Vireo Growth (VREOD) outlines Hawthorne and Eaze equity-funded deals
Rhea-AI Filing Summary
Vireo Growth Inc. filed an amended report to add detailed financial statements for The Hawthorne Gardening Company and pro forma information for its recent acquisitions of Hawthorne and Eaze, Inc. This gives a clearer picture of the combined business.
Hawthorne generated $130.2 million in net sales and a $9.6 million net loss for the year ended September 30, 2025, with total assets of $111.6 million and business equity of $73.8 million. The business incurred $10.6 million in impairment, restructuring and other charges and relied on its parent for centralized services and financing.
To acquire Hawthorne, Vireo issued 213,000,000 subordinate voting shares at a deemed $0.60 per share and 80,000,000 warrants exercisable at $0.85 per share, both subject to lock-up terms. The earlier Eaze merger added a further 90,379,591 subordinate voting shares as estimated consideration. The new pro forma condensed combined financials show how these deals would have affected Vireo’s 2025 balance sheet and results under U.S. GAAP.
Positive
- None.
Negative
- None.
Insights
Large equity-funded deals reshape Vireo’s scale and capital structure.
The Hawthorne and Eaze transactions significantly expand Vireo Growth in indoor gardening and cannabis-adjacent distribution. Hawthorne posted $130.2 million of net sales with a net loss of $9.6 million in the year ended September 30, 2025, indicating meaningful revenue but limited profitability.
Consideration is heavily equity-based. Vireo issued 213,000,000 subordinate voting shares at $0.60 deemed value and 80,000,000 warrants at $0.85 for Hawthorne, plus 90,379,591 shares for the Eaze merger. This implies substantial dilution balanced against added scale and potential synergies, which are not quantified in the filing.
The unaudited pro forma condensed combined financial statements for the year ended December 31, 2025 help investors gauge the combined entity’s revenue base, leverage, and goodwill. Actual performance will depend on integration execution, restructuring progress at Hawthorne, and how quickly the acquired operations can improve margins relative to their recent loss levels.
8-K Event Classification
Key Figures
Key Terms
business combination financial
carve-out combined financial statements financial
unaudited pro forma condensed combined financial statements financial
net parent investment financial
right-of-use assets financial
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Amendment No. 1)
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of Incorporation)
| ||
(Commission File Number) | (IRS Employer Identification No.) | |
(Address of principal executive offices) | (Zip Code) |
(
(Registrant’s telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
N/A | N/A | N/A |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
EXPLANATORY NOTE
This Amendment No. 1 on Form 8-K/A (this “Amendment”) is being filed by Vireo Growth Inc. (the “Company”) to amend and supplement its Current Report on Form 8-K filed with the Securities and Exchange Commission (the “SEC”) on April 14, 2026 (the “Prior Form 8-K”). As previously disclosed in the Prior Form 8-K, on April 8, 2026, the Company completed a transaction (the “Transaction”) pursuant to which Prolific Supply LLC, an indirect wholly owned subsidiary of the Company, agreed to purchase from SMG Growing Media LLC, an Ohio limited liability company and indirect wholly owned subsidiary of The Scotts Miracle-Gro Company, all of the issued and outstanding equity interests of The Hawthorne Gardening Company LLC, a Delaware limited liability company, which, as of closing, owns 100% of the equity interests of HGCI LLC, a Nevada limited liability company, and Hawthorne Hydroponics LLC, a Delaware limited liability company (collectively, the “Hawthorne Companies”).
The Company is filing this Amendment solely to supplement Item 9.01 of the Prior Form 8-K to provide the carve out consolidated financial statements as of September 30, 2025 and for the year then ended for the business conducted by the Hawthorne Companies as of the closing of the Transaction, and the unaudited carve-out interim financial statements of the business conducted by the Hawthorne Companies as of the closing of the Transaction as of and for the three-month periods ended December 31, 27, 2025 and December 28, 2024, and pro forma financial information related to the Transaction required by Items 9.01(a) and 9.01(b) of Form 8-K. The information presented in this Amendment should be read in conjunction with the Prior Form 8-K. Except for the foregoing, this Amendment does not modify or update any other disclosure contained in the Prior Form 8-K.
Item 9.01 | Financial Statements and Exhibits. |
(a)Financial Statements of Business or Funds Acquired
The audited carve-out combined financial statements and notes of The Hawthorne Business of The Scotts Miracle-Gro Company as of September 30, 2025, and for the fiscal year then ended September 30, 2025, and the related notes thereto, are filed as Exhibit 99.1 hereto and are incorporated herein by reference.
The unaudited carve-out condensed combined financials statements of The Hawthorne Business of The Scotts Miracle-Gro Company as of December 27, 2025 and September 30, 2025 and for the three months ended December 27,2025 and December 28, 2024, and the related notes thereto, are filed as Exhibit 99.2 hereto and are incorporate by reference herein.
(b)Pro Forma Financial Information
The unaudited pro forma condensed combined financial statements of the Company, Eaze, Inc. and the Hawthorne Gardening Company, LLC as of and for the year then ended December 31, 2025, and the related notes thereto, are filed as Exhibit 99.3 hereto and are incorporated herein by reference.
(c)Exhibits
Exhibit No. | | Description |
23.1 | Consent of Deloitte LLP | |
99.1 | Audited carve-out combined financial statements of The Hawthorne Business of The Scotts Miracle-Gro Company as of September 30, 2025, and for the fiscal year then ended September 30, 2025 | |
99.2 | Unaudited carve-out condensed combined financial statements of The Hawthorne Business of The Scotts Miracle-Gro Company as of December 27, 2025 and September 30, 2025, and for the three months ended December 27,2025 and December 28, 2024 | |
99.3 | Unaudited pro forma condensed combined financial statements of Vireo Growth, Inc., Eaze, Inc., and The Hawthorne Gardening Company, LLC as of and for the year ended December 31, 2025 | |
104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| VIREO GROWTH INC. | |
|
| |
| By: | /s/ Tyson Macdonald |
|
| Tyson Macdonald |
|
| Chief Financial Officer |
Date: June 18, 2026
Table of Contents
Exhibit 99.1
The Hawthorne Business of The Scotts Miracle-Gro Company
Combined Financial Statements and Notes
as of and for the fiscal year ended September 30, 2025
and Independent Auditor’s Report
Table of Contents
The Hawthorne Business of The Scotts Miracle-Gro Company
INDEX TO FINANCIAL STATEMENTS
| Page |
Financial Statements of The Hawthorne Business of The Scotts Miracle-Gro Company: | |
Independent Auditor’s Report | 3 |
Combined Statement of Operations for the fiscal year ended September 30, 2025 | 5 |
Combined Balance Sheet at September 30, 2025 | 6 |
Combined Statement of Cash Flows for the fiscal year ended September 30, 2025 | 7 |
Combined Statement of Business Equity for the fiscal year ended September 30, 2025 | 8 |
Notes to Combined Financial Statements | 9 |
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| Deloitte & Touche LLP Tel:+1 614 221 1000 |
INDEPENDENT AUDITOR’S REPORT
To Management and the Board
of Directors of The Scotts Miracle-Gro Company
Opinion
We have audited the combined financial statements of The Hawthorne Gardening Company and its subsidiaries HGCI LLC, Hawthorne Hydroponics LLC and certain operating assets and liabilities of Hawthorne Canada Limited, a combined group of wholly-owned legal entities of The Scotts Miracle-Gro Company (collectively referred to as the “Company” or “Business”), which comprise the combined balance sheet as of September 30, 2025, and the related combined statements of operations, cash flows, and business equity for the year then ended, and the related notes to the combined financial statements (collectively referred to as the "financial statements").
In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2025, and the results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.
Basis for Opinion
We conducted our audit in accordance with auditing standards generally accepted in the United States of America (GAAS). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the Company and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Emphasis of Matter
As described in Note 1 to the financial statements, the financial statements were derived from the consolidated financial statements and accounting records of The Scotts Miracle-Gro Company. These financial statements include transactions with related parties and allocations for certain support functions that are provided on a centralized basis, which may not be indicative of the conditions that would have existed, or actual expenses that would have been incurred by the Company, and may not reflect its combined results of operations, financial position and cash flows had it operated without such affiliations and had been a stand-alone company during the period presented.
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Responsibilities of Management for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is required to evaluate whether there are conditions or events considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for one year after the date that the financial statements are issued.
Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore there is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements.
In performing an audit in accordance with GAAS, we:
| ● | Exercise professional judgment and maintain professional skepticism throughout the audit. |
| ● | Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. |
| ● | Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, no such opinion is expressed. |
| ● | Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements. |
| ● | Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for a reasonable period of time. |
We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters that we identified during the audit.
May 19, 2026
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The Hawthorne Business of The Scotts Miracle-Gro Company
Combined Statement of Operations
(In millions)
| | Year Ended | |
| | September 30, 2025 | |
Net sales | | $ | 130.2 |
Cost of sales | | | 97.8 |
Cost of sales—impairment, restructuring and other | | | 7.0 |
Gross margin | | | 25.4 |
Operating expenses: | | | |
Selling, general and administrative | | | 33.0 |
Impairment, restructuring and other | | | 3.6 |
Other income, net | | | (0.3) |
Loss before income taxes | | | (10.9) |
Income tax benefit | | | (1.3) |
Net loss | | $ | (9.6) |
See Notes to Combined Financial Statements.
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The Hawthorne Business of The Scotts Miracle-Gro Company
Combined Balance Sheet
(In millions)
| | September 30, 2025 | |
ASSETS | | | |
Current assets: | | | |
Accounts receivable, less allowances of $1.5 | | $ | 26.4 |
Inventories | | | 50.1 |
Prepaid and other current assets | | | 3.7 |
Total current assets | | | 80.2 |
Property, plant and equipment, net | | | 13.6 |
Other assets | | | 17.8 |
Total assets | | $ | 111.6 |
| | | |
LIABILITIES AND BUSINESS EQUITY | | | |
Current liabilities: | | | |
Accounts payable | | $ | 8.2 |
Other current liabilities | | | 20.1 |
Total current liabilities | | | 28.3 |
Other liabilities | | | 9.5 |
Total liabilities | | | 37.8 |
Commitments and contingencies (Notes 8, 9 and 10) | | | |
Business equity: | | | |
Net parent investment | | | 73.8 |
Total business equity | | | 73.8 |
Total liabilities and business equity | | $ | 111.6 |
See Notes to Combined Financial Statements.
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The Hawthorne Business of The Scotts Miracle-Gro Company
Combined Statement of Cash Flows
(In millions)
| | Year Ended | |
| | September 30, 2025 | |
OPERATING ACTIVITIES | | | |
Net loss | | $ | (9.6) |
Adjustments to reconcile net loss to net cash used in operating activities: | | | |
Impairment, restructuring and other | | | 2.6 |
Share-based compensation expense | | | 1.9 |
Depreciation | | | 3.4 |
Deferred taxes | | | 0.1 |
Other, net | | | (0.4) |
Changes in assets and liabilities: | | | |
Accounts receivable | | | 6.0 |
Inventories | | | (1.4) |
Prepaid and other current assets | | | 10.6 |
Accounts payable | | | (16.2) |
Other current liabilities | | | (4.1) |
Other non-current items | | | (1.8) |
Net cash used in operating activities | | | (8.9) |
| | | |
INVESTING ACTIVITIES | | | |
Investments in property, plant and equipment | | | (0.3) |
Net cash used in investing activities | | | (0.3) |
| | | |
FINANCING ACTIVITIES | | | |
Transfers from Parent, net | | | 9.2 |
Net cash provided by financing activities | | | 9.2 |
Net change in cash and cash equivalents | | | — |
Cash and cash equivalents at beginning of year | | | — |
Cash and cash equivalents at end of year | | $ | — |
See Notes to Combined Financial Statements.
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The Hawthorne Business of The Scotts Miracle-Gro Company
Combined Statement of Business Equity
(In millions)
| | Net | |
Balance at September 30, 2024 | | $ | 74.2 |
Net loss | | | (9.6) |
Net transfers from Parent | | | 9.2 |
Balance at September 30, 2025 | | $ | 73.8 |
See Notes to Combined Financial Statements.
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The Hawthorne Business of The Scotts Miracle-Gro Company
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in millions)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
The Hawthorne Gardening Company, LLC (“Hawthorne”) and its subsidiaries, HGCI LLC (“HGCI”), Hawthorne Hydroponics LLC (“Hawthorne Hydroponics”) and Hawthorne Canada Limited (“HCL”), are a combined group of wholly-owned legal entities of The Scotts Miracle-Gro Company (“Parent”) that provide nutrients, lighting, and other materials used for indoor and hydroponic gardening in North America.
Organization and Basis of Presentation
These Combined Financial Statements have been derived from the consolidated financial statements and accounting records of The Scotts Miracle-Gro Company and include the accounts of Hawthorne, HGCI, Hawthorne Hydroponics and certain operating assets and liabilities of HCL (collectively, the “Business”). These Combined Financial Statements reflect the combined historical results of operations, financial position and cash flows of the Business, as they were historically managed, in conformity with accounting principles generally accepted in the United States of America (“GAAP”), and include allocations of expenses for certain corporate or shared services functions historically provided by the Parent, including, but not limited to, finance, legal, information technology, human resources, ethics and compliance, shared services, insurance, employee benefits and incentives. The Parent allocated expenses to the Business on the basis of direct usage when identifiable, with the remainder allocated on a pro rata basis of net sales, headcount or other measures considered to be a reasonable reflection of the historical utilization levels of the service the Business received from the Parent. Management believes the assumptions regarding the allocation of general corporate expenses from the Parent are reasonable; however, amounts recognized by the Business in these Combined Financial Statements may not necessarily be representative of the actual costs that would have been reflected in these Combined Financial Statements had the Business operated independently of the Parent.
As all legal entities of the Business are held under the common control of the Parent with no single entity within the Business holding financial control over all the other legal entities of the Business, these Combined Financial Statements will present business equity in lieu of stockholders’ equity. The business equity section in these Combined Financial Statements includes net parent investment, which is comprised of the Parent’s historical investment in the Business and the net effect of the transactions with and allocations from the Parent.
Intercompany transactions between the Business and the Parent are generally considered to be effectively settled in the Combined Financial Statements at the time the transactions are recorded. The total net effect of the settlement of these intercompany transactions is reflected in the Combined Statements of Cash Flows as a financing activity and in the Combined Balance Sheet as net parent investment. General financing activities include the net impact of any cash movements resulting from the Parent’s centralized cash management approach.
The Parent has historically used a centralized approach to cash management and financing of its operations, as needed. Certain portions of the Business’s cash are transferred to the Parent according to centrally managed cash programs by Treasury and the Parent funds the Business’s operating and investing activities as needed. Cash transfers to and from the Parent’s cash management accounts are reflected as a component of net parent investment in the Combined Balance Sheet.
None of the debt obligations of the Parent or corresponding interest expense have been included in the Combined Financial Statements, as the Business is neither the legal obligor, nor transferee for any portion of such debt.
The Parent has allocated income taxes to the Business in the accompanying Combined Financial Statements as if the Business entities were held in a separate corporation which filed separate income tax returns. The Parent believes the assumptions underlying its allocation of income taxes on a separate return basis are reasonable.
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The Hawthorne Business of The Scotts Miracle-Gro Company
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in millions)
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the Combined Financial Statements and accompanying notes and related disclosures. Although these estimates are based on management’s best knowledge of current events and actions the Business may undertake in the future, actual results ultimately may differ from the estimates.
Research and Development
Costs associated with research and development are generally charged to expense as incurred, and are classified within selling, general and administrative expenses in the Combined Statements of Operations. Research and development expenses for fiscal 2025 were $2.9, including product registration costs of $1.8.
Share-Based Compensation Awards
The Business’s employees have historically participated in the Parent’s share-based compensation plan, which has historically granted stock options, restricted stock units and performance-based award units to certain Business employees. All of these share-based awards have been made under plans approved by the shareholders of the Parent. The fair value of awards is expensed over the requisite service period, which is typically the vesting period, generally three years.
For restricted stock units, deferred stock units and performance-based award units that do not contain a market condition, the fair value of each award is estimated on the grant date based on the current market price of the Parent’s common shares (or “Common Shares”). For performance-based award units that contain a market condition, the fair value of each award is estimated using a Monte Carlo simulation model. Expected market price volatility is based on historical volatility specific to the Common Shares. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant. The grant date fair value of stock option awards is estimated using a binomial model. Expected market price volatility is based on implied volatilities from traded options on the Parent’s Common Shares and historical volatility specific to the Parent’s Common Shares. Historical data, including demographic factors impacting historical exercise behavior, is used to estimate stock option exercises and employee terminations within the valuation model. The risk-free rate for periods within the contractual life of the stock option is based on the U.S. Treasury yield curve in effect at the time of grant. The expected life of stock options is based on historical experience and expectations for grants outstanding.
Vesting of performance-based award units is dependent on service and achievement of specified performance targets of the Parent. Based on the extent to which the targets are achieved, vested shares may range from 0% to 325% of the target award amount. For performance-based award units that do not contain a market condition, the total amount of compensation expense recognized reflects management’s assessment of the probability that performance goals will be achieved. A cumulative adjustment is recognized to compensation expense in the current period to reflect any changes in the probability of achievement of performance goals. For performance-based award units that contain a market condition, compensation expense is recognized regardless of the extent to which the targets are achieved.
Restricted stock units, deferred stock units and performance-based award units receive dividend equivalents equal to the cash dividends paid by the Parent during the vesting period that are only paid out upon vesting. Share-based award units are generally forfeited if a holder terminates employment or service prior to the vesting date, except in cases where employees are eligible for accelerated vesting based on having satisfied retirement requirements relating to age and years of service. The Parent estimates that 15% of its share-based awards will be forfeited based on an analysis of historical trends. The Parent evaluates the estimated forfeiture rate on an annual basis and makes adjustments as appropriate. Stock options have exercise prices equal to the market price of the underlying Common Shares on the grant date and a term of 10 years. The Business classifies share-based compensation expense within selling, general and administrative expenses to correspond with the same line item as cash compensation paid to employees.
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The Hawthorne Business of The Scotts Miracle-Gro Company
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in millions)
Accounts Receivable and Allowances
Trade accounts receivable are recorded at the invoiced amount and do not bear interest. Allowances for doubtful accounts reflect the Business’s estimate of amounts in its existing accounts receivable that may not be collected due to customer claims or customer inability or unwillingness to pay. The allowance is determined based on a combination of factors, including the Business’s risk assessment regarding the credit worthiness of its customers, historical collection experience and length of time the receivables are past due. Account balances are charged off against the allowance when the Business believes it is probable the receivable will not be recovered.
Inventories
Inventories are stated at the lower of cost or net realizable value and include the cost of raw materials, labor, manufacturing overhead and freight and inbound handling costs incurred to pre-position goods in the Business’s warehouse network. The Business makes provisions for obsolete or slow-moving inventories as necessary to properly reflect inventory at the lower of cost or net realizable value. Inventories are valued using the first in, first out method.
Long-Lived Assets
Property, plant and equipment are stated at cost. Expenditures for maintenance and repairs are charged to expense as incurred. When properties are retired or otherwise disposed of, the cost of the asset and the related accumulated depreciation are removed from the accounts with the resulting gain or loss being reflected in income (loss) from operations. All property, plant and equipment is located within the United States.
Depreciation of property, plant and equipment is provided on the straight-line method and is based on the estimated useful economic lives of the assets as follows:
Land improvements | | 10 – 25 years |
Buildings | | 10 – 40 years |
Machinery and equipment | | 3 – 15 years |
Furniture and fixtures | | 6 – 10 years |
Software | | 3 – 8 years |
Intangible assets subject to amortization have been fully impaired. The Business’s long-lived assets are required to be tested for recoverability whenever events or changes in circumstances indicate that carrying amounts may not be recoverable. If an evaluation of recoverability is required, the estimated undiscounted future cash flows associated with the asset group would be compared to the asset group carrying amount to determine if a write-down is required. If the undiscounted cash flows are less than the carrying amount, an impairment loss is recognized in earnings to the extent that the carrying amount exceeds fair value.
Internal Use Software
The Business capitalizes certain qualifying costs incurred in the acquisition and development of software for internal use, including the costs of the software, materials, consultants, interest and payroll and payroll-related costs for employees during the application development stage. Internal and external costs incurred during the preliminary project stage and post implementation-operation stage, mainly training and maintenance costs, are expensed as incurred. Once the application is substantially complete and ready for its intended use, qualifying costs are amortized on a straight-line basis over the software’s estimated useful life. Capitalized internal use software is included in the “Property, plant and equipment, net” line in the Combined Balance Sheet. Capitalized software as a service is included in the “Prepaid and other current assets” line in the Combined Balance Sheet and is amortized using the straight-line method over the term of the hosting arrangement which typically ranges from 3 to 8 years.
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The Hawthorne Business of The Scotts Miracle-Gro Company
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in millions)
Warranties
The Business provides warranties on a variety of products. The Business accrues for the estimated cost of warranty claims at the time of sale. The warranty accrual is based on historical warranty claims and is adjusted for changes in product mix, product quality and other factors. Adjustments are recorded to the warranty accrual as new information becomes available. The following table displays a rollforward of the warranty liability for the period presented:
| | Year ended | |
Balance, beginning of period | | $ | 6.7 |
Warranty expense during this period | | | 1.0 |
Settlements of warranty claims | | | (0.3) |
Vendor reimbursements | | | (1.3) |
Balance, end of period | | $ | 6.1 |
Income Taxes
The income tax provision of the Business was prepared using the separate return method. The calculation of income taxes on a separate return basis requires a considerable amount of judgment and use of both estimates and allocations. As a result, transactions included in the consolidated financial statements of the Parent may not be included in the Combined Financial Statements. Similarly, the tax treatment of certain items reflected in the Combined Financial Statements may not be reflected in the consolidated financial statements and tax returns of the Parent. Therefore, items such as net operating losses (“NOLs”), credit carryforwards and valuation allowances may exist in the Combined Financial Statements that may or may not exist in the Parent’s consolidated financial statements. In the future, as a standalone entity, the Business will file tax returns on its own behalf and its deferred taxes and actual income tax rate may differ from those in the historical periods.
In jurisdictions where the Business has been included in income tax returns filed by the Parent, income taxes currently payable will be deemed to have been remitted to the Parent, in cash, in the period the liability arose and income taxes currently receivable are deemed to have been received from the Parent in the period that a refund could have been recognized. Adjustments to the recorded payable/receivable that derive from the Business’s current year activity are recorded through current tax expense and the ending adjusted payable/receivable is settled through net parent investment on the Combined Balance Sheet. Current payable/receivable balances for tax at the end of the fiscal year in jurisdictions where the Business does not file a consolidated tax return with the Parent, including certain foreign and U.S. state tax jurisdictions, are recorded as other current assets or other current liabilities in the Combined Balance Sheet. The effects of tax adjustments and settlements with taxing authorities are presented in the Combined Financial Statements in the period to which they relate.
Uncertain tax positions that meet the more likely than not recognition threshold are measured to determine the amount of tax benefit to recognize in the Combined Financial Statements. An uncertain tax position is measured at the largest amount of benefit that the Business believes has a greater than 50% likelihood of realization upon settlement. Tax benefits not meeting the measurement or realization criteria represent unrecognized tax benefits. The Business recognizes interest and penalties related to income tax matters as a component of the provision for income taxes. Deferred income tax balances reflect the effects of temporary differences between the carrying amounts of assets and liabilities and their respective tax bases, as well as from net operating loss and tax credit carryforwards. The deferred income tax balances are stated at enacted tax rates expected to be in effect when those taxes are paid or recovered. Deferred income tax assets represent amounts available to reduce income taxes payable on taxable income in future years. The Business evaluates the recoverability of these future tax deductions and tax credits by evaluating all available positive and negative evidence, specifically assessing the adequacy of future expected taxable income from all sources, including reversal of existing taxable temporary differences, forecasted operating earnings and available tax planning strategies. To the extent the Business considers it more likely than not that a deferred tax asset will not be recovered, a valuation allowance is established.
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The Hawthorne Business of The Scotts Miracle-Gro Company
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in millions)
U.S. income tax expense and foreign withholding taxes are provided on unremitted foreign earnings that are not indefinitely reinvested at the time the earnings are generated. Where foreign earnings are indefinitely reinvested, no provision for U.S. income or foreign withholding taxes is made. When circumstances change and the Business determines that some or all of the undistributed earnings will be remitted in the foreseeable future, the Business accrues an expense in the current period for U.S. income taxes and foreign withholding taxes attributable to the anticipated remittance.
Translation of Foreign Currencies
The functional currency for each subsidiary of the Business is generally its local currency. Income and expense accounts are translated at the average rate of exchange prevailing during the year. Foreign exchange transaction gains and losses are included in the determination of net income (loss) and classified as other income (expense), net in the Combined Statement of Operations. Foreign exchange transaction (gains) losses recognized by the Business during fiscal 2025 were not material.
Leases
The Business determines whether an arrangement contains a lease at inception by determining if the contract conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration and other facts and circumstances. Right-of-use (“ROU”) assets represent the Business’s right to use an underlying asset for the lease term and lease liabilities represent the Business’s obligation to make lease payments arising from the lease. ROU assets are calculated based on the lease liability adjusted for any lease payments paid to the lessor at or before the commencement date and initial direct costs incurred by the Business and exclude any lease incentives received from the lessor. Lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term. The lease term may include options to extend or terminate the lease when it is reasonably certain that the Business will exercise that option. As the Business’s leases typically do not contain a readily determinable implicit rate, the Business determines the present value of the lease liability using its incremental borrowing rate at the lease commencement date based on the lease term. The Business considers its credit rating and the current economic environment in determining this collateralized rate. Variable lease payments are the portion of lease payments that are not fixed over the lease term. Variable lease payments are expensed as incurred and include certain non-lease components, such as maintenance and other services provided by the lessor, and other charges included in the lease, as applicable. The Business elected to exclude short-term leases, defined as leases with initial terms of 12 months or less, from its Combined Balance Sheet.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In December 2023, the FASB issued ASU No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” This ASU primarily requires enhanced disclosures and disaggregation of income tax information by jurisdiction in the annual income tax reconciliation and quantitative and qualitative disclosures regarding income taxes paid. ASU No. 2023-09 is to be applied prospectively, with the option to apply the standard retrospectively, effective for the Business’s fiscal year ending September 30, 2026. The Business is currently evaluating the impact that the adoption of this guidance will have on the Business’s disclosures.
In November 2024, the FASB issued ASU No. 2024-03, “Income Statement — Reporting Comprehensive Income — Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses.” This ASU requires disaggregated disclosures on an annual and interim basis, in the notes to the financial statements, of certain categories of expenses that are included in expense line items on the face of the statement of operations. ASU No. 2024-03 is to be applied prospectively, with the option to apply the standard retrospectively, effective for the Business’s fiscal year ending September 30, 2028 and interim periods within the fiscal year ending September 30, 2029. The Business is currently evaluating the impact that the adoption of this guidance will have on the Business’s disclosures.
In September 2025, the FASB issued ASU No. 2025-06, “Intangibles — Goodwill and Other — Internal-Use Software: Targeted Improvements to the Accounting for Internal-Use Software.” This ASU amends the accounting for and disclosure of software costs. ASU No. 2025-06 is effective for the Business’s fiscal year ending September 30, 2029 and interim periods within that fiscal year, with early adoption permitted. The Business is currently evaluating the impact that the adoption of this guidance will have on the Business’s consolidated financial statements and disclosures.
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The Hawthorne Business of The Scotts Miracle-Gro Company
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in millions)
NOTE 2. REVENUE RECOGNITION
Nature of Goods and Services
The Business’s revenue is primarily generated from sales of branded indoor and hydroponic gardening finished products to indoor gardening and hydroponic product distributors, retailers and growers. Refer to “NOTE 11. DISAGGREGATION OF REVENUE” for disaggregated revenue information.
Identification and Satisfaction of Performance Obligations
The Business recognizes product sales at a point in time when it transfers control of products to customers and has no further obligation to provide services related to such products. Control is the ability of customers to direct the “use of” and “obtain” the benefit from the Business’s products. In evaluating the timing of the transfer of control of products to customers, the Business considers several control indicators, including significant risks and rewards of products, the Business’s right to payment and the legal title of the products. Based on the assessment of control indicators, sales are typically recognized when products are delivered to or picked up by the customer. The Business is generally the principal in a transaction, therefore revenue is primarily recorded on a gross basis. When the Business is a principal in a transaction, it has determined that it controls the ability to direct the use of the product prior to transfer to a customer, is primarily responsible for fulfilling the promise to provide the product or service to the customer, has discretion in establishing prices, and ultimately controls the transfer of the product or services provided to the customer.
Transactional Price and Promotional Allowances
Revenue for product sales is recorded net of sales returns and allowances. Revenues are measured based on the amount of consideration that the Business expects to receive as derived from a list price, reduced by estimates for variable consideration. Variable consideration includes the cost of current and continuing promotional programs and expected sales returns.
The Business’s promotional programs primarily include rebates based on sales volumes and special purchasing incentives. The cost of promotional programs is estimated considering all reasonably available information, including current expectations and historical experience. Promotional costs incurred during the year are recorded as a reduction of net sales. Accruals for expected payouts under these programs are included in the “Other current liabilities” line in the Combined Balance Sheet. Shipping and handling costs are accounted for as contract fulfillment costs and included in the “Cost of sales” line in the Combined Statement of Operations. The Business excludes from revenue any amounts collected from customers for sales or other taxes.
NOTE 3. IMPAIRMENT, RESTRUCTURING AND OTHER
Activity described herein is classified within the “Cost of sales—impairment, restructuring and other” and “Impairment, restructuring and other” lines in the Combined Statement of Operations. The following table details impairment, restructuring and other charges for fiscal 2025:
| | Year Ended | |
| | September 30, 2025 | |
Cost of sales—impairment, restructuring and other: | | | |
Restructuring and other charges, net | | $ | 4.2 |
Right-of-use asset impairments | | | 2.0 |
Property, plant and equipment impairments | | | 0.8 |
Operating expenses—impairment, restructuring and other: | | | |
Restructuring and other charges, net | | | 3.6 |
Total impairment, restructuring and other charges | | $ | 10.6 |
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The Hawthorne Business of The Scotts Miracle-Gro Company
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in millions)
The following table summarizes the activity related to liabilities associated with restructuring activities during fiscal 2025:
| | Year Ended | |
| | September 30, 2025 | |
Amounts accrued at beginning of year | | $ | 0.9 |
Restructuring charges | | | 6.8 |
Payments | | | (7.3) |
Amounts accrued at end of year | | $ | 0.4 |
During fiscal 2025, the Business incurred employee and executive severance charges of $4.2, including charges of $1.2 in the “Cost of sales—impairment, restructuring and other” line in the Combined Statement of Operations and $3.0 in the “Impairment, restructuring and other” line in the Combined Statement of Operations.
During fiscal 2022, the Business began implementing a series of Company-wide organizational changes and initiatives intended to create operational and management-level efficiencies. As part of this restructuring initiative, the Business reduced the size of its supply chain network, reduced staffing levels and implemented other cost-reduction initiatives. During fiscal 2025, the Business incurred costs of $5.8 in the “Cost of sales—impairment, restructuring and other” line in the Combined Statement of Operations associated with this restructuring initiative primarily related to employee termination benefits, facility closure costs and impairment of right-of-use assets and property, plant and equipment.
NOTE 4. GOODWILL AND INTANGIBLE ASSETS, NET
There were no goodwill or intangible asset impairments during fiscal 2025.
The following table presents goodwill, net of accumulated impairment losses:
Goodwill | | $ | 522.5 |
Accumulated impairment losses | | | (522.5) |
Balance at September 30, 2025 | | $ | — |
The following table presents intangible assets, net of accumulated amortization and impairment charges:
| | September 30, 2025 | |||||||
| | Gross Carrying | | Accumulated | | Net Carrying | |||
Finite-lived intangible assets: | | | | | | | | | |
Trade names | | $ | 235.8 | | $ | (235.8) | | $ | — |
Customer accounts | | | 226.3 | | | (226.3) | | | — |
Technology | | | 8.8 | | | (8.8) | | | — |
Other | | | 3.9 | | | (3.9) | | | — |
Total finite-lived intangible assets, net | | | | | | | | $ | — |
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The Hawthorne Business of The Scotts Miracle-Gro Company
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in millions)
NOTE 5. DETAIL OF CERTAIN FINANCIAL STATEMENT ACCOUNTS
The following is detail of certain financial statement accounts:
| | September 30, 2025 | |
INVENTORIES: | | | |
Finished goods | | $ | 45.3 |
Raw materials | | | 4.6 |
Work-in-progress | | | 0.2 |
| | $ | 50.1 |
| | September 30, 2025 | |
PROPERTY, PLANT AND EQUIPMENT, NET: | | | |
Machinery and equipment | | $ | 20.0 |
Software | | | 6.7 |
Land and improvements | | | 3.9 |
Buildings | | | 2.1 |
Furniture and fixtures | | | 1.8 |
| | | 34.5 |
Less: accumulated depreciation | | | (20.9) |
| | $ | 13.6 |
| | September 30, 2025 | |
OTHER ASSETS: | | | |
Operating lease right-of-use assets | | $ | 12.5 |
Net deferred tax assets | | | 5.0 |
Other | | | 0.3 |
| | $ | 17.8 |
| | September 30, 2025 | |
OTHER CURRENT LIABILITIES: | | | |
Warranty accruals | | $ | 6.1 |
Current operating lease liabilities | | | 4.1 |
Payroll and other compensation accruals | | | 3.5 |
Other | | | 6.4 |
| | $ | 20.1 |
| | September 30, 2025 | |
OTHER LIABILITIES: | | | |
Non-current operating lease liabilities | | $ | 9.5 |
| | $ | 9.5 |
NOTE 6. SHARE-BASED COMPENSATION
The Business’s employees have historically participated in the Parent’s share-based compensation plan, which has historically granted stock options, restricted stock units and performance-based award units. Total share-based compensation expense for the Business during fiscal 2025 was $1.9, which includes expense allocated from the Parent of $0.7. The total related tax benefit recognized for fiscal 2025 was $0.1.
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The Hawthorne Business of The Scotts Miracle-Gro Company
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in millions)
NOTE 7. INCOME TAXES
Income tax benefit consisted of the following:
| | Year Ended | |
| | September 30, 2025 | |
Current: | | | |
Federal | | $ | (1.2) |
Total current | | | (1.2) |
Deferred: | | | |
Foreign | | | (0.1) |
Total deferred | | | (0.1) |
Income tax benefit | | $ | (1.3) |
The domestic and foreign components of loss before income taxes were as follows:
| | Year Ended | |
| | September 30, 2025 | |
Domestic | | $ | (9.1) |
Foreign | | | (1.8) |
Loss before income taxes | | $ | (10.9) |
A reconciliation of the federal corporate income tax rate and the effective income tax rate on loss before income taxes is summarized below:
| | Year Ended |
|
| | September 30, 2025 | |
Statutory income tax rate | | 21.0 | % |
Effect of other permanent differences | | 1.1 | |
Effect of foreign operations | | (0.2) | |
Effect of valuation allowance | | (10.5) | |
Effect of tax contingencies | | 11.5 | |
Effect of deferred adjustments | | (10.5) | |
Other | | (0.5) | |
Effective income tax rate | | 11.9 | % |
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The Hawthorne Business of The Scotts Miracle-Gro Company
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in millions)
Deferred income taxes arise from temporary differences between financial reporting and tax reporting bases of assets and liabilities, and operating loss and tax credit carryforwards for tax purposes. The components of the deferred income tax assets and liabilities were as follows:
| | September 30, 2025 | |
DEFERRED TAX ASSETS | | | |
Net operating loss carryovers | | $ | 213.5 |
Intangible assets | | | 127.5 |
Lease liabilities | | | 5.0 |
Inventories | | | 4.3 |
Accrued liabilities | | | 3.4 |
Accounts receivable | | | 0.4 |
Other | | | 2.6 |
Gross deferred tax assets | | | 356.7 |
Valuation allowance | | | (345.3) |
Total deferred tax assets | | | 11.4 |
DEFERRED TAX LIABILITIES | | | |
Lease right-of-use assets | | | (4.0) |
Property, plant and equipment | | | (2.4) |
Total deferred tax liabilities | | | (6.4) |
Net deferred tax assets | | $ | 5.0 |
Deferred tax assets related to certain federal NOLs were $179.6 as of September 30, 2025. The federal NOLs have an unlimited carryforward period, however, where it is more likely than not that the NOLs will not be realized, a valuation allowance has been recorded.
Deferred tax assets related to certain state NOLs were $33.8 as of September 30, 2025. Some state NOLs have limited carryforward periods while others are unlimited, however, where it is more likely than not that the NOLs will not be realized, a valuation allowance has been recorded.
Deferred tax assets related to foreign NOLs were $0.1 as of September 30, 2025. The foreign NOLs have a 20 year carryforward period, however, where it is more likely than not that the NOLs will not be realized, a valuation allowance has been recorded.
The change in the valuation allowance is as follows:
| | September 30, 2025 | |
Beginning balance | | $ | (344.2) |
Additions charged to expense | | | (1.1) |
Ending balance | | $ | (345.3) |
A reconciliation of the unrecognized tax benefits is as follows:
| | Year Ended | |
| | September 30, 2025 | |
Balance at beginning of year | | $ | 2.0 |
Expiration of statutes of limitation | | | (1.3) |
Balance at end of year | | $ | 0.7 |
The Business had $0.0 of gross unrecognized tax benefits as of September 30, 2025 that, if recognized, would have an impact on the effective income tax rate.
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The Hawthorne Business of The Scotts Miracle-Gro Company
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in millions)
The Business continues to recognize accrued interest and penalties related to unrecognized tax benefits as a component of the provision for income taxes. As of September 30, 2025, the Business had $0.0 accrued for the payment of interest that, if recognized, would impact the effective income tax rate.
The Business entities are included within income tax returns filed by the Parent in the U.S. federal jurisdiction and various state, local and foreign jurisdictions. Subject to the following exceptions, the Business is no longer subject to examination by these tax authorities for fiscal years prior to 2022. There are currently no ongoing audits with respect to the U.S. federal jurisdiction. With respect to the foreign jurisdictions, a Canadian audit covering fiscal years 2020 through 2021 is in process. The Business is currently under examination by certain U.S. state and local tax authorities covering various periods from fiscal years 2018 through 2023. In addition to the aforementioned audits, certain other tax deficiency notices and refund claims for previous years remain unresolved.
The Business currently anticipates that few of its open and active audits will be resolved within the next twelve months. The Business is unable to make a reasonably reliable estimate as to when or if cash settlements with taxing authorities may occur. Although the outcomes of such examinations and the timing of any payments required upon the conclusion of such examinations are subject to significant uncertainty, the Business does not anticipate that the resolution of these tax matters or any events related thereto will result in a material change to its financial position, results of operations or cash flows.
On July 4, 2025, President Trump signed into law the One Big Beautiful Bill Act (“OBBBA”). The OBBBA makes permanent key elements of the Tax Cuts and Jobs Act, including 100% bonus depreciation, domestic research cost expensing and the business interest expense limitations. The legislation has multiple effective dates, with certain provisions effective in fiscal year 2025 and others implemented through fiscal year 2027. The corporate tax changes included in OBBBA did not have a material impact on the effective tax rate during fiscal 2025 and the Business does not anticipate a material impact on the effective tax rate in future periods.
NOTE 8. LEASES
The Business leases certain property and equipment from third parties under various non-cancelable lease agreements, including industrial, commercial and office properties and equipment that support the management, manufacturing and distribution of products marketed and sold by the Business. The lease agreements generally require that the Business pay taxes, insurance and maintenance expenses related to the leased assets. At September 30, 2025, the Business had not entered into any material operating leases that were yet to commence. From time to time, the Business will sublease portions of its facilities, resulting in sublease income. Sublease income and related cash flows were not material for fiscal 2025.
Supplemental balance sheet information related to the Business’s leases was as follows:
| | Balance Sheet Location | | September 30, 2025 | |
Operating leases | | | | | |
Right-of-use assets | | Other assets | | $ | 12.5 |
| | | | | |
Current lease liabilities | | Other current liabilities | | | 4.1 |
Non-current lease liabilities | | Other liabilities | | | 9.5 |
Total operating lease liabilities | | | | $ | 13.6 |
Components of lease cost were as follows:
| | Year Ended | |
| | September 30, 2025 | |
Operating lease cost (a) | | $ | 4.7 |
Variable lease cost | | | 0.9 |
| (a) | Operating lease cost for fiscal 2025 includes amortization of ROU assets of $4.3. Short-term lease expense is excluded from operating lease cost and was not material for fiscal 2025. |
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The Hawthorne Business of The Scotts Miracle-Gro Company
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in millions)
Supplemental cash flow information and non-cash activity related to the Business’s leases were as follows:
| | Year Ended | |
| | September 30, 2025 | |
Cash paid for amounts included in the measurement of lease liabilities: | | | |
Operating cash flows related to operating leases | | $ | 4.5 |
| | | |
Right-of-use assets obtained / adjusted in exchange for new or modified lease obligations: | | | |
Operating leases | | $ | 7.5 |
Weighted-average remaining lease term and discount rate for the Business’s leases were as follows:
| | September 30, 2025 |
|
Weighted-average remaining lease term (in years): | | | |
Operating leases | | 3.2 | |
| | | |
Weighted-average discount rate: | | | |
Operating leases | | 6.0 | % |
Maturities of lease liabilities by fiscal year for the Business’s leases as of September 30, 2025 were as follows:
Year | | Operating Leases | |
2026 | | $ | 4.8 |
2027 | | | 4.6 |
2028 | | | 3.4 |
2029 | | | 2.3 |
2030 | | | — |
Thereafter | | | — |
Total lease payments | | | 15.1 |
Less: Imputed interest | | | (1.5) |
Total lease liabilities | | $ | 13.6 |
NOTE 9. COMMITMENTS
At September 30, 2025, the Business had the following unconditional purchase obligations by purchase date that have not been recognized in the Combined Balance Sheet:
2026 | | $ | 7.4 |
Thereafter | | | — |
| | $ | 7.4 |
Purchase obligations represent commitments for materials used in the Business’s manufacturing processes.
NOTE 10. CONTINGENCIES
Management regularly evaluates contingencies, including various judicial and administrative proceedings and claims arising in the ordinary course of business relating to, among other things, product and general liabilities, workers’ compensation, property losses and other liabilities for which the Business retains a high exposure limit. Legal costs incurred in connection with the resolution of claims, lawsuits and other contingencies generally are expensed as incurred. In the opinion of management, the assessment of contingencies is reasonable and related accruals are adequate, both individually and in the aggregate; however, there can be no assurance that final resolution of these matters will not have a material effect on the financial condition, results of operations or cash flows of the Business.
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The Hawthorne Business of The Scotts Miracle-Gro Company
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in millions)
NOTE 11. DISAGGREGATION OF REVENUE
The following table presents net sales by product category for the period indicated:
| | Year Ended | |
| | September 30, 2025 | |
Nutrients | | $ | 66.4 |
Lighting | | | 20.6 |
Growing media | | | 19.1 |
Other, primarily hardware and growing environments | | | 24.1 |
Total net sales | | $ | 130.2 |
The Business’s largest customer accounted for 15% of net sales for the year ended September 30, 2025 and 27% of accounts receivable as of September 30, 2025.
The following table presents net sales by geographic area for the period indicated:
| | Year Ended | |
| | September 30, 2025 | |
Net sales: | | | |
United States | | $ | 122.7 |
Canada | | | 7.5 |
| | $ | 130.2 |
NOTE 12. RELATED PARTIES
The Business has historically been managed as part of the operations of the Parent and has various relationships whereby the Parent provides services to the Business. The Business participated in a number of corporate-wide programs administered by the Parent and has historically relied on the services of the Parent for certain functions including finance, legal, information technology, human resources, ethics and compliance, shared services, insurance, employee benefits and incentives. These expenses have been charged on the basis of direct usage when identifiable, with the remainder allocated on the basis of revenue and headcount. The costs of these services that have been allocated to the Business for fiscal 2025 amounted to $11.0, and are included in the Combined Statement of Operations within selling, general and administrative expenses.
General financing activities primarily include the cash generated by the Business from its operations that have been transferred to the Parent, offset by cash transfers from the Parent to fund investing and financing outflows of the Business as part of the Parent’s centralized Treasury cash management. Refer to “NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES” for additional discussion regarding corporate allocations and interaction of the Business with the Parent.
Transactions between the Business and related entities which are not part of the Business are summarized in the following table:
| | Year Ended | |
| | September 30, 2025 | |
Purchases of inventory | | $ | 8.1 |
| | | |
General financing activities | | $ | (3.7) |
Total cost allocation | | | 11.0 |
Share-based compensation | | | 1.9 |
Net transfers from Parent | | $ | 9.2 |
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The Hawthorne Business of The Scotts Miracle-Gro Company
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in millions)
NOTE 13. SUBSEQUENT EVENTS
These Combined Financial Statements are derived from the consolidated financial statements of the Parent, which issued its annual financial statements for the fiscal year ended September 30, 2025 on November 25, 2025. Accordingly, the Business has evaluated recognizable subsequent events through the date of November 25, 2025 and non-recognizable subsequent events through the date these financial statements were available for issuance.
On April 8, 2026, the Parent completed the sale of the Business to Vireo Growth Inc.
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Exhibit 99.2
The Hawthorne Business of The Scotts Miracle-Gro Company
Condensed Combined Financial Statements and Notes
as of December 27, 2025 and September 30, 2025
and for the three months ended December 27, 2025 and December 28, 2024
Table of Contents
The Hawthorne Business of The Scotts Miracle-Gro Company
INDEX TO CONDENSED FINANCIAL STATEMENTS
| |
| Page |
Condensed Financial Statements of The Hawthorne Business of The Scotts Miracle-Gro Company (Unaudited): | |
Condensed Combined Statements of Operations — Three months ended December 27, 2025 and December 28, 2024 | 3 |
Condensed Combined Balance Sheets — December 27, 2025 and September 30,2025 | 4 |
Condensed Combined Statements of Cash Flows — Three months ended December 27, 2025 and December 28, 2024 | 5 |
Condensed Combined Statements of Business Equity — Three months ended December 27, 2025 and December 28, 2024 | 6 |
Notes to Condensed Combined Financial Statements | 7 |
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The Hawthorne Business of The Scotts Miracle-Gro Company
Condensed Combined Statements of Operations
(In millions)
(Unaudited)
| | Three Months Ended | ||||
| | December 27, | | December 28, | ||
| | 2025 | | 2024 | ||
Net sales | | $ | 23.0 | | $ | 37.2 |
Cost of sales | |
| 18.7 | |
| 28.7 |
Cost of sales—impairment, restructuring and other | |
| (0.1) | |
| 1.9 |
Gross margin | |
| 4.4 | |
| 6.6 |
Operating expenses: | |
| | |
| |
Selling, general and administrative | |
| 5.2 | |
| 9.7 |
Impairment, restructuring and other | |
| 0.6 | |
| — |
Other (income) expense, net | |
| 0.1 | |
| (0.3) |
Loss before income taxes | |
| (1.5) | |
| (2.8) |
Income tax expense | |
| 0.3 | |
| — |
Net loss | | $ | (1.8) | | $ | (2.8) |
See Notes to Condensed Combined Financial Statements.
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The Hawthorne Business of The Scotts Miracle-Gro Company
Condensed Combined Balance Sheets
(In millions)
(Unaudited)
| | December 27, | | September 30, | ||
| | 2025 | | 2025 | ||
ASSETS |
| | |
| | |
Current assets: |
| | |
| | |
Accounts receivable, less allowances of $2.0 and $1.5, respectively | | $ | 24.3 | | $ | 26.4 |
Inventories | |
| 48.4 | |
| 50.1 |
Prepaid and other current assets | |
| 3.4 | |
| 3.7 |
Total current assets | |
| 76.1 | |
| 80.2 |
Property, plant and equipment, net | |
| 9.4 | |
| 13.6 |
Other assets | |
| 16.5 | |
| 17.8 |
Total assets | | $ | 102.0 | | $ | 111.6 |
| | | | | | |
LIABILITIES AND BUSINESS EQUITY | |
| | |
| |
Current liabilities: | |
| | |
| |
Accounts payable | | $ | 8.6 | | $ | 8.2 |
Other current liabilities | |
| 17.6 | |
| 20.1 |
Total current liabilities | |
| 26.2 | |
| 28.3 |
Other liabilities | |
| 8.4 | |
| 9.5 |
Total liabilities | |
| 34.6 | |
| 37.8 |
Commitments and contingencies (Notes 6 and 7) | |
| | |
| |
Business equity: | |
| | |
| |
Net parent investment | |
| 67.4 | |
| 73.8 |
Total business equity | |
| 67.4 | |
| 73.8 |
Total liabilities and business equity | | $ | 102.0 | | $ | 111.6 |
See Notes to Condensed Combined Financial Statements.
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The Hawthorne Business of The Scotts Miracle-Gro Company
Condensed Combined Statements of Cash Flows
(In millions)
(Unaudited)
| | Three Months Ended | ||||
| | December 27, | | December 28, | ||
| | 2025 | | 2024 | ||
OPERATING ACTIVITIES |
| | |
| | |
Net loss | | $ | (1.8) | | $ | (2.8) |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | |
| | |
| |
Impairment, restructuring and other | |
| — | |
| 1.2 |
Share-based compensation expense | |
| 0.2 | |
| 0.7 |
Depreciation | |
| 0.5 | |
| 0.9 |
Other, net | |
| (0.2) | |
| (0.2) |
Changes in assets and liabilities: | |
| | |
| |
Accounts receivable | |
| 2.0 | |
| 1.4 |
Inventories | |
| 1.7 | |
| (15.6) |
Prepaid and other current assets | |
| 0.3 | |
| 2.1 |
Accounts payable | |
| 0.4 | |
| (1.9) |
Other current liabilities | |
| (2.5) | |
| (0.8) |
Other non-current items | |
| 0.3 | |
| (2.1) |
Net cash provided by (used in) operating activities | |
| 0.9 | |
| (17.1) |
| | | | | | |
INVESTING ACTIVITIES | |
| | |
| |
Proceeds from sale of long-lived assets | |
| 1.3 | |
| — |
Net cash provided by investing activities | |
| 1.3 | |
| — |
| | | | | | |
FINANCING ACTIVITIES | |
| | |
| |
Transfers (to) from Parent, net | |
| (2.2) | |
| 17.1 |
Net cash provided by (used in) financing activities | |
| (2.2) | |
| 17.1 |
Net change in cash and cash equivalents | |
| — | |
| — |
Cash and cash equivalents at beginning of period | |
| — | |
| — |
Cash and cash equivalents at end of period | | $ | — | | $ | — |
See Notes to Condensed Combined Financial Statements.
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Table of Contents
The Hawthorne Business of The Scotts Miracle-Gro Company
Condensed Combined Statements of Business Equity
(In millions)
(Unaudited)
| | Net | |
| | Parent | |
| | Investment | |
Balance at September 30, 2025 | | $ | 73.8 |
Net loss | |
| (1.8) |
Net transfers to Parent | |
| (4.6) |
Balance at December 27, 2025 | | $ | 67.4 |
| | | |
Balance at September 30, 2024 | | $ | 74.2 |
Net loss | |
| (2.8) |
Net transfers from Parent | |
| 19.6 |
Balance at December 28, 2024 | | $ | 91.0 |
See Notes to Condensed Combined Financial Statements.
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Table of Contents
The Hawthorne Business of The Scotts Miracle-Gro Company
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS (UNAUDITED)
(Dollars in millions)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
The Hawthorne Gardening Company, LLC (“Hawthorne”) and its subsidiaries, HGCI LLC (“HGCI”), Hawthorne Hydroponics LLC (“Hawthorne Hydroponics”) and Hawthorne Canada Limited (“HCL”), are a combined group of wholly-owned legal entities of The Scotts Miracle-Gro Company (“Parent”) that provide nutrients, lighting, and other materials used for indoor and hydroponic gardening in North America.
Organization and Basis of Presentation
These unaudited Condensed Combined Financial Statements have been derived from the consolidated financial statements and accounting records of The Scotts Miracle-Gro Company and include the accounts of Hawthorne, HGCI, Hawthorne Hydroponics and certain operating assets and liabilities of HCL (collectively, the “Business”). These Condensed Combined Financial Statements reflect the combined historical results of operations, financial position and cash flows of the Business, as they were historically managed, in conformity with accounting principles generally accepted in the United States of America (“GAAP”), and include allocations of expenses for certain corporate or shared services functions historically provided by the Parent, including, but not limited to, finance, legal, information technology, human resources, ethics and compliance, shared services, insurance, employee benefits and incentives. The Parent allocated expenses to the Business on the basis of direct usage when identifiable, with the remainder allocated on a pro rata basis of net sales, headcount or other measures considered to be a reasonable reflection of the historical utilization levels of the service the Business received from the Parent. Management believes the assumptions regarding the allocation of general corporate expenses from the Parent are reasonable; however, amounts recognized by the Business in these Condensed Combined Financial Statements may not necessarily be representative of the actual costs that would have been reflected in these Condensed Combined Financial Statements had the Business operated independently of the Parent.
As all legal entities of the Business are held under the common control of the Parent with no single entity within the Business holding financial control over all the other legal entities of the Business, these Condensed Combined Financial Statements will present business equity in lieu of stockholders’ equity. The business equity section in these Condensed Combined Financial Statements includes: net parent investment, which is comprised of the Parent’s historical investment in the Business and the net effect of the transactions with and allocations from the Parent.
Intercompany transactions between the Business and the Parent are generally considered to be effectively settled in the Condensed Combined Financial Statements at the time the transactions are recorded. The total net effect of the settlement of these intercompany transactions is reflected in the Condensed Combined Statements of Cash Flows as a financing activity and in the Condensed Combined Balance Sheet as net parent investment. General financing activities include the net impact of any cash movements resulting from the Parent’s centralized cash management approach.
The Parent has historically used a centralized approach to cash management and financing of its operations, as needed. Certain portions of the Business’s cash are transferred to the Parent according to centrally managed cash programs by Treasury and the Parent funds the Business’s operating and investing activities as needed. Cash transfers to and from the Parent’s cash management accounts are reflected as a component of net parent investment in the Condensed Combined Balance Sheet.
None of the debt obligations of the Parent or corresponding interest expense have been included in the Condensed Combined Financial Statements, as the Business is neither the legal obligor, nor transferee for any portion of such debt.
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Table of Contents
The Hawthorne Business of The Scotts Miracle-Gro Company
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)
(Dollars in millions)
The Parent has allocated income taxes to the Business in the accompanying Condensed Combined Financial Statements as if the Business entities were held in a separate corporation which filed separate income tax returns. The Parent believes the assumptions underlying its allocation of income taxes on a separate return basis are reasonable.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted or condensed pursuant to the rules and regulations for interim financial statements. Accordingly, these Condensed Combined Financial Statements for the fiscal quarter ended December 27, 2025 should be read in conjunction with the audited Combined Financial Statements of the Business for the fiscal year ended September 30, 2025, which includes a complete set of footnote disclosures, including significant accounting policies.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the Condensed Combined Financial Statements and accompanying notes and related disclosures. Although these estimates are based on management’s best knowledge of current events and actions the Business may undertake in the future, actual results ultimately may differ from the estimates.
NOTE 2. IMPAIRMENT, RESTRUCTURING AND OTHER
Activity described herein is classified within the “Cost of sales—impairment, restructuring and other” and “Impairment, restructuring and other” lines in the Condensed Combined Statements of Operations. The following table details impairment, restructuring and other charges (recoveries) for each of the periods presented:
| | Three Months Ended | ||||
| | December 27, | | December 28, | ||
| | 2025 | | 2024 | ||
| | | | | | |
Cost of sales—impairment, restructuring and other: |
| | |
| | |
Restructuring and other charges (recoveries), net | | $ | (0.1) | | $ | 0.8 |
Right-of-use asset impairments | |
| — | |
| 1.1 |
Operating expenses—impairment, restructuring and other: | |
| | |
| |
Restructuring and other charges, net | |
| 0.6 | |
| — |
Total impairment, restructuring and other charges | | $ | 0.5 | | $ | 1.9 |
The following table summarizes the activity related to liabilities associated with restructuring activities during the three months ended December 27, 2025:
Amounts accrued at September 30, 2025 | | $ | 0.4 |
Restructuring charges |
| | 0.4 |
Payments |
| | (0.5) |
Amounts accrued at December 27, 2025 | | $ | 0.3 |
Impairment, restructuring and other charges for the three months ended December 27, 2025 were not material.
During fiscal 2022, the Business began implementing a series of Company-wide organizational changes and initiatives intended to create operational and management-level efficiencies. As part of this restructuring initiative, the Business reduced the size of its supply chain network, reduced staffing levels and implemented other cost-reduction initiatives. During the three months ended December 28, 2024, the Business incurred costs of $1.9 in the “Cost of sales—impairment, restructuring and other” line in the Condensed Consolidated Statements of Operations associated with this restructuring initiative primarily related to facility closure costs and impairment of right of use assets.
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Table of Contents
The Hawthorne Business of The Scotts Miracle-Gro Company
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)
(Dollars in millions)
NOTE 3. INVENTORIES
Inventories consisted of the following for each of the periods presented:
| | December 27, | | September 30, | ||
| | 2025 | | 2025 | ||
Finished goods | | $ | 43.5 | | $ | 45.3 |
Raw materials | |
| 4.8 | |
| 4.6 |
Work-in-process | |
| 0.1 | |
| 0.2 |
Total | | $ | 48.4 | | $ | 50.1 |
NOTE 4. SHARE-BASED COMPENSATION
The Business’s employees have historically participated in the Parent’s share-based compensation plan, which has historically granted stock options, restricted stock units and performance-based award units. Total share-based compensation expense for the Business during the three months ended December 27, 2025 and December 28, 2024 was $0.2 and $0.7, respectively, which includes expense allocated from the Parent of $0.1 and $0.3, respectively.
NOTE 5. INCOME TAXES
The effective tax rates for the three months ended December 27, 2025 and December 28, 2024 were (20)% and 0%, respectively. The effective tax rate used for interim reporting purposes is based on management’s best estimate of factors impacting the effective tax rate for the full fiscal year and includes the impact of discrete items recognized in the period. There can be no assurance that the effective tax rate estimated for interim financial reporting purposes will approximate the effective tax rate determined at fiscal year-end.
The Business entities are included within income tax returns filed by the Parent in the U.S. federal jurisdiction and various state, local and foreign jurisdictions. Subject to the following exceptions, the Business is no longer subject to examination by these tax authorities for fiscal years prior to 2022. There are currently no ongoing audits with respect to the U.S. federal jurisdiction. With respect to the foreign jurisdictions, a Canadian audit covering fiscal years 2020 through 2021 is in process. The Business is currently under examination by certain U.S. state and local tax authorities covering various periods from fiscal years 2018 through 2023. In addition to the aforementioned audits, certain other tax deficiency notices and refund claims for previous years remain unresolved.
The Business currently anticipates that few of its open and active audits will be resolved within the next twelve months. The Business is unable to make a reasonably reliable estimate as to when or if cash settlements with taxing authorities may occur. Although the outcomes of such examinations and the timing of any payments required upon the conclusion of such examinations are subject to significant uncertainty, the Business does not anticipate that the resolution of these tax matters or any events related thereto will result in a material change to its financial position, results of operations or cash flows.
On July 4, 2025, President Trump signed into law the One Big Beautiful Bill Act (“OBBBA”). The OBBBA makes permanent key elements of the Tax Cuts and Jobs Act, including 100% bonus depreciation, domestic research cost expensing and the business interest expense limitations. The legislation has multiple effective dates, with certain provisions effective in fiscal year 2025 and others implemented through fiscal year 2027. The corporate tax changes included in OBBBA did not have a material impact on the effective tax rate during fiscal 2025 and the Business does not anticipate a material impact on the effective tax rate in future periods.
NOTE 6. CONTINGENCIES
Management regularly evaluates contingencies, including various judicial and administrative proceedings and claims arising in the ordinary course of business relating to, among other things, product and general liabilities, workers’ compensation, property losses and other liabilities for which the Business retains a high exposure limit. Legal costs incurred in connection with the resolution of claims, lawsuits and other contingencies generally are expensed as incurred. In the opinion of management, the assessment of contingencies is reasonable and related accruals are adequate, both individually and in the aggregate; however, there can be no assurance that final resolution of these matters will not have a material effect on the financial condition, results of operations or cash flows of the Business.
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Table of Contents
The Hawthorne Business of The Scotts Miracle-Gro Company
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)
(Dollars in millions)
NOTE 7. LEASES
The Business leases certain property and equipment from third parties under various non-cancelable lease agreements, including industrial, commercial and office properties and equipment that support the management, manufacturing and distribution of products marketed and sold by the Business. The lease agreements generally require that the Business pay taxes, insurance and maintenance expenses related to the leased assets. At December 27, 2025, the Business had not entered into any material operating leases that were yet to commence. From time to time, the Business will sublease portions of its facilities, resulting in sublease income. Sublease income and related cash flows were not material for the three months ended December 27, 2025 and December 28, 2024.
Supplemental balance sheet information related to the Business’s leases was as follows:
| | | | December 27, | | September 30, | ||
| | Balance Sheet Location | | 2025 | | 2025 | ||
Operating leases | | | | | | | | |
Right-of-use assets |
| Other assets | | $ | 11.4 | | $ | 12.5 |
| | | | | | | | |
Current lease liabilities |
| Other current liabilities | |
| 4.6 | |
| 4.1 |
Non-current lease liabilities |
| Other liabilities | |
| 8.4 | |
| 9.5 |
Total operating lease liabilities | | | | $ | 13.0 | | $ | 13.6 |
Components of lease cost were as follows:
| | Three Months Ended | ||||
| | December 27, | | December 28, | ||
| | 2025 | | 2024 | ||
Operating lease cost (a) | | $ | 1.2 | | $ | 1.1 |
Variable lease cost |
| | 0.2 |
| | 0.2 |
| (a) | Operating lease cost includes amortization of ROU assets of $1.7 and $2.3 for the three months ended December 27, 2025 and December 28, 2024, respectively. Short-term lease expense is excluded from operating lease cost and was not material for the three months ended December 27, 2025 and December 28, 2024. |
Supplemental cash flow information and non-cash activity related to the Business’s leases were as follows:
| | Three Months Ended | ||||
| | December 27, | | December 28, | ||
| | 2025 | | 2024 | ||
Cash paid for amounts included in the measurement of lease liabilities: | | | | | | |
Operating cash flows related to operating leases | | $ | 0.9 | | $ | 1.2 |
| | | | | | |
Right-of-use assets obtained / adjusted in exchange for new or modified lease obligations: | |
| | |
| |
Operating leases | | $ | 0.7 | | $ | 1.2 |
Weighted-average remaining lease term and discount rate for the Business’s leases were as follows:
| | December 27, | | September 30, |
|
| | 2025 | | 2025 |
|
Weighted-average remaining lease term (in years): | | | | | |
Operating leases |
| 3.0 |
| 3.2 | |
| | | | | |
Weighted-average discount rate: |
| |
| | |
Operating leases |
| 6.1 | % | 6.0 | % |
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Table of Contents
The Hawthorne Business of The Scotts Miracle-Gro Company
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)
(Dollars in millions)
Maturities of lease liabilities by fiscal year for the Business’s leases as of December 27, 2025 were as follows:
Year | | Operating Leases | |
2026 (remainder of the year) | | $ | 3.9 |
2027 | |
| 4.6 |
2028 | |
| 3.4 |
2029 | |
| 2.3 |
2030 | |
| — |
Thereafter | |
| — |
Total lease payments | |
| 14.2 |
Less: Imputed interest | |
| (1.2) |
Total lease liabilities | | $ | 13.0 |
NOTE 8. DISAGGREGATION OF REVENUE
The following table presents net sales by product category for the periods indicated:
| | Three Months Ended | ||||
| | December 27, | | December 28, | ||
| | 2025 | | 2024 | ||
Nutrients | | $ | 10.4 | | $ | 17.5 |
Lighting | |
| 6.0 | |
| 8.1 |
Growing media | |
| 3.0 | |
| 4.8 |
Other, primarily hardware and growing environment | |
| 3.6 | |
| 6.8 |
Total net sales | | $ | 23.0 | | $ | 37.2 |
The following table presents net sales by geographic area for the periods indicated:
| | Three Months Ended | ||||
| | December 27, | | December 28, | ||
| | 2025 | | 2024 | ||
Net sales: |
| | |
| | |
United States | | $ | 21.7 | | $ | 35.2 |
Canada | |
| 1.3 | |
| 2.0 |
| | $ | 23.0 | | $ | 37.2 |
NOTE 9. RELATED PARTIES
The Business has historically been managed as part of the operations of the Parent and has various relationships whereby the Parent provides services to the Business. The Business participated in a number of corporate-wide programs administered by the Parent and has historically relied on the services of the Parent for certain functions including finance, legal, information technology, human resources, ethics and compliance, shared services, insurance, employee benefits and incentives. These expenses have been charged on the basis of direct usage when identifiable, with the remainder allocated on the basis of revenue and headcount. The costs of these services that have been allocated to the Business for the three months ended December 27, 2025 and December 28, 2024 amounted to $3.3 and $2.7, respectively, and are included in the Condensed Combined Statements of Operations within selling, general and administrative expenses.
General financing activities primarily include the cash generated by the Business from its operations that have been transferred to the Parent, offset by cash transfers from the Parent to fund investing and financing outflows of the Business as part of the Parent’s centralized Treasury cash management. Refer to “NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES” for additional discussion regarding corporate allocations and interaction of the Business with the Parent.
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Table of Contents
The Hawthorne Business of The Scotts Miracle-Gro Company
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)
(Dollars in millions)
Transactions between the Business and related entities which are not part of the Business are summarized in the following table:
| | Three Months Ended | ||||
| | December 27, | | December 28, | ||
| | 2025 | | 2024 | ||
Purchases of inventory | | $ | 2.2 | | $ | 1.8 |
| | | | | | |
General financing activities | | $ | (8.1) | | $ | 16.2 |
Total cost allocation | |
| 3.3 | |
| 2.7 |
Share-based compensation | |
| 0.2 | |
| 0.7 |
Net transfers (to) from Parent | | $ | (4.6) | | $ | 19.6 |
NOTE 10. SUBSEQUENT EVENTS
These Condensed Combined Financial Statements are derived from the consolidated financial statements of the Parent, which issued its quarterly financial statements for the three months ended December 27, 2025 and December 28, 2024 on February 4, 2026. Accordingly, the Business has evaluated recognizable subsequent events through the date of February 4, 2026 and non-recognizable subsequent events through the date these financial statements were available for issuance.
On April 8, 2026, the Parent completed the sale of the Business to Vireo Growth Inc.
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Exhibit 99.3
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
On April 8, 2026, Vireo Growth Inc. (the “Company” or “Vireo”) entered into and concurrently closed a securities purchase agreement pursuant to which it acquired all of the issued and outstanding equity interests of The Hawthorne Gardening Company LLC (“Hawthorne”) and its subsidiaries from The Scotts Miracle-Gro Company (the “Hawthorne Acquisition”). In connection with the transaction, the Company issued 213,000,000 subordinate voting shares at a deemed value of $0.60 per share, subject to customary post-closing adjustments, with a portion of such shares placed in escrow. The Company also issued warrants to purchase 80,000,000 subordinate voting shares at an exercise price of $0.85 per share, which are immediately exercisable and expire five years from the date of issuance. The shares issued as consideration and any shares issuable upon exercise of the warrants are subject to a lock-up arrangement with staged releases over a 24-month period. In addition, the parties entered into an investor rights agreement that provides the seller’s designee with certain registration rights, board designation rights, and participation rights in future equity offerings, subject to specified ownership thresholds.
The Hawthorne Acquisition was accounted for as a business combination in accordance with U.S. GAAP, with management concluding Vireo is the accounting acquirer.
As previously disclosed, on December 22, 2025, Vireo entered into a merger agreement pursuant to which a wholly owned subsidiary of the Company would merge with and into Eaze, Inc. (“Eaze”), with Eaze surviving as a wholly owned subsidiary (the “Eaze Merger”). The Eaze Merger was completed on April 1, 2026.
In connection with the closing of the Eaze Merger, the Company issued an aggregate of 90,379,591 subordinate voting shares as estimated closing consideration, of which a portion was delivered to a payment agent for distribution to former Eaze stockholders and a portion was placed into escrow. The estimated closing consideration is subject to customary post-closing adjustments, including adjustments for cash, indebtedness, transaction expenses, working capital and certain tax items. Former Eaze stockholders may also be entitled to receive additional subordinate voting shares in the form of earnout consideration following December 31, 2026, subject to specified limitations. In addition, the Company issued RSUs to certain Eaze employees in connection with the Eaze Merger, including (i) fully vested RSUs issued at closing and (ii) additional RSUs that vest based on continued employment and are tied to the achievement of earnout-related performance conditions.
The Eaze Merger was accounted for as a business combination in accordance with U.S. GAAP, with management concluding Vireo is the accounting acquirer.
The following unaudited pro forma condensed combined financial information is based on the historical financial statements of Vireo and Eaze and Hawthorne adjusted to give effect to the Eaze Merger and the Hawthorne Acquisition. The following unaudited pro forma condensed combined financial information, has been prepared in accordance with Article 11 of Regulation S-X as amended by the final rule, Release No. 33-10786 “Amendments to Financial Disclosures about Acquired and Disposed Businesses.”
Vireo and Hawthorne have different year-ends. Vireo’s year-end is December 31, 2025 and Hawthorne’s year end is September 30, 2025. As the difference between Hawthorne’s year-end and Vireo’s year-end is one quarter or less, the pro forma condensed combined statement of operations reflects Vireo’s annual statement of operations for the fiscal year ended December 31, 2025 and Hawthorne’s statement of operations for its most recent fiscal year ended September 30, 2025.
The unaudited pro forma condensed combined balance sheet as of December 31, 2025 gives effect to the Hawthorne Acquisition as if it had occurred on December 31, 2025 and includes the historical balance sheet of Hawthorne as of December 27, 2025. The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2025 gives effect to the Hawthorne Acquisition as if it had occurred on January 1, 2025.
The unaudited pro forma condensed combined financial information as of and for the year ended December 31, 2025 also includes the pro forma information from the Eaze Merger, which occurred on April 1, 2026. The pro forma financial information for the Eaze Merger was previously presented along with the Eaze financial statements required by Rule 3-05 of Regulation S-X in the Form 8-K/A filed by Vireo on June 11, 2026.
The pro forma adjustments are based on available information and assumptions that management believes are reasonable. Included in the unaudited pro forma condensed combined financial information is an estimate of the consideration exchanged for Eaze and Hawthorne, which is based on a purchase price allocation, which includes known information and preliminary estimates of fair value for contingent consideration (Eaze) and certain equity instruments (Hawthorne). While this is management’s best estimate at this time, the valuation of these equity instruments is still in progress and subject to change. All estimates and assumptions included in the unaudited pro forma condensed combined financial information could change significantly as management finalizes its assessment of the allocation and fair value of the net tangible and intangible assets acquired, most of which are dependent on the completion of valuations that will be performed by independent valuation specialists. The unaudited pro forma condensed combined financial information does not include adjustments to reflect any synergies or dis-synergies, any future operating efficiencies, associated cost savings or any possible integration costs that may occur related to the Eaze Merger and the Hawthorne Acquisition. Actual results may be materially different from the unaudited pro forma condensed combined financial information presented herein.
The unaudited pro forma condensed combined financial information does not necessarily reflect what the combined company’s financial condition or results of operations would have been had the Eaze Merger and the Hawthorne Acquisition occurred on the dates indicated. The unaudited pro forma condensed combined financial information also may not be useful in predicting the future financial condition and results of operations of the combined company. The actual financial condition and results of operations of the combined company may differ significantly from the pro forma amounts reflected herein due to a variety of factors, including differences in accounting policies, elections, and estimates, which while accounted for to the extent known, are still in process of being determined.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF DECEMBER 31, 2025
| | | | | | | | Transaction | | Pro Forma | | | | | Transaction | | | | |||
| | | | | | | | Accounting | | Vireo and Eaze | | Hawthorne | | Accounting | | Pro Forma | |||||
| | Vireo | | Eaze | | Adjustments | | Combined | | December 27, 2025 | | Adjustments | | Combined | |||||||
ASSETS | | | | | | | | | | | | | | | | | | | | | |
Currents assets: | | | | | | | | | | | | | | | | | | | | | |
Cash | | $ | 102,229,759 | | $ | 3,259,716 | | $ | — | | $ | 105,489,475 | | $ | — | | $ | 35,000,000 | D | $ | 140,489,475 |
Restricted cash | | | 20,265,212 | | | — | | | — | | | 20,265,212 | | | — | | | — | | | 20,265,212 |
Marketable securities | | | 1,020,243 | | | — | | | — | | | 1,020,243 | | | — | | | — | | | 1,020,243 |
Accounts receivable, net | | | 13,761,917 | | | 1,848,176 | | | — | | | 15,610,093 | | | 24,300,000 | | | — | | | 39,910,093 |
Income tax receivable | | | 22,756,544 | | | — | | | — | | | 22,756,544 | | | — | | | — | | | 22,756,544 |
Inventory | | | 59,969,928 | | | 11,428,335 | | | — | | | 71,398,263 | | | 48,400,000 | | | — | | | 119,798,263 |
Inventory supply asset | | | — | | | — | | | — | | | — | | | — | | | 20,000,000 | E | | 20,000,000 |
Prepayments and other current assets | | | 3,896,577 | | | 2,060,121 | | | — | | | 5,956,698 | | | 3,400,000 | | | — | | | 9,356,698 |
Warrants held | | | 1,684,691 | | | — | | | — | | | 1,684,691 | | | — | | | — | | | 1,684,691 |
Notes receivable | | | 79,226,015 | | | — | | | — | | | 79,226,015 | | | — | | | — | | | 79,226,015 |
Assets held for sale | | | 300,000 | | | — | | | — | | | 300,000 | | | — | | | — | | | 300,000 |
| | | | | | | | | | | | | | | | | | | | | |
Total current assets | | | 305,110,886 | | | 18,596,348 | | | — | | | 323,707,234 | | | 76,100,000 | | | 55,000,000 | | | 454,807,234 |
| | | | | | | | | | | | | | | | | | | | | |
Property and equipment, net | | | 217,505,538 | | | 31,772,999 | | | — | | | 249,278,537 | | | 9,400,000 | | | — | | | 258,678,537 |
Operating lease right-of-use asset | | | 53,368,204 | | | 33,398,798 | | | — | | | 86,767,002 | | | 11,400,000 | | | — | | | 98,167,002 |
Intangible assets, net | | | 117,471,678 | | | 15,661,186 | | | (15,661,186) | B | | 117,471,678 | | | — | | | — | | | 117,471,678 |
Goodwill | | | 87,534,561 | | | — | | | 15,960,400 | B | | 103,494,961 | | | — | | | — | | | 103,494,964 |
Investments | | | 6,000,000 | | | — | | | — | | | 6,000,000 | | | — | | | — | | | 6,000,000 |
Deposits | | | 4,390,559 | | | — | | | — | | | 4,390,559 | | | — | | | — | | | 4,390,559 |
Indemnified tax assets | | | 25,772,866 | | | — | | | 19,531,656 | B | | 45,304,522 | | | — | | | — | | | 45,304,522 |
Deferred tax asset | | | — | | | 1,077,906 | | | — | | | 1,077,906 | | | — | | | — | | | 1,077,906 |
Other assets | | | — | | | 1,337,976 | | | — | | | 1,337,976 | | | 5,100,000 | | | — | | | 6,437,976 |
| | | | | | | | | | | | | | | | | | | | | |
Total assets | | $ | 817,154,292 | | $ | 101,845,213 | | $ | 19,830,870 | | $ | 938,830,375 | | $ | 102,000,000 | | $ | 55,000,000 | | $ | 1,095,830,375 |
| | | | | | | | | | | | | | | | | | | | | |
LIABILITIES | | | | | | | | | | | | | | | | | | | | | |
Current Liabilities | | | | | | | | | | | | | | | | | | | | | |
Accounts payable and accrued liabilities | | $ | 50,254,506 | | $ | 18,205,563 | | $ | 1,309,445 | A | $ | 69,769,514 | | $ | 21,600,000 | | $ | 3,220,700 | F | $ | 94,590,214 |
Income taxes payable | | | — | | | 7,739,950 | | | — | | | 7,739,950 | | | — | | | — | | | 7,739,950 |
Convertible debt, current portion | | | 1,300,000 | | | — | | | — | | | 1,300,000 | | | — | | | — | | | 1,300,000 |
Long-term debt, current portion | | | 16,290,000 | | | 5,227,708 | | | (5,227,708) | C | | 16,290,000 | | | — | | | — | | | 16,290,000 |
Contingent consideration - current | | | — | | | — | | | 9,500,000 | B | | 9,500,000 | | | — | | | — | | | 9,500,000 |
Operating right-of-use liability, current | | | 3,556,576 | | | 3,864,415 | | | — | | | 7,420,991 | | | 4,600,000 | | | — | | | 12,020,991 |
Finance right-of-use liability, current | | | — | | | 1,631,126 | | | — | | | 1,631,126 | | | — | | | — | | | 1,631,126 |
Uncertain tax liability | | | 119,954,000 | | | 11,791,706 | | | — | | | 131,745,706 | | | — | | | — | | | 131,745,706 |
Derivative liability | | | 172,811 | | | — | | | — | | | 172,811 | | | — | | | — | | | 172,811 |
| | | | | | | | | | | | | | | | | | | | | |
Total current liabilities | | | 191,527,893 | | | 48,460,468 | | | (5,581,737) | | | 245,570,098 | | | 26,200,000 | | | 3,220,700 | | | 274,990,798 |
| | | | | | | | | | | | | | | | | | | | | |
Operating right-of-use liability, net of current portion | | | 146,308,253 | | | 33,203,198 | | | — | | | 179,511,451 | | | 8,400,000 | | | — | | | 187,911,451 |
Finance right-of-use liability, net of current portion | | | — | | | 1,395,880 | | | — | | | 1,395,880 | | | — | | | — | | | 1,395,880 |
Long-term debt, net | | | 127,644,855 | | | 2,230 | | | (2,230) | C | | 127,644,855 | | | — | | | — | | | 127,644,855 |
Convertible debt, net | | | 8,600,000 | | | — | | | — | | | 8,600,000 | | | — | | | — | | | 8,600,000 |
Contingent consideration | | | 24,448,000 | | | — | | | — | | | 24,448,000 | | | — | | | — | | | 24,448,000 |
Deferred tax liabilities | | | 10,217,000 | | | — | | | — | | | 10,217,000 | | | — | | | — | | | 10,217,000 |
Other long-term liabilities | | | 983,299 | | | — | | | — | | | 983,299 | | | — | | | — | | | 983,299 |
| | | | | | | | | | | | | | | | | | | | | |
Total liabilities | | | 509,729,300 | | | 83,061,776 | | | 5,579,507 | | | 598,380,583 | | | 34,600,000 | | | 3,220,700 | | | 636,191,283 |
| | | | | | | | | | | | | | | | | | | | | |
STOCKHOLDERS’ EQUITY | | | | | | | | | | | | | | | | | | | | | |
Subordinate Voting shares ($- par value, unlimited shares authorized; 1,057,131,571 shares issued and outstanding at December 31, 2025) | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Multiple Voting Shares ($- par value, unlimited shares authorized; 233,192 shares issued and outstanding at December 31, 2025) | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Common stock | | | — | | | 4 | | | (4) | B | | — | | | — | | | — | | | — |
Preferred stock - Series A and B | | | — | | | 64,020,000 | | | (64,020,000) | B | | — | | | — | | | — | | | — |
Additional paid in capital | | | 606,974,461 | | | 85,598 | | | (85,598) | B | | 641,318,706 | | | 67,400,000 | | | (67,400,000) | G | | 745,627,706 |
| | | | | | | | | 34,344,245 | B | | | | | — | | | 104,309,000 | G | | |
Accumulated deficit | | | (299,549,469) | | | (45,322,165) | | | 45,322,165 | B | | (300,858,914) | | | — | | | 18,091,000 | G | | (285,988,614) |
| | | | | | | | | (1,309,445) | A | | | | | — | | | (3,220,700) | F | | |
| | | | | | | | | | | | | | | | | | | | | |
Total stockholders’ equity | | | 307,424,992 | | | 18,783,437 | | | 14,251,363 | | | 340,459,802 | | | 67,400,000 | | | 51,779,300 | | | 459,639,092 |
| | | | | | | | | | | | | | | | | | | | | |
Total liabilities and stockholders’ equity | | $ | 817,154,292 | | $ | 101,845,213 | | $ | 19,380,870 | | $ | 938,830,375 | | $ | 102,000,000 | | $ | 55,000,000 | | $ | 1,095,830,375 |
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2025
| | | | | | Transaction | | Pro Forma | | Hawthorne | | Transaction | | | |||||||
| | | | | | Accounting | | Vireo and Eaze | | Year Ended | | Accounting | | Pro Forma | |||||||
| | Vireo | | Eaze | | Adjustments | | Combined | | September 30, 2025 | | Adjustments | | Combined | |||||||
Revenue | | $ | 268,769,268 | | $ | 141,140,072 | | $ | — | | $ | 409,909,340 | | $ | 130,200,000 | | $ | — | | $ | 540,109,340 |
Cost of sales | | | | | | | | | | | | | | | | | | | | | |
Product costs | | | 122,009,304 | | | 82,148,802 | | | — | | | 204,158,106 | | | 97,800,000 | | | — | | | 301,958,106 |
Non-cash product costs | | | 17,805,282 | | | — | | | — | | | 17,805,282 | | | 7,000,000 | | | — | | | 24,805,282 |
Inventory valuation adjustments | | | 1,859,305 | | | — | | | — | | | 1,859,305 | | | — | | | — | | | 1,859,305 |
| | | | | | | | | | | | | | | | | | | | | |
Gross profit | | | 127,095,377 | | | 58,991,270 | | | — | | | 186,086,647 | | | 25,400,000 | | | — | | | 211,486,647 |
| | | | | | | | | | | | | | | | | | | | | |
Operating expenses | | | | | | | | | | | | | | | | | | | | | |
Selling, general and administrative expenses | | | 81,186,632 | | | 67,272,297 | | | — | | | 148,458,929 | | | 27,700,000 | | | — | | | 176,158,929 |
Transaction related expenses | | | 11,208,273 | | | 118,000 | | | 1,309,445 | A | | 12,635,718 | | | — | | | 3,220,700 | C | | 15,856,418 |
Stock-based compensation expenses | | | 18,663,707 | | | — | | | 1,330,000 | B | | 19,993,707 | | | 1,900,000 | | | — | | | 21,893,707 |
Depreciation | | | 11,337,597 | | | 2,215,278 | | | — | | | 13,552,875 | | | 3,400,000 | | | — | | | 16,952,875 |
Amortization | | | 5,747,651 | | | — | | | — | | | 5,747,651 | | | — | | | — | | | 5,747,651 |
| | | | | | | | | | | | | | | | | | | | | |
Total operating expenses | | | 128,143,860 | | | 69,605,575 | | | 2,639,445 | | | 200,388,880 | | | 33,000,000 | | | 3,220,700 | | | 236,609,580 |
| | | | | | | | | | | | | | | | | | | | | |
Loss from operations | | | (1,048,483) | | | (10,614,305) | | | (2,639,445) | | | (14,302,233) | | | (7,600,000) | | | (3,220,700) | | | (25,122,933) |
| | | | | | | | | | | | | | | | | | | | | |
Other income (expense) | | | | | | | | | | | | | | | | | | | | | |
Bargain purchase gain | | | — | | | — | | | — | | | — | | | — | | | 18,091,000 | D | | 18,091,000 |
Interest expense, net | | | (15,905,534) | | | (352,949) | | | — | | | (16,258,483) | | | — | | | — | | | (16,258,483) |
Interest expense on finance lease liabilities - Minnesota & New York | | | (14,348,831) | | | — | | | — | | | (14,348,831) | | | — | | | — | | | (14,348,831) |
Impairment of long-lived assets | | | (2,600,000) | | | — | | | — | | | (2,600,000) | | | (3,600,000) | | | — | | | (6,200,000) |
Gain (loss) on disposal of assets and debt | | | (7,866,997) | | | — | | | — | | | (7,866,997) | | | — | | | — | | | (7,866,997) |
Gain (loss) on change in the fair value of contingent consideration | | | (9,617,000) | | | — | | | — | | | (9,617,000) | | | — | | | — | | | (9,617,000) |
Derivative gain (loss) | | | (172,811) | | | — | | | — | | | (172,811) | | | — | | | — | | | (172,811) |
Other income (expense) | | | 11,648,748 | | | (326,631) | | | — | | | 11,322,117 | | | 300,000 | | | — | | | 11,622,117 |
| | | | | | | | | | | | | | | | | | | | | |
Other income (expenses), net | | | (38,862,425) | | | (679,580) | | | — | | | (39,542,005) | | | (3,300,000) | | | 18,091,000 | | | (24,751,005) |
| | | | | | | | | | | | | | | | | | | | | |
Loss before income taxes | | | (39,910,908) | | | (11,293,885) | | | (2,639,445) | | | (53,844,238) | | | (10,900,000) | | | 14,870,300 | | | (49,873,938) |
| | | | | | | | | | | | | | | | | | | | | |
Deferred income taxes recoveries (expenses) | | | 13,406,000 | | | 1,077,906 | | | — | | | 14,483,906 | | | 100,000 | | | — | | | 14,583,906.00 |
Current income tax expense | | | (41,609,000) | | | (13,907,298) | | | — | | | (55,516,298) | | | 1,200,000 | | | — | | | (54,316,298.00) |
| | | | | | | | | | | | | | | | | | | | | |
Net loss and comprehensive loss | | | (68,113,908) | | | (24,123,277) | | | (2,639,445) | | | (94,876,630) | | | (9,600,000) | | | 14,870,300 | | | (89,606,330) |
| | | | | | | | | | | | | | | | | | | | | |
Net loss per share - basic and diluted | | $ | (0.09) | | | | | | | | $ | (0.11) | | | | | | | | $ | (0.09) |
| | | | | | | | | | | | | | | | | | | | | |
Weighted average shares used in computation of net loss per share - basic and diluted | | | 734,738,785 | | | | | | | | | 825,118,376 | | | | | | | | | 1,038,118,376 |
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
Note 1. Basis of Presentation
The unaudited pro forma condensed combined financial information represents the combined companies’ (Vireo, Eaze and Hawthorne) unaudited pro forma condensed combined balance sheet as of December 31, 2025 and unaudited pro forma condensed combined statement of operations for the year ended December 31, 2025. The unaudited pro forma condensed combined financial information is based on the historical financial statements of Vireo, Eaze and Hawthorne, adjusted to give effect to the Eaze Merger and Hawthorne Acquisition, and should be read in conjunction with the historical financial statements from which they are derived.
The unaudited pro forma condensed combined financial information as of and for the year ended December 31, 2025 includes the pro forma information from the Eaze Merger, which occurred on April 1, 2026. The pro forma financial information for the Eaze Merger was previously presented along with the Eaze financial statements required by Rule 3-05 of Regulation S-X in the Form 8-K/A filed by Vireo on June 11, 2026. The unaudited pro forma condensed combined financial information is presented in United States dollars.
The unaudited pro forma condensed combined balance sheets give effect to the Hawthorne Acquisition as if it had occurred on December 31, 2025 based on the December 27, 2025 unaudited condensed combined balance sheet of Hawthorne. The unaudited pro forma condensed combined statement of operations gives effect to the Hawthorne Acquisition as if it had occurred on January 1, 2025 based on the audited combined statement of operations of Hawthorne for its most recently completed annual fiscal year ended September 30, 2025.
In preparing the unaudited pro forma condensed combined balance sheet and unaudited pro forma condensed combined statement of operations, the following historical information was used:
| ● | Vireo’s audited consolidated financial statements as of and for the year ended December 31, 2025, as filed with the SEC on March 17, 2026, |
| ● | Eaze, Inc. and Subsidiaries’ audited consolidated financial statements as of and for the year ended December 31, 2025, as filed with the SEC in Vireo’s Form 8-K/A on June 11, 2026, |
| ● | The Hawthorne Business of The Scotts Miracle-Gro Company’s audited combined financials statements as of and for the year ended September 30, 2025, included as Exhibit 99.1 to this Form 8-K/A, |
| ● | The Hawthorne Business of The Scotts Miracle-Gro Company’s unaudited condensed combined financial statements as of and for the three months ended December 27, 2025 (52-week cycle), included as Exhibit 99.2 to this Form 8-K/A. |
The unaudited pro forma condensed combined balance sheet and unaudited pro forma condensed combined statement of operations should be read in conjunction with the historical financial statements including the notes thereto, as listed above.
The unaudited pro forma condensed combined financial information has been prepared for illustrative purposes only and may not be indicative of the operating results or financial condition that would have been achieved if the Eaze Merger and Hawthorne Acquisition had been completed on the dates or for the period presented, nor do they purport to project the results of operations or financial position for any future period or as of any future date. The actual financial position and results of operations may differ materially from the pro forma amounts reflected herein due to a variety of factors.
The unaudited pro forma condensed combined financial information does not reflect operational and administrative cost savings that may be achieved as a result of the Eaze Merger or the Hawthorne Acquisition.
Note 2. Accounting Policies and Reclassifications
Subsequent to the consummation of the Eaze Merger and the Hawthorne Acquisition, management has commenced a comprehensive review of the entities’ accounting policies. As a result of the review, management may identify differences between the accounting policies of the entities which, when conformed, could have a material impact on the financial statements of the post-combination company. Based on its initial analysis, management did not identify any differences that would have a material impact on the unaudited pro forma condensed combined financial information. As a result, the unaudited pro forma condensed combined financial information does not assume any differences in accounting policies.
In preparing the unaudited pro forma condensed combined financial information, certain reclassifications were made to Eaze’s and Hawthorne’s historical financial statement presentation to conform to Vireo’s presentation.
Note 3. Adjustments to Unaudited Pro Forma Condensed Combined Financial Information
The unaudited pro forma condensed combined financial information has been prepared to illustrate the effect of the Eaze Merger and the Hawthorne Acquisition and related transactions and has been prepared for informational purposes only.
The following unaudited pro forma condensed combined financial information has been prepared in accordance with Article 11 of Regulation S-X as amended. Vireo did not have any historical relationship with Eaze and Hawthorne prior to the Eaze Merger and the Hawthorne Acquisition, respectively. Accordingly, no pro forma adjustments were required to eliminate activities between the companies.
The pro forma basic and diluted net loss per share amount presented in the unaudited pro forma condensed combined statement of operations is based upon the pro forma number of shares of Vireo stock outstanding, assuming the Eaze Merger and the Hawthorne Acquisition and related transactions occurred on January 1, 2025. The basic and diluted earnings per share has been calculated as of December 31, 2025, prior to Vireo’s reverse stock split, which was effective June 5, 2026. If the reverse stock split had occurred as of December 31, 2025, the pro forma weighted average shared used in the computation of net loss per share – basic and diluted, would be 34,603,946.
Adjustments to Unaudited Pro Forma Condensed Combined Balance Sheet – As of December 31, 2025
The pro forma adjustments included in the unaudited pro forma condensed combined balance sheets as of December 31, 2025, are as follows:
A | Represents Vireo’s total estimated transaction costs not yet recorded in the 2025 historical financial statements, which include advisory, banking, legal and due diligence fees that were incurred in connection with the Eaze Merger. |
B | Represents the following preliminary adjustments related to applying the acquisition method of accounting given the Eaze Merger is being accounted for as a business combination under Accounting Standards Codification (“ASC”) Topic 805, Business Combinations (“ASC 805”). Vireo has not completed its purchase price allocation and the amounts noted are preliminary. |
| ● | Issuance of Vireo’s Subordinated Voting Shares to Eaze as consideration transferred and the estimated earnout amount as consideration transferred. |
| ● | The recognition of acquired goodwill and intangible assets. The expected useful life and amortization period for the intangible and long-lived assets acquired is generally 15 years. |
| ● | The recognition of indemnified tax assets |
| ● | Elimination of the Eaze accumulated deficit balance and common and preferred stock balances to additional paid-in-capital. Refer to the table in Note 4 below for additional information related to these adjustments. |
C | To remove liabilities not purchased pursuant to the Merger Agreement. |
D | Represents the amount of cash acquired by Vireo from Hawthorne as part of the Hawthorne transaction, which is included in the fair value of the net assets acquired. |
E | Represents inventory, primarily growing media, to be supplied to Vireo over a two-year period. |
F | Represents Vireo’s total estimated transaction costs not yet recorded in the 2025 historical financial statements, which include advisory, banking, legal and due diligence fees that were incurred in connection with the Hawthorne Acquisition. |
G | Represents the following preliminary adjustments related to applying the acquisition method of accounting given the Hawthorne Acquisition is being accounted for as a business combination under Accounting Standards Codification (“ASC”) Topic 805, Business Combinations (“ASC 805”). Vireo has not completed its purchase price allocation and the amounts noted are preliminary. |
| ● | Issuance of Vireo’s Subordinated Voting Shares and warrants to purchase subordinate voting shares to Hawthorne as consideration transferred. |
| ● | The recognition of a bargain purchase gain. The bargain purchase gain represents the excess of the fair value of net assets acquired over the purchase consideration. The bargain purchase gain is reflected in “Other income” in the statement of operations and as a decrease to accumulated deficit on the balance sheet. |
| ● | Elimination of the Hawthorne historical net parent investment. |
Refer to the table in Note 4 below for additional information related to these adjustments.
Adjustments to Unaudited Pro Forma Condensed Combined Statement of Operations – For the Year Ended December 31, 2025
The pro forma adjustments included in the unaudited pro forma condensed combined statement of operations for the year ended December 31, 2025, are as follows:
A | Represents estimated remaining transaction costs not already reflected in the December 31, 2025 historical financial statements of Vireo of $1,309,445 as if incurred on January 1, 2025, the date the Eaze Merger occurred for purposes of the unaudited pro forma condensed combined statement of operations. |
B | Represents fully vested retention awards, further described below, granted to Eaze employees on the date of closing of the Merger valued at $0.38 for 3,500,000 restricted stock units (the “Closing RSUs”). |
Pursuant to the Merger Agreement, within 30 days following the closing of the transactions under the Merger Agreement, the Company will issue an aggregate of 3,500,000 Closing RSUs to certain employees of Eaze in consideration for such employees’ good faith efforts in connection with the closing of the transactions. Each Closing RSU will be fully vested as of the date of issuance.
C | Represents Vireo’s total estimated transaction costs not yet recorded in the 2025 historical financial statements, which include advisory, banking, legal and due diligence fees that were incurred in connection with the Hawthorne Acquisition. |
D | Represents the recognition of a bargain purchase gain. The bargain purchase gain represents the excess of the fair value of net assets acquired over the purchase consideration. The bargain purchase gain is reflected in “Other income” in the statement of operations and as a decrease to accumulated deficit on the balance sheet. |
Note 4. Estimated Purchase Price Consideration
Hawthorne
The estimated preliminary purchase price allocation for the Hawthorne Acquisition and the corresponding aggregate consideration is presented in the table below as if the Hawthorne Acquisition closed on December 31, 2025. Following the close of the Hawthorne Acquisition on April 8, 2026, management prepared a preliminary purchase price allocation. The preliminary allocation is subject to revision as additional information becomes available regarding the fair values of the assets acquired and liabilities assumed during the measurement period.
In general, due to the nature of certain assets acquired and liabilities assumed, the Company has preliminarily determined that the carrying value of those assets and liabilities as of December 31, 2025, approximate their fair value. Management has not finalized the purchase price allocation. Accordingly, the unaudited pro forma condensed combined financial information includes a preliminary allocation of the purchase price based on assumptions and estimates that, while considered reasonable under the circumstances, are subject to changes, and such changes may be material.
Management will continue to refine its identification and valuation of assets acquired and liabilities assumed as further information becomes available. The final allocation is expected to be completed within twelve months of the Hawthorne closing date and could differ materially from the preliminary allocation used in the transaction accounting adjustments. The final allocation may include (1) changes in fair values of inventory and property and equipment; (2) changes in allocations and fair value measurements; (3) other changes to assets and liabilities; and (4) changes to consideration related to the valuation of consideration.
The estimated fair values of the components included in the purchase price consideration are preliminary and may materially vary from final results. The Company is still finalizing its conclusions on the accounting treatment associated with the components of the purchase consideration, along with the valuations and necessary calculations related to these components, as described in further detail below.
Acquisition Consideration:
Estimated Consideration of $104,309,000 is based on:
| ● | The Company’s closing share price of $0.393 on April 8, 2026 multiplied by the number of Vireo Subordinate Voting Shares issued of 213,000,000, which totals $83,709,000, and; |
| ● | The Company’s estimated value of the warrants issued to purchase 80,000,000 subordinate voting shares at an exercise price of $0.85 per share, which are immediately exercisable and expire five years from the date of issuance. The fair value was derived from a Black-Scholes valuation using a stock price of $0.393 and an exercise price of $0.85, an expected life of 5 years, an annual risk-free rate of 3.95%, and volatility of 100%. |
Identifiable Net Assets Acquired
In connection with the Hawthorne Acquisition, the pro forma condensed financial information reflects a preliminary bargain purchase gain. The purchase price has been allocated to the net tangible and identifiable intangible assets and liabilities based on the respective estimated fair values and has not been finalized. The estimated preliminary net identifiable assets acquired exceed the purchase price; therefore, a bargain purchase gain is reflected in the preliminary purchase price allocation.
| | Fair Value | |
Components of total estimated purchase price consideration | | | |
Consideration - Subordinate Voting Shares | | $ | 83,709,000 |
Consideration - Warrants to Purchase Subordinate Voting Shares | | | 20,600,000 |
| | | |
Total consideration | | $ | 104,309,000 |
| | | |
Assets acquired | | | |
Cash | | | 35,000,000 |
Accounts receivable | | | 24,300,000 |
Inventory | | | 48,400,000 |
Inventory supply asset | | | 20,000,000 |
Prepayments and other current assets | | | 3,400,000 |
Property and equipment | | | 9,400,000 |
Operating lease right-of-use asset | | | 11,400,000 |
Other assets | | | 5,100,000 |
| | | |
Total assets acquired | | | 157,000,000 |
| | | |
Liabilities assumed: | | | |
Accounts payable and accrued liabilities | | | (21,600,000) |
Right-of-use lease liabilities | | | (13,000,000) |
| | | |
Total liabilities assumed | | | (34,600,000) |
| | | |
Net identifiable assets | | $ | 122,400,000 |
Purchase consideration | | | 104,309,000 |
| | | |
Bargain purchase gain | | $ | 18,091,000 |
Eaze
The estimated preliminary purchase price allocation for the Eaze Merger and the corresponding aggregate Merger Consideration is presented in the table below as if the Eaze Merger closed on December 31, 2025. Following the close of the Eaze Merger on April 1, 2026, management prepared a preliminary purchase price allocation. The preliminary allocation is subject to revision as additional information becomes available regarding the fair values of the assets acquired and liabilities assumed during the measurement period.
In general, due to the nature of certain assets acquired and liabilities assumed, the Company has preliminarily determined that the carrying value of those assets and liabilities as of December 31, 2025, approximate their fair value. Management has not finalized the purchase price allocation. Accordingly, the unaudited pro forma condensed combined financial information includes a preliminary allocation of the purchase price based on assumptions and estimates that, while considered reasonable under the circumstances, are subject to changes, and such changes may be material.
Management will continue to refine its identification and valuation of assets acquired and liabilities assumed as further information becomes available. The final allocation is expected to be completed within twelve months of the Eaze Closing Date and could differ materially from the preliminary allocation used in the transaction accounting adjustments. The final allocation may include (1) changes in fair values of inventory and property and equipment; (2) changes in allocations to intangible assets, such as trade names, licenses, and customer relationships, as well as goodwill; (3) other changes to assets and liabilities; and (4) changes to consideration related to the valuation of contingent consideration.
The estimated fair values of the components included in the purchase price consideration are preliminary and may materially vary from final results. The Company is still finalizing its conclusions on the accounting treatment associated with the components of the purchase consideration, along with the valuations and necessary calculations related to these components, as described in further detail below.
Merger Consideration:
Estimated Merger Consideration of $34,344,245 is based on the Company’s closing share price of $0.38 on April 1, 2026 multiplied by the number of Vireo Subordinate Voting Shares issued of 90,379,591.
Earnout consideration
Eaze EBITDA Earn-Out Shares:
Pursuant to the Merger Agreement, subject to the terms and conditions of the Merger Agreement, former stockholders of Eaze may receive additional Subordinate Voting Shares pursuant to earnout payments following December 31, 2026, adjusted for certain items as described in the Earn-Out Amount in the Merger Agreement, including certain fees payable in connection with the above purchase price adjustment if not otherwise paid by the Stockholder Representative, certain equipment lease expenses, and tax items, and paid out using a share price for the Subordinate Voting Shares of the higher of $1.05 or the 20-day volume weighted average price of the Subordinate Voting Shares as of the trading day immediately prior to December 31, 2026. In no event shall the number of Subordinate Voting Shares issued in respect of earnout payments under the Merger Agreement exceed the number of shares issued as closing merger consideration under the Merger Agreement.
The Earn-Out Shares valuation has not been finalized; however, management’s current best estimate is $9,500,000.
Identifiable Net Assets Acquired
In connection with the Eaze Merger, the Company will recognize intangible assets as reflected in the table below. Goodwill will not be amortized, but instead will be tested for impairment at least annually or more frequently if certain indicators are present. In the event that the value of goodwill or other intangible assets become impaired in the future, an accounting charge for impairment would be recognized during the period in which the determination was made.
The purchase price has been allocated to the net tangible and identifiable intangible assets and liabilities based on the respective estimated fair values and has not been finalized. The excess of the purchase price over the net tangible and identifiable intangible assets has been recorded as goodwill. Goodwill represents potential operational synergies, various expense synergies, and opportunities to enter new markets, and is assigned to the Company’s cultivation, production, and sale of cannabis business segment.
| | Fair Value | |
Components of total estimate purchase price consideration | | | |
Merger consideration - Subordinate Voting Shares | | $ | 34,344,245 |
Earnout - deferred consideration | | | 9,500,000 |
| | $ | 43,844,245 |
| | | |
Assets acquired | | | |
Cash | | $ | 3,259,716 |
Accounts receivable | | | 1,848,176 |
Inventory | | | 11,428,335 |
Prepayments and other current assets | | | 2,060,121 |
Operating lease, right-of-use asset | | | 33,398,798 |
Property and equipment | | | 31,772,999 |
Indemnified tax assets | | | 19,531,656 |
Deferred tax asset | | | 1,077,906 |
Other assets | | | 1,337,976 |
| | | |
Total tangible assets | | | 105,715,683 |
| | | |
Goodwill | | | 15,960,400 |
| | | |
Total assets | | | 121,676,083 |
| | | |
Accounts payable and accrued liabilities | | | (18,205,563) |
Income taxes payable | | | (7,739,950) |
Right-of-use lease liabilities | | | (40,094,619) |
Uncertain tax liability | | | (11,791,706) |
| | | |
Total liabilities assumed | | | (77,831,838) |
| | | |
Net assets acquired | | $ | 43,844,245 |
Note 5. Net Loss per Share
Net loss per share was calculated using the historical weighted average shares outstanding and the issuance of additional shares in connection with the Eaze Merger and the Hawthorne Acquisition, assuming the shares were outstanding since January 1, 2025. As the Eaze Merger and the Hawthorne Acquisition are being reflected as if they had occurred at the beginning of the period presented, the calculation of weighted average shares outstanding for basic and diluted net loss per share assumes that the shares issuable relating to the Eaze Merger and the Hawthorne Acquisition have been outstanding for the entirety of the period presented.
The basic and diluted earnings per share has been calculated as of December 31, 2025, prior to Vireo’s reverse stock split, which was effective June 5, 2026. If the reverse stock split had occurred as of December 31, 2025, the pro forma weighted average shared used in the computation of net loss per share – basic and diluted, would be 34,603,946.
| | For the Year Ended | |
| | December 31, 2025 (1) | |
Numerator: | | | |
Pro forma net loss | | $ | (89,606,330) |
Denominator: | | | |
Weighted average shares outstanding - basic and diluted (2) | | | 1,038,118,376 |
Net loss per share: | | | |
Basic and diluted | | $ | (0.09) |
Excluded securities (3): | | | |
Stock options | | | 34,712,901 |
Warrants (includes Hawthorne Warrants) | | | 98,541,586 |
Restricted stock units (includes Eaze RSUs) | | | 63,065,217 |
Shares issuable to convertible debt holders | | | 15,920,000 |
(1) | Pro forma net loss per share includes the related pro forma adjustments as referred to within the section “Unaudited Pro Forma Condensed Combined Financial Information.” |
(2)
Weighted average shares used in computation of net loss per share - basic and diluted | | 734,738,785 |
| | |
Shares issued in Eaze Merger (deemed outstanding for full year) | | 90,379,591 |
| | |
Shares issued in Hawthorne transaction (deemed outstanding for full year) | | 213,000,000 |
| | |
Weighted average shares outstanding | | 1,038,118,376 |
(3) | The potentially dilutive outstanding securities were excluded from the computation of pro forma net loss per share, because their effect would have been anti-dilutive. |