What changed in this filing

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Item 1. Financial Statements

2022-08-15 compared with 2022-05-10 · 380 added, 278 removed, 220 unchanged (75% of the section changed)

1 unchanged sentence

CONSOLIDATED BALANCE SHEETS

March 31, 2022

June 30, 2022

December 31, 2021

1 unchanged sentence

Accounts receivable, net

Contract receivables

Prepaid expenses and other current assets

7 unchanged sentences

Accounts payable

Contract liabilities

Accrued expenses

8 unchanged sentences

Total liabilities

Shareholders’ Equity

Preferred stock, $ 0.10 par value;

3 unchanged sentences

100,000,000 shares authorized;

11,627,528 issued and 10,353,525 outstanding as of March 31, 2022, and 11,588,110 issued and 10,733,195 outstanding as of December 31, 2021

11,911,043 issued and 10,637,040 outstanding as of June 30, 2022, and 11,588,110 issued and 10,733,195 outstanding as of December 31, 2021

Additional paid in capital

Treasury shares, cost basis:

shares as of March 31, 2022 and 854,915 shares

as of December 31, 2021

1,274,003 shares as of June 30, 2022 and 854,915 shares as of December 31, 2021

( 11,456,667 )

7 unchanged sentences

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Equipment systems

Construction design-build

Consumable products

3 unchanged sentences

General and administrative

Intangible asset amortization

Stock-based compensation

1 unchanged sentence

Income (loss) from operations

( 1,926,937 )

( 2,794,716 )

Non-operating income (expenses):

3 unchanged sentences

Loss on extinguishment of debt

PPP Loan Forgiveness

Other income (expense)

Total non-operating income (expenses)

( 1,741,413 )

Income (loss) before income taxes

( 1,815,757 )

Deferred income tax benefit

( 2,620,033 )

Income tax expense (benefit)

Net income (loss)

1 unchanged sentence

$ ( 2,435,521 )

$ ( 331,138 )

Comprehensive income (loss)

1 unchanged sentence

$ ( 2,435,521 )

$ ( 331,138 )

Earnings (loss) per share:

Net loss per share - basic and diluted

Weighted average shares used in computation

Earnings (loss) per share - basic

Earnings (loss) per share - dilutive

Weighted average share - basic

Weighted average shares - dilutive

accompanying notes to unaudited condensed consolidated financial statements

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT)

Shareholders’

Balance, March 31, 2022

$ ( 23,536,205 )

$ ( 11,456,667 )

Stock-based compensation

Treasury stock

Stock options exercised

Stock issuance related to acquisition

Net income (loss) for period ended June 30, 2022

( 1,739,304 )

Balance, June 30, 2022

$ ( 25,275,509 )

$ ( 11,456,667 )

Shareholders’

Balance, March 31, 2021

$ ( 23,552,903 )

$ ( 2,975,000 )

Stock-based compensation

Stock issuance related to offering, net of offering costs of $ 195,574

Common stock repurchased

Stock Options Exercised

Net income (loss) for period ended June 30, 2021

Balance, June 30, 2021

$ ( 22,295,459 )

$ ( 3,474,270 )

Additional Paid in

Shareholders’ Equity

6 unchanged sentences

( 3,773,177 )

Stock options exercised

Stock option exercised

Stock exercised

Stock Issuance related to acquisition

Stock issued with exercise of warrants

Net income (loss)

Balance, March 31, 2022

Net income (loss) for period ended June 30, 2022

( 2,435,521 )

Balance, June 30, 2022

$ ( 25,275,509 )

$ ( 11,456,667 )

Shareholders’

7 unchanged sentences

Stock issuance related to offering, net of offering costs of $ 4,596,257

Treasury stock

Stock issuance related to offering, net of offering costs

Common stock repurchased

( 3,474,270 )

1 unchanged sentence

Stock issued with exercise of warrants

Net income (loss)

( 1,588,582 )

Stock Options Exercised

Net income (loss) for period ended June 30, 2021

Net income (loss)

( 1,588,582 )

Balance, March 31, 2021

Balance, June 30, 2021

$ ( 22,295,459 )

2 unchanged sentences

CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended

Cash Flows from Operating Activities

Net income (loss)

$ ( 696,217 )

$ ( 1,588,582 )

Adjustments to reconcile net income (loss) from operations:

Depreciation and amortization

Amortization of deferred financing costs

Loss on extinguishment of debt

Interest on convertible notes

Stock-based compensation expense

Beneficial conversion of Bridge notes

Inventory write-offs

Bad debt expense

Changes in operating assets and liabilities (net of acquired amounts):

Accounts receivable

Months Ended June 30,

Flows from Operating Activities

income (loss)

to reconcile net income (loss) from operations:

and amortization

Deferred income tax benefit

of deferred financing costs

on extinguishment of debt

on convertible notes

compensation expense

conversion of Bridge notes

loan forgiveness

in operating assets and liabilities (net of acquired amounts):

and other assets

payable and accrued expenses

Cash Provided By (Used In) Operating Activities

Flows from Investing Activities

Business combinations, net of cash acquired

of property and equipment

Cash Used In Investing Activities

Flows from Financing Activities

from issuance of Common Stock, net of offering costs

of Common Stock

of notes payable

Proceeds from stock issuance

of finance lease ROU liability

Cash Provided By (Used In) Financing Activities

Increase (Decrease) in Cash

at Beginning of Period

at End of Period

Cash Flow Information:

lease right of use asset

disclosure of non-cash investing and financing activities:

Stock issued related to acquisitions

Loan Forgiveness

accompanying notes to unaudited condensed consolidated financial statements

TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1 – ORGANIZATION, ACQUISITIONS, AND LIQUIDITY

(“our,” the “Company,” or “urban-gro”) is an integrated professional services and

design-build firm.

We offer value-added architectural, engineering, and construction management solutions to the Controlled Environment Agriculture (“CEA”), industrial, healthcare, and other commercial sectors.

Innovation, collaboration, and a commitment to sustainability

drive our team to provide exceptional customer experiences.

To serve our horticulture clients, we engineer and design indoor 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.

April 29, 2022 (the “Emerald Closing Date”), the Company acquired all of the issued and outstanding capital stock (the

“Emerald Acquisition”) of Emerald Construction Management, Inc.

(“Emerald”) from their shareholders

(collectively, the “Emerald Sellers”).

The aggregate purchase price for the Emerald Acquisition was $ 7.8

million (the “Emerald Purchase Price”), which represented $ 7.0

million in initial purchase price and an estimated $ 0.8

million in working capital adjustments.

Emerald Purchase Price was payable as follows:

million in cash to the Emerald Sellers, net of satisfaction of Emerald’s entire outstanding debt of approximately $ 0.4

shares of the Company’s common stock valued at $ 2.5

million transferred to the Emerald Sellers;

and up to $ 2.0

million of contingent consideration (the “Emerald Contingent Consideration”) which can be earned by and payable to the

Emerald Sellers based on the performance of Emerald during the 2-year period following the Emerald Closing Date.

Emerald Contingent Consideration is payable quarterly for a two-year period and will be equal to 35% of the Quarterly Gross Profit

(as defined in the Emerald Acquisition Agreement).

The value of the shares of the Company’s common stock to be issued

for the Closing Payment Shares (as defined in the Emerald Acquisition Agreement) was determined based upon the daily volume weighted

average closing price of the Company’s common stock in the ten trading days prior the signing date of the Emerald Acquisition

Any Emerald Contingent Consideration amounts earned by and payable to the Emerald Sellers is payable in shares of the

Company’s common stock.

The value of the shares of the Company’s common stock to be issued for the Emerald Contingent

Consideration will be determined based upon the daily volume weighted average closing price of the Company’s common stock in

the ten trading days prior to the end of the applicable annual quarter the Quarterly Gross Profit is calculated.

SCHEDULE OF INITIAL ACQUISITION OF TARGET COMPANIES

Purchase Price

Allocation of Purchase Price:

Accounts receivable, net

Contract receivable

Prepayments and other assets

( 1,178,239 )

Accounts payable and accrued expenses

Operating leases

Property and equipment

Intangible assets

Accrued expenses

Contract liabilities

ROU liability

Deferred tax liability

Customer deposits

( 6,110,537 )

Net Cash Provided By (Used In) Operating Activities

( 3,727,271 )

Cash Flows from Investing Activities

Purchases of property and equipment

Net Cash Used In Investing Activities

Cash Flows from Financing Activities

Proceeds from issuance of Common Stock, net of offering costs

Repurchase of Common Stock

( 3,773,177 )

( 2,975,000 )

Repayment of notes payable

( 5,755,845 )

Payment of finance lease ROU liability

Net Cash Provided By (Used In) Financing Activities

following pro forma amounts reflect the Company’s results as if the acquisition of Emerald had occurred on January 1, 2021.

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

Three Months Ended

Six Months Ended

Net Income (loss)

( 1,556,748 )

Net Increase (Decrease) in Cash

( 1,456,161 )

Cash at Beginning of Period

Cash at End of Period

Supplemental Cash Flow Information:

Interest paid

Operating lease right of use asset

accompanying notes to unaudited condensed consolidated financial statements

TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1 – ORGANIZATION AND ACQUISITIONS, BUSINESS PLAN, AND LIQUIDITY

(“our,” the “Company,” or “urban-gro”) is a fully integrated architectural design, engineering, procurement,

and construction management (“E.P.C.”) design-build firm specializing in the indoor controlled environment

agriculture (“CEA”) industry.

To serve our horticulture clients, we engineer and design indoor 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

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.

Acquired goodwill from Emerald represents the

value expected to arise from organic growth and an opportunity to expand into a well-established market for the Company.

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 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”).

2WRCO Shareholders, the 2WRGA Shareholders, the MJ12 Shareholders, and the 2WRMS Shareholders (collectively, the “2WR

Sellers”), and Sam Andras, an individual (the “Sellers Representative”) entered into a Stock Purchase Agreement

(the “2WR 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 “2WR Purchased

Shares”) from the 2WR Sellers.

In connection with the acquisition of the 2WR Purchased Shares, the 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.

Purchased Shares had an initial purchase price of up to $ 7.1

million, which purchase price was 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 the

Company’s common stock, par value $ 0.001 ,

which Closing Payment Shares had an aggregate stated

value of $ 2.0

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 the Company’s Common Stock in the Buyer’s sole discretion.

Earnout Payments are payable quarterly for a two-year period and will be equal to twenty percent of the 2WR Entities’ Quarterly

Gross Profit (as defined in the Purchase Agreement).

value of the shares of the Company’s Common Stock issued in the transaction was determined based upon the daily volume weighted

average closing price of the Company’s Common Stock in the ten trading days prior to the issuance of such shares.

accounted for the acquisition of the 2WR Entities as follows:

2WR Purchased Shares had an initial purchase price of up to $ 7.1 million, which purchase price was subject to customary working capital

adjustments (the “2WR Purchase Price”).

At closing, the 2WR Purchase Price was paid in the form of wire transfer of immediately

available funds and the issuance of unregistered shares (the “2WR Closing Payment Shares”) of the Company’s common

stock, par value $ 0.001 , which 2WR Closing Payment Shares had an aggregate stated value of $ 2.0 million.

Additionally, the 2WR Purchase

Agreement provides for additional earnout payments (“2WR Earnout Payments”) to the 2WR Sellers of up to an aggregate amount

of $ 2.0 million, payable in cash or unregistered shares of the Company’s common stock in the Buyer’s sole discretion.

2WR Earnout Payments are payable quarterly for a two-year period and will be equal to 20% of the 2WR Entities’ Quarterly

Gross Profit (as defined in the 2WR Purchase Agreement) .

The value of the shares of the Company’s common stock issued in the transaction

was determined based upon the daily volume weighted average closing price of the Company’s common stock in the ten trading days

prior to the issuance of such shares.

The Company accounted for the acquisition of the 2WR Entities as follows:

SCHEDULE OF INITIAL ACQUISITION OF TARGET COMPANIES

12 unchanged sentences

Three Months Ended

Six Months Ended

Net Income (loss)

goodwill from the 2WR Entities represents the value expected to arise from organic growth and an opportunity to expand into a

well-established market for the Company.

( 1,739,304 )

( 2,435,521 )

goodwill from the 2WR Entities represents the value expected to arise from organic growth and an opportunity to expand into a well-established

market for the Company.

and Going Concern

19 unchanged sentences

a detailed discussion about the Company’s significant accounting policies, refer to Note 2 — “Summary of Significant

Accounting Policies,” in the Company’s consolidated financial statements included in the Company’s Annual Report

on Form 10-K for the year ended December 31, 2021.

During the three months ended March 31, 2022, there were no material changes

made to the Company’s significant accounting policies.

preparing condensed 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 condensed

consolidated financial statements and revenues and expenses during the reported period.

Actual results could differ from those estimates.

Accounting Policies,” in the Company’s consolidated financial statements included in the Company’s Annual Report on

Form 10-K for the year ended December 31, 2021.

During the six months ended June 30, 2022, there were no material changes made to

the Company’s significant accounting policies.

preparing condensed 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 condensed 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 design contracts;

estimated useful lives and potential impairment of long-lived

assets , intangibles and goodwill;

estimated revenues earned under construction design-build contracts;

useful lives and potential impairment of long-lived assets, intangibles and goodwill;

inventory write offs;

allowance for deferred tax assets;

allowance for bad debt.

allowance for deferred

and allowance for bad debt.

Reclassification

2 unchanged sentences

the reported results of operations.

Sheet Classifications

Company includes in current assets and liabilities the following amounts that are in connection with construction contracts that may

extend beyond one year:

contract assets and contract liabilities (including retainage invoiced to customers contingent upon anything

other than the passage of time), capitalized costs to fulfill contracts, retainage payable to sub-contractors and accrued losses on uncompleted

A one-year time period is used to classify all other current assets and liabilities when not otherwise prescribed by the applicable

accounting principles.

receivable includes billed and unbilled amounts for services provided to customers for which the Company has an unconditional right to

Billed and unbilled amounts for which payment is contingent on anything other than the passage of time are included in contract

assets and contract liabilities on a contract-by-contract basis.

When payment of the retainage is contingent upon the Company fulfilling

its obligations under the contract it does not meet the criteria to be included in contracts receivable and remains in the contract’s

respective contract asset or contract liability, determined on a contract-by-contract basis.

Retainage for which the Company has an unconditional

right to payment that is only subject to the passage of time are included in contracts receivable.

Company provides an allowance for doubtful accounts, which is based upon a review of outstanding receivables, historical collection information

and existing economic conditions.

Contracts receivable is ordinarily due 30 days after the issuance of the invoice.

Accounts past due

more than 60 days are considered delinquent.

Interest continues to accrue on delinquent accounts until the account is past due more than

one year, at which time interest accrual ceases and does not resume until the account is no longer classified as delinquent, Delinquent

receivables are written off based on individual credit evaluation and specific circumstances of the customer.

Assets and Liabilities

timing of when the Company bills their customers on long-term construction contracts is generally dependent upon agreed-upon contractual

terms, which may include milestone billings based on the completion of certain phases of the work, or when services are provided.

as a result of contingencies, billings cannot occur until after the related revenue has been recognized, the result is in unbilled revenue,

which is included in contract assets.

Additionally, the Company may receive advances or deposits from customers before revenue is recognized,

resulting in deferred revenue, which is included in contract liabilities.

for which the Company has an unconditional right to payment that is only subject to the passage of time are classified as contracts receivable.

Retainage subject to conditions other than the passage of time do not meet the definition of a receivable and are therefore included

in contract assets and contract liabilities, as determined on a contract-by-contract basis.

assets represent revenues recognized in excess of amounts paid or payable (contract receivables) to the Company on uncompleted contracts.

Contract liabilities represent the Company’s obligation to perform on uncompleted contracts with customers for which the Company

has received payment or for which contract receivables are outstanding.

OF CONTRACT ASSETS AND LIABILITIES

recognized in excess of amounts paid or payable (contract receivables) to the Company on uncompleted contracts (contract asset),

excluding retainage

included in contract assets due to being conditional on something other than solely passage of time

contract assets

received or receivable (contract receivables) in excess of revenue recognized on uncompleted contracts (contract liability), excluding

$ ( 672,699 )

included in contract liabilities due to being conditional on something other than solely passage of time

contract liabilities

$ ( 671,685 )

3 – RELATED PARTY TRANSACTIONS

9 Support, LLC (“Cloud 9”) is an entity owned by

James Lowe, a director of the Company.

Cloud 9 purchases materials from the Company for use with its customers.

9 Support, LLC (“Cloud 9”) is an entity owned by James Lowe, a director of the Company.

Cloud 9 purchases materials from

the Company for use with its customers.

Total sales to Cloud 9 from the Company were $ 11,813

during the three months ended March 31, 2022, and 2021, respectively.

Outstanding receivables from Cloud 9 as of March 31, 2022

and 2021 totaled $ 5,807

during the six months ended June 30, 2022, and 2021, respectively, and $ 5,606 and $ 79,199 during the three months ended June 30,

2022 and 2021, respectively.

Outstanding receivables from Cloud 9 as of June 30, 2022 and December 31, 2021 totaled $ 4,052

and $ 6,797 ,

5 unchanged sentences

SCHEDULE OF PREPAID BALANCES

March 31, 2022

June 30, 2022

December 31, 2021

5 unchanged sentences

SCHEDULE OF COST METHOD INVESTMENTS

March 31, 2022

June 30, 2022

December 31, 2021

1 unchanged sentence

Investment in XSF

The Company has 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.

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.

October 30, 2021, the Company’s wholly owned subsidiary UGFS, LLC, a Colorado limited liability company (“UGFS”),

participated in a convertible note offering of Xtraction Services, Inc., a/k/a XS Financial Inc.

XSHLF) (“XSF”),

a specialty finance company providing CAPEX financing solutions, including equipment leasing, to Controlled Environment Agriculture (CEA)

Company has 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.

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.

October 30, 2021, the Company’s wholly-owned subsidiary UGFS, LLC, a Colorado limited liability company (“UGFS”), participated

in a convertible note offering of Xtraction Services, Inc., a/k/a XS Financial Inc.

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 ( 8.0 %)

and payment-in-kind Notes ( 1.5 %)

prior to any Nasdaq listing and 8.0 %

interest after any listing, pursuant

to the Note Purchase Agreement.

The debt matures on October

28, 2023 , with a one-year option to extend the

UGFS 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 ( 8.0 %) and payment-in-kind Notes ( 1.5 %) prior to any Nasdaq listing and 8.0 % interest

after any listing, pursuant to the Note Purchase Agreement.

The debt matures on October 28, 2023 , with a one-year option to extend the

maturity date at the option of XSF.

In addition, UGFS received 1,250,000

warrants with a CAD$ 0.45

price pursuant to the Warrant instrument.

In addition, UGFS received 1,250,000 warrants with a CAD$ 0.45 exercise price pursuant to the Warrant

No value was attributed to the warrants at the time of the investment in XFS.

6 – GOODWILL & INTANGIBLE ASSETS

Company recorded goodwill in conjunction with the initial acquisition of Impact Engineering, Inc.

(“Impact”) on March 7,

2019 and the 2WR Entities on July 30, 2021.

The goodwill balance as of March 31, 2022 and December 31, 2021 is $ 7,992,121 .

Company has recorded goodwill in conjunction with the acquisitions it has completed.

The goodwill balances as of June 30, 2022 and

December 31, 2021 were $ 10,636,284 and $ 7,992,121 ,

respectively.

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 periods ended March 31, 2022 and 2021.

The Company did not record any impairment

charges related to goodwill for the periods ended June 30, 2022 and 2021.

Assets Other Than Goodwill

assets as of March 31, 2022 and December 31, 2021

consisted of the following:

assets as of June 30, 2022 and December 31, 2021 consisted of the following:

SCHEDULE OF FINITE-LIVED INTANGIBLE ASSETS

March 31, 2022

June 30, 2022

Accumulated Amortization

13 unchanged sentences

Backlog and Other

estimated future amortization expense for intangible assets subject to amortization as of March 31, 2022, is summarized below:

estimated future amortization expense for intangible assets subject to amortization as of June 30, 2022, is summarized below:

SCHEDULE OF FUTURE AMORTIZATION EXPENSES OF INTANGIBLE ASSETS

Estimated Future

Amortization Expense

Remainder of 2022

expense for intangible assets for the three months ended March 31, 2022 and 2021 was $ 162,500

expense for intangible assets for the six months ended June 30, 2022 and 2021 was $ 468,725

respectively.

Amortization expense for intangible assets for the three months ended June 30, 2022 and 2021 was $ 306,225 and $ 411 ,

respectively.

7 – ACCRUED EXPENSES

1 unchanged sentence

SCHEDULE OF ACCRUED EXPENSES

operating expenses

wages and related expenses

sales tax payable

Accrued operating expenses

Accrued wages and related expenses

Accrued 401(k)

Accrued sales tax payable

Accrued expenses

8 – RISKS AND UNCERTAINTIES

Concentration

table below shows customers who account for 10% or more of the Company’s total revenues and 10% or more of the Company’s accounts receivable for the periods

table below shows customers who account for 10% or more of the Company’s total revenues and 10% or more of the Company’s

accounts receivable for the periods presented:

exceeding 10% of revenue:

OF CONCENTRATION OF RISK

SCHEDULES OF CONCENTRATION OF RISK

Three Months Ended

Six Months Ended

Company Customer Number

1 unchanged sentence

Company Customer Number

table below shows vendors who account for 10% or more of the Company’s total purchases and 10% or more of the Company’s accounts payable for the periods

table below shows vendors who account for 10% or more of the Company’s total purchases and 10% or more of the Company’s accounts

payable for the periods presented:

exceeding 10% of purchases:

Three Months Ended

Six Months Ended

Company Vendor Number

3 unchanged sentences

Exchange Risk

the Company’s revenues and expenses are expected to be predominantly denominated in United States dollars, the Company

may be exposed to currency exchange fluctuations.

Recent events in the global financial markets have been coupled with increased

volatility in the currency markets.

the Company’s revenues and expenses are expected to be predominantly denominated in United States dollars, the Company may be exposed

to currency exchange fluctuations.

Recent events in the global financial markets have been coupled with increased volatility in the currency

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 the Company may operate may have a material adverse effect on the Company’s

business, financial condition and operating results.

The Company may, in the future, establish a program to hedge a portion

of the Company’s foreign currency exposure with the objective of minimizing the impact of adverse foreign currency exchange

However, even if the Company develops a hedging program, there can be no assurance that it will effectively mitigate

currency risks.

dollar, the Canadian dollar, the Euro, and the currency

of other regions in which the Company may operate may have a material adverse effect on the Company’s business, financial condition

and operating results.

The Company may, in the future, establish a program to hedge a portion of the Company’s foreign currency

exposure with the objective of minimizing the impact of adverse foreign currency exchange movements.

However, even if the Company develops

a hedging program, there can be no assurance that it will effectively mitigate currency risks.

9 – STOCK-BASED COMPENSATION

compensation expense for the three months ended March 31, 2022 and 2021 was $ 882,000

and $ 290,805 ,

respectively, based on the vesting schedule of the

stock grants and options.

following schedule shows stock grant activity for the three months ended March 31, 2022.

compensation expense for the six months ended June 30, 2022, and 2021 was $ 1,764,000 and $ 590,407 , respectively, based on the vesting schedule

of the stock grants and options.

Stock-based compensation expense for the three months ended June 30, 2022 and 2021 was $ 882,000 and $ 299,602 ,

respectively, based on the vesting schedule of the stock grants and options.

No cash flow effects are anticipated for stock grants.

following schedule shows stock grant activity for the six months ended June 30, 2022.

SCHEDULE OF STOCK GRANT ACTIVITY

Grants unissued as of December 31, 2021

Grants outstanding, beginning

Grants awarded

1 unchanged sentence

Grants Vested

Grants unissued as of March 31, 2022

As of March 31, 2022, the Company has $ 2.2 million

in unrecognized share-based compensation expense related to these stock grants.

following schedule shows stock option activity for the three months ended March 31, 2022.

Grants unissued as of June 30, 2022

Grants outstanding, ending

of June 30, 2022, the Company has $ 1.8 million in unrecognized share-based compensation expense related to these stock grants.

following schedule shows stock option activity for the six months ended June 30, 2022.

SCHEDULE OF STOCK GRANT VESTING PERIODS

Average Remaining Life (Years)

Average Exercise Price

options outstanding as of December 31, 2021

options outstanding as of March 31, 2022

options exercisable as of March 31, 2022

The fair value of the options is calculated

using the Black-Scholes pricing model based on the market value of the underlying common stock at the valuation measurement date of $ 10.48 ,

the remaining contractual term of the options of 10

years, risk-free interest rate of 0.66 %

Number of Shares

Stock options outstanding as of December 31, 2021

Stock options outstanding as of June 30, 2022

Stock options exercisable as of June 30, 2022

fair value of the options is calculated using the Black-Scholes pricing model based on the market value of the underlying common stock

at the valuation measurement date of $ 10.48 , the remaining contractual term of the options of 10 years, risk-free interest rate of 0.66 %

and expected volatility of the price of the underlying common stock of 100 %.

of March 31, 2022, the Company has $ 0.7 million

in unrecognized share-based compensation

expense related to these stock options.

The aggregate intrinsic value of the options outstanding and exercisable at March 31,

2022 is $ 0 .

of June 30, 2022, the Company has $ 0.6 million in unrecognized share-based compensation expense related to these stock options.

The aggregate

intrinsic value of the options outstanding and exercisable at June 30, 2022 is $ 0 .

10 – SHAREHOLDERS’ EQUITY

May 24, 2021, 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.

On January 18, 2022, the Board of Directors authorized a $ 2.0

million increase to the stock repurchase

program, to a total of $ 7.0

On February 2, 2022, the Board

of Directors authorized an additional $ 1.5

million increase to the stock repurchase,

to a total of $ 8.5

During the three months ended

March 31, 2022, the Company repurchased 419,088

shares of common stock at an average price per

share of $ 9.02 ,

for a total price of $ 3.8

million under this program.

In total, the Company has repurchased 924,003

shares of common stock at an average of $ 9.20

for a total price of $ 8.5

million, under this program.

the three months ended March 31, 2021, the Company repurchased 350,000

shares of common stock at an average price of $ 8.50 per share, for a total price of $

May 24, 2021, 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.

On January 18, 2022, the Board of Directors authorized a $ 2.0 million increase to the stock

repurchase program, to a total of $ 7.0 million.

On February 2, 2022, the Board of Directors authorized an additional $ 1.5 million increase

to the stock repurchase, to a total of $ 8.5 million.

During the six months ended June 30, 2022, the Company repurchased 419,088 shares

of common stock at an average price per share of $ 9.02 , for a total price of $ 3.8 million under this program.

The Company did not repurchase

any shares during the three-months ended June 30, 2022.

In total, the Company has repurchased 924,003 shares of common stock at an average

of $ 9.20 per share, for a total price of $ 8.5 million, under this program.

the three and six months ended June 30, 2021, the Company repurchased 52,895 under

this program, and repurchased 350,000 shares

of common stock at an average price of $ 8.50 per

share, for a total price of $ 3.0 million

outside of the stock repurchase program.

11 – WARRANTS

following table shows warrant activity for the three months ended March 31, 2022.

following table shows warrant activity for the six months ended June 30, 2022.

SCHEDULE OF WARRANT ACTIVITY

Number of shares

Exercise Price

Warrants outstanding as of December 31, 2021

Terminated – cashless exercise

Warrants outstanding as of March 31, 2022

Warrants exercisable as of March 31, 2022

Warrants outstanding as of June 30, 2022

Warrants exercisable as of June 30, 2022

weighted-average life of the warrants is 2.3 years.

The aggregate intrinsic value of the warrants outstanding and exercisable as of March

The aggregate intrinsic value of the warrants outstanding and exercisable as of June

30, 2022 is $ 0 .

12 – INCOME TAXES

The Company has experienced losses for both book

and tax purposes since inception.

The deferred income tax benefit for the three months ended March 31, 2022 relates to the reduction

in the deferred tax liability associated with the amortization of the intangible assets from the acquisition of the 2WR Entities.

13 – SUBSEQUENT

Company has evaluated events and transaction occurring subsequent to March 31, 2022 up to the date of this filing of these condensed

consolidated financial statements.

Company has experienced losses for both book and tax purposes since inception.

The deferred income tax benefit for the three and six

month periods ended June 30, 2022 relates to the reduction in the deferred tax liability associated with the amortization of the

intangible assets from the acquisitions of the Emerald and 2WR Entities.

13 – SUBSEQUENT EVENTS

Company has evaluated events and transaction occurring subsequent to June 30, 2022 up to the date of this filing of these condensed consolidated

financial statements.

These statements contain all necessary adjustments and disclosures resulting from that evaluation.

March 13, 2022, the Company, Emerald Merger Sub, Inc.

(“Merger Sub”), Emerald Construction Management, Inc.

Christopher W.

Cullens, Charles W.

Cullens, and Green Stone Property LLC (“Green Stone” and, collectively with Christopher

Cullens and Charles W.

Cullens, the “Sellers”), and, solely in his capacity as the Seller Representative, Christopher

Cullens (the “Seller Representative”) entered into an Acquisition Agreement and Plan of Merger (the “Acquisition

Agreement”), pursuant to which Emerald merged with and into Merger Sub and the Company purchased all of Sellers’

membership interest in CTS Strategies, LLC (the “CTS Interest”).

The transactions pursuant to the Acquisition

Agreement were completed on April 29, 2022.

to the Acquisition Agreement, the initial purchase price for Emerald (the “Initial Purchase Price”) was $ 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 $ 2.5

million of cash, and the purchase price for the

CTS Interest was $ 1,000 .

The Initial Purchase Price was subject to certain adjustments, including a working capital adjustment.

At closing, the Initial

Purchase Price was 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

The Earnout Payments are payable quarterly for a two-year period and will be equal to 35% of the Quarterly Gross Profit

of Emerald (as defined in the Acquisition Agreement).

The value of the shares of Company Common Stock to be issued for

the Closing Payment Shares was determined based upon the daily volume weighted average closing price of the Company Common Stock

in the ten trading days prior the signing date of the Acquisition Agreement.

The value of the shares of Company Common Stock to be

issued for the Earnout Payments are determined based upon the daily volume weighted average closing price of the Company Common Stock

in the ten trading days prior to the end of the applicable annual quarter the Quarterly Gross Profit was calculated.

During 2021, the Company purchased lights from

one of its international vendors to fulfill an order for a major customer.

Subsequent to the sale, delivery and installation of the

lights, the customer noted the lights were not performing as the manufacturer had stipulated.

The Company performed tests of the

lights and confirmed the performance metrics did not meet the manufacturer’s specifications.

The Company worked with the

customer to determine a lighting solution of replacement lights, sourced from the vendor, that would meet their needs.

has been a key customer to the Company and the Company expects to continue to do significant business with the customer in the

In order to immediately satisfy the customer in this matter, during the third quarter of 2022, the Company agreed to supply

the replacement lighting solution to the customer at the Company’s expense while the Company continues to work with the vendor to resolve the original defective lighting issue.

The cost of the replacement lighting solution is

expected to be $ 3.2

The Company is still evaluating

the net amount of the expense it expects to record in the third quarter related to this transaction.

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-Q

Item 1. Financial Statements