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Item 3. Legal Proceedings

2026-04-15 compared with 2026-01-16 · 114 added, 103 removed, 91 unchanged (70% 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.

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.

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

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.

for this suit.

We believe we have substantial defenses to the claim asserted in this lawsuit

and intend to vigorously defend this action.

From time to time, the Company

is involved in routine litigation that arises in the ordinary course of business.

Other than below, there are no other legal proceedings

for which management believes the ultimate outcome would have a material adverse effect on the Company’s results of operations and

Gemini Loan Agreement Amendment and Default

20 unchanged sentences

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

In connection with the execution of the Amendment, we issued to Gemini, as

an amendment fee, 150,000 shares of our common stock, or 6,000 shares after giving effect to a 1-for-25 reverse stock split.

On July 31, 2025, Gemini issued

34 unchanged sentences

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

6 unchanged sentences

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.

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

Pursuant to 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 intend to vigorously defend

the allegation of fraud.

J Brrothers Settlement

3 unchanged sentences

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.

of $395,556 and agreed to issue 150,000 unregistered shares of our common stock, or 6,000 shares after giving effect to a 1-for-25 reverse

stock split, to J Brrothers.

The note accrues simple interest at an annual rate of 12% and has a maturity date of March 18, 2026.

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.

As of December 31, 2025, the Company had made only the initial partial

payment of $25,000 on August 27, 2025.

The required $50,000 monthly payments for September through December 2025 were not made.

The outstanding

balance was approximately $374,512 at December 31, 2025, inclusive of accrued interest.

The note matured on March 18, 2026.

MJ’s Market, Inc

16 unchanged sentences

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.

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 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

& Scaffold Co.

(“Action”) filed a complaint against UG Construction in the Superior Court of Arizona for Maricopa

County (Case No.

CV2025-014165).

The complaint alleged that UG Construction owed Action $380,932 plus interest and attorneys’ fees

in connection with a contract pursuant to which Action leased equipment to UG Construction, and alleged breach of contract, breach of

covenant of good faith and fair dealing, and unjust enrichment.

Urban-Gro, Inc.

On December 24, 2025, Christopher W.

Cullens (“Mr.

a former employee of urban-gro, Inc.

(the “Company”), filed a complaint against the Company and Bradley Nattrass, the Company's

Chief Executive Officer, in the District Court, Boulder County, State of Colorado (Case No.

2025CV31164).

Cullens served as Vice President

of Construction Operations pursuant to a written employment agreement and was terminated without cause on November 14, 2025, following

an unpaid furlough that began in August 2025.

The complaint asserts claims for:

(i) violation of the Colorado Wage

Claim Act, C.R.S.

§ 8-4-101, et seq.

(the "CWA"), against the Company and Mr.

(ii) breach of contract against

and (iii) unjust enrichment against the Company, pleaded in the alternative.

Cullens alleges that, at the time of his

termination, he had earned and was vested in commissions totaling $650,000, which he contends constitute earned, vested, and determinable

wages due and payable immediately upon discharge under the CWA.

Cullens further alleges that he is entitled to a severance package

consisting of nine months of his base salary and nine months of COBRA premium payments pursuant to the terms of his employment agreement.

Cullens seeks, among other relief, payment of the unpaid commissions, statutory penalties of up to three times the unpaid wages under

the CWA, the full value of the severance package, reasonable attorney's fees and costs, and such other relief as the court deems just

On March 30, 2026, the Company and Mr.

Nattrass filed their answer

to the complaint, generally denying the material allegations or asserting that they lack sufficient information or knowledge to admit

or deny certain allegations.

Among other defenses, the Company asserts that Mr.

Cullens has been paid for his time worked, that all compensation

considered earned, vested, and determinable has been paid, that Mr.

Nattrass is not an "employer" under the CWA, and that Mr.

Cullens may have failed to mitigate his damages.

Concurrently with the answer, the Company filed counterclaims against

Cullens asserting:

(i) breach of contract;

(ii) breach of the implied covenant of good faith and fair dealing;

and (iii) unjust enrichment,

pleaded in the alternative.

The counterclaims arise out of an Acquisition Agreement and Plan of Merger entered into on or about March

13, 2022, among the Company, Emerald Merger Sub, Inc., Emerald Construction Management, Inc., Christopher Cullens, Charles Cullens, and

Green Stone Property LLC (the "Acquisition Agreement"), and an Amended and Restated Indemnification Claim Agreement entered

into on or about August 10, 2023, between the Company and Mr.

Cullens (the “Amended Indemnification Agreement”).

alleges that, under Article VIII of the Acquisition Agreement and the Amended Indemnification Agreement, Mr.

Cullens is obligated to indemnify

the Company for certain pre-closing losses and specified project-related losses, including losses related to a project in Olathe, Kansas,

and legal fees associated with at least six pending indemnification claims.

The Company alleges that Mr.

Cullens has failed to make the

required indemnification payments.

The Company seeks an award of its losses and damages, costs, pre- and post-judgment interest, and attorneys'

fees and costs.

This litigation is in its preliminary stages.

The Company believes

the claims asserted in Mr.

Cullens' complaint are without merit and intends to vigorously defend against them while pursuing its counterclaims.

The outcome of this matter is inherently uncertain, and the Company is unable to predict the ultimate outcome or estimate the amount or

range of loss, if any, that may result from this matter.

Other – Trade

Due to cash flow and working

capital issues, the Company has been delinquent in paying vendors, some of which have filed lawsuits seeking judgment for payment.

amounts due to these vendors are included in accounts payable in the consolidated balance sheet as of December 31, 2025.

MINE SAFETY DISCLOSURES

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