# EDGAR Filing Document

**Accession Number:** 0001706524
**File Stem:** 0001213900-26-005258
**Filing Date:** 2026-1
**Character Count:** 358898
**Document Hash:** 51f388a7ca58f6f4ace71b33b311240a
**Contains OCR:** False
**Source Format:** 

## Filing Content

## Filing Summary
**0001213900-26-005258.hdr.sgml**: 20260116

**ACCESSION NUMBER**: 0001213900-26-005258

**CONFORMED SUBMISSION TYPE**: 10-K

**PUBLIC DOCUMENT COUNT**: 102

**CONFORMED PERIOD OF REPORT**: 20241231

**FILED AS OF DATE**: 20260116

**DATE AS OF CHANGE**: 20260116

**FILER**: 

**COMPANY DATA:**
- **COMPANY CONFORMED NAME:** urban-gro, Inc.
- **CENTRAL INDEX KEY:** 0001706524
- **STANDARD INDUSTRIAL CLASSIFICATION:** WHOLESALE-MACHINERY, EQUIPMENT & SUPPLIES [5080]
- **ORGANIZATION NAME:** 07 Trade & Services
- **EIN:** 465158469
- **STATE OF INCORPORATION:** DE
- **FISCAL YEAR END:** 1231

**FILING VALUES:**
- **FORM TYPE:** 10-K
- **SEC ACT:** 1934 Act
- **SEC FILE NUMBER:** 001-39933
- **FILM NUMBER:** 26540459

**BUSINESS ADDRESS:**
- **STREET 1:** 1751 PANORAMA PT
- **STREET 2:** UNIT G
- **CITY:** LAFAYETTE
- **STATE:** CO
- **ZIP:** 80026
- **BUSINESS PHONE:** 720-390-3880

**MAIL ADDRESS:**
- **STREET 1:** 1751 PANORAMA PT
- **STREET 2:** UNIT G
- **CITY:** LAFAYETTE
- **STATE:** CO
- **ZIP:** 80026

?xml version='1.0' encoding='ASCII'?

**UNITED STATES SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

**FORM 10-K**

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

FOR THE FISCAL YEAR ENDED **DECEMBER 31, 2024**

or

☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: **<u>001-39933</u>**

**<u>URBAN-GRO, INC.</u>**

(Exact name of registrant as specified in its charter)

---

| | |
|:---|:---|
| **Delaware** | **46-5158469** |
| (State or other jurisdiction of <br> incorporation or organization) | (IRS Employer <br> Identification No.) |

---

---

| | | |
|:---|:---|:---|
| **1751 Panorama Point, Unit G, <br> Lafayette, CO** | **80026** | **(720) 390-3880** |
| (Address of principal executive office) | (Zip Code) | (Registrant's telephone number,<br> Including area code) |

---

Securities registered pursuant to Section 12(b) of the Act:

---

| | | |
|:---|:---|:---|
| <br> Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| **Common Stock, $0.001 par value** | **UGRO** | **NASDAQ Capital Market** |

---

Securities registered pursuant to Section 12(g) of the Act: **None** 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes ☒ No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ☐ Yes ☒ No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☐ Yes ☒ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☐ Yes ☒ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐ Accelerated filer ☐ <br> Non-accelerated filer ☒ Smaller Reporting Company ☒ <br> 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. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐ Yes ☒ No

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant's most recently completed second fiscal quarter on June 30, 2024 was $13,235,644.

As of January 12, 2026, the registrant had 17,750,640 shares of Common Stock outstanding.

**TABLE OF CONTENTS**

---

| | | |
|:---|:---|:---|
| **Item No.** |  | **Page No.** |
|  | [Cautionary Information about Forward-Looking Statements](#a_001) | ii |
| [PART I](#a_002) |  | 1 |
| Item 1. | [Business](#a_003) | 1 |
| Item 1A. | [Risk Factors](#a_004) | 11 |
| Item 1B. | [Unresolved Staff Comments](#a_005) | 23 |
| Item 1C. | [Cybersecurity](#a_006) | 23 |
| Item 2 | [Properties](#a_007) | 24 |
| Item 3. | [Legal Proceedings](#a_008) | 24 |
| Item 4. | [Mine Safety Disclosures](#a_009) | 26 |
| [PART II](#a_010) |  | 27 |
| Item 5. | [Market for the Registrant's Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities](#a_011) | 27 |
| Item 6. | [\[Reserved\]](#a_012) | 28 |
| Item 7. | [Management's Discussion and Analysis of Financial Condition and Results of Operations](#a_013) | 28 |
| Item 7A. | [Quantitative and Qualitative Disclosures About Market Risk](#a_014) | 31 |
| Item 8. | [Financial Statements and Supplementary Data](#a_015) | 31 |
| Item 9. | [Changes in and Disagreements on Accounting and Financial Disclosure](#a_016) | 31 |
| Item 9A. | [Controls and Procedures](#a_017) | 32 |
| Item 9B. | [Other Information](#a_018) | 33 |
| Item 9C. | [Disclosure Regarding Foreign Jurisdictions that Prevent Inspections](#a_019) | 33 |
| [PART III](#a_020) |  | 34 |
| Item 10. | [Directors, Executive Officers and Corporate Governance](#a_021) | 34 |
| Item 11. | [Executive Compensation](#a_022) | 38 |
| Item 12. | [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](#a_023) | 43 |
| Item 13. | [Certain Relationships and Related Transactions, and Director Independence](#a_024) | 44 |
| Item 14. | [Principal Accounting Fees and Services](#a_025) | 45 |
| [PART IV](#a_026) |  | 47 |
| Item 15. | [Exhibits, Financial Statement Schedules](#a_027) | 47 |
| Item 16. | [Form 10-K Summary](#a_028) | 47 |
|  | [Signatures](#a_029) | 48 |
|  | [Index to Financial Statements](#a_030) | F-1 |

---

i

**Cautionary Information about Forward-Looking Statements**

This Annual Report on Form 10-K ("Form 10-K" or this "Report") contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), including statements related to: future events; challenges we may face; growth strategy; expansion and future operations; the ability to recognize backlog as revenue; financial position; estimated or projected revenues, losses, costs, gross profit, earnings or other financial items; business strategy, prospects, plans and objectives of management; anticipated or pending investigations, legal claims, proceedings or litigation that may involve or affect us; implementation of ESG initiatives; industry-specific trends, events or regulations and the impact of those trends, events and regulations on us or our financial performance; and updates to regulations and the impact of those regulations on us. All statements other than statements of historical fact may be forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as "seek," "anticipate," "plan," "continue," "estimate," "expect," "may," "will," "project," "predict," "potential," "target," "intend," "could," "might," "should," "believe" and variations of such words or their negative and similar expressions. Forward-looking statements should not be read as a guarantee of future performance or results and may not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. Forward-looking statements are based on management's belief, based on currently available information, as to the outcome and timing of future events

Important factors known to us that could cause such material differences are identified in this Report, including the factors described in Part I, Item 1A, "Risk Factors," and other cautionary statements described in this Report on Form 10-K. These factors are not necessarily all of the important factors that could cause actual results or events to differ materially from those expressed in the forward-looking statements. Other unknown or unpredictable factors could also cause actual results or events to differ materially from those expressed in the forward-looking statements. urban-grow, Inc. is under no obligation to correct or update any forward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to consult any future disclosures we make on related subjects in future reports to the Securities and Exchange Commission ("SEC").

ii

**PART I**

**<u>ITEM 1. BUSINESS</u>**

**Background**

urban-gro, Inc. ("we," "us," "our," the "Company," or "urban-gro") was originally formed on March 20, 2014, as a Colorado limited liability company. On March 10, 2017, we converted to a Colorado corporation and exchanged shares of our common stock for every member's interest issued and outstanding on the date of conversion. On October 29, 2020, we reincorporated as a Delaware corporation. On December 31, 2020, we effected a 1-for-6 reverse stock split with respect to our common stock. All information in this Report gives effect to this reverse stock split, including restating prior period reported amounts. On February 12, 2021, we completed an uplisting to the Nasdaq Capital Market ("Nasdaq") under the ticker symbol "UGRO".

**Overview**

Since commencing business in March 2014, we expanded our operations across North America and Europe while diversifying our services offerings organically and through acquisitions into full design-build solutions by adding design, engineering, construction, and construction-management services, introducing new equipment solutions, products and services, and successfully diversifying into several additional commercial sectors beyond the initial cannabis-focused Controlled Environment Agriculture ("CEA") sector, including produce-focused CEA; or vertical farming, healthcare, industrial, commercial packaged goods ("CPG"), and retail.

After making the decision to exit our core business sectors in the third quarter of 2025 due to changing market conditions and our inability to raise significant funds due to our filing status and compliance with the Nasdaq, we began the process of selling assets, reducing our work force, and preparing the company for a subsequent merger. As we continue to wind down operations, today, only a single division of our legacy business remains and urban-gro is a value-added reseller of equipment systems to the Controlled Environment Agriculture ("CEA") sector. We work with a select group of manufacturers and vendor partners to source equipment solutions that our clients utilize when building out their cultivation facilities.

*Relationships with Premier Manufacturers*

 

We work closely with leading technology and manufacturing providers to deliver an integrated solution designed to achieve the stated objectives of our clients. We pride ourselves as being equipment agnostic – meaning we do not have allegiances to any single manufacturer – we offer the solution that will best meet the design and budget constraints of our client's and design, engineer, and integrate whatever equipment fits the client's needs.

*Value-Added Reselling of Cultivation Equipment Systems*

We act as an experienced vendor providing VAR to our clients when selling vetted best-in-class commercial horticulture lighting solutions, rolling and automated container benching systems, specialty fans, fertigation/irrigation systems, environmental control systems, and microbial mitigation and odor reduction systems. The acquired knowledge of how each of these systems work in combination with and in tangent to the overall ecosystem is a significant benefit that we offer to our clients.

Our Competition

For equipment sales, we currently view our competition to be focused on predominantly commodity "off-the-shelf" items like lighting and other cultivation staple products, both pre-startup and post-startup. This competition comes from traditional wholesale horticulture dealers, online retailers, and some manufacturers who sell direct.

Our Clients

We primarily market and sell our solutions to clients in the CEA sector. In the CEA sector, our clients include operators and facilitators in both the cannabis and produce markets in the United States and Canada.

**<u>urban-gro at December 31, 2024</u>**

As of December 31, 2024, and building on the acquisition of engineering, architecture, and construction management firms, we were an integrated professional services and Design-Build firm offering value-added architectural, engineering, and construction management solutions to the CEA, industrial, healthcare, and other sectors. We derived income from our ability to generate revenue from our clients through the billing of our employees' time spent on client projects. We offered value-added architectural, engineering, systems procurement and integration, and construction design-build solutions to customers operating in the CEA and industrial and other commercial ("Commercial") sectors. Clients, regardless of sector they are in, had engaged us to deliver their vision because of our experience and expertise, and because our integrated, design-build solutions offer a value-add approach to design, engineering, procurement, construction-management, construction, and equipment integration, providing a single point of accountability across all aspects of a project. For our CEA clients in particular, we created high-performance indoor cultivation facilities to grow specialty crops, including cannabis as well as produce such as leafy greens, vegetables, herbs and berries.

While we successfully diversified our target markets across several commercial sectors, the majority of our clients were commercial CEA cultivators as we believed that a key differentiation point that clients values is the depth of our employees' and Company's experience. As of December 31, 2024, we employed approximately 130 full time employees, approximately two-thirds of which were considered experts in their areas of focus. Our team included Designers (Architects, Interior Designers, Cultivation Space Planners), Engineers (Mechanical, Electrical, Plumbing, Controls, and Fire Protection), Construction Managers (Project Managers and Supervisors), and horticulturists. As a company, we have worked on over 1000 CEA projects, and believe that the experience of our team and Company provides clients with the confidence that will proactively keep them from making common costly mistakes during the design and build process that would impact operational stages. Our expertise translates into clients saving time, money, and resources through expertise that they can leverage without having to add headcount to their own operations. We provide this experience in addition to offering a platform of the highest quality equipment systems that can be integrated holistically into our clients' facilities.

**Our Solutions in 2024**

Over the past decade we expanded our ongoing operations across North America and Europe while diversifying our services offerings organically and through acquisitions into full design-build solutions by adding design, engineering, construction, and construction-management services, introducing new equipment solutions, products and services, and successfully diversifying into several additional commercial sectors beyond cannabis-focused CEA, including produce-focused CEA; or vertical farming, healthcare, industrial, commercial packaged goods ("CPG"), and retail. We became a trusted partner and adviser to our clients and provided value to our clients regardless of the sector. As is detailed in the Project Delivery Comparison chart below, in the CEA sector, the advantages of the urban-gro design-build model vs the traditional owner-contracted model were clear. There was a single responsible party for our clients' needs from conception through operational start. This resulted in greater efficiencies throughout the design-build process and a faster speed to launch. Additionally, our experience and expertise within our sectors helped to prevent costly mistakes for our clients.

![](image_001.jpg)

Outlined below is an example of a complete end-to-end design-build project that demonstrates how we provided value to our clients over time.

![](image_002.jpg)

***Our Service Solutions in 2024***

 ****

*Architectural Design, Engineering, and Construction Services*

In 2024, we generated revenue by providing our clients with design-build service offerings that included architectural, interior, and engineering design, construction and construction management, as well as services for the operational stages of the facility. Our in-house architectural, interior design, engineering, construction and cultivation design services integrated design with pre-construction services and thereby reduced project schedule and capital investments.

Pre-Construction Services included providing a forecast summary of what it will take to get a high-performance facility built, giving initial indication and detailed analysis of budget, timeline/schedule, and potential large decision impacts including value analysis and value engineering options. The integration of Pre-Construction Services can expedite project completion, lower initial project costs, and help reduce costly change orders.

CSP is an early-stage engagement with stakeholders that provides an optimized basis of design including the interaction of people, plants, and processes. The output of CSP provided an optimized analysis of spatial needs based on stipulated criteria and could accelerate construction and regulatory approval paths, save stakeholders money and time, and enable a process-driven decision-making approach.

Architectural Design is the implementation of a defined process from development of vision to built environment. Architecture includes the integration and coordination of all project required disciplines such as civil, landscape, structural, mechanical, plumbing and electrical engineering, fire protection, security, interior design, and other specialty disciplines. Interior Design involves branding and development of the interior aesthetic vision. Interior design is holistic and thereby includes all aspects of the building interiors from full branding to the selection and design of all finishes and interior systems. Common discussions beyond aesthetics include the cost, durability, and maintainability of systems presented.

Mechanical, Electrical, and Plumbing ("MEP") engineering design focuses on the entire building, not just the cultivation space, which in turn eliminates the "gap" between cultivation systems and the building systems. We provided engineered construction contract documents for mechanical, HVAC, plumbing and electrical systems required for the building permits necessary to obtain a Certificate of Occupancy. ICD creates cultivation space-focused design layouts that integrate climate control, fertigation, benching, air flow, and lighting. Our ICD team's deep understanding of cultivation systems provided the foundation for ensuring optimal space utilization as they utilized an integrated and collaborative design process focused on understanding, vetting, and implementing the client's vision. Construction and Construction Management provided all the additional necessary parts to deliver our clients' projects, from the initial estimate and bid process, to subcontractor selection, and management of all construction details.

***Our Additional Service Offerings in 2024***

Our Facility and Equipment Commissioning Services provided a cultivation-level view of the complex system made up by each piece of equipment and ensures systems are running properly. Many of the current service options available to CEA cultivation clients are isolated to vendors providing post-sale service for a single piece of equipment. Our team confirmed contractors and specialty trades are installing systems to the design intent allowing for rapid installation, continuous process improvement, and increased revenue for our clients.

gro-care<sup>®</sup> is a highly differentiated service offering that provides a combination of CEA cultivation facility commissioning and an asset protection program through training, equipment maintenance, on-demand support, standard operating procedures ("SOP"), and a client-specific OSS that acts as an online hub for clients' ongoing services. Combined, this solution focused on the troubleshooting, tuning, and support of a myriad of cultivation systems and equipment while further providing guidance for client interactions with tradespeople working on HVAC, electrical, and plumbing in the facility on an ongoing basis.

***Our Integrated Equipment Solutions in 2024***

While our engineers played an integral part in the design of most of the complex equipment systems that are then integrated into a CEA facility, we also provided consultative reselling of more common solutions that we integrated into the overall design. For CEA, the environmental goal is to maintain a stable and consistent vapor pressure deficit ("VPD") according to the client's priorities through environmental control of relative humidity and temperature during all stages of growth. There are four main variables in CEA that affect plant growth (and can impact VPD): (i) water and nutrients; (ii) environmental control; (iii) CO<sub>2</sub>; and (iv) lighting. The complex equipment systems that we had designed and procured for our clients played an important role in helping control and maintain the cultivation facility's environment for plants.

*Design, Source, and Integration of Complex Environmental Equipment Systems*

 

Complex Environment Systems for CEA include environmental controls, fertigation and irrigation distribution, a complete line of water treatment and wastewater reclamation systems, and HVAC equipment systems.

 

As related to systems and equipment, the most significant and influential variable within a CEA facility is the ability to control and maintain the cultivation environment. This is accomplished through the integration of mechanical systems (HVAC), lighting, air movement systems, irrigation systems, and environmental controls. Maintaining a consistent desired temperature and humidity level within the cultivation spaces ensures less stress on plants. urban-gro designed these systems to fit within our clients' budgets and provided our clients' facilities a more stable environment to maximize plant health and yields, minimize crop loss, minimize utility costs, save on capital equipment, and maximize sustainability.

**Our Clients in 2024**

We primarily marketed and sold our solutions to clients in the CEA and Commercial sectors. In the CEA sector, our clients included operators and facilitators in both the cannabis and produce markets in the United States, Canada, and Europe. In the Commercial sector, we worked with leading food and beverage consumer packaged goods companies in the United States, and clients in healthcare, higher education, and hospitality.

**Regulation**

As it relates to our business conducted in the legalized cannabis-focused CEA segment, the regulations for each region are detailed as follows.

***U.S. Regulations***

While we do not generate any revenue from the direct sale of cannabis products, we have historically, and may continue to, offer our solutions to indoor cultivators that are engaged in various aspects of the cannabis industry. Tetrahydrocannabinol ("THC"), one of the main active chemicals in cannabis, is a Schedule I controlled substance and is illegal under federal law. Even in those states in which the use of cannabis has been legalized, its use remains a violation of federal laws.

A Schedule I controlled substance is defined as a substance that has no currently accepted medical use in the United States, a lack of safety for use under medical supervision and a high potential for abuse. The Department of Justice defines Schedule I controlled substances as "the most dangerous drugs of all the drug schedules with potentially severe psychological or physical dependence." If the federal government decides to enforce the Controlled Substances Act with respect to cannabis, persons that are charged with distributing, possessing with intent to distribute, or growing cannabis could be subject to fines and terms of imprisonment, the maximum being life imprisonment and a $50 million fine. Any such change in the federal government's enforcement of current federal laws could cause significant financial damage to us. While we do not intend to harvest, distribute or sell cannabis, we may be irreparably harmed by a change in enforcement by the federal or state governments.

Since the use of THC is illegal under federal law, most federally chartered banks will not accept deposit funds from businesses involved with cannabis. Consequently, businesses involved in the cannabis industry generally bank with state-chartered banks and credit unions who provide banking to the industry.

Although cultivation and distribution of cannabis for medical use is permitted in many states, subject to compliance with applicable state and local laws, rules, and regulations, THC is illegal under federal law. Strict enforcement of federal law regarding cannabis could result in material adverse effects on our business and revenues. Though the cultivation and distribution of cannabis containing THC remains illegal under federal law, H.R. 83, enacted by Congress on December 16, 2014, provides that none of the funds made available to the DOJ pursuant to the 2015 Consolidated and Further Continuing Appropriations Act may be used to prevent states from implementing their own laws that authorize the use, distribution, possession, or cultivation of medical cannabis. While this appropriations measure has remained in effect from 2016 through 2022, continued re-authorization cannot be guaranteed. If this appropriations rider is no longer in effect, the risk of federal enforcement and override of state cannabis laws would increase. However, state laws do not supersede the prohibitions set forth in the federal drug laws.

In order to participate in either the medical or adult use sides of the cannabis industry, all businesses must obtain licenses from the state and local jurisdictions. In addition, in most jurisdictions, all owners and employees must obtain an occupational license to be permitted to own or work in a facility. Applicants for licenses undergo a background investigation, including a criminal record check for all owners and employees.

Laws and regulations affecting the medical cannabis industry are constantly changing, which could detrimentally affect our existing and proposed operations. Local, state and federal medical cannabis laws and regulations are broad in scope and subject to evolving interpretations, which could require us to incur substantial costs associated with compliance or alter our business plan. In addition, violations of these laws, or allegations of such violations, could disrupt our business and result in a material adverse effect on our operations. Regulations may be enacted in the future that may be directly applicable to our business. We cannot predict the nature of any future laws, regulations, interpretations or applications, nor can we determine what effect additional governmental regulations or administrative policies and procedures, when and if promulgated, could have on our business.

***Binding Letter of Intent with Flash Sports & Media, Inc.***

 ****

On October 14, 2025, we entered into a binding letter of intent (the "LOI") with Flash Sports & Media, Inc. ("Flash") regarding a proposed transaction pursuant to which the parties intend to merge Flash with and into a newly formed wholly-owned subsidiary of us, which would then merge with and into a second wholly-owned subsidiary of us (collectively, the "Merger"). Pursuant to the LOI, the parties have agreed, subject to satisfaction of certain conditions, to negotiate and execute a definitive merger agreement in accordance with the terms set forth in the LOI. Flash paid us a cash deposit of $200,000 within fifteen days following the date of the LOI.

In connection with the Merger, the stockholders of Flash would receive (i) unregistered shares of our common stock equal to 19.99% of the outstanding shares of common stock as of immediately prior to the Merger, and (ii) unregistered shares of a newly-created series of non-voting preferred stock that would be economically equivalent to common stock (the "Preferred Stock") and would automatically convert into common stock upon receipt of approval by our stockholders. The LOI contemplates that the former stockholders of Flash would own approximately 90% of the resulting company following the Merger, assuming full conversion of the Preferred Stock. Upon closing of the Merger, we would change our name to Flash Sports & Media Holdings, Inc. or a similar name. We would be required to obtain approval of its stockholders for conversion of the Preferred Stock as soon as reasonably practicable following the Merger.

The LOI provides that following the Merger, our board of directors (the "Board") would be reconstituted such that four members of the Board would be designated by the Board prior to the Merger and one member of the Board would be designated by the former stockholders of Flash. Upon approval of our stockholders for the conversion of the Preferred Stock, the Board would be further reconstituted such that one member of the Board would be designated by the Board prior to the Merger and four members of the Board would be designated by the former stockholders of Flash.

The LOI provides for an exclusivity period of 90 days following the execution of the LOI. During that period, we agreed that neither us nor our affiliates will, among other things, solicit, provide any information or enter into any agreement with any other party concerning a transaction similar to the Merger.

 ****

For an overview of additional developments in the business since December 31, 2024, note 'section 18, subsequent events.'

**Intellectual Property**

The success of our business depends, in part, on our ability to maintain and protect our proprietary technologies, information, processes and know-how. We rely primarily on patent, trademark, copyright and trade secret laws in the U.S. and similar laws in other countries, confidentiality agreements and procedures and other contractual arrangements to protect our technology and confidential information. Our patents are limited to certain sensors that we obtain from third party manufacturers that do not contribute materially to our sales or profitability. Our trademarks are solely for branding purposes, although we no longer sell any goods or services under the Soleil brand.

 

We rely on trade secret protection and confidentiality agreements to safeguard our interests with respect to proprietary know-how that is not patentable and processes for which patents are difficult to enforce. We believe that many elements of our design and engineering processes involve proprietary know-how, technology or data that are not covered by patents or patent applications, including technical processes, test equipment designs, algorithms and procedures.

Our policy is for our employees to enter into confidentiality and proprietary information agreements with us to address intellectual property protection issues and require our employees to assign to us all of the inventions, designs and technologies they develop during the course of employment with us. However, we might not have entered into such agreements with all applicable personnel, and such agreements might not be self-executing. Moreover, such individuals could breach the terms of such agreements.

We attempt to protect our intellectual property via the deployment of non-disclosure agreements with both prospective clients and business partners as well as licensees; however, these non-disclosure agreements may not prevent a third party from infringing upon our rights.

**Human Capital**

As of December 31, 2024, we employed approximately 130 employees.

**Recent Developments**

***Gemini Loan Agreement Amendment and Default***

On December 13, 2023, our wholly-owned subsidiary UG Construction, Inc. d/b/a Emerald Construction Management, Inc. ("UG Construction") entered into (i) an interest only asset based revolving loan agreement (the "Loan Agreement") with Gemini Finance Corp. ("Gemini") pursuant to which Gemini extended to UG Construction a secured line of credit in an amount not to exceed $10,000,000, to be used to assist UG Construction and us with cash management, and (ii) a Secured Promissory Note - Revolving issued by UG Construction to Gemini (the "Promissory Note"). Pursuant to the Promissory Note, each draw was due and payable on or before 180 days after such draw is funded to UG Construction, subject to a mandatory pre-payment upon UG Construction's receipt of payment for any invoice previously submitted and approved for financing by Gemini.

On March 18, 2025, UG Construction entered into an amendment to the Loan Agreement and Promissory Note and waiver with Gemini (the "Amendment"). Pursuant to the Amendment, Gemini waived any potential or perceived events of default arising under certain circumstances, which events did not constitute specified events of default under the Promissory Note or the Loan Agreement.

Pursuant to the Amendment, the Promissory Note was amended to provide that (i) the term during which Gemini may consider advances under the Loan Agreement has been extended to January 1, 2026, and (ii) the interest applied on the outstanding principal amount of the Promissory Note will accrue interest at an annual rate of 12%, and all accrued and unpaid interest shall be paid to Gemini on the first business day of each month for the prior month. The Amendment also amended the Loan Agreement to require monthly reporting of certain accounts receivable and to include a covenant that such accounts receivable equal or exceed 125% of the sum of the total amount drawn down under the Promissory Note, plus outstanding interest, as of the applicable measurement date. In connection with the execution of the Amendment, we issued to Gemini, as an amendment fee, 150,000 shares of our common stock.

On July 31, 2025, Gemini issued a notice of default to UG Construction claiming that UG Construction was in default under the line of credit due to a failure to submit receivables calculations and failing to maintain sufficient eligible accounts and to forward accounts receivable. The notice indicated that the remaining outstanding amount due under the line of credit of approximately $1.76 million was immediately due and payable with default of 1% per week accruing from the June 16, 2025 date of default claimed by Gemini, and that Gemini intended to pursue legal action if full payment was not received by August 8, 2025.

On August 21, 2025, we received a notification from Gemini stating that Gemini would proceed with a foreclosure and private sale of substantially all of the assets of UG Construction in an Article 9 sale process, pursuant to Section 9601 et seq. of the California Commercial Code (the "Asset Sale"). The Asset Sale occurred on September 4, 2025, at which Gemini acquired the assets constituting the collateral under the line of credit for $450,000.

On August 29, 2025, Gemini commenced a lawsuit captioned *Gemini Finance Corp. v. UG Construction, Inc. et al.*, case number 25CV2259 W SBC, in the U.S. District Court for the Southern District of California, which lawsuit (the "Lawsuit") included us and certain of our officers as defendants and pursuant to which Gemini claimed it was owed $1,486,189 (the "Claim Amount").

On September 26, 2025, we entered into a Settlement and Mutual General Release (the "Gemini Settlement Agreement") with Gemini. Pursuant to the terms of the Gemini Settlement Agreement, among other things, we agreed to file a joint motion requesting an expedited fairness hearing under Section 3(a)(10) of the Securities Act of 1933, as amended (the "Securities Act"), which motion was filed on September 30, 2025. Following such fairness hearing, and subject to the satisfaction of all applicable conditions and requirements of Section 3(a)(10) of the Securities Act, we agreed to issue to Gemini shares of our common stock that, upon sale by Gemini, would result in net proceeds to Gemini equal to the Claim Amount, provided that Gemini shall at no time be issued shares if it would beneficially own more than 4.99% of our common stock, and the aggregate number of shares issued to Gemini may not exceed 19.99% of our outstanding common stock as of immediately prior to the signing of the Gemini Settlement Agreement to the extent required by Nasdaq Listing Rule 5635. Additionally, Gemini agreed to use its best efforts to not sell common stock exceeding 10% of our daily volume on any given trading day. Upon the issuance of the last tranche of shares under the Gemini Settlement Agreement, Gemini will dismiss the Lawsuit with prejudice. The Gemini Settlement Agreement also included a customary mutual release of claims by the parties. The fairness hearing occurred on October 14, 2025.

 **

***Agile Term Loan***

 **

On June 26, 2025, we and certain of our subsidiaries entered into a business loan and security agreement (the "Agile Loan Agreement") with Agile Capital Funding, LLC and Agile Lending LLC (together, "Agile").

Pursuant to the Agile Loan Agreement, Agile extended to us a term loan of $1,050,000.00 (the "Term Loan") to be used to fund our general business requirements. The Agile Loan Agreement is for a term of twenty-eight weeks from its effective date and includes an administrative agent fee of $50,000.00 to be remitted to Agile, which was added to the amount of the loan. We could make a full prepayment or partial prepayment of the Term Loan, however, upon the prepayment of any principal amount, we would be obligated to pay a premium payment of principal, which would be equal to the aggregate and actual amount of interest that would be paid through the maturity date. The Agile Loan Agreement contains standard events of default and representations and warranties by us and Agile including a mandatory prepayment, and an additional five (5%) percent interest rate following the occurrence of an event of default. The term loan is evidenced by a secured promissory note issued by us to Agile. Pursuant to the Agile Loan Agreement, upon an event of default, Agile will receive a security interest in certain of our assets, subject to certain exceptions.

 **

***Grow Hill Default***

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On October 1, 2024, we entered into an asset-based term Loan Agreement with Grow Hill, LLC ("Grow Hill") pursuant to which Grow Hill extended to us a secured loan of $2,100,000 with an origination fee of $100,000, which was added to the amount of the loan. The loan is evidenced by a Secured Promissory Note issued by us to Grow Hill. Grow Hill received a security interest in certain of our assets pursuant to a security agreement between us and Grow Hill (the "Security Agreement"), which does not include any assets of our subsidiaries.

On October 14, 2025, we received service of process for a lawsuit filed by Grow Hill against us in the District Court for the City and County of Denver, Colorado (Case No. 2025CV33546) alleging breach of contract and fraud. Pursuant the complaint, Grow Hill stated that we were in default under the Secured Promissory Note due to a failure to timely make payments, and elected to accelerate all amounts due under the Secured Promissory Note, including a default fee equal to 1% of the outstanding principal amount. We are currently investigating available options to resolve the complaint and intends to vigorously defend the allegation of fraud.

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***J Brrothers Settlement***

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On August 8, 2025, we entered into a Settlement and Release Agreement (the "Settlement Agreement") with J Brrothers LLC ("J Brrothers") and Herb-a-More LLC relating to a dispute arising from amounts due for certain heating, ventilation and air conditioning equipment. Pursuant to the terms of the Settlement Agreement, among other things, we issued a promissory note to J Brrothers with an original principal amount of $395,556 and issued 150,000 unregistered shares of our common stock to J Brrothers. The note accrues simple interest at an annual rate of 12% and has a maturity date of March 18, 2026. The note must be repaid in monthly installments over a period of eight months, with the first seven payments being $50,000 per month and the final monthly payment being $64,047. Any remaining principal and accrued but unpaid interest will become due and payable on the maturity date, and the note may be prepaid without penalty. The note includes customary representations and warranties, customary events of default and a 17% default interest rate.

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***2WR of Georgia Sale***

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On August 27, 2025, certain of our subsidiaries entered into a Stock and Asset Purchase Agreement (the "2WR Purchase Agreement") with 2WR Holdco, LLC (the "Buyer"). Pursuant to the 2WR Purchase Agreement, the Buyer acquired all of the outstanding shares of stock of 2WR of Georgia, Inc. and certain assets of our other subsidiaries relating to those entities' business of providing commercial, industrial and municipal architectural and construction administration services for projects not involving CEA. The purchase price paid by the Buyer consisted of $2.0 million in cash, offset by a previous deposit of $500,000 and by any assumed indebtedness.

***Nasdaq Deficiencies***

On August 20, 2024, we received a notice from The Nasdaq Stock Market LLC ("Nasdaq") stating that because we had not yet filed our Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2024, we were no longer in compliance with Nasdaq Listing Rule 5250(c)(1) (the "Timely Filing Requirement"). On November 21, 2024, we received a notice from Nasdaq stating that because we had not yet filed our Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2024. We continued to not be in compliance with the Timely Filing Requirement. On February 18, 2025, we filed each of our Quarterly Reports on Form 10-Q for the quarters ended June 30, 2024 and September 30, 2024 and an amendment to our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, and on February 19, 2025 we filed an amendment to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2024, which amendments included restated financial statements for the periods covered therein. As a result of these filings, on February 24, 2025, the Listing Qualifications Department of Nasdaq notified us that we had regained compliance with the Timely Filing Requirement.

On February 24, 2025, we received a deficiency letter from Nasdaq notifying us that (i) for the last 30 consecutive business days, the bid price for our common stock had closed at a price of below $1.00 per share, which is the minimum closing price required to maintain continued listing on the Nasdaq Capital Market under Nasdaq Listing Rule 5550(a)(2) (the "Bid Price Rule"), and (ii) because our stockholder's equity was below $2.5 million as reported on our Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2024, we no longer met the minimum stockholders' equity requirement for continued listing on The Nasdaq Capital Market under Nasdaq Rule 5550(b)(1), requiring a minimum stockholders' equity of $2.5 million (the "Stockholders' Equity Requirement").

On April 16, 2025, we received a notice from Nasdaq stating that because we had not yet filed our Annual Report on Form 10-K for the fiscal year ended December 31, 2024 (the "Form 10-K"), we were no longer in compliance the Timely Filing Requirement. On May 21, 2025, we received a notice from Nasdaq stating that because we had not yet filed our Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2025 or our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, we continued to be out of compliance with the Timely Filing Requirement.

On August 18, 2025, we received a determination letter from Nasdaq stating that Nasdaq had determined that we did not file the Form 10-K and the Form 10-Q by August 15, 2025, the date required for the delinquent filings by an exception previously received from Nasdaq staff. The letter stated that, as a result, unless we timely requested an appeal, the trading of our common stock would be suspended at the opening of business on August 27, 2025 and a Form 25-NSE will be filed with the SEC, which would remove our common stock securities from listing and registration on Nasdaq. The letter also stated that we were not in compliance the Bid Price Rule and the Stockholders' Equity Requirement. We timely requested an appeal to a Nasdaq Hearings Panel (the "Panel").

On October 14, 2025, we attended a hearing before the Panel in connection with the determination letter. On October 30, 2025, we received a notice from Nasdaq notifying us that the Panel had determined to grant our request to continue our listing on The Nasdaq Capital Market, conditioned on us regaining compliance with the Timely Filing Requirement and the Stockholders' Equity Requirement on or before December 31, 2025 and regaining compliance with the Bid Price Rule on or before January 28, 2026. During the exception period, we are required to provide prompt notification to the Panel of any significant event that may affect our compliance with Nasdaq requirements. Any documentation evidencing our compliance will be subject to review by the Panel, which may, in its discretion, request additional information before determining whether we have regained compliance.

On November 18, 2025, we received a determination letter from Nasdaq stating that because we did not timely file our Quarterly Report on Form 10-Q for the period ended September 30, 2025, the resulting filing delinquency would be an additional basis for delisting our securities pursuant to the Timely Filing Requirement. The letter notified us that the Panel would consider the matter in their decision regarding our continued listing on the Nasdaq Capital Market, and requested that we present our views with respect to the additional deficiency in writing by November 25, 2025. We made a submission to the Panel by the requested date.

On January 6, 2026, the Company received a determination letter (the "January 6, 2026 Determination") from Nasdaq stating that because the Company did not hold an annual meeting of stockholders within twelve months from the Company's prior fiscal year end as required by Nasdaq Listing Rule 5620(a), the resulting non-compliance would be an additional basis for delisting the Company's securities. The January 6, 2026 Determination notified the Company that the Panel would consider the matter in their decision regarding the Company's continued listing on the Nasdaq Capital Market, and requested that the Company present its views with respect to the additional deficiency in writing by January 9, 2026. The Company intends to make a submission to the Panel by the requested date, and has requested an additional extension to comply with the Bid Price Rule, the Stockholders' Equity Requirement and the Timely Filing Requirement.

There can be no assurance that we will be able to regain compliance with the Bid Price Rule, the Timely Filing Requirement, or the Stockholders' Equity Requirement, or will otherwise be in compliance with other applicable Nasdaq Listing Rules. If we fail to meet the conditions set forth in our compliance plan or if Nasdaq delists our securities from trading for any other reason, we could face significant material adverse consequences, including:

● a limited availability of market quotations for our securities;

● reduced liquidity with respect to our securities;

● a determination that our common stock is a "penny stock" which will require brokers trading in our ordinary shares to adhere to more stringent rules, possibly resulting in a reduced level of trading activity in the secondary trading market for our ordinary shares;

● a limited amount of news and analyst coverage for our company; and

● a decreased ability to issue additional securities or obtain additional financing in the future.

**Available Information**

Our internet address is www.urban-gro.com and our investor relations internet address is ir.urban-gro.com. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports can be found on our investor relations website, free of charge, as soon as reasonably practical after we electronically file such material with, or furnish it to, the SEC. Information contained on our website is not incorporated by reference into this Form 10-K. The SEC maintains a public website, www.sec.gov, which contains reports, proxy and information statements, and other information regarding issuers that that file electronically with the SEC.

**<u>ITEM 1A. RISK FACTORS</u>**

An investment in our common stock involves a high degree of risk. You should carefully consider the following risks and all of the other information contained in this report before deciding whether to invest in our common stock. If any of the following risks are realized, our business, financial condition and results of operations could be materially and adversely affected. In that event, the trading price of our common stock could decline and you could lose all or part of your investment in our common stock. Additional risks of which we are not presently aware or that we currently believe are immaterial may also harm our business and results of operations. Some statements in this report, including such statements in the following risk factors, constitute forward-looking statements. See the section entitled *Cautionary Information about Forward-Looking Statements* in *Part I* of this Report.

**Risks Related to Our Operations**

***We have a relatively limited history of operations, a history of losses, and our future earnings, if any, and cash flows may be volatile, resulting in uncertainty about our prospects generally.***

We were initially organized as a limited liability company in the State of Colorado on March 20, 2014. In March 2017, we converted into a corporation and on February 12, 2021, we completed an uplisting to Nasdaq under the ticker symbol "UGRO." The following is a summary of our recent historical operating performance:

● During the year ended December 31, 2024, we generated revenue of $40.0 million and incurred a net loss of $36.5 million.

● During the year ended December 31, 2023, we generated revenue of $69.9 million and incurred a net loss of $25.4 million.

● During the year ended December 31, 2022, we generated revenue of $66.3 million and incurred a net loss of $15.3 million.

● During the year ended December 31, 2021, we generated revenue of $62.1 million and incurred a net loss of $0.9 million.

● During the year ended December 31, 2020, we generated revenue of $25.8 million and incurred a net loss of $5.1 million.

Our lack of a significant history and the evolving nature of the market in which we operate make it likely that there are risks inherent to our business that are yet to be recognized by us or others, or not fully appreciated, and that could result in us suffering further losses. As a result of the foregoing, an investment in our securities necessarily involves uncertainty about the stability of our operating results, cash flows and, ultimately, our prospects generally.

***We had negative cash flow from operations for the fiscal years ended December 31, 2024 and December 31, 2023.***

We had negative cash flow from operations of $2.8 million for the fiscal year ended December 31, 2024 and $10.5 million for the fiscal year ended December 31, 2023. To the extent that we have negative cash flow from operations in future periods, we may need to allocate a portion of our cash reserves to fund such negative cash flow. We may also be required to raise additional funds through the issuance of equity or debt securities. We may not be able to generate positive cash flow from our operations and additional capital or other types of financing may not be available when needed or on terms favorable to us.

***Our architecture, engineering, design, and construction management services have been used and may continue to be contracted for use in emerging industries that may be subject to quickly changing and inconsistent laws, regulations, practices and perceptions.***

Although the demand for our architecture, engineering, design, and construction management services may be negatively impacted depending on how laws, regulations, administrative practices, judicial interpretations, and consumer perceptions develop, we cannot reasonably predict the nature of such developments or the effect, if any, that such developments could have on our business. We will continue to encounter risks and uncertainty relating to our operations that may be difficult to overcome.

***We may continue to incur losses in the near future, which may impact our ability to implement our business strategy and adversely affect our financial condition.***

While we are focused significantly on controlling our operating expenses by managing variable expenses, employee count, and marketing activities in order to become cash flow positive, these measures may adversely affect our future operating results if we are unable to support the business effectively. In turn, this would have a negative impact on our financial condition and potentially our share price.

We may not become profitable or generate sufficient profits from operations in the future. If our revenues do not continue to grow or our gross profits deteriorate substantially, we are likely to continue to experience losses in future periods. Collectively, this may impact our ability to implement our business strategy and adversely affect our financial condition. This potentially would have a negative impact on our share price.

To the extent that future net losses are in excess of additions to equity, we may fall below the Nasdaq's listing requirement of having a net equity balance of at least $2,500,000. If we fail to continue to satisfy this or any other continued listing requirements, Nasdaq will take steps to delist our common stock. Such a delisting would likely have a negative effect on the price of our common stock and would impair shareholders' ability to sell or purchase our common stock when they wish to do so, as well as adversely affect our ability to issue additional securities and obtain additional financing in the future.

***We may become subject to additional regulation of CEA facilities.***

Our engineering and design services are focused on facilities that grow a wide variety of crops that are subject to regulation by the United States Food and Drug Administration and other federal, state or foreign agencies. Changes to any regulations and laws that could complicate the engineering of these CEA facilities, such as waste water treatment and electricity-related mandates, make it possible that potential related enforcement could decrease the demand for our services, and in turn negatively impact our revenues and business opportunities.

***Competition in the various sectors in which we operate is intense.***

There are many competitors in the industries in which we operate, including many who offer somewhat categorically similar professional services and equipment solutions as those offered by us. In the future other companies may enter this arena by developing solutions that directly compete with us. We anticipate the presence as well as entry of other companies in this market space and acknowledge that we may not be able to establish, or if established to maintain, a competitive advantage. Some of these companies have longer operating histories, greater name recognition, larger client bases and significantly greater financial, technical, sales and marketing resources. This may allow them to respond more quickly than us to market opportunities. It may also allow them to devote greater resources to the marketing, promotion and sale of their products and/or services. These competitors may also adopt more aggressive pricing policies and make more attractive offers to existing and potential clients, employees, strategic partners, distribution channels and advertisers. Increased competition is likely to result in price reductions, reduced gross margins and a potential loss of market share.

***We depend upon third-party suppliers for the equipment solutions that we sell.***

We depend on outside manufacturers for the equipment solutions that we sell. While we believe that there are sufficient sources of supply available, if the third-party suppliers were to cease production or otherwise fail to supply us with products in sufficient quantities on a timely basis and we were unable to contract on acceptable terms for these equipment type products with alternative suppliers, our ability to sell these solutions would be materially adversely affected. If a sole source supplier was to go out of business, we may be unable to find a replacement for such source in a timely manner or at all. If a sole source supplier were to be acquired by a competitor, that competitor may elect not to sell to us in the future. Any inability to secure required products or to do so on appropriate terms could have a materially adverse impact on the business, financial condition, results of operations or prospects of urban-gro.

***We have historically depended on a small number of clients for a substantial portion of our revenue. If we fail to retain or expand our client relationships, or if a significant client were to terminate its relationship with us or reduce its purchases, our revenue could decline significantly.***

Although we have been able to successfully generate substantial sales to different clients over time, we may not be able to continue to do this in the future. Our operating results for the foreseeable future could continue to depend on substantial sales to a small number of clients. Our clients have no purchase commitments and may cancel, change or delay purchases with little or no notice or penalty. As a result of this, our revenue could fluctuate materially and could be materially and disproportionately impacted by purchasing decisions of any client. Clients who represent a substantial portion of our historical revenue may decide to purchase products and services from other providers in the future, which could cause our revenue to decline materially and negatively impact our financial condition and results of operations. If we are unable to diversify our client base, we will continue to be susceptible to risks associated with client concentration.

***A portion of our business depends on our clients obtaining appropriate licenses from various licensing agencies.***

A portion of our business depends on our clients obtaining appropriate licenses from various licensing agencies. Any or all licenses necessary for our clients to operate their businesses may not be obtained, retained or renewed. If a licensing body were to determine that one of our clients had violated applicable rules and regulations, there is a risk the license granted to that client could be revoked, which could adversely affect future sales to that client and our operations. Our existing clients may not be able to retain their licenses going forward and new licenses may not be granted to existing and new market entrants.

***System security risks, data protection breaches, cyber-attacks and systems integration issues could disrupt our internal operations or services provided to clients.***

Experienced computer programmers and hackers may be able to penetrate our network security and misappropriate or compromise our confidential information or that of third parties, create system disruptions or cause shutdowns. Computer programmers and hackers also may be able to develop and deploy viruses, worms, and other malicious software programs that attack or otherwise exploit any security vulnerabilities of the products that we may sell in the future. Such disruptions could adversely impact our ability to fulfill orders and interrupt other processes. Delayed sales, lower profits, or lost clients resulting from these disruptions could adversely affect our financial results, stock price and reputation.

***We may be forced to litigate to defend our intellectual property rights, or to defend against claims by third parties against urban-gro relating to intellectual property rights.***

We may be forced to litigate to enforce or defend our intellectual property rights, to protect our trade secrets or to determine the validity and scope of other parties' proprietary rights. Any such litigation could be very costly and could distract our management from focusing on operating our business. The existence and/or outcome of any such litigation could harm our business.

***We may not be able to successfully identify, consummate or integrate acquisitions or to successfully manage the impacts of such transactions on our operations.***

Part of our business strategy includes pursuing synergistic acquisitions. We have expanded, and plan to continue to expand, our business by making strategic acquisitions and regularly seeking suitable acquisition targets to enhance our growth. Material acquisitions, dispositions and other strategic transactions involve a number of risks, including: (i) the potential disruption of our ongoing business; (ii) the distraction of management away from the ongoing oversight of our existing business activities; (iii) incurring indebtedness; (iv) the anticipated benefits and cost savings of those transactions not being realized fully, or at all, or taking longer to realize than anticipated; (v) an increase in the scope and complexity of our operations; and (vi) the loss or reduction of control over certain of our assets.

The pursuit of acquisitions may pose certain risks to us. We may not be able to identify acquisition candidates that fit our criteria for growth and profitability. Even if we are able to identify such candidates, we may not be able to acquire them on terms or financing satisfactory to us. We will incur expenses and dedicate attention and resources associated with the review of acquisition opportunities, whether or not we consummate such acquisitions.

Additionally, even if we are able to acquire suitable targets on agreeable terms, we may not be able to successfully integrate their operations with ours. Achieving the anticipated benefits of any acquisition will depend in significant part upon whether we integrate such acquired businesses in an efficient and effective manner. We may not be able to achieve the anticipated operating and cost synergies or long-term strategic benefits of our acquisitions within the anticipated timing or at all. The benefits from any acquisition will be offset by the costs incurred in integrating the businesses and operations. We may also assume liabilities in connection with acquisitions to which we would not otherwise be exposed. An inability to realize any or all of the anticipated synergies or other benefits of an acquisition as well as any delays that may be encountered in the integration process, which may delay the timing of such synergies or other benefits, could have an adverse effect on our business, results of operations and financial condition.

**Risks Related to the Legal Cannabis Industry**

***To date, the majority of our revenues have come from providing architecture and engineering design services and selling equipment systems into facilities prior to the facility becoming operational. The majority of our revenues to date have been generated from clients that operate in the legal cannabis industry.***

We are broadening our market reach beyond the legal cannabis industry and are placing a substantial sales effort on expansion into the rapidly growing non-cannabis CEA vertical farming sector as well as the Commercial sector. However, on a historic basis, the majority of our clients to whom we provide facility architecture and engineering design services and sell equipment systems prior to the facility becoming operational have primarily been in the legal cannabis industry. In addition to selling directly to these clients, we also sell our equipment solutions to third parties, such as general contractors and other intermediaries, like equipment leasing companies. The majority of these solutions have been resold into the legal cannabis industry. A significant decrease in demand in the legal cannabis industry could have a material adverse effect on our revenues and the success of our business.

***The cannabis industry in the U.S. is an emerging industry and has only been legalized in some states while remaining illegal in others and under U.S. federal law. Federal Prohibition makes it difficult to accurately forecast the demand for our solutions in this specific industry. Losing clients from this industry may have a material adverse effect on our revenues and the success of our business.***

The legal cannabis industry is not mature in the United States and has been legalized in only some states and remains illegal in others and under U.S. federal law, making it difficult to accurately forecast demand for our solutions. Revenues could materially decline if the U.S. Department of Justice ("DOJ") enforces federal law against the industry and some of our clients are negatively impacted.

The legal cannabis industry in the U.S. remains in state of flux, and many aspects of this industry's development and evolution cannot be accurately predicted. Therefore, losing any clients could have a material adverse effect on our business. While we have attempted to identify our business risks in the legal cannabis industry, investors should carefully consider that there are other risks that cannot be foreseen or are not described in this Report, which could materially and adversely affect our business and financial performance.

***As cannabis remains illegal under United States federal law, we may have to stop providing equipment systems and services to companies who are engaged in cannabis cultivation and other cannabis-related activities.***

Cannabis, which is referred to as "Marijuana" in the Controlled Substances Act, is currently classified as a Schedule I controlled substance under the Controlled Substances Act and is illegal under United States federal law. It is illegal under United States federal law to grow, cultivate, sell or possess cannabis for any purpose or to assist or conspire with those who do so. Additionally, 21 U.S.C. 856 makes it illegal to "knowingly open, lease, rent, use, or maintain any place, whether permanently or temporarily, for the purpose of manufacturing, distributing, or using any controlled substance." Even in those states in which the use of cannabis has been authorized under state law, its use remains a violation of federal law. Since federal law criminalizing the use of cannabis is not preempted by state laws that legalize its use, strict enforcement of federal law regarding cannabis may result in the inability of our clients that are involved in the cannabis industry to proceed with their operations, which would adversely affect our operations.

***Our solutions are used by legal and licensed cannabis growers. While we are not aware of any threatened or current federal or state law enforcement actions against any supplier of equipment that might be used for cannabis cultivation, law enforcement authorities, in their attempt to regulate the illegal use of cannabis, may seek to bring an action or actions against us under the Controlled Substances Act for assisting or conspiring with persons engaged in the cultivation of cannabis.***

There is also a risk that our activities could be deemed to be facilitating the selling or distribution of cannabis in violation of the Controlled Substances Act. Although federal authorities have not focused their resources on such tangential or secondary violations of the Controlled Substances Act, nor have they threatened to do so, with respect to the sale of equipment that might be used by legal and licensed cannabis cultivators, or with respect to any supplies marketed to participants in the medical and recreational cannabis industry, if the federal government were to change its practices, or were to expend its resources investigating and prosecuting providers of equipment that could be usable by participants in the medical or recreational cannabis industry, such actions could have a materially adverse effect on our operations and the sales of our products and services.

***As a company with clients operating in the legal cannabis industry, we face many particular and evolving risks associated with that industry, including uncertainty of United States federal enforcement and the need to renew temporary safeguards.***

The "FinCEN Memo" dated February 14, 2014, de-prioritizes enforcement of the Bank Secrecy Act against financial institutions and cannabis related businesses which utilize them. This memorandum appears to be a standalone document and is presumptively still in effect. At any time, however, the Department of the Treasury, Financial Crimes Enforcement Network, could elect to rescind the FinCEN Memo. This would make it more difficult for our clients and potential clients to access the U.S. banking systems and conduct financial transactions, which would adversely affect our operations.

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In 2014, Congress passed a spending bill ("2015 Appropriations Bill") containing a provision ("Appropriations Rider") blocking federal funds and resources allocated under the 2015 Appropriations Bill from being used to "prevent such States from implementing their own State medical marijuana law." The Appropriations Rider seemed to have prohibited the federal government from interfering with the ability of states to administer their medical cannabis laws, although it did not codify federal protections for medical cannabis patients and producers. Moreover, despite the Appropriations Rider, the Justice Department maintains that it can still prosecute violations of the federal cannabis ban and continue cases already in the courts. Additionally, the Appropriations Rider must be re-enacted every year. While it has been continued every year since 2015, including most recently in 2022, continued re-authorization of the Appropriations Rider cannot be guaranteed. If the Appropriation Rider is no longer in effect, the risk of federal enforcement and override of state cannabis laws would increase.

***Further legislative development beneficial to our operations is not guaranteed.***

Among other things, the business of our clients in the legal cannabis industry involves the cultivation, distribution, manufacture, storage, transportation and/or sale of cannabis products in compliance with applicable state law. The success of our business with respect to these clients depends on the continued development of the cannabis industry and the activity of commercial business and government regulatory agencies within the industry. The continued development of the legal cannabis industry is dependent upon continued legislative and regulatory authorization of cannabis at the state level and a continued laissez-faire approach by federal enforcement agencies. Any number of factors could slow or halt progress in this area. Further regulatory progress beneficial to the industry cannot be assured. While there may be ample public support for legislative action, numerous factors impact the legislative and regulatory process, including election results, scientific findings or general public events. Any one of these factors could slow or halt progressive legislation relating to cannabis and the current tolerance for the use of cannabis by consumers, which could adversely affect our operations.

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***The legal cannabis industry could face strong opposition from other industries.***

We believe that established businesses in other industries may have a strong economic interest in opposing the development of the cannabis industry. Cannabis may be seen by companies in other industries as an attractive alternative to their products, including recreational cannabis as an alternative to alcohol, and medical cannabis as an alternative to various commercial pharmaceuticals. Many industries that could view the emerging legal cannabis industry as an economic threat are well established, with vast economic and United States federal and state lobbying resources. Companies within these industries could use their resources to attempt to slow or reverse legislation legalizing cannabis. Any inroads these companies make in halting or impeding legislative initiatives that would be beneficial to the legal cannabis industry could have a detrimental impact on our clients and, in turn on our operations.

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***The legality of cannabis could be reversed in one or more states.***

The voters or legislatures of states in which cannabis has already been legalized could potentially repeal applicable laws which permit the operation of both legal medical and retail cannabis businesses. These actions might force us to cease operations in one or more states entirely.

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***Changing legislation and evolving interpretations of law, which could negatively impact our clients and, in turn, our operations.***

Laws and regulations affecting the legal medical and adult-use cannabis industry are constantly changing, which could detrimentally affect our clients involved in that industry and, in turn, our operations. Local, state and federal cannabis laws and regulations are often broad in scope and subject to constant evolution and inconsistent interpretations, which could require our clients and ourselves to incur substantial costs associated with modification of operations to ensure compliance. In addition, violations of these laws, or allegations of such violations, could disrupt our clients' business and result in a material adverse effect on our operations. In addition, regulations may be enacted in the future that will limit the amount of cannabis growth or related products that our commercial clients are authorized to produce. We cannot predict the nature of any future laws, regulations, interpretations or applications, nor can we determine what effect additional governmental regulations or administrative policies and procedures, when and if promulgated, could have on our operations.

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***Regulatory scrutiny of the legal cannabis industry may negatively impact our ability to raise additional capital.***

The business activities of certain of our clients rely on newly established and/or developing laws and regulations in multiple jurisdictions. These laws and regulations are rapidly evolving and subject to change with minimal notice. Regulatory changes may adversely affect our profitability or cause us to cease operations entirely. The legal cannabis industry may come under the scrutiny or further scrutiny by the United States Food and Drug Administration (the "FDA"), the SEC, the DOJ, the Financial Industry Regulatory Authority or other federal, state or nongovernmental regulatory authorities or self-regulatory organizations that supervise or regulate the production, distribution, sale or use of cannabis for medical or nonmedical purposes in the United States. The FDA currently is authorized to promulgate regulations for and oversight of CBD products. It is impossible to determine the extent of the impact of any new laws, regulations or initiatives that may be proposed, or whether any proposals will become law. The regulatory uncertainty surrounding the industry that we service may adversely affect our business and operations, including without limitation, the costs to remain compliant with applicable laws and the impairment of our ability to raise additional capital.

***Banking regulations could limit access to banking services.***

Since the use of cannabis is illegal under federal law, federally chartered banks will not accept deposit funds from businesses involved with cannabis. Consequently, businesses involved in the legal cannabis industry often have trouble finding a bank willing to accept their business. The inability to open bank accounts may make it difficult for our clients in the legal cannabis industry to operate and their reliance on cash can result in a heightened risk of theft, which could harm their businesses and, in turn, harm our business. Additionally, some courts have denied legal cannabis-related businesses bankruptcy protection, thus, making it very difficult for lenders to recoup their investments, which may limit the willingness of banks to lend to our clients and to us.

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***A drop in the retail price of cannabis products may negatively impact our business.***

The fluctuations in economic and market conditions that impact the prices of commercially grown cannabis, such as increases in the supply of cannabis and decreases in demand for cannabis, could have a negative impact on our clients that are legal cannabis producers, and therefore could negatively impact our business.

***Our contracts may not be legally enforceable in the United States.***

Many of our historic contracts, and those we may enter into in the future, relate to services that are ancillary to the legal cannabis industry and other activities that are not legal under U.S. federal law and under some state laws. As a result, we may face difficulties in enforcing our contracts in U.S. federal and certain state courts.

**Risks Related to Ownership of Our Common Stock**

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***Our failure to meet the continued listing requirements of Nasdaq could result in the delisting of our Common Stock.***

If we fail to satisfy the continued listing requirements of Nasdaq, Nasdaq will take steps to delist our common stock. Such a delisting would likely have a negative effect on the price of our common stock and would impair stockholders' ability to sell or purchase our common stock when they wish to do so, as well as adversely affect our ability to issue additional securities and obtain additional financing in the future.

On August 20, 2024, we received a notice from The Nasdaq Stock Market LLC ("Nasdaq") stating that because we had not yet filed our Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2024, we were no longer in compliance with Nasdaq Listing Rule 5250(c)(1) (the "Timely Filing Requirement"). On November 21, 2024, we received a notice from Nasdaq stating that because we had not yet filed our Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2024. We continued to not be in compliance with the Timely Filing Requirement. On February 18, 2025, we filed each of our Quarterly Reports on Form 10-Q for the quarters ended June 30, 2024 and September 30, 2024 and an amendment to our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, and on February 19, 2025 we filed an amendment to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2024, which amendments included restated financial statements for the periods covered therein. As a result of these filings, on February 24, 2025, the Listing Qualifications Department of Nasdaq notified us that we had regained compliance with the Timely Filing Requirement.

On February 24, 2025, we received a deficiency letter from Nasdaq notifying us that (i) for the last 30 consecutive business days, the bid price for our common stock had closed at a price of below $1.00 per share, which is the minimum closing price required to maintain continued listing on the Nasdaq Capital Market under Nasdaq Listing Rule 5550(a)(2) (the "Bid Price Rule"), and (ii) because our stockholder's equity was below $2.5 million as reported on our Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2024, we no longer met the minimum stockholders' equity requirement for continued listing on The Nasdaq Capital Market under Nasdaq Rule 5550(b)(1), requiring a minimum stockholders' equity of $2.5 million (the "Stockholders' Equity Requirement").

On April 16, 2025, we received a notice from Nasdaq stating that because we had not yet filed our Annual Report on Form 10-K for the fiscal year ended December 31, 2024 (the "Form 10-K"), we were no longer in compliance with the Timely Filing Requirement. On May 21, 2025, we received a notice from Nasdaq stating that because we had not yet filed our Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2025 or our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, we continued to be out of compliance with the Timely Filing Requirement.

On August 18, 2025, we received a determination letter from Nasdaq stating that Nasdaq had determined that we did not file the Form 10-K and the Form 10-Q by August 15, 2025, the date required for the delinquent filings by an exception previously received from Nasdaq staff. The letter stated that, as a result, unless we timely requested an appeal, the trading of our common stock would be suspended at the opening of business on August 27, 2025 and a Form 25-NSE will be filed with the SEC, which would remove our common stock securities from listing and registration on Nasdaq. The letter also stated that we were not in compliance the Bid Price Rule and the Stockholders' Equity Requirement. We timely requested an appeal to a Nasdaq Hearings Panel (the "Panel").

On October 14, 2025, we attended a hearing before the Panel in connection with the determination letter. On October 30, 2025, we received a notice from Nasdaq notifying us that the Panel had determined to grant our request to continue our listing on The Nasdaq Capital Market, conditioned on us regaining compliance with the Timely Filing Requirement and the Stockholders' Equity Requirement on or before December 31, 2025 and regaining compliance with the Bid Price Rule on or before January 28, 2026. During the exception period, we are required to provide prompt notification to the Panel of any significant event that may affect our compliance with Nasdaq requirements. Any documentation evidencing our compliance will be subject to review by the Panel, which may, in its discretion, request additional information before determining whether we have regained compliance.

On November 18, 2025, we received a determination letter from Nasdaq stating that because we did not timely file our Quarterly Report on Form 10-Q for the period ended September 30, 2025, the resulting filing delinquency would be an additional basis for delisting our securities pursuant to the Timely Filing Requirement. The letter notified us that the Panel would consider the matter in their decision regarding our continued listing on the Nasdaq Capital Market and requested that we present our views with respect to the additional deficiency in writing by November 25, 2025. We made a submission to the Panel by the requested date.

There can be no assurance that we will be able to regain compliance with the Bid Price Rule, the Timely Filing Requirement, or the Stockholders' Equity Requirement, or will otherwise be in compliance with other applicable Nasdaq Listing Rules. If we fail to meet the conditions set forth in our compliance plan or if Nasdaq delists our securities from trading for any other reason, we could face significant material adverse consequences, including:

● a limited availability of market quotations for our securities;

● reduced liquidity with respect to our securities;

● a determination that our common stock is a "penny stock" which will require brokers trading in our ordinary shares to adhere to more stringent rules, possibly resulting in a reduced level of trading activity in the secondary trading market for our ordinary shares;

● a limited amount of news and analyst coverage for our company; and

● a decreased ability to issue additional securities or obtain additional financing in the future.

***Our stock price could be extremely volatile. As a result, shareholders may not be able to re-sell their shares at or above the price they paid for them.***

The market price of our common stock may be highly volatile and could be subject to wide fluctuations. Volatility in the market price of our common stock, as well as general economic, market or political conditions, may prevent shareholders from being able to sell their shares at or above the price they paid for their shares and may otherwise negatively affect the liquidity of our common stock. Shareholders may experience a decrease, which could be substantial, in the value of their stock, including decreases unrelated to our operating performance or prospects, and shareholders could lose part or all of their investment. The price of our common stock has been, and could continue to be, subject to wide fluctuations in response to a number of factors, including those described elsewhere in this Report and others such as:

● our ability to generate sufficient revenues to achieve profitability and positive cash flow;

● competition in our industry and our ability to compete effectively;

● our ability to attract, recruit, retain and develop key personnel and qualified employees;

● reliance on significant clients and third-party suppliers;

● our ability to successfully identify and complete acquisitions and effectively integrate those acquisitions into our operations;

● our actual or anticipated operating and financial results, including how those results vary from the expectations of management, securities analysts and investors;

● changes in financial estimates or publication of research reports and recommendations by financial analysts or actions taken by rating agencies with respect to us or other industry participants;

● developments in our business or operations or our industry sectors generally;

● any future offerings by us of our common stock;

● any coordinated trading activities or large derivative positions in our common stock, for example, a "short squeeze" (a short squeeze occurs when a number of investors take a short position in a stock and have to buy the borrowed securities to close out the position at a time that other short sellers of the same security also want to close out their positions, resulting in a surge in stock prices, i.e., demand is greater than supply for the stock sold short);

● legislative or regulatory changes affecting our industry generally or our business and operations specifically;

● the operating and stock price performance of companies that investors consider to be comparable to us;

● announcements of strategic developments, acquisitions, restructurings, dispositions, financings and other material events by us or our competitors;

● actions by our current shareholders, including future sales of common shares by existing shareholders, including our directors and executive officers;

● proposed or final regulatory changes or developments;

● anticipated or pending regulatory investigations, proceedings, or litigation that may involve or affect us; and

● the other factors described under *Risk Factors* in *Part I, Item 1A* of this Report.

In response to any one or more of these events, the market price of shares of our common stock could decrease significantly. In the past, securities class action litigation has often been initiated against companies following periods of volatility in their stock price. This type of litigation could result in substantial costs and divert our management's attention and resources and could also require us to make substantial payments to satisfy judgments or to settle litigation.

***Shareholders may be diluted by future issuances of preferred stock or additional common stock in connection with our incentive plans, acquisitions or otherwise; future sales of such shares in the public market, or the expectations that such sales may occur, could lower our stock price.***

Our certificate of incorporation authorizes us to issue shares of our common stock and options, rights, warrants and appreciation rights relating to our common stock for the consideration and on the terms and conditions established by our Board in its sole discretion. We could issue a significant number of shares of common stock in the future in connection with investments or acquisitions. Any of these issuances could dilute our existing shareholders, and such dilution could be significant. Moreover, such dilution could have a material adverse effect on the market price for the shares of our common stock.

The future issuance of shares of preferred stock with voting rights may adversely affect the voting power of the holders of shares of our common stock, either by diluting the voting power of our common stock if the preferred stock votes together with the common stock as a single class, or by giving the holders of any such preferred stock the right to block an action on which they have a separate class vote, even if the action were approved by the holders of our shares of our common stock.

The future issuance of shares of preferred stock with dividend or conversion rights, liquidation preferences or other economic terms favorable to the holders of preferred stock could adversely affect the market price for our common stock by making an investment in the common stock less attractive. For example, investors in the common stock may not wish to purchase common stock at a price above the conversion price of a series of convertible preferred stock because the holders of the preferred stock would effectively be entitled to purchase common stock at the lower conversion price, causing economic dilution to the holders of common stock.

***We do not anticipate paying any cash dividends on our common stock in the foreseeable future.***

We currently intend to retain our future earnings, if any, for the foreseeable future, to fund the development and growth of our business. We do not intend to pay any dividends to holders of our common stock in the foreseeable future. Any decision to declare and pay dividends in the future will be made at the discretion of our Board taking into account various factors, including our business, operating results and financial condition, current and anticipated cash needs, plans for expansion, any legal or contractual limitations on our ability to pay dividends under our loan agreements or otherwise. As a result, if our Board does not declare and pay dividends, the capital appreciation in the price of our common stock, if any, will be our shareholders only source of gain on an investment in our common stock, and shareholders may have to sell some or all of their common stock to generate cash flow from their investment.

***If securities or industry analysts do not publish research or reports about our business, or if they downgrade their recommendations regarding our common stock, its trading price and volume could decline.***

We expect the trading market for our common stock to be influenced by the research and reports that industry or securities analysts publish about us, our business or our industry. If no additional securities or industry analysts commence coverage of our company, the trading price for our stock may be negatively impacted. If one or more of our covering analysts cease coverage of our company or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline and our common stock to be less liquid. Moreover, if one or more of the analysts who cover us downgrades our stock or publishes inaccurate or unfavorable research about our business, or if our results of operations do not meet their expectations, our stock price could decline.

***Taking advantage of the reduced disclosure requirements applicable to "emerging growth companies" may make our common stock less attractive to investors.***

We qualify as an "emerging growth company" as defined in the Jumpstart Our Business Startups Act of 2012 ("JOBS Act"). An emerging growth company may take advantage of certain reduced reporting and other requirements that are otherwise generally applicable to public companies, as described above. We currently intend to take advantage of each of these exemptions. We have elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make a comparison of our financial statements with the financial statements of a public company that is not an emerging growth company, or the financial statements of an emerging growth company that has opted out of using the extended transition period, difficult or impossible because of the potential differences in accounting standards used. We cannot predict if investors will find our common stock less attractive if we elect to rely on these exemptions, or if taking advantage of these exemptions would result in less active trading or more volatility in the price of our common stock.

***Provisions of our certificate of incorporation and bylaws may delay or prevent a take-over that may not be in the best interests of our shareholders.***

Provisions of our certificate of incorporation and bylaws may be deemed to have anti-takeover effects, which include when and by whom special meetings of our shareholders may be called, and may delay, defer or prevent a takeover attempt.

In addition, our certificate of incorporation authorizes the issuance of up to 3,000,000 shares of preferred stock with such rights and preferences determined from time to time by our Board. None of our preferred shares are currently issued or outstanding. Our Board may, without shareholder approval, issue preferred shares with dividends, liquidation, conversion, voting or other rights that could adversely affect the voting power or other rights of the holders of our common stock.

***The requirements of being a public company may strain our resources, divert management's attention and affect our ability to attract and retain executive management and qualified Board members.***

As a public company, we are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Act, and other applicable securities rules and regulations. Compliance with these rules and regulations involves significant legal and financial compliance costs, may make some activities more difficult, time-consuming or costly and may increase demand on our systems and resources, particularly after we are no longer an "emerging growth company," as defined in the JOBS Act. The Exchange Act requires, among other things, that we file annual, quarterly and current reports with respect to our business and operating results. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. In order to maintain and, if required, improve our disclosure controls and procedures and internal control over financial reporting to meet this standard, significant resources and management oversight may be required. As a result, management's attention may be diverted from other business concerns, which could adversely affect our business and operating results. We may need to hire more employees in the future or engage outside consultants, which will increase our costs and expenses.

In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time consuming. These laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management's time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings against us, and our business may be adversely affected.

As a result of disclosure of information in this Report and in filings required of a public company, our business and financial condition are highly visible, which may result in threatened or actual litigation, including by competitors and other third parties. If such claims are successful, our business and operating results could be adversely affected, and even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and adversely affect our business and operating results.

***We are subject to ongoing regulatory burdens resulting from our public listing.***

We continually work with our legal, accounting and financial advisors to identify those areas in which changes should be made to our financial management control systems to manage our obligations as a public company listed on Nasdaq. These areas include corporate governance, corporate controls, disclosure controls and procedures and financial reporting and accounting systems. We have made, and will continue to make, changes in these and other areas, including our internal controls over financial reporting. However, these and other measures that we might take may not be sufficient to allow us to satisfy our obligations as a public company listed on Nasdaq on a timely basis. In addition, compliance with reporting and other requirements applicable to public companies listed on Nasdaq creates additional costs for us and requires the time and attention of management. The additional costs that we incur, the timing of such costs and the impact that management's attention to these matters may adversely affect our business and operating results.

***We have identified material weaknesses in our internal control over financial reporting. If we fail to develop or maintain an effective system of internal controls, we may not be able to accurately report our financial results and prevent fraud. As a result, current and potential shareholders could lose confidence in our financial statements, which would harm the trading price of our common shares.***

Companies that file reports with the SEC, including us, are subject to the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, or SOX 404. SOX 404 requires management to establish and maintain a system of internal control over financial reporting and annual reports on Form 10-K filed under the Exchange Act to contain a report from management assessing the effectiveness of a company's internal control over financial reporting. Separately, under SOX 404, as amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, public companies that are large accelerated filers or accelerated filers must include in their annual reports on Form 10-K an attestation report of their regular auditors attesting to and reporting on management's assessment of internal control over financial reporting. Non-accelerated filers and smaller reporting companies, like us, are not required to include an attestation report of their auditors in annual reports.

A report of our management is included under Item 9A. "Controls and Procedures." We are a smaller reporting company and, consequently, are not required to include an attestation report of our auditor in our annual report. However, if and when we become subject to the auditor attestation requirements under SOX 404, we can provide no assurance that we will receive a positive attestation from our independent auditors.

During its evaluation of the effectiveness of internal control over financial reporting as of December 31, 2024, management identified material weaknesses as described under Item 9A. "Controls and Procedures." We are undertaking remedial measures, which measures will take time to implement and test, to address these material weaknesses. There can be no assurance that such measures will be sufficient to remedy the material weaknesses identified or that additional material weaknesses or other control or significant deficiencies will not be identified in the future. If we continue to experience material weaknesses in our internal controls or fail to maintain or implement required new or improved controls, such circumstances could cause us to fail to meet our periodic reporting obligations or result in material misstatements in our financial statements, or adversely affect the results of periodic management evaluations and, if required, annual auditor attestation reports. Each of the foregoing results could cause investors to lose confidence in our reported financial information and lead to a decline in our share price.

**General Risk Factors**

***We are highly dependent on our management team, and the loss of our executive officers or other key employees could harm our ability to implement our strategies, impair our relationships with clients and adversely affect our business, results of operations and growth prospects.***

Our success depends, in large degree, on the skills of our management team and our ability to retain, recruit and motivate key officers and employees. Our senior executive leadership team has significant experience, and their knowledge and relationships would be difficult to replace. Leadership changes will occur from time to time, and we cannot predict whether significant resignations will occur or whether we will be able to recruit additional qualified personnel. Competition for senior executives and skilled personnel in the horticulture industry is intense, which means the cost of hiring, paying incentives and retaining skilled personnel may continue to increase.

We need to continue to attract and retain key personnel and to recruit qualified individuals to succeed existing key personnel to ensure the continued growth and successful operation of our business. In addition, as a provider of custom-tailored horticulture solutions, we must attract and retain qualified personnel to continue to grow our business, and competition for such personnel can be intense. Our ability to effectively compete for senior executives and other qualified personnel by offering competitive compensation and benefit arrangements may be restricted by cash flow and other operational restraints. The loss of the services of any senior executive or other key personnel, or the inability to recruit and retain qualified personnel in the future, could have a material adverse effect on our business, financial condition or results of operations. In addition, to attract and retain personnel with appropriate skills and knowledge to support our business, we may offer a variety of benefits, which could reduce our earnings or have a material adverse effect on our business, financial condition or results of operations.

***Our insurance may not adequately cover our operating risk.***

We have insurance to protect our assets, operations and employees. While we believe our insurance coverage addresses all material risks to which we are exposed and is adequate and customary in our current state of operations, such insurance is subject to coverage limits and exclusions and may not be available for the risks and hazards to which we are exposed. In addition, such insurance may not be adequate to cover our liabilities or may not be generally available in the future or, if available, premiums may not be commercially justifiable. If we were to incur substantial liability and such damages were not covered by insurance or were in excess of policy limits, or if we were to incur such liability at a time when we are not able to obtain liability insurance, our business, results of operations and financial condition could be materially adversely affected.

***We may be exposed to currency fluctuations.***

Although our revenues and expenses are expected to be predominantly denominated in United States dollars, we may be exposed to currency exchange fluctuations. Recent events in the global financial markets have been coupled with increased volatility in the currency markets. Fluctuations in the exchange rate between the U.S. dollar, the Canadian dollar, the Euro, and the currency of other regions in which we may operate may have a material adverse effect on our business, financial condition and operating results. We may, in the future, establish a program to hedge a portion of our foreign currency exposure with the objective of minimizing the impact of adverse foreign currency exchange movements. However, even if we develop a hedging program, there can be no assurance that it will effectively mitigate currency risks.

***Changes in accounting standards and subjective assumptions, estimates and judgments by management related to complex accounting matters could significantly affect our financial results.***

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U.S. generally accepted accounting principles ("U.S. GAAP") and related pronouncements, implementation guidelines and interpretations with regard to a wide variety of matters that are relevant to our business, such as, but not limited to, revenue recognition, stock-based compensation, trade promotions, and income taxes are highly complex and involve many subjective assumptions, estimates and judgments by our management. Changes to these rules or their interpretation or changes in underlying assumptions, estimates or judgments by our management could significantly change our reported results.

***Our ability to maintain our reputation is critical to the success of our business, and the failure to do so may materially adversely affect our business and the value of our common stock.***

Our reputation is a valuable component of our business. Threats to our reputation can come from many sources, including adverse sentiment about our industry generally, unethical practices, employee misconduct, failure to deliver minimum standards of service or quality, compliance deficiencies, and questionable or fraudulent activities of our clients. Negative publicity regarding our business, employees, or clients, with or without merit, may result in the loss of clients, investors and employees, costly litigation, a decline in revenues and increased governmental regulation. If our reputation is negatively affected, by the actions of our employees or otherwise, our business and, therefore, our operating results and the value of our common stock may be materially adversely affected.

***Failure to retain our existing workforce and to attract qualified new personnel in the current labor market could adversely affect our business and results of operations.***

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The current U.S. labor shortage has and may continue to impact our ability to hire and retain qualified personnel and may impact our ability to operate our business effectively. We may experience a labor shortage preventing us from filling targeted staffing levels. A labor shortage may also impact our ability to attract qualified new personnel. Additionally, the COVID pandemic has changed the way businesses operate with companies allowing employees to work remotely from home or in hybrid work models. We may not be able to attract, hire or retain qualified personnel if competing companies offer a more desirable work model.

**<u>ITEM 1B. UNRESOLVED STAFF COMMENTS</u>**

None.

**<u>ITEM 1C. CYBERSECURITY</u>**

 

*Cybersecurity Risks*

 

We rely on information technology systems and networks to process, transmit, and store electronic information in our operations, including our proprietary business information and that of our customers, suppliers, and employees. We use various information technology systems and networks to manage our operations and maintain effective internal control over financial reporting. We also collect and store sensitive data, including intellectual property, proprietary business information, and personal information of our customers, suppliers, and employees, in our data centers and on our networks. The secure operation of these information technology systems and networks, and the processing and maintenance of this information, are critical to our business operations and strategy.

Despite our security measures, our information technology systems and networks may be subject to damage, disruption, or unauthorized access due to a variety of factors, including cyberattacks by computer hackers, computer viruses, ransomware, phishing, denial-of-service attacks, physical or electronic break-ins, employee error or malfeasance, power outages, natural disasters, or other catastrophic events. Any such damage, disruption, or unauthorized access could compromise our networks and the information stored there could be accessed, publicly disclosed, lost, or stolen. Any such access, disclosure, or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, regulatory penalties, disruption to our operations, damage to our reputation, loss of customers, potential harm to our competitive position, and additional costs to remediate the issue.

*Cybersecurity Practices*

 

We have implemented various measures to manage our risk of information technology systems and networks damage, disruption, or unauthorized access, including employee training, monitoring of our systems and networks, maintenance of backup and protective systems, and use of modern endpoint detection and response tools which are integrated into urban-gro's risk management systems and processes. We also operate in a fully cloud-based environment, which enhances our scalability, flexibility, and resilience and utilize 3rd parties to perform early internal and external vulnerability assessment and risk identification. We have established extensive backup and recovery procedures to ensure the continuity of our operations in a cyber incident. We also maintain cyber liability insurance coverage as part of our comprehensive risk management program. However, these measures may not be sufficient to prevent, detect, or mitigate the impact of such damage, disruption, or unauthorized access. Moreover, the regulatory environment related to information security, data protection, and privacy is increasingly demanding and complex, and compliance with applicable laws and regulations may result in significant costs or require changes in our business practices that could adversely affect our operations.

*Cybersecurity Leadership*

 

Our Board of Directors is actively involved in overseeing our cybersecurity risk management. Our Board of Directors receives quarterly updates on our cybersecurity posture, threats, and incidents from our Senior Vice President of Technology, who now serves in a consulting role with the Company. Our Board of Directors also delegates certain oversight functions to our Audit Committee, which reviews our cybersecurity policies, procedures, controls, and audit results. Our Board of Directors and our Audit Committee regularly assess the adequacy of our cybersecurity risk management framework and the effectiveness of our mitigation strategies.

Our cybersecurity operations are led by our consulting Senior Vice President of Technology, who has over 20 years of experience in the field of cybersecurity. He is responsible for developing and implementing our cybersecurity strategy, policies, standards, and practices. He also oversees our cybersecurity team, which includes a staff member who recently completed his master's degree in cybersecurity. Our cybersecurity team monitors, detects, responds, and reports on cybersecurity threats and incidents, and coordinates with our internal and external stakeholders to ensure the security of our information assets.

urban-gro adheres to the NIST Cybersecurity Framework 2.0, which provides a set of standards, guidelines, and best practices to manage cybersecurity-related risks. We have developed and documented our systems disaster recovery plan, which outlines the roles, responsibilities, and procedures for restoring our critical systems and data in the event of a cyber incident. We have also crafted over 12 internal policies to help maintain a secure environment, such as our information security policy, our data classification policy, our incident response policy, and our password policy. We regularly conduct phishing simulations, vulnerability scans, penetration tests, and audits to test the effectiveness of our controls and backups, and to identify and remediate any gaps or weaknesses in our cybersecurity posture.

*Cybersecurity Incidents*

 

Despite our efforts to prevent and mitigate cybersecurity incidents, we cannot guarantee that we will not experience any breaches, disruptions, or unauthorized access to our information technology systems and networks. We have experienced, and may continue to experience, cybersecurity incidents that could have a material adverse effect on our business, financial condition, results of operations, and prospects.

**<u>ITEM 2. PROPERTIES</u>**

Our principal place of business is located at 1751 Panorama Point, Unit G, Lafayette, Colorado, 80026. This location is leased and consists of approximately 10,000 square feet, including approximately 3,500 square feet of office space and 6,500 square feet of warehouse space. Additionally, we have six other office leases in the United States. We currently do not own any property.

**<u>ITEM 3. LEGAL PROCEEDINGS</u>**

From time to time, we become involved in or are threatened with legal disputes. While most of these disputes are not likely to have a material effect on our business, financial condition, or operations, the following matters are deemed by the Company to be material either due to the costs of litigation or the potential negative impacts to the Company should these matters not be resolved in our favor:

● Great Green Theory – On June 10, 2022, Emerald filed a lien and brought a suit in the Superior Court of Berkshire, Massachusetts to foreclose on the lien against Great Green Theory Land, LLC and Great Green Theory Cultivation, LLC who are the owners of the land and a construction project in Lee, Massachusetts. Emerald is claiming breach of contract and *quantum merit* against Great Green Theory for failure to pay approximately $1.3 million in payment applications. Great Green Theory has filed counterclaims against Emerald claiming liquidated damages of approximately $1.0 million for alleged unjustifiable delays on the project and alleging construction defects in the project. Emerald has settled two subcontractor suits against Emerald for non-payment to them of which Emerald has not received payment from Great Green Theory.

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| ° | Accounts receivable and accounts payable related to Great Green Theory – The selling Emerald shareholders have agreed to indemnify and defend the Company for any litigation or judgement stemming from this lawsuit. The Company has recorded $1.3 million as a receivable and $0.4 million as a payable to sub-contractors on the opening balance sheet as of the date of the acquisition. |

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| ° | Legal Costs to collect Great Green Theory accounts receivable – The Company has agreed to split the legal costs of this claim until the funds are recovered or until the claim of liquidated damages is relieved. Total estimated legal costs associated with this claim are approximately $0.3 million. The Company recorded 50% of this amount as a liability on the opening balance sheet as of the date of the acquisition. |

---

● Pullar – urban-gro's former Chief Financial Officer, George Pullar, filed a suit in the District Court of Boulder County, Colorado against urban-gro and Bradley Nattrass, in his capacity as urban-gro's CEO, claiming breach of fiduciary duty. The claims stem from a settlement agreement with Mr. Pullar and allegations that Mr. Nattrass and urban-gro failed to share enough non-public material information about urban-gro's plans for fundraising that would have impacted Mr. Pullar's decision to enter into the settlement agreement. urban-gro's director and officer liability insurance carrier has indicated coverage is available to Mr. Nattrass for this suit. We believe we have substantial defenses to the claim asserted in this lawsuit and intend to vigorously defend this action.

***Gemini Loan Agreement Amendment and Default***

On December 13, 2023, our wholly-owned subsidiary UG Construction, Inc. d/b/a Emerald Construction Management, Inc. ("UG Construction") entered into (i) an interest only asset based revolving loan agreement (the "Loan Agreement") with Gemini Finance Corp. ("Gemini") pursuant to which Gemini extended to UG Construction a secured line of credit in an amount not to exceed $10,000,000, to be used to assist UG Construction and us with cash management, and (ii) a Secured Promissory Note - Revolving issued by UG Construction to Gemini (the "Promissory Note"). Pursuant to the Promissory Note, each draw was due and payable on or before 180 days after such draw is funded to UG Construction, subject to a mandatory pre-payment upon UG Construction's receipt of payment for any invoice previously submitted and approved for financing by Gemini.

On March 18, 2025, UG Construction entered into an amendment to the Loan Agreement and Promissory Note and waiver with Gemini (the "Amendment"). Pursuant to the Amendment, Gemini waived any potential or perceived events of default arising under certain circumstances, which events did not constitute specified events of default under the Promissory Note or the Loan Agreement.

Pursuant to the Amendment, the Promissory Note was amended to provide that (i) the term during which Gemini may consider advances under the Loan Agreement has been extended to January 1, 2026, and (ii) the interest applied on the outstanding principal amount of the Promissory Note will accrue interest at an annual rate of 12%, and all accrued and unpaid interest shall be paid to Gemini on the first business day of each month for the prior month. The Amendment also amended the Loan Agreement to require monthly reporting of certain accounts receivable and to include a covenant that such accounts receivable equal or exceed 125% of the sum of the total amount drawn down under the Promissory Note, plus outstanding interest, as of the applicable measurement date. In connection with the execution of the Amendment, we issued to Gemini, as an amendment fee, 150,000 shares of our common stock

On July 31, 2025, Gemini issued a notice of default to UG Construction claiming that UG Construction was in default under the line of credit due to a failure to submit receivables calculations and failing to maintain sufficient eligible accounts and to forward accounts receivable. The notice indicated that the remaining outstanding amount due under the line of credit of approximately $1.76 million was immediately due and payable with default of 1% per week accruing from the June 16, 2025 date of default claimed by Gemini, and that Gemini intended to pursue legal action if full payment was not received by August 8, 2025.

On August 21, 2025, we received a notification from Gemini stating that Gemini would proceed with a foreclosure and private sale of substantially all of the assets of UG Construction in an Article 9 sale process, pursuant to Section 9601 et seq. of the California Commercial Code (the "Asset Sale"). The Asset Sale occurred on September 4, 2025, at which Gemini acquired the assets constituting the collateral under the line of credit for $450,000.

On August 29, 2025, Gemini commenced a lawsuit captioned *Gemini Finance Corp. v. UG Construction, Inc. et al.*, case number 25CV2259 W SBC, in the U.S. District Court for the Southern District of California, which lawsuit (the "Lawsuit") included us and certain of our officers as defendants and pursuant to which Gemini claimed it was owed $1,486,189 (the "Claim Amount").

On September 26, 2025, we entered into a Settlement and Mutual General Release (the "Gemini Settlement Agreement") with Gemini. Pursuant to the terms of the Gemini Settlement Agreement, among other things, we agreed to file a joint motion requesting an expedited fairness hearing under Section 3(a)(10) of the Securities Act of 1933, as amended (the "Securities Act"), which motion was filed on September 30, 2025. Following such fairness hearing, and subject to the satisfaction of all applicable conditions and requirements of Section 3(a)(10) of the Securities Act, we agreed to issue to Gemini shares of our common stock that, upon sale by Gemini, would result in net proceeds to Gemini equal to the Claim Amount, provided that Gemini shall at no time be issued shares if it would beneficially own more than 4.99% of our common stock, and the aggregate number of shares issued to Gemini may not exceed 19.99% of our outstanding common stock as of immediately prior to the signing of the Gemini Settlement Agreement to the extent required by Nasdaq Listing Rule 5635. Additionally, Gemini agreed to use its best efforts to not sell common stock exceeding 10% of our daily volume on any given trading day. Upon the issuance of the last tranche of shares under the Gemini Settlement Agreement, Gemini will dismiss the Lawsuit with prejudice. The Gemini Settlement Agreement also included a customary mutual release of claims by the parties. The fairness hearing occurred on October 14, 2025.

 **

***Agile Term Loan***

 **

On June 26, 2025, we and certain of our subsidiaries entered into a business loan and security agreement (the "Agile Loan Agreement") with Agile Capital Funding, LLC and Agile Lending LLC (together, "Agile").

Pursuant to the Agile Loan Agreement, Agile extended to us a term loan of $1,050,000.00 (the "Term Loan") to be used to fund our general business requirements. The Agile Loan Agreement is for a term of twenty-eight weeks from its effective date and includes an administrative agent fee of $50,000.00 to be remitted to Agile, which was added to the amount of the loan. We could make a full prepayment or partial prepayment of the Term Loan, however, upon the prepayment of any principal amount, we would be obligated to pay a premium payment of principal, which would be equal to the aggregate and actual amount of interest that would be paid through the maturity date. The Agile Loan Agreement contains standard events of default and representations and warranties by us and Agile including a mandatory prepayment, and an additional five (5%) percent interest rate following the occurrence of an event of default. The term loan is evidenced by a secured promissory note issued by us to Agile. Pursuant to the Agile Loan Agreement, upon an event of default, Agile will receive a security interest in certain of our assets, subject to certain exceptions.

***Grow Hill Default***

 ****

On October 1, 2024, we entered into an asset-based term Loan Agreement with Grow Hill, LLC ("Grow Hill") pursuant to which Grow Hill extended to us a secured loan of $2,100,000 with an origination fee of $100,000, which was added to the amount of the loan. The loan is evidenced by a Secured Promissory Note issued by us to Grow Hill. Grow Hill received a security interest in certain of our assets pursuant to a security agreement between us and Grow Hill (the "Security Agreement"), which does not include any assets of our subsidiaries.

On October 14, 2025, we received service of process for a lawsuit filed by Grow Hill against us in the District Court for the City and County of Denver, Colorado (Case No. 2025CV33546) alleging breach of contract and fraud. Pursuant the complaint, Grow Hill stated that we were in default under the Secured Promissory Note due to a failure to timely make payments, and elected to accelerate all amounts due under the Secured Promissory Note, including a default fee equal to 1% of the outstanding principal amount. We are currently investigating available options to resolve the complaint and intends to vigorously defend the allegation of fraud.

 **

***J Brrothers Settlement***

 **

On August 8, 2025, we entered into a Settlement and Release Agreement (the "Settlement Agreement") with J Brrothers LLC ("J Brrothers") and Herb-a-More LLC relating to a dispute arising from amounts due for certain heating, ventilation and air conditioning equipment. Pursuant to the terms of the Settlement Agreement, among other things, we issued a promissory note to J Brrothers with an original principal amount of $395,556 and issued 150,000 unregistered shares of our common stock to J Brrothers. The note accrues simple interest at an annual rate of 12% and has a maturity date of March 18, 2026. The note must be repaid in monthly installments over a period of eight months, with the first seven payments being $50,000 per month and the final monthly payment being $64,047. Any remaining principal and accrued but unpaid interest will become due and payable on the maturity date, and the note may be prepaid without penalty. The note includes customary representations and warranties, customary events of default and a 17% default interest rate.

***RK Mechanical- complaint filed***

On June 27, 2025, RK Mechanical LLC ("RK") filed a complaint against UG Construction and certain other defendants, with SVC Manufacturing Inc. as cross-claimant and UG Construction as cross-defendant, in the Superior Court of Arizona for Maricopa County (Case No. CV2025-022680). The complaint alleged that UG Construction served as general contractor for the construction of the construction of a PepsiCo plant in Tolleson, Arizona, and that as a result of work completed by RK, UG Construction owed $1,522,716 to RK as a result of alleged breach of contract, breach of implied covenant of good faith and fair dealing, violation of the Arizona Prompt Payment Act, and lien foreclosure. On or about October 2025, a default judgment was entered against UG Construction for $1,511,716, plus prejudgment interest of $288,346 and post-judgment interest at 8.25% plus $10,057 in attorney fees. .

***Action Equipment- complaint filed***

On April 21, 2025, Action Equip. & Scaffold Co. ("Action") filed a complaint against UG Construction in the Superior Court of Arizona for Maricopa County (Case No. CV2025-014165). The complaint alleged that UG Construction owed Action $380,932 plus interest and attorneys' fees in connection with a contract pursuant to which Action leased equipment to UG Construction, and alleged breach of contract, breach of covenant of good faith and fair dealing, and unjust enrichment. A default judgment was subsequently entered against UG Construction, and Action filed a writ of garnishment on October 21, 2025.

***MJ's Market, Inc***

MJ's Market, Inc. v. Urban-Gro, Inc. et al, pending in the Suffolk County Superior Court in Massachusetts as Civil Action No. 2384-cv-02794. The original complaint, filed by MJ's Market, Inc, alleged that the Corporation prepared deign drawings for the plaintiff and subsequently sold those drawings to a competitor. The original complaint asserted claims for Breach of Contract; violation of M.G.L. c. 93A; Breach of the Covenant of Good Faith and Fair Dealing; Trademark Infringement; and Interference with Contractual Relations against the Corporation. An amended complaint has been filed which names 2WR of Colorado, Inc., which is characterized as a subsidiary or affiliate of the Corporation, in place of the Corporation. The lawsuit is ongoing.

There can be no assurance that future developments related to pending claims filed in the future, whether as a result of adverse outcomes or as a result of significant defense costs, will not have a material effect on urban-gro's financial condition, results of operations or cash flows.

**<u>ITEM 4. MINE SAFETY DISCLOSURES</u>**

Not applicable.

**PART II**

**<u>ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES</u>**

**Market Information**

On February 17, 2021, we completed a public offering of 6,210,000 shares of our common stock, inclusive of the underwriters' full overallotment, at $10.00 per share for total gross offering proceeds of $62,100,000. In connection with the offering, we received approval to list our common stock on Nasdaq Capital Market under the symbol "UGRO." Prior to the offering, shares of our common stock were quoted on the OTC Markets Group, Inc. OTCQX Marketplace under the symbol "UGRO." Although our shares were quoted on the OTCQX Marketplace from October 7, 2019 through February 11, 2021, because trading on the OTCQX Marketplace was infrequent and limited in volume, the prices at which such transactions occurred did not necessarily reflect the price that would have been paid for our common stock in a more liquid market.

The trading price of our common stock has been, and may continue to be, subject to wide price fluctuations in response to various factors, many of which are beyond our control, including those described in Part I, Item 1A, "Risk Factors."

**HOLDERS**

As of January 12, 2025, we had 79 holders of record of our Common Stock. The number of shareholders of record does not include beneficial owners of our common stock whose shares are held in the names of various dealers, clearing agencies, banks, brokers and other fiduciaries.

**DIVIDENDS**

Since our inception, we have not paid any dividends on our common stock, and we currently expect that, for the foreseeable future, all earnings, if any, will be retained for use in the development and operation of our business. In the future, our Board may decide, at its discretion, whether dividends may be declared and paid to holders of our common stock.

**REPORTS**

We are subject to certain reporting requirements and furnish annual financial reports to our shareholders, certified by our independent accountants, and furnish unaudited quarterly financial reports in our quarterly reports filed electronically with the SEC. All reports and information filed by us can be found at the SEC website, www.sec.gov.

**UNREGISTERED SALES OF EQUITY SECURITIES**

During the year ended December 31, 2024, we issued the following securities that were not registered under the Securities Act:

● The Company issued the following shares of the Company's common stock to satisfy contingent consideration purchase price liabilities for acquisitions as follows:

○ DVO - 44,032 shares at an average price per share of $1.82.

○ UG Construction – 27,115 shares at an average price per share of $1.82.

The foregoing issuances of restricted shares of common stock were issued under Section 4(a)(2) of the Securities Act of 1933, as amended, and Rule 506 of Regulation D promulgated thereunder. The Company believes the issuance of the foregoing restricted shares was exempt from registration as a privately negotiated, isolated, non-recurring transaction not involving a public solicitation. No commissions were paid regarding the share issuances, and the share certificates were issued with a Rule 144 restrictive legend.

**Purchase of Equity Securities by Issuer and Affiliated Purchasers**

During the year ended December 31, 2024, the Company did not repurchase common stock. The Company's Board has authorized the Company to repurchase common stock through a variety of methods, including open market repurchases, purchases by contract (including, without limitation, 10b5-1 and 10b-18 plans), and/or privately negotiated transactions. The amount, timing, or prices of repurchases, may vary based on market conditions and other factors. The program does not have an expiration date and can be modified or terminated by the Board at any time. Since inception on May 24, 2021, the Board authorized a stock repurchase program to purchase up to $10.5 million of outstanding shares of the Company's common stock. In total, the Company has repurchased 1,449,833 shares of common stock at an average price per share of $8.31 for a total of $12.0 million, under this program. As of December 31, 2024, we have $1.4 million remaining under the repurchase program.

**<u>ITEM 6. [RESERVED]</u>**

**<u>ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS</u>**

 

*The following discussion and analysis of our results of operations and financial condition should be read together with the financial statements and related notes and the other financial information included elsewhere in this Report. Such discussion and analysis reflects our historical results of operations and financial position. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under "Risk Factors" and "Cautionary Information about Forward-Looking Statements" and elsewhere in this Report. All share and per share amounts presented herein have been restated to reflect the implementation of the 1-for-6 reverse stock split as if it had occurred at the beginning of the earliest period presented.*

**OVERVIEW AND HISTORY**

In 2024, urban-gro was an integrated professional services and Design-Build firm. Our business focused primarily on providing fee-based professional services, Design-Build solutions, as well as the value-added reselling and integration of equipment systems. We derived income from our ability to generate revenue from our clients through the billing of our employees' time spent on client projects. We offered value-added architectural, engineering, systems procurement and integration, and construction solutions to customers operating in the CEA and Commercial sectors. In the CEA sector, our clients included operators and facilitators in both the cannabis and produce markets in the United States, Canada, and Europe. In the Commercial sector, we worked with leading Food and Beverage CPG companies in the United States, and clients in other commercial sectors including light industrial, healthcare, higher education, laboratories, and hospitality. During 2021 and 2022, we made the following acquisitions:

● July 2021 - Three affiliated architecture design companies (the "2WR Entities")

● April 2022 - A construction Design-Build firm ("Emerald")

● October 2022 - An engineering firm ("DVO")

**RESULTS OF OPERATIONS**

*Comparison of Results of Operations for the years ended December 31, 2024 and 2023*

 

During the year ended December 31, 2024, we generated revenues of $40.0 million compared to revenues of $69.9 million during the year ended December 31, 2023, a decrease of $29.9 million, or 43%. This decrease in revenues is the net result of the following changes in individual revenue components:

● Construction design-build revenues decreased $26.0 million due to decrease in our business due to negative market conditions.

● Services revenue decreased $3.1 million, which was the result of a decrease in revenues in our existing business due to negative market conditions in the CEA sector;

● Equipment systems revenue decreased $0.5 million due.

● Other revenue decreased $0.4 million.

During the year ended December 31, 2024, cost of revenues was $37.1 million compared to $60.0 million during the year ended December 31, 2023, a decrease of $22.9 million, or 38%. This decrease is directly attributable to the decrease in revenues indicated above.

Gross profit was $2.9 million (7% of revenue) during the year ended December 31, 2024, compared to $9.9 million (14% of revenue) during the year ended December 31, 2023. Gross profit as a percentage of revenues decreased overall due primarily to reduced margins on construction design-build revenue due to losses on certain jobs.

Operating expenses increased by $5.2 million, or 16%, to $38.4 million for the year ended December 31, 2024 compared to $33.2 million ended December 31, 2023. This increase is primarily due to a $5.0 million increase in the impairment of goodwill and intangibles. Additionally, general and administrative expenses were relatively flat due to restructuring costs in 2024, offset by bad debt expense write-downs in 2024.

Non-operating expense was $1.0 million for the year ended December 31, 2024, compared to $2.1 million for the year ended December 31, 2023, a decrease of $1.1 million. This decrease was primarily due to a $0.2 million loss on settlement recorded in 2024 compared to a $1.5 million loss on settlement of debt recorded in 2023. as well as no write-down on investment in 2024 compared to a $0.3 million write-down on investment. This was partially offset by an increase in interest expense of $0.8 million.

As a result of the above, we incurred a net loss of $36.5 million for the year ended December 31, 2024, or a net loss per share of $2.98, compared to a net loss of $25.4 million for the year ended December 31, 2023, or a net loss per share of $2.34.

**LIQUIDITY AND CAPITAL RESOURCES**

As of December 31, 2024, we had negative working capital of $26.5 million, compared to negative working capital of $5.1 million as of December 31, 2023, an increase of $21.4 million. This decrease in working capital was primarily due to decreases in accounts receivables of $13.3 million and contract receivables of $4.3 million, and impairment of goodwill and intangible assets of $11.3 million, and increases in customer deposits of $2.1 million, and notes payable of $3.6 million.

As of December 31, 2024, we had cash of $0.8 million, which represented a decrease of $0.3 million from $1.1 million as of December 31, 2023. Changes in cash during 2024 and 2023 are discussed below.

On December 13, 2023, UG Construction, Inc, ("UG Construction"), a wholly owned subsidiary of the Company, entered into an interest only asset based revolving loan agreement ("the Line of Credit") with Gemini Finance Corp. ("Lender") pursuant to which Lender extended to UG Construction the Line of Credit in an amount not to exceed $10.0 million to be used to assist UG Construction and the Company with cash management. Lender will consider requests under the Line of Credit, which Lender may accept or reject in its discretion, until September 12, 2024 ("the Initial Term"), subject to an automatic extension for an additional nine-,month term until May 12, 2025, provided that UG Construction is in compliance with all the terms of the applicable loan documents and Lender has not sent a written notice of non-renewal at least 60 days prior to expiration of the Initial Term. The Line of Credit contains standard events of default and representations and warranties by UG Construction and the Lender and the Company has entered into a Continuing Guaranty pursuant to which the Company will guarantee repayment of the loans associated with the Line of Credit (the "Guaranty Agreement"). Loans made under the Line of Credit earns interest at a annual rate of 12%. As of December 31, 2024, we had borrowed $4.4 million under the Line of Credit.

***Operating Activities:***

 ****

Net cash used in operating activities was $2.8 million during the year ended December 31, 2024. This use of cash was the net effect of the net loss of $36.5 million, offset primarily by a $11.3 million impairment of goodwill and intangible assets, depreciation and amortization of $1.4 million, stock-based compensation of $1.4 million, and a reduction in net operating assets and liabilities of $18.6 million. The $18.6 million reduction in net operating assets and liabilities was primarily due to the a $1.6 increase in accounts payable, contract liabilities and accrued expenses and a $17.6 million decrease in accounts receivable.

Net cash used in operating activities was $10.5 million during the year ended December 31, 2023. This use of cash was the net effect of the net loss of $25.4 million, offset by non-cash expenses of $12.7 million, and a decrease in net operating assets and liabilities of $2.2 million. The $2.2 million decrease in net operating assets and liabilities was primarily due to the net effects of a $11.9 million increase in accounts receivable, a $0.0 million increase in customer deposits, offset by a $13.0 million increase in accounts payable and accrued expenses, and an $2.5 million increase in prepayments and other assets.

***Investing Activities:***

 ****

Net cash used in investing activities was $0.1 million for the year ended December 31, 2024, primarily due to purchases of property and equipment. We had no material commitments for capital expenditures as of December 31, 2024.

Net cash provided by investing activities was $1.9 million for the year ended December 31, 2023, primarily from the sale of our investment in XS Financial for $2.4 million offset by the acquisition of property, plant and equipment of $0.5 million. We had no material commitments for capital expenditures as of December 31, 2023.

***Financing Activities:***

 ****

Net cash provided by financing activities was $2.7 million for the year ended December 31, 2024. Cash provided from financing activities during the year ended December 31, 2024 primarily relates to additions to notes payable for $8.1 million, partially offset by $5.2 million of payments made on notes payable.

Net cash used in financing activities was $2.0 million for the year ended December 31, 2023. Net cash used in financing activities during the year ended December 31, 2023 primarily relates to cash provided by our line of credit and notes payable of $2.5 million offset by $3.9 million of payments made on the DVO Promissory Note and $0.5 million of payments related to contingent consideration.

***Material Cash Requirements:***

 

Our material cash requirements include payments on the UG Construction Line of Credit.

**CRITICAL ACCOUNTING ESTIMATES**

 ****

***Critical Accounting Estimates***

The discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Please refer to *Note 2 – Summary of Significant Accounting Policies* set forth immediately following the signature page of this Report for more information on our significant accounting policies.

**<u>ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK</u>**

As a smaller reporting company, we are not required to provide this information.

**<u>ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA</u>**

The financial statements and supplementary financial information required by this Item are set forth immediately following the signature page and are incorporated herein by reference.

**<u>ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE</u>**

None.

**<u>ITEM 9A. CONTROLS AND PROCEDURES</u>**

**DISCLOSURE CONTROLS AND PROCEDURES**

Our management, with the participation of our CEO and CFO, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Report.

These controls are designed to ensure that information required to be disclosed in the reports we file or submit pursuant to the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management, including our CEO and CFO to allow timely decisions regarding required disclosure.

Based on this evaluation, our CEO and CFO have concluded that our disclosure controls and procedures were not effective as of December 31, 2024 because of the material weaknesses in our internal control over financial reporting described below.

Notwithstanding the ineffective disclosure controls and procedures as a result of the identified material weaknesses, our CEO and CFO have concluded that the consolidated financial statements, included in this Annual Report on Form 10-K present fairly, in all material respects, the Company's financial position, results of operations and cash flows in accordance with generally accepted accounting principles in the United States of America (U.S. GAAP).

Our management, including our CEO and CFO, do not expect that our disclosure controls and procedures will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. These inherent limitations include the reality that judgments in decision-making can be faulty, and that breakdown can occur because of simple error or mistake. In particular, many of our current processes rely upon manual reviews and processes to ensure that neither human error nor system weakness has resulted in erroneous reporting of financial data.

**Changes in Internal Control over Financial Reporting**

There were no changes in our internal control over financial reporting during our fiscal year ended December 31, 2024, which were identified in conjunction with management's evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 ****

**MANAGEMENT REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING**

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act. Those rules define internal control over financial reporting as a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and include those policies and procedures that:

● Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;

● Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and the receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and

● Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisitions, use or disposition of the Company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

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

We identified deficiencies that resulted in material weaknesses in our internal control over financial reporting. The material weaknesses identified include:

● Lack of sufficient technical accounting expertise within the accounting function to appropriately address complex technical accounting issues; and

● Failure to maintain a sufficient complement of personnel in our accounting and reporting department to ensure adequate segregation of duties such that appropriate review and monitoring of its financial records are executed.

The material weaknesses described above could result in material misstatements to financial statements or disclosures that would not be prevented or detected.

This Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only management's report in this Report.

***Management's Plan to Remediate the Material Weaknesses***

As it relates to the material weaknesses that existed as of December 31, 2024, we are currently in the process of designing and implementing remediation plans and taking steps to address the root cause of the material weaknesses described above. Such plans include, but may not be limited to, the following:

● Ensure personnel resources within the accounting function have technical accounting expertise and experience commensurate with our operations;

● Engage external consultants to provide support and to assist us in our evaluation of more complex applications of GAAP where technical accounting expertise within the accounting function is considered insufficient; and

● Improve control processes to ensure adequate review by individuals with sufficient technical accounting expertise to prevent disclosure and financial reporting misstatements.

While we believe these efforts will improve our internal controls and address the root cause of the material weaknesses, such material weaknesses will not be remediated until our remediation plan has been fully implemented and we have concluded, through testing, that our controls are operating effectively for a sufficient period of time.

**<u>ITEM 9B. OTHER INFORMATION</u>**

None.

**<u>ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS</u>**

Not applicable.

**PART III**

**<u>ITEM 10: DIRECTORS, EXECUTIVE OFFICERS AND CORPORTE GOVERNANCE</u>**

**Directors**

The following table and text set forth the name, age, position with the Company, and terms of service of each director as of January 13, 2026:

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| | | | |
|:---|:---|:---|:---|
| **Name** | **Age** | **Position** | **Director Since** |
| Bradley J. Nattrass | 53 | Chairperson of the Board and Chief Executive Officer | 2017 |
| James R. Lowe <sup>(1)</sup> | 45 | Director | 2018 |
| Anita Britt <sup>(1)(2)</sup> | 62 | Director | 2021 |
| David Hsu <sup>(2)(3)</sup> | 44 | Director | 2021 |
| Sonia Lo<sup>(2)(3)</sup> | 58 | Director | 2021 |

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<sup>(1)</sup> Member of the Corporate Governance and Nominating Committee.

<sup>(2)</sup> Member of the Audit Committee.

<sup>(3)</sup> Member of the Compensation Committee.

Information with respect to the securities beneficially owned by each of the directors can be found under the heading "Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters". The following sets forth the biographical background information for each director. In addition, the biographies of the directors include a brief description of the specific experience, qualifications, attributes, or skills that led to the conclusion that each person should serve as a director. In addition to the specific experience, qualifications, attributes, and skills described below, all of the directors have the professional experience and personal character that make them highly qualified directors for the Company and collectively comprise an experienced board that works well together as a whole.

***Bradley J. Nattrass*** is one of our founders and has been our Chief Executive Officer and Chairperson of our Board since March 2017. Mr. Nattrass was our Managing Member from March 2014 until March 2017 when we converted to a corporation. From October 2015 to August 2016, he was the Managing Member of enviro-glo, LLC, a Colorado limited liability company engaged in the manufacturing and branding of commercial lighting products. Previously, from January 2012 through August 2016, he was the Managing Member of Bravo Lighting, LLC, a Colorado limited liability company engaged in the distribution of commercial lighting products. Mr. Nattrass received a Bachelor of Commerce degree from the University of Calgary in marketing in 1995 and a Master of Business Administration from the University of Phoenix in 2001. Mr. Nattrass brings executive leadership experience, organizational experience, and extensive experience in the industry to the Board. Mr. Nattrass is familiar with the Company's day-to-day operations and performance and the controlled environment agriculture industry in general. Mr. Nattrass' insight into the Company's operations and performance is critical to Board discussions.

***James R. Lowe*** was appointed as a director of our Company in August 2018. Mr. Lowe cofounded MJardin Group in 2014 where he served as President of Cultivation, overseeing all cultivation operations through 2017. Mr. Lowe left MJardin Group to become EVP of Operations of GrowForce, a spinout from MJardin Group based in Canada focusing on international cannabis opportunities. Mr. Lowe is no longer an officer of GrowForce. Mr. Lowe has served as a director of MJardin Group (CSE: MJAR) (OTCQX: MJARF) from March 2014 to September 2018, and again from January 2020 to March 2021. Since December 2015, he has also been an owner of Potco LLC, one of the highest grossing single site medical cannabis dispensary and grow facilities in Colorado. He has also been a cultivation advisor for Lightshade Labs, LLC, where he has provided guidance on cultivation operations since 2012. Mr. Lowe is also the owner of Next1 Labs, a vertically integrated extraction and concentrate business with a multi-acre outdoor farm complex and the one of the largest producers of live resin products in the state of Colorado. Lastly, Mr. Lowe entered the legal cannabis market in 2009 as the owner of Cloud9 Support LLC, a retail horticulture supplies and design company that was responsible for over 50 design projects and construction assists. Mr. Lowe brings to the Board significant experience in the CEA sector and prior public company director experience within the sector. Mr. Lowe's extensive knowledge of the industry brings valuable insights to the Board regarding customer demand and product offerings. These views add important insights within discussions of the Board.

***Anita Britt*** was appointed as a director of our Company in June 2021. Mrs. Britt served as the Chief Financial Officer for Perry Ellis International, Inc. from 2009 to 2017 and held senior financial leadership positions at Jones Apparel Group and Urban Brands. She currently serves on the board of directors for VSE Corporation, and Smith & Wesson Brands, Inc. Mrs. Britt is a Certified Public Accountant; a Board Leadership Fellow as designated by the National Association of Corporate Directors; and holds a Carnegie Mellon Cybersecurity Oversight Certification and a Harvard Kennedy School Executive Education Certificate in Cybersecurity: The Intersection of Policy and Technology. As part of her key qualifications and skills, Mrs. Britt has extensive corporate finance, wall street and capital markets experience in both public and private sectors. She brings board and business leadership experience. Mrs. Britt is a member of the American Institute of Certified Public Accountants.

 ****

***David Hsu*** was appointed as a director of our Company in June 2021. Mr. Hsu previously served as the Chief Operating Officer of The Cronos Group, a leading global cannabinoid company ("Cronos"), from 2016 to 2019. While at Cronos, Mr. Hsu's primary duties included overseeing all of Cronos's operations including construction, cultivation, and manufacturing. Prior to joining Cronos, from 2006 to 2016, Mr. Hsu served in various roles with CRG Partners ("CRG"), and later Deloitte & Touche LLP ("Deloitte") upon Deloitte's acquisition of CRG in 2012, including as Vice President, where he operated and managed distressed companies with revenues of more than $500 million. Mr. Hsu received his Bachelor of Science in Business Management from Babson College in 2003 and holds a Certification in Artificial Intelligence: Business Strategies and Applications from the University of California Berkeley, which he received in 2020. Mr. Hsu also received a Certification in Financing and Deploying Clean Energy from Yale University, which he received in 2021. Mr. Hsu brings valuable experience to the Board through his prior business and management experience. His business understanding, education, and management background provide the Board with important insights regarding the Company's operations, strategy and business development.

***Sonia Lo*** was appointed as a director of our Company in October 2021. Ms. Lo brings over two decades of combined agriculture, technology, and business experience to urban-gro. From July 2022 to Present, Ms. Lo has been the CEO of Unfold Bio, Inc. a joint venture between Bayer Group and Temasek Holdings Limited, focused on developing the next generation of seeds for vertical farmers. From May 2020 to May 2021, Ms. Lo was CEO of Sensei Ag Holdings, Inc. During her tenure, she led the building of four farms across North America, ranging from low-tech aquaponics and high dome poly to high-tech glasshouse facilities. From April 2013 to April 2020, Ms. Lo was CEO of Crop One Holdings, Inc., a vertical farming company that owns FreshBoxFarms in Millis, MA. She is the first woman to serve as CEO of a major vertical farming company. Ms. Lo has a Bachelor's degree in Political Science & Mathematics from Stanford University and an MBA from Harvard Business School. Ms. Lo brings valuable experience to the Board through her management and controlled environment agriculture experience. Her business understanding, education, and controlled environment agriculture background provide the Board with important insights regarding the Company's operations, product offering and business development.

To the best of the Company's knowledge, there are no arrangements or understandings between any director or executive officer and any other person pursuant to which any person was selected as a director or executive officer. There are no family relationships between any of the Company's directors or executive officers. To the Company's knowledge, there have been no material legal proceedings as described in Item 401(f) of Regulation S-K during the last ten years that are material to an evaluation of the ability or integrity of any of the Company's directors or executive officers. Members of the Board and executive officers of the Company do not have any substantial interest, direct or indirect, in any of the matters currently anticipated to be acted upon at the Annual Meeting.

**Board Committees and Meetings**

The Board had established four standing committees, the Audit Committee, the Compensation Committee, the Corporate Governance and Nominating Committee, and the ESG Committee, to assist it with the performance of its responsibilities. Effective November 21, 2025, the Board dissolved the ESG Committee. The Board designates the members of these committees and the committee chairs based on the recommendation of the Corporate Governance and Nominating Committee. The Board has adopted written charters for each of these committees, which can be found at the investor relations section of the Company's website at https://ir.urban-gro.com/. Copies are also available in print to any stockholder upon written request to urban-gro, Inc., 1751 Panorama Point, Unit G, Lafayette, Colorado 80026, Attention: Corporate Secretary. The chair of each committee develops the agenda for that committee and determines the frequency and length of committee meetings.

The Board held five meetings during 2024. Directors are expected to attend Board meetings, the Annual Meeting of Stockholders and meetings of the committees on which they serve, with the understanding that on occasion a director may be unable to attend a meeting. During 2024, each director attended 75% or more of the aggregate of the total number of meetings of the Board and the total number of meetings held by all committees of the Board on which such director then served. Every director then serving attended the 2024 Annual Meeting of Stockholders.

*Audit Committee*

 

Our Board has established an Audit Committee, which consists of three independent directors, Mrs. Britt (Chairperson), Ms. Lo, and Mr. Hsu. The Audit Committee held six meetings during 2024. The committee's primary duties are to:

● Review and discuss with management and our independent auditor our annual and quarterly financial statements and related disclosures, including disclosure under "Management's Discussion and Analysis of Financial Condition and Results of Operations," and the results of the independent auditor's audit or review, as the case may be;

● Review our financial reporting processes and internal control over financial reporting systems and the performance, generally, of our internal audit function, if applicable;

● Oversee the audit and other services of our independent registered public accounting firm and be directly responsible for the appointment, independence, qualifications, compensation and oversight of the independent registered public accounting firm, which reports directly to the Audit Committee;

● Oversee the Company's cybersecurity plan, business continuity program, information protection management strategy and related risks to all of these areas;

● Provide an open means of communication among our independent registered public accounting firm, management, our internal auditing function and our Board;

● Review any disagreements between our management and the independent registered public accounting firm regarding our financial reporting;

● Prepare the Audit Committee report for inclusion in our proxy statement for our annual stockholder meetings;

● Establish procedures for complaints received regarding our accounting, internal accounting control and auditing matters; and

● Approve all audit and permissible non-audit services conducted by our independent registered public accounting firm.

The Board has determined that each of our Audit Committee members is independent of management and free of any relationships that, in the opinion of the Board, would interfere with the exercise of independent judgment and are independent, as that term is defined under the enhanced independence standards for audit committee members in the Exchange Act and the rules promulgated thereunder.

The Board has determined that Mrs. Britt is an "audit committee financial expert," as that term is defined in the rules promulgated by the Securities and Exchange Commission (the "SEC") pursuant to the Sarbanes-Oxley Act of 2012. The Board has further determined that each of the members of the Audit Committee shall be financially literate and that at least one member of the committee has accounting or related financial management expertise, as such terms are interpreted by the Board in its business judgment.

*Compensation Committee*

 

Our Board has established a Compensation Committee, which, in 2024, consisted of three independent directors (as defined under the general independence standards of the Nasdaq listing standards and our Corporate Governance Guidelines): Mr. Wilks (Chairperson), Mrs. Britt, and Mr. Hsu. Messrs. Wilks and Hsu and Mrs. Britt are each a "non-employee director" (within the meaning of Rule 16b-3 of the Exchange Act). The Compensation Committee held two meetings during 2024. The committee's primary duties are to:

● Approve corporate goals and objectives relevant to executive officer compensation and evaluate executive officer performance in light of those goals and objectives;

● Determine and approve executive officer compensation, including base salary and incentive awards;

● Make recommendations to the Board regarding compensation plans; and

● Administer our stock plan.

Our Compensation Committee determines and approves all elements of executive officer compensation. It also provides recommendations to the Board with respect to non-employee director compensation. The Compensation Committee may not delegate its authority to any other person, other than to a subcommittee. Mr. Nattrass, as the Chairperson of the Board, is the only executive officer that participates in recommending the amount or form of executive and director compensation.

*Corporate Governance and Nominating Committee*

Our Board has established a Corporate Governance and Nominating Committee, which, in 2024, consisted of three independent directors, Mr. Lowe (Chairperson), Mr. Wilks and Mrs. Britt. The Corporate Governance and Nominating Committee held two meetings during 2024. The committee's primary duties are to:

● Recruit new directors, consider director nominees recommended by stockholders and others and recommend nominees for election as directors;

● Review the size and composition of our Board and committees;

● Oversee the evaluation of the Board;

● Recommend actions to increase the Board's effectiveness; and

● Develop, recommend and oversee our corporate governance principles, including our Code of Business Conduct and Ethics and our Corporate Governance Guidelines.

*Environment, Social and Governance Committee*

Our Board had established an ESG Committee, which consisted of three independent directors, Mr. Hsu (Chairperson), Mr. Lowe and Ms. Lo. The ESG Committee held four meetings during 2024. The Board decided to dissolve the ESG Committee on November 21, 2025. The committee's primary duties were to:

● Identify, review and determine the effectiveness of the Company's ESG metrics and goals;

● Review emerging risks and opportunities regarding ESG issues and matters relative to the Company;

● Recommend to the Board ESG plans and strategies; and

● Review stockholder proposals relating to ESG issues and recommend responses to the Board.

*Director Independence*

The Nasdaq marketplace rules require that, subject to specified exceptions, each member of a listed company's audit, compensation and nominations committees be independent, or, if a listed company has no nominations committee, that director nominees be selected or recommended for the board's selection by independent directors constituting a majority of the board's independent directors. The Nasdaq marketplace rules further require that audit committee members satisfy independence criteria set forth in Rule 10A-3 under the Exchange Act and that compensation committee members satisfy the independence criteria set forth in Rule 10C-1 under the Exchange Act.

Our Board has reviewed the independence of our directors and considered whether any director has a material relationship with us that could compromise that director's ability to exercise independent judgment in carrying out that director's responsibilities. Our Board has affirmatively determined that each of Messrs. Lowe, Wilks and Hsu and Mses. Britt and Lo qualify as an independent director, as defined under the applicable corporate governance standards of Nasdaq. Please see "Certain Relationships and Related Transaction**s"** in this proxy statement for a transaction that the Board considered for determining Mr. Lowe's and Ms. Lo's independence.

**Anti-Hedging Policy**

Under our insider trading policy, our directors, officers and employees may not at any time buy or sell options, puts or calls on company securities, security futures, or other derivative securities that reference company securities and may not enter into hedging, monetization transactions or similar transactions with respect to Company securities. In addition, our directors and executive officers are prohibited from engaging in short sales of our stock.

**Delinquent Section 16(a) Reports**

Section 16(a) of the Exchange Act requires the Company's directors, executive officers, and any persons who own more than 10% of a registered class of the Company's equity securities, to file reports of ownership and changes in ownership with the SEC. SEC regulations require executive officers, directors, and greater than 10% stockholders to furnish us with copies of all Section 16(a) forms they file. Based solely on the Company's review of the copies of such forms furnished or available to the Company, the Company believes that its directors, executive officers, and 10% stockholders complied with all Section 16(a) filing requirements for the year ended December 31, 2024, except for certain Form 4s relating to annual vesting of stock grants and tax withholdings related to those vested stock grants. The Company intends to file these delinquent reports on or before the annual shareholder meeting.

**ITEM 11: EXECUTIVE COMPENSATION**

**Elements of Director Compensation**

Beginning in January 2020, non-employee directors were granted restricted shares of common stock as an annual retainer and for serving as a member of a standing committee. Beginning in May 2021, non-employee directors were granted restricted shares of common stock and cash compensation as an annual retainer and for serving as a member of a standing committee. The following table below summarizes the 2024 Director Compensation:

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| | | | | |
|:---|:---|:---|:---|:---|
| **Member** | **Member** | **Member** | **Member** | |
| **Position** | **Cash** | **RSU Value** | **Total** | **Chair** <br> **(additional,**<br>**all cash)** |
| Board of Director | $45000 | $80000 | $125000 | $— |
| Independent Lead Director | $10000 | $— | $10000 | NA |
| Audit Committee | $5000 | $— | $5000 | $10000 |
| Compensation Committee | $5000 | $— | $5000 | $5000 |
| Nominating & Governance Committee | $5000 | $— | $5000 | $5000 |
| ESG Committee | $5000 | $— | $5000 | $5000 |
| Special Committee | $7500 | $— | $7500 | $7500 |

---

The price per share and corresponding number of shares of common stock that equate to the RSU Value of $80,000 is determined each year by the Compensation Committee. For the 2024 grants, a price of $5.00 per share was used to determine the number of shares to be issued for the RSU Value of $80,000. This price per share resulted in each director receiving a grant of 16,000 shares of common stock. The closing market price of the Company's common stock on the day of the grant was $1.34, indicating that the actual value received by each director for their 16,000 share grant was $21,440.

Each director will be required to attend a minimum of 75% of all Board meetings per year in person or telephonically. Directors are reimbursed for travel and other expenses directly associated with Company business. Directors that are also employees of the Company do not receive any additional compensation for their role as a director at this time.

**Director Compensation Table**

The following table provides information regarding director compensation during 2024. The compensation of Mr. Nattrass is reported in the Summary Compensation Table.

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| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| **Name** | **Fees Earned <br> ($)<sup>(1)</sup>** | **Stock Awards<br> ($)<sup>(3)(4)</sup>** | **Non-equity incentive plan<br> compensation ($)** | **Change in pension value and nonqualified deferred compensation earnings** | **All other compensation ($)** | **Total ($)** |
| Anita Britt | 70000 | 21440 | – |  | – | 91440 |
| David Hsu | 65000 | 21440 | – |  | – | 86440 |
| James R. Lowe | 60000 | 21440 | – |  | – | 81440 |
| Lewis O. Wilks<sup>(2)</sup> | 70000 | 21440 | – |  | – | 91440 |
| Sonia Lo | 55000 | 21440 | – |  | – | 76440 |

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<sup>(1)</sup> Fees are scheduled to be paid quarterly to the directors. Total fourth quarter 2024 fees of $80,000 have not yet been paid.

<sup>(2)</sup> Mr. Wilks resigned as a director on August 26, 2025.

<sup>(3)</sup> Amounts represent the aggregate fair value of stock grants based on the closing stock price on the date of the grant.

<sup>(4)</sup> The chart below shows the aggregate number of outstanding stock options and restricted stock units held by each non-employee director as of December 31, 2024.

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| | | | | |
|:---|:---|:---|:---|:---|
| **Director** | **Stock Options** | **Stock Options** | **Restricted Stock Units** | **Restricted Stock Units** |
| Anita Britt |  |  |  | 16000 |
| David Hsu |  |  |  | 16000 |
| James Lowe |  | 23334 |  | 16000 |
| Lewis Wilks |  | 21667 |  | 16000 |
| Sonia Lo |  |  |  | 16000 |

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We are a "smaller reporting company" under applicable SEC rules and are providing disclosure regarding our executive compensation arrangements pursuant to the rules applicable to smaller reporting companies, which means that we are not required to provide a compensation discussion and analysis and certain other disclosures regarding our executive compensation. The following discussion relates to the compensation of our named executive officers for 2024, consisting of Bradley J. Nattrass, our Chairperson and Chief Executive Officer, and our two other most highly compensated executive officers as of December 31, 2024, Richard A. Akright, Chief Financial Officer, and Jason T. Archer, Chief Operating Officer.

We have a Compensation Committee that, in 2024, was comprised of Messrs. Wilks and Hsu and Ms. Britt. Under our Compensation Committee charter, our Compensation Committee determines and approves all elements of executive officer compensation. The Compensation Committee's primary objectives in determining executive officer compensation are (i) developing an overall compensation package that is at market levels and thus fosters executive officer retention and (ii) aligning the interests of our executive officers with our stockholders by linking a significant portion of the compensation package to performance.

**Summary Compensation Table**

The following Summary Compensation Table contains information regarding compensation that the Company paid to Mr. Nattrass and its two other most highly compensated executive officers for each of the periods indicated.

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| | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|
| **Name and Principal Position** | **Age** | **Year** | **Salary<br> ($)<sup>(1)</sup>** | **Retention Incentive/ Bonus<br> ($)<sup>(2)</sup>** | **Stock Awards<br> ($)<sup>(3)</sup>** | **All Other Compensation ($)<sup>(4)</sup>** | **Total <br> ($)** |
| Bradley J. Nattrass <sup>(5)</sup> | 53 | 2024 | 450000 | 76800 | 159300 | 25281 | 711381 |
| *Chairperson of the Board and Chief Executive Officer* |  | 2023 | 456947 | 115200 | 296915 | 18870 | 887932 |
| Jason T. Archer <sup>(6)</sup> | 50 | 2024 | 315000 | 20166 | 92925 | 25281 | 453372 |
| *Chief Operating Officer* |  | 2023 | 312954 | 30249 | 234200 | 18870 | 596273 |
| Richard A. Akright <sup>(7)</sup> | 66 | 2024 | 288462 | 35000 |  | 17605 | 341067 |
| *Chief Financial Officer* |  | 2023 | 300037 | 52500 | 131961 | 17550 | 502048 |

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<sup>(1)</sup> Amounts represent cash salaries paid in each year plus the following stock compensation taken in lieu of salaries in 2023: Mr. Nattrass - $68,197; Mr. Archer - $16,597; and Mr. Akright - $15,806.

<sup>(2)</sup> Amounts reflect actual cash payments made during the fiscal year and represent payments under a Retention Incentive Plan that was put in place in 2023 with payments made in 2023 and 2024. There were no bonus payments related to 2024 or 2023 performance.

 

<sup>(3)</sup> Amounts represent the aggregate fair value of stock grants based on the closing stock price on the date of the grant.

<sup>(4)</sup> Represents amounts paid to Mr. Nattrass, Mr. Archer, and Mr. Akright for health insurance premiums paid on their behalf.

<sup>(5)</sup> Mr. Nattrass received a stock grant of 135,000 shares in June of 2024. Mr. Nattrass received a stock grant of 106,804 shares in January of 2023.

<sup>(6)</sup> Mr. Archer received a stock grant of 78,750 shares in June of 2024. Mr. Archer was promoted to Chief Operating Officer on January 11, 2023. Mr. Archer received stock grants of 62,302 shares and 20,000 shares in January 2023. Mr. Archer resigned on February 14, 2025. The Company and Mr. Archer entered into a severance agreement that was to pay Mr. Archer for six months of severance.

<sup>(7)</sup> Mr. Akright received a stock grant of 47,468 shares on January 1, 2023. Mr. Akright resigned on February 18, 2025. The Company and Mr. Akright entered into a consulting and transition agreement that was to pay Mr. Akright for five months of severance and $185 per hour for ongoing consulting services.

**Employee Agreements**

The following discussion relates to compensation arrangement on behalf of, and compensation paid by us to, Messrs. Nattrass, Archer, and Akright and that were in place during 2024.

*Bradley J. Nattrass.* We are a party to an employment agreement with Mr. Nattrass (the "Nattrass Agreement"), whereby he serves as our Chief Executive Officer. Pursuant to the Nattrass Agreement, he receives compensation pursuant to our standard programs in effect from time to time, and is eligible to receive stock options, restricted stock, stock units or other equity awards from time to time at the sole discretion of the Board in accordance with our 2021 Incentive Stock Option Plan or other equity plans that we may adopt. He is also entitled to participate in our group benefit plans.

Under certain circumstances, the Nattrass Agreement also provides for severance benefits following a termination without "cause" or related to a "change of control" (as such terms are defined in the Nattrass Agreement). In the event of a termination without "cause," Mr. Nattrass is entitled to severance payments equal to 12 months of regular base salary and target annual incentive pay and a lump sum payment for 12 months of COBRA premiums. In the event of termination in connection with a "change in control," Mr. Nattrass is entitled to a lump sum payment equal to twice the sum of his annual salary and his target annual incentive pay, and a lump sum payment for 12 months of COBRA premiums. All other additional benefits and stock incentive rights (if any) would cease and expire upon termination of employment, unless otherwise provided in the Nattrass Agreement or by the separate written terms of such benefits or incentives. The Nattrass Agreement includes indemnification, confidentiality and non-compete provisions.

*Jason T. Archer.* We were a party to an employment agreement with Mr. Archer (the "Archer Agreement"), whereby he served as our Chief Operating Officer. Pursuant to the Archer Agreement, he received compensation pursuant to our standard programs in effect from time to time, and is eligible to receive stock options, restricted stock, stock units or other equity awards from time to time at the sole discretion of the Board in accordance with our 2021 Incentive Stock Option Plan or other equity plans that we may adopt. He was also entitled to participate in our group benefit plans.

Under certain circumstances, the Archer Agreement also provided for severance benefits following a termination without "cause" or related to a "change of control" (as such terms are defined in the Archer Agreement). In the event of a termination without "cause," Mr. Archer was entitled to severance payments equal to six months of regular base salary and a lump sum payment for six months of COBRA premiums. In the event of termination in connection with a "change in control," Mr. Archer was entitled to a lump sum payment equal to his annual salary and his target annual incentive pay, and a lump sum payment for 12 months of COBRA premiums. All other additional benefits and stock incentive rights (if any) would cease and expire upon termination of employment, unless otherwise provided in the Archer Agreement or by the separate written terms of such benefits or incentives. The Archer Agreement included confidentiality and non-compete provisions.

Mr. Archer resigned on February 14, 2025. In connection with his resignation, the Company entered into a severance agreement with Mr. Archer that was to pay him six months of severance.

*Richard A. Akright.* We were a party to an employment agreement with Mr. Akright (the "Akright Agreement"), whereby he served as our Chief Financial Officer. Pursuant to the Akright Agreement, he received compensation pursuant to our standard programs in effect from time to time, and was eligible to receive stock options, restricted stock, stock units or other equity awards from time to time at the sole discretion of the Board in accordance with our 2021 Incentive Stock Option Plan or other equity plans that we may adopt. He was also entitled to participate in our group benefit plans.

Under certain circumstances, the Akright Agreement also provided for severance benefits following a termination without "cause" or related to a "change of control" (as such terms are defined in the Akright Agreement). In the event of a termination without "cause," Mr. Akright was entitled to severance payments equal to six months of regular base salary and a lump sum payment for six months of COBRA premiums. In the event of termination in connection with a "change in control," Mr. Akright was entitled to a lump sum payment equal to his annual salary and his target annual incentive pay, and a lump sum payment for 12 months of COBRA premiums. All other additional benefits and stock incentive rights (if any) would cease and expire upon termination of employment, unless otherwise provided in the Akright Agreement or by the separate written terms of such benefits or incentives. The Akright Agreement included confidentiality and non-compete provisions.

Mr. Akright resigned on February 18, 2025. In connection with his resignation, the Company entered into a consulting and transition agreement that was to pay him five months of severance and $185 per hour for ongoing consulting services where he would continue to serve as the Company's principal financial and accounting officer. The agreement has an initial term of three months and will subsequently extend on a month-to-month basis unless either party gives notice to terminate.

**Equity Incentive Awards**

In June 2024, Mr. Nattrass received a restricted common stock grant of 135,000 shares. Of this grant, 27,000 shares vest on each of January 1, 2025 and January 1, 2026 and 81,000 shares vest on January 1, 2027. In January 2023, Mr. Nattrass received a restricted common stock grant of 106,805 shares. Of this grant, 21,361 shares vest on each of January 1, 2024 and January 1, 2025, and 64,083 shares vest on January 1, 2026.

In June 2024, Mr. Archer received a restricted common stock grant of 78,750 shares. Of this grant, 15,750 shares vest on each of January 1, 2025 and January 1, 2026 and 47,250 shares vest on January 1, 2027. In January 2023, Mr. Archer received a restricted common stock grant of 62,302 shares. Of this grant, 12,460 shares vest on each of January 1, 2024 and January 1, 2025 and 37,382 shares vest on January 1, 2026. In January 2023, Mr. Archer received a restricted common stock grant of 20,000 shares that vested on January 1, 2024.

In January 2023, Mr. Akright received a restricted common stock grant of 47,468 shares. Of this grant, 9,494 shares vest on each of January 1, 2024 and January 1, 2025 and 28,480 shares vest on January 1, 2026.

**Retirement Benefits**

We provide all qualifying employees with the opportunity to participate in our tax-qualified 401(k) plan. The plan allows employees to defer receipt of earned salary, up to tax law limits, on a pre-tax basis. Accounts may be invested in a wide range of mutual funds. The Company matches 100% up to 4%.

**Outstanding Equity Awards at Fiscal Year-End Table**

The following table lists all of the outstanding stock awards held on December 31, 2024 by each of the Company's named executive officers:

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| | | | | |
|:---|:---|:---|:---|:---|
| | **Stock Awards** | **Stock Awards** | **Stock Awards** | **Stock Awards** |
| <br>**Name** | **Number of shares or <br> units of stock that have <br> not vested** | **Market value of shares <br> of units of stock that <br> have not vested** | **Equity incentive plan <br> awards: Number of <br> unearned shares, units <br> or other rights that<br> have not vested** | **Equity incentive plan<br> awards: Market or <br> payout value <br> of <br> unearned shares, units <br> or other rights that<br> have not vested** |
| Bradley J. Nattrass | 172082 | $162617 |  |  |
| Jason T. Archer | 100382 | $94861 |  |  |
| Richard A. Akright | 28481 | $26915 |  |  |

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The following table lists all of the outstanding option awards held on December 31, 2024 by each of the Company's named executive officers:

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| | | | | | |
|:---|:---|:---|:---|:---|:---|
| | **Option Awards** | **Option Awards** | **Option Awards** | **Option Awards** | **Option Awards** |
| <br>**Name** | **Number of <br> securities <br> underlying <br> unexercised options <br> exercisable** | **Number of <br> securities <br> underlying <br> unexercised options <br> unexercisable** | **Equity incentive <br> plan awards: <br> Number of <br> securities <br> underlying <br> unexercised <br> unearned options** | **Option <br> exercise price** | **Option <br> expiration date** |
| Bradley J. Nattrass |  |  |  | $— |  |
| Jason T. Archer |  |  |  | $— |  |
| Richard A. Akright | 833 |  |  | $7.20 | March 2029 |

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**ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS**

The Company's only outstanding class of voting securities is its common stock. The following table sets forth information known to the Company about the beneficial ownership of its common stock on January 13, 2026 by (i) each current director; (ii) each current named executive officer; and (iii) all of the Company's current executive officers and directors as a group. Other than as set forth below, no person known to us beneficially owns 5% or more of the outstanding common stock as of January 13, 2026. Unless otherwise indicated in the footnotes, each person listed in the following table has sole voting power and investment power over the common stock listed as beneficially owned by that person. Percentages of beneficial ownership are based on 16,300,807 shares of common stock outstanding on January 13, 2026. Unless otherwise indicated, the address for each stockholder listed below is urban-gro, Inc., 1751 Panorama Point, Unit G, Lafayette, Colorado 80026.

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| | | |
|:---|:---|:---|
| | **Shares Beneficially Owned<sup>(1)</sup>** | **Shares Beneficially Owned<sup>(1)</sup>** |
| <br>**Name and Address of Beneficial Owner** | **Number** | **Percent** |
| **5% Stockholder:** | | |
| NA |  | NA |
| **Named Executive Officers and Directors:** |  |  |
| Bradley J. Nattrass <sup>(2)</sup> | 1130739 | 6.9% |
| Richard A. Akright | 133542 | \* |
| James R. Lowe | 463879 | \* |
| Anita Britt | 53943 | \* |
| Sonia Lo | 55869 | \* |
| David Hsu | 53822 | \* |
| All current executive officers and directors as a group (6 persons) | 1891794 | 11.6% |

---

<sup>(1)</sup> Beneficial ownership as reported in the table has been determined in accordance with Rule 13d-3 under the Exchange Act and is not necessarily indicative of beneficial ownership for any other purpose. The number of shares of common stock shown as beneficially owned includes shares of common stock which may not be beneficially owned but over which a person would be deemed to exercise control or direction. The number of shares of common stock shown as beneficially owned includes shares of common stock subject to stock options exercisable and restricted stock units that were outstanding on January 13, 2026 and that will vest within 60 days of January 13, 2026. Shares of common stock subject to stock options exercisable and restricted stock units that will vest within 60 days after January 13, 2026 are deemed outstanding for computing the percentage of the person holding such securities but are not deemed outstanding for computing the percentage of any other person.

 

<sup>(2)</sup> Mr. Nattrass has his vested common stock pledged as security for a personal line of credit facility.

\* Indicates beneficial ownership of less than 1%

**Equity Incentive Plans**

As of December 31, 2024, our equity compensation plans consisted of the Company's 2021 Equity Incentive Plan, which was adopted by the Board and approved by the stockholders in May 2021, the 2019 Equity Incentive Plan, which was adopted by the Board in March 2019 and approved by our stockholders in May 2019, and the Company's 2018 Equity Incentive Plan, which was adopted by the Board in January 2018 and was not approved by our stockholders. The following table summarizes information about our equity compensation plans. All outstanding awards relate to our common stock.

---

| | | | |
|:---|:---|:---|:---|
| **Plan Category** | **Number of securities to be issued upon vesting of grants and exercise of outstanding options, warrants and rights** | **Weighted- average exercise<br> price of outstanding options, warrants <br> and rights** | **Number of securities remaining available for future issuance under equity compensation plans** |
| Equity compensation plan approved by stockholders | 1045802 | $6.77 | 1150041 |
| Equity compensation plan not approved by stockholders | 210750 | $6.35 | 181510 |
| Total | 1256552 | $7.34 | 1331551 |

---

**<u>ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE</u>**

**Certain Relationships and Related Transactions**

Following is a description of transactions since January 1, 2023, including currently proposed transactions to which we have been or are to be a party in which the amount involved exceeded or will exceed $120,000, and in which any of our directors, executive officers or beneficial holders of more than 5.0% of our capital stock, or their immediate family members or entities affiliated with them, had or will have a direct or indirect material interest. We believe the terms and conditions set forth in such agreements are reasonable and customary for transactions of this type.

A director of the Company, James Lowe, is an owner of Cloud 9 Support, LLC ("Cloud 9") and Potco LLC ("Potco"). Cloud 9 purchases materials from the Company for use with its customers and Potco purchases equipment from the Company for use in its cultivation facility. Another director of the Company, Sonia Lo, is working on a vertical farming innovation model with a group of CEA experts ("the CEA Consortium"). The CEA Consortium contracts services from the Company related to their business model. The table below presents the revenues for these related party entities for the twelve months ended December 31, 2024 and 2023:

---

| | | |
|:---|:---|:---|
|  | **Twelve Months Ended<br> December 31,** | **Twelve Months Ended<br> December 31,** |
|  | **2024** | **2023** |
| Revenues - Cloud 9 | $— | $462 |
| Revenues - Potco | 120571 | 987268 |
| Revenues - CEA Consortium |  | 245000 |
| Total revenues from related party transactions | $120571 | $1232730 |

---

The table below presents the accounts receivable from these related party entities as of December 31, 2024 and December 31, 2023:

---

| | | |
|:---|:---|:---|
|  | **December 31, <br> 2024** | **December 31, <br> 2023** |
| Accounts receivable - Cloud 9 | $&nbsp;&nbsp;&nbsp;&nbsp; — | $— |
| Accounts receivable - Potco |  | 163088 |
| Accounts receivable - CEA Consortium |  | 245000 |
| Total accounts receivable due from related party transactions | $— | $408088 |

---

**<u>ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES</u>**

**Fees Paid to Sadler, Gibb and Associates, LLC and BF Borgers CPA PC**

The Company records professional service fees for principal accounting fees and services in the period that the services are performed.

The following table shows the aggregate fees for professional services provided to the Company by Sadler, Gibb and Associates, LLC for 2024 and 2023:

---

| | | |
|:---|:---|:---|
|  | **2024** | **2023** |
| Audit Fees | $297500 | $561300 |
| Audit-Related Fees | 75000 |  |
| Tax Fees |  |  |
| All Other Fees |  |  |
| **Total** | $**372500** | $**561300** |

---

Fees paid to Sadler, Gibb and Associates, LLC for 2024 include fees related to the re-audit of the 2023 and re-reviews of the three quarters in 2023 and first quarter of 2024 financial statements.

The following table shows the aggregate fees for professional services provided to the Company by BF Borgers CPA PC for 2024 and 2023:

---

| | | |
|:---|:---|:---|
|  | **2024** | **2023** |
| Audit Fees | $27500 | $302500 |
| Audit-Related Fees |  |  |
| Tax Fees |  |  |
| All Other Fees |  |  |
| **Total** | $**27500** | $**302500** |

---

 

*Audit Fees.* This category includes the audit of the Company's annual consolidated financial statements, reviews of the Company's financial statements included in the Company's Quarterly Reports on Form 10-Q, and services that are normally provided by its independent registered public accounting firm in connection with its engagements for those years. This category also includes advice on audit and accounting matters that arose during, or as a result of, the audit or the review of the Company's interim financial statements.

*Audit-Related Fees.* This category consists of assurance and related services by its independent registered public accounting firm that are reasonably related to the performance of the audit or review of the Company's financial statements and are not reported above under "Audit Fees." The services for the fees disclosed under this category include audit-related work regarding acquisitions, divestitures, the incurrence of additional indebtedness, and debt covenant compliance.

*Tax Fees.* This category consists of professional services rendered by the Company's independent registered public accounting firm for tax compliance and tax advice. The services for the fees disclosed under this category include tax return preparation and statutory tax audit services and tax compliance services.

*All Other Fees.* This category consists of fees for other miscellaneous items.

Our Audit Committee is responsible for approving all audit, audit-related, tax and other fees. The Audit Committee pre-approves all auditing services and permitted non-audit services, including all fees and terms to be performed for us by our independent auditor at the beginning of the fiscal year. Non-audit services are reviewed and pre-approved by project at the beginning of the fiscal year. Any additional non-audit services contemplated by us after the beginning of the fiscal year are submitted to the Audit Committee Chairperson for pre-approval prior to engaging the independent auditor for such services. Such interim pre-approvals are reviewed with the full Audit Committee at its next meeting for ratification. All of the audit, audit-related fees, tax fees, and other fees paid to Sadler, Gibb and Associates, LLC and BF Borgers CPA PC with respect to 2024 and 2023 were pre-approved by the Audit Committee.

**PART IV** 

**ITEM 15. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES.**

A list of financial statements filed herewith is contained is set forth on page F-1 of the financial statements that immediately follow the signature page of this Report and is incorporated by reference herein. The financial statement schedules have been omitted because they are not required, not applicable or the information has been included in our financial statements. The exhibits required by this Item are contained in the Exhibit Index beginning on the following page of this Annual Report on Form 10-K and are incorporated herein by reference.

**<u>EXHIBIT INDEX</u>**

---

| | |
|:---|:---|
| **Exhibit No.** | **Exhibit Description** |
| 2.1 | [Stock Purchase Agreement (incorporated by reference to Exhibit 2.1 to Form 8-K filed June 28, 2021), by and between 2WR Entities, urban-gro, Inc. and urban-gro Architect Holdings, LLC.](https://www.sec.gov/Archives/edgar/data/1706524/000149315221018256/ex2-1.htm) |
| 3.4 | [Amendment No. 1 to Bylaws of urban-gro, Inc. (incorporated by reference to Exhibit 3.1 to Form 8-K filed January 12, 2021).](https://www.sec.gov/Archives/edgar/data/1706524/000168316821000117/urbangro_ex0301.htm) |
| 4.1 | [Description of urban-gro, Inc.'s Common Stock (incorporated by reference to Exhibit 4.1 to Form 10-K filed March 28, 2024).](http://www.sec.gov/Archives/edgar/data/1706524/000170652424000014/a123123-ex41.htm) |
| 10.2 | [Form of Secured Promissory Note (incorporated by reference to Exhibit 10.2 to Form 8-K filed on December 18, 2023).](http://www.sec.gov/Archives/edgar/data/1706524/000149315223045198/ex10-2.htm) |
| 10.3 | [Form of Security Agreement (incorporated by reference to Exhibit 10.3 to Form 8-K filed on December 18, 2023).](http://www.sec.gov/Archives/edgar/data/1706524/000149315223045198/ex10-3.htm) |
| 10.4 | [Form of Continuing Guaranty (incorporated by reference to Exhibit 10.4 to Form 8-K filed on December 18, 2023).](http://www.sec.gov/Archives/edgar/data/1706524/000149315223045198/ex10-4.htm) |
| 21.1 | [Subsidiaries of the Registrant.](ea026780101ex21-1_urbangro.htm) |
| 23.1 | [Consent of Sadler, Gibb & Associates, LLC](ea026780101ex23-1_urbangro.htm) |
| 24.1 | [Power of Attorney (included on signature page).](#poa_001) |
| 31.1 | [Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.](ea026780101ex31-1_urbangro.htm) |
| 31.2 | [Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.](ea026780101ex31-2_urbangro.htm) |
| 32.1 | [Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.](ea026780101ex32-1_urbangro.htm) |
| 97.1 | [urban-gro, Inc. Clawback Policy](ea026780101ex97-1_urbangro.htm) |
| 101.INS | Inline XBRL Instance Document. |
| 101.SCH | Inline XBRL Schema Document. |
| 101.CAL | Inline XBRL Calculation Linkbase Document. |
| 101.DEF | Inline XBRL Definition Linkbase Document. |
| 101.LAB | Inline XBRL Label Linkbase Document. |
| 101.PRE | Inline XBRL Presentation Linkbase Document. |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document). |

---

\* Denotes a management contract or compensatory plan or arrangement.

**<u>ITEM 16. FORM 10-K SUMMARY</u>**

None.

**SIGNATURES**

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report to be signed on its behalf by the undersigned thereunder duly authorized.

---

| | | |
|:---|:---|:---|
|  | **URBAN-GRO, INC.** | **URBAN-GRO, INC.** |
| Date: January 16, 2026 | By: | */s/ Bradley Nattrass* |
|  |  | Bradley Nattrass <br> Chairperson of the Board of Directors and<br> Chief Executive Officer |

---

**POWER OF ATTORNEY**

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Bradley Nattrass, his or her true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto such attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that such attorney-in-fact and agent, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

---

| | | |
|:---|:---|:---|
| **Signature** | **Title** | **Date** |
| */s/ Bradley Nattrass* | Chairperson of the Board of Directors and<br> Chief Executive Officer | January 16, 2026 |
| Bradley Nattrass | (Principal Executive Officer) |  |
| */s/ Richard A. Akright* | Fractional Chief Financial Officer | January 16, 2026 |
| Richard A. Akright | (Principal Financial Officer)<br> (Principal Accounting Officer) |  |
| */s/ David Hsu* | Director | January 16, 2026 |
| David Hsu |  |  |
| */s/ Sonia Lo* | Director | January 16, 2026 |
| Sonia Lo |  |  |
| */s/ Anita Britt* | Director | January 16, 2026 |
| Anita Britt |  |  |
| */s/ James Lowe* | Director | January 16, 2026 |
| James Lowe |  |  |

---

**INDEX TO FINANCIAL STATEMENTS**

---

| | |
|:---|:---|
|  | **Page No.** |
| [Report of Independent Registered Accounting Firm (PCAOB ID NO: 3627)](#f_006) | F-2 |
| [Consolidated Balance Sheets as of December 31, 2024 and 2023](#f_001) | F-5 |
| [Consolidated Statements of Operations and Comprehensive Loss for the Years ended December 31, 2024 and 2023](#f_002) | F-6 |
| [Consolidated Statement of Changes in Shareholders' Equity for the Years ended December 31, 2024 and 2023](#f_003) | F-7 |
| [Consolidated Statements of Cash Flows for the Years ended December 31, 2024 and 2023](#f_004) | F-8 |
| [Notes to the Consolidated Financial Statements](#f_005) | F-10 |

---

**Report of Independent Registered Accounting Firm**

To the Board of Directors and Shareholders of urban-gro, Inc.:

<u>Opinion on the Financial Statements</u>

We have audited the accompanying consolidated balance sheets of urban-gro, Inc. ("the Company") as of December 31, 2024 and 2023, the related consolidated statements of operations and comprehensive loss, stockholders' equity (deficit), and cash flows for each of the years in the two-year period ended December 31, 2024, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America.

<u>Explanatory Paragraph Regarding Going Concern</u>

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

<u>Basis for Opinion</u>

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

<u>Critical Audit Matters</u>

The critical audit matters communicated below are matters arising from the current period audits of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements, and (2) involved especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which they relate.

<u>Goodwill Impairment</u>

 

*Critical Audit Matter Description*

The Company designated its annual goodwill impairment assessment date as October 1. The Company has two reporting units for impairment testing purposes, and as a result of such assessments, the Company recognized a goodwill impairment charge of approximately $8.6 million, leaving a goodwill balance of approximately $1.1 million. As described in Note 2 to the financial statements, the Company tests goodwill for impairment annually at the reporting unit level, or more frequently if events or circumstances indicate it is more likely than not that the fair value of a reporting unit is less than it's carrying amount. The Company's evaluation of goodwill for impairment involves the comparison of the fair value of each reporting unit to its carrying value. The Company's estimate of fair value for each reporting unit is based on the present value of estimated future cash flows attributable to the respective reporting unit. The Company utilized a third-party valuation specialist to assist in the preparation of the impairment assessments. The determination of the fair value requires management to make significant estimates and assumptions.

We identified the evaluation of the impairment analysis for goodwill as a critical audit matter because of the significant estimates and assumptions management made in determining the fair value of its reporting units. This required a high degree of auditor judgment and an increased extent of effort when performing audit procedures to evaluate the reasonableness of such estimates and assumptions. In addition, the audit effort involved the use of professionals with specialized skills and knowledge.

*How the Critical Audit Matter Was Addressed in the Audit*

Our audit procedures related to the following:

◾ Testing management's processes for estimating the fair value of its reporting units.

◾ Obtaining the Company's discounted cash flow models and evaluating the valuation analysis for mathematical accuracy.

◾ Evaluating whether the valuation techniques applied were appropriate.

---

| | |
|:---|:---|
| ◾ | Evaluating the significant assumptions provided by management or developed by the third-party valuation specialist related to revenues, earnings before interest, taxes, depreciation, and amortization ("EBITDA"), income taxes, long term growth rates, and discount rates to discern whether they are reasonable considering (i) the current and past performance of the entity; (ii) the consistency with external market and industry data; and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. |

---

In addition, professionals with specialized skills and knowledge were utilized by the Firm to assist in the performance of these procedures.

<u>Long-Lived Asset Impairment</u>

*Critical Audit Matter Description*

As described in Note 2 to the consolidated financial statements, the Company reviews its long-lived asset group, including finite-lived intangible assets, for impairment when events or changes in circumstances indicate that the carrying amount of such long-lived asset group may not be recoverable. The Company tested its long-lived asset group for impairment on October 1, 2023, which resulted in the recognition of impairment charges of approximately $2.7 million related to the Company's intangible assets. The Company utilized a third-party valuation specialist to assist in the preparation of the impairment assessment. The determination of the fair value requires management to make significant estimates and assumptions.

We identified the evaluation of the impairment analysis for long-lived assets as a critical audit matter because of the significant estimates and assumptions management used in the fair value models. Performing audit procedures to evaluate the reasonableness of these estimates and assumptions required a high degree of auditor judgment and an increased extent of effort.

*How the Critical Audit Matter Was Addressed in the Audit*

Our audit procedures related to the following:

◾ Testing management's process for developing the recoverability value and fair value estimates.

◾ Evaluating the appropriateness of the valuation models used.

◾ Testing the completeness and accuracy of underlying data used in the fair value estimates.

◾ Evaluating for reasonableness the significant assumptions used by management and the valuation specialist in the recoverability test including revenues, EBITDA, and discount rates.

---

| | |
|:---|:---|
| ◾ | Evaluating the significant assumptions provided by management or developed by the third-party valuation specialist in the fair value models related to revenues, earnings before interest, taxes, depreciation, and amortization ("EBITDA"), income taxes, long term growth rates, and discount rates to discern whether they are reasonable considering (i) the current and past performance of the entity; (ii) the consistency with external market and industry data; and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. |

---

In addition, the Firm utilized professionals with specialized skills and knowledge to assist in the performance of these procedures.

<u>Revenue Recognition Over Time</u>

 

*Critical Audit Matter Description*

As described further in Note 3 to the financial statements, revenues derived from certain contracts in the Services and Construction design-build segments are recognized as performance obligations are satisfied over time. The Company uses a ratio of project costs incurred to estimated total costs for each contract to recognize revenue. Under the cost-to-cost measure, the determination of progress towards completion requires management to prepare estimates of the costs to complete. In addition, the Company's contracts may include variable consideration related to contract modifications, and management must also estimate the variable consideration the Company expects to receive in order to estimate the total contract revenue. We identified revenue recognized over time to be a critical audit matter.

The principal consideration for our determination that revenue recognized over time is a critical audit matter is that auditing management's estimate of the progress toward completion of its projects was complex and subjective. Considerable auditor judgment was required to evaluate management's determination of the forecasted costs to complete its contracts as future results may vary significantly from past estimates due to changes in facts and circumstances. In addition, auditing the Company's measurement of variable consideration is complex and highly judgmental and can have a material effect on the amount of revenue recognized.

*How the Critical Audit Matter Was Addressed in the Audit*

Our audit procedures related to revenue recognized over time included the following, among others.

◾ We obtained an understanding of the Company's process related to the initial and ongoing monitoring of changes in the contract cost-to-cost estimates.

---

| | |
|:---|:---|
| ◾ | We agreed a sample of costs allocated to contracts to supporting documentation and recalculated revenues recognized based on the percentage of completion. |

---

◾ For a selection of contracts, we tested the Company's cost-to-cost estimates by evaluating the appropriate application of the cost-to-cost method, testing the significant assumptions used to develop the estimated cost to complete and testing the completeness and accuracy of the underlying data.

*/s/ Sadler, Gibb & Associates, LLC*

We have served as the Company's auditor since 2024.

Draper, UT

January 16, 2026

**urban-gro, Inc.**

**CONSOLIDATED BALANCE SHEETS**

---

| | | |
|:---|:---|:---|
|  | **As of December 31,** | **As of December 31,** |
|  | **2024** | **2023** |
| **ASSETS** |  |  |
| Current Assets |  |  |
| &nbsp;&nbsp;&nbsp;Cash | $819050 | $1074842 |
| &nbsp;&nbsp;&nbsp;Accounts receivable, net | 8369116 | 21648901 |
| &nbsp;&nbsp;&nbsp;Contract receivables | 4132817 | 8436567 |
| &nbsp;&nbsp;&nbsp;Prepaid expenses and other current assets | 2486865 | 1751564 |
| Total current assets | $15807848 | 32911874 |
| Non-current assets |  |  |
| &nbsp;&nbsp;&nbsp;Property and equipment, net | $921957 | 1419393 |
| &nbsp;&nbsp;&nbsp;Operating lease right-of-use assets | 1534560 | 2041217 |
| &nbsp;&nbsp;&nbsp;Goodwill | 1080638 | 9688975 |
| &nbsp;&nbsp;&nbsp;Intangible assets, net | 148780 | 3451608 |
| Total non-current assets | 3685935 | 16601193 |
| **Total assets** | $19493783 | $49513067 |
| **LIABILITIES** |  |  |
| Current liabilities |  |  |
| &nbsp;&nbsp;&nbsp;Accounts payable | 14724589 | 24203769 |
| &nbsp;&nbsp;&nbsp;Contract liabilities | 14094176 | 3950133 |
| &nbsp;&nbsp;&nbsp;Accrued expenses | 4277545 | 5284278 |
| &nbsp;&nbsp;&nbsp;Customer deposits | 2682099 | 603046 |
| &nbsp;&nbsp;&nbsp;Contingent consideration | - | 49830 |
| &nbsp;&nbsp;&nbsp;Notes payable, current | 5968145 | 3204840 |
| &nbsp;&nbsp;&nbsp;Operating lease liabilities, current | 552933 | 707141 |
| Total current liabilities | 42299487 | 38003037 |
| Non-current liabilities |  |  |
| &nbsp;&nbsp;&nbsp;Notes payable, long-term | 795531 | - |
| &nbsp;&nbsp;&nbsp;Deferred tax liability | 14608 | 44313 |
| &nbsp;&nbsp;&nbsp;Operating lease liabilities, long-term | 1026699 | 1380362 |
| Total non-current liabilities | 1836838 | 1424675 |
| **Total liabilities** | $44136325 | $39427712 |
| Commitments and contingencies (Note 12) |  |  |
| **SHAREHOLDERS' EQUITY (DEFICIT)** |  |  |
| &nbsp;&nbsp;&nbsp;Preferred stock, $0.10 par value; 3,000,000 shares authorized; 0 shares issued and outstanding as of December 31, 2024, and 2023 | $- | - |
| &nbsp;&nbsp;&nbsp;Common stock, $0.001 par value: 30,000,000 shares authorized; 15,521,223 issued and 14,071,390 outstanding as of December 31, 2024, and 30,000,000 shares authorized; 13,522,669 issued and 12,072,836 outstanding as of December 31, 2023 | 14071 | 13523 |
| &nbsp;&nbsp;&nbsp;Additional paid in capital | 90157137 | 88389756 |
| &nbsp;&nbsp;&nbsp;Treasury shares, cost basis: 1,449,833 shares as of December 31, 2024 and 2023 | (12045542) | (12045542) |
| &nbsp;&nbsp;&nbsp;Accumulated deficit | (102768208) | (66272382) |
| **Total shareholders' equity (deficit)** | (24642542) | 10085355 |
| **Total liabilities and shareholders' equity (deficit)** | $19493783 | $49513067 |

---

The accompanying notes are an integral part of these consolidated financial statements

**urban-gro, Inc.**

**CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS**

---

| | | |
|:---|:---|:---|
|  | **For the Years Ended** | **For the Years Ended** |
|  | **December 31,<br> 2024** | **December 31,<br> 2023** |
| **Revenues** | | |
| &nbsp;&nbsp;&nbsp;Equipment | $12245675 | $12720873 |
| &nbsp;&nbsp;&nbsp;Services | 8805550 | 11919920 |
| &nbsp;&nbsp;&nbsp;Construction | 18604827 | 44561783 |
| &nbsp;&nbsp;&nbsp;Consumables | 352798 | 717472 |
| **Total revenues** | 40008850 | 69920048 |
| **Cost of revenue** |  |  |
| &nbsp;&nbsp;&nbsp;Equipment | 10582731 | 11081536 |
| &nbsp;&nbsp;&nbsp;Services | 5548438 | 7222964 |
| &nbsp;&nbsp;&nbsp;Construction | 20782689 | 41194894 |
| &nbsp;&nbsp;&nbsp;Consumables | 226611 | 517988 |
| **Cost of revenue** | 37140469 | 60017382 |
| **Gross Profit** | 2868381 | 9902666 |
| **Operating expenses** |  |  |
| &nbsp;&nbsp;&nbsp;General and administrative | 25742611 | 25277878 |
| &nbsp;&nbsp;&nbsp;Depreciation and amortization | 1373810 | 1636667 |
| &nbsp;&nbsp;&nbsp;Impairment of goodwill and intangibles | 11282079 | 6273595 |
| **Total operating expenses** | 38398500 | 33188140 |
| **Loss from operations** | (35530119) | (23285474) |
| **Non-operating income (expense)** |  |  |
| &nbsp;&nbsp;&nbsp;Interest expense | (1024749) | (271686) |
| &nbsp;&nbsp;&nbsp;Interest Income | 2420 | 173895 |
| &nbsp;&nbsp;&nbsp;Change in fair value of contingent consideration |  | (160232) |
| &nbsp;&nbsp;&nbsp;Write-down of investment |  | (258492) |
| &nbsp;&nbsp;&nbsp;Loss on litigation settlement | (205000) | (1500000) |
| &nbsp;&nbsp;&nbsp;Other income (expense) | 231917 | (41463) |
| **Total non-operating income (expenses)** | (995412) | (2057978) |
| **Loss before income tax** | (36525531) | (25343452) |
| Income tax benefit (expense) | 29705 | (94209) |
| **Net loss** | $**(36495826)** | $**(25437661)** |
| **Comprehensive loss** | $**(36495826)** | $**(25437661)** |
| &nbsp;&nbsp;&nbsp;Net loss per share – basic and diluted | $(2.62) | $(2.34) |
| Weighted average shares - basic and diluted | 13927053 | 10881675 |

---

The accompanying notes are an integral part of these consolidated financial statements

**urban-gro, Inc.**

**CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY** 

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  | **Common Stock** | **Common Stock** | **Additional**<br>**Paid in** | | | |
|  | **Shares** | **Amount** | **Capital** |<br>**Accumulated**<br>**Deficit** |<br>**Treasury**<br>**Stock** | **Total<br> Shareholders'**<br>**Equity**<br>**(Deficit)** |
| **Balance, December 31, 2022** | **12292104** | $**12292** | $**84189965** | $**(40834721)** | $**(12045542)** | $**31321994** |
| Stock-based compensation |  | – | 2199046 | – | – | 2199046 |
| Stock issued for contingent consideration | 833357 | 898 | 1819959 | – |  | 1820857 |
| Stock grant program vesting | 397208 | 333 | (333) | – | – | – |
| Issuance of warrants |  | – | 181119 |  | – | 181119 |
| Net loss |  | – | – | (25437661) | – | (25437661) |
| **Balance, December 31, 2023** | 13522669 | $13523 | $88389756 | $(66272382) | (12045542) | $10085355 |
| Stock-based compensation |  | – | 1426877 | – | – | 1426877 |
| Stock issued for contingent consideration | 71147 | 71 | 129065 | – |  | 129136 |
| Stock grant program vesting | 477574 | 477 | (477) | – | – | - |
| Issuance of warrants |  | – | 211916 |  | – | 211916 |
| Net loss |  | – | – | (36495826) | – | (36495826) |
| **Balance, December 31, 2024** | 14071390 | $14071 | $90157137 | $(102768208) | (12045542) | $(24642542) |

---

The accompanying notes are an integral part of these consolidated financial statements

**urban-gro, Inc.**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

---

| | | |
|:---|:---|:---|
|  | **For the Years Ended<br> December 31,** | **For the Years Ended<br> December 31,** |
|  | **2024** | **2023** |
| **Cash flows from operating activities:** |  |  |
| &nbsp;&nbsp;&nbsp;Net loss | $(36495826) | $(25437661) |
| &nbsp;&nbsp;&nbsp;Adjustments to reconcile net loss to net cash used in operating activities: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Depreciation and amortization | 1419172 | 1636667 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Amortization of the right-of-use | 653102 | 460347 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Amortization of debt discount | 65958 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Stock-based compensation expense | 1426877 | 2199046 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Loss on litigation settlement | 205000 | 308229 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Loss on legal settlement |  | 1500000 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Impairment of investment |  | 258492 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Impairment of goodwill and intangibles | 11282079 | 6273595 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Change in fair value of contingent consideration |  | 160232 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Change in contingent consideration from indemnification |  | (917699) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest income on investments |  | (121867) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Loss on disposal of assets | 3274 |  |
| &nbsp;&nbsp;&nbsp;Changes in operating assets and liabilities (net of acquired amounts): |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts receivable and contract receivables | 17628535 | (11948620) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prepaid expenses and other assets | 71889 | 2525209 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts payable, contract liabilities, customer deposits and accrued expenses | 1626750 | 12979969 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Operating lease liability | (678292) | (436320) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Deferred tax liability | (29705) | 44313 |
| **Net cash used in operating activities** | **(2821187)** | **(10516068)** |
| **Cash flows from investing activities:** |  |  |
| &nbsp;&nbsp;&nbsp;Proceeds from sale of property and equipment | 25 | 2422682 |
| &nbsp;&nbsp;&nbsp;Purchases of property and equipment | (131387) | (540494) |
| **Net cash provided by (used in) investing activities** | **(131362)** | **1882188** |
| **Cash flows from financing activities:** |  |  |
| &nbsp;&nbsp;&nbsp;Additions to notes payable | 8107685 | 2500000 |
| &nbsp;&nbsp;&nbsp;Repayment of finance lease ROU liability | (140585) | (156754) |
| &nbsp;&nbsp;&nbsp;Payments to settle contingent consideration |  | (479362) |
| &nbsp;&nbsp;&nbsp;Repayments of notes payable | (5270343) | (3909511) |
| **Net cash provided by (used in) financing activities** | **2696757** | **(2045627)** |
| Net change in cash | (255792) | (10679507) |
| Cash at beginning of period | 1074842 | 11754349 |
| **Cash at end of period** | $**819050** | $**1074842** |

---

The accompanying notes are an integral part of these consolidated financial statements

**urban-gro, Inc.**

**CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)**

---

| | | |
|:---|:---|:---|
|  | **For the Years Ended<br> December 31,** | **For the Years Ended<br> December 31,** |
|  | **2024** | **2023** |
| **Supplemental cash flow information:** |  |  |
| &nbsp;&nbsp;&nbsp;Cash paid for interest | $735379 | $142388 |
| &nbsp;&nbsp;&nbsp;Net cash paid for income taxes | $20846 | $185910 |
| **Supplemental disclosure of non-cash investing and financing activities:** |  |  |
| &nbsp;&nbsp;&nbsp;Stock issued for contingent consideration | $129138 | $1820857 |
| &nbsp;&nbsp;&nbsp;Stock grant program vesting | $477 | $333 |
| &nbsp;&nbsp;&nbsp;Warrants issued in connection with line of credit | $— | $181119 |
| &nbsp;&nbsp;&nbsp;Warrants issued in connection with notes payable | $211916 |  |
| &nbsp;&nbsp;&nbsp;Prepaid expenses financed by notes payable | $807190 | $648000 |
| &nbsp;&nbsp;&nbsp;Recording of Operating lease assets and liabilities | $221880 | $11315 |
| &nbsp;&nbsp;&nbsp;Recording of Financing lease assets and liabilities | $89128 | $23664 |
| &nbsp;&nbsp;&nbsp;Debt discount on notes payable | $100000 | $— |

---

The accompanying notes are an integral part of these consolidated financial statements

**urban-gro, Inc.**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**NOTE 1 – ORGANIZATION AND ACQUISITIONS, BUSINESS PLAN, AND LIQUIDITY**

<u>Organization</u>

urban-gro, Inc. (together with its wholly owned subsidiaries, collectively "urban-gro," "we," "us," or "the Company") was originally formed on March 20, 2014, as a Colorado limited liability company. On March 10, 2017, we converted to a Colorado corporation and exchanged shares of our common stock for every member's interest issued and outstanding on the date of conversion. On October 29, 2020, we reincorporated as a Delaware corporation. On February 12, 2021, we completed an uplisting to the Nasdaq Capital Market ("Nasdaq") under the ticker symbol "UGRO".

In 2024, urban-gro, Inc. was an integrated professional services and design-build firm. We offered value-added architectural, engineering, and construction management solutions to the Controlled Environment Agriculture ("CEA"), industrial, healthcare, and other commercial sectors. Innovation, collaboration, and a commitment to sustainability drove our team to provide exceptional customer experiences. To serve our horticulture clients, we engineered, designed and managed the construction of indoor CEA facilities and then integrate complex environmental equipment systems into those facilities. Through this work, we created high-performance indoor cultivation facilities for our clients to grow specialty crops, including leafy greens, vegetables, herbs, and plant-based medicines. Our custom-tailored approach to design, construction, procurement, and equipment integration provided a single point of accountability across all aspects of indoor growing operations. We also helped our clients achieve operational efficiency and economic advantages through a full spectrum of professional services and programs focused on facility optimization and environmental health which established facilities that allowed clients to manage, operate and perform at the highest level throughout their entire cultivation lifecycle once they are up and running. Further, we served a broad range of commercial and governmental entities, providing them with planning, consulting, architectural, engineering and construction design-build services for their facilities. We aimed to work with our clients from the inception of their project in a way that provided value throughout the life of their facility. We are a trusted partner and advisor to our clients and offer a complete set of engineering and managed services complemented by a vetted suite of select cultivation equipment systems.

<u>Liquidity and Going Concern</u>

The Company has produced multiple consecutive years of net losses and negative cash flows. The financial results described in these financial statements and our financial position as of December 31, 2024 raise substantial doubt about our ability to continue as a going concern. However, the Company has recently taken actions to strengthen its liquidity, including decreasing headcount and operating expenses to expedite the Company's path to cash flow positive results. If necessary, the Company will seek to raise capital by issuing additional equity shares either through a private placement or on the open market. The Company may also seek to obtain additional debt financing for which there can be no guarantee.

**NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

<u>Basis of Presentation, Principles of Consolidation and Business Combinations</u>

These consolidated financial statements include the accounts of urban-gro, Inc. and its wholly owned subsidiaries. They are presented in United States dollars and have been prepared in accordance with U.S. GAAP and pursuant to the rules and regulations of the SEC for financial reporting. All intercompany transactions and balances have been eliminated in the preparation of the consolidated financial statements. The consolidated financial statements are audited and, in the Company's opinion, include all adjustments, consisting of normal recurring adjustments and accruals necessary for a fair presentation of the Company's consolidated balance sheets, consolidated statements of operations and comprehensive loss, consolidated statements of shareholders' equity and consolidated statements of cash flows for the periods presented.

Acquisitions of businesses are accounted for using the acquisition method of accounting (Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 805-10-225). The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition date fair values of the assets transferred, liabilities incurred to the former owners of the acquired entities and the equity interests issued in exchange for control of the acquired entities. Acquisition-related costs are recognized in net income (loss) as incurred.

<u>Use of Estimates</u>

In preparing consolidated financial statements in conformity with U.S. GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of assets and liabilities at the date of the consolidated financial statements and revenues and expenses during the reported periods. Actual results could differ from those estimates. Significant estimates include estimated revenues earned under percentage of completion construction contracts, professional service contracts, estimated useful lives and potential impairment of long-lived assets and goodwill, inventory write-offs, allowance for deferred tax assets and deferred tax liabilities, and allowance for bad debt.

<u>Balance Sheet Classifications</u>

The Company includes in current assets and liabilities the following amounts that are in connection with construction contracts that may extend beyond one year: contract assets and contract liabilities (including retainage invoiced to customers contingent upon anything other than the passage of time), capitalized costs to fulfill contracts, retainage payable to sub-contractors and accrued losses on uncompleted contracts. A one-year period is used to classify all other current assets and liabilities when not otherwise prescribed by the applicable accounting principles.

<u>Contract Assets and Liabilities</u>

The timing when the Company collects cash from its construction design-build customers can create a contract asset or contract liability. Please refer to *Note 3 - Revenue from Contracts with Customers* for further discussion of the Company's contract assets and liabilities.

<u>Functional and Reporting Currency and Foreign Currency Translation</u>

The functional and reporting currency of the Company and its subsidiaries is US dollars. All transactions in currencies other than US dollars are translated into US dollars on the date of the transaction. Any exchange gains and losses related to these transactions are recognized in the current period earnings as other income (expense).

<u>Fair Value of Financial Instruments</u>

The Company's financial instruments consist principally of cash, accounts receivable, accounts payable, promissory note and other current assets and liabilities. We value our financial assets and liabilities using fair value measurements. Fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities measured at fair value are categorized based on whether the inputs are observable in the market and the degree that the inputs are observable. The categorization of financial instruments within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement. The hierarchy is prioritized into three levels (with Level 3 being the lowest) defined as follows:

● Level 1: Quoted prices in active markets for identical assets or liabilities that the entity has the ability to access.

● Level 2: Observable inputs other than prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated with observable market data.

● Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies, and similar techniques that use significant unobservable inputs.

The carrying amount of our cash, accounts receivable, accounts payable, promissory note, and other current assets and liabilities in our consolidated financial statements approximates fair value because of the short-term nature of the instruments as of December 31, 2024 and 2023. Investments in non-marketable equity securities are carried at cost less other-than-temporary impairments as of December 31, 2024 and 2023.

There have been no changes in Level 1, Level 2, and Level 3 categorizations and no changes in valuation techniques for these assets or liabilities for the years ended December 31, 2024 and 2023.

<u>Cash</u>

The Company considers all highly liquid short-term cash investments with an original maturity of three months or less to be cash equivalents. As of December 31, 2024 and 2023, the Company did not maintain any cash equivalents. The Company maintains cash with financial institutions that may from time to time exceed federally-insured limits. The Company has Insured Cash Sweep programs in place with its financial institutions to ensure that these excess funds are also federally insured. There are no restricted or compensating cash balances as of December 31, 2024.

<u>Accounts Receivable, Net</u>

*Trade Accounts Receivable*

 

Trade accounts receivable are carried at the original invoiced amounts less an estimate of expected credit losses. The Company estimates its allowance for credit losses and the related expected credit loss based upon the Company's historical credit loss experience and the age of the account adjusted for asset-specific risk characteristics, current economic conditions, relationship with the customer, and reasonable forecasts. Credit is generally extended on a short-term basis; thus current receivables do not bear interest. The Company reviews a customer's credit history before extending credit to the customer. If the financial condition of its customers were to deteriorate, resulting in an impairment of their ability to make payments, an increase in the expected credit losses balance would be required. A provision is made against accounts receivable to the extent they are considered unlikely to be collected. Occasionally, the Company will write off bad debt directly to the bad-debt expense account when the balance is determined to be uncollectible. The Company's allowance for expected credit losses for the years ended December 31, 2024 and 2023 was $3,277,083 and $284,745, respectively.

*Non-trade Accounts Receivable*

Non-trade accounts receivable represents amounts owed to the Company that arise outside of its regular operating activities. Non-trade accounts receivable as of December 31, 2024 and 2023 were comprised of the remaining Indemnified Loss receivable from the majority shareholder of Emerald further detailed in *Note 1 – Organization, Acquisitions, Business Plan, and Liquidity*. On March 27, 2023, the Company entered into an agreement to settle litigation and received a cash payment of $2,400,000 related to the non-trade accounts receivable involving fraudulent wire transactions of $2,400,000 included in the December 31, 2022 balance.

<u>Property and Equipment, net</u>

Property and equipment is stated at cost less accumulated depreciation and impairment. Expenditures for major additions and improvements are capitalized and minor replacements, maintenance, and repairs are charged to expense as incurred. When property and equipment is retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the results of operations for the respective period. Depreciation is provided over the estimated useful lives of the related assets using the straight-line method for financial statement purposes. The Company uses other depreciation methods (generally accelerated) for tax purposes where appropriate. No impairment charges were recorded for the years ended December 31, 2024 and 2023.

The estimated useful lives for significant property and equipment categories are as follows:

---

| | |
|:---|:---|
| Computer and technology equipment | 3 years |
| Furniture and equipment | 5 years |
| Leasehold improvements | Lease term |
| Vehicles | 3 years |
| Other equipment | 3 or 5 years |
| Software | 3 years |

---

<u>Operating Lease Right of Use Assets</u>

The Company accounts for leases in accordance with ASC 842. The Company determines whether a contract is a lease at contract inception or for a modified contract at the modification date. At inception or modification, the Company recognizes right-of-use ("ROU" assets and related lease liabilities on the Consolidated Balance Sheets for all leases greater than one-year in duration. Lease liabilities and their corresponding ROU assets are initially measured at the present value of the unpaid lease payments as of the lease commencement date. If the lease contains a renewal and/or termination option, the exercise of the option is included in the term of the lease if the Company is reasonably certain that a renewal or termination option will be exercised. As the Company's leases do not provide an implicit rate, the Company uses an estimated incremental borrowing rate ("IBR") based on the information available at the commencement date of the respective lease to determine the present value of the future payments. The IBR is determined by estimating what it would cost the Company to borrow a collateralized amount equal to the total lease payments over the lease term based on the contractual terms of the lease and the location of the leased asset.

Operating lease payments are recognized as an expense on a straight-line basis over the lease term in equal amounts of rent expense attributed to each period during the term of the lease, regardless of when actual payments are made. This generally results in rent expense in excess of cash payments during the early years of a lease and rent expense less than cash payments in later years. The difference between rent expense recognized and actual rental payments is typically represented as the spread between the ROU asset and lease liability.

The Company does not recognize ROU assets and lease liabilities for short-term leases that have an initial term of 12 months or less. The Company recognizes the lease payments associated with short-term leases as an expense on a straight-line basis over the lease term.

Operating lease right-of-use assets are recorded at cost, net of accumulated depreciation, amortization, and impairment. The Company has various operating and finance equipment and office leases with an imputed annual interest rate of 11%.

<u>Intangible Assets</u>

The Company's intangible assets consist of legal fees for application of patents and trademarks, as well as customer relationships, trademarks and trade names and backlog from the acquisitions of DVO, 2WR and Emerald. Our patents and trademarks are recorded at cost, while the intangibles from our acquisitions are recorded at fair value and are amortized using the straight-line method over an estimated life, generally 5 years for patents, 5 years for trademarks and trade names, and 7 years for customer relationships. Intangible assets are reported in the "Intangible Asset" line on the balance sheet.

<u>Goodwill</u>

Goodwill represents the excess of the purchase price over the fair value of net assets acquired in a business combination. Goodwill is not amortized but is tested for impairment annually and at any time when events or circumstances suggest impairment may have occurred.

The testing for impairment consists of a comparison of the fair value of the reporting unit with its carrying amount. If the carrying amount of the reporting unit, including goodwill, exceeds the fair value, an impairment will be recognized equal to the difference between the carrying value of the reporting unit's goodwill and the implied fair value of the goodwill. In testing goodwill for impairment, we determine the estimated fair value of our reporting units based upon a discounted future cash flow analysis. Goodwill, trade names and patents are our only indefinite-lived intangible assets. Definite-lived intangible assets are amortized using the straight-line method over the shorter of their contractual term or estimated useful lives.

<u>Impairment of Long-lived Assets</u>

The Company evaluates potential impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. An impairment will be recognized as the amount by which the carrying amount of a long-lived asset exceeds its fair value.

<u>Investments</u>

Investments without readily determinable fair values and for which the Company does not have the ability to exercise significant influence are accounted for at cost with adjustments for observable changes in prices or impairments.

<u>Revenue Recognition</u>

The Company recognizes revenue in accordance with ASC 606, *Revenue from Contracts with Customers,* which requires that five basic steps be followed to recognize revenue: (1) a legally enforceable contract that meets criteria standards as to composition and substance is identified; (2) performance obligations relating to provision of goods or services to the customer are identified; (3) the transaction price, with consideration given to any variable, noncash, or other relevant consideration, is determined; (4) the transaction price is allocated to the performance obligations; and (5) revenue is recognized when control of goods or services is transferred to the customer with consideration given to whether that control happens over time or not. Determination of criteria (3) and (4) are based on judgments regarding the fixed nature of the selling prices of the services and products delivered and the collectability of those amounts.

The Company derives revenue predominately from the sale of equipment systems, services, construction design-build, and from other various immaterial contracts with customers. Please refer to *Note 3 - Revenue from Contracts with Customers* for additional discussion.

<u>Customer Deposits</u>

For equipment systems contracts, the Company's policy is to collect deposits from customers at the beginning of the contract. Please refer to *Note 3 - Revenue from Contracts with Customers* for further discussion of the Company's customer deposits.

<u>Cost of Revenues</u>

The Company's policy is to recognize cost of revenues in the same manner as, and in conjunction with, revenue recognition. The Company's cost of revenues includes the costs directly attributable to revenue recognized and includes expenses related to the purchasing of products and providing services, costs related to construction design-build contracts, fees for third-party commissions, and shipping costs.

<u>Advertising Costs</u>

The Company recognizes advertising costs in the periods the costs are incurred. Prepayments made under contracts are included in prepaid expenses and expensed when the advertisement is run. Total advertising expenses incurred for the years ended December 31, 2024 and 2023 were $53,050 and $516,522, respectively.

<u>Stock-Based Compensation</u>

The Company periodically issues restricted stock units ("RSUs") and stock options to employees, directors, and consultants in non-capital raising transactions for fees and services. The Company accounts for stock grants and stock options issued to employees and directors with the award being measured at its fair value at the date of grant and amortized ratably over the estimated service period. The Company accounts for stock issued to consultants with the value of the stock compensation based upon the measurement date as determined at the grant date of the award.

<u>Warrants</u>

The Company estimates the fair value of warrants at the respective balance sheet dates using the Black-Scholes option-pricing model based on the estimated market value of the underlying common stock at the valuation measurement date, the remaining contractual term, risk-free interest rate, and expected volatility of the price of the underlying common stock. There is a moderate degree of subjectivity involved when using option pricing models to estimate the warrants and the assumptions used in the Black-Scholes option-pricing model are moderately judgmental.

<u>Income Taxes</u>

The Company files income tax returns in the United States, Canada, and the Netherlands, and state and local tax returns in applicable jurisdictions. Provisions for current income tax liabilities, if any, would be calculated and accrued on income and expense amounts expected to be included in the income tax returns for the current year. Income taxes reported in earnings, if any, would also include deferred income tax provisions.

Deferred income tax assets and liabilities, if any, would be computed on differences between the financial statement bases of assets and liabilities at the enacted tax rates. Changes in deferred income tax assets and liabilities would be included as a component of income tax expense. The effect on deferred income tax assets and liabilities attributable to changes in enacted tax rates would be charged or credited to income tax expense in the period of enactment. Valuation allowances would be established for certain deferred tax assets when realization is not likely.

Assets and liabilities would be established for uncertain tax positions taken or positions expected to be taken in income tax returns when such positions, in the judgment of the Company, do not meet a more-likely-than-not threshold based on the technical merits of the positions. Valuation allowances would be established for certain deferred tax assets when realization is not likely.

<u>Loss per Share</u>

The Company computes net loss per share by dividing net loss available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share would be computed by dividing net loss by the weighted-average of all potentially dilutive shares of common stock that were outstanding during the periods presented. The diluted earnings per share calculation is not presented as it results in an anti-dilutive calculation of net loss per share.

The treasury stock method would be used to calculate diluted earnings per share for potentially dilutive stock options and share purchase warrants. This method assumes that any proceeds received from the exercise of in-the-money stock options and share purchase warrants would be used to purchase common shares at the average market price for the period.

<u>Recently Issued Accounting Pronouncements</u>

From time to time, the Financial Accounting Standards Board (the "FASB") or other standards setting bodies issue new accounting pronouncements. The FASB issues updates to new accounting pronouncements through the issuance of an Accounting Standards Update ("ASU"). Unless otherwise discussed, the Company believes that the impact of recently issued guidance, whether adopted or to be adopted in the future, is not expected to have a material impact on the Company's financial statements upon adoption.

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (ASU 2023-09), which requires greater disaggregation of information in the effective tax rate reconciliation, income taxes paid disaggregated by jurisdiction, and certain other amendments related to income tax disclosures. This guidance will be effective for fiscal years beginning after December 15, 2024. The Company is evaluating the impact of this ASU on its consolidated financial statements.

There are other various updates recently issued by the FASB, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to have a material impact on the Company's financial position, results of operations or cash flows.

Management has reviewed all other recently issued, but not yet effective, accounting pronouncements and does not believe the future adoption of any such pronouncements may be expected to cause a material impact on the Company's financial condition or the results of our operations.

**NOTE 3 – REVENUE FROM CONTRACTS WITH CUSTOMERS**

The Company recognizes revenue predominantly from the sale of equipment systems, services, construction design-build, and from other various immaterial contracts with customers from its CEA and Commercial sectors. The table below presents the revenue by source for the years ended December 31, 2024 and 2023:

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  | **For the twelve months ended December 31, 2024** | **For the twelve months ended December 31, 2024** | **For the twelve months ended December 31, 2024** | **For the twelve months ended December 31, 2024** | **For the twelve months ended December 31, 2024** | **For the twelve months ended December 31, 2024** |
|  | **CEA** | **CEA** | **Commercial** | **Commercial** | **Total** | **Total** |
|  | **2024** | **2023** | **2024** | **2023** | **2024** | **2023** |
| Equipment systems | $12245675 | $12720873 | $- | $- | $12245675 | $12720873 |
| Services | 3278553 | 8305679 | 5526997 | 3614241 | 8805550 | 11919920 |
| Construction design-build | 3230037 | 4391087 | 15374790 | 40170696 | 18604827 | 44561783 |
| Other | 352798 | 717472 | - | - | 352798 | 717472 |
| &nbsp;&nbsp;&nbsp;Total revenues and other income | $19107063 | $26135111 | $20901787 | $43784937 | $40008850 | $69920048 |
| Relative percentage | 48% | 37% | 52% | 63% | 100% | 100% |

---

Under ASC Topic 606, *Revenue from Contracts with Customers*, a performance obligation is a promise in a contract with a customer, to transfer a distinct good or service to the customer. Equipment systems contracts are lump sum contracts, which require the performance of some, or all, of the obligations under the contract for a specified amount. Service revenue contracts, which include both architectural and engineering designs, generally contain multiple performance obligations which can span across multiple phases of a project and are generally set forth in the contract as distinct milestones. The majority of construction design-build contracts have a single performance obligation, as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts and, therefore, not distinct. Some contracts have multiple performance obligations, most commonly due to the contract covering multiple phases of the project life cycle (design and construction).

The transaction price for service contracts and construction design-build contracts is allocated to each distinct performance obligation and recognized as revenue when, or as, each performance obligation is satisfied. When there are multiple performance obligations under the same service contract, the Company allocates the transaction price to each performance obligation based on the standalone selling price. In general, payment is fixed at the time of the contract and are not subject to discounts, incentives, payment bonuses, credits, and penalties, unless negotiated in an amendment.

When establishing the selling price to the customer, the Company uses various observable inputs. For equipment systems, the stand-alone selling price is determined by forecasting the expected costs of the products, and then adding in the appropriate margins established by the contract. For service revenues and construction design-build revenues, the Company estimates the selling price by reference to certain physical characteristics of the project, which include the facility size, the complexity of the design, and the mechanical systems involved, which are indicative of the scope and complexity for those services. Significant judgments are typically not required with respect to the determination of the transaction price based on the nature of the selling prices of the products and services delivered and the collectability of those amounts. Accordingly, the Company does not consider estimates of variable consideration to be constrained.

The Company recognizes equipment systems, services, and construction design-build revenues when the performance obligation with the customer is satisfied. For satisfaction of equipment system revenues, the Company recognizes revenue when control of the promised good transfers to the customer, which predominately occurs at the time of shipment. For service revenues, satisfaction occurs as the services related to the distinct performance obligations are rendered or completed in exchange for consideration in an amount for which the Company is entitled. The time period between recognition and satisfaction of performance obligations is generally within the same reporting period; thus, there are no material unsatisfied or partially unsatisfied performance obligations for product or service revenues at the end of the reporting period.

Construction design-build revenues are recognized as the Company's obligations are satisfied over time, using the ratio of project costs incurred to estimated total costs for each contract because of the continuous transfer of control to the customer as all of the work is performed at the customer's site and, therefore, the customer controls the asset as it is being constructed. This continuous transfer of control to the customer is further supported by clauses in the contract that allow the customer to unilaterally terminate the contract for convenience, pay the Company for costs incurred plus a reasonable profit and take control of any work in process. This cost-to-cost measure is used for our construction design-build contracts because management considers it to be the best available measure of progress on these contracts.

Contract modifications through change orders, claims and incentives are routine in the performance of the Company's construction design-build contracts to account for changes in the contract specifications or requirements. In most instances, contract modifications are not distinct from the existing contract due to the significant integration of services provided in the contract and are accounted for as a modification of the existing contract and performance obligation. Either the Company or its customers may initiate change orders, which may include changes in specifications or designs, manner of performance, facilities, equipment, materials, sites and period of completion of the work. Change orders that are unapproved as to both price and scope are evaluated as claims. The Company considers claims to be amounts in excess of approved contract prices that the Company seeks to collect from its customers or others for customer-caused delays, errors in specifications and designs, contract terminations, change orders that are either in dispute or are unapproved as to both scope and price, or other causes of unanticipated additional contract costs.

The timing of when the Company bills customers on long-term construction design-build contracts is generally dependent upon agreed-upon contractual terms, which may include milestone billings based on the completion of certain phases of the work, or when services are provided. When as a result of contingencies, billings cannot occur until after the related revenue has been recognized; the result is unbilled revenue, which is included in contract assets. Additionally, the Company may receive advances or deposits from customers before revenue is recognized; the result is deferred revenue, which is included in contract liabilities. Retainage subject to conditions other than the passage of time are included in contract assets and contract liabilities.

Contract assets represent revenues recognized in excess of amounts paid or payable (contract receivables) to the Company on uncompleted contracts. Contract liabilities represent the Company's obligation to perform on uncompleted contracts with customers for which the Company has received payment or for which contract receivables are outstanding.

The following table provides information about contract assets and contract liabilities from contracts with customers:

---

| | | |
|:---|:---|:---|
|  | **As of December 31,** | **As of December 31,** |
|  | **2024** | **2023** |
| **Contract assets:** |  |  |
| &nbsp;&nbsp;&nbsp;Revenue recognized in excess of amounts paid or payable (contract receivables) to the Company on uncompleted contracts (contract asset), excluding retainage | $3757641 | $7729531 |
| &nbsp;&nbsp;&nbsp;Retainage included in contract assets due to being conditional on something other than solely passage of time | 375176 | 707036 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**Total contract assets** | $**4132817** | $**8436567** |

---

---

| | | |
|:---|:---|:---|
|  | **As of December 31,** | **As of December 31,** |
|  | **2024** | **2023** |
| **Contract liabilities:** |  |  |
| &nbsp;&nbsp;&nbsp;Payments received or receivable (contract receivables) in excess of revenue recognized on uncompleted contracts (contract liability) | $13930251 | $3895826 |
| &nbsp;&nbsp;&nbsp;Retainage included in contract liabilities due to being conditional on something other than solely passage of time | 163925 | 54307 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**Total contract liabilities** | $**14094176** | $**3950133** |

---

For equipment systems contracts, the Company's predominant policy is to collect deposits from customers at the beginning of the contract and the balance of the contract payment prior to shipping. The Company does, in some cases, collect deposits or retainers as down payments on service contracts. Consumable products orders may be paid for in advance of shipment or for recurring customers with credit, payment terms of 30 days or less may be extended by the Company. Customer payments that have been collected prior to the performance obligation being recognized are recorded as customer deposit liabilities on the balance sheet. When the performance obligation is satisfied and all the criteria for revenue recognition are met, revenue is recognized. In certain situations when the customer has paid the deposit and services have been performed but the customer chooses not to proceed with the contract, the Company is entitled to keep the deposit and recognize revenue.

**NOTE 4 – RELATED PARTY TRANSACTIONS**

A director of the Company is an owner of Cloud 9 Support, LLC ("Cloud 9") and Potco LLC ("Potco"). Cloud 9 purchases materials from the Company for use with its customers and Potco purchases equipment from the Company for use in its cultivation facility. Another director of the Company is working on a vertical farming innovation model with a group of CEA experts ("the CEA Consortium"). The CEA Consortium contracts services from the Company related to their business model.

The table below presents the revenues from related parties:

---

| | | |
|:---|:---|:---|
|  | **For the years ended<br> December 31,** | **For the years ended<br> December 31,** |
|  | **2024** | **2023** |
| Cloud 9 | $- | $462 |
| Potco | 120571 | 987268 |
| CEA Consortium | - | 245000 |
| Total revenues from related party transactions | $120571 | $1232730 |

---

The table below presents the accounts receivable from related parties as of December 31, 2024, and December 31, 2023:

---

| | | |
|:---|:---|:---|
|  | **December 31,** | **December 31,** |
|  | **2024** | **2023** |
| Potco | $— | $163088 |
| CEA Consortium |  | 245000 |
| Total accounts receivable due from related party transactions | $— | $408088 |

---

**NOTE 5 – PREPAID EXPENSES AND OTHER CURRENT ASSETS**

Prepayments and other assets are comprised of prepayments paid to vendors to initiate orders and prepaid services and fees. The prepaid balances are summarized as follows:

---

| | | |
|:---|:---|:---|
|  | **As of December 31,** | **As of December 31,** |
|  | **2024** | **2023** |
| Vendor prepayments | $1355929 | $130522 |
| Prepaid services and fees | 885072 | 1168309 |
| Deferred financing cost (See Note 10 - Debt) | - | 181118 |
| Inventories | 222582 | 228858 |
| Other assets | 23283 | 42757 |
| **Total prepaid expenses and other current assets** | $2486865 | $1751564 |

---

<u>Inventories</u>

Inventories, consisting primarily of finished goods, are stated at the lower of cost or net realizable value, with cost determined using the weighted-average cost method. The Company periodically reviews the value of items in inventory and provides write-downs or write-offs of inventory based on its assessment of market conditions. Write-downs and write-offs are charged to cost of goods sold at the realization of change in value. Once written down, inventories are carried at this lower basis until sold or scrapped.

**NOTE 6 – PROPERTY AND EQUIPMENT, NET**

Property and Equipment, net balances are summarized as follows:

---

| | | |
|:---|:---|:---|
|  | **As of December 31,** | **As of December 31,** |
|  | **2024** | **2023** |
| Computer and Technology Equipment | $360191 | $294322 |
| Furniture and fixtures | 325485 | 325485 |
| Leasehold Improvements | 228760 | 228760 |
| Vehicles | 417644 | 432823 |
| Software | 1151298 | 1087569 |
| Other Equipment | 145950 | 145950 |
| Accumulated depreciation | (1707372) | (1095516) |
| **Total Property and equipment, net** | $**921957** | $**1419393** |

---

The total depreciation expense for the years ended December 31, 2024 and 2023 was $744,722 and $580,487, respectively.

**NOTE 7 – INVESTMENTS**

<u>XS Financial</u>

On October 30, 2021, the Company participated in a convertible note offering of Xtraction Services, Inc., a/k/a XS Financial Inc. (CSE: XSF) (OTCQB: XSHLF) ("XSF"), a specialty finance company providing capital expenditure financing solutions, including equipment leasing, to CEA companies in the United States. The Company invested $2,500,000 of a total $43,500,000 raised by XSF. Prior to any Nasdaq listing, the investment incurs 9.5% interest payable, of which, 7.5% is cash interest and 2.0%. is interest paid in kind. Subsequent to any Nasdaq listing, the investment incurs 8.0% interest. The debt matured on October 28, 2023, with a one-year option at the sole discretion of XSF to extend the maturity date. In addition, the Company received 1.25 million warrants denominated in Canadian dollars ("C$") with a C$0.45 share price as subject to the warrant instrument. No value was attributed to the warrants at the time of the investment. In August 2023, the Company entered into an agreement to sell back its investment to XSF for $2.3 million and cancel the warrants. The Company received the $2.3 million in proceeds on August 30, 2023. In connection with the agreement to sell the investment, the Company recorded an impairment loss of $0.3 million for the year ended December 31, 2023.

**NOTE 8 – GOODWILL & INTANGIBLE ASSETS**

<u>Goodwill</u>

 

The Company has recorded goodwill in conjunction with acquisitions it has completed. The goodwill balances as of December 31, 2024 and 2023 were $1,080,638 and $9,688,975. Goodwill is not amortized, but tested for impairment annually. The Company recorded a goodwill impairment charge of $8,608,337 for the year ended December 31, 2024.

<u>Intangible Assets</u>

Intangible assets as of December 31, 2024 and 2023 consisted of the following:

---

| | | | |
|:---|:---|:---|:---|
|  | **As of December 31, 2024** | **As of December 31, 2024** | **As of December 31, 2024** |
|  | **Cost** | **Accumulated<br> Amortization** | **Net Book<br> Value** |
| Finite-lived intangible assets: |  |  |  |
| Licenses | 16437 | (16437) | - |
| Trademarks and trade names | 499000 | (350220) | 148780 |
| Backlog and other | 429400 | (429400) | - |
| &nbsp;&nbsp;&nbsp;Total finite-lived intangible assets: | 944837 | (796057) | 148780 |

---

---

| | | | |
|:---|:---|:---|:---|
|  | **As of December 31, 2023** | **As of December 31, 2023** | **As of December 31, 2023** |
|  | **Cost** | **Accumulated<br> Amortization** | **Net Book<br> Value** |
| Finite-lived intangible assets: |  |  |  |
| Customer relationships | $3269201 | $(1004743) | $2264458 |
| Trademarks and trade names | 1778000 | (663417) | 1114583 |
| Backlog and other | 707400 | (707400) |  |
| Licenses | 16437 | (16437) |  |
| &nbsp;&nbsp;&nbsp;Total finite-lived intangible assets: | 5771038 | (2391997) | 3379041 |
| Indefinite-lived intangible assets: |  |  |  |
| Trade name | 28291 |  | 28291 |
| Patents | 44276 |  | 44276 |
| &nbsp;&nbsp;&nbsp;Total indefinite-lived intangible assets | 72567 |  | 72567 |
| **Total intangible assets, net** | $**5843605** | $**(2391997)** | $**3451608** |

---

The Company recorded an impairment charge of $2,673,742 related to intangible assets for the year ended December 31, 2024.

Amortization expense for intangible assets subject to amortization for the years ended December 31, 2024 and 2023 was $629,086 and $1,056,180, respectively.

The estimated future amortization expense for intangible assets subject to amortization at December 31, 2024, is summarized below:

---

| | |
|:---|:---|
| <br>**Year ending December 31,** | **Estimated Future**<br>**Amortization Expense** |
| 2025 | $145499 |
| 2026 | 3281 |
| 2027 | - |
| 2028 | - |
| Total estimated future amortization expense | $148780 |

---

**NOTE 9 – ACCRUED EXPENSES**

Accrued expenses are summarized as follows:

---

| | | |
|:---|:---|:---|
|  | **As of December 31,** | **As of December 31,** |
|  | **2024** | **2023** |
| Accrued operating expenses | $441031 | $277987 |
| Accrued wages and related expenses | 799969 | 1349195 |
| Business development accrual |  | 376816 |
| Accrued interest expense | 68115 | 26000 |
| Accrued 401(k) | 17138 | 66642 |
| Accrued sales tax payable | 2951292 | 3187638 |
| **Total accrued expenses** | $**4277545** | $**5284278** |

---

Accrued sales tax payable is comprised of amounts due to various states and Canadian provinces for 2017 through 2023.

**NOTE 10 – NOTES PAYABLE**

The table below presents amounts due for notes payable as of December 31, 2024 and 2023.

---

| | | |
|:---|:---|:---|
|  | **December 31,** | **December 31,** |
|  | **2024** | **2023** |
| Line of credit | $4405402 | $2500000 |
| DVO note | 135 | 575240 |
| Grow Hill Note, net | 1652071 |  |
| Other financing agreements | 706068 | 129600 |
| **Total** | $**6763676** | $**3204840** |
| Less current portion | (5968145) | (3204840) |
| Notes payable, long-term | $795531 | $— |

---

On December 13, 2023, UG Construction, Inc. d/b/a Emerald Construction Management, Inc. ("UG Construction"), a wholly owned subsidiary of the Company, entered into an interest only asset based revolving Loan Agreement (the "Line of Credit") with Gemini Finance Corp. ("Lender") pursuant to which Lender extended to UG Construction a secured line of credit in an amount not to exceed $10,000,000, to be used to assist UG Construction and the Company with cash management. Lender will consider requests for advances under the Line of Credit, which Lender may accept or reject in its discretion, until September 12, 2024 (the "Initial Term"), subject to an automatic extension for an additional nine-month term until May 12, 2025, provided that UG Construction is in compliance with all the terms of the applicable loan documents and Lender has not sent a written notice of non-renewal at least 60 days prior to expiration of the Initial Term. The Line of Credit contains standard events of default and representations and warranties by UG Construction and the Lender and the Company have entered into a Continuing Guaranty pursuant to which the Company will guarantee repayment of the loans associated with the Line of Credit (the "Guaranty Agreement").

Loans made under the Line of Credit shall be evidenced by a Secured Promissory Note - Revolving issued by UG Construction to the Lender (the "Promissory Note"), and each draw on the Promissory Note shall be due and payable on or before 180 days after such draw is funded to UG Construction; provided that, such draw is also subject to a mandatory prepayment upon UG Construction's receipt of payment for any invoice previously submitted and approved for financing by Lender. Lender will receive a security interest in UG Construction's Collateral (as defined in the "Security Agreement" entered into as part of the Line of Credit). The Promissory Note earns interest at a monthly rate of one and seventy-five hundredths percent (1.75%).

In connection with entering in the Line of Credit, the Company has agreed to issue to Bancroft Capital, LLC (the "Placement Agent") cash and warrant compensation in two separate tranches, the first being earned upon closing of the Line of Credit and the remainder of which will be due if and when UG Construction draws more than $4,500,000 from the Line of Credit. Both instances are detailed as follows:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1. At closing of the Line of Credit, the Placement Agent earned a cash fee of $200,000. In addition to the cash fee, the Company will issue to the Placement Agent or its designees, $200,000 worth of warrants (the "Placement Agent's Warrants") to purchase the Company's common stock at a price per share equal to 110% of the daily volume weighted average closing price of the Company's common stock on the Nasdaq exchange for a period consisting of ten (10) consecutive trading days ending on and inclusive of the trading day of the Closing. The Placement Agent's Warrants will be exercisable at any time and from time to time, in whole or in part, during the four and a half-year period commencing six (6) months from the date of issuance. The Placement Agent's Warrants will provide for registration rights (including a one-time demand registration right and unlimited piggyback rights), cashless exercise and customary anti-dilution provisions (for stock dividends and splits) and anti-dilution protection (adjustment in the number and price of such warrants and the shares underlying such warrants) resulting from corporate events (which would include dividends, reorganizations, mergers, etc.).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2. If and when Emerald draws more than $4,500,000 from the Line of Credit, the Placement Agent will earn an additional cash fee of $200,000, and an additional $200,000 worth of Placement Agent's Warrants to purchase the Company's common stock at a price per share equal to 110% of the daily volume weighted average closing price of the Company's common stock on the Nasdaq exchange for a period consisting of ten (10) consecutive trading days ending on and inclusive of the trading day of the date that the draws exceeding $4,500,000 were to take place.

As part of the Asset Purchase Agreement of DVO, a non-negotiable promissory note in the aggregate principal amount of $3,806,250, payable to DVO was issued effective November 1, 2022 (the "DVO Promissory Note"). The principal amount, together with the simple interest accrued on the unpaid principal amount outstanding was to be paid by the Company on a quarterly basis for the first four consecutive quarters, with the first payment paid in January 2023, and the remaining three payments due ten days following the end of each subsequent fiscal quarter thereafter until the earlier of the end of the fourth full fiscal quarter following the closing date December 31, 2023 or the payment in full of all amounts due. In the third quarter of 2023, a portion of that quarter's note payment was extended to the first quarter of 2024. The DVO Promissory Note may be prepaid in whole or in part at any time without premium or penalty; provided, that each payment shall be accompanied by payment of all unpaid costs, fees and expenses, if any, which are due plus all accrued and unpaid interest due as of the date of such prepayment.

The outstanding principal balance under the DVO Promissory Note shall bear simple interest at a variable rate per annum equal to the rate of interest most recently published by JP Morgan Chase & Co. as the "prime rate" (the "Prime Rate"). Initially, interest will accrue at the Prime Rate as of the date of the DVO Promissory Note. The interest rate will be adjusted on a quarterly basis as of the first day of each full fiscal quarter following the first full fiscal quarter after the closing date to the then current Prime Rate. In connection with the extension of the DVO Promissory Note payment to the first quarter of 2024, the interest rate was revised to a fixed rate of 10%, with principal and interest to be paid on a weekly basis.

On October 1, 2024, the Company, entered into a loan with Grow Hill, LLC, a Washington limited liability company ("Grow Hill"). The terms are as follows:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1. Loan Details

● Principal Amount: $2,000,000.

● Interest Rate: 15% per annum, applied to the outstanding principal amount.

● Origination Fee: $100,000 (5% of the loan amount), considered as debt issuance costs under GAAP and amortized over the loan term.

● Repayment Terms: Monthly payments of interest and principal as per the Promissory Note. Ther term of the loan is 2 years.

● Optional Prepayment: Allowed if the Grow Hill has received $150,000 or more in interest payments. If less, the Company must pay the difference to reach $150,000. Prepayment requires at least one Business Day's notice.

● Mandatory Prepayment: Required if the Company fails to meet the Receivable Ratio negative covenants or events of default.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2. Collateral and Security

● Collateral: Defined in the Security Agreement.

● Security Agreement: The Company grants a perfected security interest in the Collateral to the Grow Hill.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3. The loan became effective on October 1, 2025, when the Company issued Warrants to the Grow Hill for 160,000 shares of Borrower's common stock at $2.50/share, exercisable immediately and valid for five years.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4. Covenants:

● Affirmative Covenants:

◾ Provide regular financial reports, compliance certificates, and notices of defaults or legal actions.

◾ Comply with all applicable laws and regulations, including tax payments.

◾ Cooperate with audits of accounts receivable (the Company pays audit fees unless an Event of Default occurs).

● Negative Covenants:

◾ Restrictions on creating liens, incurring additional debt, or guaranteeing third-party obligations without Grow Hill's consent.

◾ Maintain a Receivable Ratio of at least 2.00:1.00, calculated monthly.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5. Events of Default

● Include failure to pay principal or interest, breach of covenants, misrepresentation, insolvency, or legal challenges to the validity of the Loan Documents.

● Consequences: Grow Hill may accelerate repayment, enforce security interests, or exercise other remedies.

The other financing agreements relate to short-term financing of the Company's insurance policies and are at an average interest rate of 13.6%.

**NOTE 11 – RIGHT OF USE ASSETS AND LIABILITIES**

As of December 31, 2024 and 2023, the Company has seven operating type leases with an imputed annual interest rate of 11%. Each of the Company's operating type leases are utilized as office space with one lease also including a warehouse for inventory. Five of the leases were acquired by the Company in connection with the acquisitions of 2WR, Emerald, and DVO. The remaining lease terms range from less than one year to 5 years, as of December 31, 2024. As of December 31, 2024 and 2023, right of use assets were $1,534,560 and $2,041,217, respectively, and for the years ended December 31, 2024 and 2023 lease expense was $730,339 and $460,347, respectively.

The following is a summary of finance and operating lease liabilities:

---

| | | |
|:---|:---|:---|
|  | **As of December 31,** | **As of December 31,** |
|  | **2024** | **2023** |
| Operating lease liabilities related to right of use assets | $1477177 | $2087503 |
| Finance lease liability | 102455 | - |
| Less current portion | (552933) | (707141) |
| Long term | $1026699 | $1380362 |

---

The following is a schedule showing total future minimum lease payments for the Company's operating leases:

---

| | |
|:---|:---|
| **For the years ending December 31,** | **Minimum<br> Lease Payments** |
| 2025 | $652237 |
| 2026 | 456996 |
| 2027 | 333576 |
| 2028 | 246156 |
| 2029 | 82488 |
| Thereafter | - |
| Total minimum lease payments | $1771453 |
| Less: Amount representing interest | (294276) |
| Net lease obligations | $1477177 |

---

**NOTE 12 – COMMITMENTS AND CONTINGENCIES**

From time to time, the Company is involved in routine litigation that arises in the ordinary course of business. Other than below, there are no other legal proceedings for which management believes the ultimate outcome would have a material adverse effect on the Company's results of operations and cash flows.

***Gemini Loan Agreement Amendment and Default***

On December 13, 2023, our wholly-owned subsidiary UG Construction, Inc. d/b/a Emerald Construction Management, Inc. ("UG Construction") entered into (i) an interest only asset based revolving loan agreement (the "Loan Agreement") with Gemini Finance Corp. ("Gemini") pursuant to which Gemini extended to UG Construction a secured line of credit in an amount not to exceed $10,000,000, to be used to assist UG Construction and us with cash management, and (ii) a Secured Promissory Note - Revolving issued by UG Construction to Gemini (the "Promissory Note"). Pursuant to the Promissory Note, each draw was due and payable on or before 180 days after such draw is funded to UG Construction, subject to a mandatory pre-payment upon UG Construction's receipt of payment for any invoice previously submitted and approved for financing by Gemini.

On March 18, 2025, UG Construction entered into an amendment to the Loan Agreement and Promissory Note and waiver with Gemini (the "Amendment"). Pursuant to the Amendment, Gemini waived any potential or perceived events of default arising under certain circumstances, which events did not constitute specified events of default under the Promissory Note or the Loan Agreement.

Pursuant to the Amendment, the Promissory Note was amended to provide that (i) the term during which Gemini may consider advances under the Loan Agreement has been extended to January 1, 2026, and (ii) the interest applied on the outstanding principal amount of the Promissory Note will accrue interest at an annual rate of 12%, and all accrued and unpaid interest shall be paid to Gemini on the first business day of each month for the prior month. The Amendment also amended the Loan Agreement to require monthly reporting of certain accounts receivable and to include a covenant that such accounts receivable equal or exceed 125% of the sum of the total amount drawn down under the Promissory Note, plus outstanding interest, as of the applicable measurement date. In connection with the execution of the Amendment, we issued to Gemini, as an amendment fee, 150,000 shares of our common stock

On July 31, 2025, Gemini issued a notice of default to UG Construction claiming that UG Construction was in default under the line of credit due to a failure to submit receivables calculations and failing to maintain sufficient eligible accounts and to forward accounts receivable. The notice indicated that the remaining outstanding amount due under the line of credit of approximately $1.76 million was immediately due and payable with default of 1% per week accruing from the June 16, 2025 date of default claimed by Gemini, and that Gemini intended to pursue legal action if full payment was not received by August 8, 2025.

On August 21, 2025, we received a notification from Gemini stating that Gemini would proceed with a foreclosure and private sale of substantially all of the assets of UG Construction in an Article 9 sale process, pursuant to Section 9601 et seq. of the California Commercial Code (the "Asset Sale"). The Asset Sale occurred on September 4, 2025, at which Gemini acquired the assets constituting the collateral under the line of credit for $450,000.

On August 29, 2025, Gemini commenced a lawsuit captioned *Gemini Finance Corp. v. UG Construction, Inc. et al.*, case number 25CV2259 W SBC, in the U.S. District Court for the Southern District of California, which lawsuit (the "Lawsuit") included us and certain of our officers as defendants and pursuant to which Gemini claimed it was owed $1,486,189 (the "Claim Amount").

On September 26, 2025, we entered into a Settlement and Mutual General Release (the "Gemini Settlement Agreement") with Gemini. Pursuant to the terms of the Gemini Settlement Agreement, among other things, we agreed to file a joint motion requesting an expedited fairness hearing under Section 3(a)(10) of the Securities Act of 1933, as amended (the "Securities Act"), which motion was filed on September 30, 2025. Following such fairness hearing, and subject to the satisfaction of all applicable conditions and requirements of Section 3(a)(10) of the Securities Act, we agreed to issue to Gemini shares of our common stock that, upon sale by Gemini, would result in net proceeds to Gemini equal to the Claim Amount, provided that Gemini shall at no time be issued shares if it would beneficially own more than 4.99% of our common stock, and the aggregate number of shares issued to Gemini may not exceed 19.99% of our outstanding common stock as of immediately prior to the signing of the Gemini Settlement Agreement to the extent required by Nasdaq Listing Rule 5635. Additionally, Gemini agreed to use its best efforts to not sell common stock exceeding 10% of our daily volume on any given trading day. Upon the issuance of the last tranche of shares under the Gemini Settlement Agreement, Gemini will dismiss the Lawsuit with prejudice. The Gemini Settlement Agreement also included a customary mutual release of claims by the parties. The fairness hearing occurred on October 14, 2025.

 **

***Grow Hill Default***

 **

On October 1, 2024, we entered into an asset-based term Loan Agreement with Grow Hill, LLC ("Grow Hill") pursuant to which Grow Hill extended to us a secured loan of $2,100,000 with an origination fee of $100,000, which was added to the amount of the loan. The loan is evidenced by a Secured Promissory Note issued by us to Grow Hill. Grow Hill received a security interest in certain of our assets pursuant to a security agreement between us and Grow Hill (the "Security Agreement"), which does not include any assets of our subsidiaries.

On October 14, 2025, we received service of process for a lawsuit filed by Grow Hill against us in the District Court for the City and County of Denver, Colorado (Case No. 2025CV33546) alleging breach of contract and fraud. Pursuant the complaint, Grow Hill stated that we were in default under the Secured Promissory Note due to a failure to timely make payments, and elected to accelerate all amounts due under the Secured Promissory Note, including a default fee equal to 1% of the outstanding principal amount. We are currently investigating available options to resolve the complaint and intends to vigorously defend the allegation of fraud.

 **

***J Brrothers Settlement***

 **

On August 8, 2025, we entered into a Settlement and Release Agreement (the "Settlement Agreement") with J Brrothers LLC ("J Brrothers") and Herb-a-More LLC relating to a dispute arising from amounts due for certain heating, ventilation and air conditioning equipment. Pursuant to the terms of the Settlement Agreement, among other things, we issued a promissory note to J Brrothers with an original principal amount of $395,556 and issued 150,000 unregistered shares of our common stock to J Brrothers. The note accrues simple interest at an annual rate of 12% and has a maturity date of March 18, 2026. The note must be repaid in monthly installments over a period of eight months, with the first seven payments being $50,000 per month and the final monthly payment being $64,047. Any remaining principal and accrued but unpaid interest will become due and payable on the maturity date, and the note may be prepaid without penalty. The note includes customary representations and warranties, customary events of default and a 17% default interest rate.

 **

***2WR of Georgia Sale***

 **

On August 27, 2025, certain of our subsidiaries entered into a Stock and Asset Purchase Agreement (the "2WR Purchase Agreement") with 2WR Holdco, LLC (the "Buyer"). Pursuant to the 2WR Purchase Agreement, the Buyer acquired all of the outstanding shares of stock of 2WR of Georgia, Inc. and certain assets of our other subsidiaries relating to those entities' business of providing commercial, industrial and municipal architectural and construction administration services for projects not involving CEA. The purchase price paid by the Buyer consisted of $2.0 million in cash, offset by a previous deposit of $500,000 and by any assumed indebtedness.

***MJ's Market, Inc***

MJ's Market, Inc. v. Urban-Gro, Inc. et al, pending in the Suffolk County Superior Court in Massachusetts as Civil Action No. 2384-cv-02794. The original complaint, filed by MJ's Market, Inc, alleged that the Corporation prepared deign drawings for the plaintiff and subsequently sold those drawings to a competitor. The original complaint asserted claims for Breach of Contract; violation of M.G.L. c. 93A; Breach of the Covenant of Good Faith and Fair Dealing; Trademark Infringement; and Interference with Contractual Relations against the Corporation. An amended complaint has been filed which names 2WR of Colorado, Inc., which is characterized as a subsidiary or affiliate of the Corporation, in place of the Corporation. The lawsuit is ongoing.

**NOTE 13 – RISKS AND UNCERTAINTIES**

<u>Concentration Risk</u>

The tables below show customers who account for 10% or more of the Company's total revenues and 10% or more of the Company's accounts receivable for the periods presented:

---

| | | |
|:---|:---|:---|
| *Customers exceeding 10% of revenue* |  |  |
|  | **For the Year Ended<br> December 31,** | **For the Year Ended<br> December 31,** |
|  | **2024** | **2023** |
| Customers Exceeding 10% of Revenue/$: |  |  |
| C000001462 | 21% | \* |
| C000002187 | 18% | 28% |
| C000002463 | \* | 15% |
|  | 39% | 43% |

---

---

| | | |
|:---|:---|:---|
| *Customers exceeding 10% of accounts receivable* |  |  |
|  | **For the Year Ended<br> December 31,** | **For the Year Ended<br> December 31,** |
|  | **2024** | **2023** |
| C000002187 | 14% | 57% |

---

*Customers exceeding 10% of accounts receivable*

The table below shows vendors who account for 10% or more of the Company's total purchases and 10% or more of the Company's accounts payable for the periods presented:

*Vendors exceeding 10% of purchases*

 

---

| | | |
|:---|:---|:---|
| | **For the Years Ended<br> December 31,** | **For the Years Ended<br> December 31,** |
| <br>**Company Vendor Number** | **2024** | **2023** |
| V000002503 | 14% | \* |
| V000002275 | \* | 11% |

---

\* Amounts less than 10%

*Vendors exceeding 10% of accounts payable:*

---

| | | |
|:---|:---|:---|
| | **As of December 31,** | **As of December 31,** |
| <br>**Company Vendor Number** | **2024** | **2023** |
| V000002275 | \* | 13% |

---

\* Amounts less than 10%

<u>Foreign Exchange Risk</u>

Although our revenues and expenses are expected to be predominantly denominated in United States dollars, we may be exposed to currency exchange fluctuations. Recent events in the global financial markets have been coupled with increased volatility in the currency markets. Fluctuations in the exchange rate between the U.S. dollar, the Canadian dollar, the Euro, and the currency of other regions in which we may operate may have a material adverse effect on our business, financial condition and operating results. We may, in the future, establish a program to hedge a portion of our foreign currency exposure with the objective of minimizing the impact of adverse foreign currency exchange movements. However, even if we develop a hedging program, it may not mitigate currency risks.

**NOTE 14 – STOCK-BASED COMPENSATION**

Stock-based compensation expense for the years ended December 31, 2024 and 2023 was $1,426,877 and $2,199,046, respectively based on the vesting schedule of the RSUs and Stock Options ("Options"). During the year ended December 31, 2024, 477,574 RSUs vested and were issued to employees and directors. During the year ended December 31, 2023, 397,210 RSUs vested and were issued to employees and directors. No cash flow effects are anticipated for stock grants.

The Company's shareholders approved the 2021 Omnibus Stock Incentive Plan, as amended (the "Omnibus Incentive Plan"), which provides for the issuance of incentive stock options, stock grants and stock-based awards to employees, directors, and consultants of the Company to reward and attract employees and compensate the Company's Board of Directors (the "Board") and vendors when applicable, up to an aggregate 1,100,000 authorized shares of common stock. In 2023, an additional $1,200,000 shares were authorized by the shareholders. The Omnibus Incentive Plan is administered by the Company's Board. Grants of RSUs under the Omnibus Incentive Plan are valued at no less than the market price of the stock on the date of grant. The fair value of the options is calculated using the Black-Scholes pricing model based on the estimated market value of the underlying common stock at the valuation measurement date, the remaining contractual term of the options, risk-free interest rate and expected volatility of the price of the underlying common stock of 100%. There is a moderate degree of subjectivity involved when estimating the value of stock options with the Black-Scholes option pricing model as the assumptions used are moderately judgmental. Stock grants and stock options are sometimes offered as part of an employment offer package, to ensure continuity of service or as a reward for performance. Stock grants and stock options typically require a 1 to 3 year period of continued employment or service performance before the stock grant of RSUs or stock option vests.

The following schedule shows grants of RSU activity for the years ended December 31, 2024 and 2023:

---

| | |
|:---|:---|
|  | **Number of<br> Shares** |
| **Grants unissued as of December 31, 2022** | **505009** |
| &nbsp;&nbsp;&nbsp;Grants awarded | 628523 |
| &nbsp;&nbsp;&nbsp;Forfeiture/cancelled | (50066) |
| &nbsp;&nbsp;&nbsp;Grants vested and issued | (397210) |
| &nbsp;&nbsp;&nbsp;Grants vested unissued at year-end | (106844) |
| **Grants unissued as of December 31, 2023** | **579412** |
| &nbsp;&nbsp;&nbsp;Grants awarded | 1251051 |
| &nbsp;&nbsp;&nbsp;Forfeiture/Cancelled | (96337) |
| &nbsp;&nbsp;&nbsp;Grants vested and issued | (477574) |
| **Grants unissued as of December 31, 2024** | **1256552** |

---

The following table summarizes grants of RSU vesting periods:

---

| | | |
|:---|:---|:---|
| **Number of**<br> **Shares** | **Unrecognized Stock**<br> **Compensation Expense** | **As of December 31,** |
| 520346 | $717901 | 2025 |
| 403958 | $172605 | 2026 |
| 311748 | $11373 | 2027 |
| 20500 | $- | 2028 |
| 1256552 | $901879 |  |

---

The following schedules show stock option activity for the years ended December 31, 2024 and 2023:

---

| | | | |
|:---|:---|:---|:---|
|  | **Number of**<br>**Shares**  | **Weighted<br> Average<br> Remaining**<br>**Life (Years)** | **Weighted<br> Average**<br>**Exercise**<br>**Price** |
| **Stock options outstanding as of December 31, 2022** | 601427 | 5.49 | $6.84 |
| &nbsp;&nbsp;&nbsp;Issued |  | 0.00 | $0.00 |
| &nbsp;&nbsp;&nbsp;Exercised |  | 0.00 | $0.00 |
| &nbsp;&nbsp;&nbsp;Forfeited | (99598) | 0.00 | $7.01 |
| **Stock options outstanding at December 31, 2023** | 501829 | 4.67 | $6.81 |
| **Stock options exercisable at December 31, 2023** | 471288 | 0.00 | $6.70 |

---

---

| | | | |
|:---|:---|:---|:---|
|  | **Number of**<br> **Shares**  | **Weighted<br> Average<br> Remaining**<br> **Life (Years)** | **Weighted Average**<br> **Exercise**<br> **Price** |
| **Stock options outstanding as of December 31, 2023** | 501829 | 4.67 | $6.81 |
| &nbsp;&nbsp;&nbsp;Issued | 0 | 0.00 | $— |
| &nbsp;&nbsp;&nbsp;Exercised | 0 | 0.00 | $— |
| &nbsp;&nbsp;&nbsp;Forfeited | (44609) | 0.00 | $6.78 |
| **Stock options outstanding at December 31, 2024** | 457220 | 7.85 | $6.77 |
| **Stock options exercisable at December 31, 2024** | 454452 | 7.85 | $6.82 |

---

The following table summarizes stock option vesting periods under the Incentive Plans:

---

| | | |
|:---|:---|:---|
| **Number of <br> Shares** | **Unrecognized Stock <br> Compensation Expense** | **As of December 31,** |
| 2768 | $1511 | 2024 |

---

The aggregate intrinsic value of the stock options outstanding and exercisable at December 31, 2024 is $0.

**NOTE 15 – SHAREHOLDERS' EQUITY**

*Common Stock*

The Company is authorized to issue 30,000,000 shares of common stock at $0.001 par value. The holders of the Company's common stock are entitled to one vote for each share held. At December 31, 2024 and 2023, there were 14,071,390 and 12,072,836 shares of common stock outstanding, respectively.

 

*Preferred stock*

 

The Company is authorized to issue 3,000,000 shares of preferred stock with such designations, voting and other rights and preferences as may be determined from time to time by the Company's Board of Directors. The preferred stock has a par value of $0.10. As of December 31, 2024 and 2023, there were no shares of preferred stock outstanding.

*Treasury Stock*

For the years ended December 31, 2024 and 2023, the Company did not purchase any treasury stock.

**NOTE 16 – INCOME TAXES**

The Company accounts for income taxes in accordance with the asset and liability method prescribed in ASC 740, "Accounting for Income Taxes." The Company has adopted the provisions of ASC 740-10-25, which provides recognition criteria and a related measurement model for uncertain tax positions taken or expected to be taken in income tax returns. ASC 740-10-25 requires that a position taken or expected to be taken in a tax return be recognized in the financial statements when it is more likely than not that the position would be sustained upon examination by tax authorities. Tax positions that meet the more likely than not threshold are then measured using a probability weighted approach recognizing the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement. The Company had no tax positions relating to open income tax returns that were considered to be uncertain.

The Company has experienced cumulative losses for both book and tax purposes since inception. The potential future recovery of any tax assets that the Company may be entitled to due to these accumulated losses is uncertain and any tax assets that that the Company may be entitled to have been fully reserved based on management's current estimates. Management intends to continue maintaining a full valuation allowance on the Company's deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of these allowances.

The income tax benefit for the years ended December 31, 2024 and 2023 are as follows (in thousands):

---

| | | |
|:---|:---|:---|
|  | **Years ended** | **Years ended** |
|  | **December 31,<br> 2024** | **December 31,<br> 2023** |
| Current |  |  |
| &nbsp;&nbsp;&nbsp;Federal | - | $- |
| &nbsp;&nbsp;&nbsp;State | 0 | 50 |
| &nbsp;&nbsp;&nbsp;Foreign | - | - |
|  | 0 | 50 |
| Deferred |  |  |
| &nbsp;&nbsp;&nbsp;Federal | (30) | 44 |
| &nbsp;&nbsp;&nbsp;State | - | - |
| &nbsp;&nbsp;&nbsp;Foreign | - | - |
|  | (30) | 44 |
| Total income tax expense (benefit) | $(30) | $94 |

---

A reconciliation between the expected income tax provision at the federal statutory tax rate and the reported income tax provision for the periods ended are approximately as follows:

---

| | | |
|:---|:---|:---|
|  | **Years ended** | **Years ended** |
|  | **December 31, <br> 2024** | **December 31, <br> 2023** |
| Statutory Federal income tax rate | 21.0% | 21.0% |
| State income taxes, net of federal benefit | 3.8% | 2.8% |
| Research and development tax credits | 0.0% | 0.0% |
| Change in valuation allowance | (22.0)% | (18.4)% |
| Change in Tax Rate | (1.9)% | 0.0% |
| Permanent differences | 0.0% | (1.7)% |
| Goodwill Impairment | 0.0% | (4.4)% |
| Other | (0.8)% | 0.4% |
|  | 0.0% | (0.4)% |

---

The tax effects of significant items comprising the Company's deferred taxes as of December 31, 2024 and 2023 are as follows (in thousands):

---

| | | |
|:---|:---|:---|
|  | **Years ended** | **Years ended** |
|  | **December 31, <br> 2024** | **December 31,<br> 2023** |
| Deferred tax assets: |  |  |
| &nbsp;&nbsp;&nbsp;Federal, state and foreign NOL carryover | $14980 | $9532 |
| &nbsp;&nbsp;&nbsp;Lease Liabilities | $369 | $461 |
| &nbsp;&nbsp;&nbsp;Bad Debts and Other Reserves | $766 | $73 |
| &nbsp;&nbsp;&nbsp;Fixed Assets | $113 | $7 |
| &nbsp;&nbsp;&nbsp;Investments | $23 | $485 |
| &nbsp;&nbsp;&nbsp;Share-based Compensation | $532 | $- |
| &nbsp;&nbsp;&nbsp;Interest Expense | $283 | $46 |
| &nbsp;&nbsp;&nbsp;Other | $195 | $194 |
| Total deferred tax assets | 17261 | 10798 |
| Valuation Allowance | (17829) | (9786) |
| Net deferred tax assets | (568) | 1012 |
| Deferred tax liabilities: |  |  |
| &nbsp;&nbsp;&nbsp;Goodwill | $689 | $(66) |
| &nbsp;&nbsp;&nbsp;Intangible Assets | $223 | $(539) |
| &nbsp;&nbsp;&nbsp;ROU Assets | $(359) | $(451) |
| Net deferred tax asset (liability) | $(15) | $(44) |

---

At December 31, 2024, the Company had $58.0 million of Federal net operating loss which are set to expire beginning in 2037. The Internal Revenue Code contains provisions that may limit the net operating loss carryovers available to be used in any year if certain events occur, including significant changes in ownership interest.

Below is a table showing the gross net operating loss carryovers available at December 31, 2024 and their respective expiration:

---

| | | |
|:---|:---|:---|
|  | **Amount** | **Expire** |
| Federal Net Operating Losses with expiration | 1945 | 2037 |
| Federal Net Operating Losses with indefinite life | 56027 | indefinite |
| Total Federal Net Operating Losses | 57972 |  |
| Various State Net Operating Losses | 41180 | 2037-2043 |
| Canada Net Operating Losses | 1925 | 2042 |
| Netherlands Net Operating Losses | 2246 | indefinite |

---

In assessing the realizability of its deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. The Company considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. As the Company evaluate the reversal of deferred tax liabilities, projections of future taxable income over the periods in which the deferred tax assets are deductible, and after consideration of the history of operating losses, the Company does not believe it is more likely than not that it will realize the benefits of net deferred tax assets and, accordingly, has established a valuation allowance on the net deferred tax assets. The valuation allowance increased by $8.0 million during 2024.

As of December 31, 2024 and 2023, the company has not recorded any unrecognized tax benefits related to uncertain tax positions. The Company does not believe it is reasonably possible that its unrecognized tax benefits will significantly change in the next twelve months.

The Company monitors proposed and issued tax law, regulations, and cases to determine the potential impact of uncertain income tax positions. At December 31, 2024, the Company had not identified any potential subsequent events that would have a material impact on unrecognized income tax benefits within the next twelve months.

Federal and State tax returns are open for examination for the tax years beginning December 31, 2017 for three years and four years from the date of utilization of any net loss carryforwards.

Realization of operating loss carryforwards to offset future operating income for tax purposes are subject to various limitations including change of ownership and current year taxable income percentage limitations. The Company has no credit carryforwards for tax purposes.

The Company's primary filing jurisdictions are the United States, Canada, and the Netherlands. Due to the Company's net operating loss carryforwards, the Company's income tax returns remain subject to examination by federal, foreign and most state taxing authorities for all tax years.

**NOTE 17 – WARRANTS**

The following table shows warrant activity for the years ended December 31, 2024 and 2023:

---

| | | |
|:---|:---|:---|
|  | **Number of<br> shares** | **Weighted<br> Average<br> Exercise<br> Price** |
| **Warrants outstanding as of December 31, 2022** | 337150 | $12.63 |
| &nbsp;&nbsp;&nbsp;Exercised |  | $— |
| &nbsp;&nbsp;&nbsp;Terminated |  | $— |
| &nbsp;&nbsp;&nbsp;Issued for line of credit | 175531 | $1.25 |
| &nbsp;&nbsp;&nbsp;Expired loan extension | (1000) | $6.00 |
| **Warrants outstanding as of December 31, 2023** | 511681 | $8.74 |
| **Warrants exercisable as of December 31, 2023** | 337150 | $12.63 |

---

---

| | | |
|:---|:---|:---|
|  | **Number of<br> shares** | **Weighted<br> Average<br> Exercise<br> Price** |
| **Warrants outstanding as of December 31, 2023** | 511681 | $**8.74** |
| &nbsp;&nbsp;&nbsp;Exercised |  | $**—**  |
| &nbsp;&nbsp;&nbsp;Terminated/Expired | (25650) | $**14.46** |
| &nbsp;&nbsp;&nbsp;Issued | 160000 | $**2.50** |
| **Warrants outstanding as of December 31, 2024** | 646031 | $**6.97** |
| **Warrants exercisable as of December 31, 2024** | 646031 | $**6.97** |

---

The fair value of the warrants is calculated using the Black-Scholes pricing model based on the estimated market value of the underlying common stock at the valuation measurement date, the contractual term of the options, the risk-free interest rate at the date of grant and expected volatility of the price of the underlying common stock of 100%. There is a moderate degree of subjectivity involved when estimating the value of warrants with the Black-Scholes option pricing model as the assumptions used are moderately judgmental.

**NOTE 18 – SEGMENTS**

An operating segment is defined as a component of a reporting entity that engages in business activities from which it recognizes revenues and incurs expenses with discrete financial information available that is evaluated regularly by the Chief Operating Decision Maker ("CODM") of the operating segment. The CODM utilizes this financial information to decide how to allocate resources to, and in assessing performance of, the operating segment. Management evaluates segment performance primarily based on operating segment gross profit.

The Company has identified the following operating segments related to fiscal years 2024 and 2023:

● Equipment systems - Operating segment that acts as an experienced vendor providing value-added reselling to clients when selling vetted best-in-call commercial horticulture lighting solutions, rolling and automated container benching systems, specialty fans, fertigation/irrigation systems, environmental control systems, and microbial mitigation and odor reduction systems.

● Services - Operating segment that generates revenue by providing clients with design-build service offerings that include architectural, interior, and engineering design, construction management, as well as services for the operational stages of the facility. The Company's in-house architectural, interior design, engineering, construction and cultivation design services integrate design with pre-construction services and thereby reduce project schedule and capital investments.

● Construction design-build - Operating segment that engages as a general contractor to provide all the additional necessary parts to deliver clients' projects, from the initial estimate and bid process, to subcontractor selection, and management of all construction details.

In addition to the operating segments identified above, the Company recognizes other revenues and incurs costs at the corporate level where it develops and oversees the implementation of company-wide strategic initiatives and provides support to our operating segments by centralizing certain administrative functions. Corporate management is responsible for, among other things: evaluating and selecting the geographic markets in which we operate, consistent with our overall business strategy; making major personnel decisions related to employee compensation and benefits; and monitoring the financial and operational performance of the Company's operating segments. Corporate costs include general and administrative expenses related to operating our corporate headquarters.

The Company's operating segments follow the same accounting policies used for our consolidated financial statements as described in Note 1 – Summary of Significant Accounting Policies. The results of each operating segment are not necessarily indicative of the results that would have occurred had the operating segment been an independent, stand-alone entity during the periods presented, nor are they indicative of the results to be expected in future periods.

The following tables present financial information relating to our operating segments for the fiscal years ended December 31, 2024 and 2023:

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **Year Ended December 31, 2024** | **Year Ended December 31, 2024** | **Year Ended December 31, 2024** | **Year Ended December 31, 2024** | **Year Ended December 31, 2024** |
|  | **Equipment** | **Services** | **Construction** | **Corporate/ Other** | **Total** |
| Revenues | $12245675 | $8805550 | $18604827 | $352798 | $40008850 |
| Cost of revenues | 10582731 | 5548438 | 20782689 | 226611 | $37140469 |
| Gross profit | $1662944 | $3257112 | $(2177862) | $126187 | $2868381 |
| Gross profit % | 14% | 37% | (12)% | 36% | 7% |
| Intangible asset amortization | $— | $212699 | $416387 | $— | $629086 |
| Income (Loss) before income taxes | $(10570814) | $(7544541) | $(17102560) | $(1307616) | $(36525531) |
| Total assets | $4558158 | $4763388 | $10036318 | $135920 | $19493783 |

---

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **Year Ended December 31, 2023** | **Year Ended December 31, 2023** | **Year Ended December 31, 2023** | **Year Ended December 31, 2023** | **Year Ended December 31, 2023** |
|  | **Equipment** | **Services** | **Construction** | **Corporate/ Other** | **Total** |
| Revenues | $12720873 | $11919920 | $44561782 | $717473 | $69920048 |
| Cost of revenues | 11081532 | 7222964 | 41194900 | 517986 | $60017382 |
| Gross profit | $1639341 | $4696956 | $3366882 | $199487 | $9902666 |
| Gross profit % | 13% | 39% | 8% | 28% | 14% |
| Intangible asset amortization | $— | $411680 | $644500 | $— | $1056180 |
| Income (Loss) before income taxes | $(3360659) | $(1414727) | $(177618) | $(20390448) | $(25343452) |
| Total assets (liabilities) | $2800367 | $17604751 | $31310180 | $(2202231) | $49513067 |

---

**NOTE 19 – SUBSEQUENT EVENTS**

Settlement of Pullar Lawsuit

On May 5, 2022, Robert Pullar ("Pullar") filed a lawsuit against the Company and Bradley Nattrass, in his capacity as the Company's CEO, relating to a prior settlement agreement the Company had entered into with Pullar. On January 31, 2025, the parties entered into a settlement agreement, without any admission of liability or wrongdoing, to settle all claims associated with the litigation in exchange for a cash payment by the Company to Pullar of $250,000 and an issuance of a warrant to purchase up to 75,000 shares of the Company's common stock at an exercise price per share of $1.00.

Nasdaq Deficiencies

The Company has received the following communications from The Nasdaq Stock Market LLC ("Nasdaq") and, where required, responded as indicated:

● January 29, 2025 – Nasdaq granted the Company an extension to regain compliance with Nasdaq Listing Rule 5250(c)(1) (the "Filing Requirement") by February 18, 2025. The Company regained compliance with the Filing Requirement Rule on February 18, 2025.

● February 24, 2025:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;o The Listing Qualifications Department of Nasdaq notified the Company that, for the last 30 consecutive business days, the bid price for the Company's common stock had closed at a price of below $1.00 per share, which is the minimum closing price required to maintain continued listing on the Nasdaq Capital Market under Nasdaq Listing Rule 5550(a)(2) (the "Minimum Bid Requirement"). The notice had no immediate effect on the listing of the Company's common stock on Nasdaq. In accordance with Nasdaq Listing Rule 58100(c)(3)(H), the Company had 180 calendar days to regain compliance with the Minimum Bid Requirement. To regain compliance with the Minimum Bid Requirement, the closing bid price of the Company's common stock must be at least $1.00 per share for a minimum of the consecutive trading days during this 180-day compliance period, unless the Nasdaq Staff (the "Staff") exercises its discretion to extend this period pursuant to Nasdaq Listing Rule 5810(c)(3)(H). The time period for the Company to regain compliance with the Minimum Bid Requirement expired on August 25, 2025. In the event that the Company does not regain compliance within the 180-day compliance period, the Company may be eligible for an additional 180 calendar day compliance period. To qualify, the Company would be required to meet the continued listing requirement for market value of publicly held shares and all other initial listing standards for Nasdaq, with the exception of the Minimum Bid Requirement, and provide written notice to the Staff of its intention to cure the deficiency during the second compliance period, by effecting a reverse stock split, if necessary. However, if it appears to the Staff that the Company will not be able to cure the deficiency, or if the Company does not meet the other listing standards, the Staff could provide notice that the Common Stock will become subject to delisting. In the event the Company receives notice that the Common Stock is being delisted, the Nasdaq Listing Rules permit the Company to appeal any such delisting determination by the Staff to a Hearings Panel.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;o The Listing Qualifications Department of Nasdaq notified the Company that, because the stockholder's equity of the Company was below $2.5 million as reported on the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2024, the Company no longer meet the minimum stockholders' equity requirement for continued listing on The Nasdaq Capital Market under Nasdaq Rule 5550(b)(1), requiring a minimum stockholders' equity of $2.5 million (the "Minimum Stockholders' Equity Requirement"). The notice of the Company's failure to meet the Minimum Stockholders' Equity Requirement had no immediate effect on the listing of the Common Stock on Nasdaq. In accordance with Nasdaq Marketplace Rule 5810(c)(2)(C), the Company had 45 calendar days, or until April 10, 2025, to submit a plan to regain compliance. If the plan was accepted, Nasdaq may grant an extension of up to 180 calendar days from the date of the original notice to evidence compliance, or until August 25, 2025, to regain compliance with the Minimum Stockholders' Equity Requirement. In the event the plan was not accepted by Nasdaq, or in the event the plan was accepted by Nasdaq and the 180-day extension period was granted, but the Company fails to regain compliance within such plan period, the Company would have the right to a hearing before a Hearings Panel. The hearing request would stay any suspension or delisting action pending the conclusion of the hearing process and the expiration of any additional extension period granted by the Hearings Panel following the hearing.

● April 16, 2025 – Nasdaq sent the Company a notice (the "April 16 Notice") stating that because the Company had not yet filed its Annual Report on Form 10-K for the fiscal quarter ended December 31, 2024 (the "Form 10-K"), the Company was no longer in compliance with Nasdaq Listing Rule 5250(c)(1). Nasdaq Listing Rule 5250(c)(1) requires listed companies to timely file all required periodic financial reports with the Securities and Exchange Commission. The April 16 Notice stated that the Company had 60 calendar days from April 16, 2025, or until June 16, 2025, to submit to Nasdaq a plan to regain compliance with the Nasdaq Listing Rules. The Company intended to file the Form 10-K as soon as practicable and, if necessary, to submit a plan with Nasdaq to regain compliance. If Nasdaq accepted the Company's plan, then Nasdaq may, at its discretion, grant the Company up to 180 days from the prescribed due date for filing the Form 10-K, or until October 13, 2025, to regain compliance. If Nasdaq did not accept the Company's plan, then the Company had an opportunity to appeal that decision to a Nasdaq Hearings Panel. The April 16 Notice had no immediate effect on the listing of the Company's common stock on The Nasdaq Capital Market.

● May 21, 2025 – Nasdaq sent the Company a notice (the "May 21 Notice") stating that because the Company had not yet filed its Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2025 (the "March 31 Form 10-Q") or its Annual Report on Form 10-K for the fiscal year ended December 31, 2024 (the "Form 10-K"), the Company continues to be out of compliance with Nasdaq Listing Rule 5250(c)(1). Nasdaq Listing Rule 5250(c)(1) requires listed companies to timely file all required periodic financial reports with the Securities and Exchange Commission. The May 21 Notice stated that the Company had 60 calendar days from April 16, 2025, or until June 16, 2025, to submit to Nasdaq a plan to regain compliance with the Nasdaq Listing Rules. The Company intended to file the Form 10-K as soon as practicable and, if necessary, to submit a plan with Nasdaq to regain compliance. If Nasdaq accepted the Company's plan, then Nasdaq may, at its discretion, grant the Company up to 180 days from the prescribed due date for filing the Form 10-K, or until October 13, 2025, to regain compliance. If Nasdaq did not accept the Company's plan, then the Company had the opportunity to appeal that decision to a Nasdaq Hearings Panel. The May 21 Notice had no immediate effect on the listing of the Company's common stock on The Nasdaq Capital Market.

● August 18, 2025 – Nasdaq sent the Company a determination letter (the "August 18 Determination") stating that Nasdaq had determined that the Company did not file the Form 10-K and the March 31 Form 10-Q by August 15, 2025, the date required for the delinquent filings by an exception previously received from Nasdaq staff. The August 18 Determination stated that, as a result, unless that Company timely requests an appeal, the trading of the Company's common stock (the "Common Stock") would be suspended at the opening of business on August 27, 2025 and (iii) a Form 25-NSE will be filed with the SEC, which would remove the Company's securities from listing and registration on Nasdaq. The August 18 Determination also stated that the Company was not in compliance (i) with Listing Rule 5250(c)(1) due to the Company's delay in filing its Quarterly Report on Form 10-Q for the period ended June 30, 2025, and (ii) with Listing Rule 5550(b)(1), which requires the Company to maintain minimum stockholders' equity of $2.5 million. As previously reported, on February 24, 2025, Nasdaq notified the Company that it was not in compliance with Listing Rule 5550(b)(1) due to having stockholders' equity of less than $2.5 million. The Determination informed the Company that it may appeal the decision to a Hearings Panel (the "Panel"). If the Company chose to appeal, the request must be received by Nasdaq no later than 4:00 p.m. Eastern Time on August 25, 2025. The Company requested a hearing before the Panel and a preliminary date of October 7, 2025 was set for the hearing. On October 7, 2025, the Company announced that the hearing was postponed to October 14, 2025. This request stayed the suspension of the Company's Common Stock for a period of 15 days from the date of the request. In connection with this request, the Company also requested a stay of the suspension pending the hearing (the "Additional Stay").

● August 28, 2025 – Nasdaq sent the Company a determination letter (the "August 28 Determination") stating that Nasdaq had determined that the Company did not regain compliance with the Minimum Bid Requirement by August 25, 2025. The August 28 Determination stated that the failure to comply with the Minimum Bid Requirement during the compliance period would serve as an additional basis for delisting the Company's securities from the Nasdaq Capital Market and would be considered by a Hearings Panel (the "Panel"), in addition to the Company's failure to comply with (i) Nasdaq Listing Rule 5250(c)(1) due to the Company's delay in filing its Annual Report on Form 10-K for the fiscal year ended December 31, 2024 and its Quarterly Reports on Form 10-Q for the periods ended March 31, June 30, 2025 (the "Timely Filing Requirement"), and (ii) Nasdaq Listing Rule 5550(b)(1), which requires the Company to maintain minimum stockholders' equity of $2.5 million (the "Stockholders' Equity Requirement").

● October 14, 2025 – The Company presented to the Panel.

● October 30, 2025 – Nasdaq sent the Company a notice notifying the Company that the Panel had determined to grant the Company's request to continue its listing on The Nasdaq Capital Market, subject to certain conditions. Specifically, the Panel conditioned the Company's continued listing on the Company regaining compliance with the Timely Filing Requirement and the Stockholders' Equity Requirement on or before December 31, 2025 and regaining compliance with the Bid Price Rule on or before January 28, 2026. During the exception period, the Company is required to provide prompt notification to the Panel of any significant event that may affect the Company's compliance with Nasdaq requirements. Any documentation evidencing the Company's compliance will be subject to review by the Panel, which may, in its discretion, request additional information before determining whether the Company has regained compliance.

● November 18, 2025 – Nasdaq sent the Company a notice (the "November 18 Notice") stating that because the Company had not yet filed its Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2025 (the "September 30 Form 10-Q") or its Annual Report on Form 10-K for the fiscal year ended December 31, 2024 (the "Form 10-K"), the Company continues to be out of compliance with Nasdaq Listing Rule 5250(c)(1). Nasdaq Listing Rule 5250(c)(1) requires listed companies to timely file all required periodic financial reports with the Securities and Exchange Commission.

● On January 6, 2026, the Company received a determination letter (the "January 6, 2026 Determination") from Nasdaq stating that because the Company did not hold an annual meeting of stockholders within twelve months from the Company's prior fiscal year end as required by Nasdaq Listing Rule 5620(a), the resulting non-compliance would be an additional basis for delisting the Company's securities. The January 6, 2026 Determination notified the Company that the Panel would consider the matter in their decision regarding the Company's continued listing on the Nasdaq Capital Market, and requested that the Company present its views with respect to the additional deficiency in writing by January 9, 2026. The Company intends to make a submission to the Panel by the requested date, and has requested an additional extension to comply with the Bid Price Rule, the Stockholders' Equity Requirement and the Timely Filing Requirement.

Gemini Line of Credit – Loan Amendment; Notice of Default; Foreclosure and Article 9 Sale Process; Lawsuit

Loan Amendment – On March 18, 2025, UG Construction, a wholly owned subsidiary of the Company, entered into an agreement with Gemini Finance Corp. (the "Lender") to amend the terms of the original Loan Agreement and Promissory Note and waiver (the "Amendment") between UG Construction and the Lender. Pursuant to the Amendment, the Lender waived any potential or perceived events of default arising under certain circumstances, which events did not constitute specified events of default under the Promissory Note or the Loan Agreement. Pursuant to the Amendment, the Promissory Note was amended to provide that (i) the term during which the Lender may consider advances under the Loan Agreement has been extended to January 1, 2026, and (ii) the interest applied on the outstanding principal amount of the Promissory Note will accrue interest at a monthly rate of 1.75%, and all accrued by unpaid interest shall be paid to the Lender on the first business day of each month for the prior month. The Amendment also amended the Loan Agreement to require monthly reporting of certain accounts receivable and to include a covenant that such accounts receivable equal or exceed 125% of the sum of the total amount drawn down under the Promissory Note, plus outstanding interest, as of the applicable measurement date. In connection with the execution of the Amendment, the Company issued to the Lender, as an amendment fee, one hundred and fifty thousand (150,000) shares (the "Fee Shares") of the Company's common stock, par value $0.001 per share.

Notice of Default – On July 31, 2025, the Lender issued a notice of default to UG Construction claiming that UG Construction was in default under the Line of Credit due to a failure to submit receivables calculations and failing to maintain sufficient eligible accounts and to forward accounts receivable. The notice indicated that the remaining outstanding amount due under the Line of Credit of approximately $1.76 million was immediately due and payable with default of 1% per week accruing from the June 16, 2025 date of default claimed by the Lender, and that the Lender intended to pursue legal action if full payment was not received by August 8, 2025.

Foreclosure and Article 9 Sale Process – On August 21, 2025, the Company received a notification from the Lender stating that the Lender would proceed with a foreclosure and private sale of substantially all of the assets of UG Construction in an Article 9 sale process, pursuant to Section 9601 et seq. of the California Commercial Code (the "Asset Sale"). The Asset Sale occurred on September 4, 2025, at which the Lender acquired the assets constituting the collateral under the Line of Credit for $450,000.

Lawsuit – On August 29, 2025, the Lender commenced a lawsuit captioned Gemini Finance Corp. v. UG Construction, Inc. et al., case number 25CV2259 W SBC, in the U.S. District Court for the Southern District of California, which lawsuit (the "Lawsuit") included the Company and certain of its officers as defendants and pursuant to which the Lender claimed it was owed $1,486,189 (the "Claim Amount"). On September 26, 2025, the Company entered into a Settlement and Mutual General Release (the "Settlement Agreement") with the Lender. Pursuant to the terms of the Settlement Agreement, among other things, the Company agreed to file a joint motion requesting an expedited fairness hearing under Section 3(a)(10) of the Securities Act of 1933, as amended (the "Securities Act"), which motion was filed on September 30, 2025. Following such fairness hearing, and subject to the satisfaction of all applicable conditions and requirements of Section 3(a)(10) of the Securities Act, the Company would issue to the Lender shares of the Company's common stock (the "Common Stock") that, upon sale by the Lender, would result in net proceeds to the Lender equal to the Claim Amount, provided that the Lender shall at no time be issued shares if it would beneficially own more than 4.99% of the Common Stock, and the aggregate number of shares issued to the Lender shall not exceed 19.99% of the outstanding Common Stock as of immediately prior to the signing of the Settlement Agreement to the extent required by Nasdaq Listing Rule 5635. Additionally, the Lender agreed to use its best efforts to not sell Common Stock exceeding 10% of the Company's daily volume on any given trading day. Upon the issuance of the last tranche of shares under the Settlement Agreement, the Lender will dismiss the Lawsuit with prejudice. The Settlement Agreement also includes a customary mutual release of claims by the parties.

Business Loan and Security Agreement with Agile Entities

On June 26, 2025, the Company entered into a business loan and security agreement (the "Loan Agreement") with an effective date of June 24, 2025 (the "Effective Date") by and among, Agile Capital Funding, LLC, Agile Lending , LLC, a Virginia limited liability company and each assignee that becomes a party pursuant to Section 12.1 of the Loan Agreement (the "Lenders"), the Company and 2WR Of Colorado Inc., UG Construction, Inc., 2WR of Georgia, Inc., urban-gro Canada Technologies Inc., urban-gro Engineering, Inc. and urban-gro Architect Holdings, LLC, each a wholly owned subsidiary of the Company (individually, collectively, jointly and severally, the "Guarantors").

Pursuant to the Loan Agreement, the Lenders extended to the Company a term loan of $1,050,000.00 (the "Term Loan") to be used to fund the Company's general business requirements. The Loan Agreement is for a term of twenty-eight weeks from the Effective Date (the "Maturity Date") and includes an administrative agent fee of $50,000 to be remitted to Agile Capital Funding, LLC which was added to the amount of the loan. The Company may make a full prepayment or partial prepayment of the Term Loan, however, upon the prepayment of any principal amount, the Company shall be obligated to pay a premium payment of such principal so paid, which shall be equal to the aggregate and actual amount of interest that would be paid through the Maturity Date (the "Prepayment Fee"); provided however that, if the Company made a prepayment within 60 calendar days after the Effective Date, the Company would receive the discounted Prepayment Fee that is included in Exhibit E to the Loan Agreement.

The Loan contains standard events of default and representations and warranties by the Company and the Lenders including a mandatory prepayment, and an additional five (5%) percent interest rate following the occurrence of an event of default. The term loan is evidenced by a secured promissory note issued by the Company to the Lenders (the "Promissory Note"). Pursuant to the Loan Agreement, upon an event of default, the Lenders will receive a security interest in certain of the Company's assets, subject to certain exceptions.

RK Mechanical- complaint filed

On June 27, 2025, RK Mechanical LLC ("RK") filed a complaint against UG Construction and certain other defendants, with SVC Manufacturing Inc. as cross-claimant and UG Construction as cross-defendant, in the Superior Court of Arizona for Maricopa County (Case No. CV2025-022680). The complaint alleged that UG Construction served as general contractor for the construction of the construction of a PepsiCo plant in Tolleson, Arizona, and that as a result of work completed by RK, UG Construction owed $1,522,716 to RK as a result of alleged breach of contract, breach of implied covenant of good faith and fair dealing, violation of the Arizona Prompt Payment Act, and lien foreclosure. On or about October 2025, a default judgment was entered against UG Construction for $1,511,716, plus prejudgment interest of $288,346 and post-judgment interest at 8.25% plus $10,057 in attorney fees.

Action Equipment- complaint filed

On April 21, 2025, Action Equip. & Scaffold Co. ("Action") filed a complaint against UG Construction in the Superior Court of Arizona for Maricopa County (Case No. CV2025-014165). The complaint alleged that UG Construction owed Action $380,932 plus interest and attorneys' fees in connection with a contract pursuant to which Action leased equipment to UG Construction, and alleged breach of contract, breach of covenant of good faith and fair dealing, and unjust enrichment. A default judgment was subsequently entered against UG Construction, and Action filed a writ of garnishment on October 21, 2025.

Settlement with Vendor

On August 8, 2025, the Company entered into a Settlement and Release Agreement (the "Settlement Agreement") with J Brrothers LLC ("J Brrothers") and Herb-a-More LLC relating to a dispute arising from amounts due for certain heating, ventilation and air conditioning equipment. Pursuant to the terms of the Settlement Agreement, among other things, the Company issued a promissory note to J Brrothers with an original principal amount of $395,556 (the "Note") and issued 150,000 unregistered shares of the Company's common stock to J Brrothers (the "Shares"). The Note will accrue simple interest at an annual rate of 12% and has a maturity date of March 18, 2026. The Note will be repaid in monthly installments over a period of eight months, with the first seven payments being $50,000 per month and the final monthly payment being $64,047. Any remaining principal and accrued but unpaid interest will become due and payable on the maturity date, and the Note may be prepaid without penalty. The Note includes customary representations and warranties, customary events of default and a 17% default interest rate.

The Company is currently in a payment default under the terms of the Note.

Services – Sale of 2WR Georgia, Inc.; Sale of Customer Lists: Remaining Services

On August 27, 2025, the Company announced that certain subsidiaries (the "Seller Parties") of the Company entered into a Stock and Asset Purchase Agreement (the "August 27 Purchase Agreement") with 2WR Holdco, LLC (the "Buyer"). Pursuant to the August 27 Purchase Agreement, the Buyer acquired (the "Acquisition") all of the outstanding shares of stock of 2WR of Georgia, Inc. ("2WRGA") and certain assets of other subsidiaries of the Company relating to those entities' business of providing commercial, industrial and municipal architectural and construction administration services for projects not involving CEA, with such CEA business being retained by the Company.

The purchase price paid by the Buyer for the Acquisition consisted of $2.0 million in cash and by any assumed indebtedness. The August 27 Purchase Agreement includes non-competition and non-solicitation restrictions applicable to the Seller Parties and customary representations and warranties and covenants of the parties. Subject to certain limitations, (i) the Seller Parties will indemnify the Buyer and its affiliates and representatives against certain losses related to, among other things, breaches of the Seller Parties' representations, warranties or covenants, any liabilities other than those assumed by the Buyer under the August 27 Purchase Agreement, assets excluded from the Acquisition, pre-closing taxes, operation of the CEA business and pre-closing employment matters, and (ii) the Buyer will indemnify the Seller Parties and their respective affiliates and representatives against certain losses related to breaches of the Buyer's representations, warranties or covenants, and any losses related to any asset acquired by the Buyer or any liability assumed by the Buyer under the August 27 Purchase Agreement.

On November 5, 2025, the Seller Parties entered into a Bill of Sale, Assignment and Assumption, and Purchase Agreement (the "November 5 Purchase Agreement") with 2WRGA. Pursuant to the November 5 Purchase Agreement, 2WRGA acquired (the "Follow On Acquisition") certain customer lists of the Seller Parties.

The purchase price paid by 2WRGA for the Follow On Acquisition consisted of $143,000 in cash. Additionally, pursuant to the November 5 Purchase Agreement, the parties agreed to waive and terminate the non-solicitation provision applicable to 2WRGA that was contained in the August 27 Purchase Agreement among the Seller Parties, the Company and the other parties thereto.

During the fourth quarter of 2025, the Company began winding down the remaining services businesses and furloughed those employees.

Binding Letter of Intent with Flash Sports & Media, Inc.

On October 14, 2025, the Company entered into a binding letter of intent (the "LOI") with Flash Sports & Media, Inc. ("Flash") regarding a proposed transaction pursuant to which the parties intend to merge Flash with and into a newly formed wholly-owned subsidiary of the Company, which would then merge with and into a second wholly-owned subsidiary of the Company (collectively, the "Merger").

Pursuant to the LOI, the parties have agreed, subject to satisfaction of certain conditions, to negotiate and execute a definitive merger agreement in accordance with the terms set forth in the LOI. The LOI provides that Flash would pay to the Company a cash deposit of $200,000 within fifteen days of its execution. In connection with the Merger, the stockholders of Flash would receive (i) unregistered shares of the Company's common stock, par value $0.001 per share ("Common Stock") equal to 19.99% of the outstanding shares of Common Stock as of immediately prior to the Merger, and (ii) unregistered shares of a newly-created series of non-voting preferred stock that would be economically equivalent to Common Stock (the "Preferred Stock") and would automatically convert into Common Stock upon receipt of approval by the Company's stockholders.

The LOI contemplates that the former stockholders of Flash would own approximately 90% of the Company following the Merger, assuming full conversion of the Preferred Stock. Upon closing of the Merger, the Company would change its name to Flash Sports & Media Holdings, Inc. or a similar name. The Company would be required to obtain approval of its stockholders for conversion of the Preferred Stock as soon as reasonably practicable following the Merger.

The LOI provides that following the Merger, the board of directors (the "Board") of the Company would be reconstituted such that four members of the Board would be designated by the Board prior to the Merger and one member of the Board would be designated by the former stockholders of Flash. Upon approval of the Company's stockholders for the conversion of the Preferred Stock, the Board would be further reconstituted such that one member of the Board would be designated by the Board prior to the Merger and four members of the Board would be designated by the former stockholders of Flash.

The LOI provides for an exclusivity period of 90 days following the execution of the LOI. During that period, the Company agreed that neither it nor its affiliates will, among other things, solicit, provide any information or enter into any agreement with any other party concerning a transaction similar to the Merger.

Equity Issuances After December 31, 2024

Subsequent to the year ended December 31, 2024, inclusive of RSU vesting, an additional 3,679,250 shares of common stock were issued.

## Exhibit 21.1

**Exhibit 21.1**

**SUBSIDIARIES OF THE REGISTRANT**

---

| | |
|:---|:---|
| **Entity Name** | **Jurisdiction of Formation** |
| urban-gro Canada Technologies, Inc. | Canada |
| urban-gro Europe B.V. | Netherlands |
| urban-gro Europe OPS B.V. | Netherlands |
| UGFS, LLC | Colorado |
| Impact Engineering, Inc. | Colorado |
| urban-gro Engineering, Inc. | Colorado |
| urban-gro Architect Holdings, LLC | Colorado |
| 2WR of Colorado, Inc. | Colorado |
| 2WR of Georgia, Inc. | Georgia |
| MJ12 Design Studio, Inc. | Colorado |
| Emerald Construction Management, Inc. | Colorado |

---

## Exhibit 23.1

**Exhibit 23.1**

**<u>CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM</u>**

We consent to the incorporation by reference in the following Registration Statements of urban-gro, Inc. (the "Company"), of our report dated January 16, 2026, relating to the consolidated financial statements of the Company as of December 31, 2024 and 2023, and for the years then ended, included in this Annual Report (Form 10-K) for the years ended December 31, 2024 and 2023:

 

● Registration Statements on Form S-8 (File Nos. 333-233472, 333-256658, and 333-274325)

 

/s/ Sadler, Gibb & Associates, LLC

Draper, UT

January 16, 2026

## Exhibit 31.1

**Exhibit 31.1**

**CERTIFICATION PURSUANT TO**

**18 USC, SECTION 1350, AS ADOPTED PURSUANT TO**

**SECTION 302 OF THE SARBANES OXLEY ACT OF 2002**

I, Bradley Nattrass, certify that:

1. I have reviewed this annual report on Form 10-K of urban-gro,
Inc.;

2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are
responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))
and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

&nbsp;&nbsp;&nbsp;&nbsp;a. Designed such disclosure controls and procedures, or caused
such disclosure controls and procedure to be designed under our supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which
this report is being prepared;

&nbsp;&nbsp;&nbsp;&nbsp;b. Designed such internal control over financial reporting,
or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;

&nbsp;&nbsp;&nbsp;&nbsp;c. Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures,
as of the end of the period covered by this report based upon such evaluation; and

&nbsp;&nbsp;&nbsp;&nbsp;d. Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's
fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's
internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have
disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the
audit committee of the registrant's board of directors (or persons performing the equivalent functions):

&nbsp;&nbsp;&nbsp;&nbsp;a. All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial information; and

&nbsp;&nbsp;&nbsp;&nbsp;b. Any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrant's internal control over financial reporting.

---

| | |
|:---|:---|
| Dated: January 16, 2026 | */s/ Bradley Nattrass* |
|  | Bradley Nattrass |
|  | Chairperson of the Board of Directors<br> and Chief Executive Officer |

---

## Exhibit 31.2

**Exhibit 31.2**

**CERTIFICATION PURSUANT TO**

**18 USC, SECTION 1350, AS ADOPTED PURSUANT TO**

**SECTION 302 OF THE SARBANES OXLEY ACT OF 2002**

I, Richard A. Akright, certify that:

1. I have reviewed this annual report on Form 10-K of urban-gro,
Inc.;

2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are
responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))
and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

&nbsp;&nbsp;&nbsp;&nbsp;a. Designed such disclosure controls and procedures, or caused
such disclosure controls and procedure to be designed under our supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which
this report is being prepared;

&nbsp;&nbsp;&nbsp;&nbsp;b. Designed such internal control over financial reporting,
or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;

&nbsp;&nbsp;&nbsp;&nbsp;c. Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures,
as of the end of the period covered by this report based upon such evaluation; and

&nbsp;&nbsp;&nbsp;&nbsp;d. Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's
fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's
internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have
disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the
audit committee of the registrant's board of directors (or persons performing the equivalent functions):

&nbsp;&nbsp;&nbsp;&nbsp;a. All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial information; and

&nbsp;&nbsp;&nbsp;&nbsp;b. Any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrant's internal control over financial reporting.

---

| | |
|:---|:---|
| Dated: January 16, 2026 | */s/ Richard A. Akright* |
|  | Richard A. Akright |
|  | Chief Financial Officer |

---

## Exhibit 32.1

**Exhibit 32.1**

**CERTIFICATION PURSUANT TO**

**18 USC, SECTION 1350, AS ADOPTED PURSUANT TO**

**SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002**

In connection with this annual report of urban-gro Inc. (the "Company") on Form 10-K for the fiscal year ended December 31, 2024, as filed with the Securities and Exchange Commission on January 16, 2026 (the "Report"), we, the undersigned, in the capacities and on the date indicated below, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of our knowledge:

1 .The Report fully complies with the requirements of Rule 13(a) or 15(d) of the Securities Exchange Act of 1934; and

&nbsp;&nbsp;&nbsp;&nbsp;2. The information contained in the Report fairly presents,
in all material respects, the financial condition and results of operations of the Company.

---

| | |
|:---|:---|
| **Dated: January 16, 2026** | ***/s/ Bradley Nattrass*** |
|  | **Bradley Nattrass** |
|  | **Chairperson of the Board of Directors and Chief Executive Officer** |
| **Dated: January 16, 2026** | ***/s/ Richard A. Akright*** |
|  | **Richard A. Akright** |
|  | **Chief Financial Officer** |

---

## Exhibit 97.1

**Exhibit 97.1**

**urban-gro, Inc. (the "Company")**

**CLAWBACK POLICY**

**<u>Introduction</u>**

The Board of Directors of the Company (the "**Board**") believes that it is in the best interests of the Company and its stockholders to create and maintain a culture that emphasizes integrity and accountability and that reinforces the Company's pay-for-performance compensation philosophy. The Board has therefore adopted this policy which provides for the recoupment of certain executive compensation in the event of an accounting restatement resulting from material noncompliance with financial reporting requirements under the federal securities laws (the "**Policy**"). This Policy is designed to comply with Section 10D of the Securities Exchange Act of 1934 (the "**Exchange Act**").

**<u>Administration</u>**

This Policy shall be administered by the Compensation Committee (the "**Comp Committee**"). Any determinations made by the Comp Committee shall be final and binding on all affected individuals.

**<u>Covered Executives</u>**

This Policy applies to the Company's current and former executive officers, as determined by the Comp Committee in accordance with Section 10D of the Exchange Act and the listing standards of the national securities exchange on which the Company's securities are listed, and such other senior executives/employees who may from time to time be deemed subject to the Policy by the Comp Committee ("**Covered Executives**").

**<u>Recoupment; Accounting Restatement</u>**

In the event the Company is required to prepare an accounting restatement of its financial statements due to the Company's material noncompliance with any financial reporting requirement under the securities laws, the Comp Committee will require reimbursement or forfeiture of any excess Incentive Compensation received by any Covered Executive during the three completed fiscal years immediately preceding the date on which the Company is required to prepare an accounting restatement.

**<u>Incentive Compensation</u>**

For purposes of this Policy, Incentive Compensation means any of the following; provided that, such compensation is granted, earned, or vested based wholly or in part on the attainment of a financial reporting measure:

a.Annual bonuses and other short- and long-term cash incentives.

b.Stock options.

c.Stock appreciation rights.

d.Restricted stock.

e.Restricted stock units.

f.Performance shares.

g.Performance units.

Financial reporting measure means any measure that is determined and presented in accordance with the accounting principles used in preparing the Company's financial statements.

**<u>Excess Incentive Compensation: Amount Subject to Recovery</u>**

The amount to be recovered will be the excess of the Incentive Compensation paid to the Covered Executive based on the erroneous data over the Incentive Compensation that would have been paid to the Covered Executive had it been based on the restated results, as determined by the Comp Committee.

If the Comp Committee cannot determine the amount of excess Incentive Compensation received by the Covered Executive directly from the information in the accounting restatement, then it will make its determination based on a reasonable estimate of the effect of the accounting restatement.

**<u>Method of Recoupment</u>**

The Comp Committee will determine, in its sole discretion, the method for recouping Incentive Compensation hereunder which may include, without limitation:

(a) requiring reimbursement of cash Incentive Compensation previously paid;

(b) seeking recovery of any gain realized on the vesting, exercise, settlement, sale, transfer, or other disposition of any equity-based awards;

(c) offsetting the recouped amount from any compensation otherwise owed by the Company to the Covered Executive;

(d) cancelling outstanding vested or unvested equity awards; and/or

(e) taking any other remedial and recovery action permitted by law, as determined by the Comp Committee.

**<u>No Indemnification</u>**

The Company shall not indemnify any Covered Executives against the loss of any incorrectly awarded Incentive Compensation.

**<u>Interpretation</u>**

The Comp Committee is authorized to interpret and construe this Policy and to make all determinations necessary, appropriate, or advisable for the administration of this Policy. It is intended that this Policy be interpreted in a manner that is consistent with the requirements of Section 10D of the Exchange Act and any applicable rules or standards adopted by the Securities and Exchange Commission or any national securities exchange on which the Company's securities are listed.

**<u>Effective Date</u>**

This Policy shall be effective as of the date it is adopted by the Board (the "**Effective Date**") and shall apply to Incentive Compensation that is approved, awarded or granted to Covered Executives on or after that date.

**<u>Amendment; Termination</u>**

The Board may amend this Policy from time to time in its discretion and shall amend this Policy as it deems necessary to reflect final regulations adopted by the Securities and Exchange Commission under Section 10D of the Exchange Act and to comply with any rules or standards adopted by a national securities exchange on which the Company's securities are listed. The Board may terminate this Policy at any time.

**<u>Other Recoupment Rights</u>**

The Board intends that this Policy will be applied to the fullest extent of the law. The Board may require that any employment agreement, equity award agreement, or similar agreement entered into on or after the Effective Date shall, as a condition to the grant of any benefit thereunder, require a Covered Executive to agree to abide by the terms of this Policy. Any right of recoupment under this Policy is in addition to, and not in lieu of, any other remedies or rights of recoupment that may be available to the Company pursuant to the terms of any similar policy in any employment agreement, equity award agreement, or similar agreement and any other legal remedies available to the Company.

**<u>Impracticability</u>**

The Comp Committee shall recover any excess Incentive Compensation in accordance with this Policy unless such recovery would be impracticable, as determined by the Comp Committee in accordance with Rule 10D-1 of the Exchange Act and the listing standards of the national securities exchange on which the Company's securities are listed.

**<u>Successors</u>**

This Policy shall be binding and enforceable against all Covered Executives and their beneficiaries, heirs, executors, administrators or other legal representatives.