What changed in this filing

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Item 1A. Risk Factors

2024-03-28 compared with 2023-03-30 · 20 added, 47 removed, 311 unchanged (18% of the section changed)

9 unchanged sentences

We were initially organized as a limited liability company in the State of Colorado on March 20, 2014.

In March 2017, we converted into a corporation and on February 12, 2021, we completed an uplisting to the Nasdaq Stock Market under the ticker symbol UGRO.

The following is a summary of our recent historical operating performance:

In March 2017, we converted into a corporation and on February 12, 2021, we completed an uplisting to Nasdaq under the ticker symbol "UGRO." The following is a summary of our recent historical operating performance:

• During the year ended December 31, 2023, we generated revenue of $71.5 million and incurred a net loss of $18.7 million.

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Our lack of a significant history and the evolving nature of the market in which we operate make it likely that there are risks inherent to our business that are yet to be recognized by us or others, or not fully appreciated, and that could result in us suffering further losses.

As a result of the foregoing, and concerns regarding the economic impact from the coronavirus disease of 2019 ("COVID-19"), an investment in our securities necessarily involves uncertainty about the stability of our operating results, cash flows and, ultimately, our prospects generally.

As a result of the foregoing, an investment in our securities necessarily involves uncertainty about the stability of our operating results, cash flows and, ultimately, our prospects generally.

We had negative cash flow from operations for the fiscal years ended December 31, 2023 and December 31, 2022.

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Our engineering and design services are focused on facilities that grow a wide variety of crops that are subject to regulation by the United States Food and Drug Administration and other federal, state or foreign agencies.

Changes to any regulations and laws that could complicate the engineering of these CEA facilities, such as waste water treatment and electricity-related mandates, make it possible that potential related enforcement could decrease the demand for our services, and in turn negatively impact our revenues and business opportunities.

Changes to any regulations and laws

that could complicate the engineering of these CEA facilities, such as waste water treatment and electricity-related mandates, make it possible that potential related enforcement could decrease the demand for our services, and in turn negatively impact our revenues and business opportunities.

Competition in our industry is intense.

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

The COVID-19 pandemic could continue to materially adversely affect our business, financial condition, results of operations, cash flows and day-to-day operations.

The outbreak of COVID-19, a novel strain of coronavirus first identified in China, which has spread across the globe including the U.S., had an adverse impact on our operations and financial condition by causing temporary delays in our projects.

The response to coronavirus by federal, state and local governments resulted in significant market and business disruptions across many industries and affected businesses of all sizes.

This pandemic also caused significant stock market volatility and further tightened capital access for most businesses.

Given that the COVID-19 pandemic and its disruptions are of an unknown duration, they could have an adverse effect on our liquidity and profitability.

We continue to monitor the status of COVID-19.

While it seems like the negative effects of the virus have largely dissipated, if a new variant or other new development cause a substantial increase of cases, it could disrupt the businesses of our customers and suppliers, which, in turn, could negatively impact market demand, interfere with our ability to timely service the needs of our clients and prospects, cause contract cancellations, scope reductions and delays, and interfere with our ability to procure equipment and raw materials from our suppliers.

Any of these effects could thereby negatively impact our business, financial condition, results of operations or prospects.

We depend upon third-party suppliers for the equipment solutions that we sell.

We depend on outside manufacturers for the equipment solutions that we sell.

For the year ended December 31, 2022, one vendor, Fluence Bioengineering, Inc.

("Fluence"), a provider of lighting systems, was particularly important to our integrated sales solutions.

We use Fluence as one of the LED lighting systems options in our designs and then act as VAR and sell these systems to our clients as part of our overall package.

While we believe that there are sufficient sources of supply available, if the third-party suppliers, such as Fluence, were to cease production or otherwise fail to supply us with products in sufficient quantities on a timely basis and we were unable to contract on acceptable terms for these equipment type products with alternative suppliers, our ability to sell these solutions would be materially adversely affected.

While we believe that there are sufficient sources of supply available, if the third-party suppliers were to cease production or otherwise fail to supply us with products in sufficient quantities on a timely basis and we were unable to contract on acceptable terms for these equipment type products with alternative suppliers, our ability to sell these solutions would be materially adversely affected.

If a sole source supplier was to go out of business, we may be unable to find a replacement for such source in a timely manner or at all.

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If we fail to retain or expand our client relationships, or if a significant client were to terminate its relationship with us or reduce its purchases, our revenue could decline significantly.

During the year ended December 31, 2023, two clients represented 43% of total revenue.

During the year ended December 31, 2022 three clients represented 40% of total revenue.

During the year ended December 31, 2021 one client represented 46% of total revenue.

Although we have been able to successfully generate substantial sales to different clients over time, we may not be able to continue to do this in the future.

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As a result of this, our revenue could fluctuate materially and could be materially and disproportionately impacted by purchasing decisions of any client.

Clients who represented a substantial portion of our

historical revenue may decide to purchase products and services from other providers in the future, which could cause our revenue to decline materially and negatively impact our financial condition and results of operations.

Clients who represented a substantial portion of our historical revenue may decide to purchase products and services from other providers in the future, which could cause our revenue to decline materially and negatively impact our financial condition and results of operations.

If we are unable to diversify our client base, we will continue to be susceptible to risks associated with client concentration.

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Therefore, losing any clients could have a material adverse effect on our business.

While we have attempted to identify our business risks in the legal cannabis industry, investors should carefully consider that there are other risks that cannot be foreseen or are not described in this Report, which could materially and adversely affect our business and financial performance.

There is heightened scrutiny by Canadian regulatory authorities related to the cannabis industry.

Our existing operations in the United States, and any future operations or investments, may become the subject of heightened scrutiny by regulators and other authorities in Canada.

As a result, we may be subject to significant direct and indirect interaction with public officials.

This heightened scrutiny may in turn lead to the imposition of certain restrictions on our ability to operate or invest in the United States.

On February 8, 2018, following discussions with the Canadian Securities Administrators and recognized Canadian securities exchanges, the TMX Group announced the signing of the TMX Memorandum of Understanding ("MOU") with Aequitas NEO Exchange Inc., the Canadian Securities Exchange ("CSE"), the Toronto Stock Exchange, and the TSX Venture Exchange ("TSXV").

The MOU outlines the parties’ understanding of Canada’s regulatory framework applicable to the rules, procedures, and regulatory oversight of the exchanges and Canadian Depository for Securities Limited ("CDS") as it relates to issuers with cannabis-related activities in the United States.

The MOU confirms, with respect to the clearing of listed securities, that CDS relies on the exchanges to review the conduct of listed issuers.

As a result, there is no CDS ban on the clearing of securities of issuers with cannabis-related activities in the United States.

However, this approach to regulation may not continue in the future.

If such a ban were to be implemented, and our shares were listed on a Canadian exchange, it would have a material adverse effect on the ability of holders of our securities to make and settle trades.

While we have attempted to identify our business risks in the legal cannabis industry, investors should carefully consider that there are other

risks that cannot be foreseen or are not described in this Report, which could materially and adversely affect our business and financial performance.

As cannabis remains illegal under United States federal law, we may have to stop providing equipment systems and services to companies who are engaged in cannabis cultivation and other cannabis-related activities.

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The price of our common stock has been, and could continue to be, subject to wide fluctuations in response to a number of factors, including those described elsewhere in this Report and others such as:

• the effect of the COVID-19 pandemic on our business and operations;

• our ability to generate revenues sufficient to achieve profitability and positive cash flow;

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In response to any one or more of these events, the market price of shares of our common stock could decrease significantly.

In the past, securities class action litigation has often been initiated against companies following periods of volatility in their stock price.

In the past, securities class action litigation has often been initiated against companies following periods of volatility in their stock

This type of litigation could result in substantial costs and divert our management’s attention and resources and could also require us to make substantial payments to satisfy judgments or to settle litigation.

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However, for as long as we remain an "emerging growth company," we may take advantage of certain exemptions from various reporting requirements that are applicable to public companies that are not "emerging growth companies" including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.

We may take advantage of these reporting exemptions until we are no longer an "emerging growth company." We would cease to be an "emerging growth company" upon the earliest of:

(i) the last day of the fiscal year following the fifth anniversary of the first sale of our common stock under an effective Securities Act registration statement, which will occur on December 31, 2023;

(ii) the first fiscal year after our annual gross revenues are $1.07 billion or more;

(iii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt securities;

or (iv) as of the end of any fiscal year in which the market value of the common stock held by non-affiliates exceeded $700 million as of the end of the second quarter of that fiscal year.

We may take advantage of these reporting exemptions until we are no longer an "emerging growth company." December 31, 2023 was our last day as an emerging growth company, and we will no longer be eligible for these exemptions going forward.

As a result of disclosure of information in this Report and in filings required of a public company, our business and financial condition are highly visible, which may result in threatened or actual litigation, including by competitors and other third parties.

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In addition, compliance with reporting and other requirements applicable to public companies listed on Nasdaq creates additional costs for us and requires the time and attention of management.

The additional costs that we incur, the timing of such costs and the impact that management’s attention to these matters may adversely affect our business and operating results.

The additional costs that we incur,

the timing of such costs and the impact that management’s attention to these matters may adversely affect our business and operating results.

General Risk Factors

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Our reputation is a valuable component of our business.

Threats to our reputation can come from many sources, including adverse sentiment about our industry generally, unethical practices, employee misconduct, failure to deliver minimum standards of service or quality, compliance deficiencies, and questionable or fraudulent activities of our clients.

Threats to our reputation can come from many sources, including adverse sentiment about our industry generally, unethical practices, employee misconduct, failure to deliver minimum standards of

service or quality, compliance deficiencies, and questionable or fraudulent activities of our clients.

Negative publicity regarding our business, employees, or clients, with or without merit, may result in the loss of clients, investors and employees, costly litigation, a decline in revenues and increased governmental regulation.

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Policy changes and changes in federal, state and local legislation and regulations based on concerns about climate change, including regulations aimed at limiting greenhouse gas emissions and the implementation of "green" building codes, could result in increased capital expenditures on our existing properties (for example, to improve their energy efficiency) without a corresponding increase in revenue, resulting in adverse impacts to our results of operations.

In March 2022, the SEC issued proposed rules on climate change disclosure requirements that, if adopted as proposed, will require disclosure of extensive and detailed climate-related information, by all registrants, including us.

The final rules have not yet been adopted, and the ultimate scope and impact of the proposed rules on our business remain uncertain.

To the extent new rules, if finalized, impose additional reporting obligations on us, we could face increased costs.

In March 2024, the SEC issued final rules on climate change disclosure requirements that will require disclosure of climate-related information by all registrants.

To the extent new rules impose additional reporting obligations on us, we could face increased costs.

The SEC has also announced that it is scrutinizing climate-change related disclosures in public filings, increasing the potential for enforcement if the SEC were to allege that our existing climate disclosures are misleading or deficient.

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Further, the conflict has led to increases in the cost of energy and the potential for energy shortages, especially in Europe.

The European energy crisis escalated in 2022 amid the Russia and Ukraine war, fueling supply uncertainties and increasing the risk of energy shortages across Europe due to the lack of gas from Russia.

This resulted in decisive measures implemented by the European

Union to help manage security of supply and establish new sources of gas.

The European energy crisis has continued in 2023 amid the Russia and Ukraine war, fueling supply uncertainties and increasing the risk of energy shortages across Europe due to the lack of gas from Russia.

This resulted in decisive measures implemented by the European Union to help manage security of supply and establish new sources of gas.

Our customers and potential customers experienced a rapid increase in energy costs and our expectation is that the energy cost inflation will continue into 2024.

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labor shortage has and may continue to impact our ability to hire and retain qualified personnel and may impact our ability to operate our business effectively.

We may experience a labor shortage preventing us from filling targeted staffing levels.

We may experience a labor shortage preventing us from filling targeted staffing

A labor shortage may also impact our ability to attract qualified new personnel.

1 unchanged sentence

We may not be able to attract, hire or retain qualified personnel if competing companies offer a more desirable work model.

UNRESOLVED STAFF COMMENTS

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 1A. Risk Factors