What changed in this filing

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Item 3. Legal Proceedings

2023-03-30 compared with 2022-03-29 · 40 added, 18 removed, 2 unchanged (97% of the section changed)

LEGAL PROCEEDINGS

time to time, we become involved in or are threatened with legal disputes.

While most of these disputes are not likely

to have a material effect on our business, financial condition, or operations, the following matters are deemed by the Company

to be material either due to the costs of litigation or the potential negative impacts to the Company should these matters not be resolved

in our favor:

Crest Ventures, LLC – We have been sued in a putative breach of contract

case in the District Court for Arapahoe County, Colorado.

The allegations in the action are based on a claim that Crest Ventures, LLC

is entitled to commission compensation on the February 2021 uplisting of our common stock to the Nasdaq Capital Market.

We believe we

have substantial defenses to the claim asserted in this lawsuit and intend to vigorously defend this action.

Sunflower Bank – We have filed a lawsuit against Sunflower Bank related

to fraudulent wire transfers of approximately $5,100,000 that were made from our accounts at Sunflower Bank in October 2021.

date of this Report, $875,950 of these funds have been returned to us.

We are suing Sunflower Bank for the remaining $4,224,050 as we

believe that Sunflower Bank failed to follow industry standard procedures designed to prevent such a theft and is therefore liable for

the unrecovered balance.

We expect Sunflower Bank, Sunflower Bank’s insurers, and/or our insurer to reimburse us for the remaining

From time to time, we become involved in or are threatened with legal disputes.

While most of these disputes are not likely to have a material effect on our business, financial condition, or operations, the following matters are deemed by the Company to be material either due to the costs of litigation or the potential negative impacts to the Company should these matters not be resolved in our favor:

• Great Green Theory – On June 10, 2022, Emerald filed a lien and brought a suit in the Superior Court of Berkshire, Massachusetts to foreclose on the lien against Great Green Theory Land, LLC and Great Green Theory Cultivation, LLC who are the owners of the land and a construction project in Lee, Massachusetts.

Emerald is claiming breach of contract and quantum merit against Great Green Theory for failure to pay approximately $1.3 million in payment applications, of which approximately half of that amount is due and owed to subcontractors on the project.

Great Green Theory has filed counterclaims against Emerald claiming liquidated damages of approximately $1.0 million for alleged unjustifiable delays on the project and alleging construction defects in the project.

Two subcontractors on the project have brought suit against Emerald for non-payment to them of which Emerald has not received payment from Great Green Theory.

◦ Accounts receivable and accounts payable related to Great Green Theory – The selling Emerald shareholders have agreed to indemnify and defend the Company for any litigation or judgement stemming from this lawsuit.

The Company has recorded $1.3 million as a receivable and $0.4 million as a payable to sub-contractors on the opening balance sheet as of the date of the acquisition.

◦ Legal Costs to collect Great Green Theory accounts receivable – The Company has agreed to split the legal costs of this claim until the funds are recovered or until the claim of liquidated damages is relieved.

Total estimated legal costs associated with this claim are approximately $0.3 million.

The Company recorded 50% of this amount as a liability on the opening balance sheet as of the date of the acquisition.

• Pullar – urban-gro’s former Chief Financial Officer, George Pullar, filed a suit in the District Court of Boulder County, Colorado against urban-gro and Bradley Nattrass, in his capacity as urban-gro’s CEO, claiming breach of fiduciary duty.

The claims stem from a settlement agreement with Mr.

Pullar and allegations that Mr.

Nattrass and urban-gro failed to share enough non-public material information about urban-gro’s plans for fundraising that would have impacted Mr.

Pullar’s decision to enter into the settlement agreement.

urban-gro’s director and officer liability insurance carrier has indicated coverage is available to Mr.

Nattrass for this suit.

We believe we have substantial defenses to the claim asserted in this lawsuit and intend to vigorously defend this action.

• Crest Ventures, LLC – urban-gro was sued on July 29, 2021, by Crest Ventures, LLC in a breach of contract case in the District Court for Arapahoe County, Colorado.

The allegations in the action are based on a claim that Crest Ventures, LLC is entitled to commission compensation on the February 2021 uplisting of our common stock to the Nasdaq Capital Market.

urban-gro joined as a third-party defendant, Andrew Telsey, for breach of fiduciary duty and fraud.

urban-gro also counter-claimed Crest Ventures, LLC for fraud and declaratory judgment.

Telsey was urban-gro's counsel at the

time and he claims he was also a member of Crest Ventures.

urban-gro entered into a finder's fee agreement with Crest Ventures for a potential M&A transaction.

Crest Ventures and Mr.

Telsey claim the finder's fee agreement also applies to the uplisting onto the Nasdaq.

urban-gro denies these claims, believes Crest Ventures and Mr.

Telsey are perpetrating fraud, and Mr.

Telsey breached his fiduciary duties as legal counsel for urban-gro in the transaction.

We believe we have substantial defenses to the claim asserted in this lawsuit and intend to vigorously defend this action.

• Sunflower Bank – urban-gro filed a lawsuit on November 5, 2021, against Sunflower Bank in the District Court for Boulder County, Colorado related to fraudulent wire transfers of approximately $5.1 million that were made from our accounts at Sunflower Bank in October 2021.

During 2022, $1.7 million of these funds were returned to us and we received $0.25 million from our insurance company.

We sued Sunflower Bank for $3.4 million, exclusive of the insurance proceeds, under a theory of breach of contract, negligence, and breach of UCC standards, as we believed that Sunflower Bank failed to follow industry standard procedures designed to prevent such a theft and was therefore liable for the unrecovered balance.

Sunflower Bank filed counterclaims against us for breach of contract and negligence.

urban-gro entered into a settlement agreement with Sunflower bank and received $2.4 million in settlement proceeds on March 27, 2023.

The case was dismissed with prejudice on March 29, 2023.

There can be no assurance that future developments related to pending claims filed in the future, whether as a result of adverse outcomes or as a result of significant defense costs, will not have a material effect on urban-gro's financial condition, results of operations or cash flows.

MINE SAFETY DISCLOSURES

Not applicable.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 3. Legal Proceedings