-term non-cancelable operating and finance leases with remaining terms greater than one year as of June 30, 2026 are as follows:
|
| Operating |
|
| Finance |
| ||
For the period of July 1, 2026 to December 31, 2026 |
| $ |
|
| $ |
| ||
Year ending December 31, |
|
|
|
|
|
|
|
|
2027 |
|
|
|
|
|
| ||
2028 |
|
|
|
|
|
| ||
2029 |
|
|
|
|
|
| ||
2030 |
|
|
|
|
|
| ||
2031 |
|
|
|
|
|
| ||
Thereafter |
|
|
|
|
|
| ||
Total lease payments |
|
|
|
|
|
| ||
Less portion representing interest |
|
| ( | ) |
|
| ( | ) |
Total principal |
|
|
|
|
|
| ||
Less current portion |
|
| ( | ) |
|
| ( | ) |
Long-term portion |
| $ |
|
| $ |
| ||
9. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net comprised the following:
|
| June 30, |
|
| December 31, |
| ||
|
| 2026 |
|
| 2025 |
| ||
Machinery and equipment |
| $ |
|
| $ |
| ||
Peat bogs and related development |
|
|
|
|
|
| ||
Building and improvements |
|
|
|
|
|
| ||
Land |
|
|
|
|
|
| ||
Furniture and fixtures |
|
|
|
|
|
| ||
Computer equipment |
|
|
|
|
|
| ||
Leasehold improvements |
|
|
|
|
|
| ||
Gross property, plant and equipment |
|
|
|
|
|
| ||
Less: accumulated depreciation |
|
| ( | ) |
|
| ( | ) |
Total property, plant and equipment, net |
| $ |
|
| $ |
| ||
Depreciation, depletion and amortization expense related to property, plant and equipment, net was $
As of June 30, 2026, Land, Building and improvements and Computer equipment, contain finance leases assets, recorded at cost of $
16
Hydrofarm Holdings Group, Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(dollars in thousands, except share and per share amounts)
The Company operates peat bogs in Alberta, Canada. Under current provincial laws the Company is subject to certain AROs and the remediation of the peat bog sites are under provincial oversight. The Company periodically evaluates expected remediation costs associated with the peat bog sites that it operates. When the Company concludes that it is probable that a liability has been incurred, a provision is made for management's estimate of the liability. As of June 30, 2026, and December 31, 2025, the Company had AROs of $
The following table presents changes in AROs for the following periods:
|
| Three months ended June 30, |
|
| Six months ended June 30, |
| ||||||||||
|
| 2026 |
|
| 2025 |
|
| 2026 |
|
| 2025 |
| ||||
Balance, beginning of the period |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Liabilities incurred in the period |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Liabilities settled in the period |
|
|
|
|
| ( | ) |
|
| ( | ) |
|
| ( | ) | |
Accretion expense |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Other |
|
| ( | ) |
|
|
|
|
| ( | ) |
|
|
| ||
Balance, end of the period |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
The Company notes that peat bogs and corresponding AROs were sold in conjunction with the Aurora Peat Products business. Refer to Note 17 – Subsequent Events for further details.
10. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities comprised the following:
|
| June 30, |
|
| December 31, |
| ||
|
| 2026 |
|
| 2025 |
| ||
Accrued compensation and benefits |
| $ |
|
| $ |
| ||
Interest accrual |
|
|
|
|
|
| ||
Freight, custom and duty accrual |
|
|
|
|
|
| ||
Goods in transit accrual |
|
|
|
|
|
| ||
Income tax accrual |
|
|
|
|
|
| ||
Asset retirement obligations |
|
|
|
|
|
| ||
Other accrued liabilities |
|
|
|
|
|
| ||
Total accrued expenses and other current liabilities |
| $ |
|
| $ |
| ||
17
Hydrofarm Holdings Group, Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(dollars in thousands, except share and per share amounts)
11. DEBT
Debt is comprised of the following:
|
| June 30, |
|
| December 31, |
| ||
|
| 2026 |
|
| 2025 |
| ||
Term Loan - principal |
| $ |
|
| $ |
| ||
Term Loan - unamortized discount and deferred financing costs |
|
|
|
|
| ( | ) | |
Term Loan - net of unamortized discount and deferred financing costs |
|
|
|
|
|
| ||
Other |
|
|
|
|
|
| ||
Total debt |
| $ |
|
| $ |
| ||
|
|
|
| |
|
|
| |
Current portion of long-term debt - net of unamortized discount and deferred financing costs of and $ as of June 30, 2026, and December 31, 2025, respectively |
| $ |
|
| $ |
| ||
Long-term debt |
|
|
|
|
|
| ||
Total debt |
| $ |
|
| $ |
| ||
Term Loan
On October 25, 2021, the Company and certain of its direct and indirect subsidiaries (the “Obligors”) entered into a Credit and Guaranty Agreement with JPMorgan Chase Bank, N.A., as administrative agent for the lenders (the “Lenders”), pursuant to which the Company borrowed a $
The Term Loan matures on October 25, 2028 ("Maturity Date") and is not subject to a call premium. Deferred financing costs are being amortized to interest expense over the term of the loan. For the three months ended June 30, 2026, the effective interest rate was
18
Hydrofarm Holdings Group, Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(dollars in thousands, except share and per share amounts)
The principal amount of the Term Loan is required to be repaid in consecutive quarterly installments in amounts equal to
The Term Loan is secured by a first lien on the non-working capital assets of the Company and a second lien on the working capital assets of the Company.
On February 4, 2026, the Company elected to defer making the interest payment of approximately $
On April 8, 2026 (the “Forbearance Effective Date”), the Company entered into that certain Forbearance Agreement (the “Forbearance Agreement”) with the other Obligors, the Lenders, and FEAC, in connection with the Term Loan. Pursuant to the Forbearance Agreement, from the Forbearance Effective Date to the earliest to occur of (the occurrence of clause (i) or (ii), a “Forbearance Termination Event”): (i) April 30, 2026 (the “Forbearance Outside Date”) provided that the Forbearance Outside Date may be extended from time to time in fifteen (15) day increments (or longer) upon written confirmation by the Administrative Agent (including by email); and (ii) the delivery of notice from the Administrative Agent to the Company terminating the Forbearance Period (as defined below), which notice may be delivered at any time upon or after (A) the occurrence of any Event of Default (as defined in the Credit Agreement) (other than the Specified Event of Default, under the Credit Agreement or any other Credit Document (as defined in the Credit Agreement)) and (B) the failure of (x) the Company or any other Obligor to comply with any of the Forbearance Period Requirements set forth in Section 7 of the Forbearance Agreement; (y) any representation or warranty made by the Company or any other Obligor under or in connection with the forbearance to be true and complete as of the date when made or any other breach of any of such representation or warranty; or (z) the repudiation and/or assertion of any defense by any Obligor with respect to the forbearance or any other Credit Document or the pursuit of any claim by any Obligor against the Agents or any Lender (collectively, the “Forbearance Period”), solely with respect to the Specified Event of Default, neither the Administrative Agent nor any Lender shall, upon the terms and conditions expressly specified therein, take any action, commence any proceedings against any Obligor or any other person with respect to the enforcement of any of its or their rights or remedies under the Credit Documents or applicable law, other than as expressly described in the Forbearance Agreement. The Company, the Lenders, and FEAC agreed to extend the Forbearance Period under the Forbearance Agreement through and including August 31, 2026.
19
Hydrofarm Holdings Group, Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(dollars in thousands, except share and per share amounts)
Revolving Credit Facility
On March 29, 2021, the Obligors entered into a Senior Secured Revolving Credit Facility (the "Revolving Credit Facility") with JPMorgan Chase Bank, N.A., as administrative agent, issuing bank and swingline lender, the other loan parties from time to time party thereto and the lenders from time to time party thereto for a revolving line of credit up to $
The Revolving Credit Facility originally had a borrowing limit of $
20
Hydrofarm Holdings Group, Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(dollars in thousands, except share and per share amounts)
The unamortized debt discount and deferred financing costs were $
The Revolving Credit Facility was an asset-based facility that was secured by a first priority lien on the working capital assets of the Company and a second priority lien on the non-working capital assets of the Company (including most of the Company’s subsidiaries). The borrowing base was based on a detailed monthly calculation of the sum of (a) a percentage of the Eligible Accounts at such time, plus (b) the lesser of (i) a percentage of the Eligible Inventory, at such time, valued at the lower of cost or market value, determined on a first-in-first-out basis, and (ii) the product of a percentage multiplied by the Net Orderly Liquidation Value percentage identified in the most recent inventory appraisal ordered by the Administrative Agent multiplied by the Eligible Inventory, valued at the lower of cost or market value, determined on a first-in-first-out basis, minus (c) Reserves (each of the defined terms above, as defined in the Revolving Credit Facility documents).
The Company was required to maintain certain reporting requirements, affirmative covenants and negative covenants, pursuant to terms outlined in the agreement. Additionally, if the Company’s Excess Availability was less than an amount equal to
The Revolving Credit Facility provided for various interest rate options including the Adjusted Term SOFR Rate, the Adjusted REVSOFR30 Rate, the CB Floating Rate, the Adjusted Daily Simple SOFR, or the CBFR. The rates that use SOFR as the reference rate (Adjusted Term SOFR Rate, the Adjusted REVSOFR30 Rate, the Adjusted Daily Simple SOFR and the CBFR rate) use the Term SOFR Rate plus
As of December 31, 2025, the Company had borrowed under the facility.
On February 17, 2026, the Company entered into the Termination Agreement to terminate the Revolving Credit Agreement. Pursuant to the terms of the Termination Agreement, the parties agreed to terminate the Revolving Credit Agreement subject to the survival of each of the provisions of the Revolving Credit Agreement and Loan Documents (as defined in the Revolving Credit Agreement) and in the certificates delivered in connection with or pursuant to the Revolving Credit Agreement that survive termination of the Revolving Credit Agreement.
Other Debt
Other debt of $
Loss on debt extinguishment
The loss on debt extinguishment of $
21
Hydrofarm Holdings Group, Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(dollars in thousands, except share and per share amounts)
Aggregate future principal payments
As of June 30, 2026, the aggregate future principal payments under long-term debt are as follows:
|
| Debt |
| |
For the period of July 1, 2026 to December 31, 2026 |
| $ |
| |
Year ending December 31, |
|
|
|
|
2027 |
|
|
| |
2028 |
|
|
| |
2029 |
|
|
| |
Total |
| $ |
| |
12. STOCKHOLDERS’ EQUITY
Common stock
Each holder of common stock is entitled to one vote for each share of common stock. Common stockholders have no pre-emptive rights to acquire additional shares of common stock or other securities. The common stock is not subject to redemption rights and carries no subscription or conversion rights. In the event of liquidation, the stockholders are entitled to share in corporate assets on a pro rata basis after the Company satisfies all liabilities and after provision is made for any class of capital stock having preference over the common stock. Subject to corporate regulations and preferences to preferred stock, if any, dividends are at the discretion of the board of directors. As of June 30, 2026, there were
13. STOCK-BASED COMPENSATION
Stock-based compensation plan overview
The Company maintains three equity incentive plans: the 2018 Equity Incentive Plan (“2018 Plan”), the 2019 Employee, Director and Consultant Equity Incentive Plan (“2019 Plan”) and the 2020 Employee, Director, and Consultant Equity Incentive Plan (“2020 Plan” and collectively, “Incentive Plans”). The 2020 Plan serves as the successor to the 2019 Plan and 2018 Plan and provides for the issuance of incentive stock options ("ISOs"), nonqualified stock options, stock grants and stock-based awards to employees, directors, and consultants of the Company. No further awards will be issued under the 2018 Plan and 2019 Plan. As of June 30, 2026, a total of
The Incentive Plans are administered by the Company's board of directors. Notwithstanding the foregoing, the board of directors may delegate concurrent responsibility for administering each plan, including with respect to designated classes of persons eligible to receive an award under each plan, to a committee or committees (which term shall include subcommittees) consisting of one or more members of the board of directors (collectively, the “Plan Administrator”), subject to such limitations as the board of directors deem appropriate.
In November 2020, the board of directors and stockholders approved the 2020 Plan and reserved an aggregate of
22
Hydrofarm Holdings Group, Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(dollars in thousands, except share and per share amounts)
The 2020 Plan provides for the grant of ISOs, nonqualified stock options, stock grants, and stock-based awards that are based in whole or in part by reference to the Company’s common stock.
| • | The Plan Administrator may grant options designated as ISOs or nonqualified stock options. Options shall be granted with an exercise price per share not less than |
| • | The Plan Administrator may grant stock grants and stock-based awards, including securities convertible into shares, stock appreciation rights, phantom stock awards or stock units on such terms and conditions which may be based on continuous service with the Company or a related company or the achievement of any performance goals, as the Plan Administrator shall determine in its sole discretion, which terms, conditions and restrictions shall be set forth in the instrument evidencing the award. |
The tax benefits recognized in the condensed consolidated statements of operations for stock-based compensation arrangements for the three and six months ended June 30, 2026 and 2025, were not material to the financial statements.
Restricted Stock Unit Activity
RSUs granted to certain executives, employees and members of the board of directors expire
The following table summarizes the activity related to the Company's RSUs for the six months ended June 30, 2026. For purposes of this table, vested RSUs represent the shares for which the service condition had been fulfilled during the six months ended June 30, 2026:
|
|
|
|
|
| Weighted |
| |
|
|
|
|
|
| average |
| |
|
| Number of |
|
| grant date |
| ||
|
| RSUs |
|
| fair value |
| ||
Balance, December 31, 2025 |
|
|
|
| $ |
| ||
Granted |
|
|
|
| $ |
| ||
Vested |
|
| ( | ) |
| $ |
| |
Forfeited |
|
|
|
| $ |
| ||
Balance, June 30, 2026 |
|
|
|
| $ |
| ||
As of June 30, 2026, total unamortized stock-based compensation cost related to unvested RSUs was $
23
Hydrofarm Holdings Group, Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(dollars in thousands, except share and per share amounts)
Performance Stock Unit Activity
During the six months ended June 30, 2026, the Company did grant, vest, or transact in any PSUs. PSUs were granted in 2024, which vested in the second quarter of 2025, less forfeitures due to employee terminations and performance conditions that were not satisfied. There were
Stock Options
There were
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted |
| |
|
|
|
|
|
| Weighted |
|
| Weighted |
|
| average |
| |||
|
|
|
|
|
| average |
|
| average |
|
| remaining |
| |||
|
|
|
|
|
| exercise |
|
| grant date |
|
| contractual |
| |||
|
| Number |
|
| price |
|
| fair value |
|
| term (years) |
| ||||
Outstanding and exercisable as of December 31, 2025 |
|
|
|
| $ |
|
| $ |
|
|
|
| ||||
Cancelled |
|
| ( | ) |
| $ |
|
| $ |
|
|
|
|
| ||
Outstanding and exercisable as of June 30, 2026 |
|
|
|
| $ |
|
| $ |
|
|
|
| ||||
As of each of June 30, 2026 and December 31, 2025, there were
24
Hydrofarm Holdings Group, Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(dollars in thousands, except share and per share amounts)
14. INCOME TAXES
The Company recorded income tax benefits of $
The Company recorded income tax benefits of $
15. COMMITMENTS AND CONTINGENCIES
Purchase commitments
From time to time in the normal course of business, the Company will enter into agreements with suppliers which provide favorable pricing in return for a commitment to purchase minimum amounts of inventory over a defined time period.
Contingencies
In the normal course of business, certain claims have been brought against the Company and, where applicable, its suppliers. While there is inherent difficulty in predicting the outcome of such matters, management has vigorously contested the validity of these claims. Based on available information, management does not expect that the outcome of any matters, individually or in the aggregate, would have a material adverse effect on the condensed consolidated financial position, results of operations, cash flows or future earnings of the Company.
In April 2020, Aurora Innovations LLC (“Aurora Innovations”), obtained a loan in the principal aggregate amount of approximately $
25
Hydrofarm Holdings Group, Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(dollars in thousands, except share and per share amounts)
16. FAIR VALUE MEASUREMENTS
Recurring and Nonrecurring
As described in Note 4 – Restructuring and Asset Sales, during May 2026, subsequent to the end of the fiscal quarter ended March 31, 2026, the Company sold approximately
As described in Note 5 – Intangible Assets, Net, during the fourth quarter of fiscal 2025, as a result of industry conditions, primarily attributable to an agricultural oversupply impacting our market and resulting in a decrease in indoor and outdoor cultivation, as well as continued declines in operating cash flows and profitability, the Company assessed long-lived assets for impairment and recorded an impairment charge of $
The Company did not have any other assets or liabilities that were remeasured to fair value on a recurring or nonrecurring basis during the periods presented.
Other Fair Value Measurements
The following table summarizes the fair value of the Company’s assets and liabilities as of June 30, 2026 and December 31, 2025, which are provided for disclosure purposes:
| | | June 30, 2026 | | | December 31, 2025 | | ||||||||||
| Fair Value | | Carrying | | | Estimated | | | Carrying | | | Estimated | | ||||
| Hierarchy Level | | Amount | | | Fair Value | | | Amount | | | Fair Value | | ||||
Assets | | | | | | | | | | | | | | | | | |
Cash, cash equivalents and restricted cash | Level 1 | | $ | | | $ | | | $ | | | $ | | ||||
| | | | | | | | | | | | | | | | | |
Liabilities | | | | | | | | | | | | | | | | | |
Finance leases | Level 3 | | $ | | | $ | | | $ | | | $ | | ||||
Term Loan | Level 2 | | $ | | | | nm | | | $ | | | $ | | |||
Cash and cash equivalents included funds deposited in banks, and the fair values approximated carrying values due to their short-term maturities. The fair values of other current assets and liabilities including accounts receivable, accounts payable, accrued expenses and other current liabilities approximated their carrying value due to their short-term maturities.
The estimated fair value of finance leases, which were considered Level 3 fair value measurements, were calculated as the present value of the required future cash outflows discounted at an estimated borrowing rate.
The carrying amount of the Term Loan reported above excludes unamortized debt discount and deferred financing costs of and $
Refer to Note 8 – Leases and Note 11 – Debt, for further details of the Company's finance leases and Term Loan, respectively.
26
Hydrofarm Holdings Group, Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(dollars in thousands, except share and per share amounts)
The Company did not have any transfers between Levels within the fair value hierarchy during the periods presented.
17. SUBSEQUENT EVENTS
On July 31, 2026 (the “Closing Date”), the Company, through its wholly owned subsidiaries Aurora International, LLC, an Oregon limited liability company (the “Seller”) and Aurora Peat Products ULC, an Alberta unlimited liability corporation, entered into a Share Purchase Agreement (the “Share Purchase Agreement”) with 2817049 Alberta Ltd., an Alberta corporation (the “Buyer”). Pursuant to the terms of the Share Purchase Agreement, Seller sold to Buyer and Buyer purchased from Seller all the issued and outstanding shares of APP for $16 million, subject to adjustments set forth in the Share Purchase Agreement (the “Transaction”). The net proceeds from the Transaction will be applied to reduce outstanding debt, including outstanding interest, under the Term Loan. The Share Purchase Agreement contains customary representations and warranties of the parties, covenants and indemnification provisions. The representations, warranties and covenants contained in the Share Purchase Agreement were made solely for the benefit of the parties to the Share Purchase Agreement and may be subject to limitations agreed upon by the contracting parties. Cash obligations in connection with the close of the Transaction are estimated to be up to $3.1 million.
In connection with the Share Purchase Agreement, the Seller and Buyer entered into a secured promissory note on the Closing Date, pursuant to which the Buyer issued, in favor of the Seller, a promissory note in the principal amount of $5 million (the “Principal Amount”), representing a deferred portion of the purchase price payable to the Seller under the Share Purchase Agreement. The secured promissory note was assigned to the lenders of the Company's Term Loan.
In connection with the Share Purchase Agreement, Hydrofarm, LLC and APP entered into a supply agreement on the Closing Date, pursuant to which each of Hydrofarm, LLC and APP will produce and supply certain goods for the other party, subject to the terms and conditions therein.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis provides information that we believe is relevant to an assessment and understanding of our results of operations and financial condition. You should read this analysis in conjunction with our audited and unaudited condensed consolidated financial statements and the notes contained elsewhere in this Quarterly Report on Form 10-Q and our 2025 Annual Report. This discussion and analysis contains statements of a forward-looking nature relating to future events or our future financial performance. Actual events or results may differ materially from forward-looking statements. In evaluating such statements, you should carefully consider the various factors identified in this Quarterly Report on Form 10-Q, which could cause actual results to differ materially from those expressed in, or implied by, any forward-looking statements, including those set forth in Item 1A. “Risk Factors” in our 2025 Annual Report. See “Special Note Regarding Forward-Looking Statements.”
Company Overview
We are a leading independent manufacturer and distributor of branded hydroponics equipment and supplies for controlled environment agriculture, including grow lights, climate control solutions, grow media and nutrients, as well as a broad portfolio of innovative, proprietary branded products. We primarily serve the U.S. and Canadian markets, and believe we are one of the leading companies in these markets in an otherwise fragmented industry. For over 40 years, we have helped growers make growing easier and more productive. Our mission is to empower growers, farmers and cultivators with products that enable greater quality, efficiency, consistency, and speed in their grow projects.
Hydroponics is the farming of plants using soilless grow media and often artificial lighting in a controlled indoor or greenhouse environment. Hydroponics is the primary category of CEA and we use the terms CEA and hydroponics interchangeably. Our products are used to grow, farm, and cultivate cannabis, flowers, fruits, plants, vegetables, grains, and herbs in controlled environment settings that allow end users to control key farming variables including temperature, humidity, CO2, light intensity spectrum, nutrient concentration and pH. Through CEA, growers are able to be more efficient with physical space, water and resources, while enjoying year-round and more rapid grow cycles as well as more predictable and abundant grow yields, when compared to other traditional growing methods.
We reach commercial farmers and consumers through a broad and diversified network, who we connect with primarily through our proprietary online ordering platform. Our products are distributed across the United States and Canada through a diversified range of retailers of commercial and home gardening equipment and supplies. Our customers include specialty hydroponic retailers, commercial resellers and greenhouse builders, garden centers, hardware stores, and e-commerce retailers. Specialty hydroponic retailers can provide growers with specialized merchandise assortments and knowledgeable staff. Our logistics services business manages the receipt, warehousing, and distribution of multiple customer accounts, leveraging our warehouse space in multiple distribution centers in the U.S. and Canada. These logistics agreements and operating subleases are accounted for as an offset and reduction to facility expense within SG&A.
We have incurred recurring operating losses, negative cash flows from operations, have significant debt obligations due within the next twelve months due to an event of default on the Company's outstanding Term Loan and are not currently in compliance with certain Nasdaq listing requirements. These conditions and events, considered in the aggregate, raise substantial doubt about our ability to continue as a going concern.
The Company and its Board of Directors are exploring strategic alternatives to strengthen the Company’s liquidity and capital structure. In connection with such process, the Company and its financial advisors have engaged in ongoing discussions with lenders (the “Lenders”) under the Company’s Credit and Guaranty Agreement (as amended, the “Credit and Guaranty Agreement”) with FEAC Agent, LLC (as successor to JPMorgan Chase Bank, N.A.), as administrative agent for the Lenders (“FEAC”), and certain of the Company’s direct and indirect subsidiaries (the “Obligors”), pursuant to which the Company borrowed a $125.0 million senior secured term loan (the “Term Loan”). While these discussions have continued, on February 4, 2026, the Company elected to defer making the interest payment of approximately $2.8 million on the Term Loan. As a result of the Company’s failure to pay the interest within the grace period, an event of default occurred with respect to the Term Loan. On February 11, 2026, the Lenders, through the administrative agent, notified the Company of such event of the Specified Event of Default and informed the Company that the Administrative Agent or the Collateral Agent may exercise any rights and remedies provided under the Credit and Guaranty Agreement and related financing documents, but it did not seek to enforce such remedies as of such time. As a result of the Specified Event of Default, the Term Loan was reclassified to current portion of long-term debt from long-term debt and interest began accruing at a rate that is 2% per annum in excess of the interest rate otherwise payable.
On April 8, 2026, the Company entered into the Forbearance Agreement with the other Obligors, the Lenders, and FEAC, in connection with the Term Loan. Pursuant to the Forbearance Agreement, during the Forbearance Period (as defined in Note 11 – Debt to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q), solely with respect to the Specified Event of Default, neither the Administrative Agent nor any Lender shall, upon the terms and conditions expressly specified therein, take any action, commence any proceedings against any Obligor or any other person with respect to the enforcement of any of its or their rights or remedies under the Credit Documents or applicable law, other than as expressly described in the Forbearance Agreement. The Company, the Lenders, and FEAC agreed to extend the Forbearance Period under the Forbearance Agreement through and including August 31, 2026.
For additional information, see Note 2 – Liquidity and Going Concern to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q and “ - Liquidity and Capital Resources - Availability and Use of Cash.”
Market Conditions and Restructuring Plans
We have experienced adverse financial results which we believe are primarily a result of an agricultural oversupply impacting our market and resulting in a decrease in indoor and outdoor cultivation. The extent to which these market conditions will continue to negatively impact our business and results of operations is uncertain and difficult to predict at this time. We believe COVID-19 may have provided a positive demand impact for the Company in 2020 and 2021 from shelter-in-place orders in the United States, a possible negative supply chain impact from workforce disruption at international and domestic suppliers, and a possible negative growth rate impact in the periods since, due to agricultural oversupply initiated during the height of COVID-related shelter-in-place orders in 2020 and 2021. In addition, we believe demand for our products has been negatively impacted by the extended period to enact reform of U.S. federal regulations, including cannabis rescheduling, which have been slow to develop and possibly leading cannabis operators to reduce investments in our products, particularly durable goods. In addition, we believe our financial results have been negatively impacted by hydroponic retail store closings and, in some cases, associated accounts receivable allowances.
During the fourth quarter of fiscal 2025, as a result of industry conditions, primarily attributable to an agricultural oversupply impacting our market and resulting in a decrease in indoor and outdoor cultivation, as well as continued declines in operating cash flows and profitability, we assessed our long-lived assets for impairment and recorded an impairment charge of $232.2 million. Of such impairment charge, $228.4 million was related to finite-lived intangible assets and $3.8 million was related to property, plant, and equipment. The loss was recorded in Impairments in the consolidated statement of operations for the year ended December 31, 2025. We estimated fair value based on the income approach and market approach. Under the income approach, we estimated the fair value of the asset group on the present value of estimated future cash flows, which we considered to be a level 3 unobservable input in the fair value hierarchy.
During the second quarter of 2025, we initiated the 2025 Restructuring Plan to reduce our product portfolio and operational footprint to decrease costs and improve efficiency. The 2025 Restructuring Plan actions entail (i) eliminating a significant portion of our product portfolio, primarily underperforming distributed brands, to improve supply chain and operational focus, (ii) further reductions in our distribution center network and manufacturing footprint, and (iii) corresponding headcount reductions. Since the 2025 Restructuring Plan's inception, we have incurred estimated restructuring costs of $11.1 million. The charges were primarily associated with non-cash inventory write-downs, which were recorded in cost of goods sold on the condensed consolidated statements of operations, and cash and non-cash charges which primarily comprised of charges incurred to relocate and terminate certain facilities. We do not anticipate the 2025 Restructuring Plan and related actions will result in additional material restructuring charges, and anticipate annual cost savings of over $5 million plus additional working capital benefits. The 2025 Restructuring Plan is expected to be completed during 2026.
On April 30, 2026, the Company completed the closing of the previously announced agreement with Quality Horticulture, a family-owned Canadian garden center and horticultural distribution company, pursuant to which Quality Horticulture will serve as the exclusive Canadian distributor of our proprietary portfolio of nutrients, plant additives, grow media, horticultural lighting and environmental control products, including House & Garden, Grotek, Gaia Green, PHOTOBIO, SunBlaster and Active Aqua. The transaction is part of our strategic plan to streamline our operations and improve the focus on our proprietary brands and core product categories.
We continue to evaluate our product portfolio and supply chain, in order to improve efficiency, lower our costs and reduce footprint. We are also evaluating other opportunities to sell excess owned land, not currently being used in operations, to supplement our cash position and potential contract manufacturing or other outsourcing arrangements. Depending on the length and severity of the industry and market conditions, including the fluid and complex international tariff and trade policies, impacting our business, our ability to successfully negotiate with lenders and key vendors, and the pursuit of additional financing or strategic alternatives, it is possible we may execute additional restructuring plan actions and incur future associated charges, and we may not be able to realize the full extent of our anticipated cost savings.
Additionally, the amount we will ultimately realize as benefits associated with our restructuring plans could differ materially from our estimates, and we may incur additional non-cash charges in future periods depending on our ability to execute asset sales or pursue other alternatives. For additional information, see the Item 1A. "Risk Factors" in our 2025 Annual Report, including the risk entitled “Our restructuring activities may increase our expenses and cash expenditures, and may not have the intended effects.”
We maintain an allowance for excess and obsolete inventory that is based upon assumptions about future demand and market conditions. While we believe our estimates of charges relating to our 2025 Restructuring Plan, long-lived assets, inventory obsolescence, and accounts receivable allowances are reasonable, it is possible that we may incur additional charges in the future and actual results may differ significantly from these estimates and assumptions.
We are closely monitoring the recent tariff and trade policy actions taken by the United States and foreign governments. The situation remains fluid due to the rapidly changing global trade environment, and we continue to evaluate the potential implications of these actions on our business including net sales and profitability. High tariffs on imported products from China or other countries, or new tariffs from other countries, have impacted and could impact the cost of certain products and may negatively impact our financial performance. We have been able to help mitigate the impacts of tariffs through filing for refunds to the extent available to us, negotiations with vendors, and through passing nominal price increases to our customers, but we may be unable to quickly and effectively react to additional tariff and trade policy actions which may impact our business.
Results of Operations—Comparison of three and six months ended June 30, 2026 and 2025
The following table sets forth our unaudited interim condensed consolidated statements of operations for the three and six months ended June 30, 2026, and 2025, including amounts and percentages of net sales for each period and the period-to-period change in dollars and percent (amounts in thousands):
|
|
Three months ended June 30, |
|
|
|
|
|
|
|
|
|
|||||||||||||
|
|
2026 |
|
|
2025 |
|
|
Period change |
|
|||||||||||||||
Net sales |
|
$ | 23,211 |
|
|
|
100.0 |
% |
|
$ | 39,245 |
|
|
|
100.0 |
% |
|
$ | (16,034 |
) |
|
|
-40.9 |
% |
Cost of goods sold |
|
|
20,577 |
|
|
|
88.7 |
% |
|
|
36,451 |
|
|
|
92.9 |
% |
|
|
(15,874 |
) |
|
|
-43.5 |
% |
Gross profit |
|
|
2,634 |
|
|
|
11.3 |
% |
|
|
2,794 |
|
|
|
7.1 |
% |
|
|
(160 |
) |
|
|
-5.7 |
% |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
|
10,062 |
|
|
|
43.4 |
% |
|
|
16,140 |
|
|
|
41.1 |
% |
|
|
(6,078 |
) |
|
|
-37.7 |
% |
Loss from operations |
|
|
(7,428 |
) |
|
|
-32.0 |
% |
|
|
(13,346 |
) |
|
|
-34.0 |
% |
|
|
5,918 |
|
|
|
44.3 |
% |
Interest expense |
|
|
(3,453 |
) |
|
|
-14.9 |
% |
|
|
(3,391 |
) |
|
|
-8.6 |
% |
|
|
(62) |
|
|
|
-1.8 |
% |
Other income (expense), net |
|
|
25 |
|
|
|
0.1 |
% |
|
|
(222) |
|
|
|
-0.6 |
% |
|
|
247 |
|
|
|
111.3 |
% |
Loss before tax |
|
|
(10,856 |
) |
|
|
-46.8 |
% |
|
|
(16,959 |
) |
|
|
-43.2 |
% |
|
|
6,103 |
|
|
|
36.0 |
% |
Income tax benefit |
|
|
225 |
|
|
|
1.0 |
% |
|
|
98 |
|
|
|
0.2 |
% |
|
|
127 |
|
|
|
129.6 |
% |
Net loss |
|
$ | (10,631 |
) |
|
|
-45.8 |
% |
|
$ | (16,861 |
) |
|
|
-43.0 |
% |
|
$ | 6,230 |
|
|
|
36.9 |
% |
|
|
Six months ended June 30, |
|
|
|
|
|
|
|
|
|
|||||||||||||
|
|
2026 |
|
|
2025 |
|
|
Period change |
|
|||||||||||||||
Net sales |
|
$ | 51,735 |
|
|
|
100.0 |
% |
|
$ | 79,779 |
|
|
|
100.0 |
% |
|
$ | (28,044 |
) |
|
|
-35.2 |
% |
Cost of goods sold |
|
|
47,264 |
|
|
|
91.4 |
% |
|
|
70,108 |
|
|
|
87.9 |
% |
|
|
(22,844 |
) |
|
|
-32.6 |
% |
Gross profit |
|
|
4,471 |
|
|
|
8.6 |
% |
|
|
9,671 |
|
|
|
12.1 |
% |
|
|
(5,200 |
) |
|
|
-53.8 |
% |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
|
20,630 |
|
|
|
39.9 |
% |
|
|
34,003 |
|
|
|
42.6 |
% |
|
|
(13,373 |
) |
|
|
-39.3 |
% |
Loss from operations |
|
|
(16,159 |
) |
|
|
-31.2 |
% |
|
|
(24,332 |
) |
|
|
-30.5 |
% |
|
|
8,173 |
|
|
|
33.6 |
% |
Interest expense |
|
|
(9,319 |
) |
|
|
-18.0 |
% |
|
|
(6,768 |
) |
|
|
-8.5 |
% |
|
|
(2,551 |
) |
|
|
-37.7 |
% |
Other (expense) income, net |
|
|
(97 |
) |
|
|
-0.2 |
% |
|
|
(162 |
) |
|
|
-0.2 |
% |
|
|
65 |
|
|
|
40.1 |
% |
Loss before tax |
|
|
(25,575 |
) |
|
|
-49.4 |
% |
|
|
(31,262 |
) |
|
|
-39.2 |
% |
|
|
5,687 |
|
|
|
18.2 |
% |
Income tax benefit |
|
|
333 |
|
|
|
0.6 |
% |
|
|
16 |
|
|
|
0.0 |
% |
|
|
317 |
|
|
|
1981.3 |
% |
Net loss |
|
$ | (25,242 |
) |
|
|
-48.8 |
% |
|
$ | (31,246 |
) |
|
|
-39.2 |
% |
|
$ | 6,004 |
|
|
|
19.2 |
% |
Net sales
Net sales for the three months ended June 30, 2026, were $23.2 million, a decrease of $16.0 million, or 40.9% compared to the same period in 2025. Net sales for the six months ended June 30, 2026, were $51.7 million, a decrease of $28.0 million, or 35.2% compared to the same period in 2025.
The 40.9% decrease in net sales for the three months ended June 30, 2026, as compared to the same period in 2025, was primarily due to a 37.0% reduction in volume and mix of products sold and a 4.0% decrease in price. This decline was largely driven by the previously mentioned industry oversupply and discontinuation of certain distributed brands. The 35.2% decrease in net sales for the six months ended June 30, 2026, as compared to the same period in 2025, was primarily due to a 31.9% reduction in volume and mix of products sold and a 3.8% decrease in price. This decline was largely driven by the previously mentioned industry oversupply and discontinuation of certain distributed brands.
Gross profit
Gross profit for the three months ended June 30, 2026, was $2.6 million, a decrease of $0.2 million, or 5.7%, compared to the same period in 2025. Our gross profit margin percentage increased to 11.3% for the three months ended June 30, 2026, from 7.1% in the same period in 2025. The increase in gross profit margin for the three months ended June 30, 2026 was largely driven by a $2.3 million decrease in restructuring charges from the prior year period, as well as selling a higher proportion of proprietary brand products. The gross profit margin percentage increase was partially offset by higher freight and labor costs as a percentage of net sales and lower manufacturing production volumes in certain grow media products.
Gross profit for the six months ended June 30, 2026, was $4.5 million, a decrease of $5.2 million, or 53.8%, compared to the same period in 2025. Our gross profit margin percentage decreased to 8.6% for the six months ended June 30, 2026, from 12.1% in the same period in 2025. Our gross profit margin percentage for the six months ended June 30, 2026 decreased primarily due to higher freight and labor costs as a percentage of net sales and the aforementioned lower manufacturing production volumes in certain grow media products, which more than offset a $0.9 million decrease in restructuring charges from the prior year period and the benefit from selling a higher proportion of proprietary brand products.
The decreases in gross profit for all periods presented were primarily due to the aforementioned lower net sales.
Selling, general and administrative expenses
SG&A expenses for the three months ended June 30, 2026, were $10.1 million, a decrease of $6.1 million, or 37.7% compared to the same period in 2025. SG&A expenses decreased in several areas, including as a result of our cost-saving and restructuring initiatives: (i) a $6.0 million decrease in amortization and depreciation primarily due to intangible asset impairments in 2025, (ii) a $1.2 million decrease in facility expenses, and (iii) a $1.1 million decrease in employee compensation costs, including lower salaries and benefits, stock-based compensation, and performance bonus. The SG&A savings were partially offset by restructuring charges of $2.3 million during the period and costs associated with the Company's strategic alternatives.
SG&A expenses for the six months ended June 30, 2026, were $20.6 million, a decrease of $13.4 million, or 39.3% compared to the same period in 2025. SG&A expenses decreased in several areas, including as a result of our cost saving and restructuring initiatives: (i) a $11.9 million decrease in amortization and depreciation primarily due to intangible asset impairments in 2025, (ii) a $2.4 million decrease in employee compensation costs, including lower salaries and benefits, stock-based compensation, and performance bonus, and (iii) a $1.7 million decrease in facility expenses. The SG&A savings were partially offset by restructuring charges of $3.1 million during the period and costs associated with the Company's strategic alternatives.
Interest expense
Interest expense for the three months ended June 30, 2026, was $3.5 million, an increase from $3.4 million of interest expense recorded in the same period in the prior year. Interest expense for the six months ended June 30, 2026, was $9.3 million, an increase from $6.8 million of interest expense recorded in the same period in the prior year. The increase for the six months ended June 30, 2026, was primarily due to the acceleration of our Term Loan discount and deferred financing costs triggered by the Specified Event of Default.
Other income (expense), net
Other income, net for the three months ended June 30, 2026, was less than $0.1 million, compared to other expense, net of $0.2 million during the same period in the prior year. Other expense, net for the six months ended June 30, 2026, was $0.1 million, compared to other expense, net of $0.2 million during the same period in the prior year.
Income taxes
We recorded income tax benefits of $0.2 million and $0.3 million for the three and six months ended June 30, 2026, respectively, representing effective tax rates of 2.1% and 1.3%, respectively. Our effective tax rates for the three and six months ended June 30, 2026, differ from the federal statutory rate of 21% primarily due to U.S. and foreign jurisdictions in full valuation allowance. The income tax benefit for the three and six months ended June 30, 2026, was primarily due to certain benefits in Canadian jurisdictions, partially offset by foreign taxes in Spain and U.S. state taxes.
We recorded income tax benefits of $0.1 million and less than $0.1 million for the three and six months ended June 30, 2025, respectively, representing effective tax rates of 0.6% and 0.1%, respectively. Our effective tax rates for the three and six months ended June 30, 2025, differ from the federal statutory rate of 21% primarily due to U.S. and foreign jurisdictions in full valuation allowance. The income tax benefit for the three and six months ended June 30, 2025, was primarily due to certain benefits in Canadian jurisdictions, partially offset by foreign taxes in certain jurisdictions and U.S. state taxes.
Liquidity and Capital Resources
Cash Flow from Operating, Investing, and Financing Activities
Comparison of the six months ended June 30, 2026, and June 30, 2025
The following table summarizes our cash flows for the six months ended June 30, 2026, and 2025 (amounts in thousands):
|
|
Six months ended June 30, |
|
|||||
|
|
2026 |
|
|
2025 |
|
||
Net cash used in operating activities |
|
$ | (707) |
|
|
$ | (10,047 |
) |
Net cash from (used in) investing activities |
|
|
1,426 |
|
|
|
(501 |
) |
Net cash used in financing activities |
|
|
(261) |
|
|
|
(5,121 |
) |
Effect of exchange rate changes on cash, cash equivalents and restricted cash |
|
|
(154) |
|
|
|
549 |
|
Net increase (decrease) in cash, cash equivalents and restricted cash |
|
|
304 |
|
|
|
(15,120 |
) |
Cash, cash equivalents and restricted cash at beginning of period |
|
|
6,309 |
|
|
|
26,111 |
|
Cash, cash equivalents and restricted cash at end of period |
|
$ | 6,613 |
|
|
$ | 10,991 |
|
Operating Activities
Net cash used in operating activities was $0.7 million for the six months ended June 30, 2026. The net cash usage was primarily due to a $25.2 million net loss, partially offset by net non-cash items of $12.3 million and a $12.2 million net cash inflow from a decrease in working capital. The $12.2 million net decrease in working capital was primarily comprised of a $9.0 million decrease of inventories, a $6.3 million increase in accrued expenses and other current liabilities, a $1.1 million decrease in prepaid expenses and other current assets, and a $1.0 million increase of accounts payable, partially offset by a $3.7 million decrease of lease liabilities and a $1.8 million decrease in deferred revenue. The increase in accrued expenses and other current liabilities was primarily attributable to accrued interest, which increased to $8.3 million as of June 30, 2026 from $1.9 million as of December 31, 2025. The Company is continuing to consolidate its operations in connection with restructuring and related cost saving initiatives which has contributed to the aforementioned decrease in inventory.
Net cash used in operating activities was $10.0 million for the six months ended June 30, 2025. The net cash usage was primarily due to a $31.2 million net loss and a $3.8 million net cash outflow from an increase in working capital, partially offset by net non-cash items of $25.0 million. The $3.8 million net increase in working capital was primarily comprised of a $3.9 million decrease of lease liabilities, a $2.3 million decrease in accrued expenses and other current liabilities, partially offset by a $2.9 million decrease in inventory. During the six months ended June 30, 2025, we paid $6.9 million in cash interest.
Investing Activities
Net cash from investing activities was $1.4 million for the six months ended June 30, 2026, compared to net cash used in investing activities of $0.5 million for the six months ended June 30, 2025. The net cash from investing activities for the six months ended June 30, 2026 was primarily due to the sale of property, plant and equipment. We did not have any significant capital expenditures of property, plant and equipment during the six months ended June 30, 2026. The net cash used in investing activities for the six months ended June 30, 2025 was primarily due to capital expenditures of property, plant and equipment.
Financing Activities
Net cash used in financing activities was $0.3 million for the six months ended June 30, 2026, primarily driven by finance lease principal payments.
Net cash used in financing activities was $5.1 million for the six months ended June 30, 2025, primarily driven by (i) $4.9 million of Term Loan repayments relating to required quarterly payments of principal and payments made in conjunction with the IGE Asset Sale reinvestment provision, and (ii) finance lease principal payments of $0.2 million.
Availability and Use of Cash
As of June 30, 2026, we had $6.6 million in cash, cash equivalents and restricted cash and a working capital deficit of $108.1 million. We have incurred recurring operating losses, negative cash flows from operations, and have significant debt obligations due within the next twelve months. These conditions and events, considered in the aggregate, raise substantial doubt about our ability to continue as a going concern.
Our plans to address these conditions include reducing costs through restructuring and other initiatives, including facility consolidations, headcount reductions, and focusing on our proprietary brand offerings. To improve liquidity, we are negotiating with lenders and key vendors, and are pursuing additional financing or strategic alternatives including the sale of assets or businesses, or through an offering of equity securities. Any potential such event may be subject to provisions referenced in the Term Loan, such as subjecting us to make mandatory prepayments prior to the originally stated maturity date. Although we believe such plans, if executed, should provide us with liquidity to meet our needs, successful completion of such plans is dependent on numerous factors, many of which are beyond our control as further discussed in Item 1A. "Risk Factors" included in this Quarterly Report on Form 10-Q and in our 2025 Annual Report.
During the second quarter of 2026, we sold approximately 38 acres of the 120 acres of excess owned land at the Goshen, New York location for $1.4 million. On July 31, 2026, the Company, through its wholly owned subsidiaries Aurora International, LLC, an Oregon limited liability company and Aurora Peat Products ULC, an Alberta unlimited liability corporation, entered into a Share Purchase Agreement with 2817049 Alberta Ltd., an Alberta corporation. Pursuant to the terms of the Share Purchase Agreement, Seller sold to Buyer and Buyer purchased from Seller all the issued and outstanding shares of APP for $16 million, subject to adjustments set forth in the Share Purchase Agreement. The net proceeds from the Transaction will be applied to reduce outstanding debt, including outstanding interest, under the Term Loan. The Share Purchase Agreement contains customary representations and warranties of the parties, covenants and indemnification provisions. The representations, warranties and covenants contained in the Share Purchase Agreement were made solely for the benefit of the parties to the Share Purchase Agreement and may be subject to limitations agreed upon by the contracting parties. In connection with the Share Purchase Agreement, the Seller and Buyer entered into a secured promissory note on the Closing Date, pursuant to which the Buyer issued, in favor of the Seller, a promissory note in the principal amount of $5 million, representing a deferred portion of the purchase price payable to the Seller under the Share Purchase Agreement. The secured promissory note was assigned to the lenders of the Company's Term Loan. Cash obligations in connection with the close of the transaction are estimated to be up to $3.1 million.
Term Loan
On October 25, 2021, we and certain of our direct and indirect subsidiaries entered into the Term Loan with JPMorgan Chase Bank, N.A., as administrative agent for the lenders, pursuant to which we borrowed a $125 million senior secured term loan. The Term Loan was amended by Amendment No. 1 effective as of June 27, 2023, to replace the LIBOR referenced rates with SOFR referenced rates. Pursuant to Amendment No. 1, any Term Loan that constitutes a Eurodollar Rate Loan that is outstanding as of the Amendment No. 1 closing date shall continue until the end of the applicable interest period for such Eurodollar Rate Loan and the provisions of the Term Loan applicable thereto shall continue and remain in effect (notwithstanding the occurrence of the Amendment No. 1 closing date) until the end of the applicable interest period for such Eurodollar Rate Loan, after which such provisions shall have had no further force or effect. Such Eurodollar Rate Loan shall subsequently either be an ABR Loan or a Term Benchmark Loan. The ABR Loans shall bear interest at the Alternate Base Rate (with a 2.0% floor) plus 4.50%, and Term Benchmark Loans shall bear interest at the Adjusted Term SOFR Rate (with a 1.0% floor) plus 5.50%. As of the date of filing the 2025 Annual Report, the ABR Loan and Term Benchmark Loan credit spreads of 4.50% and 5.50%, respectively, within the Amendment No. 1 had not changed from the credit spreads in the original Term Loan. On April 8, 2026, we, the Lenders and the Agents entered into Amendment No. 2 to the Credit and Guaranty Agreement. Amendment No. 2 amends the Term Loan to, among other things, (i) replace JPMorgan with FEAC as the administrative agents; and (ii) require each credit party to covenant and agree to (A) regularly provide certain liquidity reports and cash flow forecasts, (B) regularly provide certain aging reports and inventory reports, and (C) maintain a minimum liquidity of $1 million.
The Term Loan matures on October 25, 2028, and is secured by a first lien on our non-working capital assets and a second lien on our working capital assets.
The principal amounts of the Term Loan are scheduled to be repaid in consecutive quarterly installments in amounts equal to 0.25% of the original principal amount of the Term Loan on the last day of each fiscal quarter commencing March 31, 2022, with the balance of the Term Loan payable on the Maturity Date. We are also required to make mandatory prepayments in the event of (i) achieving certain excess cash flow criteria, including the achievement and maintenance of a specific leverage ratio, (ii) certain asset sales that are collateral, or (iii) upon the issuance, offering, or placement of new debt obligations. In accordance with this provision, we made prepayments of $4.6 million during of 2025 for an asset sale completed in 2024. The prepayments reduced our required quarterly installment amounts to zero for the remaining term.
The Term Loan requires us to maintain certain reporting requirements, affirmative covenants, and negative covenants. On February 4, 2026, we elected to defer making an interest payment of approximately $2.8 million on the Term Loan. As a result of our failure to pay the interest within the grace period, an event of default occurred with respect to the Term Loan. On February 11, 2026, the lenders, through the administrative agent, notified us of the Specified Event of Default and informed us that the administrative agent or the collateral agent may exercise any rights and remedies provided under the Term Loan agreement and related financing documents, but it did not seek to enforce such remedies as of such time.
On the Forbearance Effective Date, the Company entered into the Forbearance Agreement with the other Obligors, the Lenders, and FEAC, in connection with the Term Loan. Pursuant to the Forbearance Agreement, during the Forbearance Period (as defined in Note 11 – Debt to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q), solely with respect to the Specified Event of Default, neither the Administrative Agent nor any Lender shall, upon the terms and conditions expressly specified therein, take any action, commence any proceedings against any Obligor or any other person with respect to the enforcement of any of its or their rights or remedies under the Credit Documents or applicable law, other than as expressly described in the Forbearance Agreement. The Company, the Lenders, and FEAC agreed to extend the Forbearance Period under the Forbearance Agreement through and including August 31, 2026.
As of June 30, 2026, and December 31, 2025, the outstanding principal balance on the Term Loan was $114.4 million.
Revolving Credit Facility
On March 29, 2021, we and certain of our subsidiaries entered into the Revolving Credit Agreement with JPMorgan, as administrative agent, issuing bank and swingline lender for a revolving line of credit up to $50 million (the "Revolving Credit Facility") which was subsequently amended several times to, among other things, modify the maximum aggregate borrowing limit, transition the interest rate benchmark from LIBOR to SOFR, and extend the maturity date. We use the terms Revolving Credit Agreement and Revolving Credit Facility interchangeably.
As of December 31, 2025, we had zero borrowed under the Revolving Credit Facility. On February 17, 2026, we entered into the Termination Agreement to terminate the Revolving Credit Agreement. Pursuant to the terms of the Termination Agreement, the parties agreed to terminate the Revolving Credit Agreement subject to the survival of each of the provisions of the Revolving Credit Agreement and Loan Documents (as defined in the Revolving Credit Agreement) and in the certificates delivered in connection with or pursuant to the Revolving Credit Agreement that survive termination of the Revolving Credit Agreement.
The aforementioned financing arrangements and other transactions are more fully described in the notes to the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
Cash and Cash Equivalents
The cash, cash equivalents and restricted cash balances of $6.6 million and $6.3 million at June 30, 2026, and December 31, 2025, respectively, included $3.7 million and $2.9 million, respectively, held by foreign subsidiaries.
Material Cash Requirements
Our estimated material cash requirements include (i) anticipated principal and interest payments on our Term Loan, (ii) finance lease payments, (iii) operating lease payments, as well as other purchase obligations to support our operations. Variable rates on our Term Loan are subject to change as further described in Item 3. Quantitative and Qualitative Disclosures About Market Risk. Refer to Item 1. Financial Statements, Note 11 – Debt, Note 8 – Leases, and Note 15 – Commitments and Contingencies for details relating to our material cash requirements for debt, our leasing arrangements, including future maturities of our operating lease liabilities, and purchase obligations, respectively. From time to time in the normal course of business, we will enter into agreements with suppliers which provide favorable pricing in return for a commitment to purchase minimum amounts of inventory over a defined time period.
Critical Accounting Policies and Estimates
The preceding discussion and analysis of our consolidated results of operations and financial condition should be read in conjunction with our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. Our critical accounting policies and estimates are identified in Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II of the 2025 Annual Report and include the discussion of estimates used in indefinite lived intangible assets, long-lived tangible and finite-lived intangible assets, and inventory valuation. Such accounting policies and estimates require significant judgments and assumptions to be used in the preparation of the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q, and actual results could differ materially from the amounts reported.
Recent Accounting Pronouncements
For information regarding recent accounting pronouncements, refer to Note 3 – Basis of Presentation and Significant Accounting Policies — Recent accounting pronouncements, to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk of economic losses due to adverse changes in financial market prices and rates. Our primary market risk has been interest rate, foreign currency and inflation risk. We do not have material exposure to commodity risk.
Interest Rate Risk
We are exposed to interest rate risk through our variable rate debt. As of June 30, 2026, we had $114.4 million of Term Loan debt that is subject to variable interest rates that are based on SOFR or an alternate base rate. Refer to Item 1. Financial Statements, Note 11 – Debt for details relating to the debt. If the rates were to increase by 100 basis points from the rates in effect as of June 30, 2026, our interest expense on the variable-rate debt would increase by an average of $1.2 million annually, or $1.1 million annually considering the paydown of debt related to the sale of APP. There are inherent limitations in the sensitivity analysis presented, primarily due to the assumptions that interest rate changes would be instantaneous, while SOFR changes regularly. We do not currently hedge our interest rate risks, but may determine to do so in the future.
Foreign Currency Risk
The functional currencies of our foreign subsidiary operations are predominantly in the Canadian dollar ("CAD") and the Euro. For the purposes of presenting these condensed consolidated financial statements, the assets and liabilities of subsidiaries with CAD or Euro functional currencies are translated into U.S. dollars ("USD") using exchange rates prevailing at the end of each reporting period. Income and expense items are translated at the average rate prevailing during the period with exchange differences impacting other comprehensive income (loss) in equity. Therefore, our results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates, principally the CAD. We are impacted by changes in foreign currency exchange rates when we sell product in currencies different from the currency in which costs were incurred. The functional currencies and our purchasing and sales activities primarily include USD, CAD and Euro. As these currencies fluctuate against each other, and other currencies, we are exposed to foreign currency exchange rate risk on sales, purchasing transactions, and labor. To date, we have not entered into any foreign currency exchange contracts and currently do not expect to enter into foreign currency exchange contracts for trading or speculative purposes.
Inflation Risk
Our results of operations and financial condition are presented based on historical costs. We cannot provide assurances that our results of operations and financial condition will not be materially impacted by inflation in the future.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation and supervision of our Chief Executive Officer and our Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon that evaluation, the Company's management, including the Chief Executive Officer and the Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q.
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost benefit relationship of possible controls and procedures.
Changes in Internal Controls over Financial Reporting
There were no changes in our internal controls over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during the periods covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
From time to time, we may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. We are currently not aware of any material pending legal proceedings or claims, other than ordinary routine litigation incidental to the business to which we are a party or to which our property is subject.
For a discussion of risk factors, please read Item 1A, "Risk Factors" in our 2025 Annual Report. Such risk factors continue to be relevant to an understanding of our business, financial condition and operating results. As of the date of this Quarterly Report on Form 10-Q, there have been the following material changes with respect to such risk factors:
We are currently not in compliance with the continued listing standards of Nasdaq, and if we are unable to regain compliance, our common stock may be delisted from the exchange.
Our common stock is currently listed for trading on the Nasdaq under the symbol “HYFM”. The continued listing of our common stock on Nasdaq is subject to our compliance with a number of listing standards, including Nasdaq Listing Rule 5550(b)(1) to maintain a minimum of $2.5 million in stockholders’ equity (the “Minimum Stockholders’ Equity Requirement”) or the alternative requirements of Nasdaq Listing Rule 5550(b)(2)-(3) of having a market value of listed securities of at least $35 million or net income from continuing operations of $500,000 in the most recently completed fiscal year or two of the last three most recently completed fiscal years (the “Alternative Requirement”). As of December 31, 2025, we had a stockholders' deficit of approximately $(63) million, the market value of our listed securities was below $35 million as of the date of our 2025 Annual Report, and we realized a net loss in each of the past three fiscal years. Accordingly, we do not meet the requirements of the Minimum Stockholders’ Equity Requirement or Alternative Requirement.
On April 1, 2026, we received a letter (the “Letter”) from the Listing Qualifications Department of the Nasdaq indicating that we were not in compliance with the Minimum Stockholders’ Equity Requirement for continued listing on the Nasdaq, under Nasdaq Listing Rule 5550(b)(1), because our stockholders’ deficit of $(63) million as reported in our 2025 Annual Report was below the required minimum of $2.5 million, and because, as of March 31, 2026, we did not meet the Alternative Requirement relating to the market value of listed securities of $35 million or net income from continuing operations of $500,000 in the most recently completed fiscal year or in two of the last three most recently completed fiscal years.
On June 16, 2026, we received a letter from Nasdaq indicating that, based on Nasdaq’s review of the Company’s plan submitted on May 18, 2026 and related materials submitted on June 8, 2026, Nasdaq has granted the Company an extension to regain compliance with the Minimum Stockholders’ Equity Requirement. On July 2, 2026, we received a determination letter from Nasdaq notifying us that we did not meet the terms of the extension granted by Nasdaq to regain compliance with the Minimum Stockholders’ Equity Requirement (the “Nasdaq Determination Letter”). The Nasdaq Determination Letter stated that we may request an appeal of this determination at a hearing before the Nasdaq Hearing Panel (the “Panel”) by July 9, 2026. On July 9, 2026, we timely requested a hearing before the Panel, which stayed any further action by Nasdaq at least pending completion of the hearing process and the expiration of any extension period that may be granted by the Panel.
On July 6, 2026, we also received a letter from Nasdaq indicating that we are not in compliance with the minimum bid price requirement for continued listing on Nasdaq under Listing Rule 5550(a)(2) (the “Bid Price Requirement”) because we had not maintained a minimum closing bid price of $1 per share for the prior 30 consecutive business days. The Bid Price Requirement provides us a compliance period of 180 calendar days in which to regain compliance. If at any time during the 180-day period, the closing bid price of our common stock is at least $1 for a minimum of ten consecutive business days, Nasdaq will provide written confirmation to us of compliance. In the event that we do not regain compliance with the Bid Price Requirement, we may be eligible for additional time. The Company intends to monitor the closing bid price of its common stock and is considering its options to regain compliance with the Bid Price Requirement.
We are considering all options available to us to regain compliance with the Minimum Stockholders’ Equity Requirement and Bid Price Requirement. However, there can be no assurance that we will be able to regain compliance with the Minimum Stockholders’ Equity Requirement and Bid Price Requirement or will otherwise be in compliance with other applicable Nasdaq Listing Rules, that the Panel will grant the Company an additional extension period to remain listed on Nasdaq, or that the Panel will be successful.
If we fail to regain compliance with the Nasdaq continued listing standards, after any compliance period, if granted, or we fail to comply with other continued listing requirements, Nasdaq will provide notice that our common stock will be subject to delisting, which could adversely affect our ability to raise additional financing through the public or private sale of equity securities, would significantly affect the ability of investors to trade our securities and would negatively affect the value and liquidity of our common stock. Delisting could also have other negative results, including the potential loss of confidence by employees, the loss of institutional investor interest and fewer business development opportunities. If our common stock is delisted by Nasdaq, the price of our common stock may decline and our common stock may be eligible to trade on the OTC Bulletin Board, another over-the-counter quotation system, or on the pink sheets where an investor may find it more difficult to dispose of their common stock or obtain accurate quotations as to the market value of our common stock. A delisting from Nasdaq and failure to obtain listing on another market or exchange would subject our common stock to so-called penny stock rules that impose additional sales practice and market-making requirements on broker-dealers who sell or make a market in such securities. Further, if we are delisted, we would incur additional costs under requirements of state “blue sky” laws in connection with any sales of our securities. These requirements could severely limit the market liquidity of our common stock and the ability of our stockholders to sell our common stock in the secondary market.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
| (a) | The Company, the Lenders, and FEAC agreed to extend the Forbearance Period under the Forbearance Agreement through and including August 31, 2026. |
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| (b) | Not applicable. |
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| (c) | During the quarter ended June 30, 2026, director or officer of the Company adopted, modified or terminated a “Rule - trading arrangement” or “non-Rule -1 trading arrangement” as such term is defined in Item 408(a) of Regulation S-K. |
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(a) |
Exhibits. |
* |
Filed herewith. |
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x |
Denotes management contract or compensatory plan or arrangement. |
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+ |
In accordance with Item 601(b)(10)(iv) of Regulation S-K, certain information (indicated by “***”) has been excluded from this exhibit because it is both not material and private or confidential. A copy of the omitted portion will be furnished to the Securities and Exchange Commission upon request. Additionally, certain schedules and exhibits have been omitted from this filing pursuant to Item 601(a)(5) of Regulation S-K. A copy of any omitted schedule or exhibit will be furnished to the Securities and Exchange Commission upon request. |
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The certifications attached as Exhibits 32.1 and 32.2 accompany this Quarterly Report on Form 10-Q pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and shall not be deemed “filed” by the Company for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, nor shall they be deemed incorporated by reference into any filing of the registrant under the Securities Act of 1933, as amended, or the Exchange Act, whether made before or after the date hereof, regardless of any general incorporation language in such filing. |
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized.
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Hydrofarm Holdings Group, Inc. |
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Date: August 14, 2026 |
/s/ William Toler |
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William Toler |
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Chief Executive Officer & Chairman of the Board of Directors |
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(Principal Executive Officer) |
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Date: August 14, 2026 |
/s/ Kevin O'Brien |
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Kevin O'Brien |
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Chief Financial Officer |
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(Principal Financial Officer) |
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43
Exhibit 31.1
CERTIFICATIONS UNDER SECTION 302
I, William Toler, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Hydrofarm Holdings Group, Inc.;
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 presented 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 13a-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 involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 14, 2026
| By: | /s/ William Toler |
| William Toler |
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| Chief Executive Officer & Chairman of the Board of Directors |
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| (Principal Executive Officer) |
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Exhibit 31.2
CERTIFICATIONS UNDER SECTION 302
I, Kevin O’Brien, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Hydrofarm Holdings Group, Inc.;
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 presented 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 13a-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 involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 14, 2026
| By: | /s/ Kevin O’Brien |
| Kevin O’Brien |
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| Chief Financial Officer |
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| (Principal Financial Officer) |
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Exhibit 32.1
CERTIFICATIONS UNDER SECTION 906
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), each of the undersigned officers of Hydrofarm Holdings Group, Inc., a Delaware corporation (the “Company”), does hereby certify, to such officer’s knowledge, that:
The Quarterly Report for the quarter ended June 30, 2026 (the “Form 10-Q”) of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: August 14, 2026 | /s/ William Toler |
| William Toler |
| Chief Executive Officer & Chairman of the Board of Directors |
| (Principal Executive Officer) |
Exhibit 32.2
CERTIFICATIONS UNDER SECTION 906
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), each of the undersigned officers of Hydrofarm Holdings Group, Inc., a Delaware corporation (the “Company”), does hereby certify, to such officer’s knowledge, that:
The Quarterly Report for the quarter ended June 30, 2026 (the “Form 10-Q”) of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: August 14, 2026 | /s/ Kevin O’Brien |
| Kevin O’Brien |
| Chief Financial Officer |
| (Principal Financial Officer) |