Flash Sports & Media Holdings, Inc. 10-K/A

ITEM 9A. CONTROLS AND PROCEDURES DISCLOSURE CONTROLS AND PROCEDURES Our management, with the participation of our CEO and CFO, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Report. These controls are designed to ensure that information required to be disclosed in the reports we file or submit pursuant to the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management, including our CEO and CFO to allow timely decisions regarding required disclosure. Based on such evaluation, at the time our Original Form 10-K was filed on March 28, 2024, our CEO and CFO concluded that our disclosure controls and procedures were effective as of December 31, 2023, at reasonable assurance levels. Subsequent to the original evaluation, our CEO and CFO concluded our disclosure controls and procedures were not effective as of December 31, 2023 because of the material weaknesses in our internal control over financial reporting described below. Notwithstanding the ineffective disclosure controls and procedures as a result of the identified material weaknesses, our CEO and CFO have concluded that the consolidated financial statements, as restated in this Annual Report Amendment No. 2 on Form 10-K/A present fairly, in all material respects, the Company’s financial position, results of operations and cash flows in accordance with generally accepted accounting principles in the United States of America (U.S. GAAP). Our management, including our CEO and CFO, do not expect that our disclosure controls and procedures will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdown can occur because of simple error or mistake. In particular, many of our current processes rely upon manual reviews and processes to ensure that neither human error nor system weakness has resulted in erroneous reporting of financial data. Changes in Internal Control over Financial Reporting There were no changes in our internal control over financial reporting during our fiscal quarter ended December 31, 2023, which were identified in conjunction with management’s evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. MANAGEMENT REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act. Those rules define internal control over financial reporting as a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that: • Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; • Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and the receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and • Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisitions, use or disposition of the Company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. We identified deficiencies that resulted in material weaknesses in our internal control over financial reporting. The material weaknesses identified include: • Lack of sufficient technical accounting expertise within the accounting function to appropriately address complex technical accounting issues; and • Failure to maintain a sufficient complement of personnel in our accounting and reporting department to ensure adequate segregation of duties such that appropriate review and monitoring of its financial records are executed. The material weaknesses described above could result in material misstatements to financial statements or disclosures that would not be prevented or detected. This Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only management’s report in this Report. Management’s Plan to Remediate the Material Weaknesses As it relates to the material weaknesses that exist as of December 31, 2023, we are currently in the process of designing and implementing remediation plans and taking steps to address the root cause of the material weaknesses described above. Such plans include, but may not be limited to, the following: • Ensure personnel resources within the accounting function have technical accounting expertise and experience commensurate with our operations; • Engage external consultants to provide support and to assist us in our evaluation of more complex applications of GAAP where technical accounting expertise within the accounting function is considered insufficient; and • Improve control processes to ensure adequate review by individuals with sufficient technical accounting expertise to prevent disclosure and financial reporting misstatements. While we believe these efforts will improve our internal controls and address the root cause of the material weaknesses, such material weaknesses will not be remediated until our remediation plan has been fully implemented and we have concluded, through testing, that our controls are operating effectively for a sufficient period of time. PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES. (a) Exhibits The exhibit index attached hereto is incorporated herein by reference. (b) Financial Statement Schedules All schedules have been omitted as not applicable or not required under the rules of Regulation S-X. EXHIBIT INDEX Exhibit No. Exhibit Description 2.1 Acquisition Agreement and Plan of Merger (incorporated by reference to Exhibit 2.1 to Form 8-K filed March 14, 2022) 2.2 First Amendment to Acquisition Agreement and Plan of Merger (incorporated by reference to Exhibit 2.2 to Form 8-K filed May 2, 2022) 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 Amended and Restated Certificate of Incorporation of urban-gro, Inc. (incorporated by reference to Exhibit 3.1 to Form 8-K filed June 21, 2023). 3.4 Bylaws of urban-gro, Inc. (incorporated by reference to Exhibit 3.4 to Form 8-K filed October 30, 2020). 3.5 Amendment No. 1 to Bylaws of urban-gro, Inc. (incorporated by reference to Exhibit 3.1 to Form 8-K filed January 12, 2021). 3.6 Amendment No. 2 to Bylaws of urban-gro, Inc. (incorporated by reference to Exhibit 3.2 to Form 8-K filed June 21, 2023). 4.1 Description of urban-gro, Inc.’s Common Stock. 10.1# Employment Agreement by and between urban-gro, Inc. and Jason T. Archer, dated January 12, 2023. 10.2 Line of Credit Agreement, dated as of December 12, 2023, between UG Construction and Lender (incorporated by reference to Exhibit 10.1 to Form 8-K filed on December 18, 2023). 10.3 Promissory Note, dated December 12, 2023, with UG Construction as the maker and issued to Lender (incorporated by reference to Exhibit 10.2 to Form 8-K filed on December 18, 2023). 10.4 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). 10.5 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). 10.6 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). 10.7 Form of Amended and Restated Promissory Note (incorporated by reference to Exhibit 10.1 to Form 8-K filed on November 25, 2020) . 10.8 Form of Amended and Restated Promissory Note (incorporated by reference to Exhibit 10.2 to Form 8-K filed on November 25, 2020). 10.9 Form of Convertible Promissory Note (incorporated by reference to Exhibit 10.3 to Form 8-K filed on November 25, 2020). 10.10 Form of Convertible Promissory Note (incorporated by reference to Exhibit 10.1 to Form 8-K filed on December 18, 2020). 10.11 Security Agreement, dated as of December 12, 2023, between UG Construction and Lender (incorporated by reference to Exhibit 10.3 to Form 8-K filed on December 18, 2023). 10.12 Form of Continuing Guaranty (incorporated by reference to Exhibit 10.4 to Form 8-K filed on December 18, 2023). 10.13 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). 10.14 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). 10.15 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). 10.16 Business Lease between JW Properties, LLC and Registrant dated July 22, 2015 (incorporated by reference to Exhibit 10.4 to Form S-1 Registration Statement filed on May 15, 2018) . 10.17 Commercial Lease Agreement between Bravo Lighting, LLC and Registration dated September 1, 2017 (incorporated by reference to Exhibit 10.5 to Form S-1 Registration Statement filed on May 15, 2018) . 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# urban-gro, Inc. 2019 Equity Incentive Plan (incorporated by reference to Form S-8 filed on August 27, 2019) 10.21# urban-gro, Inc. 2021 Omnibus Stock Incentive Plan, as amended (incorporated by reference to Exhibit 10.1 to Form 8-K filed June 21, 2023). 10.22# Amendment No. 1 to restricted stock unit grant notice (incorporated by reference to Exhibit 10.2 to Form 10-Q filed August 14, 2023). 10.23# Amendment No. 1 to form restricted stock unit award agreement (incorporated by reference to Exhibit 10.3 to Form 10-Q filed August 14, 2023). 21.1 Subsidiaries of the Registrant (incorporated by reference to Exhibit 21.1 to the Form 10-K filed March 27, 2024). 23.1 Consent of BF Borgers CPA PC (incorporated by reference to Exhibit 23.1 to the Form 10-K filed March 27, 2024). 24.1 Power of Attorney (included on signature page to Form 10-K filed March 27, 2024)). 31.1* Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2* Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1** Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 97.1 urban-gro, Inc. Clawback Policy (incorporated by reference to Exhibit 97.1 to the Form 10-K/A filed April 25, 2024). 101.INS Inline XBRL Instance Document. 101.SCH Inline XBRL Schema Document. 101.CAL Inline XBRL Calculation Linkbase Document. 101.DEF Inline XBRL Definition Linkbase Document. 101.LAB Inline XBRL Label Linkbase Document. 101.PRE Inline XBRL Presentation Linkbase Document. 104 Cover Page Interactive Data File (embedded within the Inline XBRL document). * Submitted electronically herewith. ** This certification shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section, nor shall it be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934. # Denotes a management contract or compensatory plan or arrangement. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report to be signed on its behalf by the undersigned thereunder duly authorized. URBAN-GRO, INC. Date: February 18, 2025 By: /s/ Bradley Nattrass Bradley Nattrass Chairperson of the Board of Directors and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /s/ Bradley Nattrass Chairperson of the Board of Directors and Chief Executive Officer February 18, 2025 Bradley Nattrass (Principal Executive Officer) * Chief Financial Officer February 18, 2025 Richard A. Akright (Principal Financial Officer) (Principal Accounting Officer) * Director February 18, 2025 Lewis O. Wilks * Director February 18, 2025 David Hsu * Director February 18, 2025 Sonia Lo * Director February 18, 2025 Anita Britt * Director February 18, 2025 James Lowe * By: /s/ Bradley Nattrass Name: Bradley Nattrass Title: Attorney-in-Fact INDEX TO FINANCIAL STATEMENTS Page No. Report of Independent Registered Accounting Firm (PCAOB ID NO: 3627) Consolidated Balance Sheets as of December 31, 2023 and 2022 (as restated) Consolidated Statements of Operations and Comprehensive Loss for the Years ended December 31, 2023 and 2022 (as restated) Consolidated Statement of Changes in Shareholders’ Equity for the Years ended December 31, 2023 and 2022 (as restated) Consolidated Statements of Cash Flows for the Years ended December 31, 2023 and 2022 (as restated) Notes to the Consolidated Financial Statements (as restated) Report of Independent Registered Public Accounting Firm To the Board of Directors and Shareholders of urban-gro, Inc.: Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of urban-gro, Inc. (“the Company”) as of December 31, 2023 and 2022 (as restated), the related consolidated statements of operations and comprehensive loss, shareholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2023 (as restated), and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022 (as restated), and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2023 (as restated), in conformity with accounting principles generally accepted in the United States of America. Explanatory Paragraph Regarding Going Concern The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Restatement As discussed in Note 1a to the financial statements, the 2023 and 2022 financial statements have been restated to correct misstatements. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audits of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements, and (2) involved especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which they relate. Goodwill Impairment Critical Audit Matter Description The Company designated its annual goodwill impairment assessment date as October 1. The Company has two reporting units for impairment testing purposes, and as a result of such assessments, the Company recognized a goodwill impairment charge of approximately $5.3 million, leaving a goodwill balance of approximately $9.7 million. As described in Note 2 to the financial statements, the Company tests goodwill for impairment annually at the reporting unit level, or more frequently if events or circumstances indicate it is more likely than not that the fair value of a reporting unit is less than it’s carrying amount. The Company’s evaluation of goodwill for impairment involves the comparison of the fair value of each reporting unit to its carrying value. The Company’s estimate of fair value for each reporting unit is based on the present value of estimated future cash flows attributable to the respective reporting unit. The Company utilized a third-party valuation specialist to assist in the preparation of the impairment assessments. The determination of the fair value requires management to make significant estimates and assumptions. We identified the evaluation of the impairment analysis for goodwill as a critical audit matter because of the significant estimates and assumptions management made in determining the fair value of its reporting units. This required a high degree of auditor judgment and an increased extent of effort when performing audit procedures to evaluate the reasonableness of such estimates and assumptions. In addition, the audit effort involved the use of professionals with specialized skills and knowledge. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the following: • Testing management’s processes for estimating the fair value of its reporting units. • Obtaining the Company’s discounted cash flow models and evaluating the valuation analysis for mathematical accuracy. • Evaluating whether the valuation techniques applied were appropriate. • Evaluating the significant assumptions provided by management or developed by the third-party valuation specialist related to revenues, earnings before interest, taxes, depreciation, and amortization (“EBITDA”), income taxes, long term growth rates, and discount rates to discern whether they are reasonable considering (i) the current and past performance of the entity; (ii) the consistency with external market and industry data; and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. In addition, professionals with specialized skills and knowledge were utilized by the Firm to assist in the performance of these procedures. Long-Lived Asset Impairment Critical Audit Matter Description As described in Note 2 to the consolidated financial statements, the Company reviews its long-lived asset group, including finite-lived intangible assets, for impairment when events or changes in circumstances indicate that the carrying amount of such long-lived asset group may not be recoverable. The Company tested its long-lived asset group for impairment on October 1, 2023, which resulted in the recognition of impairment charges of approximately $0.9 million related to the Company’s intangible assets. The Company utilized a third-party valuation specialist to assist in the preparation of the impairment assessment. The determination of the fair value requires management to make significant estimates and assumptions. We identified the evaluation of the impairment analysis for long-lived assets as a critical audit matter because of the significant estimates and assumptions management used in the fair value models. Performing audit procedures to evaluate the reasonableness of these estimates and assumptions required a high degree of auditor judgment and an increased extent of effort. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the following: • Testing management’s process for developing the recoverability value and fair value estimates. • Evaluating the appropriateness of the valuation models used. • Testing the completeness and accuracy of underlying data used in the fair value estimates. • Evaluating for reasonableness the significant assumptions used by management and the valuation specialist in the recoverability test including revenues, EBITDA, and discount rates. • Evaluating the significant assumptions provided by management or developed by the third-party valuation specialist in the fair value models related to revenues, earnings before interest, taxes, depreciation, and amortization (“EBITDA”), income taxes, long term growth rates, and discount rates to discern whether they are reasonable considering (i) the current and past performance of the entity; (ii) the consistency with external market and industry data; and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. In addition, the Firm utilized professionals with specialized skills and knowledge to assist in the performance of these procedures. Revenue Recognition Over Time Critical Audit Matter Description As described further in Note 3 to the financial statements, revenues derived from certain contracts in the Services and Construction design-build segments are recognized as performance obligations are satisfied over time. The Company uses a ratio of project costs incurred to estimated total costs for each contract to recognize revenue. Under the cost-to-cost measure, the determination of progress towards completion requires management to prepare estimates of the costs to complete. In addition, the Company’s contracts may include variable consideration related to contract modifications, and management must also estimate the variable consideration the Company expects to receive in order to estimate the total contract revenue. We identified revenue recognized over time to be a critical audit matter. The principal consideration for our determination that revenue recognized over time is a critical audit matter is that auditing management’s estimate of the progress toward completion of its projects was complex and subjective. Considerable auditor judgment was required to evaluate management’s determination of the forecasted costs to complete its contracts as future results may vary significantly from past estimates due to changes in facts and circumstances. In addition, auditing the Company’s measurement of variable consideration is complex and highly judgmental and can have a material effect on the amount of revenue recognized. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to revenue recognized over time included the following, among others. • We obtained an understanding of the Company’s process related to the initial and ongoing monitoring of changes in the contract cost-to-cost estimates. • We agreed a sample of costs allocated to contracts to supporting documentation and recalculated revenues recognized based on the percentage of completion. • For a selection of contracts, we tested the Company’s cost-to-cost estimates by evaluating the appropriate application of the cost-to-cost method, testing the significant assumptions used to develop the estimated cost to complete and testing the completeness and accuracy of the underlying data. /s/ Sadler, Gibb & Associates, LLC We have served as the Company’s auditor since 2024. Draper, UT February 18, 2025 urban-gro, Inc. CONSOLIDATED BALANCE SHEETS As of December 31, 2023 2022 ASSETS (As Restated) (As Restated) Current assets: Cash $ 1,074,842 $ 11,754,349 Accounts receivable, net 21,648,901 15,132,566 Contract receivables 8,436,567 3,004,282 Prepaid expenses and other current assets 1,751,564 3,447,654 Total current assets $ 32,911,874 33,338,851 Non-current assets: Property and equipment, net 1,419,393 1,307,146 Operating lease right of use assets, net 2,041,217 2,618,825 Investments — 2,559,307 Goodwill 9,688,975 15,019,671 Intangible assets, net 3,451,608 5,450,687 Total non-current assets $ 16,601,193 26,955,636 Total assets $ 49,513,067 $ 60,294,487 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 24,203,769 $ 9,870,645 Contract liabilities 3,950,133 2,036,606 Accrued expenses 5,284,278 5,216,514 Customer deposits 603,046 2,571,161 Contingent consideration 49,830 2,799,287 Notes payable and line of credit 3,204,840 3,832,682 Operating lease liabilities 707,141 600,816 Total current liabilities $ 38,003,037 $ 26,927,711 Non-current liabilities: Operating lease liabilities, net of current portion 1,380,362 2,044,782 Deferred tax liability 44,313 — Total non-current liabilities $ 1,424,675 2,044,782 Total liabilities $ 39,427,712 $ 28,972,493 Commitments and contingencies (note 12) Shareholders’ equity: Preferred stock, $ 0.10 par value; 3,000,000 shares authorized; 0 shares issued and outstanding as of December 31, 2023 and December 31, 2022 — — Common stock, $ 0.001 par value; 30,000,000 shares authorized; 13,522,669 issued and 12,072,836 outstanding as of December 31, 2023 and 30,000,000 shares authorized; 12,292,104 issued and 10,842,271 outstanding as of December 31, 2022 13,523 12,292 Additional paid-in capital 88,389,756 84,189,965 Treasury shares, cost basis: 1,449,833 shares as of December 31, 2023 and 1,449,833 as of December 31, 2022 ( 12,045,542 ) ( 12,045,542 ) Accumulated deficit ( 66,272,382 ) ( 40,834,721 ) Total shareholders’ equity $ 10,085,355 31,321,994 Total liabilities and shareholders’ equity $ 49,513,067 $ 60,294,487 The accompanying notes are an integral part of these consolidated financial statements urban-gro, Inc. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS For the Years Ended December 31, 2023 2022 (As Restated) (As Restated) Revenues: Equipment systems $ 12,720,873 $ 33,119,480 Services 11,919,920 13,084,643 Construction design-build 44,561,783 19,080,746 Other 717,472 1,009,830 Total revenues 69,920,048 66,294,699 Cost of revenues: Equipment systems 11,081,536 28,776,023 Services 7,222,964 6,239,013 Construction design-build 41,194,894 18,392,076 Other 517,988 732,065 Total cost of revenues 60,017,382 54,139,177 Gross profit 9,902,666 12,155,522 Operating expenses: General and administrative 25,277,878 22,305,096 Depreciation and amortization 1,636,667 1,483,065 Impairment of goodwill and intangibles 6,273,595 — Business development — 3,299,864 Total operating expenses 33,188,140 27,088,025 Loss from operations ( 23,285,474 ) ( 14,932,503 ) Non-operating income (expenses): Interest expense ( 271,686 ) ( 54,577 ) Interest income 173,895 329,012 Change in fair value of contingent consideration ( 160,232 ) ( 436,905 ) Write-down of investment ( 258,492 ) — Loss on settlement ( 1,500,000 ) ( 950,575 ) Other income (expense) ( 41,463 ) ( 192,443 ) Total non-operating income (expenses) ( 2,057,978 ) ( 1,305,488 ) Loss before income taxes ( 25,343,452 ) ( 16,237,991 ) Income tax benefit ( 94,209 ) 983,315 Net loss $ ( 25,437,661 ) $ ( 15,254,676 ) Comprehensive loss $ ( 25,437,661 ) $ ( 15,254,676 ) Loss per share – basic and diluted $ ( 2.34 ) $ ( 1.41 ) Weighted average shares – basic and diluted 10,881,675 10,786,967 The accompanying notes are an integral part of these consolidated financial statements urban-gro, Inc. CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY Common Stock Additional Paid in Capital Accumulated Deficit Treasury Stock Total Shareholders’ Equity Shares Amount (As Restated) (As Restated) (As Restated) (As Restated) (As Restated) (As Restated) Balance, December 31, 2021 11,626,522 $ 11,627 $ 78,425,081 $ ( 25,580,045 ) $ ( 7,683,490 ) $ 45,173,173 Stock-based compensation — – $ 2,571,785 – – 2,571,785 Common stock repurchased — – – – ( 4,362,052 ) ( 4,362,052 ) Stock issuance related to acquisition 555,390 555 3,164,412 – – 3,164,967 Stock issued in conversion of warrants 18,196 18 ( 18 ) – – — Stock grant program vesting 87,441 87 ( 87 ) – – – Stock options exercised 4,555 5 28,792 – – 28,797 Net loss — – – ( 15,254,676 ) – ( 15,254,676 ) Balance, December 31, 2022 12,292,104 $ 12,292 $ 84,189,965 $ ( 40,834,721 ) $ ( 12,045,542 ) $ 31,321,994 Stock-based compensation — – $ 2,199,046 – – 2,199,046 Stock issued for contingent consideration 833,357 898 1,819,959 – — 1,820,857 Stock grant program vesting 397,208 333 ( 333 ) – – – Issuance of warrants — – 181,119 — – 181,119 Net loss — – – ( 25,437,661 ) – ( 25,437,661 ) Balance, December 31, 2023 13,522,669 $ 13,523 $ 88,389,756 $ ( 66,272,382 ) ( 12,045,542 ) $ 10,085,355 The accompanying notes are an integral part of these consolidated financial statements urban-gro, Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2023 2022 (As Restated) (As Restated) Cash flows from operating activities: Net loss $ ( 25,437,661 ) $ ( 15,254,676 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 1,636,667 1,483,065 Amortization of right-of-use asset 460,347 192,955 Stock-based compensation expense 2,199,046 2,571,785 Loss on settlement 308,229 950,575 Loss on legal settlement 1,500,000 — Write-down of investment 258,492 — Impairment of goodwill and intangibles 6,273,595 — Change in fair value of contingent consideration 160,232 436,905 Change in contingent consideration from indemnification ( 917,699 ) — Interest income on investments ( 121,867 ) ( 281,687 ) Changes in operating assets and liabilities (net of acquired amounts): Accounts receivable and contract receivables ( 11,948,620 ) ( 3,172,241 ) Prepaid expenses and other assets and property and equipment 2,525,209 7,926,330 Accounts payable, contract liabilities, customer deposits, and accrued expenses 12,979,969 ( 6,456,351 ) Operating lease liability ( 436,320 ) ( 251,733 ) Deferred tax liability 44,313 ( 914,750 ) Net cash used in operating activities ( 10,516,068 ) ( 12,769,823 ) Cash flows from investing activities: Sale of investments 2,422,682 222,380 Purchases of property and equipment ( 540,494 ) ( 675,277 ) Business combinations, net of cash acquired — ( 3,871,452 ) Net cash provided by (used in) investing activities 1,882,188 ( 4,324,349 ) Cash flows from financing activities: Proceeds from issuance of common stock, net of offering costs — 28,797 Repurchase of common stock — ( 4,362,052 ) Additions to notes payable 2,500,000 — Repayment of finance lease liability ( 156,754 ) ( 134,797 ) Payments to settle contingent consideration ( 479,362 ) ( 1,040,386 ) Repayments of notes payable ( 3,909,511 ) — Net cash used in financing activities ( 2,045,627 ) ( 5,508,438 ) Net change in cash ( 10,679,507 ) ( 22,602,610 ) Cash at beginning of period 11,754,349 34,356,959 Cash at end of period $ 1,074,842 $ 11,754,349 The accompanying notes are an integral part of these consolidated financial statements urban-gro, Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) For the Years Ended December 31, 2023 2022 (As Restated) (As Restated) Supplemental cash flow information: Cash paid for interest $ 142,388 $ 28,147 Net cash paid for income taxes 185,910 16,253 For the Years Ended December 31, 2023 2022 (As Restated) (As Restated) Supplemental disclosure of non-cash investing and financing activities: Stock issued for contingent consideration $ 1,820,857 $ — Stock issued in business combinations — 3,164,967 Warrants issued in connection with line of credit 181,119 — Prepaid assets financed by notes payable 648,000 — Operating lease right-of-use asset and liability measurement 11,315 988,351 Financing lease right-of-use asset and liability measurement 23,664 69,600 The accompanying notes are an integral part of these consolidated financial statements urban-gro, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (AS RESTATED) NOTE 1 – ORGANIZATION AND ACQUISITIONS, BUSINESS PLAN, AND LIQUIDITY Organization urban-gro, Inc. (together with its wholly owned subsidiaries, collectively "urban-gro," "we," "us," or "the Company") was originally formed on March 20, 2014, as a Colorado limited liability company. On March 10, 2017, we converted to a Colorado corporation and exchanged shares of our common stock for every member's interest issued and outstanding on the date of conversion. On October 29, 2020, we reincorporated as a Delaware corporation. On February 12, 2021, we completed an uplisting to the Nasdaq Capital Market ("Nasdaq") under the ticker symbol "UGRO". 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, design and manage the construction of 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, construction, 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. Further, we serve a broad range of commercial and governmental entities, providing them with planning, consulting, architectural, engineering and construction design-build services for their facilities. We aim to work with our clients from the inception of their project in a way that provides value throughout the life of their facility. We are a trusted partner and advisor to our clients and offer a complete set of engineering and managed services complemented by a vetted suite of select cultivation equipment systems. Acquisitions DVO Effective October 31, 2022, the Company entered into an agreement with Dawson Van Orden, Inc. ("Seller" or "DVO") and DVO's shareholders (the "DVO Shareholders") to acquire substantially all of the operating assets and liabilities of DVO, a Texas-based engineering firm with significant experience in indoor CEA. The Company had been looking for an engineer firm with CEA experience as it is invaluable when choosing the correct mechanical equipment systems for an controlled environment facility, and therefore the company expected a significant increase in their customized equipment offering. Further, having a engineering team in-house would be expected to lead to new business opportunities as the Company could cross-sell their various offerings to DVO's client base. 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 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 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, 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: Purchase price $ 6,072,366 Allocation of purchase price: Accounts receivable, net $ 1,134,909 Right of use asset $ 1,197,310 Property and equipment $ 229,058 Goodwill $ 3,444,926 Intangible assets $ 1,276,000 Accrued expenses $ ( 12,527 ) Right of use liability $ ( 1,197,310 ) Pro-forma disclosure of the DVO acquisition is not required as the historical results of DVO were not material to the Company's consolidated financial statements. 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. ("Emerald") from its shareholders (the "Emerald Sellers"). This acquisition was essential to the Company as it allowed us to enter the design-build segment, and offer a full suite of solutions to our client base. Further, having a construction company in-house would be expected to lead to new business opportunities as the Company could cross-sell their various offerings to Emerald's client base. The purchase price of $ 7.2 million, after working capital adjustments, was comprised of (i) $ 3.4 million in cash, (ii) $ 2.0 million of the Company’s common stock, and (iii) $ 1.1 million of estimated contingent consideration earnout payable to the Emerald Sellers over the term of the earnout. 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: Purchase price $ 7,232,712 Allocation of Purchase Price: Cash $ 622,641 Accounts receivable, net $ 2,666,811 Contract receivable $ 494,456 Prepayments and other assets $ 38,086 Property and equipment $ 403,008 Right of use asset $ 82,408 Goodwill $ 3,696,161 Intangible assets $ 3,659,000 Accrued expenses $ ( 2,361,302 ) Contract liabilities $ ( 1,071,399 ) Right of use liability $ ( 82,408 ) Deferred tax liability $ ( 914,750 ) The following pro-forma amounts reflect the Company’s results as if the acquisition of Emerald had occurred on January 1, 2022. 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 December 31, 2023 2022 Revenues: Equipment systems $ 12,720,873 $ 33,119,480 Services 11,919,920 13,084,643 Construction design-build 44,561,783 30,814,975 Other 717,472 1,009,830 Total revenues and other income 69,920,048 78,028,928 Net loss $ ( 25,437,661 ) $ ( 14,405,685 ) 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. 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 The Company has produced multiple consecutive years of net losses and negative cash flows. The financial results described in these financial statements and our financial position as of December 31, 2023 raise substantial doubt about our ability to continue as a going concern. However, the Company has recently taken actions to strengthen its liquidity, including decreasing headcount and operating expenses to expedite the Company's path to cash flow positive results. If necessary, the Company will seek to raise capital by issuing additional equity shares either through a private placement or on the open market. The Company may also seek to obtain additional debt financing for which there can be no guarantee. Management has concluded that these recent positive steps alleviate any substantial doubt about the Company's ability to continue its operations, and meet its financial obligations, for twelve moths from the date these consolidated financial statements are issued. NOTE 1A – RESTATEMENT OF PREVIOUSLY FILED FINANCIAL STATEMENTS Restatement of Previously Filed Financial Statements As detailed in the Explanatory Note, the Company has restated its consolidated financial statements for the years ended December 31, 2023 and 2022 in the following tables and the unaudited quarterly condensed consolidated financial information for each of the interim periods in the years ended December 31, 2023 and 2022 in Note 20. The accompanying applicable Notes have been updated to reflect the effects of the restatement. The following tables present the effect of the restatement on the Company's previously reported Consolidated Balance Sheets as of the years ended December 31, 2023 and December 31, 2022. The amounts in the "As Reported" columns are amounts derived from the Company's previously filed financial statements in its Annual Report on Form 10-K for the year ended December 31, 2023, originally filed with the Securities and Exchange Commission on March 28, 2024 (the “Original Form 10-K”). The amounts in the "Restatement Adjustments" columns present the impact of the adjustments arising from the re-audit of the Company’s 2023 financial statements. The amounts in the "As Restated" columns are the updated amounts including the impact from the Restatement Adjustments. At the bottom of the tables listed in this section are notes addressing the cause of the restatement adjustments as indicated by the respective lettering. As of December 31, 2023 As Restatement As ASSETS Reported Adjustments Note Restated Current assets: Cash $ 1,112,504 $ ( 37,662 ) (G) $ 1,074,842 Accounts receivable, net 26,991,739 ( 5,342,838 ) (J) 21,648,901 Contract receivables 10,071,951 ( 1,635,384 ) (C) 8,436,567 Prepaid expenses and other current assets 2,775,682 ( 1,024,118 ) (D) (F) 1,751,564 Total current assets 40,951,876 ( 8,040,002 ) 32,911,874 Non-current assets: Property and equipment, net 1,419,393 — 1,419,393 Operating lease right of use assets, net 2,041,217 — 2,041,217 Investments — — — Goodwill 15,572,050 ( 5,883,075 ) (A) (I) (K) 9,688,975 Intangible assets, net 4,394,507 ( 942,899 ) (I) 3,451,608 Total non-current assets 23,427,167 ( 6,825,974 ) 16,601,193 Total assets $ 64,379,043 $ ( 14,865,976 ) $ 49,513,067 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 25,411,243 $ ( 1,207,474 ) (C) $ 24,203,769 Contract liabilities 8,063,325 ( 4,113,192 ) (C) 3,950,133 Accrued expenses 4,071,231 1,213,047 (B) (C) 5,284,278 Customer deposits 603,046 — 603,046 Contingent consideration 49,830 — 49,830 Notes payable and line of credit 3,204,840 — 3,204,840 Operating lease liabilities 707,141 — 707,141 Total current liabilities 42,110,656 ( 4,107,619 ) 38,003,037 Non-current liabilities: Operating lease liabilities 1,380,362 — 1,380,362 Deferred tax liability 817,419 ( 773,106 ) (A) 44,313 Total non-current liabilities 2,197,781 ( 773,106 ) 1,424,675 Total liabilities $ 44,308,437 $ ( 4,880,725 ) $ 39,427,712 Commitments and contingencies (note 12) Shareholders’ equity: Preferred stock — — — Common stock 13,523 — 13,523 Additional paid-in capital 88,901,583 ( 511,827 ) (F) 88,389,756 Treasury shares ( 12,045,542 ) — ( 12,045,542 ) Accumulated deficit ( 56,798,958 ) ( 9,473,424 ) (H) ( 66,272,382 ) Total shareholders’ equity 20,070,606 ( 9,985,251 ) 10,085,355 Total liabilities and shareholders’ equity $ 64,379,043 $ ( 14,865,976 ) $ 49,513,067 As of December 31, 2022 As Restatement As ASSETS Reported Adjustments Note Restated Current assets: Cash $ 12,008,003 $ ( 253,654 ) (G) $ 11,754,349 Accounts receivable, net 15,380,292 ( 247,726 ) (G) 15,132,566 Contract receivables 3,004,282 — 3,004,282 Prepaid expenses and other current assets 4,164,960 ( 717,306 ) (D) 3,447,654 Total current assets 34,557,537 ( 1,218,686 ) 33,338,851 Non-current assets: Property and equipment, net 1,307,146 — 1,307,146 Operating lease right of use assets, net 2,618,825 — 2,618,825 Investments 2,559,307 — 2,559,307 Goodwill 15,572,050 ( 552,379 ) (A) (K) 15,019,671 Intangible assets, net 5,450,687 — 5,450,687 Total non-current assets 27,508,015 ( 552,379 ) 26,955,636 Total assets $ 62,065,552 $ ( 1,771,065 ) $ 60,294,487 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 9,960,364 $ ( 89,719 ) (G) $ 9,870,645 Contract liabilities 1,294,452 742,154 (C) 2,036,606 Accrued expenses 3,196,961 2,019,553 (B) (C) 5,216,514 Customer deposits 2,571,161 — 2,571,161 Contingent consideration 2,799,287 — 2,799,287 Notes payable 3,832,682 — 3,832,682 Operating lease liabilities 600,816 — 600,816 Total current liabilities 24,255,723 2,671,988 26,927,711 Non-current liabilities: Operating lease liabilities 2,044,782 — 2,044,782 Deferred tax liability 1,033,283 ( 1,033,283 ) (A) — Total non-current liabilities 3,078,065 ( 1,033,283 ) 2,044,782 Total liabilities $ 27,333,788 $ 1,638,705 $ 28,972,493 Commitments and contingencies (note 12) Shareholders’ equity: Preferred stock — — — Common stock 12,221 71 (G) 12,292 Additional paid-in capital 84,882,982 ( 693,017 ) (K) 84,189,965 Treasury shares ( 12,045,542 ) — ( 12,045,542 ) Accumulated deficit ( 38,117,897 ) ( 2,716,824 ) (H) ( 40,834,721 ) Total shareholders’ equity 34,731,764 ( 3,409,770 ) 31,321,994 Total liabilities and shareholders’ equity $ 62,065,552 $ ( 1,771,065 ) $ 60,294,487 The following tables presents the effect of the restatement on the Company's previously reported Consolidated Statements of Comprehensive Income for the years ended December 31, 2023, and December 31, 2022. The values as previously reported were derived from the Company’s Original Form 10-K: For the Year Ended December 31, 2023 As Restatement As Reported Adjustments Note Restated Revenues: Equipment systems $ 12,675,645 $ 45,228 (G) $ 12,720,873 Services 11,923,920 ( 4,000 ) (G) 11,919,920 Construction design-build 46,254,967 ( 1,693,184 ) (C) 44,561,783 Other 688,241 29,231 (G) 717,472 Total revenues 71,542,773 ( 1,622,725 ) 69,920,048 Cost of revenues: Equipment systems 11,085,306 ( 3,770 ) (G) 11,081,536 Services 7,222,968 ( 4 ) (G) 7,222,964 Construction design-build 42,442,858 ( 1,247,964 ) (C) 41,194,894 Other 500,079 17,909 (G) 517,988 Total cost of revenues 61,251,211 ( 1,233,829 ) 60,017,382 Gross profit 10,291,562 ( 388,896 ) 9,902,666 Operating expenses: General and administrative 25,332,332 ( 54,454 ) (G) 25,277,878 Depreciation and amortization 1,636,667 — 1,636,667 Impairment of goodwill and intangibles — 6,273,595 (I) 6,273,595 Total operating expenses 26,968,999 6,219,141 33,188,140 Loss from operations ( 16,677,437 ) ( 6,608,037 ) ( 23,285,474 ) Non-operating income (expenses): Interest expense ( 271,686 ) — ( 271,686 ) Interest income 173,895 — 173,895 Change in fair value of contingent consideration ( 160,232 ) — ( 160,232 ) Write-down of investment ( 258,492 ) — ( 258,492 ) Loss on legal settlement ( 1,500,000 ) — ( 1,500,000 ) Other income (expense) ( 202,973 ) 161,510 (G) ( 41,463 ) Total non-operating income (expenses) ( 2,219,488 ) 161,510 ( 2,057,978 ) Loss before income taxes ( 18,896,925 ) ( 6,446,527 ) ( 25,343,452 ) Income tax benefit 215,864 ( 310,073 ) (A) ( 94,209 ) Net loss $ ( 18,681,061 ) $ ( 6,756,600 ) $ ( 25,437,661 ) Comprehensive loss $ ( 18,681,061 ) $ ( 6,756,600 ) $ ( 25,437,661 ) Loss per share – basic and diluted $ ( 1.72 ) $ ( 0.62 ) $ ( 2.34 ) Weighted average shares – basic and diluted 10,881,675 10,881,675 10,881,675 For the Year Ended December 31, 2022 As Restatement As Reported Adjustments Notes Restated Revenues: Equipment systems $ 33,333,574 $ ( 214,094 ) (G) $ 33,119,480 Services 12,862,308 222,335 (G) 13,084,643 Construction design-build 19,822,901 ( 742,155 ) (C) 19,080,746 Other 1,011,151 ( 1,321 ) (G) 1,009,830 Total revenues 67,029,934 ( 735,235 ) 66,294,699 Cost of revenues: Equipment systems 27,963,258 812,765 (B) 28,776,023 Services 6,225,634 13,379 (G) 6,239,013 Construction design-build 17,905,172 486,904 (C) 18,392,076 Other 730,151 1,914 (G) 732,065 Total cost of revenues 52,824,215 1,314,962 54,139,177 Gross profit 14,205,719 ( 2,050,197 ) 12,155,522 Operating expenses: General and administrative 22,059,775 245,321 (G) 22,305,096 Depreciation and amortization 1,483,065 — 1,483,065 Business development 3,299,864 — 3,299,864 Total operating expenses 26,842,704 245,321 27,088,025 Loss from operations ( 12,636,985 ) ( 2,295,518 ) ( 14,932,503 ) Non-operating income (expenses): Interest expense ( 54,579 ) 2 (G) ( 54,577 ) Interest income 329,012 — 329,012 Contingent consideration ( 436,905 ) — ( 436,905 ) Write-down of investment ( 1,710,358 ) 1,710,358 (E) — Loss on settlement ( 950,575 ) — ( 950,575 ) Other income (expense) ( 139,611 ) ( 52,832 ) (G) ( 192,443 ) Total non-operating income (expenses) ( 2,963,016 ) 1,657,528 ( 1,305,488 ) Loss before income taxes ( 15,600,001 ) ( 637,990 ) ( 16,237,991 ) Income tax benefit 322,092 661,223 (A) 983,315 Net loss $ ( 15,277,909 ) $ 23,233 $ ( 15,254,676 ) Comprehensive loss $ ( 15,277,909 ) $ 23,233 $ ( 15,254,676 ) Loss per share – basic and diluted $ ( 1.42 ) $ — $ ( 1.41 ) Weighted average shares – basic and diluted 10,786,967 10,786,967 10,786,967 The following tables presents the effect of the restatement on the Company's previously reported Consolidated Statements of Shareholders' Equity for the years ended December 31, 2023, and December 31, 2022. The values as previously reported were derived from the Company’s Original Form 10-K: Common Stock Additional Paid in Capital Accumulated Deficit Treasury Stock Total Shareholders’ Equity Shares Amount Balance, December 31, 2023, as originally stated 13,522,669 $ 13,523 $ 88,901,583 $ ( 56,798,958 ) $ ( 12,045,542 ) $ 20,070,606 Adjustments to goodwill due to using incorrect share price at acquisition date for equity portion of acquisition price ( 692,946 ) ( 692,946 ) Warrants issued to Bancroft in connection with the Promissory Note which were not originally recorded on the balance sheet 181,119 181,119 Various income statement adjustments on or prior to December 31, 2023 ( 9,473,424 ) ( 9,473,424 ) Balance, December 31, 2023, as restated 13,522,669 $ 13,523 $ 88,389,756 $ ( 66,272,382 ) $ ( 12,045,542 ) $ 10,085,355 Common Stock Additional Paid in Capital Accumulated Deficit Treasury Stock Total Shareholders’ Equity Shares Amount Balance, December 31, 2022, as originally stated 12,220,593 $ 12,221 $ 84,882,982 $ ( 38,117,897 ) $ ( 12,045,542 ) $ 34,731,764 Adjustments to goodwill due to using incorrect share price at acquisition date for equity portion of acquisition price ( 692,946 ) ( 692,946 ) Management instructed transfer agent to issue shares related to vested RSUs after the issuance of the December 31, 2022 10-K with issuance effective dates prior to December 31, 2022 71,511 71 ( 71 ) — Various income statement adjustments on or prior to December 31, 2022 ( 2,716,824 ) ( 2,716,824 ) Balance, December 31, 2022, as restated 12,292,104 $ 12,292 $ 84,189,965 $ ( 40,834,721 ) $ ( 12,045,542 ) $ 31,321,994 The following tables presents the effect of the restatement on the Company's previously reported Cash Flow Statements for the years ended December 31, 2023 and December 31, 2022. The values as previously reported were derived from the Company’s Original Form 10-K: For the Year Ended December 31, 2023 As Restatement As Reported Adjustments Notes Restated Cash flows from operating activities: Net loss $ ( 18,681,061 ) $ ( 6,756,600 ) (H) $ ( 25,437,661 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 1,636,667 — 1,636,667 Amortization of right-of-use asset — 460,347 (A) 460,347 Stock-based compensation expense 2,199,046 — 2,199,046 Loss on settlement — 308,229 (G) 308,229 Loss on legal settlement 1,500,000 — 1,500,000 Write-down of investment 258,492 — 258,492 Impairment of goodwill and intangibles — 6,273,595 (I) 6,273,595 Change in fair value of contingent consideration 160,232 — 160,232 Change in contingent consideration from indemnification ( 917,699 ) — ( 917,699 ) Interest income on investments 735,760 ( 857,627 ) (G) ( 121,867 ) Changes in operating assets and liabilities (net of acquired amounts): — Accounts receivable and contract receivables ( 19,245,685 ) 7,297,065 (C) ( 11,948,620 ) Prepaid expenses and other assets and property and equipment 2,161,898 363,311 (D) 2,525,209 Accounts payable, contract liabilities, customer deposits, and accrued expenses 19,905,912 ( 6,925,943 ) (C) (D) 12,979,969 Operating lease liability ( 690,404 ) 254,084 (G) ( 436,320 ) Deferred tax liability ( 215,864 ) 260,177 (A) 44,313 Net cash used in operating activities ( 11,192,706 ) 676,638 ( 10,516,068 ) Cash flows from investing activities: Sale of investments 2,326,472 96,210 (G) 2,422,682 Purchases of property and equipment ( 615,170 ) 74,676 (G) ( 540,494 ) Business combinations, net of cash acquired — — — Net cash provided by (used in) investing activities 1,711,302 170,886 1,882,188 Cash flows from financing activities: Proceeds from issuance of common stock, net of offering costs — — — Repurchase of common stock — — — Additions to notes payable 3,018,400 ( 518,400 ) (G) 2,500,000 Repayment of finance lease liability ( 176,572 ) 19,818 (G) ( 156,754 ) Payments to settle contingent consideration ( 479,362 ) — ( 479,362 ) Repayments of notes payable ( 3,776,561 ) ( 132,950 ) (G) ( 3,909,511 ) Net cash used in financing activities ( 1,414,095 ) ( 631,532 ) ( 2,045,627 ) Net change in cash ( 10,895,499 ) 215,992 ( 10,679,507 ) Cash at beginning of period 12,008,003 ( 253,654 ) 11,754,349 Cash at end of period $ 1,112,504 $ ( 37,662 ) $ 1,074,842 For the Year Ended December 31, 2022 As Restatement As Reported Adjustments Notes Restated Cash flows from operating activities: Net loss $ ( 15,277,909 ) $ 23,233 (H) $ ( 15,254,676 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 1,483,065 — 1,483,065 Amortization of right-of-use asset — 192,955 (A) 192,955 Stock-based compensation expense 2,571,785 — 2,571,785 Loss on settlement 950,575 — 950,575 Write-down of investment 1,710,358 ( 1,710,358 ) (E) — Change in fair value of contingent consideration 436,905 — 436,905 Change in contingent consideration from indemnification — — — Interest income on investments 54,858 ( 336,545 ) (G) ( 281,687 ) Changes in operating assets and liabilities (net of acquired amounts): — Accounts receivable and contract receivables ( 2,517,745 ) ( 654,496 ) (G) ( 3,172,241 ) Prepaid expenses and other assets and property and equipment 8,397,707 ( 471,377 ) (D) 7,926,330 Accounts payable, contract liabilities, customer deposits, and accrued expenses ( 9,686,483 ) 3,230,132 (G) ( 6,456,351 ) Operating lease liability ( 413,770 ) 162,037 (G) ( 251,733 ) Deferred tax liability ( 322,092 ) ( 592,658 ) (A) ( 914,750 ) Customer deposits — — — Net cash used in operating activities ( 12,612,746 ) ( 157,077 ) ( 12,769,823 ) Cash flows from investing activities: Sale of investments — 222,380 (G) 222,380 Purchases of property and equipment ( 580,347 ) ( 94,930 ) (G) ( 675,277 ) Business combinations, net of cash acquired ( 3,871,452 ) — ( 3,871,452 ) Net cash provided by (used in) investing activities ( 4,451,799 ) 127,450 ( 4,324,349 ) Cash flows from financing activities: Proceeds from issuance of common stock, net of offering costs 28,796 1 (G) 28,797 Repurchase of common stock ( 4,362,052 ) — ( 4,362,052 ) Additions to notes payable — — — Repayment of finance lease liability ( 146,000 ) 11,203 (G) ( 134,797 ) Payments to settle contingent consideration ( 1,040,386 ) — ( 1,040,386 ) Repayments of notes payable — — — Net cash used in financing activities ( 5,519,642 ) 11,204 ( 5,508,438 ) Net change in cash ( 22,584,187 ) ( 18,423 ) ( 22,602,610 ) Cash at beginning of period 34,592,190 ( 235,231 ) 34,356,959 Cash at end of period $ 12,008,003 $ ( 253,654 ) $ 11,754,349 See below for a description of the underlying root cause of each material adjustment made in the restatement, which corresponds with the respective lettering in the each of the tables above in this section: A. The Company adjusted its deferred tax liability entry booked at the time of the Emerald and DVO acquisitions to accurately record the deferred tax liability generated by the acquisitions and then adjusted to release the Company's valuation allowance against the deferred tax liability balance generated through acquisitions. B. The Company made adjustments to accrue for sales tax payable to various jurisdictions generated from historical invoices where sales tax was not charged to the customer and should have been charged. C. The Company established accruals for construction projects with negative margins at the time the project was or should have been known to be a negative margin project. D. The Company adjusted the prepaid balance to expense for instances where the good or service associated with the prepaid balance either had been fully utilized or was no longer available for use by the Company. E. The Company originally recorded an impairment of its Edyza investment in the third quarter of 2022, however the Company determined the triggering event for the impairment was known prior to fiscal year 2022 and recorded the impairment in the fourth quarter of 2021. F. The Company recorded an adjustment to record the fair value of the warrants issued to Bancroft in connection with the Promissory Note (see Note 10 for further discussion). G. These adjustments are comprised of various immaterial adjustments and reclassifications made to correct the Company's accounting records. H. The adjustment to accumulated deficit and net loss is the result of the cumulative list of restatement adjustments recorded to the income statements in all periods prior to the respective balance sheet date. I. As a result of the Company’s annual goodwill impairment testing, goodwill and intangible assets were restated to recognize an impairment expense J. The Company netted accounts receivable and contract liabilities to correct accounting for invoicing prior to year-end that was dependent on future services to be performed K. The Company adjusted goodwill downward to correctly use the share price as of the date of the Impact, 2WR, and Emerald acquisitions to value the equity portion of the acquisition consideration NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation, Principles of Consolidation and Business Combinations These consolidated financial statements include the accounts of urban-gro, Inc. and its wholly owned subsidiaries. They are presented in United States dollars and have been prepared in accordance with U.S. 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 shareholders’ equity and condensed consolidated statements of cash flows for the periods presented. Acquisitions of businesses are accounted for using the acquisition method of accounting (Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 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. Acquisition related costs are recognized in net income (loss) as incurred. Use of Estimates In preparing consolidated financial statements in conformity with U.S. GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of assets and liabilities at the date of the consolidated financial statements and revenues and expenses during the reported periods. Actual results could differ from those estimates. Significant estimates include estimated revenues earned under percentage of completion construction contracts, professional service contracts, estimated useful lives and potential impairment of long-lived assets and goodwill, inventory write-offs, allowance for deferred tax assets and deferred tax liabilities, and allowance for bad-debt. Reclassification Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations. Balance Sheet Classifications The 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 contracts. A one-year time period is used to classify all other current assets and liabilities when not otherwise prescribed by the applicable accounting principles. Contract Assets and Liabilities The timing between when Company collects cash from its construction design-build customers can create a contract asset or contract liability. Please refer to Note 3 - Revenue from Contracts with Customers for further discussion of the Company's contract assets and liabilities. Functional and Reporting Currency and Foreign Currency Translation The functional and reporting currency of the Company and its subsidiaries is US dollars. All transactions in currencies other than US dollars are translated into US dollars on the date of the transaction. Any exchange gains and losses related to these transactions are recognized in the current period earnings as other income (expense). Fair Value of Financial Instruments The Company’s financial instruments consist principally of cash, accounts receivable, accounts payable, promissory note and other current assets and liabilities. We value our financial assets and liabilities using fair value measurements. Fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities measured at fair value are categorized based on whether the inputs are observable in the market and the degree that the inputs are observable. The categorization of financial instruments within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement. The hierarchy is prioritized into three levels (with Level 3 being the lowest) defined as follows: • Level 1: Quoted prices in active markets for identical assets or liabilities that the entity has the ability to access. • Level 2: Observable inputs other than prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated with observable market data. • Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies, and similar techniques that use significant unobservable inputs. The carrying amount of our cash, accounts receivable, accounts payable, promissory note, and other current assets and liabilities in our consolidated financial statements approximates fair value because of the short-term nature of the instruments as of December 31, 2023 and 2022. Investments in non-marketable equity securities are carried at cost less other-than-temporary impairments as of December 31, 2023 and 2022. There have been no changes in Level 1, Level 2, and Level 3 categorizations and no changes in valuation techniques for these assets or liabilities for the years ended December 31, 2023 and 2022. Cash The Company considers all highly liquid short-term cash investments with an original maturity of three months or less to be cash equivalents. As of December 31, 2023 and 2022, the Company did not maintain any cash equivalents. The Company maintains cash with financial institutions that may from time to time exceed federally-insured limits. The Company has 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. Accounts Receivable, Net Trade Accounts Receivable Trade accounts receivables are carried at the original invoiced amounts less an estimate of expected credit losses. The Company estimates its allowance for credit losses and the related expected credit loss based upon the Company's historical credit loss experience and the age of the account adjusted for asset-specific risk characteristics, current economic conditions, relationship with the customer, and reasonable forecasts. Credit is generally extended on a short-term basis, thus current receivables do not bear interest. The Company reviews a customer’s credit history before extending credit to the customer. If the financial condition of its customers were to deteriorate, resulting in an impairment of their ability to make payments, an increase in the expected credit losses balance would be required. A provision is made against accounts receivable to the extent they are considered unlikely to be collected. Occasionally, the Company will write off bad-debt directly to the bad-debt expense account when the balance is determined to be uncollectible. The Company's allowance for expected credit losses for the years ended December 31, 2023 and 2022 was $284,745 and $103,653, respectively. Non-trade Accounts Receivable Non-trade accounts receivable consist of amounts due to the Company outside of our normal operating business. Non-trade accounts receivable as of December 31, 2023 were primarily comprised of the remaining Indemnified Loss receivable from the majority shareholder of Emerald further detailed in Note 1 – Organization, Acquisitions, and Liquidity . As of December 31, 2022, non-trade accounts receivables was primarily comprised of a receivable related to litigation involving fraudulent wire transactions of $ 2,400,000 . 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 the settlement the Company recorded an impairment in the fourth quarter of 2022 of $ 950,576 . Property, Plant, and Equipment, net Property and equipment is stated at cost less accumulated depreciation and impairment. Expenditures for major additions and improvements are capitalized and minor replacements, maintenance, and repairs are charged to expense as incurred. When property and equipment is retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the results of operations for the respective period. Depreciation is provided over the estimated useful lives of the related assets using the straight-line method for financial statement purposes. The Company uses other depreciation methods (generally accelerated) for tax purposes where appropriate. No impairment charges were recorded for the years ended December 31, 2023 and 2022. The estimated useful lives for significant property and equipment categories are as follows: Computer and technology equipment 3 years Furniture and equipment 5 years Leasehold improvements Lease term Vehicles 3 years Other equipment 3 or 5 years Software 3 years Operating Lease Right of Use Assets The Company accounts for leases in accordance with ASC 842. The Company determines whether a contract is a lease at contract inception or for a modified contract at the modification date. At inception or modification, the Company recognizes right-of-use ("ROU" assets and related lease liabilities on the Consolidated Balance Sheets for all leases greater than one-year in duration. Lease liabilities and their corresponding ROU assets are initially measured at the present value of the unpaid lease payments as of the lease commencement date. If the lease contains a renewal and/or termination option, the exercise of the option is included in the term of the lease if the Company is reasonably certain that a renewal or termination option will be exercised. As the Company's leases do not provide an implicit rate, the Company uses an estimated incremental borrowing rate ("IBR") based on the information available at the commencement date of the respective lease to determine the present value of the future payments. The IBR is determined by estimating what it would cost the Company to borrow a collateralized amount equal to the total lease payments over the lease term based on the contractual terms of the lease and the location of the leased asset. Operating lease payments are recognized as an expense on a straight-line basis over the lease term in equal amounts of rent expense attributed to each period during the term of the lease, regardless of when actual payments are made. This generally results in rent expense in excess of cash payments during the early years of a lease and rent expense less than cash payments in later years. The difference between rent expense recognized and actual rental payments is typically represented as the spread between the ROU asset and lease liability. The Company does not recognize ROU assets and lease liabilities for short-term leases that have an initial term of 12 months or less. The Company recognizes the lease payments associated with short-term leases as an expense on a straight-line basis over the lease term. Operating lease right of use assets are stated at cost less accumulated depreciation, amortization and impairment. The Company has various equipment and office leases with an imputed annual interest rate of 8 %. Intangible Assets The Company’s intangible assets, consist of legal fees for application of patents and trademarks, as well as customer relationships, trademarks and trade names and backlog from the acquisitions of DVO, 2WR and Emerald. Our patents and trademarks are recorded at cost, while the intangibles from our acquisitions are recorded at fair value and are amortized using the straight-line method over an estimated life, generally 5 years for patents, 5 years for trademarks and trade names, 7 years for customer relationships, and 1 year for backlog. Intangible assets are reported in the "Intangible Asset" line on the balance sheet. Goodwill Goodwill represents the excess of the purchase price over the fair value of net assets acquired in a business combination. Goodwill is not amortized but is tested for impairment annually on October 1 and at any time when events or circumstances suggest impairment may have occurred. The testing for impairment consists of a comparison of the fair value of the reporting unit with its carrying amount. If the carrying amount of the reporting unit, including goodwill, exceeds the fair value, an impairment will be recognized equal to the difference between the carrying value of the reporting unit’s goodwill and the implied fair value of the goodwill. In testing goodwill for impairment, we determine the estimated fair value of our reporting units based upon a discounted future cash flow analysis. Goodwill, trade names and patents are our only indefinite-lived intangible assets. Definite-lived intangible assets are amortized using the straight-line method over the shorter of their contractual term or estimated useful lives. Impairment of Long-lived Assets The Company evaluates potential impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. An impairment will be recognized as the amount by which the carrying amount of a long-lived asset exceeds its fair value. Investments Investments without readily determinable fair values and for which the Company does not have the ability to exercise significant influence are accounted for at cost with adjustments for observable changes in prices or impairments. Revenue Recognition The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers, which requires that five basic steps be followed to recognize revenue: (1) a legally enforceable contract that meets criteria standards as to composition and substance is identified; (2) performance obligations relating to provision of goods or services to the customer are identified; (3) the transaction price, with consideration given to any variable, noncash, or other relevant consideration, is determined; (4) the transaction price is allocated to the performance obligations; and (5) revenue is recognized when control of goods or services is transferred to the customer with consideration given to whether that control happens over time or not. Determination of criteria (3) and (4) are based on judgments regarding the fixed nature of the selling prices of the services and products delivered and the collectability of those amounts. The Company derives revenue predominately from the sale of equipment systems, services, construction design-build, and from other various immaterial contracts with customers. Please refer to Note 3 - Revenue from Contracts with Customers for additional discussion. Customer Deposits For equipment systems contracts, the Company’s policy is to collect deposits from customers at the beginning of the contract. Please refer to Note 3 - Revenue from Contracts with Customers for further discussion of the Company's customer deposits. Cost of Revenues The Company’s policy is to recognize cost of revenues in the same manner as, and in conjunction with, revenue recognition. The Company’s cost of revenues includes the costs directly attributable to revenue recognized and includes expenses related to the purchasing of products and providing services, costs related to construction design-build contracts, fees for third-party commissions, and shipping costs. Advertising Costs The Company expenses advertising costs in the periods the costs are incurred. Prepayments made under contracts are included in prepaid expenses and expensed when the advertisement is run. Total advertising expense incurred for the years ended December 31, 2023 and 2022 was $ 516,522 and $ 865,022 , respectively. Stock-Based Compensation The Company periodically issues restricted stock units ("RSUs") and stock options to employees, directors, and consultants in non-capital raising transactions for fees and services. The Company accounts for RSUs and options issued to employees and directors with the award being measured at its fair value at the date of grant and amortized ratably over the estimated service period. 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. Warrants 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. There is a moderate degree of subjectivity involved when using option pricing models to estimate the warrants and the assumptions used in the Black-Scholes option-pricing model are moderately judgmental. Income Taxes The Company files income tax returns in the United States, Canada, and the Netherlands, and state and local tax returns in applicable jurisdictions. Provisions for current income tax liabilities, if any, would be calculated and accrued on income and expense amounts expected to be included in the income tax returns for the current year. Income taxes reported in earnings, if any, would also include deferred income tax provisions. Deferred income tax assets and liabilities, if any, would be computed on differences between the financial statement bases of assets and liabilities at the enacted tax rates. Changes in deferred income tax assets and liabilities would be included as a component of income tax expense. The effect on deferred income tax assets and liabilities attributable to changes in enacted tax rates would be charged or credited to income tax expense in the period of enactment. Valuation allowances would be established for certain deferred tax assets when realization is not likely. Assets and liabilities would be established for uncertain tax positions taken or positions expected to be taken in income tax returns when such positions, in the judgment of the Company, do not meet a more-likely-than-not threshold based on the technical merits of the positions. Valuation allowances would be established for certain deferred tax assets when realization is not likely. Loss per Share The Company computes net loss per share by dividing net loss available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share would be computed by dividing net loss by the weighted-average of all potentially dilutive shares of common stock that were outstanding during the periods presented. The diluted earnings per share calculation is not presented as it results in an anti-dilutive calculation of net loss per share. The treasury stock method would be used to calculate diluted earnings per share for potentially dilutive stock options and share purchase warrants. This method assumes that any proceeds received from the exercise of in-the-money stock options and share purchase warrants would be used to purchase common shares at the average market price for the period. Recently Issued Accounting Pronouncements From time to time, the Financial Accounting Standards Board (the "FASB") or other standards setting bodies issue new accounting pronouncements. The FASB issues updates to new accounting pronouncements through the issuance of an Accounting Standards Update ("ASU"). Unless otherwise discussed, the Company believes that the impact of recently issued guidance, whether adopted or to be adopted in the future, is not expected to have a material impact on the Company’s financial statements upon adoption. In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326) ("ASU 2016-13"), changing the impairment model for most financial instruments by requiring companies to recognize an allowance for expected losses based upon a company's historical credit loss experience, adjusted for asset-specific risk characteristics, current economic conditions, and reasonable forecasts, rather than incurred losses as required previously by the other-than-temporary impairment model. ASU 2016-13 applies to most financial assets measured at amortized cost and certain other instruments, including trade and other receivables, loans, available-for-sale and held-to-maturity debt securities, net investments in leases, and off-balance sheet credit exposures. ASU 2016-13 was effective January 1, 2020, and the Company adopted this standard effective January 1, 2023. The adoption of this standard primarily applied to the valuation of the Company's accounts receivable. The adoption of this standard did not have a material impact on the Company's Consolidated Financial Statements or disclosures, and the Company's estimate of expected credit losses as of January 1, 2023, using the expected credit loss evaluation process described above, resulted in no adjustments to the provision for credit losses and no cumulative-effect adjustment to Retained earnings (deficit) in the Consolidated Balance Sheets on the adoption date of the standard. 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 has decided to early adopt ASU 2023-07 by incorporating the disclosure requirements in Note 19 - Segments. 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. Management has reviewed all other recently issued, but not yet effective, accounting pronouncements and does not believe the future adoption of any such pronouncements may be expected to cause a material impact on the Company's financial condition or the results of our operations. NOTE 3 – REVENUE FROM CONTRACTS WITH CUSTOMERS The Company recognizes revenue predominantly from the sale of equipment systems, services, construction design-build, and from other various immaterial contracts with customers from its CEA and Commercial sectors. The table below presents the revenue by source for the years ended December 31, 2023 and 2022: For the year ended December 31, 2023 CEA Commercial Total Relative Percentage Equipment systems $ 12,720,873 $ — $ 12,720,873 18 % Services 8,305,679 3,614,241 11,919,920 17 % Construction design-build 4,391,087 40,170,696 44,561,783 64 % Other 717,472 — 717,472 1 % Total revenues $ 26,135,111 $ 43,784,937 $ 69,920,048 100 % Relative percentage 37 % 63 % 100 % For the year ended December 31, 2022 CEA Commercial Total Relative Percentage Equipment systems $ 33,119,480 $ — $ 33,119,480 50 % Services 8,016,433 5,068,210 13,084,643 20 % Construction design-build 1,664,538 17,416,208 19,080,746 29 % Other 1,009,830 — 1,009,830 2 % Total revenues $ 43,810,281 $ 22,484,418 $ 66,294,699 100 % Relative percentage 66 % 34 % 100 % Under 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. Service revenue contracts, which include both architectural and engineering designs, generally contain multiple performance obligations which can span across multiple phases of a project and are generally set forth in the contract as distinct milestones. The majority of construction design-build contracts have a single performance obligation, as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts and, therefore, not distinct. Some contracts have multiple performance obligations, most commonly due to the contract covering multiple phases of the project life cycle (design and construction). The transaction price for service contracts and construction design-build contracts is allocated to each distinct performance obligation and recognized as revenue when, or as, each performance obligation is satisfied. When there are multiple performance obligations under the same service contract, the Company allocates the transaction price to each performance obligation based on the standalone selling price. In general, payment is fixed at the time of the contract and are not subject to discounts, incentives, payment bonuses, credits, and penalties, unless negotiated in an amendment. When establishing the selling price to the customer, the Company uses various observable inputs. For equipment systems, the stand-alone selling price is determined by forecasting the expected costs of the products, and then adding in the appropriate margins established by the contract. For service revenues and construction design-build revenues, the Company estimates the selling price by reference to certain physical characteristics of the project, which include the facility size, the complexity of the design, and the mechanical systems involved, which are indicative of the scope and complexity for those services. Significant judgments are typically not required with respect to the determination of the transaction price based on the nature of the selling prices of the products and services delivered and the collectability of those amounts. Accordingly, the Company does not consider estimates of variable consideration to be constrained. The Company recognizes equipment systems, services, and construction design-build revenues when the performance obligation with the customer is satisfied. For satisfaction of equipment system revenues, the Company recognizes revenue when control of the promised good transfers to the customer, which predominately occurs at the time of shipment. For service revenues, satisfaction occurs as the services related to the distinct performance obligations are rendered or completed in exchange for consideration in an amount for which the Company is entitled. The time period between recognition and satisfaction of performance obligations is generally within the same reporting period; thus, there are no material unsatisfied or partially unsatisfied performance obligations for product or service revenues at the end of the reporting period. Construction design-build revenues are recognized as the Company's obligations are satisfied over time, using the ratio of project costs incurred to estimated total costs for each contract because of the continuous transfer of control to the customer as all of the work is performed at the customer’s site and, therefore, the customer controls the asset as it is being constructed. This continuous transfer of control to the customer is further supported by clauses in the contract that allow the customer to unilaterally terminate the contract for convenience, pay the Company for costs incurred plus a reasonable profit and take control of any work in process. This cost-to-cost measure is used for our construction design-build contracts because management considers it to be the best available measure of progress on these contracts. Contract modifications through change orders, claims and incentives are routine in the performance of the Company’s construction design-build contracts to account for changes in the contract specifications or requirements. In most instances, contract modifications are not distinct from the existing contract due to the significant integration of services provided in the contract and are accounted for as a modification of the existing contract and performance obligation. Either the Company or its customers may initiate change orders, which may include changes in specifications or designs, manner of performance, facilities, equipment, materials, sites and period of completion of the work. Change orders that are unapproved as to both price and scope are evaluated as claims. The Company considers claims to be amounts in excess of approved contract prices that the Company seeks to collect from its customers or others for customer-caused delays, errors in specifications and designs, contract terminations, change orders that are either in dispute or are unapproved as to both scope and price, or other causes of unanticipated additional contract costs. The timing of when the Company bills customers on long-term construction design-build 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. When as a result of contingencies, billings cannot occur until after the related revenue has been recognized; the result is unbilled revenue, which is included in contract assets. Additionally, the Company may receive advances or deposits from customers before revenue is recognized; the result is deferred revenue, which is included in contract liabilities. Retainage subject to conditions other than the passage of time are included in contract assets and contract liabilities. Contract 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. The following tables provide information about contract assets and contract liabilities from contracts with customers: December 31, 2023 2022 Contract assets (as restated) (as restated) Revenue recognized in excess of amounts paid or payable to the Company on uncompleted contracts (contract receivables), excluding retainage $ 7,729,531 $ 2,874,141 Retainage included in contract assets due to being conditional on something other than solely passage of time 707,036 130,141 Total contract receivables $ 8,436,567 $ 3,004,282 December 31, 2023 2022 Contract Liabilities (as restated) (as restated) Payments received or receivable (contract receivables) in excess of revenue recognized on uncompleted contracts (contract liabilities) $ 3,895,826 $ 2,036,606 Retainage included in contract liabilities due to being conditional on something other than solely passage of time 54,307 — $ 3,950,133 $ 2,036,606 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. The Company does, in some cases, collect deposits or retainers as down payments on service contracts. Consumable products orders may be paid for in advance of shipment or for recurring customers with credit, payment terms of 30 days or less may be extended by the Company. Customer payments that have been collected prior to the performance obligation being recognized are recorded as customer deposit liabilities on the balance sheet. When the performance obligation is satisfied and all the criteria for revenue recognition are met, revenue is recognized. In certain situations when the customer has paid the deposit and services have been performed but the customer chooses not to proceed with the contract, the Company is entitled to keep the deposit and recognize revenue. NOTE 4 – RELATED PARTY TRANSACTIONS 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 December 31, 2023 2022 Cloud 9 $ 462 $ 13,383 Potco 987,268 12,480 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 2022 Cloud 9 $ — $ 3,920 Potco 163,088 20,174 CEA Consortium 245,000 — Total accounts receivable due from related party transactions $ 408,088 $ 24,094 NOTE 5 – PREPAID EXPENSES AND OTHER CURRENT ASSETS Prepayments and other assets are comprised of prepayments paid to vendors to initiate orders and prepaid services and fees. The prepaid balances are summarized as follows: As of December 31, 2023 2022 Vendor prepayments $ 130,522 $ 1,882,760 Prepaid services and fees 1,168,309 1,205,756 Deferred financing cost (See Note 10 - Debt) 181,118 — Inventories 228,858 320,372 Other assets 42,757 38,766 Total prepaid expenses and other current assets $ 1,751,564 $ 3,447,654 Inventories Inventories, consisting primarily of finished goods, are stated at the lower of cost or net realizable value, with cost determined using the weighted-average cost method. The Company periodically reviews the value of items in inventory and provides write-downs or write-offs of inventory based on its assessment of market conditions. Write-downs and write-offs are charged to cost of goods sold at the realization of change in value. Once written down, inventories are carried at this lower basis until sold or scrapped. NOTE 6 - PROPERTY PLANT & EQUIPMENT, NET Property Plant and Equipment balances are summarized as follows: As of December 31, 2023 2022 Computers and technology equipment $ 294,322 $ 232,405 Furniture and fixtures 325,485 234,389 Leasehold improvements 228,760 306,719 Vehicles 432,823 456,797 Software 1,087,569 685,580 Other equipment 145,950 58,525 Accumulated depreciation ( 1,095,516 ) ( 667,269 ) Total property plant and equipment, net $ 1,419,393 $ 1,307,146 Depreciation expense for the years ended December 31, 2023 and 2022 totaled $ 580,487 and $ 423,286 , respectively. NOTE 7 – INVESTMENTS The components of investments are summarized as follows: XS Financial On October 30, 2021, the Company participated in a convertible note offering of Xtraction Services, Inc., a/k/a XS Financial Inc. (CSE: XSF) (OTCQB: XSHLF) ("XSF"), a specialty finance company providing capital expenditure financing solutions, including equipment leasing, to CEA companies in the United States. The Company invested $ 2,500,000 of a total $ 43,500,000 raised by XSF. Prior to any Nasdaq listing, the investment incurs 9.5 % interest payable, of which, 7.5 % is cash interest and 2.0 %. is interest paid in kind. Subsequent to any Nasdaq listing, the investment incurs 8.0 % interest. The debt matures on October 28, 2023, with a one-year option at the sole discretion of XSF to extend the maturity date. In addition, the Company received 1.25 million warrants denominated in Canadian dollars ("C$") with a C$ 0.45 share price as subject to the warrant instrument. 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. NOTE 8 – GOODWILL & INTANGIBLE ASSETS Goodwill The Company has recorded goodwill in conjunction with acquisitions it has completed. The goodwill balances as of December 31, 2023 and 2022 were $ 9,688,975 and $ 15,019,671 . Goodwill is not amortized. During the year ended December 31, 2023, the Company recorded impairment charges of $ 5,330,696 to goodwill and recorded no impairment charges to goodwill for the year ended December 31, 2022. Intangible Assets Other Than Goodwill Intangible assets as of December 31, 2023 and 2022 consisted of the following: As of December 31, 2023 Cost Accumulated Amortization Net Book Value Finite-lived intangible assets: Customer relationships $ 3,269,201 $ ( 1,004,743 ) $ 2,264,458 Trademarks and trade names 1,778,000 ( 663,417 ) 1,114,583 Backlog 707,400 ( 707,400 ) — Licenses 16,437 ( 16,437 ) — Total finite-lived intangible assets: 5,771,038 ( 2,391,997 ) 3,379,041 Indefinite-lived intangible assets: Trade name 28,291 — 28,291 Patents 44,276 — 44,276 Total indefinite-lived intangible assets 72,567 — 72,567 Total intangible assets, net $ 5,843,605 $ ( 2,391,997 ) $ 3,451,608 As of December 31, 2022 Cost Accumulated Amortization Net Book Value Finite-lived intangible assets: Customer relationships $ 4,212,100 $ ( 401,997 ) $ 3,810,103 Trademarks and trade names 1,778,000 ( 307,817 ) 1,470,183 Backlog 707,400 ( 626,003 ) 81,397 Licenses 16,437 — 16,437 Total finite-lived intangible assets: 6,713,937 ( 1,335,817 ) 5,378,120 Indefinite-lived intangible assets: Trade name 28,291 — 28,291 Patents 44,276 — 44,276 Total indefinite-lived intangible assets 72,567 — 72,567 Total Intangible assets, net $ 6,786,504 $ ( 1,335,817 ) $ 5,450,687 Amortization expense for intangible assets subject to amortization for the years ended December 31, 2023 and 2022 was $ 1,056,180 and $ 1,059,779 , respectively. During the year ended December 31, 2023, the Company recorded impairment charges of $ 942,899 to intangible assets and recorded no impairment charges to intangible assets for the year ended December 31, 2022. The estimated future amortization expense for intangible assets subject to amortization at December 31, 2023, is summarized below: Year ending December 31, Estimated Future Amortization Expense 2024 $ 779,955 2025 $ 779,948 2026 $ 738,364 2027 $ 513,714 2028 $ 405,306 2029 $ 161,754 Total estimated future amortization expense $ 3,379,041 NOTE 9 – ACCRUED EXPENSES Accrued expenses are summarized as follows: December 31, 2023 2022 Accrued operating expenses $ 277,987 $ 446,286 Accrued wages and related expenses 1,349,195 616,297 Business development accrual 376,816 486,908 Accrued interest expense 26,000 — Accrued 401(k) 66,642 262,599 Accrued tax payable 3,187,638 3,404,424 Total accrued expenses $ 5,284,278 $ 5,216,514 Accrued tax payable is comprised of amounts due to various US states and Canadian provinces for 2017 through 2023. NOTE 10 – NOTES PAYABLE AND LINE OF CREDIT The table below shows outstanding notes payable and line of credit amounts as of December 31, 2023 and 2022. December 31, 2023 2022 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 prepayment 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: 1. 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.). 2. 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 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; provided, that each payment shall be accompanied by payment of all unpaid costs, fees and expenses, if any, which are due plus all accrued and unpaid interest due as of the date of such prepayment. The outstanding principal balance under the DVO Promissory Note shall bear simple interest at a variable rate per annum equal to the rate of interest most recently published by JP Morgan Chase & Co. as the "prime rate" (the "Prime Rate"). Initially, interest will accrue at the Prime Rate as of the date of the DVO Promissory Note. 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. 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 9.89 %. NOTE 11 – RIGHT OF USE ASSETS AND LIABILITIES As of December 31, 2023 and 2022, the Company has seven operating type leases with an imputed annual interest rate of 8 %. Each of the Company's operating type leases are utilized as office space with one lease also including a warehouse for inventory. Five of the leases were acquired by the Company in connection with the acquisitions of 2WR, Emerald, and DVO. The remaining lease terms range from less than one year to 5 years, as of December 31, 2023. As of December 31, 2023 and 2022, right of use assets were $ 2,041,217 and $ 2,618,825 , respectively, and for the years ended December 31, 2023 and 2022 lease expense was $ 460,347 and $ 192,955 , respectively. The following is a summary of operating right-of-use lease liabilities: As of December 31, 2023 2022 Operating lease liabilities related to right of use liabilities $ 2,087,503 $ 2,645,598 Less current portion ( 707,141 ) ( 600,816 ) Long term $ 1,380,362 $ 2,044,782 The following is a schedule showing total future minimum lease payments for the Company's operating leases: Year ending December 31, Minimum Lease Payments 2024 $ 754,076 2025 573,133 2026 404,751 2027 346,812 2028 253,415 Thereafter 82,488 Total minimum lease payments $ 2,414,675 Less: Amount representing interest $ ( 327,172 ) Net lease obligations $ 2,087,503 NOTE 12 - COMMITMENTS AND CONTINGENCIES From time to time, the Company is involved in routine litigation that arises in the ordinary course of business. There are no legal proceedings for which management believes the ultimate outcome would have a material adverse effect on the Company’s results of operations and cash flows. 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. 2021CV31301. 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 13 – RISKS AND UNCERTAINTIES Concentration Risk The tables below show 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: Customers exceeding 10% of revenue For the Year Ended December 31, 2023 2022 Customers Exceeding 10% of Revenue/$: C000001462 * 10 % C000001140 * 13 % C000002187 28 % 17 % C000002463 15 % * 43 % 40 % Customers exceeding 10% of accounts receivable For the Year Ended December 31, 2023 2022 C000002151 * 10 % C000002187 57 % 24 % The 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: Vendors exceeding 10% of purchases For the Year Ended December 31, 2023 2022 V000001029 * 13 % V000002275 11 % * Vendors exceeding 10% of accounts payable: For the Year Ended December 31, 2023 2022 V000002275 13 % * V000001910 * 11 % Foreign Exchange Risk Although our revenues and expenses are expected to be predominantly denominated in United States dollars, we may be exposed to currency exchange fluctuations. Recent events in the global financial markets have been coupled with increased volatility in the currency markets. Fluctuations in the exchange rate between the U.S. dollar, the Canadian dollar, the Euro, and the currency of other regions in which we may operate may have a material adverse effect on our business, financial condition and operating results. We may, in the future, establish a program to hedge a portion of our foreign currency exposure with the objective of minimizing the impact of adverse foreign currency exchange movements. However, even if we develop a hedging program, it may not mitigate currency risks. NOTE 14 – STOCK-BASED COMPENSATION Stock-based compensation expense for the years ended December 31, 2023 and 2022 was $ 2,199,046 and $ 2,571,785 , respectively based on the vesting schedule of the Restricted Stock Units ("RSUs") and Stock Options ("Options"). During the year ended December 31, 2023, 503,699 RSUs vested and 332,984 shares of common stock were issued to employees and directors related to vesting of RSUs. During the year ended December 31, 2022, 96,170 RSUs vested and 87,442 shares of common stock were issued to employees and directors related to vesting of RSUs. No cash flow effects are anticipated for stock grants. The Company's shareholders approved 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, up to an aggregate 1,100,000 authorized shares of common stock . In 2023, an additional $ 1,200,000 shares were authorized by the shareholders . 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 one to three year period of continued employment or service performance before the stock grant of RSUs or stock option vests. The maximum contractual term for options granted is under the Omnibus Incentive Plan . The following schedule shows stock grant activity for the years ended December 31, 2023 and 2022: Number of Shares Grants unvested as of December 31, 2021 199,282 Grants awarded 531,326 Forfeiture/cancelled ( 129,429 ) Grants vested and issued ( 87,442 ) Grants vested unissued at year-end ( 8,728 ) Grants unvested as of December 31, 2022 505,009 Grants awarded 628,523 Forfeiture/Cancelled ( 50,066 ) Grants vested and issued ( 397,210 ) Grants vested unissued at year-end ( 106,844 ) Grants unvested as of December 31, 2023 579,412 The following table summarizes grants of RSU vesting periods: Number of Shares Unrecognized Stock Compensation Expense As of December 31, 240,060 $ 911,704 2024 182,090 170,045 2025 157,262 168,497 2026 579,412 $ 1,250,246 The following schedules show stock option activity for the years ended December 31, 2023 and 2022: Number of Shares Weighted Average Remaining Life (Years) Weighted Average Exercise Price Stock options outstanding as of December 31, 2021 641,337 6.49 $ 6.68 Issued 43,161 0.00 $ 8.64 Exercised ( 4,555 ) 0.00 $ 6.00 Forfeited ( 78,516 ) 0.00 $ 6.55 Stock options outstanding at December 31, 2022 601,427 7.85 $ 6.84 Stock options exercisable at December 31, 2022 511,991 0.00 $ 6.58 The following table summarizes stock option vesting periods under the Incentive Plans: Number of Shares Weighted Average Remaining Life (Years) Weighted Average Exercise Price Stock options outstanding as of December 31, 2022 601,427 5.49 $ 6.84 Issued — 0.00 $ 0.00 Exercised — 0.00 $ 0.00 Forfeited ( 99,598 ) 0.00 $ 7.01 Stock options outstanding at December 31, 2023 501,829 4.67 $ 6.81 Stock options exercisable at December 31, 2023 471,288 0.00 $ 6.70 The aggregate intrinsic value of the stock options outstanding and exercisable at December 31, 2023 and 2022 was $ 0 and $ 4,021,834 , respectively. NOTE 15 – SHAREHOLDERS’ 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 . In connection with this offering, we received approval to list our common stock on the Nasdaq Capital Market under the symbol "UGRO." On May 24, 2021, we announced that the Board authorized a stock repurchase program to purchase up to $ 5,000,000 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 authorized a $ 2,000,000 increase to the stock repurchase program, to a total of $ 7,000,000 . On February 2, 2022, the Board authorized an additional $ 1,500,000 increase to the stock repurchase, to a total of $ 8,500,000 . On September 12, 2022, the Board authorized an additional $ 2,000,000 increase to the stock repurchase, for a total of $ 10,500,000 . During the twelve months ended December 31, 2023 the Company did not 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 $ 4,362,052 . 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 $ 9,073,622 , under this program. As of December 31, 2023, we have $ 1,429,458 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 $ 3,000,000 , outside of any stock repurchase or publicly announced program. NOTE 16 – INCOME TAXES The Company accounts for income taxes in accordance with the asset and liability method prescribed in ASC 740, "Accounting for Income Taxes." The Company has adopted the provisions of ASC 740-10-25, which provides recognition criteria and a related measurement model for uncertain tax positions taken or expected to be taken in income tax returns. ASC 740-10-25 requires that a position taken or expected to be taken in a tax return be recognized in the financial statements when it is more likely than not that the position would be sustained upon examination by tax authorities. Tax positions that meet the more likely than not threshold are then measured using a probability weighted approach recognizing the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement. The Company had no tax positions relating to open income tax returns that were considered to be uncertain. The Company has experienced cumulative losses for both book and tax purposes since inception. The potential future recovery of any tax assets that the Company may be entitled to due to these accumulated losses is uncertain and any tax assets that that the Company may be entitled to have been fully reserved based on management’s current estimates. Management intends to continue maintaining a full valuation allowance on the Company’s deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of these allowances. The deferred income tax benefit for the years ended December 31, 2023 and 2022 relate 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. Loss before income tax are as follows (in thousands): Year-ended December 31, 2023 2022 Domestic $ ( 23,999 ) $ ( 13,862 ) Foreign $ ( 1,344 ) $ ( 2,376 ) Total $ ( 25,343 ) $ ( 16,238 ) The income tax benefit for the years ended December 31, 2023 and 2022 are as follows (in thousands): Year-ended December 31, 2023 2022 Current Federal $ — $ — State $ ( 50 ) $ ( 72 ) Foreign $ — $ — $ ( 50 ) $ ( 72 ) Deferred Federal $ ( 44 ) $ 859 State $ — $ 196 Foreign $ — $ — $ ( 44 ) $ 1,055 Total income tax benefit (expense) $ ( 94 ) $ 983 A tax benefit in the period ending December 31, 2022 in the amount of $ 1,055,315 was recorded as a result of the release of part of the valuation allowance to offset deferred tax liabilities that were assumed as part of the business combination. A reconciliation between the expected income tax provision at the federal statutory tax rate and the reported income tax provision for the periods ended are approximately as follows: Year-ended December 31, 2023 2022 Statutory Federal income tax rate 21 % 21 % State income taxes, net of federal benefit 3 % 2 % Research and development tax credits — % — % Change in valuation allowance ( 18 ) % ( 14 ) % Change in Tax Rate — % — % Permanent differences ( 2 ) % ( 3 ) % Goodwill Impairment ( 4.4 ) % — % Other — % — % — % 6 % The tax effects of significant items comprising the Company’s deferred taxes as of December 31, 2023 and 2022 are as follows (in thousands): December 31, 2023 2022 Deferred tax assets: Federal, state and foreign NOL carryover $ 9,532 $ 5,618 Lease Liabilities $ 461 $ 638 Bad Debts and Other Reserves $ 73 $ 26 Fixed Assets $ 7 Investments $ 485 $ 421 Share-based Compensation $ — $ — Interest Expense $ 46 $ 22 Other $ 194 $ 89 Total deferred tax assets $ 10,798 $ 6,814 Valuation Allowance $ ( 9,786 ) $ ( 5,114 ) Net deferred tax assets $ 1,012 $ 1,700 Deferred tax liabilities: Goodwill $ ( 66 ) $ ( 9 ) Intangible Assets $ ( 539 ) $ ( 1,010 ) ROU Assets $ ( 451 ) $ ( 632 ) Fixed Assets $ ( 49 ) Net deferred tax asset (liability) $ ( 44 ) $ — At December 31, 2023, the Company had $ 34.2 million of Federal net operating loss which are set to expire beginning in 2037. The Internal Revenue Code contains provisions that may limit the net operating loss carryovers available to be used in any year if certain events occur, including significant changes in ownership interest. Below is a table showing the gross net operating loss carryovers available at December 31, 2023 and their respective expiration: Amount Expiry Federal Net Operating Losses with expiration $ 1,945 2037 Federal Net Operating Losses with indefinite life $ 32,218 indefinite Total Federal Net Operating Losses $ 34,163 Various State Net Operating Losses $ 29,080 2037-2043 Canada Net Operating Losses $ 1,997 2042 Netherlands Net Operating Losses $ 1,724 indefinite 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. The Company has no credit carryforwards for tax purposes. The Company’s primary filing jurisdictions are the United States, Canada, and the Netherlands. Due to the Company’s net operating loss carryforwards, the Company’s income tax returns remain subject to examination by federal, foreign and most state taxing authorities for all tax years. NOTE 17 – BUSINESS DEVELOPMENT 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. The customer has been a key customer to the Company and the Company expects to continue to do significant business with the customer in the future. In order to immediately satisfy the customer in this matter, 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, including, claims for reimbursement of the expense. In total, the Company delivered $ 3.3 million of replacement lighting equipment to the customer and recorded the full amount as a business development expense during the year ended December 31, 2022. NOTE 18 – WARRANTS The following table shows warrant activity for the years ended December 31, 2023 and 2022: Number of shares Weighted Average Exercise Price Warrants outstanding as of December 31, 2021 395,483 $ 11.65 Exercised ( 18,196 ) $ 6.00 Terminated – cashless exercise ( 40,137 ) $ 6.00 Expired — $ — Warrants outstanding as of December 31, 2022 337,150 $ 12.63 Warrants exercisable as of December 31, 2022 337,150 $ 12.63 Number of shares Weighted Average Exercise Price Warrants outstanding as of December 31, 2022 337,150 $ 12.63 Exercised — $ — Terminated — $ — Issued for line of credit 175,531 $ 1.25 Expired loan extension ( 1,000 ) $ 6.00 Warrants outstanding as of December 31, 2023 511,681 $ 8.74 Warrants exercisable as of December 31, 2023 337,150 $ 12.63 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. The weighted-average life of the warrants is 4.04 years. The aggregate intrinsic value of the warrants outstanding and exercisable at December 31, 2023 is $ 31,009 . NOTE 19 – SEGMENTS An operating segment is defined as a component of a reporting entity that engages in business activities from which it recognizes revenues and incurs expenses with discrete financial information available that is evaluated regularly by the Chief Operating Decision Maker ("CODM") of the operating segment. The CODM utilizes this financial information to decide how to allocate resources to, and in assessing performance of, the operating segment. Management evaluates segment performance primarily based on operating segment gross profit. The Company has identified the following operating segments related to fiscal years 2023 and 2022: • Equipment systems - Operating segment that acts as an experienced vendor providing value-added reselling to clients when selling vetted best-in-call commercial horticulture lighting solutions, rolling and automated container benching systems, specialty fans, fertigation/irrigation systems, environmental control systems, and microbial mitigation and odor reduction systems. • Services - Operating segment that generates revenue by providing clients with design-build service offerings that include architectural, interior, and engineering design, construction management, as well as services for the operational stages of the facility. The Company's in-house architectural, interior design, engineering, construction and cultivation design services integrate design with pre-construction services and thereby reduce project schedule and capital investments. • Construction design-build - Operating segment that engages as a general contractor to provide all the additional necessary parts to deliver clients' projects, from the initial estimate and bid process, to subcontractor selection, and management of all construction details. In addition to the operating segments identified above, the Company recognizes other revenues and incurs costs at the corporate level where it develops and oversees the implementation of company-wide strategic initiatives and provides support to our operating segments by centralizing certain administrative functions. Corporate management is responsible for, among other things: evaluating and selecting the geographic markets in which we operate, consistent with our overall business strategy; making major personnel decisions related to employee compensation and benefits; and monitoring the financial and operational performance of the Company's operating segments. Corporate costs include general and administrative expenses related to operating our corporate headquarters. The Company's operating segments follow the same accounting policies used for our consolidated financial statements as described in Note 1 – Summary of Significant Accounting Policies. The results of each operating segment are not necessarily indicative of the results that would have occurred had the operating segment been an independent, stand-alone entity during the periods presented, nor are they indicative of the results to be expected in future periods. The following tables present financial information relating to our operating segments for the fiscal years ended December 31, 2023 and 2022: Year Ended December 31, 2023 Equipment Services Construction Corporate/ Other Total Revenues $ 12,720,873 $ 11,919,920 $ 44,561,782 $ 717,473 $ 69,920,048 Cost of revenues 11,081,532 7,222,964 41,194,900 517,986 60,017,382 Gross profit $ 1,639,341 $ 4,696,956 $ 3,366,882 $ 199,487 $ 9,902,666 Gross profit % 13 % 39 % 8 % 28 % 14 % Intangible asset amortization $ — $ 411,680 $ 644,500 $ — $ 1,056,180 Business development $ — $ — $ — $ — $ — Income (Loss) before income taxes $ ( 3,360,659 ) $ ( 1,414,727 ) $ ( 177,618 ) $ ( 20,390,448 ) $ ( 25,343,452 ) Total assets $ 2,800,367 $ 17,604,751 $ 31,310,180 $ ( 2,202,231 ) $ 49,513,067 Year Ended December 31, 2022 Equipment Services Construction Corporate/ Other Total Revenues $ 33,119,480 $ 13,084,647 $ 19,080,747 $ 1,009,825 $ 66,294,699 Cost of revenues 28,776,022 6,239,013 18,392,077 732,065 54,139,177 Gross profit $ 4,343,458 $ 6,845,634 $ 688,670 $ 277,760 $ 12,155,522 Gross profit % 13 % 52 % 4 % 28 % 18 % Intangible asset amortization $ 10,547 $ 500,451 $ 548,781 $ — $ 1,059,779 Business development $ 3,299,864 $ — $ — $ — $ 3,299,864 Income (Loss) before income taxes $ ( 3,966,953 ) $ 645,181 $ ( 1,960,111 ) $ ( 10,956,108 ) $ ( 16,237,991 ) Total assets $ 12,338,461 $ 21,023,989 $ 20,819,338 $ 6,112,699 $ 60,294,487 NOTE 20 – QUARTERLY FINANCIAL INFORMATION (UNAUDITED) Effect of Restatement on Previously Issued Quarterly Financial Information The Company is presenting herein restated unaudited condensed consolidated financial information for each of the previously reported quarters during the fiscal years ended December 31, 2023, and 2022 and for the year-to-date periods then ended. See Note 1A “Restatement of Previously Issued Consolidated Financial Statements,” for additional information on the restatement. The following tables present the effect of the restatement on the Company's previously reported unaudited condensed Consolidated Balance Sheets as of March 31, 2023, June 30, 2023 and September 30, 2023 and unaudited condensed Consolidated Statements of Operations and Comprehensive Loss and condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2023, the three and six months ended June 30, 2023 and the three and nine months ended September 30, 2023. The values as previously reported were derived from the previously filed Quarterly Reports on Form 10-Q for the quarters ended March 31, 2023, June 30, 2023, and September 30, 2023. The definitions of the amounts for each column are the same definitions stated in Note 1A. As of March 31, 2023 As of June 30, 2023 As of September 30, 2023 As Reported Restatement Adjustments As Restated As Reported Restatement Adjustments As Restated As Reported Restatement Adjustments As Restated Current assets: Cash $ 7,327,485 $ ( 261,282 ) $ 7,066,203 $ 8,559,181 $ ( 267,127 ) $ 8,292,054 $ 4,770,430 $ ( 273,233 ) $ 4,497,197 Accounts receivable, net 22,069,269 ( 247,727 ) 21,821,542 15,475,146 ( 140,159 ) 15,334,987 18,341,489 ( 139,990 ) 18,201,499 Contract receivables 2,817,407 — 2,817,407 6,948,417 ( 271,105 ) 6,677,312 8,378,657 ( 1,562,217 ) 6,816,440 Prepaid expenses and other assets 4,685,529 ( 826,696 ) 3,858,833 3,540,554 ( 1,030,933 ) 2,509,621 3,268,279 ( 1,137,504 ) 2,130,775 Total current assets 36,899,690 ( 1,335,705 ) 35,563,985 34,523,298 ( 1,709,324 ) 32,813,974 34,758,855 ( 3,112,944 ) 31,645,911 Non-current assets: Property and equipment, net 1,366,761 — 1,366,761 1,332,908 — 1,332,908 1,456,009 — 1,456,009 Operating lease right of use assets, net 2,542,644 — 2,542,644 2,396,668 — 2,396,668 2,217,738 — 2,217,738 Investments 2,572,103 — 2,572,103 2,584,964 — 2,584,964 — — — Goodwill 15,572,050 ( 552,379 ) 15,019,671 15,572,050 ( 552,379 ) 15,019,671 15,572,050 ( 552,379 ) 15,019,671 Intangible assets, net 5,140,667 — 5,140,667 4,876,503 — 4,876,503 4,634,672 — 4,634,672 Total non-current assets 27,194,225 ( 552,379 ) 26,641,846 26,763,093 ( 552,379 ) 26,210,714 23,880,469 ( 552,379 ) 23,328,090 Total assets $ 64,093,915 $ ( 1,888,084 ) $ 62,205,831 $ 61,286,391 $ ( 2,261,703 ) $ 59,024,688 $ 58,639,324 $ ( 3,665,323 ) $ 54,974,001 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 14,865,846 $ ( 40,836 ) $ 14,825,010 $ 18,552,579 $ ( 55,708 ) $ 18,496,871 $ 22,194,304 $ ( 1,144,208 ) $ 21,050,096 Accrued expenses 5,215,255 1,884,456 7,099,711 5,183,451 1,606,895 6,790,346 4,074,098 1,641,446 5,715,544 Contract liabilities 2,413,423 752,769 3,166,192 3,344,832 938,193 4,283,025 1,981,728 994,473 2,976,201 Customer deposits 2,355,609 — 2,355,609 1,940,394 — 1,940,394 969,888 — 969,888 Contingent consideration 2,537,291 — 2,537,291 238,621 — 238,621 161,947 — 161,947 Notes payable 2,908,213 — 2,908,213 1,941,188 — 1,941,188 1,964,775 — 1,964,775 Operating lease liabilities 606,648 — 606,648 617,815 — 617,815 598,447 — 598,447 Total current liabilities 30,902,285 2,596,389 33,498,674 31,818,880 2,489,380 34,308,260 31,945,187 1,491,711 33,436,898 Non-current liabilities: Operating lease liabilities, net of current portion 1,964,804 — 1,964,804 1,822,754 — 1,822,754 1,666,138 — 1,666,138 Deferred tax liability 968,151 ( 968,151 ) — 914,185 ( 914,185 ) — 865,802 ( 865,802 ) — Total non-current liabilities 2,932,955 ( 968,151 ) 1,964,804 2,736,939 ( 914,185 ) 1,822,754 2,531,940 ( 865,802 ) 1,666,138 Total liabilities $ 33,835,240 $ 1,628,238 $ 35,463,478 $ 34,555,819 $ 1,575,195 $ 36,131,014 $ 34,477,127 $ 625,909 $ 35,103,036 Commitments and contingencies (note 10) Stockholders’ equity Preferred stock — — — — — — — — — Common stock 12,388 64 12,452 13,056 — 13,056 13,120 — 13,120 Additional paid-in capital 85,554,375 ( 693,010 ) 84,861,365 87,468,937 ( 692,946 ) 86,775,991 88,268,286 ( 692,946 ) 87,575,340 Treasury shares ( 12,045,542 ) — ( 12,045,542 ) ( 12,045,542 ) — ( 12,045,542 ) ( 12,045,542 ) — ( 12,045,542 ) Accumulated deficit ( 43,262,546 ) ( 2,823,376 ) ( 46,085,922 ) ( 48,705,879 ) ( 3,143,952 ) ( 51,849,831 ) ( 52,073,667 ) ( 3,598,286 ) ( 55,671,953 ) Total stockholders’ equity 30,258,675 ( 3,516,322 ) 26,742,353 26,730,572 ( 3,836,898 ) 22,893,674 24,162,197 ( 4,291,232 ) 19,870,965 Total liabilities and stockholders’ equity $ 64,093,915 $ ( 1,888,084 ) $ 62,205,831 $ 61,286,391 $ ( 2,261,703 ) $ 59,024,688 $ 58,639,324 $ ( 3,665,323 ) $ 54,974,001 Three months ended March 31, 2023 Three months ended June 30, 2023 Three months ended September 30, 2023 As Reported Restatement Adjustments As Restated As Reported Restatement Adjustments As Restated As Reported Restatement Adjustments As Restated Revenues: Equipment systems $ 2,911,823 $ ( 6,788 ) $ 2,905,035 $ 4,619,888 $ 68,646 $ 4,688,534 $ 3,043,656 $ ( 7,898 ) $ 3,035,758 Services 3,470,653 — 3,470,653 3,034,574 ( 4,000 ) 3,030,574 2,898,741 — 2,898,741 Construction design-build 10,205,952 ( 10,614 ) 10,195,338 11,048,997 ( 456,528 ) 10,592,469 14,813,486 ( 1,347,393 ) 13,466,093 Other 176,957 6,788 183,745 134,086 5,813 139,899 178,439 7,898 186,337 Total revenues 16,765,385 ( 10,614 ) 16,754,771 18,837,545 ( 386,069 ) 18,451,476 20,934,322 ( 1,347,393 ) 19,586,929 Cost of revenues: Equipment systems 2,477,505 ( 69,024 ) 2,408,481 4,044,082 95,212 4,139,294 2,766,117 8,030 2,774,147 Services 1,997,423 ( 22,885 ) 1,974,538 1,949,959 — 1,949,959 1,768,166 — 1,768,166 Construction design-build 9,315,993 ( 86,020 ) 9,229,973 9,876,622 ( 121,382 ) 9,755,240 13,413,066 ( 929,094 ) 12,483,972 Other 132,616 526 133,142 92,248 2,557 94,805 130,257 7,102 137,359 Total cost of revenues 13,923,537 ( 177,403 ) 13,746,134 15,962,911 ( 23,613 ) 15,939,298 18,077,606 ( 913,962 ) 17,163,644 Gross profit 2,841,848 166,789 3,008,637 2,874,634 ( 362,456 ) 2,512,178 2,856,716 ( 433,431 ) 2,423,285 Operating expenses: General and administrative 7,484,450 200,580 7,685,030 6,336,894 ( 101,688 ) 6,235,206 5,592,354 ( 33,587 ) 5,558,767 Depreciation and amortization 404,069 — 404,069 424,163 — 424,163 372,969 — 372,969 Business development — — — — — — — — Total operating expenses 7,888,519 200,580 8,089,099 6,761,057 ( 101,688 ) 6,659,369 5,965,323 ( 33,587 ) 5,931,736 Loss from operations ( 5,046,671 ) ( 33,791 ) ( 5,080,462 ) ( 3,886,423 ) ( 260,768 ) ( 4,147,191 ) ( 3,108,607 ) ( 399,844 ) ( 3,508,451 ) Non-operating income (expense): Interest expense ( 73,216 ) — ( 73,216 ) ( 44,989 ) — ( 44,989 ) ( 39,929 ) — ( 39,929 ) Interest income 73,131 — 73,131 75,060 — 75,060 19,461 — 19,461 Write-down of investment — — — — — ( 258,492 ) — ( 258,492 ) Contingent consideration ( 160,232 ) — ( 160,232 ) — — — — — Loss on settlement — — — ( 1,500,000 ) — ( 1,500,000 ) — — — Other income (expense) ( 2,793 ) ( 7,629 ) ( 10,422 ) ( 140,946 ) ( 5,843 ) ( 146,789 ) ( 28,605 ) ( 6,106 ) ( 34,711 ) Total non-operating income (expense) ( 163,110 ) ( 7,629 ) ( 170,739 ) ( 1,610,875 ) ( 5,843 ) ( 1,616,718 ) ( 307,565 ) ( 6,106 ) ( 313,671 ) Loss before income taxes ( 5,209,781 ) ( 41,420 ) ( 5,251,201 ) ( 5,497,298 ) ( 266,611 ) ( 5,763,909 ) ( 3,416,172 ) ( 405,950 ) ( 3,822,122 ) Income tax benefit 65,132 ( 65,132 ) — 53,965 ( 53,965 ) — 48,384 ( 48,384 ) — Net loss $ ( 5,144,649 ) $ ( 106,552 ) $ ( 5,251,201 ) $ ( 5,443,333 ) $ ( 320,576 ) $ ( 5,763,909 ) $ ( 3,367,788 ) $ ( 454,334 ) $ ( 3,822,122 ) Comprehensive loss $ ( 5,144,649 ) $ ( 106,552 ) $ ( 5,251,201 ) $ ( 5,443,333 ) $ ( 320,576 ) $ ( 5,763,909 ) $ ( 3,367,788 ) $ ( 454,334 ) $ ( 3,822,122 ) Loss per share - basic and diluted $ ( 0.48 ) $ ( 0.01 ) $ ( 0.49 ) $ ( 0.50 ) $ ( 0.03 ) $ ( 0.53 ) $ ( 0.29 ) $ ( 0.04 ) $ ( 0.33 ) Weighted average shares - basic and diluted 10,772,705 10,772,705 10,772,705 10,945,978 10,945,978 10,945,978 11,649,790 11,649,790 11,649,790 Six months ended June 30, 2023 Nine months ended September 30, 2023 As Reported Restatement Adjustments As Restated As Reported Restatement Adjustments As Restated Revenues: Equipment systems $ 7,531,711 $ 61,858 $ 7,593,569 $ 10,575,367 $ 53,960 $ 10,629,327 Services 6,505,227 ( 4,000 ) 6,501,227 9,403,968 ( 4,000 ) 9,399,968 Construction design-build 21,254,949 ( 467,142 ) 20,787,807 36,068,435 ( 1,814,535 ) 34,253,900 Other 311,043 12,601 323,644 489,482 20,499 509,981 Total revenues 35,602,930 ( 396,683 ) 35,206,247 56,537,252 ( 1,744,076 ) 54,793,176 Cost of revenues: Equipment systems 6,521,587 26,188 6,547,775 9,287,704 34,218 9,321,922 Services 3,947,382 ( 22,885 ) 3,924,497 5,715,548 ( 22,885 ) 5,692,663 Construction design-build 19,192,615 ( 207,402 ) 18,985,213 32,605,681 ( 1,136,496 ) 31,469,185 Other 224,864 3,083 227,947 355,121 10,185 365,306 Total cost of revenues 29,886,448 ( 201,016 ) 29,685,432 47,964,054 ( 1,114,978 ) 46,849,076 Gross profit 5,716,482 ( 195,667 ) 5,520,815 8,573,198 ( 629,098 ) 7,944,100 Operating expenses: General and administrative 13,821,344 98,892 13,920,236 19,413,698 65,305 19,479,003 Depreciation and Amortization 828,232 — 828,232 1,201,201 — 1,201,201 Business development — — — — — — Total operating expenses 14,649,576 98,892 14,748,468 20,614,899 65,305 20,680,204 Loss from operations ( 8,933,094 ) ( 294,559 ) ( 9,227,653 ) ( 12,041,701 ) ( 694,403 ) ( 12,736,104 ) Non-operating income (expense): Interest expense ( 118,205 ) — ( 118,205 ) ( 158,134 ) — ( 158,134 ) Interest income 148,191 — 148,191 167,652 — 167,652 Write-down of investment — — — ( 258,492 ) — ( 258,492 ) Contingent consideration ( 160,232 ) — ( 160,232 ) ( 160,232 ) — ( 160,232 ) Loss on settlement ( 1,500,000 ) — ( 1,500,000 ) ( 1,500,000 ) — ( 1,500,000 ) Other income (expense) ( 143,739 ) ( 13,472 ) ( 157,211 ) ( 172,344 ) ( 19,578 ) ( 191,922 ) Total non-operating income (expense) ( 1,773,985 ) ( 13,472 ) ( 1,787,457 ) ( 2,081,550 ) ( 19,578 ) ( 2,101,128 ) Loss before income taxes ( 10,707,079 ) ( 308,031 ) ( 11,015,110 ) ( 14,123,251 ) ( 713,981 ) ( 14,837,232 ) Income tax benefit 119,097 ( 119,097 ) — 167,481 ( 167,481 ) — Net loss $ ( 10,587,982 ) $ ( 427,128 ) $ ( 11,015,110 ) $ ( 13,955,770 ) $ ( 881,462 ) $ ( 14,837,232 ) Comprehensive loss $ ( 10,587,982 ) $ ( 427,128 ) $ ( 11,015,110 ) $ ( 13,955,770 ) $ ( 881,462 ) $ ( 14,837,232 ) Loss per share - basic and diluted $ ( 0.97 ) $ ( 0.04 ) $ ( 1.01 ) $ ( 1.29 ) $ ( 0.08 ) $ ( 1.37 ) Weighted average shares - basic and diluted 10,859,820 10,859,820 10,859,820 10,859,820 10,859,820 10,859,820 Common Stock Additional Paid in Capital Accumulated Deficit Treasury Stock Total Shareholders’ Equity Shares Amount Balance, March 31, 2023, as originally stated 12,388,389 $ 12,388 $ 85,554,375 $ ( 43,262,546 ) $ ( 12,045,542 ) $ 30,258,675 Adjustments to goodwill due to using incorrect share price at acquisition date for equity portion of acquisition price ( 692,946 ) ( 692,946 ) Issuance of contingent consideration shares originally incorrectly recorded in Q2 2023 64,224 64 ( 64 ) — Various income statement adjustments on or prior to March 31, 2023 ( 2,823,376 ) ( 2,823,376 ) Balance, March 31, 2023, as restated 12,452,613 $ 12,452 $ 84,861,365 $ ( 46,085,922 ) $ ( 12,045,542 ) $ 26,742,353 Common Stock Additional Paid in Capital Accumulated Deficit Treasury Stock Total Shareholders’ Equity Shares Amount Balance, June 30, 2023, as originally stated 13,056,409 $ 13,056 $ 87,468,937 $ ( 48,705,879 ) $ ( 12,045,542 ) $ 26,730,572 Adjustments to goodwill due to using incorrect share price at acquisition date for equity portion of acquisition price ( 692,946 ) ( 692,946 ) Various income statement adjustments on or prior to June 30, 2023 ( 3,143,952 ) ( 3,143,952 ) Balance, June 30, 2023, as restated 13,056,409 $ 13,056 $ 86,775,991 $ ( 51,849,831 ) $ ( 12,045,542 ) $ 22,893,674 Common Stock Additional Paid in Capital Accumulated Deficit Treasury Stock Total Shareholders’ Equity Shares Amount Balance, September 30, 2023, as originally stated 13,120,413 $ 13,120 $ 88,268,286 $ ( 52,073,667 ) $ ( 12,045,542 ) $ 24,162,197 Adjustments to goodwill due to using incorrect share price at acquisition date for equity portion of acquisition price ( 692,946 ) ( 692,946 ) Various income statement adjustments on or prior to September 30, 2023 ( 3,598,286 ) ( 3,598,286 ) Balance, September 30, 2023, as restated 13,120,413 $ 13,120 $ 87,575,340 $ ( 55,671,953 ) $ ( 12,045,542 ) $ 19,870,965 Three months ended March 31, 2023 Six months ended June 30, 2023 Nine months ended September 30, 2023 As Reported Restatement Adjustments As Restated As Reported Restatement Adjustments As Restated As Reported Restatement Adjustments As Restated Cash flows from operating activities: Net loss $ ( 5,144,649 ) $ ( 106,552 ) $ ( 5,251,201 ) $ ( 10,587,982 ) $ ( 427,128 ) $ ( 11,015,110 ) $ ( 13,955,770 ) $ ( 881,462 ) $ ( 14,837,232 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 404,069 — 404,069 828,232 — 828,232 1,201,201 — 1,201,201 Amortization of right-of-use assets — 87,426 87,426 — 168,250 168,250 — 323,002 323,002 Stock-based compensation expense 479,641 — 479,641 1,102,188 — 1,102,188 1,824,835 160,848 1,985,683 Impairment of investment — — — — — — 258,492 — 258,492 Loss on settlement — — — 1,500,000 — 1,500,000 — 1,500,000 1,500,000 Change in fair value of contingent consideration 160,232 — 160,232 160,232 — 160,232 160,232 — 160,232 Interest income on investments 327,191 ( 339,983 ) ( 12,792 ) 472,277 ( 497,931 ) ( 25,654 ) 561,518 ( 586,404 ) ( 24,886 ) Changes in operating assets and liabilities (net of acquired amounts): Accounts receivable and contract receivables ( 6,827,927 ) 325,823 ( 6,502,104 ) ( 4,424,814 ) 549,363 ( 3,875,451 ) ( 8,782,141 ) 1,901,050 ( 6,881,091 ) Prepaid expenses and other assets and property and equipment ( 334,525 ) ( 76,656 ) ( 411,181 ) 1,030,205 ( 92,170 ) 938,035 1,498,518 ( 182,408 ) 1,316,110 Accounts payable, contract liabilities, customer deposits, and accrued expenses 6,902,726 848,871 7,751,597 10,659,177 ( 343,472 ) 10,315,705 12,325,944 ( 2,290,639 ) 10,035,305 Change in contingent consideration from indemnification ( 174,592 ) 174,592 — ( 917,699 ) ( 318,597 ) ( 1,236,296 ) ( 917,699 ) — ( 917,699 ) Operating lease liability — ( 57,635 ) ( 57,635 ) ( 360,787 ) 210,521 ( 150,266 ) ( 529,746 ) 231,341 ( 298,405 ) Deferred tax liability ( 65,132 ) 65,132 — ( 119,097 ) 119,097 — ( 167,481 ) 167,481 — Customer deposits — — — — — — — — — Net cash used in operating activities ( 4,272,966 ) 921,018 ( 3,351,948 ) ( 658,068 ) ( 632,067 ) ( 1,290,135 ) ( 6,522,097 ) 342,809 ( 6,179,288 ) Cash flows from investing activities: Proceeds from sale of investment — — — — — — 2,326,472 ( 4 ) 2,326,468 Purchases of property and equipment ( 133,833 ) ( 4,177 ) ( 138,010 ) ( 226,700 ) 799 ( 225,901 ) ( 456,484 ) 35,502 ( 420,982 ) Net cash provided by (used in) investing activities ( 133,833 ) ( 4,177 ) ( 138,010 ) ( 226,700 ) 799 ( 225,901 ) 1,869,988 35,498 1,905,486 Cash flows from financing activities: Additions to notes payable — — — — — — 518,400 ( 518,400 ) — Repayment of finance lease liability ( 43,410 ) — ( 43,410 ) ( 88,299 ) 33,536 ( 54,763 ) ( 133,388 ) 15,802 ( 117,586 ) Payments to settle contingent consideration ( 230,309 ) — ( 230,309 ) ( 479,457 ) 479,457 — ( 479,365 ) ( 92 ) ( 479,457 ) Repayment of notes payable — ( 924,469 ) ( 924,469 ) ( 1,996,298 ) 104,802 ( 1,891,496 ) ( 2,491,111 ) 104,804 ( 2,386,307 ) Net cash used in financing activities ( 273,719 ) ( 924,469 ) ( 1,198,188 ) ( 2,564,054 ) 617,795 ( 1,946,259 ) ( 2,585,464 ) ( 397,886 ) ( 2,983,350 ) Net change in cash ( 4,680,518 ) ( 7,628 ) ( 4,688,146 ) ( 3,448,822 ) ( 13,473 ) ( 3,462,295 ) ( 7,237,573 ) ( 19,579 ) ( 7,257,152 ) Cash at beginning of period 12,008,003 ( 253,654 ) 11,754,349 12,008,003 ( 253,654 ) 11,754,349 12,008,003 ( 253,654 ) 11,754,349 Cash at end of period $ 7,327,485 $ ( 261,282 ) $ 7,066,203 $ 8,559,181 $ ( 267,127 ) $ 8,292,054 $ 4,770,430 $ ( 273,233 ) $ 4,497,197 Non Cash Investing and Financing Activities Stock issued for contingent consideration — 191,854 191,854 — 191,854 191,854 — 1,400,511 1,400,511 Operating lease right-of-use asset and liability measurement — — — — — — — 11,315 11,315 Prepaid assets financed by notes payable — — — — — — — 518,400 518,400 Financing lease right-of-use asset and liability measurement — 26,899 26,899 — — — — 23,664 23,664 The following tables present the effect of the restatement on the Company's previously reported unaudited condensed Consolidated Balance Sheets as of March 31, 2022, June 30, 2022 and September 30, 2022 and unaudited condensed Consolidated Statements of Comprehensive Income and condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2022, the three and six months ended June 30, 2022 and the three and nine months ended September 30, 2022. The values as previously reported were derived from the previously filed Quarterly Reports on Form 10-Q for the quarters ended March 31, 2022, June 30, 2022, and September 30, 2022. The definitions of the amounts for each column are the same definitions stated in Note 1A. As of March 31, 2022 As of June 30, 2022 As of September 30, 2022 As Reported Restatement Adjustments As Restated As Reported Restatement Adjustments As Restated As Reported Restatement Adjustments As Restated Current assets: Cash $ 27,052,203 $ ( 235,481 ) $ 26,816,722 $ 22,767,595 $ ( 237,012 ) $ 22,530,583 $ 18,605,182 $ ( 246,012 ) $ 18,359,170 Accounts receivable, net 13,467,120 — 13,467,120 14,903,543 — 14,903,543 12,234,400 — 12,234,400 Contract receivables — — — 543,687 — 543,687 1,270,902 — 1,270,902 Inventories 354,320 — 354,320 398,098 — 398,098 310,996 — 310,996 Prepaid expenses and other assets 10,081,436 ( 362,695 ) 9,718,741 6,142,613 ( 363,807 ) 5,778,806 4,852,262 ( 570,515 ) 4,281,747 Total current assets 50,955,079 ( 598,176 ) 50,356,903 44,755,536 ( 600,819 ) 44,154,717 37,273,742 ( 816,527 ) 36,457,215 Non-current assets: Property and equipment, net 207,638 — 207,638 864,022 — 864,022 830,406 — 830,406 Operating lease right of use assets, net 693,524 — 693,524 708,876 — 708,876 1,193,161 — 1,193,161 Investments 4,210,358 ( 1,710,358 ) 2,500,000 4,210,358 ( 1,710,358 ) 2,500,000 2,546,574 — 2,546,574 Goodwill 7,992,121 ( 254,100 ) 7,738,021 10,636,284 797,894 11,434,178 12,127,124 ( 692,946 ) 11,434,178 Intangible assets, net 1,412,965 — 1,412,965 4,886,740 — 4,886,740 4,461,403 — 4,461,403 Total non-current assets 14,516,606 ( 1,964,458 ) 12,552,148 21,306,280 ( 912,464 ) 20,393,816 21,158,668 ( 692,946 ) 20,465,722 Total assets $ 65,471,685 $ ( 2,562,634 ) $ 62,909,051 $ 66,061,816 $ ( 1,513,283 ) $ 64,548,533 $ 58,432,410 $ ( 1,509,473 ) $ 56,922,937 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 7,930,985 $ 21,010 $ 7,951,995 $ 7,946,023 $ 20,136 $ 7,966,159 $ 6,508,946 $ 20,176 $ 6,529,122 Accrued expenses 3,106,790 1,146,799 4,253,589 3,381,263 1,152,458 4,533,721 5,747,624 1,573,762 7,321,386 Contract liabilities — — 671,685 — 671,685 2,026,161 — 2,026,161 Customer deposits 7,234,914 — 7,234,914 3,286,073 — 3,286,073 1,929,829 — 1,929,829 Contingent consideration 1,563,000 — 1,563,000 2,612,678 — 2,612,678 2,400,771 — 2,400,771 Notes Payable — — — — — — — — — Operating lease liabilities 219,836 — 219,836 283,727 — 283,727 354,403 — 354,403 Total current liabilities 20,055,525 1,167,809 21,223,334 18,181,449 1,172,594 19,354,043 18,967,734 1,593,938 20,561,672 Non-current liabilities: Operating lease liabilities, net of current portion 474,862 — 474,862 427,826 — 427,826 1,097,208 ( 440,625 ) 656,583 Deferred tax liability 332,565 ( 332,565 ) — 1,201,112 ( 1,201,112 ) — 863,325 ( 863,325 ) — Total non-current liabilities 807,427 ( 332,565 ) 474,862 1,628,938 ( 1,201,112 ) 427,826 1,960,533 ( 1,303,950 ) 656,583 Total liabilities $ 20,862,952 $ 835,244 $ 21,698,196 $ 19,810,387 $ ( 28,518 ) $ 19,781,869 $ 20,928,267 $ 289,988 $ 21,218,255 Commitments and contingencies (note 10) Stockholders’ equity Preferred stock — — — — — — — — Common stock 11,628 — 11,628 11,911 — 11,911 11,949 — 11,949 Additional paid-in capital 79,589,977 ( 254,100 ) 79,335,877 82,971,694 797,894 83,769,588 83,068,423 ( 692,946 ) 82,375,477 Treasury shares ( 11,456,667 ) — ( 11,456,667 ) ( 11,456,667 ) — ( 11,456,667 ) ( 11,639,937 ) — ( 11,639,937 ) Accumulated deficit ( 23,536,205 ) ( 3,143,778 ) ( 26,679,983 ) ( 25,275,509 ) ( 2,282,659 ) ( 27,558,168 ) ( 33,936,292 ) ( 1,106,515 ) ( 35,042,807 ) Total stockholders’ equity 44,608,733 ( 3,397,878 ) 41,210,855 46,251,429 ( 1,484,765 ) 44,766,664 37,504,143 ( 1,799,461 ) 35,704,682 Total liabilities and stockholders’ equity $ 65,471,685 $ ( 2,562,634 ) $ 62,909,051 $ 66,061,816 $ ( 1,513,283 ) $ 64,548,533 $ 58,432,410 $ ( 1,509,473 ) $ 56,922,937 Three months ended March 31, 2022 Three months ended June 30, 2022 Three months ended September 30, 2022 As Reported Restatement Adjustments As Restated As Reported Restatement Adjustments As Restated As Reported Restatement Adjustments As Restated Revenues: Equipment systems $ 17,067,344 $ — $ 17,067,344 $ 10,077,572 $ 1,315 $ 10,078,887 $ 3,879,271 $ 1,161 $ 3,880,432 Services 3,638,507 — 3,638,507 3,027,555 — 3,027,555 2,839,334 — 2,839,334 Construction design-build — — — 2,917,321 — 2,917,321 5,384,267 — 5,384,267 Other 347,018 — 347,018 259,054 ( 1,315 ) 257,739 265,416 ( 1,161 ) 264,255 Total revenues 21,052,869 — 21,052,869 16,281,502 — 16,281,502 12,368,288 — 12,368,288 Cost of revenues: Equipment systems 13,974,779 612,496 14,587,275 8,945,763 ( 266,618 ) 8,679,145 3,212,286 104,684 3,316,970 Services 1,929,248 ( 327,819 ) 1,601,429 951,672 319,993 1,271,665 1,796,967 7,958 1,804,925 Construction design-build — — — 2,692,700 — 2,692,700 4,570,506 — 4,570,506 Other 246,822 — 246,822 189,421 — 189,421 195,938 — 195,938 Total cost of revenues 16,150,849 284,677 16,435,526 12,779,556 53,375 12,832,931 9,775,697 112,642 9,888,339 Gross profit 4,902,020 ( 284,677 ) 4,617,343 3,501,946 ( 53,375 ) 3,448,571 2,592,591 ( 112,642 ) 2,479,949 Operating expenses: General and administrative 5,551,523 ( 15,315 ) 5,536,208 5,057,324 ( 50,884 ) 5,006,440 5,666,904 306,674 5,973,578 Depreciation and amortization 218,278 — 218,278 371,557 — 371,557 526,750 — 526,750 Business development — — — — — — 3,299,864 — 3,299,864 Total operating expenses 5,769,801 ( 15,315 ) 5,754,486 5,428,881 ( 50,884 ) 5,377,997 9,493,518 306,674 9,800,192 Loss from operations ( 867,781 ) ( 269,362 ) ( 1,137,143 ) ( 1,926,935 ) ( 2,491 ) ( 1,929,426 ) ( 6,900,927 ) ( 419,316 ) ( 7,320,243 ) Non-operating income (expense): Interest expense ( 7,658 ) — ( 7,658 ) ( 7,659 ) 130 ( 7,529 ) ( 6,953 ) ( 130 ) ( 7,083 ) Interest income 79,852 — 79,852 47,274 — 47,274 94,203 — 94,203 Write-down of investment — — — — — — ( 1,710,358 ) 1,710,358 — Contingent consideration — — — — — — — — — Loss on settlement — — — — — — — — — Other income (expense) ( 8,690 ) ( 26,299 ) ( 34,989 ) 71,564 ( 5,067 ) 66,497 ( 210,402 ) ( 11,144 ) ( 221,546 ) Total non-operating income (expense) 63,504 ( 26,299 ) 37,205 111,179 ( 4,937 ) 106,242 ( 1,833,510 ) 1,699,084 ( 134,426 ) Loss before income taxes ( 804,277 ) ( 295,661 ) ( 1,099,938 ) ( 1,815,756 ) ( 7,428 ) ( 1,823,184 ) ( 8,734,437 ) 1,279,768 ( 7,454,669 ) Income tax benefit 108,060 ( 108,060 ) — 76,452 868,547 944,999 73,654 ( 103,624 ) ( 29,970 ) Net loss ( 696,217 ) ( 403,721 ) ( 1,099,938 ) ( 1,739,304 ) 861,119 ( 878,185 ) ( 8,660,783 ) 1,176,144 ( 7,484,639 ) Comprehensive loss $ ( 696,217 ) $ ( 403,721 ) $ ( 1,099,938 ) $ ( 1,739,304 ) $ 861,119 $ ( 878,185 ) $ ( 8,660,783 ) $ 1,176,144 $ ( 7,484,639 ) Loss per share - basic and diluted $ ( 0.07 ) $ ( 0.04 ) $ ( 0.10 ) $ ( 0.17 ) $ 0.08 $ ( 0.08 ) $ ( 0.81 ) $ 0.11 $ ( 0.70 ) Weighted average shares - basic and diluted 10,508,972 10,508,972 10,508,972 10,508,972 10,508,972 10,508,972 10,674,796 10,674,796 10,674,796 Six months ended June 30, 2022 Nine months ended September 30, 2022 As Reported Restatement Adjustments As Restated As Reported Restatement Adjustments As Restated Revenues: Equipment systems $ 27,144,916 $ 1,315 $ 27,146,231 $ 31,024,187 $ 2,476 $ 31,026,663 Services 6,666,062 — 6,666,062 9,505,396 — 9,505,396 Construction design-build 2,917,321 — 2,917,321 8,301,588 — 8,301,588 Other 606,072 ( 1,315 ) 604,757 871,488 ( 2,476 ) 869,012 Total revenues 37,334,371 — 37,334,371 49,702,659 — 49,702,659 Cost of revenues: Equipment systems 22,920,542 345,878 23,266,420 26,132,828 450,562 26,583,390 Services 2,880,920 ( 7,826 ) 2,873,094 4,677,887 132 4,678,019 Construction design-build 2,692,700 — 2,692,700 7,263,206 — 7,263,206 Other 436,243 — 436,243 632,181 — 632,181 Total cost of revenues 28,930,405 338,052 29,268,457 38,706,102 450,694 39,156,796 Gross profit 8,403,966 ( 338,052 ) 8,065,914 10,996,557 ( 450,694 ) 10,545,863 Operating expenses: General and administrative 10,608,847 ( 66,199 ) 10,542,648 16,275,751 240,475 16,516,226 Depreciation and Amortization 589,835 — 589,835 1,116,585 — 1,116,585 Business development — — — 3,299,864 — 3,299,864 Total operating expenses 11,198,682 ( 66,199 ) 11,132,483 20,692,200 240,475 20,932,675 Loss from operations ( 2,794,716 ) ( 271,853 ) ( 3,066,569 ) ( 9,695,643 ) ( 691,169 ) ( 10,386,812 ) Non-operating income (expense): Interest expense ( 15,317 ) 130 ( 15,187 ) ( 22,270 ) — ( 22,270 ) Interest income 127,126 — 127,126 221,329 — 221,329 Write-down of investment — — — ( 1,710,358 ) 1,710,358 — Contingent consideration — — — — — — Loss on settlement — — — — — — Other income (expense) 62,874 ( 31,366 ) 31,508 ( 147,528 ) ( 42,510 ) ( 190,038 ) Total non-operating income (expense) 174,683 ( 31,236 ) 143,447 ( 1,658,827 ) 1,667,848 9,021 Loss before income taxes ( 2,620,033 ) ( 303,089 ) ( 2,923,122 ) ( 11,354,470 ) 976,679 ( 10,377,791 ) Income tax benefit 184,512 760,487 944,999 258,166 656,863 915,029 Net loss $ ( 2,435,521 ) $ 457,398 $ ( 1,978,123 ) $ ( 11,096,304 ) $ 1,633,542 $ ( 9,462,762 ) Comprehensive loss $ ( 2,435,521 ) $ 457,398 $ ( 1,978,123 ) $ ( 11,096,304 ) $ 1,633,542 $ ( 9,462,762 ) Loss per share - basic and diluted $ ( 0.23 ) $ 0.04 $ ( 0.19 ) $ ( 1.05 ) $ 0.15 $ ( 0.89 ) Weighted average shares - basic and diluted 10,527,975 10,527,975 10,527,975 10,577,453 10,577,453 10,577,453 Common Stock Additional Paid in Capital Accumulated Deficit Treasury Stock Total Shareholders’ Equity Shares Amount Balance, March 31, 2022, as originally stated 11,627,528 $ 11,628 $ 79,589,977 $ ( 23,536,205 ) $ ( 11,456,667 ) $ 44,608,733 Adjustments to goodwill due to using incorrect share price at acquisition date for equity portion of acquisition price ( 254,100 ) ( 254,100 ) Various income statement adjustments on or prior to March 31, 2022 ( 3,143,778 ) ( 3,143,778 ) Balance, March 31, 2022, as restated 11,627,528 $ 11,628 $ 79,335,877 $ ( 26,679,983 ) $ ( 11,456,667 ) $ 41,210,855 Common Stock Additional Paid in Capital Accumulated Deficit Treasury Stock Total Shareholders’ Equity Shares Amount Balance, June 30, 2022, as originally stated 11,911,043 $ 11,911 $ 82,971,694 $ ( 25,275,509 ) $ ( 11,456,667 ) $ 46,251,429 Adjustments to goodwill due to using incorrect share price at acquisition date for equity portion of acquisition price ( 692,946 ) ( 692,946 ) Adjustments to goodwill due to inaccurate goodwill calculation in initial Emerald purchase price accounting 1,490,840 Various income statement adjustments on or prior to June 30, 2022 ( 2,282,659 ) ( 2,282,659 ) Balance, June 30, 2022, as restated 11,911,043 $ 11,911 $ 83,769,588 $ ( 27,558,168 ) $ ( 11,456,667 ) $ 44,766,664 Common Stock Additional Paid in Capital Accumulated Deficit Treasury Stock Total Shareholders’ Equity Shares Amount Balance, September 30, 2022, as originally stated 11,948,718 $ 11,949 $ 83,068,423 $ ( 33,936,292 ) $ ( 11,639,937 ) $ 37,504,143 Adjustments to goodwill due to using incorrect share price at acquisition date for equity portion of acquisition price ( 692,946 ) ( 692,946 ) Various income statement adjustments on or prior to September 30, 2022 ( 1,106,515 ) ( 1,106,515 ) Balance, September 30, 2022, as restated 11,948,718 $ 11,949 $ 82,375,477 $ ( 35,042,807 ) $ ( 11,639,937 ) $ 35,704,682 Three months ended March 31, 2022 Six months ended June 30, 2022 Nine months ended September 30, 2022 As Reported Restatement Adjustments As Restated As Reported Restatement Adjustments As Restated As Reported Restatement Adjustments As Restated Cash flows from operating activities: Net loss $ ( 696,217 ) $ ( 403,721 ) $ ( 1,099,938 ) $ ( 2,435,521 ) $ 457,398 $ ( 1,978,123 ) $ ( 11,096,304 ) $ 1,633,542 $ ( 9,462,762 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 218,278 — 218,278 589,835 — 589,835 1,116,585 — 1,116,585 Amortization of right-of-use assets — ( 27,405 ) ( 27,405 ) — 19,305 19,305 — 177,037 177,037 Stock-based compensation expense 882,000 ( 32,209 ) 849,791 1,764,000 438,829 2,202,829 1,860,767 — 1,860,767 Impairment of investment — — — — — — 1,710,358 ( 1,710,358 ) — Interest income on investments ( 56,921 ) 56,921 — ( 54,942 ) 54,942 — ( 42,373 ) ( 4,200 ) ( 46,573 ) Fair value adjustments to purchase price allocation — — — — 1,047,768 1,047,768 — — — Changes in operating assets and liabilities (net of acquired amounts): Accounts receivable and contract receivables ( 354,181 ) ( 1,493,933 ) ( 1,848,114 ) 663,955 ( 1,330,912 ) ( 666,957 ) 2,222,194 ( 947,223 ) 1,274,971 Prepaid expenses and other assets and property and equipment 1,439,679 ( 176,842 ) 1,262,837 6,275,334 ( 1,078,252 ) 5,197,082 7,150,147 ( 575,370 ) 6,574,777 Accounts payable, contract liabilities, customer deposits, and accrued expenses ( 5,017,936 ) 1,866,516 ( 3,151,420 ) ( 11,379,532 ) 1,812,568 ( 9,566,964 ) ( 11,512,764 ) 3,294,646 ( 8,218,118 ) Operating lease liability ( 33,913 ) 69,570 35,657 ( 163,054 ) 101,711 ( 61,343 ) ( 139,251 ) ( 70,505 ) ( 209,756 ) Deferred tax liability ( 108,060 ) 108,060 — ( 184,512 ) ( 730,238 ) ( 914,750 ) ( 258,166 ) ( 656,864 ) ( 915,030 ) Customer deposits — — — — — — — — — Net cash used in operating activities ( 3,727,271 ) ( 33,043 ) ( 3,760,314 ) ( 4,924,437 ) 793,119 ( 4,131,318 ) ( 8,988,807 ) 1,140,705 ( 7,848,102 ) Cash flows from investing activities: Business combinations, net of cash acquired — — — ( 2,709,148 ) ( 1 ) ( 2,709,149 ) ( 2,709,148 ) ( 1 ) ( 2,709,149 ) Proceeds from investments ( 36,000 ) 68,210 32,210 — — — — — — Purchases of property and equipment ( 32,336 ) 2 ( 32,334 ) ( 374,630 ) 52,322 ( 322,308 ) ( 252,902 ) ( 95,031 ) ( 347,933 ) Net cash provided by (used in) investing activities ( 68,336 ) 68,212 ( 124 ) ( 3,083,778 ) 52,321 ( 3,031,457 ) ( 2,962,050 ) ( 95,032 ) ( 3,057,082 ) Cash flows from financing activities: Proceeds from issuance of common stock 28,797 ( 1 ) 28,796 28,797 — 28,797 28,796 1 28,797 Repurchase of common stock ( 3,773,177 ) — ( 3,773,177 ) ( 3,773,177 ) — ( 3,773,177 ) ( 3,956,447 ) — ( 3,956,447 ) Repayment of finance lease liability — ( 35,418 ) ( 35,418 ) ( 72,000 ) ( 61,360 ) ( 133,360 ) ( 108,500 ) ( 54,458 ) ( 162,958 ) Net cash used in financing activities ( 3,744,380 ) ( 35,419 ) ( 3,779,799 ) ( 3,816,380 ) ( 847,221 ) ( 4,663,601 ) ( 4,036,151 ) ( 1,056,454 ) ( 5,092,605 ) Net change in cash ( 7,539,987 ) ( 250 ) ( 7,540,237 ) ( 11,824,595 ) ( 1,781 ) ( 11,826,376 ) ( 15,987,008 ) ( 10,781 ) ( 15,997,789 ) Cash at beginning of period 34,592,190 ( 235,231 ) 34,356,959 34,592,190 ( 235,231 ) 34,356,959 34,592,190 ( 235,231 ) 34,356,959 Cash at end of period $ 27,052,203 $ ( 235,481 ) $ 26,816,722 $ 22,767,595 $ ( 237,012 ) $ 22,530,583 $ 18,605,182 $ ( 246,012 ) $ 18,359,170 Non Cash Investing and Financing Activities Common stock and debt issued in acquisitions — — — — 11,662,570 11,662,570 — 11,662,570 11,662,570 Operating lease right-of-use asset and liability measurement — — — — 59,788 59,788 — — — Financing lease right-of-use asset and liability measurement — — — — 69,600 69,600 — 69,600 69,600 NOTE 21 – SUBSEQUENT EVENTS Term Loan On October 1, 2024, urban-gro, Inc. (the “Company”) entered into an asset based term Loan Agreement (the “Loan”) with Grow Hill, LLC, a Washington limited liability company (the “Lender”) pursuant to which the Lender extended to the Company a secured loan of $ 2,100,000 , to be used to assist the Company with cash management, including to support the Company’s growth in the cannabis industry. The Loan is for a term of 24 months and has an origination fee of $ 100,000 , which was added to the amount of the Loan. There is no penalty to prepayment, except the Lender will receive at least $ 150,000 in minimum interest if Company chooses to prepay the Loan. The Loan contains standard events of default and representations and warranties by the Company and the Lender. The Loan is evidenced by a Secured Promissory Note issued by the Company to the Lender (the “Grow Hill Promissory Note”). The Lender received a security interest in certain of the Company’s assets pursuant to a security agreement between the Company and the Lender (the “Security Agreement”), which does not include any assets of the Company’s subsidiaries, including those securing the Company’s existing line of credit. The Grow Hill Promissory Note accrues simple interest at an annual rate of fifteen percent ( 15 %). In connection with entering in the Loan, the Company issued to Lender a warrant (the “Warrant”) to purchase up to an aggregate of 160,000 shares of the Company’s common stock at an exercise price of $ 2.50 per share. The Warrant is exercisable immediately, will expire on the five ( 5 ) year anniversary of issuance, and is exercisable on a cashless basis at the election of the holder. Modification of Agreement with Bancroft Related to Line of Credit On October 2, 2024, the Company amended its agreement with the Placement Agent to modify the terms of the cash and warrant compensation associated with the Line of Credit. Under this amendment, the threshold at which the second tranche of cash and warrant compensation was increased such that under the new agreement the Company has to draw more than $ 6,000,000 from the Line of Credit in order for the Placement Agent to 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 $ 6,000,000 were to take place. Increase in Shares Available to be Issued Under 2021 Omnibus Plan In the Company's Annual Meeting on June 19, 2024 the Company’s shareholders approved an amendment to the Company's Omnibus 2021 Stock Incentive Plan ("the Plan") to increase the aggregate number of shares available for issuance under the Plan by 1,200,000 shares. All other descriptors of the Plan in Note 14 remain unchanged. Equity Issuances After December 31, 2023 Subsequent to the year ended December 31, 2023, 1,251,051 RSUs were granted to employees, directors, and consultants with various vesting periods. Settlement of Pullar Lawsuit On May 5, 2022, Robert Pullar (“Pullar”) filed a lawsuit against urban-gro and Bradley Nattrass, in his capacity as the Company’s CEO, relating to a prior settlement agreement the Company had entered into with Pullar. On Friday, January 31, 2025, the parties entered a settlement agreement, without any admission of liability or wrongdoing, to settle all claims associated with the litigation in exchange for a cash payment by the Company to Pullar of $ 250,000 and an issuance of a warrant to purchase up to 75,000 shares of common stock with an exercise price per share of $ 1.00 .