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United States securities and exchange commission logo
September 16, 2020
William Toler
Chief Executive Officer
HYDROFARM HOLDINGS GROUP, INC.
2249 South McDowell Boulevard
Petaluma, California 94954
Re: HYDROFARM HOLDINGS
GROUP, INC.
Amendment No 1 to
Draft Registration Statement on Form S-1
Submitted August
17, 2020
CIK 0001695295
Dear Mr. Toler:
We have reviewed your amended 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.
Amendment No. 1 to Draft Registration Statement on Form S-1
Risk Factors, page 20
1. We note that the
interest rates of your Encina Credit Facility and Term Loan Agreement
are tied to LIBOR.
Please provide risk factor disclosure related to the impact of the
discontinuation of
LIBOR on your Encina Credit Facility and Term Loan Agreement.
Alternatively, please
tell us why you believe you are not required to do so.
2. We note your response
to prior comment 5 and we reissue the comment in part. Please
clarify whether you are
currently in violation of the Encina Credit Facility, or tell us
where such disclosure
has been included. In this regard, your disclosure regarding the
terms of the Encina
Credit Facility appears to state that sales generally speaking to the
cannabis industry are
prohibited, as opposed to the provisions of the Term Loan
William Toler
FirstName LastNameWilliam Toler INC.
HYDROFARM HOLDINGS GROUP,
Comapany 16,
September NameHYDROFARM
2020 HOLDINGS GROUP, INC.
September
Page 2 16, 2020 Page 2
FirstName LastName
Agreement which appears to prohibit sales to retailers that sell
exclusively to the cannabis
industry.
Our reliance on a limited base of suppliers for certain products..., page 32
3. We note your disclosure on page 32 that we rely on a limited number
of suppliers for
certain of our light ballasts, used in manufacturing our lighting
systems and that if any
of our key suppliers becomes insolvent or experience other financial
distress, we could
experience disruptions in production, which could have a material
adverse effect on
our financial condition, results of operations and cash flows. You
also disclose in Note 4
to the Consolidated Financial Statements that [o]ne supplier
accounted for 10% of
purchases in 2019. Please reconcile these disclosures with your
disclosure on page 61,
which states that your Company does not significantly depend on any
one supplier.
Please revise or advise.
Dilution, page 56
4. Please tell us your consideration of deducting intangible assets from
your calculation of
net tangible book value.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Recent Developments
Effects of Coronavirus on Our Business, page 60
5. We note your disclosure regarding the COVID-19 pandemic on page 60,
which states, in
pertinent part: For several weeks following the initial outbreak of
COVID-19, we
experienced a material impact to our supply chain that inhibited
growth and results of
operations. Please expand this disclosure to discuss more
specifically how the material
impact to your supply chain inhibited your company s growth and
results of operations. If
applicable, please also include the specific known material impacts of
the pandemic on
your revenue, expenses, and net income. Further, you disclose that
[t]he extent to which
the COVID-19 pandemic will ultimately impact our business, results of
operations,
financial condition and cash flows depends on future developments that
are highly
uncertain, rapidly evolving and difficult to predict at this time.
In this regard, and in light
of changing trends and the overall economic outlook, please discuss
how you expect the
global outbreak of COVID-19 to impact your future operating results
and near-term
financial condition. Refer to CF Disclosure Guidance: Topic No. 9 and
9A.
Recent Transactions
PPP Loan, page 61
6. We note that you have entered into a loan through the U.S. Small
Business
Administration s Paycheck Protection Program authorized as part of
the CARES Act.
Please expand your disclosure to describe your use of the proceeds
from this loan. Please
also disclose whether the Company intends to use the proceeds from the
PPP Loan in a
William Toler
FirstName LastNameWilliam Toler INC.
HYDROFARM HOLDINGS GROUP,
Comapany 16,
September NameHYDROFARM
2020 HOLDINGS GROUP, INC.
September
Page 3 16, 2020 Page 3
FirstName LastName
manner consistent with obtaining loan forgiveness.
Comparison of Years Ended December 31, 2019 and 2018, page 63
7. Where a material change in a line item is attributed to two or more
factors, including
offsetting factors, the contribution of each factor should be
described in quantified terms.
Refer to Section III.D of SEC Release No. 33-6835 and revise
accordingly.
Critical Accounting Policies and Estimates, page 68
8. Please tell us your consideration of disclosing the following related
to the estimated fair
value of your common stock:
The methods that you used to determine the fair value of the your
common stock and
the nature of the material assumptions involved. For example, if
you used the income
approach you should disclose that this method involves estimating
future cash flows
and discounting those cash flows at an appropriate rate,
The extent to which the estimates are considered highly complex
and subjective, and
The estimates will not be necessary to determine the fair value of
new awards once
the underlying shares begin trading.
Consolidated Statement of Cash Flows, page F-8
9. Please tell us your consideration of disclosing interest expense and
fees capitalized to
principal of long-term debt as a non-cash financing activity for the
year ended December
31, 2019 as opposed to presenting the amount as an adjustment to
reconcile net loss to net
cash (used in) provided by operating activities.
Note 10. Intangible Assets and Goodwill
Goodwill, page F-30
10. You disclose impairment charges in 2018 related to the Canada
reporting unit of $3,244
included in impairment, restructuring and other in the consolidated
statement of
operations; however, the amounts to not agree to amounts listed in the
table on page F-46
in Note 19. Please advise or revise.
Note 13. Convertible Preferred Stock and Stockholders' Equity
Restriction on the ability to pay dividends, page F-39
11. We note your disclosure here and in Note 10 related to the
restrictions on your ability to
pay dividends. Please tell us your consideration of including
parent-only financial
statements. Please refer to the guidance in Rules 5-04(c) and 12-04 of
Regulations S-X.
Note 16. Commitments and Contingencies
Contingencies, page F-44
12. You disclose you believe claims against the company are without merit
and you do not
expect the outcome, individually or in the aggregate would not have a
material adverse
William Toler
HYDROFARM HOLDINGS GROUP, INC.
September 16, 2020
Page 4
effect on your consolidated financial position, results of operations
or future earnings.
Please revise to also disclose whether or not such claims would have a
material effect on
your cash flows.
You may contact Tony Watson at 202-551-3318 or Bill Thompson at
202-551-3344 if
you have questions regarding comments on the financial statements and related
matters. Please
contact Nicholas Lamparski at 202-551-4695 or Mara Ransom at 202-551-3264 with
any other
questions.
FirstName LastNameWilliam Toler Sincerely,
Comapany NameHYDROFARM HOLDINGS GROUP, INC.
Division of Corporation Finance
September 16, 2020 Page 4 Office of Trade & Services
FirstName LastName