Item 1. Business
ITEM 1. BUSINESS
Background
urban-gro, Inc. (“we,” “us,” “our,”
the “Company,” or “urban-gro”) was originally formed on March 20, 2014, as a Colorado limited liability company.
On March 10, 2017, we converted to a Colorado corporation and exchanged shares of our common stock for every member’s interest issued
and outstanding on the date of conversion. On October 29, 2020, we reincorporated as a Delaware corporation. On December 31, 2020, we
effected a 1-for-6 reverse stock split with respect to our common stock. All information in this Report gives effect to this reverse stock
split, including restating prior period reported amounts. On February 12, 2021, we completed an uplisting to the Nasdaq Capital Market
(“Nasdaq”) under the ticker symbol “UGRO”.
Overview
Since commencing business
in March 2014, we expanded our operations across North America and Europe while diversifying our services offerings organically and through
acquisitions into full design-build solutions by adding design, engineering, construction, and construction-management services, introducing
new equipment solutions, products and services, and successfully diversifying into several additional commercial sectors beyond the initial
cannabis-focused Controlled Environment Agriculture (“CEA”) sector, including produce-focused CEA; or vertical farming, healthcare,
industrial, commercial packaged goods (“CPG”), and retail.
After making the decision to exit our core business sectors in the
third quarter of 2025 due to changing market conditions and our inability to raise significant funds due to our filing status and compliance
with the Nasdaq, we began the process of selling assets, reducing our work force, and preparing the company for a subsequent merger. As
we continue to wind down operations, today, only a single division of our legacy business remains and urban-gro is a value-added reseller
of equipment systems to the Controlled Environment Agriculture (“CEA”) sector. We work with a select group of manufacturers
and vendor partners to source equipment solutions that our clients utilize when building out their cultivation facilities.
Relationships with Premier Manufacturers
We work closely with leading
technology and manufacturing providers to deliver an integrated solution designed to achieve the stated objectives of our clients. We
pride ourselves as being equipment agnostic – meaning we do not have allegiances to any single manufacturer – we offer the
solution that will best meet the design and budget constraints of our client’s and design, engineer, and integrate whatever equipment
fits the client’s needs.
1
Value-Added Reselling of Cultivation Equipment
Systems
We act as an experienced
vendor providing VAR to our clients when selling vetted best-in-class commercial horticulture lighting solutions, rolling and automated
container benching systems, specialty fans, fertigation/irrigation systems, environmental control systems, and microbial mitigation and
odor reduction systems. The acquired knowledge of how each of these systems work in combination with and in tangent to the overall ecosystem
is a significant benefit that we offer to our clients.
Our Competition
For equipment sales, we currently
view our competition to be focused on predominantly commodity “off-the-shelf” items like lighting and other cultivation staple
products, both pre-startup and post-startup. This competition comes from traditional wholesale horticulture dealers, online retailers,
and some manufacturers who sell direct.
Our Clients
We primarily market and sell our solutions to clients in the CEA sector.
In the CEA sector, our clients include operators and facilitators in both the cannabis and produce markets in the United States and Canada.
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. We offered
value-added architectural, engineering, systems procurement and integration, and construction design-build solutions to customers operating
in the CEA and industrial and other commercial (“Commercial”) sectors. Clients, regardless of sector they are in, had engaged
us to deliver their vision because of our experience and expertise, and because our integrated, design-build solutions offer a value-add
approach to design, engineering, procurement, construction-management, construction, and equipment integration, providing a single point
of accountability across all aspects of a project. For our CEA clients in particular, we created high-performance indoor cultivation facilities
to grow specialty crops, including cannabis as well as produce such as leafy greens, vegetables, herbs and berries.
While we successfully diversified our target markets across several
commercial sectors, the majority of our clients were commercial CEA cultivators as we believed that a key differentiation point that clients
values is the depth of our employees’ and Company’s experience. As of December 31, 2024, we employed approximately 130 full
time employees, approximately two-thirds of which were considered experts in their areas of focus. Our team included Designers (Architects,
Interior Designers, Cultivation Space Planners), Engineers (Mechanical, Electrical, Plumbing, Controls, and Fire Protection), Construction
Managers (Project Managers and Supervisors), and horticulturists. As a company, we have worked on over 1000 CEA projects, and believe
that the experience of our team and Company provides clients with the confidence that will proactively keep them from making common costly
mistakes during the design and build process that would impact operational stages. Our expertise translates into clients saving time,
money, and resources through expertise that they can leverage without having to add headcount to their own operations. We provide this
experience in addition to offering a platform of the highest quality equipment systems that can be integrated holistically into our clients’
facilities.
2
Our Solutions in 2024
Over the past decade we expanded our ongoing operations across North
America and Europe while diversifying our services offerings organically and through acquisitions into full design-build solutions by
adding design, engineering, construction, and construction-management services, introducing new equipment solutions, products and services,
and successfully diversifying into several additional commercial sectors beyond cannabis-focused CEA, including produce-focused CEA; or
vertical farming, healthcare, industrial, commercial packaged goods (“CPG”), and retail. We became a trusted partner and adviser
to our clients and provided value to our clients regardless of the sector. As is detailed in the Project Delivery Comparison chart below,
in the CEA sector, the advantages of the urban-gro design-build model vs the traditional owner-contracted model were clear. There was
a single responsible party for our clients’ needs from conception through operational start. This resulted in greater efficiencies
throughout the design-build process and a faster speed to launch. Additionally, our experience and expertise within our sectors helped
to prevent costly mistakes for our clients.
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.
3
Our Service Solutions in 2024
Architectural Design,
Engineering, and Construction Services
In 2024, we generated revenue
by providing our clients with design-build service offerings that included architectural, interior, and engineering design, construction
and construction management, as well as services for the operational stages of the facility. Our in-house architectural, interior design,
engineering, construction and cultivation design services integrated design with pre-construction services and thereby reduced project
schedule and capital investments.
Pre-Construction Services
included providing a forecast summary of what it will take to get a high-performance facility built, giving initial indication and detailed
analysis of budget, timeline/schedule, and potential large decision impacts including value analysis and value engineering options. The
integration of Pre-Construction Services can expedite project completion, lower initial project costs, and help reduce costly change
orders.
CSP is an early-stage engagement
with stakeholders that provides an optimized basis of design including the interaction of people, plants, and processes. The output of
CSP provided an optimized analysis of spatial needs based on stipulated criteria and could accelerate construction and regulatory approval
paths, save stakeholders money and time, and enable a process-driven decision-making approach.
Architectural Design is the
implementation of a defined process from development of vision to built environment. Architecture includes the integration and coordination
of all project required disciplines such as civil, landscape, structural, mechanical, plumbing and electrical engineering, fire protection,
security, interior design, and other specialty disciplines. Interior Design involves branding and development of the interior aesthetic
vision. Interior design is holistic and thereby includes all aspects of the building interiors from full branding to the selection and
design of all finishes and interior systems. Common discussions beyond aesthetics include the cost, durability, and maintainability of
systems presented.
Mechanical, Electrical, and Plumbing (“MEP”)
engineering design focuses on the entire building, not just the cultivation space, which in turn eliminates the “gap” between
cultivation systems and the building systems. We provided engineered construction contract documents for mechanical, HVAC, plumbing and
electrical systems required for the building permits necessary to obtain a Certificate of Occupancy. ICD creates cultivation space-focused
design layouts that integrate climate control, fertigation, benching, air flow, and lighting. Our ICD team’s deep understanding
of cultivation systems provided the foundation for ensuring optimal space utilization as they utilized an integrated and collaborative
design process focused on understanding, vetting, and implementing the client’s vision. Construction and Construction Management
provided all the additional necessary parts to deliver our clients’ projects, from the initial estimate and bid process, to subcontractor
selection, and management of all construction details.
Our Additional Service Offerings in 2024
Our Facility and Equipment
Commissioning Services provided a cultivation-level view of the complex system made up by each piece of equipment and ensures systems
are running properly. Many of the current service options available to CEA cultivation clients are isolated to vendors providing post-sale
service for a single piece of equipment. Our team confirmed contractors and specialty trades are installing systems to the design intent
allowing for rapid installation, continuous process improvement, and increased revenue for our clients.
gro-care ® is
a highly differentiated service offering that provides a combination of CEA cultivation facility commissioning and an asset protection
program through training, equipment maintenance, on-demand support, standard operating procedures (“SOP”), and a client-specific
OSS that acts as an online hub for clients’ ongoing services. Combined, this solution focused on the troubleshooting, tuning, and
support of a myriad of cultivation systems and equipment while further providing guidance for client interactions with tradespeople working
on HVAC, electrical, and plumbing in the facility on an ongoing basis.
Our Integrated Equipment Solutions in 2024
While our engineers played
an integral part in the design of most of the complex equipment systems that are then integrated into a CEA facility, we also provided
consultative reselling of more common solutions that we integrated into the overall design. For CEA, the environmental goal is to maintain
a stable and consistent vapor pressure deficit (“VPD”) according to the client’s priorities through environmental control
of relative humidity and temperature during all stages of growth. There are four main variables in CEA that affect plant growth (and
can impact VPD): (i) water and nutrients; (ii) environmental control; (iii) CO 2 ; and (iv) lighting. The complex equipment
systems that we had designed and procured for our clients played an important role in helping control and maintain the cultivation facility’s
environment for plants.
Design, Source, and Integration
of Complex Environmental Equipment Systems
Complex Environment Systems
for CEA include environmental controls, fertigation and irrigation distribution, a complete line of water treatment and wastewater reclamation
systems, and HVAC equipment systems.
4
As related to systems and equipment, the most significant and influential
variable within a CEA facility is the ability to control and maintain the cultivation environment. This is accomplished through the integration
of mechanical systems (HVAC), lighting, air movement systems, irrigation systems, and environmental controls. Maintaining a consistent
desired temperature and humidity level within the cultivation spaces ensures less stress on plants. urban-gro designed these systems to
fit within our clients’ budgets and provided our clients’ facilities a more stable environment to
maximize plant health and yields, minimize crop loss, minimize utility costs, save on capital equipment, and maximize sustainability.
Our Clients in 2024
We primarily marketed and
sold our solutions to clients in the CEA and Commercial sectors. In the CEA sector, our clients included operators and facilitators in
both the cannabis and produce markets in the United States, Canada, and Europe. In the Commercial sector, we worked with leading food
and beverage consumer packaged goods companies in the United States, and clients in healthcare, higher education, and hospitality.
Regulation
As it relates to our business
conducted in the legalized cannabis-focused CEA segment, the regulations for each region are detailed as follows.
U.S. Regulations
While we do not generate any revenue from the direct sale of cannabis
products, we have historically, and may continue to, offer our solutions to indoor cultivators that are engaged in various aspects of
the cannabis industry. Tetrahydrocannabinol (“THC”), one of the main active chemicals in cannabis, is a Schedule I controlled
substance and is illegal under federal law. Even in those states in which the use of cannabis has been legalized, its use remains a violation
of federal laws.
A Schedule I controlled substance
is defined as a substance that has no currently accepted medical use in the United States, a lack of safety for use under medical supervision
and a high potential for abuse. The Department of Justice defines Schedule I controlled substances as “the most dangerous drugs of
all the drug schedules with potentially severe psychological or physical dependence.” If the federal government decides to enforce
the Controlled Substances Act with respect to cannabis, persons that are charged with distributing, possessing with intent to distribute,
or growing cannabis could be subject to fines and terms of imprisonment, the maximum being life imprisonment and a $50 million fine. Any
such change in the federal government’s enforcement of current federal laws could cause significant financial damage to us. While
we do not intend to harvest, distribute or sell cannabis, we may be irreparably harmed by a change in enforcement by the federal or state
governments.
Since the use of THC is illegal
under federal law, most federally chartered banks will not accept deposit funds from businesses involved with cannabis. Consequently,
businesses involved in the cannabis industry generally bank with state-chartered banks and credit unions who provide banking to the industry.
Although cultivation and distribution
of cannabis for medical use is permitted in many states, subject to compliance with applicable state and local laws, rules, and regulations,
THC is illegal under federal law. Strict enforcement of federal law regarding cannabis could result in material adverse effects on our
business and revenues. Though the cultivation and distribution of cannabis containing THC remains illegal under federal law, H.R. 83,
enacted by Congress on December 16, 2014, provides that none of the funds made available to the DOJ pursuant to the 2015 Consolidated
and Further Continuing Appropriations Act may be used to prevent states from implementing their own laws that authorize the use, distribution,
possession, or cultivation of medical cannabis. While this appropriations measure has remained in effect from 2016 through 2022, continued
re-authorization cannot be guaranteed. If this appropriations rider is no longer in effect, the risk of federal enforcement and override
of state cannabis laws would increase. However, state laws do not supersede the prohibitions set forth in the federal drug laws.
5
In order to participate in
either the medical or adult use sides of the cannabis industry, all businesses must obtain licenses from the state and local jurisdictions.
In addition, in most jurisdictions, all owners and employees must obtain an occupational license to be permitted to own or work in a facility.
Applicants for licenses undergo a background investigation, including a criminal record check for all owners and employees.
Laws and regulations affecting
the medical cannabis industry are constantly changing, which could detrimentally affect our existing and proposed operations. Local, state
and federal medical cannabis laws and regulations are broad in scope and subject to evolving interpretations, which could require us to
incur substantial costs associated with compliance or alter our business plan. In addition, violations of these laws, or allegations of
such violations, could disrupt our business and result in a material adverse effect on our operations. Regulations may be enacted in the
future that may be directly applicable to our business. We cannot predict the nature of any future laws, regulations, interpretations
or applications, nor can we determine what effect additional governmental regulations or administrative policies and procedures, when
and if promulgated, could have on our business.
Binding Letter of Intent with Flash Sports & Media, Inc.
On October 14, 2025, we entered into a binding
letter of intent (the “LOI”) with Flash Sports & Media, Inc. (“Flash”) regarding a proposed transaction
pursuant to which the parties intend to merge Flash with and into a newly formed wholly-owned subsidiary of us, which would then merge
with and into a second wholly-owned subsidiary of us (collectively, the “Merger”). Pursuant to the LOI, the parties have
agreed, subject to satisfaction of certain conditions, to negotiate and execute a definitive merger agreement in accordance with the
terms set forth in the LOI. Flash paid us a cash deposit of $200,000 within fifteen days following the date of the LOI.
In connection with the Merger, the stockholders
of Flash would receive (i) unregistered shares of our common stock equal to 19.99% of the outstanding shares of common stock as of immediately
prior to the Merger, and (ii) unregistered shares of a newly-created series of non-voting preferred stock that would be economically
equivalent to common stock (the “Preferred Stock”) and would automatically convert into common stock upon receipt of approval
by our stockholders. The LOI contemplates that the former stockholders of Flash would own approximately 90% of the resulting company
following the Merger, assuming full conversion of the Preferred Stock. Upon closing of the Merger, we would change our name to Flash
Sports & Media Holdings, Inc. or a similar name. We would be required to obtain approval of its stockholders for conversion of the
Preferred Stock as soon as reasonably practicable following the Merger.
The LOI provides that following the Merger, our
board of directors (the “Board”) would be reconstituted such that four members of the Board would be designated by the Board
prior to the Merger and one member of the Board would be designated by the former stockholders of Flash. Upon approval of our stockholders
for the conversion of the Preferred Stock, the Board would be further reconstituted such that one member of the Board would be designated
by the Board prior to the Merger and four members of the Board would be designated by the former stockholders of Flash.
The LOI provides for an exclusivity period of
90 days following the execution of the LOI. During that period, we agreed that neither us nor our affiliates will, among other things,
solicit, provide any information or enter into any agreement with any other party concerning a transaction similar to the Merger.
For an overview of additional
developments in the business since December 31, 2024, note ‘section 18, subsequent events.’
Intellectual Property
The success of our business
depends, in part, on our ability to maintain and protect our proprietary technologies, information, processes and know-how. We rely primarily
on patent, trademark, copyright and trade secret laws in the U.S. and similar laws in other countries, confidentiality agreements and
procedures and other contractual arrangements to protect our technology and confidential information. Our patents are limited to certain
sensors that we obtain from third party manufacturers that do not contribute materially to our sales or profitability. Our trademarks
are solely for branding purposes, although we no longer sell any goods or services under the Soleil brand.
6
We rely on trade secret protection
and confidentiality agreements to safeguard our interests with respect to proprietary know-how that is not patentable and processes for
which patents are difficult to enforce. We believe that many elements of our design and engineering processes involve proprietary know-how,
technology or data that are not covered by patents or patent applications, including technical processes, test equipment designs, algorithms
and procedures.
Our policy is for our employees
to enter into confidentiality and proprietary information agreements with us to address intellectual property protection issues and require
our employees to assign to us all of the inventions, designs and technologies they develop during the course of employment with us. However,
we might not have entered into such agreements with all applicable personnel, and such agreements might not be self-executing. Moreover,
such individuals could breach the terms of such agreements.
We attempt to protect our
intellectual property via the deployment of non-disclosure agreements with both prospective clients and business partners as well as
licensees; however, these non-disclosure agreements may not prevent a third party from infringing upon our rights.
Human Capital
As of December 31, 2024, we employed approximately 130 employees.
Recent Developments
Gemini Loan Agreement Amendment and Default
On December 13, 2023, our wholly-owned subsidiary UG Construction,
Inc. d/b/a Emerald Construction Management, Inc. (“UG Construction”) entered into (i) an interest only asset based revolving
loan agreement (the “Loan Agreement”) with Gemini Finance Corp. (“Gemini”) pursuant to which Gemini extended to
UG Construction a secured line of credit in an amount not to exceed $10,000,000, to be used to assist UG Construction and us with cash
management, and (ii) a Secured Promissory Note - Revolving issued by UG Construction to Gemini (the “Promissory Note”). Pursuant
to the Promissory Note, each draw was due and payable on or before 180 days after such draw is funded to UG Construction, subject to a
mandatory pre-payment upon UG Construction’s receipt of payment for any invoice previously submitted and approved for financing
by Gemini.
On March 18, 2025, UG Construction entered into
an amendment to the Loan Agreement and Promissory Note and waiver with Gemini (the “Amendment”). Pursuant to the Amendment,
Gemini waived any potential or perceived events of default arising under certain circumstances, which events did not constitute specified
events of default under the Promissory Note or the Loan Agreement.
Pursuant to the Amendment, the Promissory Note was amended to provide
that (i) the term during which Gemini may consider advances under the Loan Agreement has been extended to January 1, 2026, and (ii) the
interest applied on the outstanding principal amount of the Promissory Note will accrue interest at an annual rate of 12%, and all accrued
and unpaid interest shall be paid to Gemini on the first business day of each month for the prior month. The Amendment also amended the
Loan Agreement to require monthly reporting of certain accounts receivable and to include a covenant that such accounts receivable equal
or exceed 125% of the sum of the total amount drawn down under the Promissory Note, plus outstanding interest, as of the applicable measurement
date. In connection with the execution of the Amendment, we issued to Gemini, as an amendment fee, 150,000 shares of our common stock.
7
On July 31, 2025, Gemini issued a notice of
default to UG Construction claiming that UG Construction was in default under the line of credit due to a failure to submit receivables
calculations and failing to maintain sufficient eligible accounts and to forward accounts receivable. The notice indicated that the remaining
outstanding amount due under the line of credit of approximately $1.76 million was immediately due and payable with default of 1%
per week accruing from the June 16, 2025 date of default claimed by Gemini, and that Gemini intended to pursue legal action if full payment
was not received by August 8, 2025.
On August 21, 2025, we received a notification
from Gemini stating that Gemini would proceed with a foreclosure and private sale of substantially all of the assets of UG Construction
in an Article 9 sale process, pursuant to Section 9601 et seq. of the California Commercial Code (the “Asset Sale”). The
Asset Sale occurred on September 4, 2025, at which Gemini acquired the assets constituting the collateral under the line of credit for
$450,000.
On August 29, 2025, Gemini commenced a lawsuit
captioned Gemini Finance Corp. v. UG Construction, Inc. et al. , case number 25CV2259 W SBC, in the U.S. District Court for
the Southern District of California, which lawsuit (the “Lawsuit”) included us and certain of our officers as defendants
and pursuant to which Gemini claimed it was owed $1,486,189 (the “Claim Amount”).
On September 26, 2025, we entered into a Settlement and Mutual General
Release (the “Gemini Settlement Agreement”) with Gemini. Pursuant to the terms of the Gemini Settlement Agreement, among other
things, we agreed to file a joint motion requesting an expedited fairness hearing under Section 3(a)(10) of the Securities Act of 1933,
as amended (the “Securities Act”), which motion was filed on September 30, 2025. Following such fairness hearing, and subject
to the satisfaction of all applicable conditions and requirements of Section 3(a)(10) of the Securities Act, we agreed to issue to Gemini
shares of our common stock that, upon sale by Gemini, would result in net proceeds to Gemini equal to the Claim Amount, provided that
Gemini shall at no time be issued shares if it would beneficially own more than 4.99% of our common stock, and the aggregate number of
shares issued to Gemini may not exceed 19.99% of our outstanding common stock as of immediately prior to the signing of the Gemini Settlement
Agreement to the extent required by Nasdaq Listing Rule 5635. Additionally, Gemini agreed to use its best efforts to not sell common stock
exceeding 10% of our daily volume on any given trading day. Upon the issuance of the last tranche of shares under the Gemini Settlement
Agreement, Gemini will dismiss the Lawsuit with prejudice. The Gemini Settlement Agreement also included a customary mutual release of
claims by the parties. The fairness hearing occurred on October 14, 2025.
Agile Term Loan
On June 26, 2025, we and certain of our subsidiaries
entered into a business loan and security agreement (the “Agile Loan Agreement”) with Agile Capital Funding, LLC and Agile
Lending LLC (together, “Agile”).
Pursuant to the Agile Loan
Agreement, Agile extended to us a term loan of $1,050,000.00 (the “Term Loan”) to be used to fund our general business requirements.
The Agile Loan Agreement is for a term of twenty-eight weeks from its effective date and includes an administrative agent fee of $50,000.00
to be remitted to Agile, which was added to the amount of the loan. We could make a full prepayment or partial prepayment of the Term
Loan, however, upon the prepayment of any principal amount, we would be obligated to pay a premium payment of principal, which would
be equal to the aggregate and actual amount of interest that would be paid through the maturity date. The Agile Loan Agreement contains
standard events of default and representations and warranties by us and Agile including a mandatory prepayment, and an additional five
(5%) percent interest rate following the occurrence of an event of default. The term loan is evidenced by a secured promissory note issued
by us to Agile. Pursuant to the Agile Loan Agreement, upon an event of default, Agile will receive a security interest in certain of
our assets, subject to certain exceptions.
8
Grow Hill Default
On October 1, 2024, we entered into an asset-based
term Loan Agreement with Grow Hill, LLC (“Grow Hill”) pursuant to which Grow Hill extended to us a secured loan of $2,100,000
with an origination fee of $100,000, which was added to the amount of the loan. The loan is evidenced by a Secured Promissory Note issued
by us to Grow Hill. Grow Hill received a security interest in certain of our assets pursuant to a security agreement between us and Grow
Hill (the “Security Agreement”), which does not include any assets of our subsidiaries.
On October 14, 2025, we received service of process
for a lawsuit filed by Grow Hill against us in the District Court for the City and County of Denver, Colorado (Case No. 2025CV33546)
alleging breach of contract and fraud. Pursuant the complaint, Grow Hill stated that we were in default under the Secured Promissory
Note due to a failure to timely make payments, and elected to accelerate all amounts due under the Secured Promissory Note, including
a default fee equal to 1% of the outstanding principal amount. We are currently investigating available options to resolve the complaint
and intends to vigorously defend the allegation of fraud.
J Brrothers Settlement
On August 8, 2025, we entered
into a Settlement and Release Agreement (the “Settlement Agreement”) with J Brrothers LLC (“J Brrothers”) and
Herb-a-More LLC relating to a dispute arising from amounts due for certain heating, ventilation and air conditioning equipment. Pursuant
to the terms of the Settlement Agreement, among other things, we issued a promissory note to J Brrothers with an original principal amount
of $395,556 and issued 150,000 unregistered shares of our common stock to J Brrothers. The note accrues simple interest at an annual rate
of 12% and has a maturity date of March 18, 2026. The note must be repaid in monthly installments over a period of eight months, with
the first seven payments being $50,000 per month and the final monthly payment being $64,047. Any remaining principal and accrued but
unpaid interest will become due and payable on the maturity date, and the note may be prepaid without penalty. The note includes customary
representations and warranties, customary events of default and a 17% default interest rate.
2WR of Georgia Sale
On August 27, 2025, certain of our subsidiaries
entered into a Stock and Asset Purchase Agreement (the “2WR Purchase Agreement”) with 2WR Holdco, LLC (the “Buyer”).
Pursuant to the 2WR Purchase Agreement, the Buyer acquired all of the outstanding shares of stock of 2WR of Georgia, Inc. and certain
assets of our other subsidiaries relating to those entities’ business of providing commercial, industrial and municipal architectural
and construction administration services for projects not involving CEA. The purchase price paid by the Buyer consisted of $2.0 million
in cash, offset by a previous deposit of $500,000 and by any assumed indebtedness.
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”).
9
On April 16, 2025, we received a notice from Nasdaq stating that because we had not yet filed our Annual Report on Form 10-K for the
fiscal year ended December 31, 2024 (the “Form 10-K”), we were no longer in compliance the Timely Filing Requirement. On
May 21, 2025, we received a notice from Nasdaq stating that because we had not yet filed our Quarterly Report on Form 10-Q for the fiscal
quarter ended March 31, 2025 or our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, we continued to be out of
compliance with the Timely Filing Requirement.
On August 18, 2025, we received a determination
letter from Nasdaq stating that Nasdaq had determined that we did not file the Form 10-K and the Form 10-Q by August
15, 2025, the date required for the delinquent filings by an exception previously received from Nasdaq staff. The letter stated that,
as a result, unless we timely requested an appeal, the trading of our common stock would be suspended at the opening of business on August
27, 2025 and a Form 25-NSE will be filed with the SEC, which would remove our common stock securities from listing and registration on Nasdaq.
The letter also stated that we were not in compliance the Bid Price Rule and the Stockholders’ Equity Requirement. We timely requested
an appeal to a Nasdaq Hearings Panel (the “Panel”).
On October 14, 2025, we attended a hearing before
the Panel in connection with the determination letter. On October 30, 2025, we received a notice from Nasdaq notifying us that the Panel
had determined to grant our request to continue our listing on The Nasdaq Capital Market, conditioned on us regaining compliance with
the Timely Filing Requirement and the Stockholders’ Equity Requirement on or before December 31, 2025 and regaining compliance
with the Bid Price Rule on or before January 28, 2026. During the exception period, we are required to provide prompt notification to
the Panel of any significant event that may affect our compliance with Nasdaq requirements. Any documentation evidencing our compliance
will be subject to review by the Panel, which may, in its discretion, request additional information before determining whether we have
regained compliance.
On November 18, 2025, we received a determination letter from Nasdaq stating
that because we did not timely file our Quarterly Report on Form 10-Q for the period ended September 30, 2025, the resulting filing
delinquency would be an additional basis for delisting our securities pursuant to the Timely Filing Requirement. The letter notified us
that the Panel would consider the matter in their decision regarding our continued listing on the Nasdaq Capital Market, and requested
that we present our views with respect to the additional deficiency in writing by November 25, 2025. We made a submission to the Panel
by the requested date.
On January 6, 2026, the Company received a determination letter (the “January 6, 2026
Determination”) from Nasdaq stating that because the Company did not hold an annual meeting of stockholders within twelve months
from the Company’s prior fiscal year end as required by Nasdaq Listing Rule 5620(a), the resulting non-compliance would be an additional
basis for delisting the Company’s securities. The January 6, 2026 Determination notified the Company that the Panel would consider
the matter in their decision regarding the Company’s continued listing on the Nasdaq Capital Market, and requested that the Company
present its views with respect to the additional deficiency in writing by January 9, 2026. The Company intends to make a submission to
the Panel by the requested date, and has requested an additional extension to comply with the Bid Price Rule, the Stockholders’
Equity Requirement and the Timely Filing Requirement.
There can be no assurance that we will be able
to regain compliance with the Bid Price Rule, the Timely Filing Requirement, or the Stockholders’ Equity Requirement, or will otherwise
be in compliance with other applicable Nasdaq Listing Rules. If we fail to meet the conditions set forth in our compliance
plan or if Nasdaq delists our securities from trading for any other reason, we could face significant material adverse consequences,
including:
● a limited availability of market quotations for our securities;
● reduced liquidity with respect to our securities;
● a determination that our common stock is a “penny stock”
which will require brokers trading in our ordinary shares to adhere to more stringent rules, possibly resulting in a reduced level of
trading activity in the secondary trading market for our ordinary shares;
● a limited amount of news and analyst coverage for our company;
and
● a decreased ability to issue additional securities or obtain
additional financing in the future.
Available Information
Our internet address is www.urban-gro.com
and our investor relations internet address is ir.urban-gro.com. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current
Reports on Form 8-K and amendments to those reports can be found on our investor relations website, free of charge, as soon as reasonably
practical after we electronically file such material with, or furnish it to, the SEC. Information contained on our website is not incorporated
by reference into this Form 10-K. The SEC maintains a public website, www.sec.gov, which contains reports, proxy and information statements,
and other information regarding issuers that that file electronically with the SEC.
10