What changed in this filing

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Item 1. Business

2022-03-29 compared with 2021-03-31 · 572 added, 649 removed, 85 unchanged (93% of the section changed)

(together with its wholly owned subsidiaries, collectively “urban-gro”, “we”, “us”

“the Company”) was originally formed on March 20, 2014, as a Colorado limited liability company.

In March 2017, we

converted to a Colorado corporation and exchanged shares of our common stock for every member 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.

is a leading engineering and design services company focused on the sustainable commercial indoor horticulture market.

and design indoor controlled environment agriculture (“CEA”) facilities and then integrate complex environmental equipment

systems into those facilities.

CEA is a market segment that is defined by type of facility, and has no correlation to the industry,

or more specifically the crop being grown in the facility.

The CEA segment is represented by any horticultural facility that

is fully self-contained, and has a fully-controlled environment.

(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.

In March 2017, we converted to a Colorado

corporation and exchanged shares of our common stock for every member interest issued and outstanding on the date of conversion.

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

On February 12, 2021, we completed an uplisting to the Nasdaq stock exchange under the ticker symbol UGRO.

is a leading architectural design, engineering and cultivation design services company focused on the sustainable commercial

indoor horticulture market.

We design and engineer indoor controlled environment agriculture (“CEA”) facilities, then

integrate complex environmental equipment systems into those facilities, and provide ongoing maintenance, training, and support

CEA is a market segment that is defined by type of facility, and has no correlation to the industry, or more specifically

the crop being grown in the facility.

The CEA segment is represented by any horticultural facility that is fully self-contained, and

has a fully-controlled environment.

There are three facility types that meet these qualifications:

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or the retrofit of an existing building;

Farms –

a building with a smaller footprint that is built up vertically and we view this category as including modular

container farms;

Farms – a building with a smaller footprint that is built up vertically and we view this category as including modular container

– traditional and made out of a variety of translucent materials as to provide natural sunlight for the crop being grown.

historically we have been focused on engineering, design, and equipment integration into indoor facilities, of which some are

ultimately used for the cultivation of plant-based medicines, we are planning to expand our reach within CEA across both facility

type and crop type.

The term “plant-based medicines”

includes (i) a wide array of herbal supplements including but

not limited to curcumin, saffron extract and ginger, (ii) cannabidiol (“CBD”) based therapeutics, (iii) cannabis

based therapeutics and (iv) a host of medicines derived from plants such as caffeine, menthol, foxglove and others.

We are focusing

on expanding to the vertical farming CEA sub-segment, which is ultimately and predominantly used for the cultivation of a variety

of crops including, but not limited to, leafy greens, herbs, cucumbers, peppers, and strawberries.

As the global horticulture

market has become more focused on the safety of the food supply chain, reducing emissions with current transportation methods

associated with these crops, and, growing local, we are confident that the vertical farming CEA sub-segment will represent a significant

and increasing share of our revenue and be a significant factor in our organic growth moving forward.

this work, we create high-performance indoor cultivation facilities for our clients to grow specialty crops, including leafy greens,

historically we have been focused on designing, engineering, and integrating equipment into indoor CEA facilities,

of which some are ultimately used for the cultivation of plant-based medicines, we have expanded our reach within CEA across both

facility type and crop type.

The term “plant-based medicines” includes (i) a wide array of herbal supplements including but

not limited to curcumin, saffron extract and ginger, (ii) cannabidiol (“CBD”) based therapeutics, (iii) cannabis based therapeutics

and (iv) a host of medicines derived from plants such as caffeine, menthol, foxglove and others.

We have also focused and expanded

into the vertical farming CEA sub-segment, which is ultimately and predominantly used for the cultivation of a variety of crops including,

but not limited to, leafy greens, herbs, cucumbers, peppers, and strawberries.

our work, we create high-performance indoor cultivation facilities for our clients to grow specialty crops, including leafy greens,

vegetables, herbs, and cannabis.

Historically, a large number of our clients were cannabis producers, and we still do substantial

work for those clients, but we have shifted our priorities to non-cannabis crops as we seek to address a broader market.

Our custom-tailored

approach to design, procurement, and equipment integration provides a single point of accountability across all aspects of indoor

growing operations.

We also 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

commencing business in March 2014, we have introduced new equipment solutions, products and services to the CEA market, expanded

our ongoing operations across North America, and most recently, we have entered into several engagements in Europe, and we plan

on opening a European Headquarters office.

Our purpose-built, value-add approach to design, engineering, procurement, and equipment integration

provides a single point of accountability across all aspects of indoor growing operations.

We also 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.

commencing business in March 2014, we have introduced new equipment solutions, products and services to the CEA market, expanded our

ongoing operations across North America, added CEA-focused design and engineering to our services portfolio, diversified into

food-focused CEA, and have entered into several engagements in Europe, where we have opened urban-gro European Holdings

BV based in the Netherlands to help shepherd those engagements.

majority of our clients are commercial CEA cultivators.

We believe one of the key points of our differentiation that clients value

is the depth of experience of our employees and our Company.

We believe one of the key points of our differentiation that clients value is

the depth of experience of our employees and our Company.

We currently employ 97 individuals.

Approximately two-thirds

of our employees are considered experts in their areas of focus, and our team includes Engineers (Mechanical, Electrical, Plumbing,

Controls, and Agricultural), Professional Engineers, and individuals with Masters Degrees in Plant Science, Horticulture, and

Business Administration.

As a company, we have worked on more than 300 indoor CEA facilities, and believe that the experience

of our team and Company provide clients with the confidence that we will proactively keep them from making common costly mistakes

during the build out that 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’

Approximately two-thirds of our

employees are considered experts in their areas of focus, and our team includes Designers (Architects, Interior Designers, Cultivation

Space Planners), Engineers (Mechanical, Electrical, Plumbing, Controls, and Agricultural), Professional Engineers, and individuals

with Masters Degrees in Plant Science, Horticulture, and Business Administration.

As a company, we have worked on nearly 500 indoor

CEA facilities, 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 build out process that 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

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.

Services and Integrated Equipment Solutions

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

of their facility.

We are a trusted partner and advisor to our clients and offer a complete set of engineering and managed services

complemented by a vetted suite of select cultivation equipment systems.

Outlined below is an example of a complete project with

estimated time frames for each phase that demonstrate how we provide value to our clients.

indoor commercial cultivation solution offers an integrated suite of services and equipment systems that generally fall within

the following categories:

and Design Services –

A comprehensive triad of services including:

Space Programming (“CSP”)

Cultivation Design (“ICD”)

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

We are a trusted partner and advisor to our clients and offer a complete set of design, engineering and managed services complemented

by a vetted suite of select cultivation equipment systems.

Outlined below is an example of a complete project that demonstrate how we provide value to our clients.

indoor commercial cultivation solution offers an integrated suite of services and equipment systems that generally fall within the following

and Engineering Services

Engineering and Design Services – A comprehensive triad of services including:

Pre-Construction

Space Programming (“CSP”)

Architectural

Full-Facility

Mechanical, Electrical, and Plumbing (“MEP”)

service offering including:

Mechanical, Electrical, and Plumbing (“MEP”)

Integrated Cultivation Design (“ICD”)

ongoing service offering including:

and Equipment Commissioning Services

Gro-Care Crop and Asset Protection Services including

Training Services, Equipment Maintenance Services, Crop Protection Program, and an Interactive Online Portal Hub for Gro-Care

Equipment Solutions:

Source, and Integration of Complex Environmental Equipment Systems

Reselling (“VAR”) of Cultivation Equipment Systems

Vendor Relationships with Premier Manufacturers

and Design Services

a leader in indoor CEA facilities, we provide our clients with service offerings that span from engineering design to the operational

stages of the facility.

Our engineering and design services offering includes three engagements:

CSP, ICD, and MEP.

revolves around early-stage engagement with stakeholders and provides for a basis of design that optimizes for interactions

between people, plants and processes, saving stakeholders money and time, immediately and in the future, through smart, informed

decision-making.

revolves around professionally designed layouts for climate control, fertigation, benching, air flow and lighting, together

ensuring optimal space utilization and product performance.

These detailed plans are taken through the Construction Document

stage and are leveraged by our clients to efficiently solicit contractor bids.

engineering design focuses on the gross square footage of the 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, heating, ventilation, and air conditioning (“HVAC”), plumbing and electrical systems required

and Engineering Services

a leader in indoor CEA facilities, we provide our clients with service offerings that include architectural, interior, and engineering

design as well as the operational stages of the facility.

Our in-house architectural design, engineering and cultivation

design services offering includes Pre-Construction, CSP, Architectural Design, Interior Design, MEP, and ICD.

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 engineering options.

The integration of Pre-Construction Services can expedite project delivery.

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 and electrical engineering, plumbing,

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

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.

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, heating, ventilation, and air conditioning (“HVAC”), plumbing and electrical systems required

for the building permits necessary to obtain a Certificate of Occupancy.

Service Offering

provide value for clients in the form of facility commissioning and staff training.

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.

of the current service options available to clients are isolated to vendors providing post-sale service for a single piece of

equipment –

whereas our service has a cultivation-level view of the complex system made up by each piece of equipment.

Complex cultivation systems encompass a multitude of variables and environment readings such as temperature, relative

humidity, vapor pressure differential (VPD), electrical conductivity (EC), pH, network status, light status, photosynthetically

active radiation, sunrise/sunset modules, CO 2 , HVAC status, fan status, vents (including windward and leeward), shades,

network status and flow rates.

In our CEA world there is a scarcity of skilled labor which impedes our clients’

to drive operating proficiency across their teams.

Our engineering team uses a series of tools and processes to ensure clients

are proactive in preventing equipment downtime, can operate all equipment and processes fluently, and have expert support in resolving

potential issues.

These services range from equipment standard operating procedure (“SOP”) libraries to staff training

With a unique knowledgebase acquired from both our commissioning and training for a wide breadth of cultivation equipment,

we provide our clients’

teams with the skills to minimize equipment downtime and optimize processes in their facilities.

and Equipment Commissioning Services .

Today’s cultivation systems are custom designed and extremely complex.

of project managers and engineers supports the installation process by coordinating with a client’s engineers and stakeholders

to avoid project bottlenecks while supporting construction trades.

Our commissioning team ensures that the equipment is installed

according to the design and operates per the defined manufacturer specifications.

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.

Service Offerings

is a highly differentiated service offering that provides a combination

of facility commissioning and a crop and asset protection program through training, equipment maintenance, on-demand support,

crop protection standard operating procedures (SOP)s, and a client-specific Operating Support System (OSS) that acts as an online hub for clients’ ongoing

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.

of the current service options available to clients are isolated to vendors providing post-sale service for a single piece of equipment.

Our service provides a cultivation-level view of the complex system made up by each piece of equipment, allowing for rapid

installation, continuous process improvement, and greater revenue recognition for our clients

Facility and Equipment

Commissioning Services .

Today’s cultivation systems are custom designed and extremely complex.

Our team of project managers

and engineers supports the installation process by coordinating with a client’s engineers and stakeholders to avoid project bottlenecks

while supporting construction trades.

Our commissioning team ensures that the equipment is installed according to the design and operates

per the defined manufacturer specifications.

Training Services .

Complex cultivation

systems encompass a multitude of variables and environment readings such as temperature, relative humidity, vapor pressure differential

(VPD), electrical conductivity (EC), pH, network status, light status, photosynthetically active radiation, sunrise/sunset modules, CO 2 ,

HVAC status, fan status, vents (including windward and leeward), shades, network status and flow rates.

In CEA there is a scarcity

of skilled labor which impedes our clients’ ability to drive operating proficiency across their teams.

Our engineering team uses

a series of tools and processes to ensure clients are proactive in preventing equipment downtime, can operate all equipment and processes

fluently, and have expert support in resolving potential issues.

These services range from equipment standard operating procedure (“SOP”)

libraries to staff training sessions.

With a unique knowledgebase acquired from both our commissioning and training for a wide breadth

of cultivation equipment, we provide our clients’ teams with the skills to minimize equipment downtime and optimize processes in

their facilities.

gro-care Maintenance Services .

Complex cultivation systems require specific and ongoing maintenance.

Our team enables clients to perform this maintenance appropriately

or even can perform the maintenance for them so that assets operate at their highest efficiency and any issues are encountered early.

gro-care Support Services

When problems arise in a facility, our team is on-call to provide analysis, support, and even in-person visits to help make sure

the issue is addressed prior to impacting any facility operations.

Overview and Pricing .

We estimate that, on average and depending on the crop, CEA facilities can lose up to $10,000 per 1,000

square feet of canopy per day when offline –

our training services are centered around proactively minimizing this potential

loss for a fraction of the cost.

Our clients are best described as automation- and margin-focused and have an understanding of

the importance of preventing downtime in their facilities.

Related-Party

Hardware and Software Platforms .

Since initially collaborating with California-based Edyza Corporation (“Edyza”)

in 2018, our multiple investments have culminated into a 19.5% equity position in Edyza.

Edyza’s IoT platform employs a

robust, high performance, proprietary, tree-mesh wireless network topology and utilizes wireless hardware sensors to acquire data

within the cultivation environment.

Our training services can help clients utilize the data garnered from these sensors to provide

a high-resolution understanding of what’s happening within a client’s facility through detailed multi-point information

on temperature, humidity, barometric pressure, soil moisture, and electrical conductivity.

We estimate that, on average and depending on the crop, CEA facilities can lose up to $10,000 per 1,000 square

feet of canopy per day when offline – our gro-care Crop and Asset Protection services are centered around proactively minimizing

this potential loss for a fraction of the cost.

Our clients are best described as automation- and margin-focused and have an understanding

of the importance of preventing downtime in their facilities.

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,

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.

CEA, the environmental goal is to maintain a stable and consistent 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):

There are four main variables in CEA that affect plant growth

(and can impact VPD):

(i) water and nutrients;

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Source, and Integration of Complex Environmental Equipment Systems

Environment Systems for CEA include the integration of environmental controls, fertigation and irrigation distribution, a complete

line of water treatment and wastewater reclamation systems, and purpose-built HVAC equipment systems.

Environment Systems for CEA include the integration of environmental controls, fertigation and irrigation distribution, a complete line

of water treatment and wastewater reclamation systems, and purpose-built HVAC equipment systems.

most significant variable of interest in a CEA facility is the control of the environment, which is accomplished through the integration

of both environmental controls and the purpose-built HVAC system.

Without proper design, the environmental control system is the

most influential variable in terms of temperature and relative humidity control within an indoor agriculture space.

With properly

designed equipment, the environmental controls variable is less volatile, enabling efficient growing conditions.

Without proper design, the environmental control system is the most

influential variable in terms of temperature and relative humidity control within an indoor agriculture space.

With properly designed

equipment, the environmental controls variable is less volatile, enabling efficient growing conditions.

Purpose-built

HVAC equipment systems will provide a more stable environment, maximize plant health and yields, minimize crop loss, minimize

utility costs, save on capital equipment, and maximize sustainability.

Additionally, private studies of a partner comparing purpose-built

HVAC environmental controls equipment to standard commercial HVAC and dehumidification, found increased crop yields with purpose-built

HVAC equipment systems will provide a more stable environment, maximize plant health and yields, minimize crop loss, minimize utility

costs, save on capital equipment, and maximize sustainability.

Additionally, private studies of a partner comparing purpose-built HVAC

environmental controls equipment to standard commercial HVAC and dehumidification, found increased crop yields with purpose-built equipment,

which can include chilled water and DX systems.

of Cultivation Equipment Systems

act as an experienced VAR to our clients when selling vetted best-in-class commercial horticulture lighting solutions, rolling

and automated container benching systems, specialty fans, 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, we 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 18 month period and includes engineering design and

the sale of both custom complex and more standard equipment systems.

act as an experienced VAR to our clients when selling vetted best-in-class commercial horticulture lighting solutions, rolling and automated

container benching systems, specialty fans, 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,

we 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.

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 18 month period and includes engineering design and the

sale of both custom complex and more standard equipment systems.

Vendor Relationships with Premier Manufacturers

work closely with leading technology and manufacturing providers to deliver an integrated solution designed to achieve the stated

objectives of our clients.

While we previously manufactured certain lighting products, we discontinued all manufacturing

in 2019, although we continued to sell existing inventory through 2020.

Although we have numerous provider relationships, three

vendors are particularly important to our solution:

Fluence, Argus, and Desert Aire.

Fluence’s

LED-based lighting systems are designed to provide high levels of photosynthetically active radiation ideal for commercial

cultivation and research applications.

From sole-source indoor grow lighting to supplemental greenhouse lighting, Fluence

custom tailors the light spectrum and form-factors to optimize plant growth and increase yields while consuming less energy

and reducing operating costs as compared to legacy technologies.

working closely together since early 2019, we have demonstrated our value to Fluence by engaging with clients, and introducing

their product line, up to 18 months prior to facility start-up.

on this success, in the second quarter of 2020, we signed an exclusive two-year global System Integrator Agreement with Fluence.

provides automated control systems for the horticulture and aquaculture industries.

Argus systems provide three essential

(i) fully integrated equipment control;

(ii) advanced monitoring and alarms;

and (iii) comprehensive crop and environmental

data acquisition and management information.

Argus capabilities include facilities automation and specialty monitoring and

control applications to support the needs of cultivators.

systems are used in horticulture and biotechnology

research facilities, universities, aquaculture and aquaponics, and many other custom control applications at sites throughout

the fourth quarter of 2019, we renewed our multi-year strategic agreement with Argus to provide cultivators in North America

with industry-leading, plant-centric solutions for environmental control, automation, and nutrient management.

have worked with Argus on over 50 projects and the extended agreement demonstrates both companies’

commitment to client

success through early and ongoing collaboration with cultivators throughout their project lifecycles.

Aire manufactures commercial and industrial humidity and climate control systems, including their purpose-built GrowAire™

solution which has been designed specifically to meet the sensible and latent needs of indoor growing climates in the CEA

the first quarter of 2020, we signed an agreement with Desert Aire to be a Systems Integration National Account within the

agriculture market.

have not experienced any material changes in the availability of equipment systems and products from Fluence, Argus, or Desert

and Marketing Strategy

sales team is comprised of one Executive Vice President, three Directors of Sales, one Sales Operations Manager, and one Sales

The Directors of Sales, serving as “relationship ambassadors,”

are located across the United States and

are tasked with cultivating leads, generating and supporting sales, and managing client relationships.

the experience garnered from providing engineering and design services to over 300 CEA projects, and our continued research on

finding best-in-class complex equipment solutions, our clients choose to work with us because our team custom tailors a solution

to address the client’s unique combination of process flow, complex environmental systems, cultivation equipment solutions,

and any potential sensitivities of the crop.

potential clients express an interest in our solution, we provide them with a technical expert, referred to as a sales engineer,

who can quickly and effectively explain a proposed solution to resolve the client’s specific challenges.

We believe this

technical sales process requires true segment expertise, which we also believe has not been readily available to indoor cultivators.

Our team includes talented and experienced individuals including licensed Professional Engineers, as well as individuals with

Masters Degrees in Business Administration, Plant Science, Horticulture, and post-secondary degrees in Environmental Science,

Horticulture, Agricultural Engineering, and Electrical/Mechanical/Controls Engineering.

We leverage these technical experts in

their areas of expertise to continually find and vet what we believe are the best-in-class solutions, and then educate and inform

our clients on best solution use and techniques.

addition to leads generated from the execution of our marketing strategy, for additional new business opportunities, we focus

on referrals generated from our relationships with industry partners and from contract referral agents.

By offering a referral

program to consultants whose primary business model is to help their clients set up cultivation facilities from the design stage

through cultivation, we ensure access to a strong network of cultivators.

Cycle and Average Revenues and Gross Margins

generate revenue and profits based on selling engineering design and managed services, customized environmental and cultivation

equipment systems, and consumable products once facilities are operational.

At the outset of a client design project, we utilize a proprietary project estimation tool that accounts for multiple

variables relating to the size and complexity of the new or retrofitted facility.

This tool optimizes the facility layout, taking

into consideration the initial costs of all custom cultivation equipment systems as well as the ongoing operational costs associated

with labor and utilities required to move the crop, in order to establish a facility that meets the objectives of the client.

After the project estimate is determined, a design fee and project deposit are determined.

The design fee is dependent on the

desired design services and on the complexity of the overall project, including facility and canopy size, type and complexity

of controls and irrigation distribution system, which is dependent on number of irrigation zones, types of nutrients, and the

number of individual plants that require irrigation.

We provide our solution pursuant to a contract that typically requires a

project design deposit equal to 50% of the project estimate, with the remaining balance due prior to delivery of the construction

documents, which collectively takes, approximately twelve months.

the design stage, we contract with clients to procure and sell customized equipment systems.

To begin the procurement process,

we charge a deposit ranging from 20% to 50% of total cost, which varies based on lead time, complexity, and the type of systems.

After the procurement window, which ranges from one week to five months to allow for the manufacturing and assembly of systems,

we charge a final shipment payment for the balance owed, which is due within two weeks of system readiness and prior to shipment.

Following installation of the systems, we dispatch an engineering team for commissioning they systems.

the client’s facility is operational, we are able to support the client’s ongoing operations by selling consumable

products to ensure the facilities function at optimal performance.

work closely with leading technology and manufacturing providers to deliver an integrated solution designed to achieve the stated objectives

of our clients.

While we previously manufactured certain lighting products, we discontinued all manufacturing in 2019, although we continued

to sell existing inventory through 2020.

Today we are equipment agnostic – meaning we do not have any allegiance to any manufacturer

– we offer the solution that will best fit the design and budget constraints of our clients and are happy to design, engineer,

and integrate in whatever equipment fits the needs of our clients.

and Gross Profit Margins by Category .

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.

Product 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 consumable products are typically

of a recurring nature each month to a client and can be in the tens of thousands of dollars.

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

design services –

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.

Product 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 consumable products are typically of a recurring nature each

month to a client and can be in the tens of thousands of dollars.

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

Architectural

and Engineering design services –

thirty to sixty percent;

gro-care Crop and Asset Protection services –

forty to sixty percent;

equipment systems - mid-teens to mid-thirty percent;

products revenues - high-teens to high-twenty percent.

profit margins on engineering design services and customized equipment systems are highly dependent on the complexity and size

of the project.

profit margins on engineering design services and customized equipment systems are highly dependent on the complexity and size of the

primarily market and sell our products and services to CEA operators and facilitators in the United States and Canada.

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client base has been comprised of indoor commercial cultivators seeking to grow high-quality cannabis crops.

Since launching the

engineering and design division in 2018, we have designed and assisted in the build-out of 300+ projects for some of the largest

independent and multi-state operators in both the United States and Canada.

Although the cannabis market has been our historical

target market and an unknown but substantial portion of all of our revenues to date have been generated from clients in the cannabis

industry, we are seeking to diversify our client base by expanding our reach within CEA.

The term “plant-based medicines”

includes (i) a wide array of herbal supplements including but not limited to curcumin, saffron extract and ginger, (ii) CBD based

therapeutics, (iii) cannabis based therapeutics and (iv) a host of medicines derived from plans such as caffeine, menthol, foxglove

We are focusing on expanding to the vertical farming CEA sub-segment, which is ultimately and predominantly used for

the cultivation of a variety of crops including, but not limited to, leafy greens, herbs, cucumbers, peppers, and strawberries.

During 2020, we also continued exploring the potential demand for our solutions in select countries, including those within Latin

America and Europe.

provide our clients with equipment and service solutions for their facility that empowers their success for the life of their

from early stage facility programming, engineering design, and the integration of complex equipment systems, through

commissioning / facility start-up services.

Our team of engineers and experts understand the highly regulated market, challenges,

and opportunities unique to cultivators.

serves two general purposes at urban-gro –

brand image and lead generation.

marketing strategy is to position urban-gro as a leading engineering and design services company that integrates complex environmental

equipment systems into high-performance indoor CEA cultivation facilities for the global commercial horticulture market.

the clarity of our brand is a key component of supporting our organization’s growth initiatives and lead generation.

support our brand through (i) interviews, (ii) website, (iii) e-commerce, (iv) events, and (v) corporate responsibility.

We retain a public relations firm to amplify our business objectives through earned media to support of our corporate activities

and marketing functions.

The focus of our publicity efforts is to engage and inform key audiences, build relationships, and provide

vital feedback for analysis and action.

Our spokespeople have received media training and are briefed prior to each interview.

Our online experience supports our brand by being both educational and transactional.

By applying an established set of key metrics,

user activity on the website is used to generate Marketing Qualified Leads (“MQL”) to be passed to the sales team

for engagement.

With the technology advancements and market expansion into CEA, our website offers educational content for investors,

managers, and cultivators to ensure they are considering key facility programming, design, and engineering aspects critical to

high-performance buildings.

Given our team’s early involvement with indoor cultivation, our experts are uniquely positioned

to share knowledge, thereby qualifying us for future projects.

As a lead-generation tool, the urban-gro website produces qualified,

trackable sales leads.

The leads move through the qualification and nurture process before being passed to sales and engaged by

the appropriate contact for advancement through the sales funnel.

era of COVID-19, events and tradeshows have changed dramatically.

Now virtual experiences, we participate in select events promoting

thought leadership through speaking and participation on panels.

Event sponsorship is carefully evaluated with clear goals and

objectives established ahead of time.

Participation in events must meet the following four-part qualification criteria:

with potential clients during and after the event, 2) building a network of collaborative design and construction firms across

North America, 3) repurposing event content and delivering across our digital media platforms as curated content, and 4) continue

to protect our brand, image and reputation as the thought and delivery leader in the CEA marketplace.

According to Freeman,

a top leader in event logistics, in-person events are anticipated to resume in the second quarter 2021 at the earliest.

This is subject to change based upon the developments of COVID-19 in the spring of 2021.

Responsibility .

We leverage our leadership position in the market as an opportunity to promote our corporate values of inclusion,

innovation, and connection.

Since launching the engineering

and design division in 2018, we have designed and assisted in the build-out of 500+ projects for some of the largest independent

and multi-state operators in both the United States and Canada.

Although the cannabis market has been our historical target market and

an unknown but substantial portion of all of our revenues to date have been generated from clients in the cannabis industry, we have

been diversifying our client base by expanding our reach within food-focused vertical farming indoor CEA and maintaining non-CEA

business lines from our architectural and engineering teams.

The term “plant-based medicines” includes (i) a wide array

of herbal supplements including but not limited to curcumin, saffron extract and ginger, (ii) CBD based therapeutics, (iii) cannabis-based

therapeutics and (iv) a host of medicines derived from plans such as caffeine, menthol, foxglove and others.

We are focusing on expanding

to the vertical farming CEA sub-segment, which is ultimately and predominantly used for the cultivation of a variety of crops including,

but not limited to, leafy greens, herbs, cucumbers, peppers, and strawberries, as well as continue our expansion into Europe to meet

the demand for our solutions within the indoor CEA market.

Environment ,

Social, and Governance

We are continuously striving to develop, maintain,

and build upon our environmental, social, and governance (“ESG”) practices.

As a leader in the CEA space, urban-gro has a continuing commitment to Environmental Sustainability in order to help form a better,

healthier world for future generations.

Utilizing the expertise of our employees, we create less waste, water consumption, and carbon

emissions for over 500 facilities worldwide and counting.

We believe we present a strong opportunity for the growing market of investors

looking for profitable growth companies dedicated to providing a more sustainable world for generations to come.

As technological

advancement continues, we plan to work with our partners to create even more earth-friendly cultivation sites in our hopes of carbon

our leadership position in the market as an opportunity to promote our corporate values of inclusion, innovation, and connection.

Internally, we hire and promote underrepresented communities in STEM (science, technology, education, mathematics).

design and engineering teams reflect our commitment as demonstrated by leadership positions held by women across our project

design, project management, and client engagement departments.

Our project design

and engineering teams reflect our commitment as demonstrated by leadership positions held by women across our project design, project

management, and client engagement departments.

CEA is an industry that is rapidly advancing, testing, and adopting new technologies.

Our corporate development team works

closely with our project design and engineering teams to vet new products and ensure they align with our corporate responsibility

Through our outreach efforts across the United States and Canada, we represent a company committed to the development

and nurturing of a deeper understanding across all disciplines of CEA, food production, and being on the leading edge of emerging

industry-related innovations.

have been a long-time supporter of HeroGrown, an organization that provides Veterans, First Responders, and their families

with free access to benefit-rich CBD.

Through “Operation CBD Drop,”

HeroGrown provides an alternative to those

struggling with addiction to deadly drugs prescribed for service-related injuries and psychological disorders.

our Client Appreciation Events at major tradeshows across North America, we raise awareness and funds for local charities.

These events serve as opportunities for non-profits to bolster career opportunities, economic development, veteran health

and housing, and other causes.

generate interest in our services and equipment solutions through a strategic approach to lead generation combining owned, earned,

and paid marketing activities.

These lead generation campaigns include advertising, contributed articles and news stories, newsletters,

referral agreements, social media, and tradeshows / webinars.

(Traditional and Digital) :

We advertise with traditional print media outlets, as well as digitally through targeted pay-per-click

Ad components include educational offerings as well as a clear call-to-action.

Social media promotion is also leveraged

as a part of the overall advertising strategy but on a very targeted basis.

Articles and News Stories :

Contributed articles and news stories support and further our reputation and showcase our expertise

in key areas of facility programming, engineering design, and facility operations.

Newsletters :

We provide a free newsletter which provides insight into cultivation practices, product promotions, and client spotlights.

newsletters are a great opportunity to educate the audience on our full extent of services and products, as well as demonstrate

how we add value through expert experience and oversight.

Third-party endorsements are powerful referral systems for lead generation.

We have developed agreements with

key influencers and affiliated industry companies.

As a part of our digital marketing efforts, we produce original and curated content across our social channels including

Instagram, Facebook, LinkedIn, and TikTok.

Shows, Webinars and Panel Discussions :

Tradeshows in the age of COVID-19 have been transformed into virtual events.

We participate

in select events as speakers and panel participants.

Our corporate development team works closely

with our project design and engineering teams to vet new products and ensure they align with our corporate responsibility needs.

Through our outreach efforts across the world, we represent a company committed to the development and nurturing of

a deeper understanding across all disciplines of CEA, food production, and being on the leading edge of emerging industry-related

Through our Client Appreciation Events at major tradeshows

across North America, we raise awareness and funds for local charities.

These events serve as opportunities for non-profits to bolster

career opportunities, economic development, veteran health and housing, and other causes.

have been a long-time supporter of HeroGrown, an organization that provides Veterans, First Responders, and their families with free

access to benefit-rich CBD.

Through “Operation CBD Drop,” HeroGrown provides an alternative to those struggling with

addiction to deadly drugs prescribed for service-related injuries and psychological disorders.

We have been a supporter of Teens for Food Justice which

is catalyzing a youth-led movement to end food insecurity in one generation through high-capacity, school-based hydroponic farming.

We have even helped build out and commission their first in-classroom vertical farm in the Denver area located near our headquarters and have committed our team’s time to mentoring students and helping further TFFJ’s

· Governance:

We have three main approaches we utilize to guide us for a successful governance

program to ensure that our stakeholders’ best interests are acted upon:

Board Composition:

have a strong and diverse board made up of leaders from a variety of fields that help guide our overall efforts.

National Cannabis Roundtable:

We sit on the board of the National Cannabis Roundtable, an organization dedicated to sensible regulation, criminal justice reform,

social equity and community reinvestment.

Audit Committee.

Our Audit Committee is focused on internal controls and multi-discipline oversight enabled by its

charter and structure.

employees and the application of their acquired knowledge is our most valuable asset as an organization.

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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:

These three pillars allow

us to continue to provide value to our current and future clients:

our Service Capabilities

of Geographical Reach

within the Commercial Horticulture Segment

Expertise as a Service

have always aimed to provide the highest level of service and expertise to our clients from initial cultivation ideation to helping

prior to go-live to proactively solve for issues that may arise once operations begin and continue at their facilities.

Our commissioning

and training services allow our clients to manage, operate and perform at the highest level throughout their entire cultivation

lifecycle once they are up and running.

Diversifying our Service Capabilities

intend to be the global leading provider for purpose-built turnkey indoor CEA facilities.

To that end, we will seek to diversify our

service capabilities to enable that offering of providing value to clients through acting as a single point of responsibility in our

turnkey approach.

While we will continue to expand our services organically, we began this journey through the acquisition of Impact

Engineering, Inc in 2019, the acquisition of 2WR+ Partners in 2021, and will continue to look for inorganic opportunities that

propel us forward towards our vision.

Examples of these opportunities include services that we do not currently have in-house that

provide meaningful value to clients and also represent meaningful revenue gaps for us – amongst these are services like

construction management, additional design-build engineering disciplines, and further niche-specific indoor CEA operational support.

We believe that acting as a single point of responsibility as a provider for turnkey solutions, especially one with the depth and

breadth of experience within indoor CEA facilities, we can get our clients to market more quickly and more efficiently than

We have always aimed to provide the

highest level of service and expertise to our clients from initial cultivation ideation to helping prior to go-live to proactively

solve for issues that may arise once operations begin and continue at their facilities.

We will continue to provide these elite

service levels as we expand our service capabilities.

In addition, where this diversification of service capabilities adds existing clients from non-CEA industry sectors,

we will look to continue to compete and expand in those sectors, including medical, K12, industrial, commercial, hospitality, and CPG,

while remaining focused on being the leader for indoor CEA.

Expansion of Geographical Reach

we will continue to establish our end-to-end solution as the industry standard for CEA indoor cultivation, we intend to continue

to focus on integrating our expertise and service offerings with the best available technologies to allow our clients to achieve

operational superiority and profitability.

we will continue to establish our end-to-end solution as the industry standard for CEA indoor cultivation, we intend to continue to focus

on integrating our expertise and service offerings with the best available technologies to allow our clients to achieve operational superiority

and profitability.

While we believe that the U.S.

market will experience continued strength, and this

will represent significant growth opportunities for us, we also intend to expand our reach within Europe.

market will experience continued strength, and this will represent significant growth

opportunities for us, we also intend to continue our expansion and reach within Europe.

Expansion - Historically, our business has found success with clients in the United States and Canada.

America currently presents the dominant opportunity for indoor new build and retrofit CEA facilities, the European CEA market,

especially in the vertical farming sub-segment, is rapidly expanding.

first entered the European market in early 2020, through key partners who have brought us into opportunities as a value-added

component to their own sales cycle.

We have demonstrated the transferability of our expertise to the EU and have closed several

deals to provide value-added solution services to European clients.

Further, in Switzerland, where the majority of our

engineering and design contracts were signed, the plant-based medicines market (hemp-derived CBD) has shown a strong, positive

response for our solutions.

Based on our due diligence, we believe that the most common facilities in demand in this market will

mirror that of our niche –

indoor, CEA, GMP-certified operations.

We will look to capitalize on our current approach and

expand our reach into Europe with our services and products through a staged and cost-efficient approach by first entering the

market through our strong partnerships and leveraging our existing U.S.-based engineering expertise and overhead.

term “plant-based medicines”

includes (i) a wide array of herbal supplements including but not limited to curcumin,

saffron extract and ginger, (ii) CBD based therapeutics, (iii) cannabis based therapeutics and (iv) a host of medicines derived

from plans such as caffeine, menthol, foxglove and others.

to Market Expansion - Due to the rapid development of the European market and the lack of established companies experienced

in the design, construction, and operations of indoor cultivation facilities, we will make a strategic and staged entry into the

European market to ensure a sustainable use of resources and capital.

The market entry will be designed around a three-phased

Focus on establishing a client base and pipeline surrounding early license applicants and current license holders

by providing facility and systems design for indoor projects.

Building on established vendor relationships, integrate purpose-built custom environmental equipment systems from

While North America currently

presents the dominant opportunity for indoor new build and retrofit CEA facilities, the European CEA market, especially in the vertical

farming sub-segment, is rapidly expanding.

entered the European market in early 2020, through key partners who have brought us into opportunities as a value-added component to

their own sales cycle.

We have demonstrated the transferability of our expertise to the EU and have closed several deals to provide value-added

solution services to European clients in several countries, including Switzerland, Northern Macedonia, Greece, Spain, England, and

the Netherlands.

Based on our due diligence, we believe that the most common facilities in demand in this market will mirror that

of our niche – indoor, CEA, GMP-certified operations.

We will look to capitalize on our current approach and expand our reach into

Europe with our services and products through a staged and cost-efficient approach by first entering the market through our strong partnerships

and leveraging our existing U.S.-based engineering expertise and overhead.

to Market Expansion - Due to the rapid development of the European market and the lack of established companies experienced in the

design, construction, and operations of indoor cultivation facilities, we will make a strategic and staged entry into the European market

to ensure a sustainable use of resources and capital.

The market entry will be designed around a three-phased approach:

One – Focus on establishing a client base and pipeline surrounding early license applicants and current license holders by

providing facility and systems design for indoor projects with a focus on CSP.

Two – Building on established vendor relationships, integrate purpose-built custom environmental equipment systems from U.S.

manufacturers into our European offering.

Three –

Incorporate the development of the initial two phases combined with the partnerships, joint ventures, and domestic

manufacturing of equipment to provide a turn-key project solution offering in Europe.

believe this three-phased approach, paired with the evolution of partnerships and domestic equipment manufacturing, will

establish us as an experienced leader and solution provider in the design, engineering, and turn-key systems for the European

indoor CEA market.

Three – Incorporate the development of the initial two phases combined with partnerships, joint ventures, expansion of service

capabilities, and domestic manufacturing of equipment to provide a turn-key project solution offering in Europe.

believe this three-phased approach, paired with the evolution of partnerships and domestic equipment manufacturing, will establish us

as an experienced leader and solution provider in the design, engineering, and turn-key systems for the European indoor CEA market.

Expansion within the Commercial Horticulture Segment

our in-house engineering capabilities and synergies, we confidently believe that we can efficiently expand our diversification

to include working on projects in the CEA indoor vertical farming market segment in both the North American and European markets.

CEA Vertical Farming Segment - CEA vertical farm facilities for cultivation are typically indoor warehouse farms and plant

factories that are in purpose-built or retrofitted facilities.

to Allied Market Research, the global vertical farming market is estimated to reach $12.8 billion by 2026, with a compounded annual

growth rate of 24.6% from 2019 to 2026.

The market for non-container facilities—on which we already focus and have had success—is

forecasted to grow even faster.

This rate of growth forecast is buttressed by the fact that more and more food will be needed

closer to where population resides, and CEA eliminates many of the risks of traditional agriculture, minimizing risk and allowing

localities to be closer and control their food supply more readily.

Entry - Our end-to-end approach, solutions, and expertise are applicable for and valuable to clients creating high performance

indoor vertical farms to cultivate high value crops such as leafy greens, micro-greens, herbs, peppers, or even floriculture.

After studying the opportunity over the last two quarters, we see relatively few barriers to entry as:

engineers’

design expertise in indoor CEA seamlessly flows through to indoor vertical farming facilities;

experts’

backgrounds are predominantly built on a commercial horticulture foundation;

acquired expertise in engineering over 300 indoor CEA projects with the highest valued crop in the world will allow us to

design high performance vertical farms.

approach to entering this market will follow what we have done as we entered Europe –

we will continue to reinforce our

core strengths as we expand into new markets through our partnerships.

The first phase of entering this CEA market will be as

a value-add to our partners who already successfully sell to this market in North America.

As we find success here, we will look

to continue to partner to accelerate our reach and begin to supply much of the equipment needed to build out a facility, and finally,

after identifying and solving for any potential gaps, we will look to offer turn-key, end-to-end design, engineer, and build services

for indoor CEA facilities.

Strategy - While entering any new market can be challenging, we believe that our existing brand combined with the strength

of our partnerships and expertise will allow us to capture a meaningful amount of this market through targeting the most sophisticated,

well-funded producers who are in need of a partner that has a demonstrated history of success growing crops in this way.

speed up our expansion plan, and with the intention of forming strategic relationships to assist in lead generation, we plan to

place investments in or acquire horticulture-related positive cash flow entities at discounted prices based upon the synergistic

upside available for both organizations.

we feel that our complex end-to-end solution places us as a leader in the CEA segment, we do face competition from companies that

offer some, but not all, portions of an all-encompassing facility package.

Further, these companies often outsource to third parties

for the integration and sale of equipment systems and products, particularly within the cannabis industry.

We also compete with

other smaller and mid-sized companies that focus primarily on either engineering design services or product sales.

services space, there are several product or services specific competitors that offer similar services, such as MEP services or

basic fertigation design.

Currently, we view our competition to be focused on equipment sales that are predominantly commodity

“off-the-shelf”

our in-house engineering capabilities and synergies, we confidently believe that we can efficiently expand our diversification to include

working on projects in the CEA indoor vertical farming market segment in both the North American and European markets.

CEA Vertical Farming Segment - CEA vertical farm facilities for cultivation are typically indoor warehouse farms and plant factories

that are in purpose-built or retrofitted facilities.

to Bank of America Thematic Research, the global vertical farming market is estimated to reach $17 billion by 2025,

with a compounded annual growth rate of 27.7% from 2020 to 2025.

The market for non-container facilities—on which

we already focus and have had success—is forecasted to grow even faster.

This rate of growth forecast is buttressed by the fact

that more and more food will be needed closer to where population resides, and CEA eliminates many of the risks of traditional agriculture,

minimizing risk and allowing localities to be closer and control their food supply more readily.

Entry - Our end-to-end approach, solutions, and expertise are applicable for and valuable to clients creating high performance indoor

vertical farms to cultivate high value crops such as leafy greens, micro-greens, herbs, peppers, or even floriculture.

And our experience

and expertise is highly transferable – while our experts’ backgrounds are predominantly built on a commercial horticulture

foundation, our architects’ and engineers’ design expertise in indoor CEA also seamlessly flows through to indoor vertical

farming facilities.

The acquired expertise our team has in over 500 indoor CEA projects with the highest valued crop in the world allows

us to understand how to successfully design high performance CEA facilities.

approach to entering this market has followed what we have done as we entered Europe – we continue to reinforce our core

strengths as we expand into new markets through our partnerships.

The first phase of entering this CEA market is through our leading

design and engineering teams.

Our teams have helped in the initial phases of Cultivation Space Planning (CSP) for indoor CEA vertical

farm producers as well as helped existing producers identify and solve issues in their current facilities.

As we find success here,

we will look to continue to partner to accelerate our reach and begin to supply much of the equipment needed to build out a facility,

and finally, after identifying and solving for any potential gaps, we will look to offer turn-key, end-to-end design, engineer, and build

services for indoor CEA facilities.

Strategy - While entering any new market can be challenging, we believe that our existing brand combined with the strength of our

partnerships and expertise will allow us to capture a meaningful amount of this market through targeting the most sophisticated, well-funded

producers who are in need of a partner that has a demonstrated history of success growing crops in this way.

speed up our expansion plan, and with the intention of forming strategic relationships to assist in lead generation, we plan to place

investments in or acquire horticulture-related positive cash flow entities at discounted prices based upon the synergistic upside available

for both organizations.

we feel that our complex end-to-end solution places us as a leader in the CEA segment, we do face competition from companies that offer

some, but not all, portions of an all-encompassing facility package.

Further, these companies often outsource to third parties for the

integration and sale of equipment systems and products, particularly within the cannabis industry.

We also compete with other smaller

and mid-sized companies that focus primarily on either engineering design services or product sales.

Within the services space, there

are several product or services specific competitors that offer similar services, such as architectural design services, MEP services

or basic fertigation design.

Currently, we view our competition to be focused on equipment sales that are predominantly commodity “off-the-shelf”

items like lighting and other cultivation staple products, both pre- and post-startup.

This competition

comes from traditional wholesale horticulture dealers, online retailers, and some manufacturers who sell direct.

This competition comes from traditional wholesale

horticulture dealers, online retailers, and some manufacturers who sell direct.

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.

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.

although we frequently partner with direct manufacturers to deliver our customized solution, these manufacturers may seek to engage

with clients directly to deliver their products.

In addition, we sometimes compete with electrical contractors with respect to

specific components of facility engineering and design.

the cannabis market continues to mature and develop and legalization becomes more prevalent, we expect to see more competition

from cannabis-focused agricultural product and service providers.

Going forward, our focus is on non-cannabis crops.

companies may have longer operating histories, greater name recognition, larger client bases and significantly greater financial,

technical, sales and marketing resources.

These competitors may adopt more aggressive pricing policies and make more attractive

offers to existing and potential clients, employees, strategic partners, distribution channels and advertisers.

Increased competition

is likely to result in price reductions, reduced gross margins and a potential loss of market share.

we 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.

Marijuana is a Schedule I controlled

substance and is illegal under federal law.

Even in those states in which the use of marijuana has been legalized, its use remains

a violation of federal laws.

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 marijuana, persons that are charged

with distributing, possessing with intent to distribute, or growing marijuana 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.

the Obama administration took the position that it was not an efficient use of resources to direct federal law enforcement agencies

to prosecute those lawfully abiding by state-designated laws allowing the use and distribution of medical marijuana.

administration revised this policy but made no major changes in enforcement.

Specifically, Attorney General Sessions vacated the

Cole Memorandum in favor of deferral of any enforcement of federal regulation to the individual states’

Department of Justice

However, certain other protections remain in place via budgetary element embedment (the Rohrabacher-Farr amendment,

now referred to as the Rohrabacher-Blumenauer Amendment), which limits funding of any enforcement of anti-cannabis legislation.

The Department of Justice has stated that it will continue to enforce the Controlled Substances Act with respect to marijuana

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.

although we frequently partner with direct manufacturers to deliver our customized solution, these manufacturers may seek to engage with

clients directly to deliver their products.

In addition, we sometimes compete with electrical contractors with respect to specific components

of facility engineering and design.

the cannabis market continues to mature and develop and legalization becomes more prevalent, we expect to see more competition from cannabis-focused

agricultural product and service providers.

Going forward, while we will continue to serve cannabis CEA producers, we will extend

our focus to non-cannabis crops.

These companies may have longer operating histories, greater name recognition, larger client

bases and significantly greater financial, technical, sales and marketing resources.

These competitors may adopt more aggressive pricing

policies and make more attractive offers to existing and potential clients, employees, strategic partners, distribution channels and

Increased competition is likely to result in price reductions, reduced gross margins and a potential loss of market share.

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.

Marijuana is a Schedule I controlled substance and

is illegal under federal law.

Even in those states in which the use of marijuana has been legalized, its use remains a violation of federal

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 marijuana, persons that are charged with distributing,

possessing with intent to distribute, or growing marijuana 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.

the Obama administration took the position that it was not an efficient use of resources to direct federal law enforcement agencies to

prosecute those lawfully abiding by state-designated laws allowing the use and distribution of medical marijuana.

The Trump administration

revised this policy but made no major changes in enforcement.

Specifically, Attorney General Sessions vacated the Cole Memorandum in

favor of deferral of any enforcement of federal regulation to the individual states’ Department of Justice or U.S.

certain other protections remain in place via budgetary element embedment (the Rohrabacher-Farr amendment, now referred to as the Rohrabacher-Blumenauer

Amendment), which limits funding of any enforcement of anti-cannabis legislation.

The Department of Justice has stated that it will continue

to enforce the Controlled Substances Act with respect to marijuana to prevent:

distribution of marijuana to minors;

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possession or use on federal property.

the use of marijuana is illegal under federal law, most federally chartered banks will not accept deposit funds from businesses

involved with marijuana.

Consequently, businesses involved in the marijuana industry generally bank with state-chartered banks

and credit unions to provide banking to the industry.

cultivation and distribution of marijuana for medical use is permitted in many states, provided compliance with applicable state

and local laws, rules, and regulations, marijuana is illegal under federal law.

Strict enforcement of federal law regarding marijuana

would likely result in a material adverse effects on our business and revenues.

Though the cultivation and distribution of marijuana

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 marijuana.

While this appropriations

measure continued from 2016 through 2020, and remains in effect, continued re-authorization cannot be guaranteed.

If this appropriations rider is no longer in effect, the risk of federal enforcement and override of state marijuana laws would

However, state laws do not supersede the prohibitions set forth in the federal drug laws.

order to participate in either the medical or adult use sides of the marijuana industry, all businesses

and employees must obtain licenses from the state and, for businesses, local jurisdictions.

In addition, all owners and employees must obtain an occupational

license to be permitted to own or work in a facility.

All applicants for licenses undergo a background investigation, including

a criminal record check for all owners and employees.

and regulations affecting the medical marijuana industry are constantly changing, which could detrimentally affect our proposed

Local, state and federal medical marijuana 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.

It is also possible that regulations may be enacted in the future that will be directly applicable to our business.

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.

the use of marijuana is illegal under federal law, most federally chartered banks will not accept deposit funds from businesses involved

with marijuana.

Consequently, businesses involved in the marijuana industry generally bank with state-chartered banks and credit unions

to provide banking to the industry.

cultivation and distribution of marijuana for medical use is permitted in many states, provided compliance with applicable state and

local laws, rules, and regulations, marijuana is illegal under federal law.

Strict enforcement of federal law regarding marijuana would

likely result in a material adverse effects on our business and revenues.

Though the cultivation and distribution of marijuana 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 marijuana.

While this appropriations measure continued

from 2016 through 2020, and remains in effect, continued re-authorization cannot be guaranteed.

If this appropriations rider is no longer

in effect, the risk of federal enforcement and override of state marijuana laws would increase.

However, state laws do not supersede

the prohibitions set forth in the federal drug laws.

order to participate in either the medical or adult use sides of the marijuana industry, all businesses and employees must obtain licenses

from the state and, for businesses, local jurisdictions.

In addition, all owners and employees must obtain an occupational license to

be permitted to own or work in a facility.

All applicants for licenses undergo a background investigation, including a criminal record

check for all owners and employees.

and regulations affecting the medical marijuana industry are constantly changing, which could detrimentally affect our proposed operations.

Local, state and federal medical marijuana 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.

It is also possible

that regulations may be enacted in the future that will 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.

of the Cannabis Act

October 17, 2018, the Cannabis Act came into force as law with the effect of legalizing adult recreational use of cannabis across

The Cannabis Act replaced the Access to Cannabis for Medicinal Purposes Regulations (“ACMPR”) and the Industrial

Hemp Regulations, both of which came into force under the Controlled Drugs and Substances Act (Canada) (the “CDSA”),

which previously permitted access to cannabis for medical purposes for only those Canadians who had been authorized to use cannabis

by their health care practitioner.

The ACMPR replaced the Marihuana for Medical Purposes Regulations (Canada) (the “MMPR”),

which was implemented in June 2013.

The MMPR replaced the Marihuana Medical Access Regulations (Canada) (the “MMAR”)

which was implemented in 2001.

The MMPR and MMAR were initial steps in the Government of Canada’s legislative path towards

the eventual legalization and regulating recreational and medical cannabis.

Cannabis Act permits the recreational adult use of cannabis and regulates the production, distribution and sale of cannabis and

related oil extracts in Canada, for both recreational and medical purposes.

Under the Cannabis Act, Canadians who are authorized

by their health care practitioner to use medical cannabis have the option of purchasing cannabis from one of the producers licensed

by Health Canada and are also able to register with Health Canada to produce a limited amount of cannabis for their own medical

purposes or to designate an individual who is registered with Health Canada to produce cannabis on their behalf for personal medical

to the Cannabis Act, subject to provincial regulations, individuals over the age of 18 are able to purchase fresh cannabis,

dried cannabis, cannabis oil, and cannabis plants or seeds and are able to legally possess up to 30 grams of dried cannabis, or

the equivalent amount in fresh cannabis or cannabis oil.

The Cannabis Act also permits households to grow a maximum of four cannabis

This limit applies regardless of the number of adults that reside in the household.

In addition, the Cannabis Act provides

provincial and municipal governments the authority to prescribe regulations regarding retail and distribution, as well as the

ability to alter some of the existing baseline requirements of the Cannabis Act, such as increasing the minimum age for purchase

and consumption.

and territorial governments in Canada have made varying announcements on the proposed regulatory regimes for the distribution

and sale of cannabis for adult-use purposes.

For example, Québec, New Brunswick, Nova Scotia, Prince Edward Island, Yukon

and the Northwest Territories have chosen the government-regulated model for distribution, whereas Saskatchewan and Newfoundland

& Labrador have opted for a private sector approach.

Alberta, Ontario, Manitoba, Nunavut and British Columbia have announced

plans to pursue a hybrid approach of public and private sale and distribution.

connection with the new framework for regulating cannabis in Canada, the federal government has introduced new penalties under

the Criminal Code (Canada), including penalties for the illegal sale of cannabis, possession of cannabis over the prescribed limit,

production of cannabis beyond personal cultivation limits, taking cannabis across the Canadian border, giving or selling cannabis

to a youth and involving a youth to commit a cannabis-related offence.

July 11, 2018, the Canadian federal government published regulations in the Canada Gazette to support the Cannabis Act, including

the Cannabis Regulations, the new Industrial Hemp Regulations, along with proposed amendments to the Narcotic Control Regulations

and certain regulations under the Food and Drugs Act (Canada).

The Industrial Hemp Regulations and the Cannabis Regulations, among

other things, outline the rules for the legal cultivation, processing, research, analytical testing, distribution, sale, importation

and exportation of cannabis and hemp in Canada, including the various classes of licenses that can be granted, and set standards

for cannabis and hemp products.

The Industrial Hemp Regulations and the Cannabis Regulations include strict specifications for

the plain packaging and labelling and analytical testing of all cannabis products as well as stringent physical and personnel

security requirements for all federally licensed production sites.

The Industrial Hemp Regulations and the Cannabis Regulations

also maintain a distinct system for access to cannabis.

With the Cannabis Act now in force, cannabis has ceased to be regulated

under the CDSA and is instead regulated under the Cannabis Act, and both the ACMPR and the Industrial Hemp Regulations have been

repealed effective October 17, 2018.

October 17, 2018, the Cannabis Act came into force as law with the effect of legalizing adult recreational use of cannabis across Canada.

The Cannabis Act replaced the Access to Cannabis for Medicinal Purposes Regulations (“ACMPR”) and the Industrial Hemp Regulations,

both of which came into force under the Controlled Drugs and Substances Act (Canada) (the “CDSA”), which previously permitted

access to cannabis for medical purposes for only those Canadians who had been authorized to use cannabis by their health care practitioner.

The ACMPR replaced the Marihuana for Medical Purposes Regulations (Canada) (the “MMPR”), which was implemented in June 2013.

The MMPR replaced the Marihuana Medical Access Regulations (Canada) (the “MMAR”) which was implemented in 2001.

and MMAR were initial steps in the Government of Canada’s legislative path towards the eventual legalization and regulating recreational

and medical cannabis.

Cannabis Act permits the recreational adult use of cannabis and regulates the production, distribution and sale of cannabis and related

oil extracts in Canada, for both recreational and medical purposes.

Under the Cannabis Act, Canadians who are authorized by their health

care practitioner to use medical cannabis have the option of purchasing cannabis from one of the producers licensed by Health Canada

and are also able to register with Health Canada to produce a limited amount of cannabis for their own medical purposes or to designate

an individual who is registered with Health Canada to produce cannabis on their behalf for personal medical purposes.

to the Cannabis Act, subject to provincial regulations, individuals over the age of 18 are able to purchase fresh cannabis, dried cannabis,

cannabis oil, and cannabis plants or seeds and are able to legally possess up to 30 grams of dried cannabis, or the equivalent amount

in fresh cannabis or cannabis oil.

The Cannabis Act also permits households to grow a maximum of four cannabis plants.

This limit applies

regardless of the number of adults that reside in the household.

In addition, the Cannabis Act provides provincial and municipal governments

the authority to prescribe regulations regarding retail and distribution, as well as the ability to alter some of the existing baseline

requirements of the Cannabis Act, such as increasing the minimum age for purchase and consumption.

and territorial governments in Canada have made varying announcements on the proposed regulatory regimes for the distribution and sale

of cannabis for adult-use purposes.

For example, Québec, New Brunswick, Nova Scotia, Prince Edward Island, Yukon and the Northwest

Territories have chosen the government-regulated model for distribution, whereas Saskatchewan and Newfoundland & Labrador have opted

for a private sector approach.

Alberta, Ontario, Manitoba, Nunavut and British Columbia have announced plans to pursue a hybrid approach

of public and private sale and distribution.

connection with the new framework for regulating cannabis in Canada, the federal government has introduced new penalties under the Criminal

Code (Canada), including penalties for the illegal sale of cannabis, possession of cannabis over the prescribed limit, production of

cannabis beyond personal cultivation limits, taking cannabis across the Canadian border, giving or selling cannabis to a youth and involving

a youth to commit a cannabis-related offence.

July 11, 2018, the Canadian federal government published regulations in the Canada Gazette to support the Cannabis Act, including the

Cannabis Regulations, the new Industrial Hemp Regulations, along with proposed amendments to the Narcotic Control Regulations and certain

regulations under the Food and Drugs Act (Canada).

The Industrial Hemp Regulations and the Cannabis Regulations, among other things,

outline the rules for the legal cultivation, processing, research, analytical testing, distribution, sale, importation and exportation

of cannabis and hemp in Canada, including the various classes of licenses that can be granted, and set standards for cannabis and hemp

The Industrial Hemp Regulations and the Cannabis Regulations include strict specifications for the plain packaging and labelling

and analytical testing of all cannabis products as well as stringent physical and personnel security requirements for all federally licensed

production sites.

The Industrial Hemp Regulations and the Cannabis Regulations also maintain a distinct system for access to cannabis.

With the Cannabis Act now in force, cannabis has ceased to be regulated under the CDSA and is instead regulated under the Cannabis Act,

and both the ACMPR and the Industrial Hemp Regulations have been repealed effective October 17, 2018.

June 7, 2018, Bill-C45 passed the third reading in the Senate with a number of amendments to the language of the Cannabis Act.

More specifically, the Senate proposed:

a committee of the Senate and a committee of the House of Commons to undertake a comprehensive review of the administration

and operation of the Cannabis Act;

More specifically,

the Senate proposed:

a committee of the Senate and a committee of the House of Commons to undertake a comprehensive review of the administration and operation

of the Cannabis Act;

provinces and territories to facilitate the development of workplace impairment policies;

provinces to place restrictions on the ability of individuals to engage in home cultivation;

law enforcement be provided with the appropriate tools and resources to address concerns about continued illicit production,

diversion, and sale of cannabis to youth, including preventing the sharing of marihuana among young adults by rendering it

a ticketable offense;

the prices set for cannabis products and the applicable taxes reflect the dual objective of minimizing the health dangers

of cannabis consumption and undercutting the illicit market of cannabis;

health warnings for cannabis products, including warnings about the danger of smoking cannabis, the danger of exposure to

second-hand cannabis smoke, and the risks of combining cannabis and tobacco;

law enforcement be provided with the appropriate tools and resources to address concerns about continued illicit production, diversion,

and sale of cannabis to youth, including preventing the sharing of marihuana among young adults by rendering it a ticketable offense;

the prices set for cannabis products and the applicable taxes reflect the dual objective of minimizing the health dangers of cannabis

consumption and undercutting the illicit market of cannabis;

health warnings for cannabis products, including warnings about the danger of smoking cannabis, the danger of exposure to second-hand

cannabis smoke, and the risks of combining cannabis and tobacco;

procedures for THC content be standardized to ensure accurate measurement to better protect consumer health and safety;

forthcoming regulations for edible products and other forms of cannabis ensure that product packaging is child-resistant and

does not appeal to young people, and that the type of available products should be strictly limited;

and ongoing funding for sustained, evidence-based cannabis education and prevention programs to provide Canadians, especially

young Canadians, with knowledge about the health risks of cannabis use, including on-going research initiatives on the impact

of cannabis use on the developing brain;

and that the federal government commit to on-going educational initiatives to ensure

youth are informed on the effects of cannabis use;

prohibit licensees under the Cannabis Act to distribute branded merchandise, such as t-shirts and baseball caps and imposing

a moratorium on loosening the regulations on the branding, marketing, and promotion of cannabis for 10 years;

set aggressive targets, comparable to the successful Federal Tobacco Control Strategy, to reduce the number of youth and adult

cannabis users;

forthcoming regulations for edible products and other forms of cannabis ensure that product packaging is child-resistant and does

not appeal to young people, and that the type of available products should be strictly limited;

and ongoing funding for sustained, evidence-based cannabis education and prevention programs to provide Canadians, especially young

Canadians, with knowledge about the health risks of cannabis use, including on-going research initiatives on the impact of cannabis

use on the developing brain;

and that the federal government commit to on-going educational initiatives to ensure youth are informed

on the effects of cannabis use;

prohibit licensees under the Cannabis Act to distribute branded merchandise, such as t-shirts and baseball caps and imposing a moratorium

on loosening the regulations on the branding, marketing, and promotion of cannabis for 10 years;

set aggressive targets, comparable to the successful Federal Tobacco Control Strategy, to reduce the number of youth and adult cannabis

ensure that the Cannabis Tracking System be operational upon the coming-into-force of the Cannabis Act.

Clearances - The Cannabis Regulations require that certain people associated with cannabis licensees, including individuals

occupying a “key position”

directors, officers, large stockholders and individuals identified by the Minister

of Health, must hold a valid security clearance issued by the Minister of Health.

Officers and directors of a parent corporation

must be security cleared.

Clearances - The Cannabis Regulations require that certain people associated with cannabis licensees, including individuals occupying

a “key position” directors, officers, large stockholders and individuals identified by the Minister of Health, must hold

a valid security clearance issued by the Minister of Health.

Officers and directors of a parent corporation must be security cleared.

the Cannabis Regulations, the Minister of Health may refuse to grant security clearances to individuals with associations to organized

crime or with past convictions for, or an association with, drug trafficking, corruption or violent offences.

Individuals who

have histories of nonviolent, lower-risk criminal activity (for example, simple possession of cannabis, or small-scale cultivation

of cannabis plants) are not precluded from participating in the legal cannabis industry, and the grant of security clearance to

such individuals is at the discretion of the Minister of Health and such applications will be reviewed on a case-by-case basis.

Tracking System - Under the Cannabis Act, the Minister of Health is authorized to establish and maintain a national cannabis

tracking system.

The Cannabis Regulations set out a national cannabis tracking system to track cannabis throughout the supply

chain to help prevent diversion of cannabis into, and out of, the illicit market.

The Cannabis Regulations also provides the Minister

of Health with the authority to make a ministerial order that would require certain persons named in such order to report specific

information about their authorized activities with cannabis, in the form and manner specified by the Minister of Health.

Products - The Cannabis Regulations set out the requirements for the sale of cannabis products at the retail level permit

the sale of dried cannabis, cannabis oil, fresh cannabis, cannabis plants, and cannabis seeds, including in such forms as “pre-rolled”

Individuals who have histories

of nonviolent, lower-risk criminal activity (for example, simple possession of cannabis, or small-scale cultivation of cannabis plants)

are not precluded from participating in the legal cannabis industry, and the grant of security clearance to such individuals is at the

discretion of the Minister of Health and such applications will be reviewed on a case-by-case basis.

Tracking System - Under the Cannabis Act, the Minister of Health is authorized to establish and maintain a national cannabis tracking

The Cannabis Regulations set out a national cannabis tracking system to track cannabis throughout the supply chain to help prevent

diversion of cannabis into, and out of, the illicit market.

The Cannabis Regulations also provides the Minister of Health with the authority

to make a ministerial order that would require certain persons named in such order to report specific information about their authorized

activities with cannabis, in the form and manner specified by the Minister of Health.

Products - The Cannabis Regulations set out the requirements for the sale of cannabis products at the retail level permit the sale

of dried cannabis, cannabis oil, fresh cannabis, cannabis plants, and cannabis seeds, including in such forms as “pre-rolled”

and in capsules.

The THC content and serving size of cannabis products is limited by the Cannabis Regulations.

The sale of edibles

containing cannabis and cannabis concentrates was not initially permitted, however the federal government anticipates that such

products will be legalized within one year following the coming into force of the Cannabis Act.

The sale of edibles containing

cannabis and cannabis concentrates was not initially permitted, however the federal government anticipates that such products will be

legalized within one year following the coming into force of the Cannabis Act.

success of our business depends, in part, on our ability to maintain and protect our proprietary technologies, information, processes

2 unchanged sentences

and similar laws in other countries,

confidentiality agreements and procedures and other contractual arrangements to protect our technology.

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.

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

and one published U.S.

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

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

patents and one published U.S.

patent application:

have received the following trademark registrations:

UK00917391781

UK00917391806

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

Union (Madrid)

Examination Completed.

Kingdom (Madrid)

Union (Madrid)

Kingdom (Madrid)

Examination Completed.

GIVES YOUR CROP A VOICE

Intent to Use

GIVES YOUR PLANTS A VOICE

Intent to Use

Number and Issue Date

2 unchanged sentences

sensor architecture for soil and water analysis at various depths from the surface

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.

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.

attempt to protect our intellectual property via the deployment of non-disclosure agreements with both prospective clients and

business partners as well as licensees.

There are no assurances that these non-disclosure agreements will prevent a third party

from infringing upon our rights.

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.

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.

attempt to protect our intellectual property via the deployment of non-disclosure agreements with both prospective clients and business

partners as well as licensees.

There are no assurances that these non-disclosure agreements will prevent a third party from infringing

upon our rights.

Backlog Discussion

Our backlog as of December 31, 2021 was approximately

$30 million, compared to an approximate value of $14.6 million on December 31, 2020.

The current backlog consists of $25 million of equipment

purchases and $5 million of services to be performed.

For urban-gro, backlog is defined as signed contracts for which deposits have been

Historically, the majority of our backlog has been retired and converted into revenue within two quarters.

Human Capital

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 fantastic healthcare choices, continued growth opportunities for career development, and resources

such as 401K plans and counseling to support their financial wellbeing.

internet address is www.urban-gro.com and our investor relations website is located at ir.urban-gro.com .

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.

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,

Information contained on our website is not incorporated by reference into this Form 10-K.

SEC maintains a public website, www.sec.gov, which includes information about and the filings of issuers that file electronically

with the SEC.

The SEC maintains a public website,

www.sec.gov, which includes information about and the filings of issuers 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