What changed in this filing

/stocks — the workspaceLOADING

Item 1. Business

2026-01-16 compared with 2024-03-28 · 487 added, 345 removed, 14 unchanged (98% of the section changed)

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.

(“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".

urban-gro is an integrated professional services and construction design-build firm.

Our business focuses primarily on providing fee-based knowledge-based services as well as the value-added reselling of equipment.

We derive income from our ability to generate revenue from our clients through the billing of our employees’ time spent on client projects.

We offer value-added architectural, engineering, systems procurement and integration, and construction design-build solutions to customers operating in the controlled environment agriculture ("CEA") and industrial and other commercial ("Commercial") sectors.

Our evolution, both organically and through the acquisition of engineering, architecture, and construction management firms has enabled us to successfully diversify into the commercial sectors of the clients we serve, as well as the capabilities we offer, which we believe has helped insulate our business from any one sector.

Even with this successful diversification, our main focus and value-add has always been and remains in providing solutions to our CEA clients, where we have experience and expertise in designing, engineering, building, and integrating complex environmental equipment systems into indoor CEA cultivation and retail facilities, and then providing ongoing maintenance, training, and support services to those same facilities.

We aim to work with our clients from inception of their project in a way that provides value throughout the life of their facility.

Clients, regardless of sector they are in, engage 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 create high-performance indoor cultivation facilities to grow specialty crops, including cannabis as well as produce such as leafy greens, vegetables, herbs and berries.

We also provide design-build solutions for our CEA clients' retail facilities.

We help 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 establish facilities that allow clients to manage, operate and perform at the highest level throughout their entire cultivation lifecycle once they are up and running.

For these CEA clients, our team provides services to meet the most stringent regulatory environments, whether they are energy efficiency goals, Good Agricultural and Collection Practices ("GACP"), or Good Manufacturing Practice ("GMP") and/or European Medicine Agency EU GMP ("EU/GMP") certification.

While we have successfully diversified our target markets across several commercial sectors, the majority of our clients are commercial CEA cultivators.

We believe a key differentiation point that clients value is the depth of our employees’ and Company’s experience.

As of December 31, 2023, we employed 130 full time employees, approximately two-thirds of which are considered experts in their areas of focus.

Our team includes 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.

Since January 1, 2023, we have announced the following contracts:

• September 26, 2023 - Awarded contract for more than $11.0 million of design-build services with an existing client in the Hospitality & Recreation sector to be recognized over the next six quarters.

While this contract has been started as of December 31, 2023, the Company now expects that the contract will take two quarters longer than expected to complete, therefore extending into 2025.

• October 2, 2023 - Secured contracts of nearly $8.0 million across four clients in the CEA sector to be recognized over the next four quarters.

While the largest of these contracts, valued at approximately $7 million dollars, did start in the first quarter of 2024, the Company now it will be completed by the first quarter of 2025, one additional quarter more than had been forecast.

The Company expects that the other three contracts will be completed in the previously announced timeframe.

• October 4, 2023 - Signed multiple contracts valued at more than $4.5 million to be recognized over the next two quarters.

The Company expects that these contracts will be completed in the previously announced timeframe.

• November 30, 2023 - Awarded $9.6 million industrial design-build contract with an existing CPG client to be recognized over the next three quarters.

While this contract did not start as anticipated in the fourth quarter of 2023, the value was increased to $11 million dollars with the addition of supplying mechanical equipment systems to the scope, it did kick off in the first quarter of 2024.

The Company now expects that the contract will take one additional quarter over the previously announced timeframe to be completed.

• January 2, 2024 - Secures design-build contract valued at approximately $20.0 million of design-build services with an existing vertically integrated United States based multi-state cannabis cultivation and retail dispensary operator to be recognized over the next six quarters.

This contract was not started as of December 31, 2023, but kicked off in the first quarter of 2024, and the Company still expects that the contract will be completed in the previously announced timeframe.

Our Solutions

Since commencing business in March 2014, we have 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 are a trusted partner and adviser to our clients and provide value to our clients regardless of the sector in which they sit or solution for which they are utilizing us.

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 are clear.

There is a single responsible party for our clients' needs from conception through operational start.

This results in greater efficiencies throughout the design-build process and a faster speed to launch.

Additionally, our experience and expertise within our sectors help to prevent costly mistakes for our clients.

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

Our design-build solution, when focused on indoor CEA, offers an integrated suite of in-house services and equipment systems that generally fall within the following categories:

• Service Solutions:

• Architectural Design, Engineering, and Construction Services – A comprehensive collection of services including:

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”.

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.

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.

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

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.

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.

urban-gro at December 31, 2024

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.

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’

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;

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.

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.

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.

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

Cultivation Space Programming ("CSP")

Architectural Design and Interior Design

Integrated Cultivation Design ("ICD")

Owner's Representative Services / Construction Management ("CM")

General Contracting ("GC")

• Additional Service Offerings including:

Facility and Equipment Commissioning Services

gro-care ® Crop and Asset Protection Services including Training Services, Equipment Maintenance Services, Asset Protection Program, and an Interactive Online Operating Support System ("OSS") for gro-care ® and client document delivery and project management

Property Condition Assessment ("PCA")

• Integrated Equipment Systems Solutions:

• Design, Source, and Integration of Complex Environmental Equipment Systems including Heating, Ventilation, and Air Conditioning ("HVAC") solutions, Environmental Controls, Fertigation, and Irrigation Distribution

• Value-Added Reselling ("VAR") of Cultivation Equipment Systems

• Strategic Vendor Relationships with Premier Manufacturers

Service Solutions

Architectural Design, Engineering, and Construction Services

We generate revenue by providing our clients with design-build service offerings that include 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 integrate design with pre-construction services and thereby reduce project schedule and capital investments.

Pre-Construction Services include 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 provides an optimized analysis of spatial needs based on stipulated criteria and can 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.

Our services are built around an integrated design process focused on the collaborative development of client-driven solutions.

Specific to the CEA industry, our team’s understanding of the relationship between people, plants, and process helps clients maximize profits and efficiencies while minimizing capital investments, and operational and maintenance costs.

Interior Design involves branding and development of the interior aesthetic vision.

Our collaborative and integrated approach from our award-winning team begins with inspiration boards focused on understanding the client’s aesthetic desires.

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 provide engineered construction contract documents for mechanical, HVAC, plumbing and electrical systems required for the building permits necessary to obtain a Certificate of Occupancy.

Our team evaluates client capabilities, needs, desires, and budget in development of recommended systems through a client-focused collaborative process culminating in the delivery of high-performance and low-maintenance systems.

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 provides the foundation for ensuring optimal space utilization as they utilize an integrated and collaborative design process focused on understanding, vetting, and implementing the client’s vision.

Products utilized in the ICD’s basis-of-design ensures the integration of high-quality systems and product performance.

These detailed ICD plans are taken through the construction document stage and are leveraged by our clients to efficiently solicit contractor bids.

Construction and Construction Management provides 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 skilled project managers, specialized within our clients' sectors, maintain knowledgeable open lines of communication with both clients, onsite superintendents, and internal and external construction partners to manage expectations, costs and schedules.

Our Additional Service Offerings

Our Facility and Equipment Commissioning Services provide 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 confirms 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 ® 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 focuses 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 PCA offering provides value to all clients regardless of sector, but also adds unique value for our clients in the CEA sector.

PCA includes researching historical records of the building as related to code issues, field documentation of existing conditions, a report of findings with materials systems categorized by condition, and a capital expenditure report for correction of any deficiencies.

For our clients in the CEA sector, our PCA offering provides analysis of components specifically within CEA facilities, both with an eye towards critical cultivation and manufacturing systems as well as helping clients understand a facility's ability to meet any state regulations that may have evolved such as adherence to standards such as Current Good Manufacturing Practices ("cGMP"), EU-GMP, and/or World Health Organization guidelines on GACP.

PCA provides necessary data for clients to understand options for optimizing operational performance, understanding deficiencies, and property preparing for necessary capital expenditures.

Integrated Equipment Solutions

While our engineers play an integral part in the design of most of the complex equipment systems that are then integrated into a CEA facility, we also provide consultative reselling of more common solutions that we integrate 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):

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.

integration of Pre-Construction Services can expedite project completion, lower initial project costs, and help reduce costly change

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

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 ® 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;

1 unchanged sentence

and (iv) lighting.

The complex equipment systems that we design and procure for our clients play 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 designs these systems to fit within our clients'

budgets and provides 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.

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 our engineers and product experts offer to our clients.

Not only are many competing products reviewed in each category with the intention of vetting the best solution, but we also continually search out and review competing technologies to ensure that only the best-in-class equipment systems are integrated into our projects.

As such, we believe it will be imperative to maintain and to continue to develop close relationships with both existing and new leading technology and manufacturing providers.

Today, we typically do not sell any cultivation equipment systems individually as a one-time sale.

The majority of equipment sales are sold as part of a larger all-encompassing project solution that spans over a 12 to 24 month period and includes design, engineering, and the sale of both custom complex and more standard equipment systems.

Strategic Vendor 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 clients and design, engineer, and integrate whatever equipment fits the client's needs.

Revenues and Gross Profit Margins

As our business has evolved and diversified into design-build offerings, our margin profiles have changed.

Professional service revenues for engineering design services contracts can be hundreds of thousands of dollars, depending on the spectrum of services desired by the client and the size of the facility.

Construction design-build contracts can run in the tens of millions of dollars depending on the overall size of the facility.

Equipment revenues for customized equipment systems can be millions of dollars, depending on the size of the cultivation facilities, the complexity and types of systems purchased by the client, and the number of systems purchased by the client.

Sales of other products are typically of a recurring nature each month to a client and can be in the tens of thousands of dollars.

Targeted gross profit margins for each of the Company’s revenue categories are as follows:

• Professional services - greater than forty percent;

• Construction design-build services - greater than six percent;

• Customized equipment systems - greater than ten percent;

• Other products revenues - greater than fifteen percent.

Gross profit margins are highly dependent on the complexity and size of the project.

We primarily market and sell our solutions to clients in the CEA and Commercial sectors.

In the CEA sector, our clients include operators and facilitators in both the cannabis and produce markets in the United States, Canada, and Europe.

In the Commercial sector, we work with leading food and beverage consumer packaged goods companies in the United States, and clients in healthcare, higher education, and hospitality.

Environment, Social, and Governance

At urban-gro, we recognize the critical role that sustainable and responsible business practices play in shaping a resilient and prosperous future.

In 2023, we partnered with an ESG service provider to proactively embark on our corporate ESG journey.

While we are not formally aligning with a specific framework, we are using the World Economic Forum (WEF)’s Stakeholder Capitalism Metrics as a guide for our reporting.

The WEF has created a framework of ESG metrics and disclosures based on what it refers to as

the four pillars:

Planet, People, Prosperity, and Governance.

Currently in the final stages of development, our inaugural ESG report will be published on our website and will serve as a reflection of our commitment to transparency and the integration of ESG principles into our core business strategies.

urban-gro’s ESG initiative is led by a Board of Directors subcommittee which was formed in recognition of the increasing importance of sustainable and ethical business practices and responsible governance in the modern business landscape.

In partnership with the broader Board of Directors, the ESG committee aims to:

• Strengthen the alignment of our corporate values

• Align stakeholder expectations

• Manage risk

• Ensure compliance

• Support investor relations

• Enhance the brand

• Boost innovation and efficiency

• Boost employee engagement

• Create long-term value

• Adapt to changing markets and trends

To better understand the topics most material to our business and actively engage stakeholders, urban-gro conducted a double materiality assessment to gain ‘inside-out’ and ‘outside-in’ perspectives.

We engaged 29 internal and external stakeholders with a web-based materiality survey to gather quantitative and qualitative insights on impacts, risks, and opportunities.

Analysis of this data identified 14 sustainability areas that present material impacts and opportunities for our organization.

Of those 14, we prioritized the top five to inform our decision-making and reporting goals for the upcoming year.

The top five topics are listed below:

• Data and Cybersecurity

• Business Ethics

• Diversity, Inclusion, and Equal Opportunity

• Energy Management

• Recruitment, Development, and Retention

Focus on environmental material matters, stakeholders emphasized energy and water management alongside clean technology to foster sustainable, efficient, and regulatory compliance in our operational practices.

Climate adaptation and transition risk management were classified as essential in the Materiality Assessment in navigating the shift toward a low-carbon economy.

As a professional services design-build firm focused on Controlled Environment Agriculture (CEA), our approach to sustainable facility design and construction has a direct impact on environmental well-being.

We aim to be a part of the solution to the climate challenge by aligning with CEA industry best practices around water conservation and reuse, reduction of the carbon footprint associated with production and distribution, and increasing the efficiency of harvests.

Our team has worked on over 1,000 CEA projects around the

world and combined with our team’s experience with Leadership in Energy and Environmental Design (LEED) and (EU)GMP facility certification, we are successfully reducing waste, water consumption, and carbon consumption across multiple market sectors.

As technological advancement continues, we intend to work with our partners to incorporate more earth-friendly practices and solutions in CEA and other commercial sectors.

Such concepts include, but are not limited to, active energy management, HVAC efficiency, and innovations in lighting.

By helping to reduce our clients’ footprints, we recognize the importance of measuring and reducing our own carbon footprint as well.

While we have not formally begun measuring and reporting on our greenhouse gas (GHG) emissions due to our small size and the early nature of our operations, as we grow and add resources—or if the results of future stakeholder Materiality Assessments emphasize a growing interest in this metric—we will further investigate regular GHG emissions monitoring and reporting.

Data and cybersecurity topped the social material matters, with the criticality of safeguarding data integrity, privacy, and resilience against cyberattacks essential to maintaining stakeholder trust, regulatory compliance, and business continuity.

We understand the material effects that cybersecurity has on our business operations and have various measures in place to monitor and safeguard our information technology systems.

These tactics include ongoing employee training, maintenance of backup and protective systems, and use of modern endpoint detection and response tools.

We operate in a fully cloud-based environment to enhance scalability, flexibility and resilience against damage, disruption, and unauthorized access.

In 2023, we documented over 100 hours of company-wide training.

Documented policies and requirements cover topics like data security, email, hardware and software compliance, network security, password policy, patch policy, purchasing policy, and technology disposal.

A combination of these and other efforts like third-party supported internal and external pen testing, real-time backups, and full adoption of the NIST Cyber Security Framework 2.0 have resulted in a nearly 25-point advantage in urban-gro’s Microsoft Secure Score relative to other similar-sized businesses.

Promoting diversity and employee well-being is likewise crucial to building trust, fostering innovation and resilience, and driving long-term organizational success.

In the Materiality Assessment, stakeholders noted how promoting diversity in the workforce enhances morale, productivity, and social cohesion within communities.

By fostering an inclusive workplace culture, urban-gro not only meets societal expectations but also contributes to economic equity and social progress.

In the spirit of this commitment, the Company introduced a ‘floating holiday’ in 2024 that allows each employee flexibility and choice when it comes to observing holidays.

The ‘floating holiday’ aims to empower each of our team members to celebrate meaningful moments in a way that aligns with their values and beliefs.

We are also proud supporters of several charities and associations including Teens for Food Justice, an organization that is catalyzing a youth-led movement to end food insecurity through high-capacity, school-based hydroponic farming.

Our company and/or employees are also members of industry associations and trade groups like American Hort, Association for Vertical Farming, the American Society of Heating, Refrigeration, and Air-Conditioning (ASHRAE), the Georgia City-County Management Association (GCCMA), the Georgia Chapter of APPA (GAPPA), the Global Cannabis Network Collective (GCNC), the National Cannabis Industry Association (NCIA), and the National Cannabis Roundtable (NCR).

At urban-gro, we understand that the workplace reflects the world around us, and we want to ensure that everyone feels valued and respected.

From a governance perspective, prioritizing ethics, resilient business models, and effective governance was highlighted by stakeholders in the Materiality Assessment to bring integrity, adaptability, and sustained performance amidst evolving market landscapes.

Stakeholders recognized how adherence to high ethical standards fosters transparency, accountability, and investor confidence.

urban-gro takes a multi-pronged approach to guide a successful governance program and ensure that our stakeholders’ best interests are acted upon.

This starts with our strong and diverse Board of Directors comprised of leaders from a variety of fields and backgrounds.

The Board Diversity matrix is published annually on our website ir.urban-gro.com and within our proxy materials.

Currently, we utilize four Board committees:

• The Audit Committee:

Focuses on internal controls, risk management, and multi-discipline oversight enabled by its charter and structure.

• The Compensation Committee:

Focuses on compensation principles, policies, and practices for all employees.

• The Nominating and Corporate Governance Committee:

Oversees the Company’s corporate governance practices and procedures and recruits, nominates, and makes recommendations to retain Board members.

• The Environmental, Social, Governance Committee:

Oversees the Company’s approach to ESG practices and procedures.

In addition to charters for the committees listed above, we have a Code of Business Ethics and Conduct along with documented policies related to Anti-Corruption/Code of Business Ethics, Whistleblower Policy and Hotline, Enterprise Risk Management, Independent Pay Consultant, and Insider Trading.

By upholding governance excellence, we aim to mitigate risks and contribute to the stability and integrity of our business environment.

Costs and Effects of Compliance with Environmental Laws

Our current business operations are not subject to any material environmental laws, rules or regulations that would have an adverse material effect on our business operations or financial condition or result in a material compliance cost.

Growth Strategy

Our employees and the application of their acquired knowledge are our most valuable assets as an organization.

Our growth strategy involves leveraging this considerable strength as a basis for growth across three pillars of focus and exploration.

These three pillars allow us to continue to provide value to our current and future clients:

• Leverage our sector diversification and in-house capability offerings

• Focus on design-build solution

• Expand our regional client base

Leverage our Sector Diversification and In-House Capability Offerings

Our vision is to be a leading provider for purpose-built turnkey indoor CEA facilities.

To that end, we have and continue to seek to diversify our service capabilities to provide value to our clients through acting as a single point of responsibility in our turnkey design-build, approach.

While we will continue to expand our services organically, we began this journey through the acquisition of engineering, architecture, and construction management firms over the last 18-month period.

This in-house service capability diversification also brought with it a diversified client base that included clients from sectors outside of CEA.

We expect to continue to compete successfully in all of these sectors as we believe it helps us attract the best talent, weather the downturns of any one sector, and continue to find growth and future returns for our shareholders.

We believe that acting as a single point of responsibility as a provider of turnkey design-build solutions, especially one with the depth and breadth of experience within all sectors that we've served, we can get our clients to market more quickly and more efficiently than others.

We intend to continue to leverage all our service capabilities within our design-build delivery model, across sectors, to grow the services and value we are providing to our clients.

As an example, some clients may currently only be engaged with us for architectural design - we plan to leverage our in-house model and take advantage of every opportunity to cross sell our other services such as engineering;

or construction management or general contracting, to provide further value to our clients and grow our revenues and margin dollars.

Focus on Design-Build Solution

As written previously, through both organic and inorganic means, we have diversified our in-house service capabilities so that we are able to provide full turnkey design-build solutions to our clients.

These design-build projects allow us to engage with a client at the conception of a project and act as a single point of responsibility to provide value throughout and beyond the project lifecycle.

These design-build projects are also much larger from a revenue and project complexity perspective - instead of working on 100s of projects, our goal will be to grow through working on a smaller number of projects of a much larger size, allowing us to capture greater revenue and more margin dollars and overall, provide greater value to our clients.

We expect these larger projects will also provide us with the foresight to more accurately forecast our future quarterly business performance.

Expand our Regional Client Base

While continuing to focus on building out our solution set and expanding our client base in all sectors, and more specifically establishing our end-to-end solution as the industry standard for CEA indoor cultivation in the U.S.

market, we also plan to continue to expand our reach within Europe.

We are focused on securing and providing value to clients in the CEA sector, and continue to develop and iterate on our marketing and outreach plans as the sector comes online slowly.

We have thus far signed several engagements with CEA clients in multiple countries and look to continue our growth through this geographic expansion.

Our Competition

We believe that our experience and expertise combined with our complex end-to-end design-build solutions places us as a growing leader in the indoor-CEA sector.

Within that CEA sector, we do face competition from companies that offer some, but not all, portions of an all-encompassing design-build facility solution.

We compete for projects with other smaller and mid-sized companies that focus solely on architectural and interior design, engineering, construction, or product sales.

For services, we see these competitors as offering similar specific area solutions, though not integrated nor as in depth on fertigation design.

For product 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.

Greenhouse manufacturers and European systems integrators may increasingly seek to offer comprehensive product and service solutions to compete with our integrated solution, but they are primarily focused on the greenhouse industry, and not on indoor-CEA facilities.

European systems integrators in particular are experienced and have a strong operating history in traditional horticulture and provide specialized, intensive, and large-scale solutions that revolve around greenhouse projects.

Instead of competing with these integrators, we find ourselves working with them and combining synergies to work on projects together.

For our clients from non-CEA sectors such as Industrial, Food and Beverage CPG, Healthcare, Education, and Civic, we believe we face more competition from those who offer some, but not all, portions of a design-build facility solution but also those who employ the design-build methodology.

We believe we compete successfully here because while the overall design-build projects come at higher revenues and margin dollars, the projects from non-CEA on which we typically engage are of a size that we believe is smaller than our design-build competitors are set up to take on.

In addition, the majority of our non-CEA client base is developed from long-term relationships that provide our Company with a strategic advantage.

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

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.

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.

As it relates to our business

conducted in the legalized cannabis-focused CEA segment, the regulations for each region are detailed as follows.

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.

such change in the federal government’s enforcement of current federal laws could cause significant financial damage to us.

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

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.

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 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.

Laws and regulations affecting

the medical cannabis industry are constantly changing, which could detrimentally affect our existing and proposed operations.

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.

As of the date of this Report, the following summarizes the status of our registrations, pending applications, and issued U.S.

We have received the following trademark registrations:

Trademark Jurisdiction Registration Number Registration Date Status

URBAN-GRO United States 4618322 October 07, 2014 Registered

URBAN-GRO United Kingdom 3266415 January 19, 2018 Registered

URBAN-GRO European Union 017391806 October 31, 2018 Registered

URBAN-GRO Canada

1930075 November 13, 2018 Registered

URBAN-GRO WIPO 1548013 July 08, 2020 Registered

URBAN-GRO United Kingdom UK0081548013 July 08, 2020 Registered

URBAN-GRO Canada (Madrid) A0098111 July 08, 2020 Registered

URBAN-GRO European Union (Madrid) A0098111 July 08, 2020 Registered

URBAN-GRO United States 97213742 February 7, 2023 Registered

SOLEIL United States 5209707 May 23, 2017 Registered

SOLEIL United Kingdom 3266410 March 09, 2018 Registered

SOLEIL Canada 1083969 October 07, 2020 Registered

SOLEIL European Union 017391781 September 11, 2018 Registered

SOLEIL United Kingdom UK00917391781 September 08, 2018 Registered

OPTI-DURA United States 5770091 June 04, 2019 Registered

OPTI-DURA Canada TMA1070145 January 20, 2020 Registered

GRO-CARE European Union 1560748 August 24, 2020 Registered

GRO-CARE European Union 017391806 October 29, 2019 Registered

GRO-CARE United Kingdom UK00917391806 October 29, 2018 Registered

GRO-CARE Canada (Madrid) A0099548 August 24, 2020 Registered

GRO-CARE WIPO A0099548 August 24, 2020 Registered

We have applied for and are awaiting receipt of the following trademark registrations:

Trademark Jurisdiction Application Number Filing Date Status

URBAN-GRO United States 88898690 May 03, 2020 Pending

URBAN-GRO United States 97213778 January 11, 2022 Pending

GRO-CARE United States 88898692 May 03, 2020 Pending

Title Jurisdiction Application Number Filing Date Patent Number and Issue Date Status

Sensor bus architecture for modular sensor systems United States 15/626,085 June 17, 2017 10,499,123

(December 3, 2019) Issued

Expire in 2037

Modular sensor architecture for soil and water analysis at various depths from the surface United States 15/626,079 June 17, 2017 10,405,069

(September 3, 2019) Issued

Expire in 2037

Modular sensor architecture for soil and water analysis at various depths from the surface United States 16/519,800 July 23, 2019 10,955,402

(March 23, 2021) Issued

Expire in 2037

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;

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.

we might not have entered into such agreements with all applicable personnel, and such agreements might not be self-executing.

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

however, these non-disclosure agreements may not prevent a third party from infringing upon our rights.

Human Capital

As of December 31, 2023, we employed 130 employees, all of which were full-time employees.

This is a decrease of 22 employees (14%) from December 31, 2022.

Our employees are critical to our continued success.

With approximately two-thirds of our employees considered experts, we view our employees and the depth and breadth of their experience and expertise as our competitive advantage.

As such, we strive to provide an environment where urban-gro employees can have a fulfilling and productive career.

We offer industry-leading employee benefits and programs to ensure the diverse needs of our employees and their families are met, including access to healthcare choices, continued growth opportunities for career development, and resources such as 401(k) plans and counseling to support their financial well-being.

The table below summarizes the change in full-time employee headcount that has occurred by quarter for the years ended December 31, 2023 and 2022:

Quarter Third

Quarter Second

Quarter First

Quarter Fourth

Quarter Third

Quarter Second

Quarter First

Beginning of period headcount

131 137 165 152 115 121 98 86

Net change in headcount (1) (6) (28) 13 13 (6) 3 12

Emerald acquisition 0 0 0 0 0 0 20 0

DVO acquisition 0 0 0 0 24 0 0 0

Ending of period headcount 130 131 137 165 152 115 121 98

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,

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”).

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

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

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”).

Asset Sale occurred on September 4, 2025, at which Gemini acquired the assets constituting the collateral under the line of credit for

On August 29, 2025, Gemini commenced a lawsuit

captioned Gemini Finance Corp.

UG Construction, Inc.

, 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.

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.

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.

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.

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,

● 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;

● 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.

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.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business