Flash Sports & Media Holdings, Inc. 10-K

Item 9A. Controls and Procedures Disclosure Controls and Procedures Our management, with the participation of our CEO and CFO, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of the end of the period covered by this Report. These controls are designed to ensure that information required to be disclosed in the reports we file or submit pursuant to the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management, including our CEO and CFO to allow timely decisions regarding required disclosure. Based on this evaluation, our CEO and CFO have concluded that our disclosure controls and procedures were effective as of December 31, 2021, at reasonable assurance levels. We believe that our financial statements presented in this Report fairly present, in all material respects, our financial position, results of operations, and cash flows for all periods presented herein. Our management, including our CEO and CFO, does not expect that our disclosure controls and procedures will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdown can occur because of simple error or mistake. In particular, many of our current processes rely upon manual reviews and processes to ensure that neither human error nor system weakness has resulted in erroneous reporting of financial data. Changes in Internal Control over Financial Reporting There were no changes in our internal control over financial reporting during our fiscal year ended December 31, 2021, which were identified in conjunction with management’s evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 34 Management Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act. Those rules define internal control over financial reporting as a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that: ● Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; ● Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and the receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the Company; and ● Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisitions, use or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2021. In making this assessment, our management used the criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). This Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only management’s report in this Report. Item 9b. Other Information None. Item 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS Not applicable. PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Information concerning our directors and officers is incorporated by reference to our Definitive Proxy Statement on Schedule 14A to be filed with the SEC within 120 days after the end of our fiscal year. ITEM 11. EXECUTIVE COMPENSATION Information concerning our directors and officers is incorporated by reference to our Definitive Proxy Statement on Schedule 14A to be filed with the SEC within 120 days after the end of our fiscal year. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS Information concerning our directors and officers is incorporated by reference to our Definitive Proxy Statement on Schedule 14A to be filed with the SEC within 120 days after the end of our fiscal year. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE Information concerning our directors and officers is incorporated by reference to our Definitive Proxy Statement on Schedule 14A to be filed with the SEC within 120 days after the end of our fiscal year. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES Information concerning our directors and officers is incorporated by reference to our Definitive Proxy Statement on Schedule 14A to be filed with the SEC within 120 days after the end of our fiscal year. 35 PART IV Item 15. Exhibits, Financial Statements Schedules. A list of financial statements filed herewith is contained is set forth on page F-1 of the financial statements that immediately follow the signature page of this Report and is incorporated by reference herein. The financial statement schedules have been omitted because they are not required, not applicable or the information has been included in our financial statements. The exhibits required by this Item are contained in the Exhibit Index beginning on the following page of this Annual Report on Form 10-K and are incorporated herein by reference. EXHIBIT INDEX Exhibit No. Description 2.1 Stock Purchase Agreement 3.1 Certificate of Incorporation (incorporated by reference to Exhibit 3.3 to Form 8-K filed October 30, 2020). 3.2 Certificate of Amendment to Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to Form 8-K filed January 5, 2021) 3.3 Bylaws (incorporated by reference to Exhibit 3.4 to Form 8-K filed October 30, 2020). 3.4 Amendment No. 1 to Bylaws (incorporated by reference to Exhibit 3.1 to Form 8-K filed January 12, 2021). 4.1 Description of urban-gro, Inc.’s Common Stock. 10.1 Employment Agreement by and between urban-gro, Inc. and James H. Dennedy, dated February 18, 2021 10.2 Intellectual Property Purchase and Assignment Agreement between Edyza, Inc. and Registrant (incorporated by reference to Form S-1 Registration Statement filed on May 18, 2018) 10.3 Business Lease between JW Properties, LLC and Registrant dated July 22, 2015 (incorporated by reference to Form S-1Registration Statement filed on May 18, 2018) 10.4 Commercial Lease Agreement between Bravo Lighting, LLC and Registration (incorporated by reference to Form S-1 Registration Statement filed on May 18, 2018) 10.5 Form of Common Stock Purchase Warrant issued to Michael Sandy Bank dated April 19, 2018 (incorporated by reference to Form S-1/A Registration Statement filed on July 11, 2018) 10.6 Redemption Agreement with Total Grow Holdings LLC dated January 24, 2020 (incorporated by referenced to Form 8-K filed on January 30, 2020) 36 Exhibit No. Description 10.7* Separation Agreement, dated as of March 20, 2020, by and between urban-gro, Inc. and Larry Dodson (incorporated by reference to Form 8-K filed on March 23, 2020) 10.8* Form of Stock Option Agreement to be entered into on the Effective Date by and between urban-gro, Inc. and Larry Dodson (incorporated by reference to Form 8-K filed on March 23, 2020) 10.9* urban-gro, Inc. 2019 Equity Incentive Plan (incorporated by reference to Form S-8 filed on August 27, 2019) 10.10* Form of Deferred Shares Award Agreement (incorporated by reference to Exhibit 10.10 to Form 10-K filed on May 18, 2020). 10.11 Letter Agreement, dated February 21, 2020, by and among urban-gro, Inc., urban-gro Canada Technologies Inc., Impact Engineering, Inc., the lenders party thereto, and Bridging Finance Inc., as administrative agent for the lenders. (incorporated by reference to Exhibit 10.11 to Form 10-K filed on May 18, 2020). 10.12 Promissory Note, dated October 18, 2018, between urban-gro, Inc. and Cloud9 Support Inc. (incorporated by reference to Exhibit 10.12 to Form 10-K filed on May 18, 2020). 10.13 Amendment to Promissory Note, dated May 20, 2019, between urban-gro, Inc. and Cloud9 Support Inc. (incorporated by reference to Exhibit 10.13 to Form 10-K filed on May 18, 2020). 10.14 Subordination Agreement, dated February 25, 2020, between urban-gro, Inc. and Cloud9 Support Inc. (incorporated by reference to Exhibit 10.14 to Form 10-K filed on May 18, 2020). 10.15 Promissory Note, dated February 21, 2020, between urban-gro, Inc. and Cloud9 Support Inc. (incorporated by reference to Exhibit 10.15 to Form 10-K filed on May 18, 2020). 10.16 First Amendment to Loan Agreement, dated as of September 4, 2020, by and among urban-gro, Inc., urban-gro Canada Technologies Inc., Impact Engineering, Inc. and Bridging Finance Inc. (incorporated by reference to Exhibit 10.1 to Form 10-Q filed on November 3, 2020). 10.17 Agreement, dated as of September 18, 2020, by and between urban-gro, Inc. and George (Bob) Pullar (incorporated by reference to Exhibit 10.2 to Form 10-Q filed on November 3, 2020). 10.18* Employment Agreement, dated as of July 1, 2020, by and between urban-gro, Inc. and Bradley Nattrass (incorporated by reference to Exhibit 10.18 to Form S-1 filed on November 16, 2020) 10.19* Employment Agreement, dated as of July 1, 2020, by and between urban-gro, Inc. and Richard Akright (incorporated by reference to Exhibit 10.19 to Form S-1 filed on November 16, 2020) 10.20 Form of Amended and Restated Promissory Note (incorporated by reference to Exhibit 10.1 to Form 8-K filed on November 25, 2020). 10.21 Form of Amended and Restated Promissory Note (incorporated by reference to Exhibit 10.2 to Form 8-K filed on November 25, 2020). 10.22 Form of Convertible Promissory Note (incorporated by reference to Exhibit 10.3 to Form 8-K filed on November 25, 2020). 37 Exhibit No. Description 10.23 Form of Convertible Promissory Note (incorporated by reference to Exhibit 10.1 to Form 8-K filed on December 18, 2020). 21.1 List of subsidiaries of the Registrant. 23.1 Consent of BF Borgers CPA P.C. 24.1 Power of Attorney (included on signature page). 31.1 Certification of Chief Executive Officer required by Rule 13a-14(a) under the Exchange Act 31.2 Certification of Chief Financial Officer required by Rule 13a-14(a) under the Exchange Act 32 Certification of Principal Executive, Financial and Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002 101.INS Inline XBRL Instance Document 101.SCH Inline XBRL Taxonomy Extension Schema Document 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document 104 Cover Page Interactive Data File (embedded within the Inline XBRL document) * Denotes a management contract or compensatory plan or arrangement. 38 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report to be signed on its behalf by the undersigned thereunder duly authorized. URBAN-GRO, INC. Dated: March 29, 2022 By: /s/ Bradley Nattrass Bradley Nattrass Chairperson of the Board of Directors and Chief Executive Officer POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Bradley Nattrass, his or her true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto such attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that such attorney-in-fact and agent, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /s/ Bradley Nattrass Chairperson of the Board, Chief Executive Officer, and Director March 29, 2022 Bradley Nattrass (Principal Executive Officer) /s/ Richard A. Akright Chief Financial Officer March 29, 2022 Richard A. Akright (Principal Financial Officer) (Principal Accounting Officer) /s/ Lewis O. Wilks Director March 29, 2022 Lewis O. Wilks /s/ David Hsu Director March 29, 2022 David Hsu /s/ Sonia Lo Director March 29, 2022 Sonia Lo /s/ Anita Britt Director March 29, 2022 Anita Britt /s/ James H. Dennedy Director March 29, 2022 James H. Dennedy, Director /s/ James Lowe Director March 29, 2022 James Lowe 39 INDEX TO FINANCIAL STATEMENTS Page Report of Independent Registered Accounting Firm (PCAOB ID NO: 5041 ) F-2 Audited Financial Statements: Consolidated Balance Sheets as of December 31, 2021 and 2020 F-3 Consolidated Statements of Operations for the Years ended December 31, 2021 and 2020 F-4 Consolidated Statement of Changes in Stockholders’ Equity (Deficit) for the years ended December 31, 2021 and 2020 F-5 Consolidated Statements of Cash Flows for the years ended December 31, 2021 and 2020 F-6 Notes to the Consolidated Financial Statements F-7 F- 1 Report of Independent Registered Public Accounting Firm To the stockholders and the board of directors of urban-gro, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of urban-gro, Inc. (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations and comprehensive income, stockholders’ deficit and cash flows for each of the two years in the period ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows each of the two years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ BF Borgers CPA PC We have served as the Company’s auditor since 2017. Lakewood, CO March 29, 2022 F- 2 urban-gro, Inc. CONSOLIDATED BALANCE SHEETS December 31, 2021 December 31, 2020 Assets Current assets: Cash $ 34,592,190 $ 184,469 Accounts receivable, net 13,125,685 976,730 Inventories 514,756 537,104 Prepaid expenses and other current assets 11,248,266 3,547,068 Total current assets 59,480,897 5,245,371 Non-current assets: Property and equipment, net 207,496 129,444 Operating lease right of use assets, net 689,704 88,888 Investments 4,210,358 1,710,358 Goodwill 7,992,121 902,067 Intangible assets, net 1,575,466 84,514 Total non-current assets 14,675,145 2,915,271 Total assets $ 74,156,042 $ 8,160,642 Liabilities Current liabilities: Accounts payable $ 6,066,896 $ 653,998 Accrued expenses 3,878,278 1,798,494 Customer Deposits 13,345,451 4,878,863 Contingent consideration 1,563,000 - Notes payable - 1,854,500 Revolving Facility - 3,403,143 Term Loan, net - 1,868,320 Operating lease liabilities 152,459 88,888 Total current liabilities 25,006,084 14,546,206 Non-current liabilities: Notes payable - 1,020,600 Operating lease liabilities 542,003 - Deferred tax liability 440,625 - Total non-current liabilities 982,628 1,020,600 Total liabilities 25,988,712 15,566,806 Shareholders’ equity (deficit): Preferred stock, $ 0.10 par value; 10,000,000 shares authorized; 0 shares issued and outstanding - – Common stock, $ 0.001 par value; 100,000,000 shares authorized; 11,588,110 issued and 10,733,195 outstanding as of December 31, 2021, and 4,718,714 shares issued and outstanding as of December 31, 2020 11,588 4,719 Additional paid in capital 78,679,220 14,553,438 Treasury shares, cost basis: 854,915 shares as of December 31, 2021 ( 7,683,490 ) - Accumulated deficit ( 22,839,988 ) ( 21,964,321 ) Total shareholders’ equity (deficit) 48,167,330 ( 7,406,164 ) Total liabilities and shareholders’ equity (deficit) $ 74,156,042 $ 8,160,642 See accompanying notes to unaudited condensed consolidated financial statements F- 3 urban-gro, Inc. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) 2021 2020 For the Years Ended December 31, December 31, 2021 2020 Revenue: Equipment systems $ 55,560,126 $ 22,058,696 Services 5,043,764 1,902,969 Consumable products 1,509,291 1,876,252 Total revenue 62,113,181 25,837,917 Cost of revenue 47,353,295 20,122,281 Gross profit 14,759,886 5,715,636 Operating expenses: General and administrative 13,123,717 6,657,903 Stock-based compensation 1,840,913 1,803,403 Total operating expenses 14,964,630 8,461,306 Income (loss) from operations ( 204,744 ) ( 2,745,670 ) Non-operating income (expenses): Interest expense ( 334,056 ) ( 1,497,469 ) Interest expense – beneficial conversion of notes payable ( 636,075 ) - Loss on extinguishment of debt ( 790,723 ) - Contingent consideration - ( 155,000 ) Impairment of investment - ( 310,000 ) Unrealized exchange loss - ( 397,292 ) PPP Loan Forgiveness 1,032,316 - Other income 57,615 31,736 Total non-operating income (expenses) ( 670,923 ) ( 2,328,025 ) Income (loss) before income taxes ( 875,667 ) ( 5,073,695 ) Income tax expense (benefit) - – Net income (loss) $ ( 875,667 ) $ ( 5,073,695 ) Comprehensive income (loss) $ ( 875,667 ) $ ( 5,073,695 ) Earnings (loss) per share: Earnings (loss) per share – basic and diluted $ ( 0.09 ) $ ( 1.06 ) Weighted-average shares used in computation of earnings per share: Weighted average share – basic and diluted 10,020,301 4,766,294 See accompanying notes to unaudited condensed consolidated financial statements F- 4 urban-gro, Inc. CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT) Shares Amount Capital Deficit Stock (Deficit) Common Stock Additional Paid in Retained Earnings Treasury Total Shareholders’ Equity Shares Amount Capital (Deficit) Stock (Deficit) Balance, December 31, 2019 4,701,552 $ 4,702 11,877,590 $ ( 16,890,626 ) $ — $ ( 5,008,334 ) Stock-based compensation — — 1,803,403 — — 1,803,403 Stock grant to satisfy accounts payable 1,606 2 9,638 9,640 Stock grants issued for loan term revisions 16,667 16 99,984 100,000 Stock grant program vesting 48,889 49 ( 49 ) — Claw back of stock granted ( 183,333 ) ( 183 ) 183 — — — Stock issuance related to debt 83,333 83 499,917 — — 500,000 Stock issuance related to acquisition 41,667 42 154,958 — — 155,000 Warrant issuance related to debt — — 76,822 — 76,822 Stock issued for lease revisions 8,333 8 30,992 — — 31,000 Beneficial Conversion Feature Conversion of Bridge Financing Conversion of Bridge Financing, shares Common stock repurchased Stock issuance related to offering, net of offering costs of $4,748,785 Stock issuance related to offering, net of offering costs of $4,748,785, shares Stock issued in conversion of warrants Stock issued in conversion of warrants, shares Stock Options Exercised Stock Options Exercised, shares Net income (loss) — — — ( 5,073,695 ) — ( 5,073,695 ) Balance, December 31, 2020 4,718,714 $ 4,719 $ 14,553,438 $ ( 21,964,321 ) $ — $ ( 7,406,164 ) Common Stock Additional Paid in Retained Earnings Treasury Total Shareholders’ Equity Shares Amount Capital (Deficit) Stock (Deficit) Balance, December 31, 2020 4,718,714 $ 4,719 $ 14,553,438 $ ( 21,964,321 ) – $ ( 7,406,164 ) Stock-based compensation – – 1,840,913 – – 1,840,913 Beneficial Conversion Feature – – 636,075 – – 636,075 Conversion of Bridge Financing 254,425 254 1,907,971 – – 1,908,225 Common stock repurchased – – – – ( 7,683,490 ) ( 7,683,490 ) Stock issuance related to offering, net of offering costs of $ 4,748,785 6,210,000 6,210 57,345,005 – – 57,351,215 Stock issuance related to acquisition 202,066 202 1,999,798 – – 2,000,000 Stock issued in conversion of warrants 22,490 22 9,974 – – 9,996 Stock grant program vesting 118,366 119 ( 119 ) – – – Stock Options Exercised 62,049 62 386,165 – – 386,227 Net income (loss) – – – ( 875,667 ) – ( 875,667 ) Balance, December 31, 2021 11,588,110 $ 11,588 $ 78,679,220 $ ( 22,839,988 ) ( 7,683,490 ) $ 48,167,330 See accompanying notes to unaudited condensed consolidated financial statements F- 5 urban-gro, Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS 2021 2020 For the years ended December 31, December 31, 2021 2020 Cash Flows from Operating Activities Net income (loss) $ ( 875,667 ) $ ( 5,073,695 ) Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization 495,276 258,440 Amortization of deferred financing costs 103,632 557,903 Loss on extinguishment of debt 790,723 – Interest expense amortization 53,725 – Stock-based compensation expense 1,840,913 1,803,403 Contingent consideration expense - 155,000 Beneficial conversion of bridge notes 636,075 - Impairment of investment - 310,000 Loss on disposal of assets - 3,468 Inventory write-offs ( 23,131 ) 91,730 Unrealized exchange losses - 397,292 Bad debt expense 75,137 58,849 PPP loan forgiveness ( 1,032,316 ) – Changes in operating assets and liabilities (net of acquired amounts): Accounts receivable ( 10,547,883 ) 530,333 Inventories 45,479 47,341 Prepayments and other assets ( 8,063,663 ) ( 1,723,056 ) Accounts payable and accrued expenses 6,472,004 ( 3,013,183 ) Deposits 8,466,588 1,963,457 Net Cash Used In Operating Activities ( 1,563,108 ) ( 3,632,718 ) Cash Flows from Investing Activities Purchases of investments ( 2,500,000 ) - Purchases of property and equipment ( 292,428 ) ( 175,965 ) Acquisition, net of cash acquired ( 5,544,846 ) - Net Cash Used In Investing Activities ( 8,337,274 ) ( 175,965 ) Cash Flows from Financing Activities Proceeds from issuance of revolving facility - 2,207,432 Proceeds from issuance of term loan - 2,000,000 Proceeds from revolving facility advances - 1,069,061 Proceeds from issuance of common stock, net of offering costs 57,747,438 – Repurchase of common stock ( 7,683,490 ) – Proceeds from PPP Loan - 1,020,600 Proceeds from notes payables - 1,870,600 Debt financing costs - ( 638,046 ) Repayments of notes payable - ( 2,964,598 ) Repayment of debt ( 5,755,845 ) - Net Cash Provided by Financing Activities 44,308,103 3,544,449 Net Increase (Decrease) in Cash 34,407,721 ( 264,234 ) Cash at Beginning of Period 184,469 448,703 Cash at End of Period $ 34,592,190 $ 184,469 Supplemental Cash Flow Information: Interest Paid $ 230,424 $ 920,891 Income Tax Paid - - Supplemental disclosure of non-cash investing and financing activities: Debt financing costs booked in equity $ - $ 676,822 Stock issued for acquisitions $ 2,000,000 $ 155,000 PPP Loan Forgiveness $ 1,032,316 $ - Operating lease right of use assets and liabilities extension $ 600,815 $ - See accompanying notes to unaudited condensed consolidated financial statements F- 6 urban-gro, Inc. Notes to Consolidated Financial Statements For the years ended December 31, 2021 and 2020 NOTE 1 – ORGANIZATION AND ACQUISITIONS, BUSINESS PLAN, AND LIQUIDITY Organization urban-gro, Inc. (“our,” the “Company,” or “urban-gro”) is a leading architectural, engineering, consulting and design services company focused on the sustainable commercial indoor horticulture market. To serve our horticulture clients, we engineer and design indoor controlled environment agriculture (“CEA”) facilities and then integrate complex environmental equipment systems into those facilities. Through this work, we create high-performance indoor cultivation facilities for our clients to grow specialty crops, including leafy greens, vegetables, herbs, and plant-based medicines. 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 running. We also serve a broad range of commercial and governmental entities, providing them with planning, consulting, architectural and engineering design services for their facilities. We aim to work with our clients from inception of their project in a way that provides value throughout the life of their facility. 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. Acquisitions On June 28, 2021, the Company’s wholly-owned subsidiary urban-gro Architect Holdings, LLC (the “Buyer”), and the 2WRCO Shareholders, the 2WRGA Shareholders, the MJ12 Shareholders, and the 2WRMS Shareholders (collectively, the “Sellers” and each a “Seller”), and Sam Andras, an individual (the “Sellers Representative”) entered into a Stock Purchase Agreement (the “Purchase Agreement”), pursuant to which the Buyer would purchase all of the issued and outstanding capital stock of 2WR of Colorado, Inc., a Colorado corporation (“2WRCO”), 2WR of Georgia, Inc., a Georgia corporation (“2WRGA”), MJ12 Design Studio, Inc., a Colorado corporation (“MJ12”) (collectively, the “Purchased Shares”) from the Sellers. In connection with the acquisition of the Purchased Shares, Buyer entered into an affiliate relationship with 2WR of Mississippi, P.C., a Mississippi professional corporation (“2WRMS” and together with 2WRCO, 2WRGA and MJ12, the “2WR Entities”). The transaction closed on July 30, 2021. The Purchased Shares had an initial purchase price of up to $ 7.1 million, which purchase price is subject to customary working capital adjustments (the “Purchase Price”). At closing, the Purchase Price was paid in the form of wire transfer of immediately available funds and the issuance of unregistered shares (the “Closing Payment Shares”) of Parent’s common stock, par value $ 0.001 (“Parent Common Stock”), which Closing Payment Shares had an aggregate stated value of $ 2.0 million. Additionally, the Purchase Agreement provides for additional earnout payments (“Earnout Payments”) to the Sellers of up to an aggregate amount of $ 2.0 million, payable in cash or unregistered shares of Parent Common Stock in the Buyer’s sole discretion. The Earnout Payments are payable quarterly for a two-year period and will be equal to twenty percent of the Target Companies’ Quarterly Gross Profit (as defined in the Purchase Agreement) . The value of the shares of Parent Common Stock issued in the transaction was determined based upon the daily volume weighted average closing price of the Parent Common Stock in the ten trading days prior to the issuance of such shares. The Company accounted for the acquisition of the Target Companies as follows: SCHEDULE OF INITIAL ACQUISITION OF TARGET COMPANIES Purchase Price $ 10,058,536 Allocation of Purchase Price: Cash $ 950,690 Accounts receivable, net $ 1,676,208 Prepayments and other assets $ 42,752 PPE, net $ 9,351 Goodwill $ 7,090,054 Intangible assets $ 1,762,500 Accrued expenses $ 1,032,394 Deferred tax liability $ 440,625 F- 7 The following pro forma amounts reflect the Company’s results as if the acquisition of the 2WR Entities had occurred on January 1, 2020. These pro forma amounts have been calculated after applying the Company’s accounting policies and adjusting the results of the acquisition to reflect the additional amortization of intangibles. SCHEDULE OF SUPPLEMENTAL INFORMATION ON UNAUDITED PRO-FORMA BASIC OF ACQUISITION Year Ended December 31, 2021 Year Ended December 31, 2020 Revenue 66,802,623 32,021,812 Net income (loss) 466,738 ( 4,128,337 ) Acquired goodwill from the 2WR Entities represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company. Liquidity and Going Concern The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business within one year after the date the consolidated financial statements are available to be issued. NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Use of Estimates In preparing consolidated financial statements in conformity with GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of assets and liabilities at the date of the consolidated financial statements and revenues and expenses during the reported period. Actual results could differ from those estimates. Significant estimates include estimated revenues earned under professional service contracts, estimated useful lives and potential impairment of long-lived assets and goodwill, inventory write offs, allowance for deferred tax assets and deferred tax liabilities, and allowance for bad debt. Reclassification Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations. Business Combinations Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition date fair values of the assets transferred, liabilities incurred to the former owners of the acquired entities and the equity interests issued in exchange for control of the acquired entities. Acquisition related costs are recognized in net income (loss) as incurred. Basis of Presentation and Principles of Consolidation These consolidated financial statements include the accounts of urban-gro, Inc. and its wholly owned subsidiaries. They are presented in United States dollars and have been prepared in accordance with United States generally accepted accounting principles (“GAAP”). On December 31, 2020, we effected a 1-for-6 reverse stock split with respect to our common stock. All share and per share information in these consolidated financial statements gives effect to this reverse stock split, including restating prior period reported amounts. On July 30, 2021, we acquired 2WR of Colorado, Inc., 2WR of Georgia, Inc. and MJ12 Design Studio, Inc. (“2WR”), entities that had common ownership and management. We have accounted for the business combination by applying the acquisition method of accounting (ASC 805-10-25). Functional and reporting currency and foreign currency translation The functional and reporting currency of the Company and its subsidiaries is US dollars. All transactions in currencies other than US dollars are translated into US dollars on the date of the transaction. Any exchange gains and losses related to these transactions are recognized in the current period earnings as other income (expense). F- 8 Fair Value of Financial Instruments The Company’s financial instruments consist principally of cash and cash equivalents, accounts receivable, accounts payable, notes payable and other current assets and liabilities. We value our financial assets and liabilities using fair value measurements. Fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities measured at fair value are categorized based on whether the inputs are observable in the market and the degree that the inputs are observable. The categorization of financial instruments within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement. The hierarchy is prioritized into three levels (with Level 3 being the lowest) defined as follows: Level 1: Quoted prices in active markets for identical assets or liabilities that the entity has the ability to access. Level 2: Observable inputs other than prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated with observable market data. Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies, and similar techniques that use significant unobservable inputs. The carrying amount of our cash and cash equivalents, accounts receivable, accounts payable, and other current assets and liabilities in our consolidated financial statements approximates fair value because of the short-term nature of the instruments. Investments in non-marketable equity securities are carried at cost less other-than-temporary impairments. The carrying amount of our notes payable and convertible debt at December 31, 2021 and 2020 approximates their fair values based on our incremental borrowing rates. There have been no changes in Level 1, Level 2, and Level 3 categorizations and no changes in valuation techniques for these assets or liabilities for the years ended December 31, 2021 and 2020. Cash and Cash Equivalents The Company considers all highly liquid short-term cash investments with an original maturity of three months or less to be cash equivalents. As of December 31, 2021 and 2020, the Company did not maintain any cash equivalents. The Company maintains cash with financial institutions that may from time to time exceed federally-insured limits. The Company has not experienced any losses related to these balances and believes the risk to be minimal. There are no restricted or compensating cash balances as of December 31, 2021. Accounts Receivable, Net Trade Accounts Receivable Trade accounts receivables are carried at the original invoiced amounts less an allowance for doubtful accounts. As of December 31, 2021 and 2020, the balance of allowance for doubtful accounts was $ 51,203 and $ 15,955 , respectively. The allowances for doubtful accounts are calculated based on a detailed review of certain individual customer accounts and an estimation of the overall economic conditions affecting the Company’s customer base. The Company reviews a customer’s credit history before extending credit to the customer. If the financial condition of its customers were to deteriorate, resulting in an impairment of their ability to make payments, additions to the allowance would be required. A provision is made against accounts receivable to the extent they are considered unlikely to be collected. Occasionally the Company will write off bad debt directly to the bad debt expense account when the balance is determined to be uncollectable. Bad debt expense for the years ended December 31, 2021 and 2020 was $ 75,137 and $ 58,849 , respectively. Non-trade Accounts Receivable Non-trade accounts receivables consist of payments due to the Company outside of our normal operating business. At December 31, 2021, the Company had $ 5,103,132 of litigation receivable from fraudulent wire transactions. Inventories Inventories, consisting entirely of finished goods, are stated at the lower of cost or net realizable value, with cost determined using the weighted average cost method. The Company periodically reviews the value of items in inventory and provides write-downs or write-offs of inventory based on its assessment of market conditions. Write-downs and write-offs are charged to cost of goods sold at the realization of change in value. Once written down, inventories are carried at this lower basis until sold or scrapped. F- 9 Property, Plant, and Equipment, net Property and equipment is stated at cost less accumulated depreciation and impairment. Expenditures for major additions and improvements are capitalized and minor replacements, maintenance, and repairs are charged to expense as incurred. When property and equipment is retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the results of operations for the respective period. Depreciation is provided over the estimated useful lives of the related assets using the straight-line method for financial statement purposes. The Company uses other depreciation methods (generally accelerated) for tax purposes where appropriate. No impairment charges were recorded for the years ended December 31, 2021 and 2020. The estimated useful lives for significant property and equipment categories are as follows: SCHEDULE OF PROPERTY AND EQUIPMENT Computer and Technology Equipment 3 years Furniture and Equipment 5 years Leasehold Improvements Lease term Vehicles 3 years Other Equipment 3 or 5 years Software 3 years Operating Lease Right of Use Assets Operating lease right of use assets are stated at cost less accumulated depreciation, amortization and impairment. The Company has two operating leases with an imputed annual interest rate of 8 %. The term of the first lease is 36 months commencing on September 1, 2021 and ending on August 31, 2024 while the term of the second lease is 43 months commencing on January 1, 2022 and ending on July 31, 2025. Intangible Assets The Company’s intangible assets, consist of legal fees for application of patents and trademarks and license fees paid for inspection services, as well as customer relationships, trademarks and trade names and backlog related to the acquisition of 2WR. All intangibles are recorded at cost and once approved, are amortized using the straight-line method over an estimated life, generally 5 years for patents, 10 to 20 years for trademarks, and 1 year for backlog. License fees are amortized over 10 years. Intangible assets are reported in the “Intangible Asset” line on the balance sheet. Goodwill Goodwill represents the excess of the purchase price over the fair value of net assets acquired in a business combination. Goodwill is not amortized but is tested for impairment annually as of December 31 and at any time when events or circumstances suggest impairment may have occurred. The testing for impairment consists of a comparison of the fair value of the reporting unit with its carrying amount. If the carrying amount of the reporting unit, including goodwill, exceeds the fair value, an impairment will be recognized equal to the difference between the carrying value of the reporting unit’s goodwill and the implied fair value of the goodwill. In testing goodwill for impairment, we determine the estimated fair value of our reporting units based upon a discounted future cash flow analysis. Goodwill is our only indefinite-lived intangible asset. Definite-lived intangible assets are amortized using the straight-line method over the shorter of their contractual term or estimated useful lives. Impairment of Long-lived Assets The Company evaluates potential impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. An impairment will be recognized as the amount by which the carrying amount of a long-lived asset exceeds its fair value. F- 10 Investments Investments without readily determinable fair values and for which the Company does not have the ability to exercise significant influence are accounted for at cost with adjustments for observable changes in prices or impairments. Convertible Notes The Company accounts for its convertible notes at issuance by allocating the proceeds received from a convertible note among freestanding instruments according to ASC 470, Debt, based upon their relative fair values. The fair value of debt and common stock was determined based on the closing price of the common stock on the date of the transaction, and the fair value of warrants was determined using the Black-Scholes option-pricing model. Convertible notes were subsequently carried at amortized cost. The fair value of the warrants is recorded as additional paid-in capital, with a corresponding amount recorded as a debt discount from the face amount of the convertible note. Each convertible note was analyzed for the existence of a beneficial conversion feature (“BCF”), defined as the fair value of the common stock at the commitment date for the convertible note, less the effective conversion price. BCFs were recognized at their intrinsic value, and recorded as an increase to additional paid-in capital, with a corresponding reduction in the carrying amount of the convertible note (as a debt discount from the face amount of the convertible note). The discounts on the convertible notes, consisting of amounts ascribed to warrants and beneficial conversion features, is amortized to interest expense, using the effective interest method, over the terms of the related convertible notes. BCFs that are contingent upon the occurrence of a future event are recorded when the contingency is resolved. Revenue Recognition The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers, which requires that five basic steps be followed to recognize revenue: (1) a legally enforceable contract that meets criterial standards as to composition and substance is identified; (2) performance obligations relating to provision of goods or services to the customer are identified; (3) the transaction price, with consideration given to any variable, noncash, or other relevant consideration, is determined; (4) the transaction price is allocated to the performance obligations; and (5) revenue is recognized when control of goods or services is transferred to the customer with consideration given to whether that control happens over time or not. Determination of criteria (3) and (4) are based on our management’s judgments regarding the fixed nature of the selling prices of the services and products delivered and the collectability of those amounts. Our equipment systems, services and consumable product revenues arise from contracts with customers. Service revenues include full facility programming, architectural and engineering design services, start-up commissioning services, and facility optimization services. Product revenues include an integrated suite of select cultivation equipment systems and consumable crop management products. We enter into separate contracts for the service and product revenues we provide to our customers in order to clarify our obligations under the terms of the contracts. New contracts are entered into if the services to be performed or products to be delivered need to be modified. Service revenues are satisfied when services are rendered or completed in accordance with the terms of the contract. Product revenues are satisfied when control of the products is transferred to the customer. Customer Deposits The Company’s policy is to collect deposits from customers at the beginning of the contract. The customer payments received are recorded as a customer deposit liability on the balance sheet. When the contract is complete and meets all the criteria for revenue recognition, the customer is billed for the entire contract amount and the deposit is recorded against the customer’s receivable balance. In certain situations when the customer has paid the deposit and services have been performed but the customer chooses not to proceed with the contract, the Company may keep the deposit and recognize revenue. Of the outstanding customer deposit balance of $ 4,878,863 at December 31, 2020, $ 4,813,564 was recognized as revenue in the year ended December 31, 2021. The entire customer deposit balance of $ 2,915,406 at December 31, 2019 was recognized as revenue in the year ended December 31, 2020. F- 11 Cost of Revenue The Company’s policy is to recognize cost of revenues in the same manner as, and in conjunction with, revenue recognition. The Company’s cost of revenues includes the costs directly attributable to revenue recognized and includes expenses related to the purchasing of products and providing services, fees for third-party commissions and shipping costs. Total shipping costs included in the cost of goods sold for the years ended December 31, 2021 and 2020 were $ 1,253,506 and $ 790,996 , respectively. Advertising Costs The Company expenses advertising costs in the periods the costs are incurred. Prepayments made under contracts are included in prepaid expenses and expensed when the advertisement is run. Total advertising expense incurred for the years ended December 31, 2021 and 2020 was $ 263,609 and $ 174,131 , respectively. Warrants The Company estimates the fair value of these warrants at the respective balance sheet dates using the Black-Scholes option pricing based on the estimated market value of the underlying common stock at the valuation measurement date, the remaining contractual term, risk-free interest rate, and expected volatility of the price of the underlying common stock. There is a moderate degree of subjectivity involved when using option pricing models to estimate the warrants and the assumptions used in the Black-Scholes option-pricing model are moderately judgmental. Stock-Based Compensation The Company periodically issues shares of its common stock and stock options to employees and consultants in non-capital raising transactions for fees and services. The Company accounts for stock issued to non-employees with the value of the stock compensation based upon the measurement date as determined at the grant date of the award. The Company accounts for stock grants issued and vesting to employees with the award being measured at its fair value at the date of grant and amortized ratably over the vesting period. Income Taxes The Company files income federal tax returns in the United States and Canada and state and local tax returns in applicable jurisdictions. Provisions for current income tax liabilities, if any, would be calculated and accrued on income and expense amounts expected to be included in the income tax returns for the current year. Income taxes reported in earnings, if any, would also include deferred income tax provisions. Deferred income tax assets and liabilities, if any, would be computed on differences between the financial statement bases of assets and liabilities at the enacted tax rates. Changes in deferred income tax assets and liabilities would be included as a component of income tax expense. The effect on deferred income tax assets and liabilities attributable to changes in enacted tax rates would be charged or credited to income tax expense in the period of enactment. Valuation allowances would be established for certain deferred tax assets when realization is not likely. Assets and liabilities would be established for uncertain tax positions taken or positions expected to be taken in income tax returns when such positions, in the judgment of the Company, do not meet a more-likely-than-not threshold based on the technical merits of the positions. Valuation allowances would be established for certain deferred tax assets when realization is not likely. Loss Per Share The Company computes net loss per share by dividing net loss available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share would be computed by dividing net loss by the weighted-average of all potentially dilutive shares of common stock that were outstanding during the periods presented. The diluted earnings per share calculation is not presented as it results in an anti-dilutive calculation of net loss per share. F- 12 The treasury stock method would be used to calculate diluted earnings per share for potentially dilutive stock options and share purchase warrants. This method assumes that any proceeds received from the exercise of in-the-money stock options and share purchase warrants would be used to purchase common shares at the average market price for the period. Recently Adopted Accounting Pronouncements From time to time, the Financial Accounting Standards Board (the “FASB”) or other standards setting bodies issue new accounting pronouncements. The FASB issues updates to new accounting pronouncements through the issuance of an Accounting Standards Update (“ASU”). Unless otherwise discussed, the Company believes that the impact of recently issued guidance, whether adopted or to be adopted in the future, is not expected to have a material impact on the Company’s financial statements upon adoption. In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). This update replaces the incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. This update is effective for interim and annual periods beginning after December 15, 2022, with a modified-retrospective approach. The Company is currently evaluating the impact that this new guidance will have on its consolidated financial statements. In August 2020, the FASB issued ASU 2020-06—Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40)—Accounting For Convertible Instruments and Contracts in an Entity’s Own Equity. ASU 2020-06 simplifies accounting for convertible instruments by removing major separation models required under current GAAP. Consequently, more convertible debt instruments will be reported as a single liability instrument with no separate accounting for embedded conversion features. ASU 2020-06 removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for it. ASU 2020-06 also simplifies the diluted net income per share calculation in certain areas. The new guidance is effective for annual and interim periods beginning after December 15, 2021, and early adoption is permitted for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company is currently evaluating the impact that this new guidance will have on its consolidated financial statements. NOTE 3 – RELATED PARTY TRANSACTIONS In October 2018, we issued a $ 1,000,000 unsecured note payable to Cloud9 Support Inc. (“Cloud9 Support”), an entity owned by James Lowe, a director of the Company, which originally became due April 30, 2019 (the “James Lowe Note”). The James Lowe Note was personally guaranteed by Bradley Nattrass, our Chief Executive Officer, and Octavio Gutierrez. The loan had a one-time origination fee of $ 12,500 . Interest accrued at the rate of 12 % per annum and was paid monthly. As additional consideration for the James Lowe Note, we granted Mr. Lowe (as designee of Cloud9 Support) an option to purchase 5,000 shares of our common stock at an exercise price of $ 7.20 per share, which option is exercisable for a period of five years . The due date for the James Lowe Note was extended in May 2019 to December 31, 2019 and the interest rate was decreased to 9 % per year. In consideration for Cloud9 Support extending the maturity date of the note and reducing the interest rate, we issued 1,667 shares of our common stock to Mr. Lowe (as designee of Cloud9 Support). On February 21, 2020, we entered into an agreement to amend the James Lowe Note to extend the maturity date of therein from December 31, 2019 to the date which is the earlier of 60 days following the date: (a) on which demand for repayment is made by the lenders under the Credit Agreement, as described in Note 10, (which is now only applicable in the case of an event of default under the Credit Agreement because of the removal of the demand feature pursuant to the First Amendment to the Credit Agreement); or (b) which is the maturity date under the Credit Agreement. F- 13 In addition, on February 25, 2020, the Company entered into a subordination, postponement and standstill agreement with Cloud9 Support (the “Subordination Agreement”) pursuant to which Cloud9 Support agreed to postpone and subordinate all payments due under the promissory note until the facilities under the Credit Agreement have been fully and finally repaid. The term for the Subordination Agreement will continue in force as long as the Company is indebted to the agent or lenders under the Credit Agreement. In consideration for Cloud9 Support’s agreement to extend the maturity date of the promissory note and to enter into the Subordination Agreement, we issued 16,667 shares of common stock to Mr. Lowe (as designee of Cloud9 Support). On December 15, 2020, James Lowe agreed to convert the $ 1,000,000 James Lowe Note plus $ 4,500 of accrued interest (the “New James Lowe Note”) into a convertible note bridge financing (see “Bridge Financing” in Note 9 – Notes Payable). The New James Lowe Note carries interest at the rate of 12 % and matures on December 31, 2021. The New James Lowe Note will be mandatorily converted into shares of our common stock upon the closing of a qualified offering, at 75% of the per share price paid by investors in a qualified offering . The Company has purchased goods from Cloud 9 Support. Purchases from Cloud 9 Support were $ 0 and $ 0 during the years ended 2021 and 2020, respectively. Cloud 9 Support also purchases materials from the Company for use with their customers. Total sales to Cloud 9 Support from the Company were $ 106,310 and $ 414,108 during the years ended 2021 and 2020, respectively. Outstanding receivables from Cloud 9 Support as of December 31, 2021 and 2020 totaled $ 6,797 and $ 61,678 , respectively. Net outstanding payables for purchases of inventory and other services to Cloud 9 Support as of December 31, 2021 and 2020, totaled $ 0 and $ 0 , respectively. NOTE 4 – PREPAYMENTS & OTHER ASSETS Prepayments and other assets are comprised of prepayments paid to vendors to initiate orders and prepaid services and fees. The prepaid balances are summarized as follows: SCHEDULE OF PREPAID BALANCES 2021 2020 Vendor prepayments $ 10,652,962 $ 2,676,493 Prepaid services and fees 587,505 365,931 Deferred financing cost (See Note 10 - Debt) – 504,644 Others 7,799 – Prepayments and other assets $ 11,248,266 $ 3,547,068 NOTE 5 - PROPERTY PLANT & EQUIPMENT, NET Property Plant and Equipment balances are summarized as follows: SCHEDULE OF PROPERTY, PLANT AND EQUIPMENT 2021 2020 Computers & Technology Equip $ 106,825 $ 67,754 Furniture and Fixtures 110,006 85,662 Leasehold Improvements 164,072 164,072 Vehicles 20,000 20,000 Software 229,621 142,721 R&D Assets – 3,031 Other Equipment 36,546 34,063 Property plant and equipment, gross Accumulated depreciation ( 459,576 ) ( 387,859 ) Property plant and equipment, net $ 207,496 $ 129,444 Depreciation expense for the years ended December 31, 2021 and 2020 totaled $ 223,727 and $ 256,803 , respectively. F- 14 NOTE 6 – INVESTMENTS The components of investments are summarized as follows: SCHEDULE OF COST METHOD INVESTMENTS 2021 2020 Investment in Edyza $ 1,710,358 $ 1,710,358 Investment in XS Financial 2,500,000 – Investment in TGH – – Investment $ 4,210,358 $ 1,710,358 Edyza We have a strategic investment in Edyza, Inc. (“Edyza”), a hardware and software technology company that enables dense sensor networks in agriculture, healthcare, and other environments that require precise micro-climate monitoring. During 2019, the Company acquired an additional 827,018 shares for $ 897,475 . The Company has capitalized an additional $ 12,883 in legal fees associated with the purchases of the Edyza Common Stock. The Company measures this investment at cost, less any impairment changes resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer. XS Financial On October 30, 2021, the Company’s wholly owned subsidiary UGFS, LLC, a Colorado limited liability company, participated in a convertible note offering of Xtraction Services, Inc., a/k/a XS Financial Inc. (CSE: XSF) (OTCQB: XSHLF) (“XSF”), a specialty finance company providing CAPEX financing solutions, including equipment leasing, to Controlled Environment Agriculture (CEA) companies in the United States. UGFS, LLC invested $ 2,500,000 of a total $ 43,500,000 raised by XSF. The investment is convertible into equity and incurs 9.50 % interest payable in cash and PIK Notes prior to any NASDAQ listing and 8 % interest post any listing, as subject to the Note Purchase Agreement. The debt matures on October 28, 2023 , with a one-year option to extend the maturity date. In addition, UGFS received 1.25 MM warrants with a CAD$ 0.45 share price as subject to the Warrant instrument. TGH On January 24, 2020, the Company entered into a Membership Interest Redemption Agreement (the “Redemption Agreement”) with Total Grow Holdings LLC (d/b/a Total Grow Control, LLC) (“TGH”), whereby the Company agreed to sell the Company’s 24.4 % membership interests in TGH back to TGH for total consideration of $ 370,000 . As a result of TGH’s failure to perform its obligations under the Redemption Agreement, the Company initiated a lawsuit against TGH seeking damages (the “Lawsuit”), and subsequently fully impaired the remaining investment in TGH in June 2020. On September 24, 2020, the Company and TGH entered into a Settlement Agreement (the “Settlement Agreement”), pursuant to which the parties agreed to settle all claims brought in the Lawsuit. Pursuant to the Settlement Agreement, TGH agreed to pay the Company a total of $ 61,919 in six equal installments. TGH’s first payment was due by October 4, 2020. TGH also agreed to reimburse the Company for up to $ 25,000 of its attorney’s fees related to the Lawsuit and the Settlement Agreement. In consideration of the foregoing and subject to TGH satisfying its payment obligations, the Company agreed to release any and all claims related to the Lawsuit. The Settlement Agreement also provides for a mutual release between the parties. On September 24, 2020, in connection with the Settlement Agreement, the Company also entered into an agreement (the “Pullar Agreement”) by and between the Company and George R. Pullar, a former director of the Company and the Company’s former chief financial officer and the current chief financial officer of TGH. Pursuant to the Pullar Agreement, in exchange for Mr. Pullar relinquishing all right, title and interest in and to 166,667 shares of the Company’s common stock, the Company agreed to (i) execute the Settlement Agreement, (ii) transfer, sell and assign to Mr. Pullar the Company’s 24.4 % membership interest in TGH pursuant to the Settlement Agreement and (iii) issue Mr. Pullar a fully vested warrant, to purchase 66,667 shares of Common Stock at an exercise price of $ 6.00 per share which expires five years from the date of issuance. The Pullar Agreement also provides for a mutual release between the Company and Mr. Pullar. F- 15 NOTE 7 – GOODWILL & INTANGIBLE ASSETS Goodwill The Company has recorded goodwill in conjunction with the acquisitions of the 2WR Entities on July 30, 2021 and Impact Engineering, Inc. on March 7, 2019. The goodwill balances as of December 31, 2021 and 2020 were $ 7,992,121 and $ 902,067 . Goodwill is not amortized. There is no goodwill for income tax purposes. The Company did not record any impairment charges related to goodwill for the years ended December 31, 2021 and 2020. Intangible Assets Other Than Goodwill Finite-lived intangible assets as of December 31, 2021 and 2020 consisted of the following: SCHEDULE OF FINITE-LIVED INTANGIBLE ASSETS December 31, 2021 Cost Accumulated Amortization Net Book Value Customer relationships 834,100 49,649 784,451 Trademarks and trade names 499,000 41,583 457,417 Backlog and Other 518,405 184,807 333,598 1,851,505 276,039 1,575,466 December 31, 2020 Cost Accumulated Amortization Net Book Value Other 89,004 4,490 84,514 89,004 4,490 84,514 The estimated future amortization expense for intangible assets is subject to amortization as December 31, 2021, is summarized below: Schedule of Future Amortization Expenses of Intangible Assets Year ending Estimated Future December 31, Amortization Expense 2022 469,193 2023 218,943 2024 218,943 2025 218,943 Thereafter 366,002 Total 1,492,024 Amortization expense for intangible assets for the years ended December 31, 2021 and 2020 was $ 271,549 and $ 1,637 , respectively. NOTE 8 – ACCRUED EXPENSES Accrued expenses are summarized as follows: SCHEDULE OF ACCRUED EXPENSES 2021 2020 Accrued operating expenses $ 628,871 $ 717,503 Accrued wages and related expenses 1,887,124 408,907 Accrued interest expense – 99,258 Accrued 401(k) 23,520 – Accrued sales tax payable 1,338,763 572,826 Accrued expenses $ 3,878,278 $ 1,798,494 Accrued sales tax payable is comprised of amounts due to various states and Canadian provinces for 2015 through 2021. F- 16 NOTE 9 – NOTES PAYABLE The following is a summary of notes payable excluding related party notes payable: SCHEDULE OF NOTES PAYABLE December 31, 2021 December 31, 2020 Paycheck Protection Program (“PPP”) loan entered into on April 16, 2020. The Company applied for and has been notified that the full amount of the loan, which was used for eligible expenditures for payroll and other expenses described in the CARES Act was forgiven on June 11, 2021. - 1,020,600 Convertible notes related to bridge financing. See Bridge Financing Notes below. - 1,854,500 Total - 2,875,100 Less current maturities - ( 1,854,500 ) Long term $ - $ 1,020,600 During the fourth quarter of 2020 the Company entered into bridge financing notes (the “Bridge Financing Notes”) totaling $ 1,854,500 . The Bridge Financing Notes are a combination of $ 1,004,500 in the James Lowe Note (See Note 3 – Related Party Transactions), $ 350,000 received in November 2020, and an additional $ 500,000 received in December 2020. The Bridge Financing Notes carried interest at the rate of 12 % and had a maturity date of December 31, 2021 . The Bridge Financing Notes were mandatorily convertible upon the closing of a sale of the securities of the Company, whether in a private placement or pursuant to an effective registration statement under the Securities Act, resulting in at least $ 2,500,000 of gross proceeds to the Company (a “Qualified Offering”). In the event of a Qualified Offering, the outstanding principal and interest of the Bridge Financing Notes were to be converted into the identical security issued at such Qualified Offering at 75 % of the per security price paid by investors in connection with the Qualified Offering. The Offering described in Note 14 – Shareholders Equity, was a Qualified Offering and the Bridge Financing Notes were converted into equity in connection with the Offering on February 17, 2021. NOTE 10 – DEBT The Company’s borrowings as of December 31, 2021 and 2020 consisted of the following: SCHEDULE OF DEBT 2021 2020 Revolving Facility $ – $ 3,403,143 Term Loan, net of $0 unamortized debt issuance costs – 1,868,320 Total – 5,271,463 Less current debt due within one year – ( 5,271,463 ) Total long-term debt $ – $ – On February 21, 2020, we entered into a letter agreement (the “Credit Agreement”) by and among the Company, as borrower, urban-gro Canada Technologies Inc. and Impact., as guarantors, the lenders party thereto (the “Lenders”), and Bridging Finance Inc., as administrative agent for the Lenders (the “Agent”). The Credit Agreement, which was denominated in Canadian dollars (C$), was comprised of (i) a 12-month senior secured demand term loan facility in the amount of C$ 2.7 million ($ 2.0 million), which was funded in its entirety on the closing date (the “Term Loan”); and (ii) a 12-month demand revolving credit facility of up to C$ 5.4 million ($ 4.0 million), which could be drawn from time to time, subject to the terms and conditions set forth in the Credit Agreement and described further below (the “Revolving Facility,” and together with the Term Loan, the “Facilities”). The Credit Agreement was personally guaranteed by the Company’s CEO and Chairman, Brad Nattrass, and was to be in place for the original term of the Credit Agreement (1 year) plus a 1-year extension period at the discretion of the Lender as provided in the Credit Agreement. The final maturity date of the Facilities was initially stipulated in the Credit Agreement as the earlier of (i) demand, and (ii) the date that is 12 months after the closing date, with a potential extension to the date that is 24 months after the closing date (the “Initial Maturity Date”). The Facilities bore interest at the annual rate established and designated by the Bank of Nova Scotia as the prime rate, plus 11% per annum. Accrued interest on the outstanding principal amount of the Facilities was due and payable monthly in arrears, on the last business day of each month, and on the Initial Maturity Date. F- 17 The Revolving Facility could initially be borrowed and re-borrowed on a revolving basis by the Company during the term of the Facilities, provided that borrowings under the Revolving Facility were limited by a loan availability formula equal to the sum of (i) 90% of insured accounts receivable, (ii) 85% of investment grade receivables, (iii) 75% of other accounts receivable, (iv) 50% of eligible inventory, and (v) the lesser of C$4.05 million ($3.0 million) and (A) 75% of uncollected amounts on eligible signed equipment orders for equipment systems contracts and (B) 85% of uncollected amounts on eligible signed professional services order forms for design contracts. The Revolving Facility could be prepaid in part or in full without a penalty at any time during the term of the Facilities, and the Term Loan could be prepaid in full or in part without penalty subject to 60 days prior notice in each case subject to certain customary conditions. On September 4, 2020, the Company executed an amendment to the Credit Agreement (the “First Amendment”) whereas the Facilities described above were due on December 31, 2021 (the “Revised Maturity Date”). The First Amendment also increased the rate at which the Facilities would bear interest to the annual rate established and designated by the Bank of Nova Scotia as the prime rate, plus 12 % per annum. As a result of the First Amendment, the Company was required to prepay, on or before January 31, 2021, $ 1,000,000 of the balance of the Term Loan and begin making monthly payments of $ 100,000 on the balance on the Term Loan starting on March 1, 2021. Additionally, the Company was required to make monthly payments of $ 50,000 on the balance under the Revolving Facility beginning October 1, 2020 and could make no more draws under the Revolving Facility. The Company incurred $ 1,314,868 of debt issuance costs in connection with these Facilities, of which $ 676,822 was non-cash in the form of Common Stock and warrant issuances. The Company estimated the fair value of these warrants at the respective balance sheet dates using the Black-Scholes option pricing based on the market value of the underlying Common Stock at the valuation measurement date of $ 6.00 , the remaining contractual terms of the warrants of 5 years, risk free interest rate of 1.14 % an expected volatility of the price of the underlying Common Stock of 100 %. The Company recorded the debt issuance costs as either a deferred financing asset or a direct reduction of the loan obligation based on the pro-rata value of the Revolving Facility and Term Loan, respectively, on the closing date. The debt issuance costs were being amortized as interest expense over the life of the Facilities, until the Revised Maturity Date. On February 17, 2021, the Company repaid all amounts outstanding under the Credit Agreement and expensed the remaining unamortized debt issuance costs as loss on extinguishment of debt. As of December 31, 2020, there were $ 504,644 and $ 252,322 of unamortized debt issuance costs remaining related to the Revolving Facility and Term Loan, respectively. NOTE 11 – OPERATING LEASE LIABILITIES & COMMITMENTS AND CONTINGENCIES The Company has two operating lease liabilities with an imputed annual interest rate of 8 %. The term of the Lafayette office lease is 36 months commencing on September 1, 2021 and ending on August 31, 2024. The term of the Greenwood Village lease is 43 months, commencing on January 1, 2022 and ending on July 31, 2025. The following is a summary of operating lease liabilities: SCHEDULE OF OPERATING LEASE LIABILITIES 2021 2020 Operating lease liabilities related to right of use assets. $ 694,462 $ 88,888 Less current portion ( 152,459 ) ( 88,888 ) Long term $ 542,003, $ - The following is a schedule showing total future minimum lease payments: SCHEDULE OF FUTURE MINIMUM LEASE PAYMENTS Year ending Total Minimum December 31, Lease Payments 2022 262,091 2023 269,694 2024 223,297 2025 71,944 Total 827,025 F- 18 From time to time, the Company is involved in routine litigation that arises in the ordinary course of business. There are no legal proceedings for which management believes the ultimate outcome would have a material adverse effect on the Company’s results of operations and cash flows. NOTE 12 – RISKS AND UNCERTAINTIES Concentration Risk During the year ended December 31, 2021, one client represented 46 % of total revenue. During the year ended December 31, 2020 the same client represented 25 % of total revenue and another client represented 13 % of total revenue. At December 31, 2021 and 2020, one client represented 41 % and 23 % of total outstanding accounts receivables, respectively. At December 31, 2020, a separate client represented 17 % of total outstanding accounts receivables. During the year ended December 31, 2021, one vendor represented 15 % total purchases. During the year ended December 31, 2020, a one vendor represented 13 % of total purchases. At December 31, 2021, one vendor represented 33 % of total accounts payable. At December 31, 2020, a separate vendor represented 38 % of total accounts payable. Foreign Exchange Risk Although our revenues and expenses are expected to be predominantly denominated in United States dollars, we may be exposed to currency exchange fluctuations. Recent events in the global financial markets have been coupled with increased volatility in the currency markets. Fluctuations in the exchange rate between the U.S. dollar, the Canadian dollar, the Euro, the Swiss franc, and the currency of other regions in which we may operate may have a material adverse effect on our business, financial condition and operating results. We may, in the future, establish a program to hedge a portion of our foreign currency exposure with the objective of minimizing the impact of adverse foreign currency exchange movements. However, even if we develop a hedging program, there can be no assurance that it will effectively mitigate currency risks. NOTE 13 – STOCK-BASED COMPENSATION Stock-based compensation expense for the years ended December 31, 2021 and 2020 was $ 1,840,913 and $ 1,803,403 , respectively based on the vesting schedule of the stock grants and options. During the year ended December 31, 2021, 122,629 shares vested and were issued to employees and directors. During the year ended December 31, 2020, 62,358 shares vested and were issued to employees and directors. No cash flow effects are anticipated for stock grants. In January 2017, the Company began granting stock to attract, retain, and reward employees with Common Stock. Stock grants are offered as part of the employment offer package, to ensure continuity of employment or as a reward for performance. Each of these grants requires a specific tenure of employment before the grant vests with typical vesting periods of 1 to 3 years of employment. In January 2018, the Company implemented an equity incentive plan to reward and attract employees and compensate vendors for services when applicable. Stock options are offered as part of an employment offer package, to ensure continuity of service or as a reward for performance. The stock option plan authorizes 500,000 shares of common stock. In May 2019, the Company adopted a new equity incentive plan, authorizing an aggregate of 588,333 shares of Common Stock for issuance thereunder. Stock grants under the equity incentive programs are valued at the price of the stock on the date of grant. The fair value of the options is calculated using the Black-Scholes pricing model based on the estimated market value of the underlying common stock at the valuation measurement date $ 6.00 , the remaining contractual term of the options of 5 years, risk-free interest rate of 1.92 % and expected volatility of the price of the underlying common stock of 100 %. There is a moderate degree of subjectivity involved when estimating the value of stock options with the Black-Scholes option pricing model as the assumptions used are moderately judgmental. Stock grants and stock options are sometimes offered as part of an employment offer package, to ensure continuity of service or as a reward for performance. Stock grants and stock options typically require a 1 to 3 year period of continued employment or service performance before the stock grant or stock option vests. F- 19 The following schedule shows stock grant activity for the year ended December 31, 2021 and 2020: SCHEDULE OF STOCK GRANT ACTIVITY Grants unissued as of December 31, 2019 68,750 Grants awarded 132,361 Forfeiture/Cancelled ( 33,333 ) Grants vested ( 48,889 ) Grants unissued as of December 31, 2020 118,889 Grants awarded 157,413 Forfeiture/Cancelled - Grants vested ( 122,629 ) Grants unissued as of December 31, 2021 153,673 The following table summarizes stock grant vesting periods. SCHEDULE OF STOCK GRANT VESTING PERIODS Number of Unrecognized stock compensation Year Ending Shares expense December 31, 99,934 $ 530,796 2022 53,739 117,258 2023 - - 2024 153,673 $ 648,054 The following schedule shows stock option activity for the year ended December 31, 2021 and 2020. SCHEDULE OF STOCK OPTION ACTIVITY Number of Shares Weighted Average Remaining Life (Years) Weighted Average Exercise Price Stock options outstanding as of December 31, 2019 283,695 9.21 $ 7.26 Issued 404,167 4.00 $ 6.00 Expired ( 49,584 ) 8.02 $ 6.90 Stock options outstanding at December 31, 2020 638,278 7.25 $ 6.49 Stock options exercisable at December 31, 2020 363,951 7.72 $ 6.48 Number of Shares Weighted Average Remaining Life (Years) Weighted Average Exercise Price Stock options outstanding as of December 31, 2020 638,278 7.25 $ 6.49 Issued 76,003 4.00 $ 6.00 Exercised ( 4,777 ) - $ 6.78 Expired ( 68,167 ) 4.31 $ 7.89 Stock options outstanding at December 31, 2021 641,337 7.55 $ 6.27 Stock options exercisable at December 31, 2021 493,724 7.69 $ 6.46 F- 20 The following table summarizes stock option vesting periods under the two stock option plans. SCHEDULE OF STOCK OPTION VESTING PERIODS Number of Unrecognized stock compensation Year Ending Shares expense December 31, 133,945 $ 215,092 2022 13,668 27,625 2023 147,613 $ 242,717 The aggregate intrinsic value of the stock options outstanding and exercisable at December 31, 2021 is $ 4,021,834 . NOTE 14 – SHAREHOLDERS’ EQUITY In March 2020, an executive left the Company and returned 16,667 common shares as part of the related separation agreement. The Company retired the shares and reduced its issued and outstanding stock by 16,667 shares. On February 17, 2021, we completed an offering of 6,210,000 shares of our common stock, inclusive of the underwriters full overallotment, at $ 10.00 per share for total gross offering proceeds of $ 62,100,000 . In connection with this offering, we received approval to list our common stock on the Nasdaq Capital Market under the symbol “UGRO”. On May 24, 2021, we announced that the Board of Directors authorized a stock repurchase program to purchase up to $ 5.0 million of the currently outstanding shares of the Company’s common stock, over a period of 12 months through open market purchases, in compliance with Rule 10b-18 under the Securities Exchange Act of 1934. Under this program, the Company has repurchased 504,915 shares of common stock at an average price per share of $ 9.35 , for a total price of $ 4,718,633 during the twelve months ended December 31, 2021. In total, the Company has repurchased 854,915 shares of common stock at an average price per share of $ 8.99 for a total of $ 7,683,490 during the twelve months ended of December 31, 2021. NOTE 15 – INCOME TAXES The Company accounts for income taxes in accordance with the asset and liability method prescribed in ASC 740, “Accounting for Income Taxes”. The Company has adopted the provisions of ASC 740-10-25, which provides recognition criteria and a related measurement model for uncertain tax positions taken or expected to be taken in income tax returns. ASC 740-10-25 requires that a position taken or expected to be taken in a tax return be recognized in the financial statements when it is more likely than not that the position would be sustained upon examination by tax authorities. Tax positions that meet the more likely than not threshold are then measured using a probability weighted approach recognizing the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement. The Company had no tax positions relating to open income tax returns that were considered to be uncertain. The Company has experienced losses for both book and tax purposes since inception. The Company recorded no tax provisions for the year ended December 31, 2021 and 2020. The potential future recovery of any tax assets that the Company may be entitled to due to these accumulated losses is uncertain and any tax assets that that the Company may be entitled to have been fully reserved based on management’s current estimates. Management intends to continue maintaining a full valuation allowance on the Company’s deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of these allowances. As of December 31, 2021, the Company had approximately $ 10,024,417 of operating loss carryforwards for United States tax purposes, expiring as follows: ● $ 2,182,354 expiring in 2037 ● $ 7,842,063 with no expiration Realization of operating loss carryforwards to offset future operating income for tax purposes are subject to various limitations including change of ownership and current year taxable income percentage limitations. F- 21 The Company has no credit carryforwards for tax purposes. The Company’s primary filing jurisdictions are the United States and Canada. Due to the Company’s net operating loss carryforwards, the Company’s income tax returns remain subject to examination by federal, foreign and most state taxing authorities for all tax years. NOTE 16 – WARRANTS The following table shows warrant activity for the years ended December 31, 2021 and 2020. SCHEDULE OF WARRANT ACTIVITY Number of shares Weighted Average Exercise Price Warrants outstanding as of December 31, 2019 115,339 $ 17.28 Issued in conjunction with debt 20,747 18.00 Issued in conjunction with agreement with former executive (see Note 15 – Stockholders’ Equity) 66,666 $ 6.00 Warrants outstanding as of December 31, 2020 202,752 $ 13.64 Warrants exercisable as of December 31, 2020 202,752 $ 13.64 Number of shares Weighted Average Exercise Price Warrants outstanding as of December 31, 2020 202,752 $ 13.64 Exercised ( 22,490 ) $ 14.94 Issued in conjunction with equity offering 310,500 $ 12.50 Expired ( 116,674 ) $ 18.00 Warrants outstanding as of December 31, 2021 374,088 $ 11.26 Warrants exercisable as of December 31, 2021 374,088 $ 11.26 The fair value of the options is calculated using the Black-Scholes pricing model based on the estimated market value of the underlying common stock at the valuation measurement date $ 10.00 , the remaining contractual term of the options of 5 years, risk-free interest rate of .57 % and expected volatility of the price of the underlying common stock of 100 %. There is a moderate degree of subjectivity involved when estimating the value of warrants with the Black-Scholes option pricing model as the assumptions used are moderately judgmental. The weighted-average life of the warrants is 3.07 years. The aggregate intrinsic value of the warrants outstanding and exercisable at December 31, 2021 is $ 0 . NOTE 17 – SUBSEQUENT EVENTS On March 13, 2022, urban-gro, Inc., (the “Company”), Emerald Merger Sub, Inc. (“Merger Sub”), Emerald Construction Management, Inc. (“Emerald”), Christopher W. Cullens, Charles W. Cullens, and Green Stone Property LLC (“Green Stone” and, collectively with Christopher W. Cullens and Charles W. Cullens, the “Sellers”), and, solely in his capacity as the Seller Representative, Christopher W. Cullens (the “Seller Representative”) entered into an Acquisition Agreement and Plan of Merger (the “Acquisition Agreement”), pursuant to which Emerald will merge with and into Merger Sub and the Company will purchase all of Sellers’ membership interest in CTS Strategies, LLC (the “CTS Interest”). Pursuant to the Acquisition Agreement, the initial purchase price for Emerald (the “Initial Purchase Price”) shall be up to $ 5.0 million, consisting of $ 2.5 million in unregistered shares (the “Closing Payment Shares”) of the Company’s common stock, par value $ 0.001 (“Company Common Stock”) and up to $ 2.5 million of cash, and the purchase price for the CTS Interest will be $ 1,000 . The Initial Purchase Price is subject to certain adjustments, including a working capital adjustment. At closing, the Initial Purchase Price will be paid in the form of wire transfer of immediately available funds and the issuance of the Closing Payment Shares. Additionally, the Acquisition Agreement provides for additional earnout payments (“Earnout Payments”) to the Sellers of up to an aggregate amount of $ 2.0 million, payable in unregistered shares of Company Common Stock. The Earnout Payments are payable quarterly for a two year period and will be equal to 35% of the Quarterly Gross Profit (as defined in the Acquisition Agreement). The value of the shares of Company Common Stock to be issued in the transaction will be determined based upon the daily volume weighted average closing price of the Company Common Stock in the ten trading days prior to the issuance of such shares. F- 22