TABLE OF CONTENTS

		~~Page No.~~
			~~PART I~~		Page No.
			~~FINANCIAL INFORMATION~~
			PART I FINANCIAL INFORMATION

Item 1.			Unaudited Interim Condensed Consolidated Financial Statements		1
			Condensed Consolidated Balance ~~Sheet~~Sheets as of September 30, ~~2017~~ 2021 (unaudited) and December 31, ~~2016~~2020		1
			Condensed Consolidated Statements of Operations for the three ~~months~~ and nine months ended September 30, ~~2017~~2021 and ~~2016~~2020 (Unaudited)		2
			Condensed Consolidated Statements of Shareholders Equity for the three and nine months ended September 30, 2021 and 2020 (Unaudited)		3
			Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, ~~2017~~2021 and ~~2016~~2020 (Unaudited)		3 5
			Notes to Unaudited Condensed Consolidated Financial Statements		4 5
Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations		11 22
Item 3.			Quantitative and Qualitative Disclosures About Market Risk		20 27
Item 4.			Controls and Procedures		20 27

PART II OTHER INFORMATION
~~OTHER INFORMATION~~
Item 1.			Legal Proceedings		30
Item 1.1A.			~~Legal Proceedings~~ Risk Factors		21 30
~~Item 1A.~~			~~Risk Factors~~	21
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds			21 32
Item 3.			Defaults Upon Senior Securities		21 32
Item 4.			Mine Safety Disclosures		21 32
Item 5.			Other Information		21 32
Item 6.			Exhibits		22 33
			Signatures		23 34

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

GROWGENERATION ~~CORPORATION~~CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE ~~SHEET~~

September 30,
2017 December 31, 2016
Unaudited
ASSETS
Current assets:
Cash $ 1,905,477 $ 606,644
Accounts receivable, net of allowance for doubtful accounts of $47,829 at September 30, 2017 and December 31, 2016 683,795 391,235
Inventory 5,023,727 2,574,438
Prepaid expenses and other current assets 607,450 35,256
Total current assets 8,220,449 3,607,573

Property and equipment, net 1,136,351 549,854
Intangible assets, net 25,337 -
Goodwill 523,000 243,000
Other assets 93,565 42,526
TOTAL ASSETS $ 9,998,702 $ 4,442,953

LIABILITIES & STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 1,318,787 $ 643,793
Payroll and payroll tax liabilities 132,249 77,068
Customer deposits 59,600 51,672
Sales tax payable 95,385 46,942
Current portion of long term debt 54,112 23,443
Total current liabilities 1,660,133 842,918

Long term debt, net of current portion 89,639 41,726
Total liabilities 1,749,772 884,644

Commitments and contingencies

Stockholders’ Equity:
Common stock; $.001 par value; 100,000,000 shares authorized; 16,088,621 and 11,742,834 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively 16,088 11,743
Additional paid-in capital 10,467,090 4,696,221
Accumulated deficit (2,234,248 ) (1,149,655 )
Total stockholders’ equity 8,248,930 3,558,309
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 9,998,702 $ 4,442,953

~~See Notes to the Unaudited~~SHEETS

(in thousands)


	September 30, 2021		December 31, 2020
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	63,035	$	177,912
Marketable securities	29,961		—
Accounts receivable, net	6,953		3,901
Notes receivable, current	7,734		2,612
Inventory, net	113,281		54,024
Prepaid income taxes	2,546		655
Prepaids and other current assets	28,169		11,125
Total current assets	251,679		250,229

Property and equipment, net	16,755		6,475
Operating leases right-of-use assets, net	36,155		12,088
Notes receivables, net of current portion	550		1,200
Intangible assets, net	49,397		21,490
Goodwill	123,875		62,951
Other assets	777		301
TOTAL ASSETS	$	479,188	$	354,734

LIABILITIES & STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	39,627	$	14,623
Accrued liabilities	2,716		672
Payroll and payroll tax liabilities	6,705		2,655
Customer deposits	13,743		5,155
Sales tax payable	3,376		1,161
Income taxes payable	—		—
Current maturities of lease liability	6,205		3,001
Current portion of long-term debt	111		83
Total current liabilities	72,483		27,350

Deferred tax liability	2,351		750
Operating lease liability, net of current maturities	31,355		9,479
Long-term debt, net of current portion	92		158
Total liabilities	106,281		37,737

Stockholders’ Equity:
Common stock	60		57
Additional paid-in capital	358,602		319,582
Retained earnings (deficit)	14,245		(2,642)
Total stockholders’ equity	372,907		316,997
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	479,188	$	354,734

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

GROWGENERATION ~~CORPORATION~~CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED ~~STATEMENT~~STATEMENTS OF OPERATIONS

~~(Unaudited)~~

Three Month Ended
September 30, Nine months ended
September 30,
2017 2016 2017 2016

Sales $ 4,028,170 $ 2,169,129 $ 10,722,738 $ 5,617,726
Cost of sales 2,912,328 1,560,359 7,775,718 3,947,352
Gross profit 1,115,842 608,770 2,947,020 1,670,374

Operating expenses:
Store operations 800,861 372,317 2,098,201 1,057,447
General and administrative 237,884 98,731 644,708 282,604
Share based compensation 242,984 - 645,392 184,333
Depreciation and amortization 22,987 17,158 63,035 38,181
Salaries and related expenses 269,215 108,336 574,158 314,843
Total operating expenses 1,573,931 596,542 4,025,494 1,877,408

Income (loss) from operations (458,089 ) 12,228 (1,078,474 ) (207,034 )

Other income (expense):
Other income 621 - 1,062 2
Other expense - - - (1,600 )
Interest expense (3,419 ) (1,384 ) (7,181 ) (3,050 )
Total non-operating expense, net (2,798 ) (1,384 ) (6,119 ) (4,648 )

Net income (loss) $ (460,887 ) $ 10,844 $ (1,084,593 ) $ (211,682 )

Net income (loss) per shares, basic and diluted $ (.03 ) $ * $ (.08 ) $ (.02 )

Weighted average shares outstanding, basic and diluted 14,819,742 10,584,262 13,857,393 10,584,262

* Less than $.01

(in thousands, except per share

~~See Notes to the Unaudited~~ amounts)

(Unaudited)


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2021		2020		2021		2020

Sales	$	116,003	$	55,007	$	331,910	$	131,440
Cost of sales	81,940		40,436		236,757		96,338
Gross profit	34,063		14,571		95,153		35,102

Operating expenses:
Store operations	14,842		5,008		35,648		12,524
Selling, general, and administrative	11,007		4,017		28,975		15,513
Depreciation and amortization	3,539		443		8,510		1,270
Total operating expenses	29,388		9,468		73,133		29,307

Income from operations	4,675		5,103		22,020		5,795

Other income (expense):
Other expense	78		(14)		32		(75)
Interest income	395		48		435		73
Interest expense	(25)		—		(31)		(20)
Total non-operating income (expense), net	448		34		436		(22)

Net income before taxes	5,123		5,137		22,456		5,773

Provision for income taxes	(1,096)		(1,799)		(5,569)		(1,955)

Net income	$	4,027	$	3,338	$	16,887	$	3,818

Net income per share, basic	$	0.07	$	0.07	$	0.29	$	0.09
Net income per share, diluted	$	0.07	$	0.06	$	0.28	$	0.09

Weighted average shares outstanding, basic	58,531		47,878		58,994		41,477
Weighted average shares outstanding, diluted	59,490		51,626		60,108		44,224

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

GROWGENERATION ~~CORPORATION~~CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED ~~STATEMENT~~STATEMENTS OF STOCKHOLDERS’ EQUITY

NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

(in thousands)

(Unaudited)


	Common Stock			Additional Paid-In Capital		Retained Earnings (Deficit)		Total Stockholders’ Equity
	Shares	Amount
Balances, December 31, 2020	57,151	$	57	$	319,582	$	(2,642)	$	316,997
Common stock issued upon warrant exercise	40	—		111		—		111
Common stock issued upon cashless warrant exercise	535	1		(1)		—		—
Common stock issued upon exercise of options	1	—		2		—		2
Common stock issued upon cashless exercise of options	5	—		—		—		—
Common stock issued in connection with business combinations	548	—		29,249		—		29,249
Common stock issued for share based compensation	300	—		—		—		—
Common stock redeemed in litigation settlement	(90)	—		—		—		—
Common stock redemption	(96)	—		(3,954)		—		(3,954)
Share based compensation	—	—		1,187		—		1,187
Net income	—	—		—		6,147		6,147
Balances, March 31, 2021	58,394	$	58	$	346,176	$	3,505	$	349,739
Common stock issued upon warrant exercise	216	—		224		—		224
Common stock issued upon cashless warrant exercise	119	—		—		—		—
Common stock issued upon exercise of options	460	1		1,729		—		1,730
Common stock issued upon cashless exercise of options	272	—		—		—		—
Common stock issued in connection with business combinations	101	1		3,938		—		3,939
Share based compensation	—	—		1,508		—		1,508
Net income	—	—		—		6,713		6,713
Balances, June 30, 2021	59,562	$	60	$	353,575	$	10,218	$	363,853
Common stock issued upon cashless warrant exercise	5	—		—		—		—
Common stock issued upon exercise of options	8	—		22		—		22
Common stock issued upon cashless exercise of options	47	—		—		—		—
Common stock issued in connection with business combinations	87	—		3,063		—		3,063
Common stock issued for share based compensation	61	—		220		—		220
Share based compensation	—	—		1,722		—		1,722
Net income	—	—		—		4,027		4,027
Balances, September 30, 2021	59,770	$	60	$	358,602	$	14,245	$	372,907


	Common Stock			Additional Paid-In Capital		Retained Earnings (Deficit)		Total Stockholders’ Equity
	Shares	Amount
Balances, December 31, 2019	36,876	$	37	$	60,742	$	(7,970)	$	52,809
Common stock issued upon warrant exercise	191	—		510		—		510
Common stock issued upon cashless warrant exercise	19	—		—		—		—
Common stock issued upon cashless exercise of options	280	—		—		—		—
Common stock issued in connection with business combinations	250	—		1,102		—		1,102
Common stock issued for assets	24	—		101		—		101
Common stock issued for services	50	—		—		—		—
Common stock issued for share based compensation	519	1		1,760		—		1,761
Share based compensation	—	—		2,209		—		2,209
Net loss	—	—		—		(2,094)		(2,094)
Balances, March 31, 2020	38,209	$	38	$	66,424	$	(10,064)	$	56,398
Common stock issued upon warrant exercise	81	—		282		—		282
Common stock issued upon cashless warrant exercise	78	—		—		—		—
Common stock issued upon cashless exercise of options	30	—		—		—		—
Common stock issued in connection with business combinations	108	—		705		—		705
Common stock issued for assets	10	—		67		—		67
Common stock issued for services	325	—		717		—		717
Common stock issued for share based compensation	5	—		25		—		25
Share based compensation	—	—		1,162		—		1,162
Net income	—	—		—		2,574		2,574
Balances, June 30, 2020	38,846	$	38	$	69,382	$	(7,490)	$	61,930
Sale of common stock, net of offering costs	8,625	9		44,611		—		44,620
Common stock issued upon warrant exercise	88	—		272		—		272
Common stock issued upon cashless warrant exercise	570	1		(1)		—		—
Common stock issued upon cashless exercise of options	164	—		—		—		—
Common stock issued for share based compensation	120	—		44		—		44
Share based compensation	—	—		978		—		978
Net income	—	—		—		3,338		3,338
Balances, September 30, 2020	48,413	$	48	$	115,286	$	(4,152)	$	111,182

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

GROWGENERATION CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

For the Nine months ended
September 30,
2017 2016
Cash flows from operating activities:
Net loss $ (1,084,593 ) $ (211,682 )
Adjustments to reconcile net loss to net cash used in operating activities:
Provision for doubtful accounts receivable - 3,688
Depreciation and amortization 63,035 38,181
Commission, non-cash - 35,000
Stock-based compensation expense 645,391 184,333
Inventory valuation reserve - -
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable (292,560 ) (331,157 )
Inventory (2,449,289 ) (1,076,310 )
Prepaid expenses and other assets (259,209 ) (1,930 )
Increase (decrease) in:
Accounts payable 674,994 320,335
Payroll and payroll tax liabilities 55,181 13,607
Customer deposits 7,928 8,432
Sales tax payable 48,443 25,059
Net cash used in operating activities (2,590,679 ) (992,444 )
Cash flows from investing activities:
Purchase of furniture and equipment (563,724 ) (183,059 )
Purchase of intangibles (306,177 ) -
Net cash used in investing activities (869,901 ) (183,059 )
Cash flows from financing activities:
Principal payments on long term debt (36,752 ) (10,940 )
Proceeds from the sale of common stock and exercise of warrants, net of expenses 4,796,165 998,500
Net cash provided by financing activities 4,759,413 987,560
Net increase (decrease) in cash 1,298,833 (187,943 )
Cash at the beginning of period 606,644 699,417
Cash at the end of period $ 1,905,477 $ 511,474

Supplemental disclosures of cash flow information:
Cash paid for interest $ 7,181 $ 3,050
Common stock and warrants issued for prepaid services $ 416,886 -
Acquisition of vehicles with debt financing $ 84,968 $ 57,324
Insurance premium financing $ 30,366 -
Taxes paid - $ -

~~See Notes to the Unaudited~~
Nine Months Ended September 30,
2021 2020
Cash flows from operating activities:
Net income $ 16,887 $ 3,818
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 8,510 1,270
Stock-based compensation expense 5,347 6,324
Bad debt expense, net of recoveries 304 94
Gain on asset disposition — (28)
Deferred taxes 1,601 —
Changes in operating assets and liabilities:
Accounts and notes receivable (7,828) (885)
Inventory (46,030) (13,421)
Prepaid expenses and other assets (18,960) (3,092)
Accounts payable and accrued liabilities 26,338 6,265
Operating leases 1,013 220
Payroll and payroll tax liabilities 4,050 871
Income taxes payable — 1,928
Customer deposits 8,419 (34)
Sales tax payable 2,215 368
Net cash provided by operating activities 1,866 3,698
Cash flows from investing activities:
Assets acquired in business combinations (71,813) (4,027)
Purchase of marketable securities (75,000) —
Maturities from marketable securities 45,039 —
Purchase of property and equipment (10,756) (2,115)
Purchase of intangibles (2,311) (797)
Net cash used in investing activities (114,841) (6,939)
Cash flows from financing activities:
Principal payments on long term debt (38) (75)
Common stock redeemed (3,954) —
Proceeds from the sale of common stock and exercise of warrants, net of expenses 2,090 45,684
Net cash provided by (used in) financing activities (1,902) 45,609
Net change (114,877) 42,368
Cash and cash equivalents at the beginning of period 177,912 12,979
Cash and cash equivalents at the end of period $ 63,035 $ 55,347
Supplemental disclosures of non-cash activities:
Cash paid for interest $ 31 $ 20
Common stock issued for accrued payroll $ — $ 718
Common stock issued for business combination $ 36,250 $ 1,808
Assets acquired by issuance of common stock $ — $ 168
Right to use assets acquired under new operating leases $ 26,115 $ 2,173
Cash paid for income taxes $ 4,275 $ —

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

GrowGeneration ~~Corporation~~Corp. and Subsidiaries

Notes ~~to the~~To Unaudited Condensed Consolidated Financial Statements

September 30, ~~2017~~

1.	~~NATURE OF OPERATIONS~~

2021

1.GENERAL

GrowGeneration Corp. (the “Company”, “we”, or “our”) ~~was incorporated on March 6, 2014~~is the largest chain of hydroponic garden centers in ~~Colorado under~~North America and is a leading marketer and distributor of nutrients, growing media, advanced indoor and greenhouse lighting,

ventilation systems and accessories for hydroponic gardening. Currently, the ~~name of EasyLife Corp. and changed its name to GrowGeneration Corp. It maintains its principal office in Denver, Colorado.~~

~~The~~ Company is engaged in the business of owning and operating retail hydroponic stores through its wholly owned subsidiaries, GrowGeneration Pueblo Corp, GrowGeneration California Corp, GrowGeneration Nevada Corp, GrowGeneration Washington Corp, and GrowGeneration Management Corp and GGen Distribution Corp. The Company commenced operation with the purchase of four retail hydroponic stores in Pueblo and Canon City, Colorado on May 30, 2014. The Company currently owns and operates a ~~total~~chain of 14sixty-one (61) retail hydroponic/gardening stores across 12 states, an online e-commerce platform, and proprietary businesses that market grow solutions through our platforms and other wholesale customers. The Company’s plan is to continue to acquire, open and operate hydroponic/gardening stores and ~~is actively engaged in seeking to acquire and open additional hydroponic retail stores.~~

2.	~~SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES~~

~~Principles of Consolidation~~

~~The Company’s financial statements are prepared on~~related businesses throughout the accrual method of accounting. The accounting and reporting policies of the Company conform to generally accepted accounting principles (GAAP). The consolidated financial statements of the Company included the accounts of GrowGeneration Pueblo Corp, GrowGeneration California Corp, GrowGeneration Nevada Corp, GrowGeneration Washington Corp, GrowGeneration Management Corp and GGen Distribution Corp. All material intercompany accounts, balances and transactions have been eliminated in consolidation.

The various products sold support each other and are interrelated. Management makes significant operating decisions based upon the analysis of the entire Company and financial performance is evaluated on a company-wide basis. Accordingly, the various products sold are aggregated into one reportable operating segment as under guidance in the Financial Accounting Standards Board (the “FASB”) Accounting Standards Codification (“ASC or “codification”) Topic 28 for segment reporting.

United States.

Basis of Presentation ~~- Unaudited Interim Financial Information~~

The accompanying interim ~~condensed consolidated financial statements are unaudited. In the opinion of management, the accompanying~~ unaudited condensed consolidated financial statements contain all of the normal recurring adjustments necessary to present fairly the financial position and results of operations as of and for the periods presented. The interim results are not necessarily indicative of the results to be expected for the full year or any future period.

~~Certain information and footnote disclosures normally included in the consolidated financial statements~~Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States ~~have been condensed or omitted pursuant to~~of America (“U.S. GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”). ~~The Company believes that~~Accordingly, they do not include all of the ~~disclosures are adequate to make~~information and notes required by U.S. GAAP for complete financial statements. In the ~~interim information presented not misleading.~~opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. These ~~consolidated financial~~ statements should be read in conjunction with ~~the Company’s audited consolidated financial statements and the notes thereto included in the Company’s~~our Annual Report on Form 10-K ~~filed on March 31, 2017~~ for the ~~years~~fiscal year ended December 31, ~~2016 and 2015.~~

~~Reclassifications~~

~~Certain~~2020. The results of operations for our interim periods are not necessarily indicative of results for the full fiscal year.

All amounts included in the ~~prior period~~accompanying footnotes to the consolidated financial statements, ~~have been reclassified to conform to~~except per share data, are in thousands (000).

Risk and Uncertainties

The COVID-19 pandemic has created significant public health concerns as well as economic disruption, uncertainty, and volatility which may negatively affect our business operations. As a result, if the ~~current period presentation. These reclassifications had no effect on reported consolidated net income (loss).~~

2.	~~SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued~~

~~Use of Estimates~~

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

New Accounting Policies Adopted During the Nine Months Ended September 30, 2021

Securities

The Company classifies its commercial paper and debt securities as marketable securities. Marketable securities with available fair market values are stated at fair market values. Unrealized gains and unrealized losses on these ~~financial statements~~marketable securities are reported, net of applicable income taxes, in ~~accordance with generally accepted accounting principles. These estimates~~other comprehensive income. Realized gains or losses on sale of marketable securities are computed using primarily the moving average cost and ~~assumptions affect~~reported in net income. For the ~~reported amounts~~nine months ended September 30, 2021, there were no significant unrealized gains or losses recorded.

GrowGeneration Corporation and Subsidiaries

Notes To Unaudited Condensed Consolidated Financial Statements

September 30, 2021

2.FAIR VALUE MEASUREMENTS

Fair Value Measurements

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

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

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

•Level 3—Unobservable inputs that are supported by little or no market activity and ~~expenses during~~that are significant to determining the ~~reporting period. Actual results could vary from the estimates that were used.~~

~~Income Taxes~~

~~The Company accounts for income taxes in accordance with FASB ACS 740, Income Taxes, which requires the recognition~~fair value of deferred income taxes for differences between the basis of assets and liabilities for financial statement and income tax purposes. The differences related principally to depreciation of property and equipment, reserve for obsolete inventory and bad debt. Deferred tax assets and liabilities represent the future tax consequence for those differences, which will either be deductible or taxable when the assets or liabilities, including pricing models, discounted cash flow methodologies and ~~liabilities are recovered~~similar techniques.

To the extent that the valuation is based on models or ~~settled. Deferred taxes are also recognized for operating losses~~inputs that are ~~available to offset future taxable income. Valuation allowances are established to reduce deferred tax assets~~less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the ~~amount expected~~fair value measurement.

The carrying amounts of cash and cash equivalents, accounts receivable, available for sales securities, accounts payable and all other current liabilities approximate fair values due to ~~be realized.~~

their short-term nature. The ~~Company adopted~~fair value of notes receivable approximates the ~~provisions~~outstanding balance and are reviewed for impairment at least annually. The fair value of impaired notes receivable is determined based on estimated future payments discounted back to present value using the notes effective interest rate.


	Level	September 30, 2021		December 31, 2020
Cash equivalents	2	$	63,035	$	177,912
Marketable securities	2	$	29,961	$	—
Notes receivable impaired	3	$	—	$	875

GrowGeneration Corporation and Subsidiaries

Notes To Unaudited Condensed Consolidated Financial Statements

September 30, 2021

3.RECENT ACCOUNTING PRONOUNCEMENTS

New Accounting Pronouncements

From time to time, the Financial Accounting Standards Board (“FASB”) or other standard setting bodies issue new accounting pronouncements. Updates to the FASB ~~ACS 740-10-25, which prescribes a recognition threshold~~Accounting Standards Codification ("ASC") are communicated through issuance of an Accounting Standards Update (“ASU”). We have implemented all new accounting pronouncements that are in effect and ~~measurement attribute for the recognition~~that may impact our financial statements. We have evaluated recently issued accounting pronouncements and ~~measurement~~determined that there is no material impact on our financial position or results of tax positions taken or expected to be taken in income tax returns. FASB ASC 740-10-25 also provides guidance on recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, and accounting for interest and penalties associated with tax positions. The Company’s tax returns are subject to tax examinations by U.S. federal and state authorities until respective statute of limitation. Currently, the 2016, 2015 and 2014 tax years are open and subject to examination by taxing authorities. However,operations.

As an emerging growth company, the Company is ~~not currently under audit nor~~permitted to delay the adoption of new or revised accounting standards until such time as those standards apply to private companies. The Company has ~~the Company been contacted by any~~chosen to take advantage of the ~~taxing authorities. The Company does not have any accrual~~extended transition period for ~~uncertain tax positions as of September 30, 2017. It is not anticipated~~complying with new or revised accounting standards.

Refer to Note 3 to the Consolidated Financial Statements reported in Form 10-K for the year ended December 31, 2020 for recently issued accounting pronouncements that ~~unrecognized tax benefits would significantly increase or decrease within 12 months of the reporting date.~~

3.	~~RECENTLY ISSUED OR ADOPTED ACCOUNTING STANDARDS~~

are pending adoption.

Recently Adopted Accounting Pronouncements

In ~~May 2014,~~August 2018, the FASB issued ~~guidance creating~~ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the ~~ASC Section 606, “Revenue from Contracts with Customers”~~Disclosure Requirements for Fair Value Measurement. The new ~~section will replace Section 605, “Revenue Recognition” and creates modifications to various other revenue accounting standards for specialized transactions and industries.~~guidance modifies the disclosure requirements on fair value measurements in Topic 820. The section is intended to conform revenue accounting principles with a concurrently issued International Financial Reporting Standards with previously differing treatment between United States practice and those of much of the rest of the world, as well as, to enhance disclosures related to disaggregated revenue information. The updated guidance wasamendments in ASU 2018-13 are effective for ~~annual reporting periods beginning on or after December 15, 2016,~~all entities for fiscal years, and interim periods within those annual periods. On July 9, 2015, the FASB approved a one-year delay of the effective date. The Company will now adopt the new provisions of this accounting standard at the beginning of fiscal year 2018.

In July 2015, the FASB issued Accounting Standards Update (“ASU”) 2015-11, “Simplifying the Measurement of Inventory.” Under this ASU, inventory will be measured at the “lower of cost and net realizable value” and options that currently exist for “market value” will be eliminated. The ASU defines net realizable value as the “estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.” No other changes were made to the current guidance on inventory measurement. ASU 2015-11 is effective for interim and annual periods beginning after December 15, 2016. This update was adopted by the Company in the first quarter of fiscal year 2017. There was no material impact on the Company's consolidated financial statements as a result of the adoption of this accounting standard.

3.	~~RECENTLY ISSUED OR ADOPTED ACCOUNTING STANDARDS, continued~~

In November 2015, the FASB issued ASU No. 2015-17, “Balance Sheet Classification of Deferred Taxes”. The new guidance eliminates the requirement to separate deferred income tax liabilities and assets into current and noncurrent amounts. The amendments will require that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The updated guidance will be effective for fiscal years, beginning after December 15, ~~2016, including interim periods within those annual periods.~~2019. The adoption of this ~~standard~~new guidance, effective January 1, 2020, did not have a material impact on ~~the consolidated financial statements.~~

our Financial Statements.

In ~~January 2016,~~December 2019, the FASB issued ASU ~~2016-01,~~~~Financial Instruments-Overall: Recognition~~2019-12, Simplifying the Accounting for Income Taxes, to simplify the accounting for income taxes by removing certain exceptions to the general principles and ~~Measurement~~also simplification of ~~Financial Assets and Financial Liabilities~~ ~~, which requires that (i) all equity investments, other than equity-method investments,~~areas such as franchise taxes, step-up in unconsolidated entities generally be measured at fair value through earnings and (ii) when the fair value option has been elected for financial liabilities, changes in fair value due to instrument-specific credit risk will be recognized separately in other comprehensive income. Additionally, the ASU 2016-01 changes the disclosure requirements for financial instruments. The new standard will be effective for the Company starting in the first quarter of fiscal 2019. Early adoption is permitted for certain provisions. The Company is in the process of determining the effects the adoption will have on its consolidatedtax basis goodwill, separate entity financial statements ~~as well as whether to adopt certain provisions early.~~

~~In February 2016, the FASB issued ASU 2016-02, which introduces a lessee model that brings most leases on the balance sheet~~ and ~~among other changes, eliminates the requirement in current GAAP for an entity to use bright-line tests in determining lease classification. ASU 2016-02 is not~~interim recognition of enactment of tax laws or rate changes. The standard was effective ~~for us until January 1, 2019, with early adoption permitted. We are continuing to evaluate this guidance and the impact to us, as both lessor and lessee, on our Consolidated Financial Statements.~~

~~In March 2016, the FASB issued ASU 2016-09,~~~~Improvements to Employee Share-Based Payment Accounting~~, which amends ASC Topic 718, Compensation – Stock Compensation. ASU 2016-09 includes provisions intended to simplify various aspects related to how share-based payments are accounted for and presented in the financial statements. ASU 2016-09 is effective for public entities for annual reporting periods beginning after December 15, ~~2016, and~~2020, including interim reporting periods within that reporting period. Early adoption is permitted in any interim or annual period, with any adjustments reflected as of the beginning of the fiscal year of adoption. We adopted this guidance effective January 2, 2017, and the adoption did not have athose periods. There was no material ~~effect on our consolidated financial statements.~~

In January 2017, the FASB issued ASU 2017-04 simplifying the accounting for goodwill impairment for all entities. The new guidance eliminates the requirement to calculate the implied fair value of goodwill (Step 2 of the current two-step goodwill impairment test under ASC 350). Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value (Step 1 of the current two-step goodwill impairment test). The ASU is effective prospectively for reporting periods beginning after December 15, 2019, with early adoption permitted for annual and interim goodwill impairment testing dates after January 1, 2017. We are currently evaluating the impact of the new guidance on our goodwill impairment testing process and consolidated financial statements.

On August 28, 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging,” which better aligns risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. The amendments expand and refine hedge accounting for both nonfinancial and financial risk components and in some situations better align the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. The new standard will be effective for the Company as of January 1, 2019. Early adoption is permitted. We do not believe the adoption of this new standard will have any impact on our consolidated financial statements and ~~footnote disclosures.~~

related disclosures as a result of adopting this standard.

4.	~~PROPERTY AND EQUIPMENT~~

September 30, 2017 December 31,
2016
Vehicles $ 239,825 $ 102,014
Leasehold improvements 178,190 131,411
Furniture, fixtures and equipment 853,498 389,396
1,271,513 622,821
(Accumulated depreciation) (135,161 ) (72,967 )
Property and Equipment, net $ 1,136,351 $ 549,854

4.REVENUE RECOGNITION

The following table disaggregates revenue by source:


	Three Months Ended September 30, 2021		Three Months Ended September 30, 2020		Nine Months Ended September 30, 2021		Nine Months Ended September 30, 2020
Sales at company owned stores	$	100,799	$	51,684	$	290,937	$	123,991
Distribution	4,696		—		12,519		—
E-commerce sales	10,508		3,323		28,454		7,449
Total Revenues	$	116,003	$	55,007	$	331,910	$	131,440

GrowGeneration Corporation and Subsidiaries

Notes To Unaudited Condensed Consolidated Financial Statements

September 30, 2021

4.REVENUE RECOGNITION, continued

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


	Receivables		Customer Deposit Liability
Opening balance, January 1, 2021	$	7,713	$	5,155
Closing balance, September 30, 2021	15,237		13,743
Increase (decrease)	$	7,524	$	8,588

Opening balance, January 1, 2020	$	4,455	$	2,504
Closing balance, September 30, 2020	5,247		2,470
Increase (decrease)	$	792	$	(34)

Of the total amount of customer deposit liability as of January 1, 2021, $3,708 was reported as revenue during the nine months ended September 30, 2021. Of the total amount of customer deposit liability as of January 1, 2020, $1,599 was reported as revenue during the nine months ended September 30, 2020.

The Company also has customer trade receivables under longer term financing arrangements at interest rates ranging from 9% to 12% with repayment terms ranging for 12 to 18 months. Long term trade receivables as of September 30, 2021 and December 31, 2020 are as follows:


	September 30, 2021		December 31, 2020
Note receivable	$	8,402	$	4,104
Allowance for losses	(118)		(292)
Notes receivable, net	$	8,284	3,812

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


	September 30, 2021		December 31, 2020
Note receivable	$	118	$	1,166
Allowance for losses	(118)		(291)
Notes receivable, net	$	—	875

GrowGeneration Corporation and Subsidiaries

Notes To Unaudited Condensed Consolidated Financial Statements

September 30, 2021

5.INVESTMENTS

Marketable securities have maturities of less than one year as of September 30, 2021. There were no significant realized or unrealized gains or losses for the nine months ended September 30, 2021.

The components of investments, available for sales securities, as of September 30, 2021 were as follows:


	Fair Value Level	Adjusted Cost Basis		Unrealized Gain (Loss)		Recorded Basis
Commercial paper	Level 2	$	9,998	$	—	$	9,998
Corporate notes and bonds	Level 2	19,963		—		19,963
Marketable securities		$	29,961	$	—	$	29,961

6.NOTES RECEIVABLE

Notes receivable include customer trade receivables under long term financing arrangements and other note receivables not associated with customer transactions.


	September 30, 2021		December 31, 2020
Trade receivables under longer term financing arrangements	$	8,284	$	3,812
Note receivable, non-customer related	—		—
Subtotal	8,284		3,812
Less, current portion	(7,734)		(2,612)
Notes receivable, noncurrent	$	550	1,200

7.PROPERTY AND EQUIPMENT


	September 30, 2021		December 31, 2020
Vehicles	$	2,455	$	1,342
Building	1,187		477
Leasehold improvements	5,485		1,988
Furniture, fixtures and equipment	9,106		5,739
Construction-in-progress	3,966		—
Total property and equipment, gross	22,199		9,546
Accumulated depreciation and amortization	(5,444)		(3,071)
Property and equipment, net	$	16,755	$	6,475

Depreciation expense for the three and nine months ended September 30, 2021 was $932 thousand and $2.4 million, respectively. Depreciation expense for the three and nine months ended September 30, 2020 was $400 thousand and $1.1 million, respectively.

GrowGeneration Corporation and Subsidiaries

Notes To Unaudited Condensed Consolidated Financial Statements

September 30, 2021

8.GOODWILL AND INTANGIBLE ASSETS

The changes in goodwill are as follows:


	September 30, 2021		December 31, 2020
Balance, beginning of period	$	62,951	$	17,799
Goodwill additions and measurement period adjustments	60,924		45,152
Balance, end of period	$	123,875	$	62,951

Intangible assets consist of the following:


	September 30, 2021				December 31, 2020
	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Tradenames	$	27,144	$	(3,584)	$	13,923	$	(398)
Patents, trademarks	100		(38)		100		(9)
Customer relationships	22,057		(2,130)		6,297		(138)
Non-competes	1,146		(175)		796		(22)
Intellectual property	2,065		(241)		—		—
Capitalized software	3,811		(758)		1,163		(222)
	$	56,323	$	(6,926)	$	22,279	$	(789)

Amortization expense for the three months ended September 30, ~~2017~~2021 and ~~2016~~2020 was ~~$22,707~~$2.6 million and ~~$17,158 respectively and~~$44.1 thousand, respectively.

Amortization expense for the nine months ended September 30, ~~2017~~2021 and ~~2016~~2020 was ~~$62,194~~$6.1 million and ~~$38,181,~~$0.2 million, respectively.

5.	~~OTHER COMMITMENTS~~


Future amortization expense is as follows:
2021, remainder	$	2,718
2022	11,002
2023	10,707
2024	10,356
2025	9,459
Thereafter	5,155
Total	$	49,397

GrowGeneration Corporation and Subsidiaries

Notes To Unaudited Condensed Consolidated Financial Statements

September 22, 2017 the Board of Directors approved new three-year employment agreements with its CEO and President. Compensation under each new employment agreement is $175,000 annually with 10% increases on each January 1 during the term of the agreement. In addition, the CEO and President are eligible for bonus payment based on achieving certain revenue objective. The CEO and President will each be granted up to 300,000 options to purchase shares of common stock of the Company, of which 30,750 have been granted as of September 22, 2017.

~~In April and May 2017, the Company also entered into three-year employment agreements with its COO and CFO, respectively. These agreements require payment of monthly wages and benefits.~~

6.	~~LONG-TERM DEBT~~

September 30, December 31,
2017 2016
Long term debt is as follows:
Chrysler Capital, interest ranging from 9.8% and 10.9% per annum, payable in monthly installments of $1,889.59 beginning May 2017 through June 2022, secured by vehicles with a book value of $128,800 $ 83,565 $ -

Hitachi Capital, interest at 8.0% per annum, payable in monthly installments of $631.13 beginning September 2015 through August 2019, secured by delivery equipment with a book value of $24,910 13,424 18,133

Wells Fargo Equipment Finance, interest at 3.5% per annum, payable in monthly installments of $518.96 beginning April 2016 through March 2021, secured by warehouse equipment with a book value of $25,437 19,574 24,559

RMT Equipment, interest at 10.9% per annum, payable in monthly installments of $1,154.79 beginning June 2016 through October 2018, secured by delivery equipment with a book value of $31,130 13,545 22,477

Note payable insurance premium financing, interest at 4.74% per annum, payable in 10 installments of $3,441, due January 2018 13,642 -
$ 143,750 $ 65,169
Less Current Maturities (54,112 ) (23,443 )
Total Long-Term Debt $ 89,638 $ 41,726

30, 2021

9.LONG-TERM DEBT

6.	~~LONG-TERM DEBT, continued~~


	September 30, 2021		December 31, 2020
Long term debt is as follows:
Wells Fargo Equipment Finance, interest at 3.5% per annum, payable in monthly installments of $518.96 beginning April 2016 through March 2021, secured by warehouse equipment with a book value of $25	$	—	$	1

Notes payable issued in connection with seller financing of assets acquired, interest at 8.125%, payable in 60 installments of $8,440.00, due August 2023	203		240
	$	203	$	241
Less Current Maturities	(111)		(83)
Total Long-Term Debt	$	92	$	158

Interest expense for the three months ended September 30, ~~2017~~2021 and ~~2016~~2020 was ~~$3,419~~$25 thousand and ~~$1,384, respectively and~~$0, respectively.

Interest expense for the nine months ended September 30, ~~2017~~2021 and ~~2016~~2020 was ~~$7,181~~$31 thousand and ~~$3,050,~~$20 thousand, respectively.

7.	~~SHARE BASED PAYMENTS AND STOCK OPTIONS~~

10.LEASES

We determine if a contract contains a lease at inception. Our material operating leases consist of retail and warehouse locations as well as office space. Our leases generally have remaining terms of 1-7 years, most of which include options to extend the leases for additional 3 to 5-year periods. Generally, the lease term is the minimum of the non-cancelable period of the lease or the lease term inclusive of reasonably certain renewal periods.


	September 30, 2021		December 31, 2020
Right to use assets, operating lease assets	$	36,155	$	12,088

Current lease liability	$	6,205	$	3,001
Non-current lease liability	31,355		9,479
	$	37,560	$	12,480


	September 30, 2021		September 30, 2020
Weighted average remaining lease term	6.89 years		2.98 years
Weighted average discount rate	6.5	%	7.6	%


	Nine Months Ended September 30,
	2021		2020
Operating lease costs	$	5,687	$	2,660
Short-term lease costs	192		22
Total operating lease costs	$	5,879	$	2,682

GrowGeneration Corporation and Subsidiaries

Notes To Unaudited Condensed Consolidated Financial Statements

September 30, 2021

10.LEASES, continued

The following table presents the maturity of the Company’s operating lease liabilities as of September 30, 2021:


2021 (remainder of the year)	$	2,248
2022	8,116
2023	7,548
2024	6,320
2025	5,330
Thereafter	17,128
Total lease payments	46,690
Less: Imputed interest	(9,130)
Lease Liability at September 30, 2021	$	37,560

11.SHARE BASED PAYMENTS

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

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

The Company also issues share based payments in the form of common stock warrants to non-employees.

The following table presents share-based payment expense ~~and new shares issued~~ for ~~the three and nine months ended September 30, 2017 and 2016.~~

Three Months Ended
September 30, Nine months ended
September 30,
2017 2016 2017 2016
Restricted shares issued 66,500 - 371,500 140,000
Shares based expense from issuance of common stock $ 117,040 $ - $ 365,040 $ 98,000
Shares based expense from issuance of common stock options $ 84,695 - $ 162,103 $ 86,333
Subtotal shares issued for services and options issued $ 201,735 $ - $ 527,143 $ 184,333
Warrants issued for services 41,249 - 118,249 -
Total non cash compensation $ 242,984 - $ 645,392 $ 184,333

On March 6, 2014, the Company’s Board of Directors (the “Board”) and majority stockholders approved the 2014 Equity Incentive Plan pursuant to which the Company may grant incentive and non-statutory options to employees, nonemployee members of the Board, consultants and other independent advisors who provide services to the Company. The maximum shares of common stock which may be issued over the term of the plan shall not exceed 2,500,000 shares. Awards under the plan are made by the Board. Options under the plan are to be issued at the market price of the stock on the day of the grant except to those issued to holders of 10% or more of the Company’s common stock which is required to be issued at a price not less than 110% of the fair market value on the day of the grant. Each option is exercisable at such time or times, during such period and for such numbers of shares shall be determined by the plan administrator. However, no option shall have a term in excess of 5 years from the date of grant.

~~Options outstanding at September 30, 2017 are as follows:~~

Options Shares Weight - Average Exercise Price Weighted - Average Remaining Contractual Term
Outstanding at December 31, 2016 1,880,000 $ 0.62 2.27 years
Granted 296,500 $ 1.82
Exercised - -
Forfeited or expired (27,000 ) -
Outstanding at September 30, 2017 2,149,500 $ .77 1.92 years
Options vested at September 30, 2017 2,049,500 $ .72

8.	~~STOCK PURCHASE WARRANTS~~

~~During~~ the nine months ended September 30, ~~2017,~~2021 and 2020.


	Nine months ended September 30,
	2021		2020
Restricted stock	$	3,511	$	3,966
Stock options	721		2,358
Warrants	1,115		—
Total	$	5,347	$	6,324

As of September 30, 2021, the Company ~~granted 825,000 warrants~~had approximately $9.7 million of unamortized share-based compensation for option awards and restricted stock awards, which is expected to ~~investors in~~be recognized over a ~~private placement and 100,000 warrants to an advisor pursuant to certain advisor agreement. These warrants are exercisable for a~~weighted average period of ~~five years with~~approximately 3.1 years. As of September 30, 2021, the Company also had approximately $2.9 million of unamortized share-based compensation for common stock warrants issued to consultants, which is expected to be recognized over a weighted average period of 2.3 years.

Restricted Stock

The Company issues shares of restricted stock to eligible employees, which are subject to forfeiture until the end of an ~~exercise price~~applicable vesting period. The awards generally vest on the second or third anniversary of ~~$2.75~~the date of grant, subject to the employee’s continuing employment as of that date.

GrowGeneration Corporation and ~~$.70, respectively.~~

Subsidiaries

Notes To Unaudited Condensed Consolidated Financial Statements

September 30, 2021

11.SHARE BASED PAYMENTS AND STOCK OPTIONS, continued

Restricted stock activity for the nine months ended September 30, 2021 is presented in the following table:


	Shares	Weighted Average Grant Date Fair Value
Nonvested, December 31, 2020	630	$	4.15
Granted	250	$	40.56
Vested	(355)	$	4.48
Forfeited	(9)	$	18.54
Nonvested, September 30, 2021	516	$	19.92

The table below summarizes all option activity under all plans during the nine months ended September 30, 2021:


Options	Shares	Weight - Average Exercise Price		Weighted - Average Remaining Contractual Term	Weighted - Average Grant Date Fair Value
Outstanding at December 31, 2020	1,803	$	3.92	3.47	$	2.38
Granted	—	—��		—	—
Exercised	(821)	3.20		—	1.71
Forfeited or expired	(51)	4.12		—	2.26
Outstanding at September 30, 2021	931	$	4.55	3.12	$	2.62
Options vested at September 30, 2021	595	$	4.27	3.01	$	2.51

A summary of the status of the Company’s outstanding stock purchase warrants for the nine months ended September 30, 2021 is as follows:


	Warrants	Weighted Average Exercise Price
Outstanding at December 31, 2020	1,393	$	7.49
Issued	—	—
Exercised	(968)	$	2.84
Forfeited	—	—
Outstanding at September 30, 2021	425	$	17.25

GrowGeneration Corporation and Subsidiaries

Notes To Unaudited Condensed Consolidated Financial Statements

September 30, 2021

12.EARNINGS PER SHARE

The following table sets forth the composition of the weighted average shares (denominator) used in the basic and dilutive earnings per share computation for the three and nine months ended September 30, 2021 and 2020.


	Three Months Ended
	September 30, 2021		September 30, 2020
Net income	$	4,027	$	3,338
Weighted average shares outstanding, basic	58,531		47,878
Effect of dilution	959		3,748
Adjusted weighted average shares outstanding, dilutive	59,490		51,626
Basic earnings per share	$	0.07	$	0.07
Dilutive earnings per share	$	0.07	$	0.06


	Nine Months Ended
	September 30, 2021		September 30, 2020
Net income	$	16,887	$	3,818
Weighted average shares outstanding, basic	58,994		41,477
Effect of dilution	1,114		2,747
Adjusted weighted average shares outstanding, dilutive	60,108		44,224
Basic earnings per share	$	0.29	$	0.09
Dilutive earnings per share	$	0.28	$	0.09

13.ACQUISITIONS

Our acquisition strategy is primarily to acquire (i) well established profitable hydroponic garden centers in markets where the Company does not have a market presence or in markets where it is increasing its market presence; and (ii) proprietary brands and private label brands. The Company accounts for acquisitions in accordance with ASC 805 “Business Combinations.” Assets acquired and liabilities assumed are recorded in the accompanying consolidated balance sheets at their estimated fair values, as of ~~September 30, 2017 is~~the acquisition date. For all acquisitions, the preliminary allocation of the purchase price was based upon a preliminary valuation, and the Company’s estimates and assumptions are subject to change within the measurement period as ~~follows:~~

Warrants Weighted - Average Exercise Price

Outstanding December 31, 2016 3,885,729 $ 0.70

Granted 2,475,000 2.65
Exercised (2,149,287 ) 0.70
Forfeited - -
Outstanding September 30, 2017 4,211,442 $ 1.79

9.	~~STOCKHOLDERS’ EQUITY~~

~~Common Stock~~

valuations are finalized. The ~~Company’s current Certificate~~Company has made adjustments to the preliminary valuations of ~~Incorporation authorizes~~ the ~~Company to issued 100,000,000 shares of common stock, par value $0.001 per share. As of September 30, 2017, there were 16,088,621 shares of common stock outstanding.~~

~~2017 Equity Transactions~~

acquisition based on valuation analysis prepared by independent third-party valuation consultants. During the nine months ended September 30, ~~2017~~2021 our measurement period adjustments included reducing intangible assets by $1.0 million and increasing goodwill by the ~~Company sold~~same amount. As a ~~total~~result of ~~1,825,000 units, each consisting~~these measurement period adjustments, we made an insignificant reduction in amortization expense which is included in the income statement. All acquisition costs are expensed as incurred and recorded in general and administrative expenses in the consolidated statements of ~~one share of common stock and one warrant to purchase one share of common stock, for net proceeds after offering costs of $3,291,565.~~

~~During~~operations.

Acquisitions during the nine months ended September 30, ~~2017, warrants to~~2021

On January 25, 2021, the Company purchased the assets of Indoor Garden & Lighting, Inc, a two-store chain of hydroponic and equipment and indoor gardening supply stores serving the Seattle and Tacoma, Washington area. The total consideration for the purchase ~~2,149,287 shares~~ of Garden & Lighting was approximately $1.7 million, including $1.2 million in cash and common stock ~~were exercised resulting~~valued at approximately $0.5 million. Acquired goodwill of approximately $0.7 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company.

On February 1, 2021, the Company purchased the assets of J.A.R.B., Inc d/b/a Grow Depot Maine, a two-store chain in ~~proceeds~~Auburn and Augusta, Maine. The total consideration for the purchase of Grow Depot Maine was approximately $2.1 million, including $1.7 million in cash and common stock valued at approximately $0.4 million. Acquired goodwill of approximately $0.9 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company.

GrowGeneration Corporation and Subsidiaries

Notes To Unaudited Condensed Consolidated Financial Statements

September 30, 2021

13.ACQUISITIONS, continued

On February 15, 2021, the Company purchased the assets of Grow Warehouse LLC, a four-store chain of hydroponic and organic garden stores in Colorado (3) and Oklahoma (1). The total consideration for the purchase of Grow Warehouse LLC was approximately $17.8 million, including $8.1 million in cash and common stock valued at approximately $9.7 million. Acquired goodwill of approximately $11.1 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company.

On February 22, 2021, the Company purchased the assets of San Diego Hydroponics & Organics, a four-store chain of hydroponic and organic garden stores in San Diego, California. The total consideration for the purchase of San Diego Hydroponics was approximately $9.3 million, including $4.8 million in cash and common stock valued at approximately $4.5 million. Acquired goodwill of approximately $5.7 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company.

On March 12, 2021, the Company purchased the assets of Charcoir Corporation, which sells an RHP-certified growing medium made from the highest-grade coconut fiber. The total consideration for the purchase of Charcoir was approximately $16.4 million, including $9.9 million in cash and common stock valued at approximately $6.5 million. Acquired goodwill of approximately $6.1 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established distribution market for the Company of ~~$1,504,501.~~

~~During~~a proprietary brand.

On March 15, 2021, the Company purchased the assets of 55 Hydroponics, a hydroponic and organic superstore located in Santa Ana, California. The total consideration for the purchase of 55 Hydroponics was approximately $6.5 million, including $5.4 million in cash and common stock valued at approximately $1.1 million. Acquired goodwill of approximately $3.9 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company.

On March 15, 2021, the Company purchased the assets of Aquarius, a hydroponic and organic garden store in Springfield, Massachusetts. The total consideration for the purchase of Aquarius was approximately $3.6 million, including $2.4 million in cash and common stock valued at approximately $1.2 million. Acquired goodwill of approximately $1.7 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company.

On March 19, 2021, the Company purchased the assets of Agron, LLC, an online seller of growing equipment. The total consideration for the purchase of Agron was approximately $11.3 million, including $6 million in cash and common stock valued at approximately $5.3 million. Acquired goodwill of approximately $8.7 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established e-commerce market for the Company targeting the commercial customer.

On April 19, 2021, the Company purchased the assets of Grow Depot LLC ("Down River Hydro"), a hydroponic and indoor gardening supply store in Brownstown, Michigan. The total consideration for the purchase of Down River Hydro was approximately $4.4 million, including approximately $3.2 million in cash and common stock valued at approximately $1.2 million. Acquired goodwill of approximately $2.1 million represents the value expected to rise from organic growth and an opportunity to expand into a well established market for the Company.

On May 24, 2021, the Company purchased the assets of The Harvest Company ("Harvest"), a northern California-based hydroponic supply center and cultivation design innovator with stores in Redding and Trinity Counties. The total consideration for the purchase of Harvest was approximately $8.3 million, including approximately $5.6 million in cash and common stock valued at approximately $2.8 million. Acquired goodwill of approximately $4.6 million represents the value expected to rise from organic growth and an opportunity to expand into a well established market for the Company.

On July 19, 2021, the Company purchased the assets of Aqua Serene, Inc., ("Aqua Serene") an Oregon corporation which consists of an indoor/outdoor garden center with stores in Eugene and Ashland, Oregon. The total consideration for the purchase was $11.7 million, including approximately $9.9 million in cash and common stock valued at approximately $1.8 million. Acquired goodwill represents the value expected to rise from organic growth and an opportunity to expand into a well established market for the Company.

GrowGeneration Corporation and Subsidiaries

Notes To Unaudited Condensed Consolidated Financial Statements

September 30, 2021

13.ACQUISITIONS, continued

On July 3, 2021, the Company purchased the assets of Mendocino Greenhouse & Garden Supply, Inc, a Northern California-based hydroponic garden center located in Mendocino, California. The purchase agreement was modified on July 19, 2021 to amend the purchase price. The total consideration for the purchase was $4.0 million in cash. This acquisition allows the Company to expand its footprint in the Northern California.

On August 24, 2021, the Company purchased the assets of Commercial Grow Supply, Inc. ("CGS"), a hydroponic superstore located in Santa Clarita, California. The total consideration for the purchase was $7.2 million, including approximately $6.0 million in cash and common stock valued at approximately $1.3 million. Acquired goodwill represents the value expected to rise from organic growth and an opportunity to expand into a well established market for the Company.

On August 23, 2021 the Company purchased the assets of Hoagtech Hydroponics, Inc. ("Hoagtech"), a Washington -based corporation consisting of a hydroponic and garden supply center serving the Bellingham, Washington area. The total consideration for the purchase was $3.9 million in cash. The Asset Purchase Agreement contains a contingent payment equal to $0.6 million to be settled in GrowGen common stock if this garden supply center reaches $8.0 million in revenue within a 12-month calendar period from the date of close. The Company used a third-party specialist to value this contingent consideration. The probability that the target will be reached was determined to be 5% which resulted in a value of approximately $29 thousand of contingent consideration which was offset against goodwill. This acquisition expands our footprint in the Pacific Northwest. Acquired goodwill represents the value expected to rise from organic growth and an opportunity to expand into a well established market for the Company.

The table below represents the allocation of the purchase price to the acquired net assets during the nine months ended September 30, ~~2017,~~2021.


	Agron		Aquarius		Aqua Serene		55 Hydro		Charcoir		San Diego Hydro		Mendocino		Hoagtech
Inventory	$	—	$	957	$	1,696	$	780	$	839	$	1,400	753		751
Prepaids and other current assets	29		12		2		29		534		36		1		37
Furniture and equipment	46		63		500		50		—		315		160		144
Liabilities	—		—		—		—		—		—		—		—
Operating lease right to use asset	98		108		1,177		861		—		1,079		408		1,569
Operating lease liability	(98)		(108)		(1,177)		(861)		—		(1,079)		(408)		(1,569)
Customer relationships	832		339		1,235		809		5,712		605		575		493
Trade name	1,530		485		1,231		870		1,099		1,192		449		428
Non-compete	139		—		11		26		—		6		6		3
Intellectual property	—		—		—		—		2,065		—		—		—
Goodwill	8,673		1,702		6,976		3,915		6,119		5,728		2,056		2,076
Total	$	11,249	$	3,558	$	11,651	$	6,479	$	16,368	$	9,282	$	4,000	$	3,932


	CGS		Grow Warehouse		Grow Depot Maine		Indoor Garden		Down River Hydro		Harvest		Total
Inventory	875		$	2,450	$	326	$	372	$	824	$	1,204	$	13,227
Prepaids and other current assets	1		30		3		—		3		7		724
Furniture and equipment	100		250		25		94		50		100		1,897
Liabilities	—		(169)		—		—		—		—		(169)
Operating lease right to use asset	746		641		92		137		273		3,782		10,971
Operating lease liability	(746)		(641)		(92)		(137)		(273)		(3,782)		(10,971)
Customer relationships	1,382		1,256		549		210		634		1,016		15,647
Trade name	852		2,748		344		353		698		1,392		13,671
Non-compete	11		94		36		2		16		—		350
Intellectual property	—		—		—		—		—		—		2,065
Goodwill	4,027		11,120		866		661		2,126		4,606		60,651
Total	$	7,248	$	17,779	$	2,149	$	1,692	$	4,351	$	8,325	$	108,063

GrowGeneration Corporation and Subsidiaries

Notes To Unaudited Condensed Consolidated Financial Statements

September 30, 2021

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


	Agron		Aquarius		Aqua Serene		55 Hydro		Charcoir		San Diego Hydro		Mendocino		Hoagtech
Cash	$	5,973	$	2,331	$	9,860	$	5,347	$	9,902	$	4,751	$	4,000	$	3,932
Common stock	5,276		1,227		1,791		1,132		6,466		4,531		—		—
Total	$	11,249	$	3,558	$	11,651	$	6,479	$	16,368	$	9,282	$	4,000	$	3,932


	CGS		Grow Warehouse		Grow Depot Maine		Indoor Garden		Down River Hydro		Harvest		Total
Cash	5,976		$	8,100	$	1,738	$	1,165	$	3,177	$	5,561	$	71,813
Common stock	1,272		9,679		411		527		1,174		2,764		36,250
Total	$	7,248	$	17,779	$	2,149	$	1,692	$	4,351	$	8,325	$	108,063

The following table discloses the date of the acquisitions noted above and the revenue and earnings included in the consolidated income statement for the period ended September 30, 2021.


	Agron		Aquarius		Aqua Serene		55 Hydro		Charcoir		San Diego Hydro		Mendocino		Hoagtech
Acquisition date	3/19/2021		3/15/2021		7/19/21		3/15/2021		3/12/2021		2/22/2021		7/19/21		8/23/21
Revenue	$	10,587	$	5,555	$	1,590	$	4,482	$	4,048	$	5,525	$	1,085	$	483
Net Income	$	149	$	1,145	$	331	$	393	$	723	$	839	$	158	$	36


	CGS		Grow Warehouse		Grow Depot Maine		Indoor Garden		Down River Hydro		Harvest		Total
Acquisition date	8/24/21		2/15/2021		2/1/2021		1/25/2021		4/19/2021		5/24/21
Revenue	$	447	$	10,153	$	4,660	$	4,508	$	2,460	$	4,444	$	60,027
Net Income	$	(1)	$	1,812	$	907	$	520	$	277	$	756	$	8,045

GrowGeneration Corporation and Subsidiaries

Notes To Unaudited Condensed Consolidated Financial Statements

September 30, 2021

13.ACQUISITIONS, continued

The following represents the pro forma consolidated income statement as if the acquisitions had been included in the consolidated results of the Company ~~issued 195,500 shares of common stock to employees~~for the entire period for the three and ~~consultants valued at $365,000.~~

~~During~~nine months ended September 30, 2021 and 2020.


	Three Months Ended		Nine Months Ended
	September 30, 2021 (Unaudited)		September 30, 2021 (Unaudited)
Revenue	$	146,030	$	361,937
Net income	$	5,299	$	23,276


	Three Months Ended		Nine Months Ended
	September 30, 2020 (Unaudited)		September 30, 2020 (Unaudited)
Revenue	$	121,809	$	222,193
Net income	$	6,412	$	15,681

Acquisitions during the nine months ended September 30, ~~2017, the Company issued 100,000 shares~~2020

On February 26, 2020, we acquired certain assets of ~~common stock and 100,000 warrants for consulting services~~Health & Harvest LLC in a transaction valued at ~~$77,000.~~

~~During~~approximately $2.85 million. Acquired goodwill of approximately $1.1 million represented the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company. Cash consideration was funded from the Company’s existing working capital.

On June 16, 2020, we acquired certain assets of H2O Hydroponics, LLC in a transaction valued at approximately $2.0 million. Acquired goodwill of approximately $1.0 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company. Cash consideration was funded from the Company's existing working capital.

On August 10, 2020, we acquired certain assets of Benzakry Family Corp, d/b/a Emerald City Garden, in a transaction valued at $1.0 million. Acquired goodwill of approximately $0.6 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company. Cash consideration was funded from the Company’s existing working capital.

The table below represents the allocation of the purchase price to the acquired net assets during the nine months ended September 30, ~~2017,~~2020.


	Emerald City Garden		H2O Hydroponics LLC		Health & Harvest LLC		Total
Inventory	$	150	$	498	$	1,054	$	1,702
Prepaids and other current assets	—		4		—		4
Furniture and equipment	10		50		51		111
Right to use asset	140		906		324		1,370
Lease liability	(140)		(906)		(324)		(1,370)
Customer relationships	212		150		255		617
Trade name	—		234		357		591
Non-compete	14		43		6		63
Goodwill	614		1,008		1,130		2,752
Total	$	1,000	$	1,987	$	2,853	$	5,840

GrowGeneration Corporation and Subsidiaries

Notes To Unaudited Condensed Consolidated Financial Statements

September 30, 2021

The table below represents the ~~Company issued 80,000 shares~~consideration paid for the net assets acquired in business combinations.


	Emerald City Garden		H2O Hydroponics LLC		Health & Harvest LLC		Total
Cash	$	1,000	$	1,282	$	1,750	$	4,032
Common stock	—		705		1,103		1,808
Total	$	1,000	$	1,987	$	2,853	$	5,840

The following table discloses the date of ~~common stock~~the acquisitions noted above and ~~150,000 warrants for prepaid consulting services valued at $251,890.~~

~~10. EARNINGS PER SHARE~~

~~Basic net loss per share is computed by dividing net loss by~~ the weighted average number of shares of common stock outstanding. Diluted net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding plus the number of shares of common stock that would be issued assuming exercise or conversion of all potentially dilutive shares of common stock. Potentially dilutive securities are excluded from the calculation when their effect would be anti-dilutive. For all periods presentedrevenue and earnings included in the consolidated ~~financial statements, all potentially dilutive securities have been excluded~~income statement from the ~~diluted share calculations~~date of acquisition to the nine months ended September 30, 2020.


	Emerald City Gardens		H2O Hydroponics LLC		Health & Harvest LLC		Total
Acquisition date	8/10/20		6/26/20		2/26/2020
Revenue	$	472	$	2,769	$	5,887	$	9,128
Earnings	$	74	$	504	$	831	$	1,409

The following represents the pro forma consolidated income statement as ~~they were anti-dilutive as a result~~if the acquisitions had been included in the consolidated results of the ~~net losses incurred~~Company for the ~~respective periods. Accordingly, basic shares equal diluted shares~~entire period for ~~all periods presented.~~

~~Potentially dilutive securities were comprised~~the nine months ended September 30, 2019.

Pro forma consolidated income statement:


	Three Months Ended		Nine Months Ended
	September 30, 2019 (Unaudited)		September 30, 2019 (Unaudited)
Revenue	$	24,651	$	61,176
Earnings	$	1,220	$	2,603

14.RELATED PARTIES

The Company has engaged with a firm that employs an immediate family member of an officer of the ~~following:~~

Nine months ended
September 30,
2017 2016
Warrants 4,211,442 4,084,229
Options 2,149,500 1,872,000
6,370,942 5,956,229

~~11.~~

~~SUBSEQUENT EVENTS~~

Company as partner. The firm provides certain legal services. Amounts paid for to that firm in total were approximately $32.0 thousand and $457.8 thousand for the three and nine months ended September 30, 2021, respectively. As of September 30, 2021, there was no outstanding balance due.

15.SUBSEQUENT EVENTS

The Company has evaluated events and transaction occurring subsequent to September 30, ~~2017~~2021 up to the date of this filing of these consolidated financial statements. These statements contain all necessary adjustments and disclosures resulting from that evaluation.

For all acquisitions subsequent to the end of the quarter, the Company’s initial accounting for the business combination has not been completed because the valuations have not yet been received from the Company’s independent valuation firm.

On October ~~8, 2017, our Santa Rosa, CA store~~12, 2021, the Company purchased the assets of All Seasons Gardening, an indoor-outdoor garden supply center specializing in hydroponics systems, lighting, and nutrients. All Seasons Gardening is the largest hydroponics retailer in New Mexico. The total consideration for the purchase was ~~forced~~$1.0 million, including approximately $0.7 million in cash and common stock valued at approximately $0.3 million.

GrowGeneration Corporation and Subsidiaries

Notes To Unaudited Condensed Consolidated Financial Statements

September 30, 2021

On October 12, 2021, the Company terminated a series of asset purchase agreements (the “Asset Purchase Agreements”) entered into on July 27, 2021 through its wholly-owned subsidiary, GrowGeneration Michigan Corp., to ~~closed by local authorities due to evacuations caused by significant wildfires in~~purchase the ~~vicinity.~~assets from subsidiaries of HGS Hydro (“HGS Hydro”). The ~~Company was able to gain access to the store on October 22, 2017 and we are in the process of evaluating the extent of damage to the store and its contents as a result~~termination of the ~~fire. The~~Asset Purchase Agreement was mutually agreed to by both parties. In connection with the termination, the Company ~~is fully insured for both damage to the contents~~reimbursed HGS Hydro of ~~the store as well as business interruption (loss~~a transaction fee of sales) as a result of the store being closed during this period. The store re-opened on October 26, 2017 and the long-term impact on sales, if any, is unknown at this time as we are still assessing the impact of the fire on our customers.

$300,000.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with our consolidated financial statements and related notes that appear elsewhere in this report as well as our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2020 filed with the SEC on March ~~31, 2017.~~29, 2021, as amended on April 14, 2021. In connection with, and because we desire to take advantage of, the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, we caution readers regarding certain forward looking statements in the following discussion and elsewhere in this report and in any other statement made by us, or on our behalf, whether or not in future filings with the SEC. Forward looking statements are statements not based on historical information and which relate to future operations, strategies, financial results or other developments. Forward looking statements, particularly those identified with the words, “anticipates,” “believes,” “expects,” “plans,” “intends,” “objectives,” and similar expressions, are necessarily based upon estimates and assumptions that are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control and many of which, with respect to future business decisions, are subject to change. These uncertainties and contingencies can affect actual results and could cause actual results to differ materially from those expressed in any forward-looking statements made by, or on our behalf. We disclaim any obligation to update forward looking statements, except as required by law.

OVERVIEW

~~GrowGeneration’s mission~~

GrowGeneration Corp. (together with all of its wholly-owned subsidiaries, collectively “GrowGeneration” or the “Company”) was incorporated in Colorado in 2014 and is ~~to become one of~~ the largest ~~retail~~chain of hydroponic garden centers in North America and ~~organic specialty gardening retail outlets in the industry. Today,~~is a leading marketer and distributor of nutrients, growing media, advanced indoor and greenhouse lighting, environmental control systems and accessories for hydroponic gardening. GrowGeneration also owns and operates ~~a chain of fourteen (14) retail hydroponic/gardening stores, with nine (9) located in the state of Colorado, two (2) in the state of California, one (1) in the state of Washington~~e-commerce platforms www.growgeneration.com and ~~two (2) in the state of Nevada (one that opened subsequent~~www.agron.io, Canopy Crop Management Corp, CharCoir Inc, and several proprietary private-label brands across multiple product categories from LED lighting to ~~September 30, 2017). Our plan is to open~~nutrients and ~~operate hydroponic/gardening stores throughout the United States.~~

~~Our stores sell~~additives and environmental control systems for indoor cultivation.

Markets

GrowGeneration sells thousands of products, ~~such~~including nutrients, growing media, advanced indoor and greenhouse lighting, environmental control systems, vertical benching and accessories for hydroponic gardening, as ~~organic nutrients and soils, advanced lighting technology, state of the art hydroponic and aquaponic equipment, and~~well as other products needed to grow indoors and outdoors. Our strategy is to target two distinct verticals; namely (i) commercial growers, and (ii) smaller growers who require a local store to fulfill their daily and weekly growing needs.

GrowGeneration serves a new, yet sophisticated community of commercial and urban cultivators growing specialty crops including organics, greens and plant-based medicines. Unlike the traditional agricultural industry, these cultivators use innovative indoor and outdoor growing ~~techniques~~products, that are designed and intended for growing a wide range of plants. In addition, vertical farms producing organic fruits and vegetables also utilize hydroponics due to ~~produce specialty crops~~a rising shortage of farmland as well as environmental vulnerabilities including drought, other severe weather conditions and insect pests.

Our retail operations are driven by a wide selection of all hydroponic products, service and solutions driven staff and pick, pack and ship distribution and fulfillment capabilities. We employed approximately 748 employees as of September 30, 2021, a majority of them we have branded as “Grow Pros.” Currently, our operations span over 950,000 square feet of retail and warehouse space.

We operate our business through the following business units:

•Retail: 61 operating hydroponic/gardening centers focused on serving growers and cultivators.

•Commercial: Sales to commercial customers, including large multi-state operators and cultivators.

•E-Commerce/Omni-channel: Our e-commerce operation, includes GrowGeneration.com and Agron.io, a business-to-business (B2B) online portal for commercial growers. GrowGeneration.com is currently adding “Buy online/Pick up in ~~highly controlled environments. This enables~~store” same day pick up service.

•Proprietary Brands and Private Label: GrowGeneration sells a variety of products, including nutrients, growing media, advanced indoor and greenhouse lighting, ventilation systems, vertical benching, environmental control systems and accessories for hydroponic gardening.

Competitive Advantages

As the largest chain of hydroponic garden centers by revenue and number of stores in the United States based on management’s estimates, we believe that we have the following core competitive advantages over our competitors:

•We offer a one-stop shopping experience to all types of growers by providing “selection, service, and solutions”;

•We provide end-to-end solutions for our commercial customers from capex built-out to consumables to nourish their plants;

•We have a knowledge-based sales team, all with horticultural experience;

•We offer the options to transact online, in store, or buy online and pick up;

•We consider ourselves to be a leader of the products we offer, from launching new technologies to the development of our private label products;

•We have a professional team for mergers and acquisitions and to acquire and open new locations and successfully add them to ~~produce crops at higher yields without having~~our company portfolio; and

•We offer a program of issuing credit to ~~compromise quality, regardless~~licensed commercial customers based on a credit evaluation process.

Growth Strategy - Store Acquisitions and New Store Openings

Core to our growth strategy is to expand the number of our retail garden centers throughout North America. The hydroponic retail landscape is fragmented, which allows us to acquire the ~~season or weather~~“best of breed” hydroponic operations. In addition to the 12 states we are currently operating in, we have identified new market opportunities in states that include Ohio, Illinois, Pennsylvania, New York, New Jersey, Mississippi and ~~drought conditions.~~

~~Our target market segments include the commercial growers~~Missouri. In 2020, we opened a second hydroponic/gardening center in Tulsa, Oklahoma, a 40,000 square feet store operation and fulfillment center, and completed eight (8) acquisitions, adding 14 new locations. The Company acquired 17 new locations in the ~~cannabis market (dispensaries, cultivators~~first half of 2021, three additional locations in July 2021 and ~~caregivers), the home cannabis grower~~two in August 2021, and has an active target pipeline of acquisitions which are planned to ~~businesses and individuals who grow organically grown herbs and leafy green vegetables.~~

~~Sales at our stores have grown since we commenced our business~~close in May 2014, as noted below. Our growth has been fueled by frequent and higher dollar transactions from commercial growers, individual home growers and gardeners who grow their own organic foods. We expect to continue to experience significant growth over the next few years, primarily from existing and new stores that we open or acquire. Our growth is likely to come from four distinct channels: establishing new stores in high-value markets, internal growth at existing stores, acquiring existing stores with strong customer bases and strong operating histories and the creation of a business to business e-commerce portal at www.GrowGeneration.com.

Our business commenced in May 2014 when we acquired the assets of Southern Colorado Garden Supply Corp. (d/b/a Pueblo Hydroponics), which owned and operated 4 retail stores. The acquisition was completed on May 29, 2014, through our wholly-owned subsidiary, GrowGeneration Pueblo Corp., a Colorado corporation. The purchase price was $499,976, consisting of $243,000 in goodwill and $273,000 in inventory, $35,000 in fixed assets, $5,286 in accounts receivable and $1,320 in prepaid expenses offset by $57,275 in accounts payable and $355 in customer deposits. From February 2015 to May 2017, the Company has acquired or opened 9 additional retail locations.

2021.

~~RESULTS~~

RESULTS OF OPERATIONS

Comparison of the three months ended September 30, ~~2017 to September 30, 2016~~

~~The following table presents certain consolidated statement of operations information~~2021 and ~~presentation of that data as a percentage of change from year-to-year.~~

Three Months Ended
September 30,
2017 Three Months Ended
September 30,
2016 $
Variance
Net revenue $ 4,028,170 $ 2,169,129 $ 1,859,041
Cost of goods sold 2,912,328 1,560,359 1,351,969
Gross profit 1,115,842 608,770 507,072
Operating expenses 1,573,931 596,542 977,389
Operating income (loss) �� (458,089 ) 12,228 (470,317 )
Other income (expense) (2,798 ) (1,384 ) (1,414 )
Net income (loss) $ (460,887 ) $ 10,844 $ (471,731 )

~~Revenue~~

2020.

Net revenue for the three months ended September 30, ~~2017 increased~~2021 was approximately ~~$1.9 million, or 86%, to approximately $4.0~~$116.0 million, compared to ~~approximately $2.1~~$55.0 million for the three months ended September 30, ~~2016. The increase in revenues was not only due to~~2020, an increase inof approximately $61.0 million or 111%. This increase included an increase of approximately $59.2 million related to same store sales ~~as noted below, but also due~~which represented 15.7% growth year over year. Distributed sales was $4.7 million from the acquisitions of Power Si and Charcoir. E-commerce sales increased from $3.9 million to $10.5 million which can be explained by $6.0 million growth in owned e-commerce sites and $4.5 million from the addition of 4 retail stores in 2017 for which there were no sales for the three months ended September 30, 2016. Sales in these 4 stores for the three months ended September 30, 2017 were approximately $1.3 million compared to approximately $0 for the three months ended September 30, 2016. The Company also had store closures in early 2017 that had sales of $20,533 for the three months ended September 30, 2017 and $109,630 for the three months ended September 30, 2016.

As noted above, the Company had the same 8 stores opened for the entire three months ended September 30, 2017 and 2016. These same stores generated $2.7 million in sales for the three months ended September 30, 2017, compared to $2.1 million in sales for the same period ended September 30, 2016, an increase of 31%.

8 Same Stores
Three Months Ended Three Months Ended
September 30,
2017 September 30,
2016 Variance
Net revenue $ 2,705,837 $ 2,059,499 $ 646,338

Agron acquisition.

Cost of Goods Sold

Cost of goods sold for the three months ended September 30, ~~2017 increased~~2021 was approximately ~~$1.4~~$81.9 million, ~~or 87%, to $2.9 million, as~~ compared to ~~$1.6~~approximately $40.4 million for the three months ended September 30, ~~2016. The increase in cost of goods sold was due to the 86% increase in sales comparing the quarter ended September 30, 2016 to 2017.~~

~~Gross profit was approximately $1.1 million for the three months ended September 30, 2017, compared to approximately $.61 million for the three months ended September 30, 2016,~~2020, an increase of approximately $507,000 or 83%. Gross profit as a percentage of sales was 27.7% for the three months ended September 30, 2017, compared to 28.1% for the three months ended September 30, 2016. The slight decrease in the gross profit percentage is due to the increase in the number of commercial accounts which have lower margins than the retail customer.

~~Operating Expenses~~

Operating expenses are comprised of 1) store operations, primarily payroll, rent and utilities, and corporate overhead. Store operating costs were $800,861 for the three months ended September 30, 2017 and $372,317 for the three months ended September 30, 2016, an increase of $428,544 or 115%. The increase in store operating cost is due to 1) the addition of five locations that were not open in 2016 and 2) slight increase in staffing due to the 31% increase in same store sales. Store operating costs as a percentage of sales were 19.9% for the three months ended September 30, 2017 compared to 17.2% for the three months ended September 30, 2016. As previously noted, we opened five locations in 2017 that were not open at all in 2016 and as such store operating costs will be higher as the stores ramp up in sales which can take several months. Corporate overhead is comprised of general and administrative costs, share based compensation, depreciation and amortization and corporate salaries and related expenses and was $773,070 for the three months ended September 30, 2017 compared to $224,225 for the three months ended September 30, 2016. The increase in salaries and related expense from 2016 to 2017 was the increase in corporate staff to support operations including additional sales staff to increase our outside sales efforts. Corporate salaries and related costs as a percentage of sales were 6.7% for the three months ended September 30, 2017 and 5% for the three months ended September 30, 2016. General and administrative expenses, comprised mainly of advertising and promotions, travel & entertainment, professional fees and insurance, were $237,884 for the three months ended September 30, 2017 and $98,731 for the three months ended September 30, 2016 with a majority of the increase advertising and promotion and travel and entertainment. General and administrative costs as a percentage of revenue was 5.9% for the three months ended September 30, 2017, compared to 4.6% for the three months ended September 30. 2016. Corporate overhead includes non-cash expenses, consisting primarily of depreciation and share based compensation, which was approximately $265,971 for the three months ended September 30, 2017, compared to approximately $17,158 for the three months ended September 30, 2016. The increase in share based compensation is due to an increase in 1) non-cash compensation to consultants, 2) stock issued to employees and 3) the fair market value of options issued to employees. Corporate overhead was 19% of revenue for the three months ended September 30, 2017 and 10% for the three months ended September 30, 2016, primarily due to the increase in non-cash share based compensation.

~~Net Income (Loss)~~

The net loss for the three months ended September 30, 2017 was $460,887, compared to net income of $10,844 for the three months ended September 30, 2016. The increase in the net loss was primarily due to 1) an increase in non-cash shares-based compensation of $242,984, 2) the opening of our operations in Denver South, Boulder, Las Vegas, and San Bernardino, CA, 3) costs related to the Seattle Hydro purchase and pre-opening store costs, and 4) higher salaries and related expenses due to an increase in corporate support staff and sales staff dedicated to outside sales.

~~Comparison of the nine months ended September 30, 2017 to September 30, 2016~~

~~The following table presents certain consolidated statement of operations information and presentation of that data as a percentage of change from year-to-year.~~

Nine months ended
September 30,
2017 Nine months ended
September 30,
2016 $
Variance
Net revenue $ 10,722,738 $ 5,617,726 $ 5,105,012
Cost of goods sold 7,775,718 3,947,352 3,828,366
Gross profit 2,947,020 1,670,374 1,276,646
Operating expenses 4,025,494 1,877,408 2,148,086
Operating income (loss) (1,078,474 ) (207,034 ) (871,440 )
Other income (expense) (6,119 ) (4,648 ) (1,471 )
Net income (loss) $ (1,084,593 ) $ (211,682 ) $ (872,911 )

~~Revenue~~

~~Net revenue for the nine months ended September 30, 2017 were approximately $10.7 million compared to approximately $5.6 million for the nine months ended September 30, 2016, an increase of $5.1~~$41.5 million or ~~91%~~103%. The increase in revenues was not only due to an increase in same store sales, as noted below, but also due to the addition of 4 retail stores in 2017 for which there were no sales for the nine months ended September 30, 2016, and the addition of one retail store during the quarter ended September 30, 2016 for which sales only occurred for a portion of the nine months ended September 30, 2016. Sales in these stores for the nine months ended September 30, 2017 were approximately $3.7 million compared to approximately $479,591 for the nine months ended September 30, 2016. The Company also had store closures in early 2017 that had sales of approximately $117,777 for the nine months ended September 30, 2017 and approximately $339,695 for the nine months ended September 30, 2016.

As noted above, the Company had the same 7 stores opened for the entire nine months ended September 30, 2017 and 2016. These same stores generated $6.8 million in sales for the nine months ended September 30, 2017, compared to $4.8 million in sales for the same period ended September 30, 2016, an increase of 43%.

7 Same Stores
Nine months ended Nine months ended
September 30,
2017 September 30,
2016 Variance
Net revenue $ 6,845,762 $ 4,798,440 $ 2,047,322

~~Cost of Goods Sold~~

~~Cost of goods sold for the nine months ended September 30, 2017 increased $3.8 million, to $7.8 million an increase of 97%, as compared to $3.9 million for the nine months ended September 30, 2016.~~ The increase in cost of goods sold was primarily due to the ~~91%~~111% increase in sales comparing the three months ended September 30, 2021 to the three months ended September 30, 2020.

Gross profit was approximately $34.1 million for the three months ended September 30, 2021, compared to approximately $14.6 million for the three months ended September 30, 2020, an increase of approximately $19.5 million or 134%. The increase in gross profit is primarily related to the 111% increase in revenues comparing the quarter ended September 30, 2021 to the quarter ended September 30, 2020. Gross profit as a percentage of revenues was 29.4% for the three months ended September 30, 2021, compared to 26.5% for the three months ended September 30, 2020. The increase in the gross profit margin percentage is primarily due to higher increases in revenues from both private label products and distributed products which were 8.7% of revenues for the quarter ended September 30, 2021 and approximately than 2% of revenues for the quarter ended September 30, 2020.

Operating Expenses

Operating expenses are comprised of store operations, selling, general, and administrative and depreciation and amortization. Operating costs were approximately $29.4 million for the three months ended September 30, 2021 and approximately $9.5 million for the three months ended September 30, 2020, an increase of approximately $19.9 million or 210%.

Store operating costs were approximately $14.8 million for the three months ended September 30, 2021, compared to $5.0 million for the quarter ended September 30, 2020, an increase of $9.8 million or 196%. The increase in store operating costs was directly attributable to the 111% increase in revenues, the addition of 32 locations that were added after September 30, 2020 contributed $5.0 million of additional operating costs, and 2 locations added during the quarter ended September 30, 2020 that were open for the entire quarter ended September 30, 2021. We also incurred $0.9 million of pre-opening expenses related to new stores.

Total corporate overhead was approximately $14.5 million for the three months ended September 30, 2021, compared to $4.5 million for the quarter ended September 30, 2020, an increase of $10.1 million or 226%. Selling, general, and administrative costs were approximately $11.0 million for the three months ended September 30, 2021, compared to approximately $4.0 million for the three months ended September 30, 2020. Salaries expense increased to $5.2 million from $2.2 million primarily due to an increase in corporate staff and general and administrative expenses increased to $3.7 million from $0.8 million to support expanding operations. Share-based compensation increased to $2.1 million from $1.0 million primarily due to expanding corporate staff to support the increased operations. Depreciation expense for the period was $0.9 million compared to $0.4 million in the prior year. The increase in depreciation expense is attributable to the addition of new stores, an expanded fleet of vehicles to support commercial sales, and leasehold improvements to retail locations. Amortization expense for the period was $2.6 million compared to $44.1 thousand which was driven by the acquisition of 32 retail stores.

Other income/expense

Total other income expense was approximately $0.4 million for the three months ended September 30, 2021, compared to $34 thousand for the quarter ended September 30, 2020. This increase is primarily attributable to interest on notes receivable of $0.4 million.

Income taxes

Income tax expense was $1.1 million for the three months ended September 30, 2021, compared to $1.8 million for the quarter ended September 30, 2020. Effective tax rate is impacted by differences in timing of expenses for share based compensation, depreciation, amortization and the impact of 162m on deductible wages. As such, the Company’s taxable income varies from reported income in a material way. In addition, 25.9% of revenue for the Company is in California with a significantly higher income tax rate than other USA jurisdictions.

Net Income

Net income for the three months ended September 30, 2021 was approximately $4.0 million, compared to net income of approximately $3.3 million for the three months ended September 30, 2020, a increase of approximately $0.7 million.

Comparison of the nine months ended September 30, 2021 and 2020.

Net revenue for the nine months ended September 30, 2021 was approximately $331.9 million, compared to $131.4 million for the nine months ended September 30, 2020, an increase of approximately $200.5 million or 153%. The increase included an increase of approximately $164.3 million related to same store sales which represented 38.6% growth year over year. Distributed sales was $12.5 million from the acquisitions of Power Si and Charcoir. E-commerce sales increased from $9.9 million to $28.5 million which can be explained by $17.9 million growth in owned e-commerce sites and $10.6 million from the Agron acquisition.

Cost of Goods Sold

Cost of goods sold for the nine months ended September 30, 2021 was approximately $236.8 million, compared to approximately $96.3 million for the nine months ended September 30, 2020, an increase of approximately $140.4 million or 146%. The increase in cost of goods sold was primarily due to the 153% increase in sales comparing the nine months ended September 30, ~~2016~~2021 to ~~2017.~~

the nine months ended September 30, 2020.

Gross profit was ~~$2.9~~approximately $95.2 million for the nine months ended September 30, ~~2017, as~~2021, compared to ~~$1.7~~approximately $35.1 million for the nine months ended September 30, ~~2016,~~2020, an increase of approximately ~~$1.3~~$60.1 million or ~~76%~~171%. The increase in gross profit is primarily related to the 153% increase in revenues comparing the nine months ended September 30, 2021 to the nine months ended September 30, 2020. Gross profit as a percentage of ~~sales~~revenues was ~~27.4%~~28.7% for the nine months ended September 30, ~~2017,~~2021, compared to ~~29.7%~~26.7% for the nine months ended September 30, ~~2016.~~2020. The ~~decrease~~increase in the gross profit margin

percentage is primarily due to higher increases in revenues from both private label products and distributed products which were 7.5% of revenues for the ~~opening~~nine months ended September 30, 2021 and approximately 1% of ~~a new store in Seattle in mid-May 2017 and~~revenues for the ~~initial product discounting to attract new customers to that location, as well the increase in the number of commercial accounts which have lower margins than the retail customer.~~

nine months ended September 30, 2020.

Operating Expenses

Operating expenses are comprised of 1) store operations, ~~primarily payroll, rent~~selling, general, and ~~utilities,~~administrative and ~~corporate overhead. Store operating~~depreciation and amortization. Operating costs were approximately ~~$2.1~~$73.1 million for the nine months ended September 30, ~~2017~~2021 and approximately $1.1 for the nine months ended September 30, 2016, an increase of approximately $1 million or 98%. The increase in store operating cost was due to addition of five locations that were not open in 2016. Store operating costs as a percentage of sales were 19.6% for the nine months ended September 30, 2017 compared to 18.9% for the nine months ended September 30, 2016. A previously noted above, we opened five locations in 2017 that were not open at all in 2016 and as such store operating costs will be higher as the stores ramp up in sales which can take several months. Corporate overhead is comprised of, share based compensation, depreciation and amortization, general and administrative costs and corporate salaries and related expenses and were approximately $1.9 for the nine months ended September 30, 2017 compared to approximately $.8$29.3 million for the nine months ended September 30, ~~2016. The~~2020, an increase in salaries and related expense from 2016 to 2017 was due to the increase in corporate staff, primarily, accounting and finance, inventory management and sales, to support operations and to increase outside sales. Corporate salaries as a percentage of ~~sales~~approximately $43.8 million or 150%.

Store operating costs were ~~5.3%~~approximately $35.6 million for the nine months ended September 30, ~~2017 and 5.6%~~2021, compared to $12.5 million for the nine months ended September 30, ~~2016.~~2020, an increase of $23.1 million or 185%. The ~~slight reduction of this percentage is because corporate staff costs do not rise directly commensurate with the~~ increase in ~~revenues. General~~store operating costs was directly attributable to the 153% increase in revenues, the addition of 32 locations that were added after September 30, 2020, and ~~administrative~~16 locations added during the nine months ended September 30, 2020 that were open for the entire quarter ended September 30, 2021 generated an additional $11.5 million of store operating expenses. We also incurred $0.9 million of pre-opening expenses ~~comprised mainly of advertising and promotions, travel & entertainment, professional fees and insurance, were~~for new stores opened during the period.

Total corporate overhead was approximately ~~$644,700~~$37.5 million for the nine months ended September 30, ~~2017 and approximately $282,600~~2021, compared to $16.8 million for the nine months ended September 30, ~~2016 with a majority~~2020, an increase of ~~the increase in advertising and promotion and travel and entertainment. General~~$20.7 million or 123%. Selling, general, and administrative costs ~~as a percentage of revenue was 6%~~were approximately $29.0 million for the nine months ended September 30, ~~2017~~2021, compared to ~~5% for the nine months ended September 30. 2016. The slight increase in the percentage comparing 2016 to 2017 was primarily due to an increase in advertising and promotion expenses from~~ approximately ~~$34,400 in 2016 to approximately $180,500 for 2017, which was mainly due to new store promotional costs in 2017 and increase in professional fees from $35,000~~$15.5 million for the nine months ended September 30, ~~2016~~2020. Salaries expense increased to ~~$243,400~~$14.9 million from $5.9 million primarily due to an increase in corporate staff and general and administrative expenses increased to $8.8 million from $3.2 million to support expanding operations. These increases were partially offset by a decrease in share-based compensation to $5.3 million from $6.3 million primarily due to new executive compensation agreements effective January 1, 2020 that had front loaded vesting provisions for shares and options that vested January 1, 2020 for which the remaining vesting was over a two-year period.

Other income/expense

Total other income/expense was approximately $0.4 million for the nine months ended September 30, ~~2017. Corporate overhead includes non-cash expenses, consisting primarily~~2021, compared to expense of ~~depreciation and share based compensation, which was approximately $645,400~~$22.0 thousand for the nine months ended September 30, ~~2017, compared~~2020. This increase is primarily attributable to ~~approximately $184,300~~interest on notes receivable of $0.4 million.

Income taxes

Income tax expense was $5.6 million for the nine months ended September 30, ~~2016. Corporate overhead cost were18% of revenue~~2021, compared to $2.0 million for the nine months ended September 30, ~~2017 compare to 15%~~2020. Effective tax rate is impacted by differences in timing of expenses for share based compensation, depreciation, amortization and the impact of 162m on deductible wages. As such, the company’s taxable income varies from reported income in a material way. In addition, 26.4% of revenue for the company is in California with a significantly higher income tax rate than other USA jurisdictions.

Net Income

Net income for the nine months ended September 30, ~~2016, primarily because~~2021 was approximately $16.9 million, compared to a net income of ~~the increase in non-cash share based compensation.~~

~~Net Income (Loss)~~

~~The net loss~~approximately $3.8 million for the nine months ended September 30, ~~2017~~2020, a increase of approximately $13.1 million.

Operating Activities

Net cash provided by operating activities for nine months ended September 30, 2021 was ~~$1,084,593~~approximately $1.9 million compared to ~~$211,682~~$3.7 million for the nine months ended September 30, ~~2016,~~2020. Cashed used in inventory increase was primarily attributable to our additional store count, $13.0 million associated with growing the offerings of private label. In addition, we have used our capital capabilities to secure production of product overseas through prepaid inventory purchase commitments with long lead times in advance of spring 2022 needs. Cash used in accounts and notes receivable increases were primarily driven by our increased store count and related increase in store count. The increase in cash used for prepaids and other assets is primarily driven by an increase in the net loss of $872,911. The increase in the net loss was primarily due to 1) an increase in non-cash shares-based compensation of approximately $461,000, 2) the opening of our operations in Denver South, Las Vegas, Boulder and San Bernardino, CA, 3) costs related to the Seattle Hydro purchase and pre-openingprepayments for inventory not yet received at warehouse or store ~~costs, and 4), a slight decrease in the gross profit percentage as noted above.~~

~~Operating Activities~~

locations.

Net cash used in ~~operating~~investing activities was approximately $114.8 million for the nine months ended September 30, 2021 and approximately $6.9 million for the nine months ended September 30, 2020. Investing activities in 2021 were primarily attributable to acquisitions of $71.8 million, purchase of marketable securities of $75.0 million, vehicles and store equipment

purchases $10.8 million and intangible asset purchases of $2.3 million. Investing activities for the nine months ended September 30, 2017 was $2,590,679 compared to $992,444 for the nine months ended September 30, 2016. Cash provided by operating activities is driven by our net loss and adjusted by non-cash items as well as changes in operating assets and liabilities. Non-cash adjustments primarily include depreciation, amortization of intangible assets and share based compensation expense. Non-cash adjustment totaled $708,426 and $261,202 for the nine months ended September 30, 2017 and 2016, respectively, so non-cash adjustments had a greater impact on net cash provided by operating activities for the nine months ended September 30, 2017 than the same period in 2016. The net cash from operating activities was2020 were primarily related to ~~the increase in the net loss~~store acquisitions of $872,911, an increase in inventory of $2,449,289, an increase in accounts receivable of $292,560, an increase in prepaids, primarily vendor prepaids, of $259,209, offset by an increase in accounts payable and other current liabilities of $786,546. The increase in inventory and a corresponding increase in trade payables was attributable to both and increase in revenues and an increase in the number of operating stores between December 31, 2016 and September 30, 2017.

Net cash used in operating activities for the nine months ended September 30, 2016 was $992,444. This amount was primarily related to increases of inventory of $1,076,310, accounts receivable of $331,157, offset by an increase in accounts payable and other current liabilities of $367,433. The increase in inventory and a corresponding increase in trade payables was attributable to both an increase in revenues and an increase in the number of operating stores between December 31, 2015 and September 30, 2016.

Net cash used in investing activities was $869,901 for the nine months ended September 30, 2017 and $183,059 for the nine months ended September 30, 2016. The increase in 2017 was due to acquired intangibles related to the Seattle Hydro purchase in May 2017 and$4.0 million, the purchase of vehicles and store equipment to support new store ~~operations. Between January 31, 2017~~operations of $2.1 million and ~~September 30, 2017, the Company opened 4 new locations.~~

intangible assets of $0.8 million.

Net cash ~~provided by~~used in financing activities for the nine months ended September 30, ~~2017~~2021 was approximately ~~$4.8~~$1.9 million and ~~represented~~was primarily attributable to stock redemptions partially offset by the proceeds from the sales of common stock and exercise of warrants. Net cash provided by financing activities for nine months ended September 30, 2020 was $45.6 million and was primarily from proceeds from the sale of common stock ~~net of offering costs, of $3.3 million~~ and ~~proceeds from the~~ exercise of warrants of approximately $1.5 million. Net cash provided by financing activities for the nine months ended September 30, 2016 was $987,560 and was primarily from proceeds from the sales of common stock, net of offering costs of $998,500.

warrants.

Use of Non-GAAP Financial Information

The Company believes that the presentation of results excluding certain items in “Adjusted EBITDA,” such as non-cash equity compensation charges, provides meaningful supplemental information to both management and investors, facilitating the evaluation of performance across reporting periods. The Company uses these non-GAAP measures for internal planning and reporting purposes. These non-GAAP measures are not in accordance with, or an alternative for, generally accepted accounting principles and may be different from non-GAAP measures used by other companies. The presentation of this additional information is not meant to be considered in isolation or as a substitute for net income or net income per share prepared in accordance with generally accepted accounting principles.

Set forth below is a reconciliation of Adjusted EBITDA to net income (loss):

Three Months Ended
9/30/2017 9/30/2016
Net income (loss) $ (460,887 ) $ 10,844
Interest 3,419 1,384
Depreciation and Amortization 22,987 17,158
EBITDA (434,481 ) 29,386
Share based compensation (option comp, warrant comp, stock issued for services) 242,984 -

Adjusted EBITDA $ (191,497 ) $ 29,386

Nine months ended
9/30/2017 9/30/2016
Net loss $ (1,084,593 ) $ (211,682 )
Interest 7,181 3,050
Depreciation and Amortization 63,035 38,181
EBITDA (1,014,377 ) (170,451 )
Share based compensation (option comp, warrant comp, stock issued for services) 645,392 184,333

Adjusted EBITDA $ (368,985 ) $ 13,882


	Three Months Ended September 30,
	2021		2020
	(000)		(000)
Net income	$	4,027	$	3,338
Income taxes	1,096		1,799
Interest expense	25		—
Depreciation and Amortization	3,539		443
EBITDA	$	8,687	$	5,580
Share based compensation (option compensation, warrant compensation, stock issued for services)	2,106		1,022
Adjusted EBITDA	$	10,793	$	6,602

Adjusted EBITDA per share, basic	$	0.18	$	0.14
Adjusted EBITDA per share, diluted	$	0.18	$	0.13

Set forth below is a reconciliation of Adjusted EBITDA to net income (loss):


	Nine Months Ended September 30,
	2021		2020
	(000)		(000)
Net income	$	16,887	$	3,818
Income taxes	5,569		1,955
Interest	31		20
Depreciation and Amortization	8,510		1,270
EBITDA	$	30,997	$	7,063
Share based compensation (option compensation, warrant compensation, stock issued for services)	5,347		6,324
Adjusted EBITDA	36,344		$	13,387

Adjusted EBITDA per share, basic	$	0.62	$	0.32
Adjusted EBITDA per share, diluted	$	0.60	$	0.30

LIQUIDITY AND CAPITAL RESOURCES

As of September 30, ~~2017,~~2021, we had working capital of approximately ~~$6.6~~$179.2 million, compared to working capital of approximately ~~$2.8~~$222.9 million as of December 31, ~~2016, an increase~~2020, a decrease of approximately ~~$3.8~~$43.7 million. The ~~increase~~decrease in working capital from December 31, ~~2016~~2020 to September 30, ~~2017~~2021 was due primarily to business acquisition completed during the ~~proceeds from~~nine months ended September 30, 2021 for which the ~~sale of common stock~~cash consideration was approximately $71.8 million. This decrease in working capital related to business acquisitions was partially offset by an increase in inventory associated with more locations and ~~exercise of warrants.~~our ability to leverage greater bulk purchasing due to our growth. At September 30, ~~2017,~~2021, we had cash and cash equivalents of approximately ~~$1.9~~$63.0 million and available for sale debt securities of $30.0 million. Currently, we have no extraordinary demands, commitments or uncertainties that would reduce our current working capital. Our core strategy continues to focus on expanding our geographic reach across the United States through organic growth and acquisitions. Based on our strategy we may need to raise additional capital in the future through equity offerings and/or debt financings. We believe that ~~existing~~some of our store acquisitions and new store openings can come from cash ~~and cash equivalents are sufficient to fund existing operations for the next twelve months.~~

flow from operations.

We anticipate that we ~~will~~may need additional financing in the future to continue to acquire and open new ~~stores.~~stores and related businesses. To date we have financed our operations through the issuance ~~of the~~and sale of common ~~stock.~~

~~Financing Activities~~

~~2017 Private Placements~~

~~On March 10, 2017, the Company closed~~stock, convertible notes and warrants.

Critical Accounting Policies, Judgements and Estimates

For a ~~private placement of a total of 825,000 units of its securities to 4 accredited investors. Each unit consists of (i) one share~~summary of the Company’s ~~common stock and (ii) one 5-year warrant~~significant accounting policies, please refer to ~~purchase one share of common stock at an exercise price of $2.75 per share. The Company raised an aggregate of $1,650,000 gross proceeds in the offering.~~

On May 15, 2017, the Company closed a private placement of a total of 1,000,000 units of its securities through GVC Capital LLC (“GVC Capital”) as its placement agent. Each unit consists of (i) one share of the Company’s common stock and (ii) one 5-year warrantNote 2 to purchase one share of common stock at an exercise price of $2.75 per share. The Company raised an aggregate of $2,000,000 gross proceeds in the offering. The Company paid GVC Capital a total compensation for its services of (i) for a price of $100 5-year warrants to purchase 75,000 shares at $2.00 per share and 5-year warrants to purchase 75,000 shares at $2.75 per share, (ii) a cash fee of $150,000, (iii) a non-accountable expense allowance of $60,000, and (iv) a warrant exercise fee equal to 3% of all sums received by the Company from the exercise of 750,000 warrants (not including the 250,000 warrants issued to Merida Capital Partners, LP) when they are exercised.

~~Critical Accounting Policies, Judgments and Estimates~~

~~Use of Estimates~~

The preparation of these consolidated financial statements in conformity with accounting principles generally accepted in the United States (U.S. GAAP) requires management to make a number of estimates and assumptions related to the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period. Significant items subject to such estimates and assumptions include the carrying amount of intangible assets; valuation allowances and reserves for receivables, inventory and deferred income taxes; revenue recognition related to contracts accounted for under the percentage of completion method; share-based compensation; and loss contingencies, including those related to litigation. Actual results could differ from those estimates.

~~Accounts Receivable and Concentration of Credit Risk~~

~~Accounts receivable are recorded at the invoiced amounts less an allowance for doubtful accounts and do not bear interest. The allowance for doubtful accounts is based~~our Consolidated Financial Statements filed on our ~~estimate of~~Form 10-K for the amount of probable credit losses in our accounts receivable. We determine the allowance for doubtful accounts based upon an aging of accounts receivable, historical experience and management judgment. Accounts receivable balances are reviewed individually for collectability, and balances are charged off against the allowance when we determine that the potential for recovery is remote. An allowance for doubtful accounts of approximately $47,800 has been reserved as of September 30, 2017 andyear ended December 31, ~~2016.~~

2020.

We are exposed to credit risk in the normal course of business, primarily related to accounts receivable. We are affected by general economic conditions in the United States. To limit credit risk, management periodically reviews and evaluates the financial condition of its customers and maintains an allowance for doubtful accounts. As of September 30, 2017, and December 31, 2016, we do not believe that we have significant credit risk.

~~Fair Value of Financial Instruments~~

The carrying amounts of our financial instruments, including accounts receivable and accounts payable, are carried at cost, which approximates their fair value due to their short-term maturities. We believe that the carrying value of notes payable with third parties, including their current portion, approximate their fair value, as those instruments carry market interest rates based on our current financial condition and liquidity. We believe the amounts due to related parties also approximate their fair value, as their carried interest rates are consistent with those of our notes payable with third parties.

~~Long-lived Assets~~

We evaluate the carrying value of long-lived assets for impairment on an annual basis or whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. An asset is considered to be impaired when the anticipated undiscounted future cash flows of an asset group are estimated to be less than its carrying value. The amount of impairment recognized is the difference between the carrying value of the asset group and its fair value. Fair value estimates are based on assumptions concerning the amount and timing of estimated future cash flows. No impairment was determined as of September 30, 2017 and December 31, 2016.

~~Revenue Recognition~~

Revenue on product sales is recognized upon delivery or shipment. Customer deposits and lay away sales are not reported as revenue until final payment is received and the merchandise has been delivery.

~~Stock-based Compensation~~

We account for stock-based awards at fair value on the date of grant, and recognize compensation over the service period that they are expected to vest. We estimate the fair value of stock options and stock purchase warrants using the Black-Scholes option pricing model. The estimated value of the portion of a stock-based award that is ultimately expected to vest, taking into consideration estimated forfeitures, is recognized as expense over the requisite service periods. The estimate of stock awards that will ultimately vest requires judgment, and to the extent that actual forfeitures differ from estimated forfeitures, such differences are accounted for as a cumulative adjustment to compensation expenses and recorded in the period that estimates are revised.

OFF-BALANCE SHEET ARRANGEMENTS

We do not have any off-balance sheet arrangements (as that term is defined in Item 303 of Regulation S-K) that are reasonably likely to have a current or future material effect on our financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources.

~~RECENTLY ISSUED OR ADOPTED ACCOUNTING STANDARDS~~

In May 2014, the FASB issued guidance creating the ASC Section 606, “Revenue from Contracts with Customers”. The new section will replace Section 605, “Revenue Recognition” and creates modifications to various other revenue accounting standards for specialized transactions and industries. The section is intended to conform revenue accounting principles with a concurrently issued International Financial Reporting Standards with previously differing treatment between United States practice and those of much of the rest of the world, as well as, to enhance disclosures related to disaggregated revenue information. The updated guidance was effective for annual reporting periods beginning on or after December 15, 2016, and interim periods within those annual periods. On July 9, 2015, the FASB approved a one-year delay of the effective date. The Company will now adopt the new provisions of this accounting standard at the beginning of fiscal year 2018.

In July 2015, the FASB issued ASU 2015-11, “Simplifying the Measurement of Inventory.” Under this ASU, inventory will be measured at the “lower of cost and net realizable value” and options that currently exist for “market value” will be eliminated. The ASU defines net realizable value as the “estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.” No other changes were made to the current guidance on inventory measurement. ASU 2015-11 is effective for interim and annual periods beginning after December 15, 2016. This update was adopted by the Company in the first quarter of fiscal year 2017. There was no material impact on the Company's consolidated financial statements as a result of the adoption of this accounting standard.

In November 2015, the FASB issued ASU 2015-17, “Balance Sheet Classification of Deferred Taxes”. The new guidance eliminates the requirement to separate deferred income tax liabilities and assets into current and noncurrent amounts. The amendments will require that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The updated guidance will be effective for fiscal years beginning after December 15, 2016, including interim periods within those annual periods. The adoption of this standard did not have a material impact on the consolidated financial statements.

~~In January 2016, the FASB issued ASU 2016-01,~~~~Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities~~ , which requires that (i) all equity investments, other than equity-method investments, in unconsolidated entities generally be measured at fair value through earnings and (ii) when the fair value option has been elected for financial liabilities, changes in fair value due to instrument-specific credit risk will be recognized separately in other comprehensive income. Additionally, the ASU 2016-01 changes the disclosure requirements for financial instruments. The new standard will be effective for the Company starting in the first quarter of fiscal 2019. Early adoption is permitted for certain provisions. The Company is in the process of determining the effects the adoption will have on its consolidated financial statements as well as whether to adopt certain provisions early.

In February 2016, the FASB issued ASU 2016-02, which introduces a lessee model that brings most leases on the balance sheet and, among other changes, eliminates the requirement in current GAAP for an entity to use bright-line tests in determining lease classification. ASU 2016-02 is not effective for us until January 1, 2019, with early adoption permitted. We are continuing to evaluate this guidance and the impact to us, as both lessor and lessee, on our Consolidated Financial Statements.

~~In March 2016, the FASB issued ASU 2016-09,~~~~Improvements to Employee Share-Based Payment Accounting~~, which amends ASC Topic 718, Compensation – Stock Compensation. ASU 2016-09 includes provisions intended to simplify various aspects related to how share-based payments are accounted for and presented in the financial statements. ASU 2016-09 is effective for public entities for annual reporting periods beginning after December 15, 2016, and interim periods within that reporting period. Early adoption is permitted in any interim or annual period, with any adjustments reflected as of the beginning of the fiscal year of adoption. We adopted this guidance effective January 2, 2017, and the adoption did not have a material effect on our consolidated financial statements.

~~RECENTLY ISSUED OR ADOPTED ACCOUNTING STANDARDS, continued~~

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

We are a smaller reporting company and are not required to provide the information under this item pursuant to Regulation S-K.

ITEM 4. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

Management maintains “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed in our

Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

In ~~connection with~~making this assessment, management used the ~~preparation~~criteria set forth in Internal Control — Integrated Framework (2013) issued by the Committee of ~~this Quarterly Report on Form 10-Q, an evaluation was carried out by management, with the participation of our Chief Executive Officer and Chief Financial Officer,~~Sponsoring Organizations of the ~~effectiveness~~Treadway Commission ("COSO"). Based on evaluation under these criteria, management determined, based upon the existence of ~~our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under~~ the ~~Exchange Act)~~material weaknesses described below, that we did not maintain effective internal control over financial reporting as of September 30, ~~2017.~~

~~Based~~2021.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that a reasonable possibility exists that a material misstatement of our annual or interim financial statements would not be prevented or detected on a timely basis.

The Company did not design and implement effective control activities based on the criteria established in the COSO framework. Specifically, these control deficiencies constitute material weaknesses, either individually or in the aggregate, relating to: (i) selecting and developing control activities and information technology that ~~evaluation, management concluded,~~contribute to the mitigation of risks and support achievement of objectives; and (ii) deploying control activities through policies that ~~our disclosure controls~~establish what is expected and procedures that put policies into action.

The following were ~~effective as of September 30, 2017~~contributing factors to the material weaknesses in ~~recording, processing, summarizing, and reporting information required to be disclosed,~~control activities:

•Insufficient resources within the ~~time periods specified~~accounting and financial reporting department to review the accounting implications of complex transactions.

•Inadequate segregation of duties within the bank accounts.

•Ineffective information technology general controls (ITGCs) in the ~~SEC’s rules and forms, and~~areas of user access over certain information technology (IT) systems that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

support the Company’s financial reporting processes.

Changes in Internal ~~Controls over~~Control Over Financial Reporting

~~As of the end of the period covered by this report, there have been~~

There were no changes in ~~the~~our internal ~~controls~~control over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, ~~subsequent~~except for the implementation of remediation plans for the deficiency to address the material weakness identified.

Remediation Plan and Status

Our remediation efforts are ongoing and we will continue our initiatives to implement and document policies, procedures, and internal controls. Remediation efforts will include but are not limited to new hires in critical positions to improve segregation of duties, supervision and oversight, as well as implementation of technologies to improve effective controls.

Remediation of the identified material weaknesses and strengthening our internal control environment will require a substantial effort throughout 2021 and beyond, as necessary. We will test the ongoing operating effectiveness of the new and existing controls in future periods. The material weaknesses cannot be considered completely remediated until the applicable controls have operated for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.

While we believe the steps taken to date and those planned for implementation will improve the effectiveness of ~~management’s last evaluation.~~

our internal control over financial reporting, we have not completed all remediation efforts identified herein. Accordingly, as we continue to monitor the effectiveness of our internal control over financial reporting in the areas affected by the material weaknesses described above, we have and will continue to perform additional procedures prescribed by management, including the use of manual mitigating control procedures and employing any additional tools and resources deemed necessary, to ensure that our consolidated financial statements are fairly stated in all material respects.

Inherent Limitations on Effectiveness of Controls

Management, including our CEO, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a

control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, misstatements, errors, and instances of fraud, if any, within our organization have been or will be prevented or detected.

These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls also can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, internal controls may become inadequate as a result of changes in conditions, or through the deterioration of the degree of compliance with policies or procedures.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 1A. Risk Factors

The COVID-19 coronavirus pandemic could have a ~~smaller~~material negative effect on our results of operations, cash flows, financial position, and business operations.

The COVID-19 pandemic has created significant public health concerns as well as economic disruption, uncertainty, and volatility which may negatively affect our business operations.

We are unable to predict the impact that COVID-19 will have on our results of operations, cash flows, financial position, and business operations due to numerous uncertainties. These uncertainties include, but are not limited to: the severity of the virus; the duration of the pandemic; governmental actions which include restrictions on our operations up to and including potential closure of our stores and distribution centers; the duration and degree of quarantine or shelter-in-place measures, including additional measures that may still occur; impacts on our supply chain which include suppliers of our products and our transportation vendors; the health of our workforce and our ability to maintain staffing needs to operate our business; how macroeconomic factors evolve including unemployment rates and recessionary pressures; the impact of the crisis on consumer shopping patterns, both during and after the crisis; volatility in the economy as well as the credit and financial markets during and after the pandemic; the incremental costs of doing business during the crisis as well as on a long-term basis; potential increases in insurance premiums, medical claims costs, and workers’ compensation claim costs; unknown consequences on our business performance and initiatives stemming from the substantial investment of time and other resources to the pandemic response; potential delays in growth initiatives including the timing of new store openings; potential adverse effects on our internal control environment and information security as a result of changes to a remote work environment; and the long-term impact of the crisis on our business.

In addition, we cannot predict the impact that the pandemic will have on our manufacturers and suppliers of our products and other business partners such as service vendors; however, any material effect on these parties could adversely impact our results of operations and our ability to operate our business effectively.

The COVID-19 coronavirus pandemic could have a material negative effect on our supply chain.

Circumstances surrounding and related to the COVID-19 pandemic have created unprecedented impacts on the global supply chain. Our business relies on an efficient and effective supply chain, including the manufacture and transportation of our products as well as the effective functioning of our distribution centers. Impacts related to the COVID-19 pandemic are placing strain on the domestic and international supply chain that could negatively affect the flow or availability of our products and result in higher out-of-stock inventory positions due to difficulties in timely obtaining product from the manufacturers and suppliers of our products as well as transportation of those products to our distribution centers and stores. Further, we may have to source products from different manufacturers or geographic locations which could result in, among other things, higher product costs, increased transportation costs, delays in receiving products or lower quality of the products.

Any of these circumstances could adversely affect our ability to deliver inventory in a timely manner, which could impair our ability to meet customer demand for products and result in lost sales, increased supply chain costs, or damage to our reputation.

Actions taken to protect the health and safety of our team members and customers during the COVID-19 coronavirus pandemic have increased our operating costs and may not be sufficient to protect against operational or reputational harm to our business.

In response to the COVID-19 pandemic, we have taken a number of actions across our business to help protect our team members, customers, and others in the communities we serve. These measures include personal protective equipment for our team members, a requirement to wear masks in our facilities, increased staffing in order to provide contact-free curbside pickup from stores, expansion of our capabilities to support delivery to customer homes, increased cleaning and sanitizing measures, and monitoring for “social distancing” directives, as well as additional cleaning materials in our facilities. Additionally, we have provided appreciation bonuses as well as permanent increases in compensation and benefits for our team members in our stores and distribution centers to further support them during and after the COVID-19 pandemic. Actions such as these have

resulted in significant incremental costs and we expect that we will continue to incur these costs for the foreseeable future, which in turn will have an adverse impact on our results of operations.

The health and safety of our team members and customers are of primary concern to our management team. However, due to the unpredictable nature of this virus and the consequences of our actions, we may see unexpected outcomes notwithstanding our added safety measures. For instance, if we do not respond appropriately to the pandemic, or if our customers do not participate in “social distancing” and other safety measures, the well-being of our team members and customers could be jeopardized. Furthermore, any failure to appropriately respond, or the perception of an inadequate response, could cause reputational harm to our brand and subject us to claims and litigation from team members, customers and service providers.

Additionally, an outbreak of confirmed cases of COVID-19 in our stores or distribution centers could result in temporary or sustained workforce shortages or facility closures which would negatively impact our underlying business and results of operations.

There may be limitations on the effectiveness of our internal controls. Failure of our internal control over financial reporting ~~company,~~could harm our business and financial results.

Proper systems of internal controls over financial accounting and disclosure are critical to the operation of a public company. Our management is responsible for establishing and maintaining effective internal control over financial reporting. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of financial reporting for external purposes in accordance with accounting principles generally accepted in the United States. Internal control over financial reporting includes maintaining records that in reasonable detail accurately and fairly reflect our transactions; providing reasonable assurance that transactions are recorded as necessary for preparation of the financial statements; providing reasonable assurance that receipts and expenditures of our assets are made in accordance with management authorization; and providing reasonable assurance that unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements would be prevented or detected on a timely basis. Any failure to maintain an effective system of internal control over financial reporting could limit our ability to report our financial results accurately and timely or to detect and prevent fraud.

Moreover, we do not expect that disclosure controls or internal control over financial reporting will prevent all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Failure of our control systems to prevent error or fraud could materially adversely impact us.

In connection with the evaluation of our internal control over financial reporting as of December 31, 2020 that was undertaken by management, management identified the following material weaknesses in our control activities: i) insufficient resources within the accounting and financial reporting department to review the accounting for warrant compensation accounting, share-based compensation accounting, and accounting for rebates; ii) inadequate segregation of duties within the bank accounts; and ineffective information technology general controls (ITGCs) in the areas of user access over certain information technology (IT) systems that support the Company’s financial reporting processes. Based upon the existence of such material weaknesses, management concluded that we did not maintain effective internal control over financial reporting as of December 31, 2020.

We have adopted a remediation plan and are in the process of implementing such plan. Remediation efforts will include but are not limited to new hires in critical positions to improve segregation of duties, supervision and oversight, as well as implementation of technologies to improve effective controls. Remediation of the identified material weaknesses and strengthening our internal control environment will require a substantial effort throughout 2021 and beyond, as necessary. We will test the ongoing operating effectiveness of the new and existing controls in future periods. The material weaknesses cannot be considered completely remediated until the applicable controls have operated for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.

While we believe the steps taken to date and those planned for implementation will improve the effectiveness of our internal control over financial reporting, we have not completed all remediation efforts identified herein. Accordingly, as we continue to monitor the effectiveness of our internal control over financial reporting in the areas affected by the material weaknesses described above, we have and will continue to perform additional procedures prescribed by management, including the use of manual mitigating control procedures and employing any additional tools and resources deemed necessary, to ensure that our consolidated financial statements are fairly stated in all material respects.

If we are ~~not required~~unable to ~~provide~~assert that our internal control over financial reporting is effective, or, if applicable, our independent registered public accounting firm is unable to express an opinion on the ~~information required by this item.~~

effectiveness of our internal controls, we could lose investor confidence in the accuracy and completeness of our financial reports, which would cause the price of our Common Stock to decline.

We are subject to collection risk that can impact the results of our operations.

The Company extends credit to customers in the ordinary course of its business in the form of accounts receivable and promissory notes. The Company seeks to ensure its customers are creditworthy before extending credit, but the Company cannot guarantee it will receive repayment in full. The industries we serve are also newer and more fragmented, and some of our counter parties are smaller and/or newer businesses and therefore may be higher credit risk. In addition, the company may seek to strategically deploy capital in new markets into which, or with new business partners with whom, the company intends to expand its business, which new markets or partners may present higher risk.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

~~None.~~

On July 1, 2021, the Company purchased the assets of Aqua Serene, Inc., ("Aqua Serene") an Oregon corporation which consists of an indoor/outdoor garden center with stores in Eugene and Ashland, Oregon. The total consideration for the purchase was $11.7 million, including approximately $9.9 million in cash and 46,554 shares of common stock valued at approximately $1.8 million.

On August 23, 2021, the Company purchased the assets of Commercial Grow Supply, Inc. ("CGS"), a hydroponic superstore located in Santa Clarita, California. The total consideration for the purchase was $7.2 million, including approximately $6.0 million in cash and common stock valued at approximately $1.3 million.

On October 12, 2021, the Company purchased the assets of All Seasons Gardening, an indoor-outdoor garden supply center specializing in hydroponics systems, lighting, and nutrients. All Seasons Gardening is the largest hydroponics retailer in New Mexico. The total consideration for the purchase was $1.0 million, including approximately $0.7 million in cash and common stock valued at approximately $0.3 million.

The above issuances were made by the Company pursuant to registration exemption provided by Section 4(a)(2) of the Securities Act of 1933, as amended.

Item 3. Defaults upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

~~None.~~

On October 12, 2021, the Company terminated a series of asset purchase agreements (the “Asset Purchase Agreements”) entered into on July 27, 2021 through its wholly-owned subsidiary, GrowGeneration Michigan Corp., to purchase the assets from subsidiaries of HGS Hydro (“HGS Hydro”). The termination of the Asset Purchase Agreement was mutually agreed to by both parties. In connection with the termination, the Company reimbursed HGS Hydro of a transaction fee of $300,000.

Item 6. Exhibits

The following exhibits are included and filed with this report.

~~Exhibit~~	~~Exhibit Description~~
~~10.1~~Exhibit		~~Employment Agreement with Darren Lampert dated September 22, 2017 (filed herewith)~~Exhibit Description
~~10.2~~3.1		~~Employment Agreement with Michael Salaman dated September 22, 2017 (filed herewith)~~Certificate of Incorporation of GrowGeneration Corp. (Incorporated by reference to Exhibit 3.1 to the Registration Statement on Form S-1 as filed on November 9, 2015)
~~31.1~~3.2		Bylaws of GrowGeneration Corp. (Incorporated by reference to Exhibit 3.2 to the Registration Statement on Form S-1 as filed on November 9, 2015)
10.1		Form of termination of the Asset Purchase Agreement, dated October 12, 2021, by and among GrowGeneration Michigan Corp., GrowGeneration Corp. and HGS Walled Lake LLC
10.2		Form of termination of the Asset Purchase Agreement, dated October 12, 2021, by and among GrowGeneration Michigan Corp., GrowGeneration Corp. and HGS Sterling Heights LLC
10.3		Form of termination of the Asset Purchase Agreement, dated October 12, 2021, by and among GrowGeneration Michigan Corp., GrowGeneration Corp. and HGS Albion LLC
10.4		Form of termination of the Asset Purchase Agreement, dated October 12, 2021, by and among GrowGeneration Michigan Corp., GrowGeneration Corp. and HGS Shelby LLC
10.5		Form of termination of the Asset Purchase Agreement, dated October 12, 2021, by and among GrowGeneration Michigan Corp., GrowGeneration Corp. and HGS Southfield LLC
10.6		Form of termination of the Asset Purchase Agreement, dated October 12, 2021, by and among GrowGeneration Michigan Corp., GrowGeneration Corp. and HGS Hazel Park Lake LLC
10.7		Form of termination of the Asset Purchase Agreement, dated October 12, 2021, by and among GrowGeneration Michigan Corp., GrowGeneration Corp. and HGS Imlay City LLC
31.1		Rule 13a-14(a)/15d-14(a) certification of Chief Executive Officer
31.2		Rule 13a-14(a)/15d-14(a) certification of principal financial and accounting officer
32.1		Section 1350 certification of Chief Executive ~~Officer~~Officer*
32.2		Section 1350 certification of principal financial and accounting ~~officer~~officer*
101		Interactive Data Files ~~(filed herewith)~~
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB		XBRL Taxonomy Extension Label Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Definition


			*			Furnished and not filed.

SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized on November ~~8, 2017.~~

12, 2021.

~~GrowGeneration Corporation~~
			GrowGeneration Corporation
	~~By:~~
	By:	/s/ Darren Lampert
		Darren Lampert, Chief Executive Officer (Principal Executive Officer)

	By:	/s/ ~~Monty Lamirato~~Jeff Lasher
		~~Monty Lamirato,~~Jeff Lasher, Chief Financial Officer (Principal Accounting Officer and Principal Financial Officer)

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


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☐☒	Smaller reporting company	☒
~~(Do not check if a smaller reporting company)~~		Emerging growth company	☒


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


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

	September 30, 2017			December 31, 2016
	Unaudited
ASSETS
Current assets:
Cash	$	1,905,477		$	606,644
Accounts receivable, net of allowance for doubtful accounts of $47,829 at September 30, 2017 and December 31, 2016		683,795			391,235
Inventory		5,023,727			2,574,438
Prepaid expenses and other current assets		607,450			35,256
Total current assets		8,220,449			3,607,573

Property and equipment, net		1,136,351			549,854
Intangible assets, net		25,337			-
Goodwill		523,000			243,000
Other assets		93,565			42,526
TOTAL ASSETS	$	9,998,702		$	4,442,953

LIABILITIES & STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,318,787		$	643,793
Payroll and payroll tax liabilities		132,249			77,068
Customer deposits		59,600			51,672
Sales tax payable		95,385			46,942
Current portion of long term debt		54,112			23,443
Total current liabilities		1,660,133			842,918

Long term debt, net of current portion		89,639			41,726
Total liabilities		1,749,772			884,644

Commitments and contingencies

Stockholders’ Equity:
Common stock; $.001 par value; 100,000,000 shares authorized; 16,088,621 and 11,742,834 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively		16,088			11,743
Additional paid-in capital		10,467,090			4,696,221
Accumulated deficit		(2,234,248	)		(1,149,655	)
Total stockholders’ equity		8,248,930			3,558,309
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	9,998,702		$	4,442,953

	Three Month Ended September 30,						Nine months ended September 30,
	2017			2016			2017			2016

Sales	$	4,028,170		$	2,169,129		$	10,722,738		$	5,617,726
Cost of sales		2,912,328			1,560,359			7,775,718			3,947,352
Gross profit		1,115,842			608,770			2,947,020			1,670,374

Operating expenses:
Store operations		800,861			372,317			2,098,201			1,057,447
General and administrative		237,884			98,731			644,708			282,604
Share based compensation		242,984			-			645,392			184,333
Depreciation and amortization		22,987			17,158			63,035			38,181
Salaries and related expenses		269,215			108,336			574,158			314,843
Total operating expenses		1,573,931			596,542			4,025,494			1,877,408

Income (loss) from operations		(458,089	)		12,228			(1,078,474	)		(207,034	)

Other income (expense):
Other income		621			-			1,062			2
Other expense		-			-			-			(1,600	)
Interest expense		(3,419	)		(1,384	)		(7,181	)		(3,050	)
Total non-operating expense, net		(2,798	)		(1,384	)		(6,119	)		(4,648	)

Net income (loss)	$	(460,887	)	$	10,844		$	(1,084,593	)	$	(211,682	)

Net income (loss) per shares, basic and diluted	$	(.03	)	$	*		$	(.08	)	$	(.02	)

Weighted average shares outstanding, basic and diluted		14,819,742			10,584,262			13,857,393			10,584,262

	For the Nine months ended September 30,
	2017			2016
Cash flows from operating activities:
Net loss	$	(1,084,593	)	$	(211,682	)
Adjustments to reconcile net loss to net cash used in operating activities:
Provision for doubtful accounts receivable		-			3,688
Depreciation and amortization		63,035			38,181
Commission, non-cash		-			35,000
Stock-based compensation expense		645,391			184,333
Inventory valuation reserve		-			-
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable		(292,560	)		(331,157	)
Inventory		(2,449,289	)		(1,076,310	)
Prepaid expenses and other assets		(259,209	)		(1,930	)
Increase (decrease) in:
Accounts payable		674,994			320,335
Payroll and payroll tax liabilities		55,181			13,607
Customer deposits		7,928			8,432
Sales tax payable		48,443			25,059
Net cash used in operating activities		(2,590,679	)		(992,444	)
Cash flows from investing activities:
Purchase of furniture and equipment		(563,724	)		(183,059	)
Purchase of intangibles		(306,177	)		-
Net cash used in investing activities		(869,901	)		(183,059	)
Cash flows from financing activities:
Principal payments on long term debt		(36,752	)		(10,940	)
Proceeds from the sale of common stock and exercise of warrants, net of expenses		4,796,165			998,500
Net cash provided by financing activities		4,759,413			987,560
Net increase (decrease) in cash		1,298,833			(187,943	)
Cash at the beginning of period		606,644			699,417
Cash at the end of period	$	1,905,477		$	511,474

Supplemental disclosures of cash flow information:
Cash paid for interest	$	7,181		$	3,050
Common stock and warrants issued for prepaid services	$	416,886			-
Acquisition of vehicles with debt financing	$	84,968		$	57,324
Insurance premium financing	$	30,366			-
Taxes paid		-		$	-

	September 30, 2017			December 31, 2016
Vehicles	$	239,825		$	102,014
Leasehold improvements		178,190			131,411
Furniture, fixtures and equipment		853,498			389,396
		1,271,513			622,821
(Accumulated depreciation)		(135,161	)		(72,967	)
Property and Equipment, net	$	1,136,351		$	549,854

	September 30,			December 31,
	2017			2016
Long term debt is as follows:
Chrysler Capital, interest ranging from 9.8% and 10.9% per annum, payable in monthly installments of $1,889.59 beginning May 2017 through June 2022, secured by vehicles with a book value of $128,800	$	83,565		$	-

Hitachi Capital, interest at 8.0% per annum, payable in monthly installments of $631.13 beginning September 2015 through August 2019, secured by delivery equipment with a book value of $24,910		13,424			18,133

Wells Fargo Equipment Finance, interest at 3.5% per annum, payable in monthly installments of $518.96 beginning April 2016 through March 2021, secured by warehouse equipment with a book value of $25,437		19,574			24,559

RMT Equipment, interest at 10.9% per annum, payable in monthly installments of $1,154.79 beginning June 2016 through October 2018, secured by delivery equipment with a book value of $31,130		13,545			22,477

Note payable insurance premium financing, interest at 4.74% per annum, payable in 10 installments of $3,441, due January 2018		13,642			-
	$	143,750		$	65,169
Less Current Maturities		(54,112	)		(23,443	)
Total Long-Term Debt	$	89,638		$	41,726

	Three Months Ended September 30,				Nine months ended September 30,
	2017		2016		2017		2016
Restricted shares issued		66,500		-		371,500		140,000
Shares based expense from issuance of common stock	$	117,040	$	-	$	365,040	$	98,000
Shares based expense from issuance of common stock options	$	84,695		-	$	162,103	$	86,333
Subtotal shares issued for services and options issued	$	201,735	$	-	$	527,143	$	184,333
Warrants issued for services		41,249		-		118,249		-
Total non cash compensation	$	242,984		-	$	645,392	$	184,333

Options	Shares			Weight - Average Exercise Price		Weighted - Average Remaining Contractual Term
Outstanding at December 31, 2016		1,880,000		$	0.62	2.27 years
Granted		296,500		$	1.82
Exercised		-			-
Forfeited or expired		(27,000	)		-
Outstanding at September 30, 2017		2,149,500		$	.77	1.92 years
Options vested at September 30, 2017		2,049,500		$	.72

	Warrants			Weighted - Average Exercise Price

Outstanding December 31, 2016		3,885,729		$	0.70

Granted		2,475,000			2.65
Exercised		(2,149,287	)		0.70
Forfeited		-			-
Outstanding September 30, 2017		4,211,442		$	1.79

		Three Months Ended September 30, 2017			Three Months Ended September 30, 2016			$ Variance
Net revenue		$	4,028,170		$	2,169,129		$	1,859,041
Cost of goods sold			2,912,328			1,560,359			1,351,969
Gross profit			1,115,842			608,770			507,072
Operating expenses			1,573,931			596,542			977,389
Operating income (loss)	��		(458,089	)		12,228			(470,317	)
Other income (expense)			(2,798	)		(1,384	)		(1,414	)
Net income (loss)		$	(460,887	)	$	10,844		$	(471,731	)

	8 Same Stores
	Three Months Ended		Three Months Ended
	September 30, 2017		September 30, 2016		Variance
Net revenue	$	2,705,837	$	2,059,499	$	646,338

	Nine months ended September 30, 2017			Nine months ended September 30, 2016			$ Variance
Net revenue	$	10,722,738		$	5,617,726		$	5,105,012
Cost of goods sold		7,775,718			3,947,352			3,828,366
Gross profit		2,947,020			1,670,374			1,276,646
Operating expenses		4,025,494			1,877,408			2,148,086
Operating income (loss)		(1,078,474	)		(207,034	)		(871,440	)
Other income (expense)		(6,119	)		(4,648	)		(1,471	)
Net income (loss)	$	(1,084,593	)	$	(211,682	)	$	(872,911	)

	7 Same Stores
	Nine months ended		Nine months ended
	September 30, 2017		September 30, 2016		Variance
Net revenue	$	6,845,762	$	4,798,440	$	2,047,322

	Three Months Ended
	9/30/2017			9/30/2016
Net income (loss)	$	(460,887	)	$	10,844
Interest		3,419			1,384
Depreciation and Amortization		22,987			17,158
EBITDA		(434,481	)		29,386
Share based compensation (option comp, warrant comp, stock issued for services)		242,984			-

Adjusted EBITDA	$	(191,497	)	$	29,386