What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2024-03-28 compared with 2023-03-30 · 157 added, 217 removed, 759 unchanged (33% of the section changed)

47 unchanged sentences

and urban-gro Architect Holdings, LLC.

3.1 Certificate of Incorporation of urban-gro, Inc.

(incorporated by reference to Exhibit 3.3 to Form 8-K filed October 30, 2020).

3.2 Certificate of Amendment to Certificate of Incorporation of urban-gro, Inc.

(incorporated by reference to Exhibit 3.1 to Form 8-K filed January 5, 2021).

3.3 Bylaws of urban-gro, Inc.

(incorporated by reference to Exhibit 3.4 to Form 8-K filed October 30, 2020).

3.4 Amendment No.

3 unchanged sentences

10.1 Employment Agreement by and between urban-gro, Inc.

and J ason T.

Archer, dated January 12, 2023.

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) .

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).

Exhibit Description

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).

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 S ubsidiaries of the Registrant.

10.2 Form of Secured Promissory Note (incorporated by reference to Exhibit 10.2 to Form 8-K filed on December 18, 2023).

10.3 Form of Security Agreement (incorporated by reference to Exhibit 10.3 to Form 8-K filed on December 18, 2023).

10.4 Form of Continuing Guaranty (incorporated by reference to Exhibit 10.4 to Form 8-K filed on December 18, 2023).

21.1 Subsidiaries of the Registrant.

23.1 Consent of BF Borgers CPA PC.

3 unchanged sentences

32.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Exhibit Description

97.1 urban-gro, Inc.

Clawback Policy

101.INS Inline XBRL Instance Document.

5 unchanged sentences

104 Cover Page Interactive Data File (embedded within the Inline XBRL document).

_____________________

* Denotes a management contract or compensatory plan or arrangement.

23 unchanged sentences

Report of Independent Registered Accounting Firm (PCAOB ID NO:

C onsolidated Balance Sheets as of December 31, 202 2 and 202 1

Consolidated Statements of Operations and C omprehensive Loss for the Years ended December 31, 202 2 and 202 1

Consolidated Balance Sheets as of December 31, 202 3 and 202 2

Consolidated Statements of Operations and Comprehensive Loss for the Years ended December 31, 202 3 and 202 2

Consolidated Statement of Changes in Shareholders’ Equity for the Years ended December 31, 202 3 and 202 2

Consolidated Statements of Cash Flows for the Y ears ended December 31, 202 2 and 202 1

Consolidated Statements of Cash Flows for the Years ended December 31, 202 3 and 202 2

Notes to the Consolidated Financial Statements

31 unchanged sentences

Contract receivables 10,071,951 3,004,282

Inventories 320,372 514,756

Prepaid expenses and other current assets 2,775,682 4,164,960

11 unchanged sentences

Accounts payable $ 25,411,243 $ 9,960,364

Accrued expenses 3,196,961 3,878,278

Contract liabilities 8,063,325 1,294,452

Accrued expenses 4,071,231 3,196,961

Customer deposits 603,046 2,571,161

Contingent consideration 49,830 2,799,287

Promissory note 3,832,682 —

Notes payable 3,204,840 3,832,682

Operating lease liabilities 707,141 600,816

4 unchanged sentences

Total non-current liabilities 2,197,781 3,078,065

Total liabilities 44,308,437 27,333,788

Commitments and contingencies (note 11)

2 unchanged sentences

3,000,000 shares authorized;

0 shares issued and outstanding

0 shares issued and outstanding as of December 31, 2023, and 10,000,000 shares authorized;

0 shares issued and outstanding as of December 31, 2022

Common stock, $ 0.001 par value;

30,000,000 shares authorized;

12,220,593 issued and 10,770,760 outstanding as of December 31, 2022, and 11,588,110 shares issued and 10,733,195 outstanding as of December 31, 2021

13,522,669 issued and 12,072,836 outstanding as of December 31, 2023, and 100,000,000 shares authorized;

12,220,593 shares issued and 10,770,760 outstanding as of December 31, 2022

13,523 12,221

31 unchanged sentences

Interest expense ( 271,686 ) ( 54,579 )

Interest expense – beneficial conversion of notes payable — ( 636,075 )

Interest income 173,895 329,012

Loss on extinguishment of debt — ( 790,723 )

Contingent consideration ( 160,232 ) ( 436,905 )

Impairment loss ( 2,660,933 ) —

PPP loan forgiveness — 1,032,316

Write-down of investment ( 258,492 ) ( 2,660,933 )

Loss on settlement ( 1,500,000 ) —

Other income (expense) ( 202,973 ) ( 139,611 )

8 unchanged sentences

urban-gro, Inc.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Common Stock Additional

4 unchanged sentences

Stock-based compensation — — 2,571,785 — — 2,571,785

Beneficial conversion feature — — 636,075 — — 636,075

Conversion of bridge financing 254,425 254 1,907,971 — — 1,908,225

Common stock repurchased — — — — ( 4,362,052 ) ( 4,362,052 )

Stock issuance related to offering 6,210,000 6,210 57,345,005 — — 57,351,215

Stock issuance related to acquisition 555,390 555 3,603,258 — — 3,603,813

5 unchanged sentences

Stock-based compensation 2,199,046 — 2,199,046

Common stock repurchased — — — — ( 4,362,052 ) ( 4,362,052 )

Stock issuance related to acquisition 555,390 555 3,603,258 — — 3,603,813

Stock issued in conversion of warrants 34,863 35 ( 35 ) — — —

Stock issued for contingent consideration 897,581 897 1,819,960 — — 1,820,857

Stock grant program vesting 404,495 405 ( 405 ) — — —

Stock options exercised 4,555 5 28,792 — — 28,797

Net loss — — — ( 18,681,061 ) — ( 18,681,061 )

9 unchanged sentences

Deferred income tax benefit ( 215,864 ) ( 322,092 )

Loss on extinguishment of debt — 790,723

Stock-based compensation expense 2,199,046 2,571,785

Interest expense – beneficial conversion of notes payable — 636,075

Impairment loss 2,660,933 —

Impairment of investment 258,492 2,660,933

Change in fair value of contingent consideration 160,232 436,905

PPP loan forgiveness — ( 1,032,316 )

Other, net 735,760 54,858

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

Accounts receivable ( 2,517,745 ) ( 10,547,883 )

Inventories 190,219 45,479

Prepayments and other assets 8,207,488 ( 8,063,663 )

Accounts payable and accrued expenses 1,087,807 6,472,004

Accounts receivable and contract receivables ( 19,245,685 ) ( 2,517,745 )

Prepaid expenses and other assets and property and equipment 2,161,898 8,397,707

Accounts payable, contract liabilities, and accrued expenses 23,374,027 1,087,807

Change in contingent consideration from indemnification ( 917,699 ) —

Operating lease liability ( 690,404 ) ( 413,770 )

2 unchanged sentences

Cash flows from investing activities:

Purchases of investments — ( 2,500,000 )

Sale of investments 2,326,472 –

Purchases of property and equipment ( 615,170 ) ( 580,347 )

Acquisitions, net of cash acquired ( 3,871,452 ) ( 5,544,846 )

Net cash used in investing activities ( 4,451,799 ) ( 8,337,274 )

Business combinations, net of cash acquired — ( 3,871,452 )

Net cash provided by (used in) investing activities 1,711,302 ( 4,451,799 )

Cash flows from financing activities:

1 unchanged sentence

Repurchase of common stock — ( 4,362,052 )

Additions to notes payable 3,018,400 —

Repayment of finance lease ROU liability ( 176,572 ) ( 146,000 )

Payments to settle contingent consideration ( 479,362 ) ( 1,040,386 )

Repayment of debt — ( 5,755,845 )

Net cash provided by (used in) financing activities ( 5,519,642 ) 44,308,103

Repayments of notes payable ( 3,776,561 ) –

Net cash used in financing activities ( 1,414,095 ) ( 5,519,642 )

Net change in cash ( 10,895,499 ) ( 22,584,187 )

29 unchanged sentences

The purchase price of $ 6.1 million, after working capital adjustments, was comprised of (i) $ 1.2 million in cash, (ii) a $ 3.8 million Seller's promissory note, and (iii) $ 1.1 million of the Company's common stock.

The Seller's promissory note is to be paid out over four quarters beginning in January 2023.

The Seller's promissory note was initially to be paid out over four quarters beginning in January 2023.

In the third quarter of 2023, a portion of that quarter’s note payment was extended to the first quarter of 2024.

The Seller’s promissory note balances as of December 31, 2023, and December 31, 2022, were $ 575,240 and $ 3,832,682 , respectively.

The purchase price excludes up to $ 1.1 million of contingent consideration earnout that may become payable to the sellers dependent on the continued employment of the DVO Shareholders.

The contingent consideration earnout is payable in cash or shares of the Company's common stock at the discretion of the Company.

The contingent consideration earnout is payable, at the Company’s discretion, in cash or shares of the Company’s common stock with the value of such shares being determined based upon the volume-weighted average price ("VWAP") of the Company’s common stock in the ten trading days prior to the end of the applicable quarter for which the quarterly gross profit is calculated.

The Company accounted for the acquisition as follows:

10 unchanged sentences

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

Emerald/UG Construction, Inc.

Effective April 29, 2022, the Company acquired all of the issued and outstanding capital stock of Emerald Construction Management, Inc.

1 unchanged sentence

The purchase price of $ 7.7 million, after working capital adjustments, was comprised of (i) $ 3.4 million in cash, (ii) $ 2.5 million of the Company’s common stock, and (iii) $ 1.8 million of estimated contingent consideration earnout payable to the Emerald Sellers over the term of the earnout.

The Emerald Sellers may earn up to $ 2.0 million of total contingent consideration earnout based on the performance of Emerald during the two year period following the closing of the Emerald acquisition.

The contingent consideration earnout is equal to 35 % of Emerald's quarterly gross profit and is payable quarterly in shares of the Company’s common stock with the value of such shares being determined based upon the volume-weighted average price ("VWAP") of the Company’s common stock in the ten trading days prior to the end of the applicable quarter for which the quarterly gross profit is calculated.

The total contingent earnout payable to the Emerald Sellers is $ 2.0 million.

Effective January 1, 2023, the terms of the contingent consideration earnout provisions were amended providing for the entire contingent consideration of up to $ 2.0 million to be earned based solely on the continued employment of the Emerald Sellers for a two year period following the closing of the Emerald acquisition.

This resulted in the Company recording additional contingent consideration expense of $ 160,232 in the first quarter of 2023.

Per the amendment, the remaining contingent consideration earnout is payable quarterly, at the Company’s discretion, in cash or in shares of the Company’s common stock with the value of such shares being determined based upon the VWAP of the Company’s common stock in the ten trading days prior to the end of the applicable quarter.Effective November 21, 2023, Emerald changed its name to UG Construction, Inc.

The Company accounted for the acquisition as follows:

16 unchanged sentences

For the Years Ended

Revenue $ 78,711,382 $ 88,251,443

Equipment systems 12,675,645 33,333,574

Services 11,923,920 12,862,308

Construction design-build 46,254,967 31,504,349

Other 688,241 1,011,151

Total revenues and other income 71,542,773 78,711,382

Net loss $ ( 18,681,061 ) $ ( 13,268,226 )

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.

Effective July 30, 2021, the Company acquired three affiliated architecture design companies (the "2WR Entities") from their selling shareholders (the "2WR Sellers").

In connection with the acquisition of the 2WR Entities, the Company entered into an affiliate relationship with a fourth architecture design company owned by one of the 2WR Sellers.

The purchase price of $ 10.1 million, after working capital adjustments, was comprised of the following:

(i) $ 6.5 million in cash, (ii) $ 2.0 million of the Company's common stock, and (iii) $ 1.6 million of estimated contingent earnout payable to the 2WR Sellers over the term of the earnout.

The agreement included up to $ 2.0 million of total contingent consideration earnout based on the performance of the 2WR Entities payable to the 2WR Sellers.

Based on the performance of the 2WR Entities since the time of the acquisition, in the fourth quarter of 2022, the Company agreed to pay the remaining $ 0.4 million contingent consideration earnout.

This resulted in the Company recording additional contingent consideration expense of $ 0.4 million related to the acquisition in the fourth quarter of 2022.

The Company accounted for the acquisition as follows:

Purchase price $ 10,058,536

Allocation of purchase price:

Cash $ 950,690

Accounts receivable, net $ 1,676,208

Prepayments and other assets $ 42,752

Property and equipment $ 9,351

Goodwill $ 7,090,054

Intangible assets $ 1,762,500

Accrued expenses $ ( 1,032,394 )

Deferred tax liability $ ( 440,625 )

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.

For the Years Ended

Revenue 67,029,934 66,802,623

Net income (loss) ( 14,327,334 ) 196,595

Acquired 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.

Per the Emerald Acquisition Agreement and Plan of Merger (the “Emerald Acquisition Agreement”), when the Company acquired all of the issued and outstanding capital stock of Emerald, the Emerald Sellers indemnified the Company for any material liabilities, losses, and actions or inaction which took place prior to the acquisition and that were not disclosed as part of the transaction.

To that end, a pre-acquisition Emerald project incurred a substantial loss that was not disclosed in the Emerald Acquisition Agreement.

The majority shareholder of Emerald has agreed to indemnify the Company for the loss, which is currently estimated to be $ 2.4 million (the “Indemnified Loss”).

In the second quarter of 2023, the Company offset $ 1.0 million of the Indemnified Loss against the total remaining contingent consideration and certain other liabilities owed to the majority shareholder of Emerald thereby resulting in a net amount due from the majority shareholder of Emerald to $ 1.4 million.

Further, the Company has agreed to satisfy up to $ 1.2 million of the Indemnified Loss in the event a certain Emerald project is above a 7 % profit margin, on a dollar for dollar basis.

Liquidity and Going Concern

5 unchanged sentences

They are presented in United States dollars and have been prepared in accordance with U.S.

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 give effect to this reverse stock split.

GAAP and pursuant to the rules and regulations of the SEC for condensed financial reporting.The condensed consolidated financial statements are audited and, in the Company’s opinion, include all adjustments, consisting of normal recurring adjustments and accruals necessary for a fair presentation of the Company’s condensed consolidated balance sheets, condensed consolidated statements of operations and comprehensive loss, condensed consolidated statements of stockholders’ equity and condensed consolidated statements of cash flows for the periods presented.

Acquisitions of businesses are accounted for using the acquisition method of accounting (Accounting Standards Codification 805-10-225).

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.

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.

35 unchanged sentences

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.

The Company has Insured Cash Sweep programs in place with its financial institutions to ensure that these excess funds are also federally-insured.

There are no restricted or compensating cash balances as of December 31, 2023.

12 unchanged sentences

As of December 31, 2023 and 2022, the Company had a total of $ 3,134,452 and $ 2,914,112 of non-trade accounts receivable, respectively.

Non trade accounts receivable as of December 31, 2023 were comprised of the remaining Indemnified Loss receivable from the majority shareholder of Emerald further detailed in Note 1 – Organization, Acquisitions, and Liquidity and miscellaneous non-trade accounts receivable of $ 498,043 .

As of December 31, 2022, non-trade accounts receivables was comprised of miscellaneous non-trade accounts receivables totaling $ 514,112 , and non-trade accounts receivable related to litigation involving fraudulent wire transactions of $ 2,400,000 .

As of December 31, 2021, non-trade accounts receivable was comprised of amounts related to litigation involving fraudulent wire transactions of $ 5,103,132 .

On March 27, 2023, the Company entered into an agreement to settle this litigation and received a cash payment of $ 2,400,000 on March 27, 2023.

In connection with this settlement, the Company recorded an impairment in the fourth quarter of 2022 of $ 950,576 .

The following table summarizes the changes in non-trade accounts receivable related to the fraudulent wire transactions for the years ended December 31, 2022 and 2021:

For the Years Ended

Beginning fraudulent wire receivable $ 5,103,132 $ —

Additions — 5,103,132

Payments received ( 1,752,556 ) —

Impairment recorded upon settlement ( 950,576 ) —

Ending fraudulent wire receivable $ 2,400,000 $ 5,103,132

In connection with the settlement the Company recorded an impairment in the fourth quarter of 2022 of $ 950,576 .

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.

60 unchanged sentences

The Company accounts for stock issued to consultants with the value of the stock compensation based upon the measurement date as determined at the grant date of the award.

Beneficial Conversion Feature of Convertible Notes

The Company accounted 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.

The Company estimates the fair value of warrants at the respective balance sheet dates using the Black-Scholes option-pricing model 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.

19 unchanged sentences

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 adoption of this update had no impact to the Company's 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 historical U.S.

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 adoption of this update had no impact to the Company's consolidated financial statements.

In November 2023, the FASB issued Accounting Standards Update (“ASU”) No.

2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures (ASU 2023-07), which requires an enhanced disclosure of significant segment expenses on an annual and interim basis.

This ASU will be effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.

The Company does not expect this ASU to have an impact on its consolidated financial statements.

In December 2023, the FASB issued ASU No.

2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures (ASU 2023-09), which requires greater disaggregation of information in the effective tax rate reconciliation, income taxes paid disaggregated by jurisdiction, and certain other amendments related to income tax disclosures.

This guidance will be effective for fiscal years beginning after December 15, 2024.

The Company will be evaluating the impact of this ASU on its consolidated financial statements.

There are other various updates recently issued by the FASB, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

21 unchanged sentences

Percentages may not calculate due to rounding.

Under ASC 606, a performance obligation is a promise in a contract with a customer, to transfer a distinct good or service to the customer.

Under Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers , a performance obligation is a promise in a contract with a customer, to transfer a distinct good or service to the customer.

Equipment systems contracts are lump sum contracts, which require the performance of some, or all, of the obligations under the contract for a specified amount.

42 unchanged sentences

Total contract liabilities $ 8,063,325 $ 1,294,452

Accounts receivable, net of allowance for doubtful accounts, balances from contracts with customers within the accompanying balance sheets as of December 31, 2022, and 2021, were $ 12,466,180 and $ 8,022,553 , respectively.

Trade accounts receivable, net of allowance for doubtful accounts, balances from contracts with customers within the accompanying balance sheets as of December 31, 2023, and 2022, were $ 23,857,287 and $ 12,466,180 , respectively.

For equipment systems contracts, the Company’s predominant policy is to collect deposits from customers at the beginning of the contract and the balance of the contract payment prior to shipping.

5 unchanged sentences

Of the outstanding customer deposit balance of $ 2,571,161 at December 31, 2022, $ 2,569,321 was recognized as revenue in the year ended December 31, 2023.

The entire customer deposit balance of $ 4,878,863 at December 31, 2020 was recognized as revenue in the year ended December 31, 2021.

Of the customer deposit balance of $ 13,345,451 at December 31, 2021, $ 13,186,579 was recognized as revenue in the year ended December 31, 2022.

NOTE 4 – RELATED PARTY TRANSACTIONS

On December 15, 2020, James Lowe, a director of the Company, agreed to convert a $ 1,000,000 note plus $ 4,500 of accrued interest into a convertible note bridge financing (see "Bridge Financing" in Note 10 – Notes Payable).

The note carried interest at a rate of 12 % and matured on December 31, 2021.

The note was converted into shares of the Company's common stock in connection with the Company's uplisting to Nasdaq in February 2021.

Cloud9 Support, an entity owned by James Lowe, purchases materials from the Company for use with their customers.

Total sales to Cloud9 Support were $ 27 and $ 106,310 during the years ended 2022 and 2021, respectively.

Outstanding receivables from Cloud9 Support as of December 31, 2022 and 2021 totaled $ 3,920 and $ 6,797 , respectively.

There was no outstanding payables for purchases of inventory or other services to Cloud9 Support as of December 31, 2022 and 2021.

A director of the Company is an owner of Cloud 9 Support, LLC (“Cloud 9”) and Potco LLC (“Potco”).

Cloud 9 purchases materials from the Company for use with its customers and Potco purchases equipment from the Company for use in its cultivation facility.

Another director of the Company is working on a vertical farming innovation model with a group of CEA experts (“the CEA Consortium”).

The CEA Consortium contracts services from the Company related to their business model.

The table below presents the revenues for these related party entities for the twelve months ended December 31, 2023, and 2022:

Twelve Months Ended

Revenues - Cloud 9 $ 462 $ 13,383

Revenues - Potco 987,268 12,480

Revenues - CEA Consortium

$ 245,000 $ —

Total revenues from related party transactions $ 1,232,730 $ 25,863

The table below presents the accounts receivable from these related party entities as of December 31, 2023, and December 31, 2022:

December 31, 2023 December 31, 2022

Accounts receivable - Cloud 9 $ — $ 3,920

Accounts receivable - Potco 163,088 20,174

Accounts receivable - CEA Consortium

$ 245,000 $ —

Total accounts receivable due from related party transactions $ 408,088 $ 24,094

NOTE 5 – PREPAYMENTS & OTHER ASSETS

4 unchanged sentences

Prepaid services and fees 1,379,949 1,346,430

Others 38,769 7,799

Total prepayments and other assets $ 3,844,588 $ 11,248,266

Inventories 228,858 320,372

Other assets 42,757 38,769

Total prepaid expenses and other assets $ 2,775,682 $ 4,164,960

NOTE 6 - PROPERTY PLANT & EQUIPMENT, NET

16 unchanged sentences

Paid in kind interest 25,657 – 25,657

Sale of investment ( 2,326,472 ) $ — ( 2,326,472 )

Balances, as of December 31, 2023 $ — $ — $ —

8 unchanged sentences

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

In August 2023, the Company entered into an agreement to sell back its investment to XSF for $ 2.3 million and cancel the warrants.

The Company received the $ 2.3 million in proceeds on August 30, 2023.

In connection with the agreement to sell the investment, the Company recorded an impairment loss of $ 0.3 million.

The Company has a strategic investment in Edyza, Inc.

18 unchanged sentences

Total finite-lived intangible assets:

6,758,213 ( 2,391,997 ) 4,366,216

Indefinite-lived intangible assets:

Trade names 28,291 — 28,291

Trade name 28,291 — 28,291

Total indefinite-lived intangible assets 28,291 — 28,291

7 unchanged sentences

Total finite-lived intangible assets:

( 1,335,817 )

Indefinite-lived intangible assets:

Trade names 28,291 — 28,291

Trade name 28,291 — 28,291

Total indefinite-lived intangible assets 28,291 — 28,291

13 unchanged sentences

Accrued 401(k) 66,642 262,599

Accrued interest expense 26,000 —

Accrued sales tax payable 1,716,081 1,778,890

1 unchanged sentence

Accrued sales tax payable is comprised of amounts due to various states and Canadian provinces for 2017 through 2023.

NOTE 10 – BENEFICIAL CONVERSION FEATURE

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 from James Lowe, (See Note 4 – 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 15 – 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 – PROMISSORY NOTE AND DEBT

The table below shows outstanding promissory note and debt amounts as of December 31, 2023 and 2022.

As of December 31,

Line of credit $ 2,500,000 $ —

DVO note 575,240 3,832,682

Other financing agreements 129,600 –

Total $ 3,204,840 $ 3,832,682

Less current maturities ( 3,204,840 ) ( 3,832,682 )

Long Term — –

On December 13, 2023, UG Construction, Inc.

d/b/a Emerald Construction Management, Inc.

(“UG Construction”), a wholly owned subsidiary of the Company, entered into an interest only asset based revolving Loan Agreement (the “Line of Credit”) with Gemini Finance Corp.

(“Lender”) pursuant to which Lender extended to UG Construction a secured line of credit in an amount not to exceed $ 10,000,000 , to be used to assist UG Construction and the Company with cash management.

Lender will consider requests for advances under the Line of Credit, which Lender may accept or reject in its discretion, until September 12, 2024 (the “Initial Term”), subject to an automatic extension for an additional nine-month term until May 12, 2025, provided that UG Construction is in compliance with all the terms of the applicable loan documents and Lender has not sent a written notice of non-renewal at least 60 days prior to expiration of the Initial Term.

The Line of Credit contains standard events of default and representations and warranties

by UG Construction and the Lender and the Company have entered into a Continuing Guaranty pursuant to which the Company will guarantee repayment of the loans associated with the Line of Credit (the “Guaranty Agreement”).

Loans made under the Line of Credit shall be evidenced by a Secured Promissory Note - Revolving issued by UG Construction to the Lender (the “Promissory Note”), and each draw on the Promissory Note shall be due and payable on or before 180 days after such draw is funded to UG Construction;

provided that, such draw is also subject to a mandatory pre-payment upon UG Construction’s receipt of payment for any invoice previously submitted and approved for financing by Lender.

Lender will receive a security interest in UG Construction’s Collateral (as defined in the “Security Agreement” entered into as part of the Line of Credit).

The Promissory Note earns interest at a monthly rate of one and seventy-five hundredths percent ( 1.75 %).

In connection with entering in the Line of Credit, the Company has agreed to issue to Bancroft Capital, LLC (the “Placement Agent”) cash and warrant compensation in two separate tranches, the first being earned upon closing of the Line of Credit and the remainder of which will be due if and when UG Construction draws more than $ 4,500,000 from the Line of Credit.

Both instances are detailed as follows:

At closing of the Line of Credit, the Placement Agent earned a cash fee of $ 200,000 .

In addition to the cash fee, the Company will issue to the Placement Agent or its designees, $ 200,000 worth of warrants (the “Placement Agent’s Warrants”) to purchase the Company’s common stock at a price per share equal to 110 % of the daily volume weighted average closing price of the Company’s common stock on the Nasdaq exchange for a period consisting of ten ( 10 ) consecutive trading days ending on and inclusive of the trading day of the Closing.

The Placement Agent’s Warrants will be exercisable at any time and from time to time, in whole or in part, during the four and a half-year period commencing six ( 6 ) months from the date of issuance.

The Placement Agent’s Warrants will provide for registration rights (including a one-time demand registration right and unlimited piggyback rights), cashless exercise and customary anti-dilution provisions (for stock dividends and splits) and anti-dilution protection (adjustment in the number and price of such warrants and the shares underlying such warrants) resulting from corporate events (which would include dividends, reorganizations, mergers, etc.).

If and when Emerald draws more than $ 4,500,000 from the Line of Credit, the Placement Agent will earn an additional cash fee of $ 200,000 , and an additional $ 200,000 worth of Placement Agent’s Warrants to purchase the Company’s common stock at a price per share equal to 110 % of the daily volume weighted average closing price of the Company’s common stock on the Nasdaq exchange for a period consisting of ten ( 10 ) consecutive trading days ending on and inclusive of the trading day of the date that the draws exceeding $ 4,500,000 were to take place.

As part of the Asset Purchase Agreement of DVO, a non-negotiable promissory note in the aggregate principal amount of $ 3,806,250 , payable to DVO was issued effective November 1, 2022 (the "DVO Promissory Note").

The principal amount, together with the simple interest accrued on the unpaid principal amount outstanding will be paid by the Company on a quarterly basis for the first four consecutive quarters, with the first payment paid in January 2023, and the remaining three payments due ten days following the end of each subsequent fiscal quarter thereafter until the earlier of the end of the fourth full fiscal quarter following the closing date December 31, 2023 or the payment in full of all amounts due.

The principal amount, together with the simple interest accrued on the unpaid principal amount outstanding was to be paid by the Company on a quarterly basis for the first four consecutive quarters, with the first payment paid in January 2023, and the remaining three payments due ten days following the end of each subsequent fiscal quarter thereafter until the earlier of the end of the fourth full fiscal quarter following the closing date December 31, 2023 or the payment in full of all amounts due.

In the third quarter of 2023, a portion of that quarter’s note payment was extended to the first quarter of 2024.

The DVO Promissory Note may be prepaid in whole or in part at any time without premium or penalty;

4 unchanged sentences

The interest rate will be adjusted on a quarterly basis as of the first day of each full fiscal quarter following the first full fiscal quarter after the closing date to the then current Prime Rate.

Interest amounts accruing on the outstanding principal balance of the DVO Promissory Note will be non-compounding and will be calculated on a quarterly basis.

On February 21, 2020, the Company 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, was comprised of (i) a 12-month senior secured demand term loan facility in the amount of C$ 2.7 million (USD$ 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 (USD$ 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, Bradley 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.

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 (USD$ 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") to extend the maturity date of the Facilities to 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, 2022 and December 31, 2021, there was no unamortized debt issuance costs remaining related to the Revolving Facility and Term Loan, respectively.

In connection with the extension of the DVO Promissory Note payment to the first quarter of 2024, the interest rate was revised to a fixed rate of 10 %, with principal and interest to be paid on a weekly basis.

The other financing agreements relate to short-term financing of the Company's insurance policies and are at an average interest rate of 13.6 %.

NOTE 11 – OPERATING LEASE LIABILITIES AND COMMITMENTS AND CONTINGENCIES

17 unchanged sentences

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.

On August 11, 2023, the Company entered into a settlement agreement (the “Settlement Agreement”) with Crest Ventures, LLC (“Crest”) and Andrew Telsey to settle all claims in the litigation filed in the District Court for Arapahoe County, Colorado, Case No.

Pursuant to the Settlement Agreement, the Company paid $ 1,500,000 to Crest on September 7, 2023.

In connection with this settlement, the Company recorded a loss in the second quarter of 2023 of $ 1,500,000 in accordance with GAAP related to loss contingencies.

NOTE 12 – RISKS AND UNCERTAINTIES

7 unchanged sentences

C000002463 15 % *

C000002187 28 % 17 %

*Amounts less than 10%

4 unchanged sentences

C000002187 57 % 24 %

C000002151 10 % *

C000002187 24 % *

*Amounts less than 10%

5 unchanged sentences

V000002275 11 % *

V000001326 * 11 %

V000001372 * 15 %

*Amounts less than 10%

4 unchanged sentences

V000001910 * 11 %

V000001326 * 12 %

V000001910 11 % *

*Amounts less than 10%

11 unchanged sentences

No cash flow effects are anticipated for stock grants.

The Company has adopted equity incentive plans ("Incentive Plans") which provide for the issuance of incentive stock options, stock grants and stock-based awards to employees, directors, and consultants of the Company to reward and attract employees and compensate the Board and vendors when applicable.

The Incentive Plans are administered by the Company's Board.

Stock grants under the Incentive Plans 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,

the remaining contractual term of the options, risk-free interest rate and expected volatility of the price of the underlying common stock of 100 %.

The Company has adopted the 2021 Omnibus Stock Incentive Plan, as amended (the “Omnibus Incentive Plan”), which provides for the issuance of incentive stock options, stock grants and stock-based awards to employees, directors, and consultants of the Company to reward and attract employees and compensate the Company’s Board of Directors (the “Board”) and vendors when applicable.

The Omnibus Incentive Plan is administered by the Company's Board.

Grants of RSUs under the Omnibus Incentive Plan are valued at no less than the market 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, the remaining contractual term of the options, risk-free interest rate 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.

The following schedule shows stock grant activity for the years ended December 31, 2022 and 2021:

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 of RSUs or stock option vests.

The following schedule shows grants of RSU activity for the years ended December 31, 2023 and 2022:

Grants unissued as of December 31, 2021 153,673

7 unchanged sentences

Grants unissued as of December 31, 2023 594,269

The following table summarizes stock grant vesting periods:

The following table summarizes grants of RSU vesting periods:

Shares Unrecognized Stock

9 unchanged sentences

Exercised ( 4,555 ) 0.00 $ 6.00

Expired ( 68,167 ) 4.31 $ 7.89

Forfeited ( 43,640 ) 6.25 $ 6.04

Stock options outstanding at December 31, 2022 669,388 7.85 $ 6.77

5 unchanged sentences

Exercised 0 0.00 $ —

Expired ( 43,640 ) 6.25 $ 6.04

Forfeited ( 7,105 ) 0.00 $ 9.39

Stock options outstanding at December 31, 2023 662,283 7.85 $ 6.77

5 unchanged sentences

6,745 $ 29,372

50,737 $ 206,402

The aggregate intrinsic value of the stock options outstanding and exercisable at December 31, 2023 is $ 0 .

NOTE 15 – SHAREHOLDERS’ EQUITY

NOTE 14 – STOCKHOLDERS’ EQUITY

On February 17, 2021, we completed an offering of 6,210,000 shares of our common stock, inclusive of the underwriters full over allotment, at $ 10.00 per share for total gross offering proceeds of $ 62,100,000 .

4 unchanged sentences

On September 12, 2022, the Board authorized an additional $ 2 million increase to the stock repurchase, for a total of $ 10.5 million.

During the twelve months ended December 31, 2022 the Company has repurchased 594,918 shares of common stock at an average price per share of $ 7.33 , for a total price of $ 4.4 million.

During the twelve months ended December 31, 2023 the Company did no t repurchase shares of common stock.

During the twelve months ended December 31, 2022, the Company repurchased 594,918 shares of common stock at an average price per share of $ 7.33 , for a total price of $ 4.4 million.

In total, the Company has repurchased 1,099,833 shares of common stock at an average price per share of $ 8.25 for a total of $ 9.1 million, under this program.

As of December 31, 2023, we have $ 1.4 million remaining under the repurchase program.

In February 2021, the Company repurchased 350,000 shares of common stock with an average price per share of $ 8.50 , for a total of $ 3.0 million, outside of any stock repurchase or publicly announced program.

7 unchanged sentences

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.

The deferred income tax benefit for the year ended December 31, 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.

The deferred income tax benefit for the year ended December 31, 2023 relates to the reduction in the deferred tax liability associated with the amortization of the intangible assets from the acquisitions of the DVO, Emerald and 2WR Entities.

As of December 31, 2023, the Company had approximately $ 35,479,242 of operating loss carryforwards for United States tax purposes, expiring as follows:

1 unchanged sentence

• $ 33,296,888 with no expiration

As of December 31, 2022, the Company had approximately $ 19,346,059 of operating loss carryforwards for United States tax

purposes, expiring as follows:

• $ 2,182,354 expiring in 2037

• $ 17,163,705 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.

15 unchanged sentences

Exercised ( 18,196 ) $ 6.00

Issued in conjunction with equity offering 310,500 $ 12.50

Terminated – cashless exercise ( 44,393 ) $ 6.00

Expired 0 $ —

4 unchanged sentences

Exercised 0 $ —

Terminated – cashless exercise ( 44,393 ) $ 6.00

Expired — $ —

Terminated 0 $ —

Issued for line of credit 175,531 $ 1.25

Expired loan extension ( 1,000 ) $ 6.00

Warrants outstanding as of December 31, 2023 486,030 $ 8.33

Warrants exercisable as of December 31, 2023 486,030 $ 8.33

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 of $ 10.00 , the contractual term of the options is 3 years, 25 days, risk-free interest rate of 0.57 % and expected volatility of the price of the underlying common stock of 100 %.

The fair value of the warrants is calculated using the Black-Scholes pricing model based on the estimated market value of the underlying common stock at the valuation measurement date, the contractual term of the options, the risk-free interest rate at the date of grant 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.

2 unchanged sentences

NOTE 18 – SUBSEQUENT EVENTS

As more fully described in Note 2 - Summary of Significant Accounting Policies , on March 27, 2023 the Company received $ 2,400,000 to settle a litigation matter.

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 9A. Controls and Procedures