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Item 3. Legal Proceedings

2026-01-16 compared with 2024-03-28 · 189 added, 41 removed, 5 unchanged (98% of the section changed)

LEGAL PROCEEDINGS

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.

◦ 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.

◦ 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.

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.

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.

° 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.

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.

° 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.

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

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.

Nattrass and urban-gro failed to share enough non-public

material information about urban-gro’s plans for fundraising that would have impacted

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.

• Crest Ventures, LLC – urban-gro was sued on July 29, 2021, by Crest Ventures, LLC in a breach of contract case in the District Court for Arapahoe County, Colorado.

The allegations in the action are based on a claim that Crest Ventures, LLC is entitled to commission compensation on the February 2021 uplisting of our common stock to Nasdaq.

urban-gro joined as a third-party defendant, Andrew Telsey, for breach of fiduciary duty and fraud.

urban-gro also counter-claimed

Crest Ventures, LLC for fraud and declaratory judgment.

Telsey was urban-gro's counsel at the time and he claims he was also a member of Crest Ventures.

urban-gro entered into a finder's fee agreement with Crest Ventures for a potential M&A transaction.

Crest Ventures and Mr.

Telsey claim the finder's fee agreement also applies to the uplisting onto the Nasdaq.

urban-gro denies these claims, believes Crest Ventures and Mr.

Telsey are perpetrating fraud, and Mr.

Telsey breached his fiduciary duties as legal counsel for urban-gro in the transaction.

We believe we have substantial defenses to the claim asserted in this lawsuit and intend to vigorously defend this action.

On August 11, 2023, the Company entered into a settlement agreement and mutual release (the “Settlement Agreement”) with Crest Ventures, LLC and Andrew Telsey to settle all claims in the litigation filed in the District Court for Arapahoe County, Colorado, Case No.

Pursuant to the Settlement Agreement, the Company made a payment of $1,500,000 to Crest Ventures, LLC on September 7, 2023.

In connection with this settlement, the Company recorded a loss in the second quarter of 2023 of $1,500,000 in accordance with GAAP related to loss contingencies.

The case was dismissed with prejudice by the Court on October 5, 2023.

• Sunflower Bank – urban-gro filed a lawsuit on November 5, 2021, against Sunflower Bank in the District Court for Boulder County, Colorado related to fraudulent wire transfers of approximately $5.1 million that were made from our accounts at Sunflower Bank in October 2021.

During 2022, $1.7 million of these funds were returned to us and we received $0.25 million from our insurance company.

We sued Sunflower Bank for $3.4 million, exclusive of the insurance proceeds, under a theory of breach of contract, negligence, and breach of UCC standards, as we believed that Sunflower Bank failed to follow industry standard procedures designed to prevent such a theft and was therefore liable for the unrecovered balance.

Sunflower Bank filed counterclaims against us for breach of contract and negligence.

urban-gro entered into a settlement agreement with Sunflower bank and received $2.4 million in settlement proceeds on March 27, 2023.

The case was dismissed with prejudice on March 29, 2023.

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.

MINE SAFETY DISCLOSURES

urban-gro’s director

and officer liability insurance carrier has indicated coverage is available to Mr.

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.

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

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”).

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

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.

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,

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

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

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.

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.

(“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.

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.

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.

Not applicable.

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 3. Legal Proceedings