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August 12, 2019
William Toler
Chief Executive Officer
HYDROFARM HOLDINGS GROUP, INC.
2249 South McDowell Boulevard
Petaluma, California 94954
Re: HYDROFARM HOLDINGS GROUP, INC.
Draft Registration Statement on Form S-1
Submitted July 17, 2019
CIK 0001695295
Dear Mr. Toler:
We have reviewed your draft registration statement and have the
following comments. In
some of our comments, we may ask you to provide us with information so we may
better
understand your disclosure.
Please respond to this letter by providing the requested information and
either submitting
an amended draft registration statement or publicly filing your registration
statement on
EDGAR. If you do not believe our comments apply to your facts and circumstances
or do not
believe an amendment is appropriate, please tell us why in your response.
After reviewing the information you provide in response to these comments
and your
amended draft registration statement or filed registration statement, we may
have additional
comments.
Form S-1 Confidentially Submitted July 17, 2019
Prospectus Summary
Company Overview, page 1
1. Provide support for your statements that you "enjoy an approximately 30%
and 40%
market share in the U.S. and Canadian hydroponic wholesale markets,
respectively" and
have "consistently grow[n] revenue at approximately 15% annually for the
past 10 years
through 2017."
Industry Overview, page 2
2. In order to put your business and the industry trends you discuss here
and elsewhere in
context, please elaborate upon how much of the controlled environment
agriculture
William Toler
FirstName LastNameWilliam GROUP, INC.
HYDROFARM HOLDINGS Toler
Comapany NameHYDROFARM HOLDINGS GROUP, INC.
August 12, 2019
August 12, 2019 Page 2
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FirstName LastName
business is dependent upon hydroponics and clarify the extent to which
hydroponics is
just one way in which cannabis and industrial hemp can be grown.
Summary Consolidated Financial and Other Data, page 13
3. Please include a solid vertical black line to separate successor and
predecessor amounts to
indicate a change in basis. This comment also applies to other
sections in the document
whenever successor and predecessor amounts are presented together.
4. You disclose Adjusted EBITDA margin without providing the disclosures
in Item 10(e) of
Regulation S-K. Please advise or revise.
Risk Factors, page 18
5. Your risk factors acknowledge that your Term Loan Agreement prohibits
your Subsidiary
Obligors from selling your products directly to cannabis growers or
cultivators, or to
sellers or retailers that sell only to the cannabis industry, and your
Encina Credit Facility
prohibits the Subsidiary Obligors from selling your products to the
cannabis industry,
however, your disclosure does not appear to address whether you are
currently in violation
of these prohibitions or how you intend to avoid these prohibitions in
the future. In fact,
your disclosure states that your business has historically benefited
from, and your future
business is highly dependent upon, the growth of the cannabis market.
Please revise your
disclosure to address more specifically these apparent conflicts in
your business and how
you intend to address them.
Potential tariffs or a global trade war could increase the cost of our products
.. . ., page 24
6. We note your disclosure that " . . . it is too early to predict how
the recently enacted tariffs
and any future tariffs on items imported from China or elsewhere will
impact our business
. . ." To the extent you are better able to quantify the impact of
enacted tariffs on your
business during the course of this review, please update your
disclosure accordingly.
Use of Proceeds, page 46
7. We note that the "principal purpose[] of this offering [is] to repay
existing indebtedness . .
." among other purposes. If any material part of the proceeds is to be
used to discharge
indebtedness, set forth the interest rate and maturity of such
indebtedness. Refer to
Instruction 4 to Item 504 of Regulation S-K. Please revise your
disclosure accordingly.
8. We note your statement that the "expected use of the net proceeds from
this offering . . .
could change in the future as [y]our plans and business conditions
evolve" and that
"management will have broad discretion over the use of the net
proceeds from this
offering." You may reserve the right to change the use of proceeds
provided that such
reservation is due to certain contingencies that are discussed
specifically and the
alternatives to the use in that event are indicated. Refer to
Instruction 7 to Item 504 of
Regulation S-K. Please revise your disclosure accordingly.
William Toler
FirstName LastNameWilliam GROUP, INC.
HYDROFARM HOLDINGS Toler
Comapany NameHYDROFARM HOLDINGS GROUP, INC.
August 12, 2019
August 12, 2019 Page 3
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FirstName LastName
Dilution, page 50
9. Historical net tangible book deficit per share stated in the second
paragraph on page 50
does not agree to the amount presented in the table. Please advise or
revise.
Unaudited Pro Forma Combined Financial Information, page 52
10. Please note pro forma financial statements are required in
transactional filings whenever a
significant business combination has occurred or is probable, and the
transaction has not
been reflected in the historical audited financial statements of the
issuer for the most
recent full fiscal year. Since your transaction has been reflected in
the most recent full
fiscal year, it appears your presentation of pro forma amounts for the
year ended
December 31, 2017 represent non-GAAP amounts and would be subject to
the non-GAAP
disclosure guidance in Item 10(e) of Regulation S-K. Please advise or
revise. This
comment also applies to other sections in the document when you
present pro forma
amounts for the year ended December 31, 2017.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations
Gross Profit, page 64
11. Your disclosure of the adjusted margin percentage appears to represent
a non-GAAP
measure. Please tell us your consideration of the disclosures in Item
10(e) of Regulation
S-K when you disclose the adjusted margin percentages.
EBITDA and Adjusted EBITDA, page 67
12. We note your definition of EBITDA excludes impairment charges. Please
tell us your
consideration of the guidance in Question 103.01 of our Compliance and
Disclosure
Interpretations: Non-GAAP Financial Measures updated April 4, 2018.
Liquidity and Capital Resources, page 68
13. Please revise your discussion and analysis of liquidity and capital
resources to describe
material commitments for capital expenditures and indicate the general
purpose of such
commitments and the anticipated source of funds needed to fulfill such
commitments.
Refer to Item 303(a)(2) of Regulation S-K and the Commission's
Guidance Regarding
Management Discussion and Analysis of Financial Condition and Results
of Operations,
Release No. 33-8350, available on our web site at http://www.sec.gov.
Description of Capital Stock
Forum Selection, page 121
14. We note that your forum selection provision identifies the Court of
Chancery of the State
of Delaware as the exclusive forum for certain litigation, including
any "derivative
William Toler
FirstName LastNameWilliam GROUP, INC.
HYDROFARM HOLDINGS Toler
Comapany NameHYDROFARM HOLDINGS GROUP, INC.
August 12, 2019
August 12, 2019 Page 4
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FirstName LastName
action." Please disclose whether this provision applies to actions
arising under the
Securities Act or Exchange Act. In that regard, we note that Section
27 of the Exchange
Act creates exclusive federal jurisdiction over all suits brought to
enforce any duty or
liability created by the Exchange Act or the rules and regulations
thereunder, and Section
22 of the Securities Act creates concurrent jurisdiction for federal
and state courts over all
suits brought to enforce any duty or liability created by the
Securities Act or the rules and
regulations thereunder. If the provision applies to Securities Act
claims, please revise to
state that there is uncertainty as to whether a court would enforce
such provision and that
investors cannot waive compliance with the federal securities laws and
the rules and
regulations thereunder. If this provision does not apply to actions
arising under the
Securities Act or Exchange Act, please revise to state as much. If
your Certificate of
Incorporation does not clearly state how this provision applies to
claims under the federal
securities laws, tell us how you will inform investors in future
filings how the provision
applies. In addition, please provide appropriate risk factor
disclosure about your forum
selection provision.
Financial Statements
Report of Independent Registered Public Accounting Firm, page F-2
15. Please revise to include a statement containing the year the auditor
began serving
consecutively as the company's auditor. Please refer to AS 3101 of
PCAOB auditing
standards.
Hydrofarm, LLC - Notes to the consolidated financial statements for the period
from January 1,
2017 to May 11, 2017
15. Related party transactions, page F-27
16. Please tell us your consideration of disclosing the nature of
restrictions on the VIE's assets
and on the settlement of its liabilities reported in the consolidated
balance sheet, including
the carrying amounts of such assets and liabilities, and how the VIE
affects your financial
position, financial performance, and cash flows. Refer to ASC
810-10-50-2AA for
guidance.
Hydrofarm Holdings Group, Inc. - Notes to the consolidated financial statements
December 31,
2018 and 2017
3. Basis of preparation and significant accounting policies
Revenue recognition, page F-59
17. Please disclose how shipping and handling fees charged to customers
are classified in the
statements of operations.
4. Recently issued accounting pronouncements, page F-63
18. We note your intention to adopt ASU 2016-02 and ASU 2018-02 for fiscal
2019. Please
tell us your consideration of disclosing of the potential impact that
the recently issued
William Toler
FirstName LastNameWilliam GROUP, INC.
HYDROFARM HOLDINGS Toler
Comapany NameHYDROFARM HOLDINGS GROUP, INC.
August 12, 2019
August 12, 2019 Page 5
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FirstName LastName
accounting standard will have on your financial position and results
of operations. Please
refer to ASC 250-10-S99-5.
5. Business combinations (other than the Formation Transaction), page F-64
19. Please tell us your consideration of disclosing the percentage of
voting equity interest
acquired or percentage of control obtained related to your
acquisitions of Greenstar Plants
Products Ltd, and Eddi's Wholesale Garden Supplies Ltd. Refer to ASC
805-10-50-2c for
guidance.
8. Prepaid expenses and other current assets, page F-67
20. Your disclosure on page F-63 states you adopted the guidance in ASU
2015-17, Income
taxes (ASC 740), on January 1, 2018. Please tell us why deferred tax
assets amounts are
classified as current assets as of December 31, 2018.
11. Impairment of indefinite-lived intangible assets, long-lived tangible and
definite-lived
intangible assets, and goodwill, page F-70
21. We note your disclosure of impairment indicators that you identified
in the fourth quarter
of 2017 that resulted in impairment charges for period end December
31, 2017. Please tell
us your consideration of the guidance in ASC 805-10-25-13 through
25-19 and ASC 805-
10-30-1 through 30-3, related to the measurement period and new
information obtained
about facts and circumstances that existed as of May 12, 2017 that, if
known, would have
affected the measurement of the amounts recognized as of that date.
13. Debt, page F-73
22. You disclose on page F-73 amortization of debt issuance cost of $248
for the period from
inception (March 21, 2017) to December 31, 2017; however, no amounts
are stated in the
statement of cash flows as an adjustment to reconcile net loss to net
cash used in operating
activities for the period ended December 31, 2017. Please advise or
revise. Additionally,
on page F-75 you disclose fees related to a forbearance agreement and
amendments.
Please clarify your disclosure if amounts were capitalized or expensed
as incurred.
15. Income Taxes, page F-77
23. Please clarify the nature of the tax entity classification adjustment
line item for the year
ended December 31, 2018 included in your income tax rate
reconciliation on page F-79
and why no adjustment was recorded in the previous year.
19. Segment reporting, page F-83
24. Please tell us your consideration of disclosing revenues from external
customers for each
product and service or each group of similar products. In that regard,
reference is made
to your disclosures on page 85. Refer to ASC 280-10-50-40 for
guidance.
William Toler
HYDROFARM HOLDINGS GROUP, INC.
August 12, 2019
Page 6
General
25. Please supplementally provide us with copies of all written
communications, as defined in
Rule 405 under the Securities Act, that you, or anyone authorized to
do so on your behalf,
present to potential investors in reliance on Section 5(d) of the
Securities Act, whether or
not they retain copies of the communications.
You may contact Tony Watson, Staff Accountant, at 202-551-3318 or Bill
Thompson,
Accounting Branch Chief, at 202-551-3344 if you have questions regarding
comments on the
financial statements and related matters. Please contact Jacqueline Kaufman,
Staff Attorney,
at 202-551-3797 or Mara Ransom, Assistant Director, at 202-551-3264 with any
other questions.
FirstName LastNameWilliam Toler Sincerely,
Comapany NameHYDROFARM HOLDINGS GROUP, INC.
Division of Corporation Finance
August 12, 2019 Page 6 Office of Consumer Products
FirstName LastName