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urban-gro, Inc. - Quarter Report: 2022 September (Form 10-Q)

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2022

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _________ to _________.

 

Commission File Number: 001-39933

 

urban-gro, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware   46-5158469

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

1751 Panorama Point, Unit G

Lafayette, CO

 

 

80026

(Address of principal executive offices)   (Zip Code)

 

(720) 390-3880

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Common Stock, $0.001 par value   UGRO   NASDAQ

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐ No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐   Accelerated filer ☐
Non-accelerated filer   Smaller reporting company
    Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

 

The number of shares of the registrant’s only class of common stock outstanding as of November 4, 2022 was 10,611,592 shares.

 

 

 

 

 

 

urban-gro, Inc.

FORM 10-Q

For the Quarterly Period Ended September 30, 2022

 

INDEX

 

    Page
  PART I. FINANCIAL INFORMATION  
     
Item 1. Financial Statements (Unaudited) 4
  Unaudited Condensed Consolidated Balance Sheets 4
  Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) 5
  Unaudited Condensed Consolidated Statements of Shareholders’ Equity (Deficit) 6
  Unaudited Condensed Consolidated Statements of Cash Flows 7
  Notes to Unaudited Condensed Consolidated Financial Statements 8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 19
Item 3. Quantitative and Qualitative Disclosures About Market Risk 25
Item 4. Controls and Procedures 25
     
  PART II. OTHER INFORMATION  
     
Item 1. Legal Proceedings 26
Item 1A. Risk Factors 26
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 27
Item 3. Defaults Upon Senior Securities 27
Item 4. Mine Safety Disclosures 27
Item 5. Other Information 27
Item 6. Exhibits 27
Signatures 28

 

2

 

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

 

Certain statements contained in this Quarterly Report on Form 10-Q constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including statements related to future events, challenges we may face, business strategy, future performance, future operations, backlog, financial position, estimated or projected revenues and losses, projected costs, prospects, plans and objectives of management. All statements other than statements of historical fact may be forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as “seek,” “anticipate,” “plan,” “continue,” “estimate,” “expect,” “may,” “will,” “project,” “predict,” “potential,” “targeting,” “intend,” “could,” “might,” “should,” “believe,” “outlook” and variations of such words or their negative and similar expressions. Forward-looking statements should not be read as a guarantee of future performance or results, and may not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. Forward-looking statements are based on management’s belief, based on currently available information, as to the outcome and timing of future events. These statements involve estimates, assumptions, known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those expressed in such forward-looking statements. When evaluating forward-looking statements, you should consider the risk factors and other cautionary statements described in this Quarterly Report on Form 10-Q and under the heading “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021. We believe the expectations reflected in the forward-looking statements contained in this report are reasonable, but no assurance can be given that these expectations will prove to be correct. Forward-looking statements should not be unduly relied upon. Important factors that could cause actual results or events to differ materially from those expressed in forward-looking statements include, but are not limited to:

 

  risks related to our operating strategy;
  competition for projects in our markets;
  our ability to predict and respond to new laws and governmental regulatory actions affecting our business, including foreign laws and governmental regulation;
  our ability to successfully develop new and/or enhancements to our product offerings and develop a product mix to meet demand;
  our ability to meet or exceed market expectations from analysts;
  unfavorable economic conditions, increases in interest rates and restrictive financing markets that may cause customers to cancel contracts reflected in our backlog or cause sales to decrease;
  our ability to successfully identify, manage and integrate acquisitions;
  our ability to accurately estimate the overall risks, requirements or costs when we bid on or negotiate contracts that are ultimately awarded to us;
  climate change and related laws and regulations;
  our ability to manage our supply chain in a manner that ensures that we are able to obtain adequate raw materials, equipment and essential supplies in a timely manner and at favorable prices;
  our ability to attract and retain key personnel;
  risks associated with concentration of a large portion of our business from a relatively small number of key clients/customers and the effect a loss of a key client/customer could have on our business;
  risks associated with customers or suppliers not fulfilling contracts;
  risks associated with reliance on key suppliers and risks such suppliers could change incentive programs that negatively affect our returns;
  the impact of inflation on costs of labor, raw materials and other items that are critical to our business;
  property damage and other claims and insurance coverage issues;
  the outcome of litigation or disputes;
  risks related to our information technology systems and infrastructure, including cybersecurity incidents;
  our ability to maintain effective internal control over financial reporting; and
  other events outside of our control.

 

These factors are not necessarily all of the important factors that could cause actual results or events to differ materially from those expressed in the forward-looking statements. Other unknown or unpredictable factors could also cause actual results or events to differ materially from those expressed in the forward-looking statements. Our future results will depend upon various other risks and uncertainties, including those described in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021. All forward-looking statements attributable to us are qualified in their entirety by this cautionary statement. Forward-looking statements speak only as of the date hereof. We undertake no obligation to update or revise any forward-looking statements after the date on which any such statement is made, whether as a result of new information, future events or otherwise, except as required by law. You are advised, however, to consult any future disclosures we make on related subjects in future reports to the SEC.

 

3

 

 

PART I. FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

urban-gro, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

 

   September 30, 2022   December 31, 2021 
Assets          
Current assets:          
Cash  $18,605,182   $34,592,190 
Accounts receivable, net   12,234,400    13,125,685 
Contract receivables   1,270,902     
Inventories   310,996    514,756 
Prepaid expenses and other current assets   4,852,262    11,248,266 
Total current assets   37,273,742    59,480,897 
           
Non-current assets:          
Property and equipment, net   830,406    207,496 
Operating lease right of use assets, net   1,193,161    689,704 
Investments   2,546,574    4,210,358 
Goodwill   12,127,124    7,992,121 
Intangible assets, net   4,461,403    1,575,466 
Total non-current assets   21,158,668    14,675,145 
           
Total assets  $58,432,410   $74,156,042 
           
Liabilities          
Current liabilities:          
Accounts payable  $6,508,946   $6,066,896 
Contract liabilities   2,026,161     
Accrued expenses   5,747,624    3,878,278 
Customer deposits   1,929,829    13,345,451 
Contingent consideration   2,400,771    1,563,000 
Operating lease liabilities   354,403    152,459 
Total current liabilities   18,967,734    25,006,084 
           
Non-current liabilities:          
Deferred tax liability   1,097,208    440,625 
Operating lease liabilities   863,325    542,003 
Total non-current liabilities   1,960,533    982,628 
           
Total liabilities   20,928,267    25,988,712 
           
Shareholders’ Equity          
Preferred stock, $0.10 par value; 10,000,000 shares authorized; 0 and 0 shares issued and outstanding        
           
Common stock, $0.001 par value; 100,000,000 shares authorized; 11,948,718 issued and 10,611,592 outstanding as of September 30, 2022, and 11,588,110 issued and 10,733,195 outstanding as of December 31, 2021   11,949    11,588 
Additional paid in capital   83,068,423    78,679,220 
Treasury shares, cost basis: 1,337,126 shares as of September 30, 2022 and 854,915 shares as of December 31, 2021   (11,639,937)   (7,683,490)
Accumulated deficit   (33,936,292)   (22,839,988)
Total shareholders’ equity   37,504,143    48,167,330 
           
Total liabilities and shareholders’ equity  $58,432,410   $74,156,042 

 

See accompanying notes to unaudited condensed consolidated financial statements

 

4

 

 

urban-gro, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(unaudited)

 

   2022   2021   2022   2021 
  

Three Months Ended

September 30,

  

Nine Months Ended

September 30,

 
   2022   2021   2022   2021 
Revenue                    
Equipment systems  $3,879,272   $16,454,321   $31,024,187   $39,978,388 
Services   2,839,338    1,461,041    9,505,396    2,009,961 
Construction design-build   5,384,267    -    8,301,588    - 
Consumable products   265,416    372,449    871,488    1,165,115 
Total Revenue   12,368,293    18,287,811    49,702,659    43,153,464 
                     
Cost of Revenue   9,775,697    14,029,677    38,706,102    33,332,303 
Gross profit   2,592,596    4,258,134    10,996,557    9,821,161 
                     
Operating expenses:                    
General and administrative   5,792,418    3,584,247    14,758,506    8,181,506 
Intangible asset amortization   304,339    101,149    773,063    101,727 
Business development   3,299,864    -    3,299,864    - 
Stock-based compensation   96,767    506,034    1,860,767    1,096,441 
Total operating expenses   9,493,388    4,191,430    20,692,200    9,379,674 
                     
Income (loss) from operations   (6,900,792)   66,704    (9,695,643)   441,487 
                     
Non-operating income (expenses):                    
Interest expense   (7,088)   (4,331)   (22,270)   (326,397)
Interest income   94,200    9,172    221,329    23,562 
Write-down of investment   (1,710,358)   -    (1,710,358)   - 
Interest expense – beneficial conversion of notes payable   -    -    -    (636,075)
Loss on extinguishment of debt   -    -    -    (790,723)
PPP Loan Forgiveness   -    -    -    1,032,316 
Other income (expense)   (210,399)   (11,889)   (147,528)   (15,652)
Total non-operating income (expenses)   (1,833,645)   (7,048)   (1,658,827)   (712,969)
                     
Income (loss) before income taxes   (8,734,437)   59,656    (11,354,470)   (271,482)
                     
Income tax expense (benefit)   (73,654)   -    (258,166)   - 
Net income (loss)  $(8,660,783)  $59,656   $(11,096,304)  $(271,482)
                     
Comprehensive income (loss)  $(8,660,783)  $59,656   $(11,096,304)  $(271,482)
Earnings (loss) per share:                    
Earnings (loss) per share - basic  $(0.81)  $0.01   $(1.05)  $(0.03)
Earnings (loss) per share - dilutive  $(0.81)  $0.00   $(1.05)  $(0.03)
                     
Weighted average share - basic   10,674,796    11,440,255    10,577,453    10,177,482 
Weighted average shares - dilutive   10,674,796    12,204,530    10,577,453    10,177,482 

 

See accompanying notes to unaudited condensed consolidated financial statements

 

5

 

 

urban-gro, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT)

(unaudited)

 

   Shares   Amount   Capital   Deficit   Stock   (Deficit) 
   Common Stock   Additional
Paid in
   Accumulated   Treasury   Total
Shareholders’
Equity
 
   Shares   Amount   Capital   Deficit   Stock   (Deficit) 
Balance, June 30, 2022   11,911,043   $11,911   $82,971,694   $(25,275,509)  $(11,456,667)  $46,251,429 
Stock-based compensation   -    -    96,767    -    -    96,767 
Treasury stock   -    -    -    -    (183,270)   (183,270)
Stock grant program vesting   37,675    38    (38)   -    -                           - 
Net income (loss) for period ended September 30, 2022   -    -    -    (8,660,783)   -    (8,660,783)
Balance, September 30, 2022   11,948,718   $11,949   $83,068,423   $(33,936,292)  $(11,639,937)  $37,504,143 

 

   Common Stock  

Additional

Paid in

   Accumulated   Treasury  

Total

Shareholders’

Equity

 
   Shares   Amount   Capital   Deficit   Stock   (Deficit) 
Balance, June 30, 2021   11,222,914   $11,223   $75,227,775   $(22,295,459)  $(3,474,270)  $49,469,269 
Stock-based compensation   -    -    506,034    -    -    506,034 
Stock issuance related to acquisition   202,066    202    1,999,798    -    -    2,000,000 
Stock issued in conversion of warrants   4,078    4    (4)   -    -                           - 
Stock grant program vesting   68,681    68    (68)   -    -    - 
Common stock repurchased   -    -    -    -    (3,427,541)   (3,427,541)
Stock Options Exercised   33,105    33    202,797    -    -    202,830 
Net income (loss) for period ended September 30, 2021   -    -    -    59,656    -    59,656 
Balance, September 30, 2021   11,530,844    11,530   $77,936,332   $(22,235,803)  $(6,901,811)  $48,810,248 

 

   Common Stock   Additional Paid in   Accumulated   Treasury   Total
Shareholders’ Equity
 
   Shares   Amount   Capital   Deficit   Stock   (Deficit) 
Balance, December 31, 2021   11,588,110   $11,588   $78,679,220   $(22,839,988)  $(7,683,490)  $48,167,330 
Stock-based compensation   -    -    1,860,767    -    -    1,860,767 
Treasury stock   -    -    -    -    (3,956,447)   (3,956,447)
Stock grant program vesting   37,675    38    (38)   -    -    - 
Stock exercised   4,555    5    28,792    -    -    28,797 
Stock issuance related to acquisition   283,515    283    2,499,717    -    -    2,500,000 
Stock issued with exercise of warrants   34,863    35    (35)   -    -    - 
Net income (loss) for period ended September 30, 2022   -    -    -    (11,096,304)   -    (11,096,304)
Balance, September 30, 2022   11,948,718   $11,949   $83,068,423   $(33,936,292)  $(11,639,937)  $37,504,143 

 

   Common Stock  

Additional

Paid in

   Accumulated   Treasury   Total
Shareholders’
Equity
 
   Shares   Amount   Capital   Deficit   Stock   (Deficit) 
Balance, December 31, 2020   4,718,714   $4,719   $14,553,438   $(21,964,321)  $-   $(7,406,164)
Stock-based compensation   -    -    1,096,441    -    -    1,096,441 
Beneficial conversion feature   -    -    636,075    -    -    636,075 
Conversion of Bridge Financing   254,425    254    1,907,971    -    -    1,908,225 
Stock grant program vesting   85,267    85    (85)   -    -                           - 
Stock issuance related to offering, net of offering costs of $4,596,257   6,210,000    6,210    57,497,533    -    -    57,503,743 
Stock issuance related to acquisition   202,066    202    1,999,798    -    -    2,000,000 
Common stock repurchased   -    -    -    -    (6,901,811)   (6,901,811)
Stock issued with exercise of warrants   22,490    22    9,974    -    -    9,996 
Stock Options Exercised   37,882    38    235,187    -    -    235,225 
Net income (loss) for period ended September 30, 2021   -    -    -    (271,482)   -    (271,482)
Balance, September 30, 2021   11,530,844   $11,530   $77,936,332   $(22,235,803)  $(6,901,811)  $48,810,248 

 

See accompanying notes to unaudited condensed consolidated financial statements

 

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urban-gro, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 

   2022   2021 
   Nine Months Ended September 30, 
   2022   2021 
Cash Flows from Operating Activities          
Net income (loss)  $(11,096,304)  $(271,482)
Adjustments to reconcile net income (loss) from operations:          
Depreciation and amortization   1,116,585    263,932 
Deferred income tax benefit   (258,166)     
Amortization of deferred financing costs   -    103,632 
Loss on extinguishment of debt   -    790,723 
PIK interest   

(46,574)

    

-

 
Interest on convertible notes   -    53,725 
Impairment of investment   1,710,358    - 
Stock-based compensation expense   1,860,767    1,096,441 
Beneficial conversion of Bridge notes   -    636,075 
Inventory write-offs   (60,799)   26,792 
Bad debt expense   65,000    28,248 
PPP loan forgiveness   -    (1,032,316)
Changes in operating assets and liabilities (net of acquired amounts):          
Accounts receivable   2,222,194    (3,229,513)
Inventories   264,559    (94,101)
Prepayments and other assets   6,885,588    (5,237,138)
Accounts payable and accrued expenses   (97,142)   2,672,135 
Operating leases   (139,251)   - 
Customer deposits   (11,415,622)   4,517,732 
Net Cash Provided By (Used In) Operating Activities   (8,988,807)   324,885 
           
Cash Flows from Investing Activities          
Business combinations, net of cash acquired   

(2,709,148

)   (5,551,642)
Purchases of property and equipment   (252,902)   (189,815)
Net Cash Used In Investing Activities   (2,962,050)   (5,741,457)
           
Cash Flows from Financing Activities          
Repurchase of common stock   (3,956,447)   (6,901,811)
Proceeds from issuance of Common Stock, net of offering costs   -    58,405,686 
Repayment of debt   -    (5,755,845)
Proceeds from stock issuance   28,796    - 
Payment of finance lease ROU liability   (108,500)   - 
Net Cash Provided By (Used In) Financing Activities   (4,036,151)   45,748,030 
           
Net Increase (Decrease) in Cash   (15,987,008)   40,331,458 
Cash at Beginning of Period   34,592,190    184,469 
Cash at End of Period  $18,605,182   $40,515,927 
           
Supplemental Cash Flow Information:          
Interest paid  $22,271   $222,765 
Operating lease right of use asset  $421,049   $- 
           
Supplemental disclosure of non-cash investing and financing activities:          
Stock issued related to acquisitions  $2,500,000   $2,000,000 
Operating lease right of use assets and liabilities extension  $542,903    $632,725 
PPP Loan Forgiveness  $-   $1,032,316 

 

See accompanying notes to unaudited condensed consolidated financial statements

 

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urban-gro, Inc.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 – ORGANIZATION, ACQUISITIONS, AND LIQUIDITY

 

Organization

 

urban-gro, Inc. (“we,” “us,” “our,” the “Company,” or “urban-gro”) is an integrated professional services and design-build firm. We offer value-added architectural, engineering, and construction management solutions to the Controlled Environment Agriculture (“CEA”), industrial, healthcare, and other commercial sectors. Innovation, collaboration, and a commitment to sustainability drive our team to provide exceptional customer experiences. To serve our horticulture clients, we engineer, 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. We also 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 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

 

Emerald

 

On April 29, 2022 (the “Emerald Closing Date”), the Company acquired all of the issued and outstanding capital stock (the “Emerald Acquisition”) of Emerald Construction Management, Inc. (“Emerald”) from its shareholders (collectively, the “Emerald Sellers”) through a forward merger into a wholly owned subsidiary of urban-gro, which has subsequently changed its name post-merger to Emerald Construction Management, Inc. The aggregate initial purchase price for the Emerald Acquisition was $7.8 million (the “Initial Emerald Purchase Price”), which represented $7.0 million in initial purchase price and an estimated $0.8 million in working capital adjustments.

 

The Initial Emerald Purchase Price was payable as follows: $3.3 million in cash to the Emerald Sellers, net of satisfaction of Emerald’s outstanding debt of approximately $0.4 million; and 283,515 shares of the Company’s common stock valued at $2.5 million issued to the Emerald Sellers. The value of the shares of the Company’s common stock issued at closing was determined based upon the daily volume weighted average closing price (“VWAP”) of the Company’s common stock in the ten trading days prior to the signing date of the Emerald Acquisition Agreement.

 

The Emerald Sellers may earn up to $2.0 million of contingent consideration (the “Emerald Contingent Consideration”) based on the performance of Emerald during the 2-year period following the Emerald Closing Date. The Emerald Contingent Consideration is payable quarterly in shares of the Company’s common stock for a two-year period and will be equal to 35% of Emerald’s Quarterly Gross Profit (as defined in the Emerald Acquisition Agreement). The value of such shares will be determined based upon the VWAP of the Company’s common stock in the ten trading days prior to the end of the applicable quarter the Quarterly Gross Profit is calculated. The Company accounted for the acquisition of Emerald as follows:

 

8

 

 

      
Purchase Price  $7,671,557 
      
Allocation of Purchase Price:     
Cash  $622,641 
Accounts receivable  $2,666,811 
Contract receivable  $494,456 
Prepayments and other assets  $38,086 
Property and equipment  $403,008 
ROU asset  $82,408 
Goodwill  $4,135,006 
Intangible assets  $3,659,000 
Accrued expenses  $2,361,302 
Contract liabilities  $1,071,399 
ROU 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, 2021. 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.

 

                     
  

Three Months Ended

September 30,

  

Nine Months Ended

September 30,

 
   2022   2021   2022   2021 
Revenue   12,368,293    25,911,249    61,384,107    58,974,083 
Net Income (loss)   (8,597,133)   561,630    (10,155,899)   (15,053)

 

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.

 

2WR

 

On June 28, 2021, the Company’s wholly-owned subsidiary, urban-gro Architect Holdings, LLC (the “Buyer”), and the 2WRCO Shareholders, the 2WRGA Shareholders, the MJ12 Shareholders, and the 2WRMS Shareholders (collectively, the “2WR Sellers”), and Sam Andras, an individual entered into a Stock Purchase Agreement (the “2WR Purchase Agreement”), pursuant to which the Buyer would purchase all of the issued and outstanding capital stock of 2WR of Colorado, Inc., a Colorado corporation (“2WRCO”), 2WR of Georgia, Inc., a Georgia corporation (“2WRGA”), MJ12 Design Studio, Inc., a Colorado corporation (“MJ12”) (collectively, the “2WR Purchased Shares”) from the 2WR Sellers. In connection with the acquisition of the 2WR Purchased Shares, the Buyer entered into an affiliate relationship with 2WR of Mississippi, P.C., a Mississippi professional corporation (“2WRMS” and together with 2WRCO, 2WRGA and MJ12, the “2WR Entities”). The transaction closed on July 30, 2021. The aggregate initial purchase price for the 2WR Purchased Shares was $10.5 million (the “2WR Purchase Price”), which represented $9.1 million in purchase price and an estimated $1.4 million in working capital adjustments.

 

9

 

 

The 2WR Purchased Shares were payable as follows: $6.5 million in cash, net of the satisfaction of 2WR’s outstanding debt of $0.5 million; and 202,066 shares of the Company’s common stock valued at $2.0 million issued to the 2WR Sellers (the “2WR Closing Payment Shares”). The value of the shares of the Company’s common stock issued at closing was determined based upon the daily VWAP of the Company’s common stock in the ten trading days prior to the signing date of the 2WR Purchase Agreement.

 

The 2WR Purchase Agreement provides for additional earnout payments (“2WR Earnout Payments”) to the 2WR Sellers of up to an aggregate amount of $2.0 million, payable in cash or unregistered shares of the Company’s common stock in the Buyer’s sole discretion. The 2WR Earnout Payments are payable quarterly for a two-year period and will be equal to 20% of the 2WR Entities’ quarterly gross profit (as defined in the 2WR Purchase Agreement). The value of the 2WR Closing Payment Shares was determined based upon the VWAP of the Company’s common stock in the ten trading days prior to the issuance of such shares. If paid in shares, the value of 2WR Earnout Payments will be determined based upon the VWAP of the Company’s common stock in the ten trading days prior to the end of the applicable quarter. The Company accounted for the acquisition of the 2WR Entities as follows:

 

      
Purchase Price  $10,058,536 
      
Allocation of Purchase Price:     
Cash  $950,690 
Accounts receivable  $1,676,208 
Prepayments and other assets  $42,752 
Property and equipment  $9,351 
Goodwill  $7,090,054 
Intangible assets  $1,762,500 
Accrued expenses  $1,032,394 
Deferred tax liability  $440,625 

 

The following pro forma amounts reflect the Company’s results as if the acquisition of the 2WR Entities had occurred on January 1, 2021. 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.

 

                     
  

Three Months Ended

September 30,

  

Nine Months Ended

September 30,

 
   2022   2021   2022   2021 
Revenue   12,368,293    19,225,173    49,702,659    47,842,906 
Net Income (loss)   (8,660,783)   389,217    (11,096,304)   1,022,095 

 

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

 

Liquidity and Going Concern

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business within one year after the date the consolidated financial statements are available to be issued.

 

10

 

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Unaudited Condensed Consolidated Financial Statements

 

The Company has prepared the accompanying condensed consolidated financial statements pursuant to the rules and regulations of the SEC for condensed financial reporting. The condensed consolidated financial statements are unaudited 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 income (loss), condensed consolidated statements of shareholders’ equity (deficit) and condensed consolidated statements of cash flows for the periods presented. The results reported in these condensed consolidated financial statements should not be regarded as necessarily indicative of results that may be expected for the entire year. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted in accordance with regulations of the SEC. These condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

 

Significant Accounting Policies

 

For a detailed discussion about the Company’s significant accounting policies, refer to Note 2 — “Summary of Significant Accounting Policies,” in the Company’s consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. During the nine months ended September 30, 2022, there were no material changes made to the Company’s significant accounting policies.

 

Use of Estimates

 

In preparing condensed consolidated financial statements in conformity with GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of assets and liabilities at the date of the condensed consolidated financial statements and revenues and expenses during the reported period. Actual results could differ from those estimates. Significant estimates include: estimated revenues earned under construction design-build contracts; estimated useful lives and potential impairment of long-lived assets, intangibles and goodwill; inventory write offs; allowance for deferred tax assets; 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.

 

11

 

 

Contract Assets and Liabilities

 

The timing of when the Company bills customers on long-term construction contracts is generally dependent upon agreed-upon contractual terms, which may include milestone billings based on the completion of certain phases of the work, or when services are provided. 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.

 

Retainages 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 table provides information about contract assets and contract liabilities from contracts with customers as of September 30, 2022:

 

 

      
Contract assets     
Revenue recognized in excess of amounts paid or payable (contract receivables) to the Company on uncompleted contracts (contract asset), excluding retainage  $1,009,760 
      
Retainage included in contract assets due to being conditional on something other than solely passage of time   261,142 
Total contract assets  $1,270,902 
      
Contract liabilities     
Payments received or receivable (contract receivables) in excess of revenue recognized on uncompleted contracts (contract liability), excluding retainage  $2,095,432
      
Retainage included in contract liabilities due to being conditional on something other than solely passage of time   (69,271)
Total contract liabilities  $2,026,161

 

NOTE 3 – RELATED PARTY TRANSACTIONS

 

Cloud 9 Support, LLC (“Cloud 9”) is an entity owned by James Lowe, a director of the Company. Cloud 9 purchases materials from the Company for use with its customers. Total sales to Cloud 9 from the Company were $13,383 and $99,556 during the nine months ended September 30, 2022, and 2021, respectively, and $1,571 and $5,349 during the three months ended September 30, 2022 and 2021, respectively. Outstanding receivables from Cloud 9 as of September 30, 2022 and December 31, 2021 totaled $5,623 and $6,797 respectively.

 

12

 

 

NOTE 4 – PREPAYMENTS AND OTHER 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:

 

           
   September 30, 2022   December 31, 2021 
Vendor prepayments  $3,317,075   $10,652,962 
Prepaid services and fees   1,485,170    587,505 
Other assets   50,017    7,799 
Prepayments and other assets  $4,852,262   $11,248,266 

 

NOTE 5 – INVESTMENTS

 

The components of investments are summarized as follows:

 

           
   Edyza   XS Financial 
Balances at December 31, 2021  $1,710,358   $2,500,000 
Impairment   (1,710,358)   - 
PIK interest   -    46,574 
Balances at September 30, 2022  $-   $2,546,574 

 

Edyza

 

The Company has a strategic investment in Edyza, Inc. (“Edyza”), a hardware and software technology company that enables dense sensor networks in agriculture, healthcare, and other environments that require precise micro-climate monitoring. The Company measures this investment at cost, less any impairment changes resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer.

 

During the three months ended September 30, 2022, the Company has fully impaired this investment. The Company notes that the intent and ability to retain its investment for a period of time sufficient to allow for any anticipated recovery has passed, causing an “other than temporary loss.” The Company will continue to monitor any future changes to this impairment and seek to recover any remaining value of its 19.5% ownership. The loss recorded in the three and nine months ended September 30, 2022 was $1.7 million.

 

XS Financial

 

On October 30, 2021, the Company’s wholly-owned subsidiary UGFS, LLC, a Colorado limited liability company (“UGFS”), participated in a convertible note offering of Xtraction Services, Inc., a/k/a XS Financial Inc. (CSE: XSF) (OTCQB: XSHLF) (“XSF”), a specialty finance company providing CAPEX financing solutions, including equipment leasing, to Controlled Environment Agriculture (CEA) companies in the United States. UGFS invested $2,500,000 of a total $43,500,000 raised by XSF. The investment is convertible into equity and incurs 9.50% interest payable in cash (8.0%) and payment-in-kind Notes (“PIK”) (1.5%) prior to any Nasdaq listing and 8.0% interest after any listing, pursuant to the Note Purchase Agreement. The debt matures on October 28, 2023, with a one-year option to extend the maturity date at the option of XSF. In addition, UGFS received 1,250,000 warrants with a CAD$0.45 exercise price pursuant to the Warrant instrument. No value was attributed to the warrants at the time of the investment in XFS.

 

13

 

 

NOTE 6 – GOODWILL & INTANGIBLE ASSETS

 

Goodwill

 

The Company has recorded goodwill in conjunction with the acquisitions it has completed. The goodwill balances as of September 30, 2022 and December 31, 2021 were $12,127,124 and $7,992,121, respectively. Goodwill is not amortized. There is no goodwill for income tax purposes. The Company did not record any impairment charges related to goodwill for the periods ended September 30, 2022 and 2021.

 

Intangible Assets Other Than Goodwill

 

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

 

   September 30, 2022 
Finite-lived intangible assets:  Cost   Accumulated Amortization   Net Book Value 
Customer relationships  $2,987,100   $243,940   $2,743,160 
Trademarks and trade names   1,737,000    253,241    1,483,759 
Backlog and Other   713,837    551,920    161,917 
Total finite-lived intangible assets:   5,437,937    1,049,101    4,388,836 
                
Indefinite-lived intangible assets:               
Patents   44,276    -    44,276 
Trade name   28,291    -    28,291 
Total indefinite-lived intangible assets:   72,567    -    72,567 
Total Intangible assets, net  $5,510,504   $1,049,101   $4,461,403 

 

                
   December 31, 2021 
   Cost   Accumulated Amortization   Net Book Value 
Customer relationships  $834,100   $49,649   $784,451 
Trademarks and trade names   499,000    41,583    457,417 
Backlog and Other   518,404    184,806    333,598 
Total  $1,851,504   $276,039   $1,575,466 

 

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

 

      
   Estimated Future 
   Amortization Expense 
Remainder of 2022  $263,428 
2023   883,978 
2024   799,111 
2025   799,111 
Thereafter   1,643,208 
Total  $4,388,836 

 

Amortization expense for intangible assets for the nine months ended September 30, 2022 and 2021 was $773,063 and $101,727, respectively. Amortization expense for intangible assets for the three months ended September 30, 2022 and 2021 was $304,339 and $101,149, respectively.

 

14

 

 

NOTE 7 – ACCRUED EXPENSES

 

Accrued expenses are summarized as follows:

 

           
   September 30,   December 31, 
   2022   2021 
Accrued operating expenses  $1,053,367   $628,871 
Business development accrual   

1,931,280

    

-

 
Accrued wages and related expenses   1,017,949    1,887,124 
Accrued 401(k)   158,091    23,520 
Accrued sales tax payable   1,586,937    1,338,763 
Accrued expenses  $5,747,624   $3,878,278 

 

NOTE 8 – RISKS AND UNCERTAINTIES

 

Concentration Risk

 

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

 

Customers exceeding 10% of revenue:

 

  

Three Months Ended

September 30,

  

Three Months Ended

September 30,

  

Nine Months Ended

September 30,

  

Nine Months Ended

September 30,

 
Company Customer Number  2022   2021   2022   2021 
C000001462   *    58%   12%   51%
C000001140   *    *    16%   * 
C000001696   12%   *    *    * 

 

Customers exceeding 10% of accounts receivable:

 

   September 30,   December 31, 
Company Customer Number  2022   2021 
C000001462   *    41%
C000001140   14%   23%
C000002187   22%   * 

 

15

 

 

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:

 

   Three Months Ended
September 30,
   Three Months Ended
September 30,
  

Nine
Months Ended

September 30,

   Nine Months Ended
September 30,
 
Company Vendor Number  2022   2021   2022   2021 
V000001029   *    10%   19%   * 
V000000453   *    18%   *    13%
V000001326   10%   18%   *    13%
V000001372   *    15%   *    15%

 

Vendors exceeding 10% of accounts payable:

 

   September 30,   December 31, 
Company Vendor Number  2022   2021 
V000000453   *    20%
V000001372   *    33%
V000001326   *    12%
V000001740   14%   * 
V000001818   15%    * 

 

*Amounts less than 10%

 

Foreign Exchange Risk

 

Although the Company’s revenues and expenses are expected to be predominantly denominated in United States dollars, the Company may be exposed to currency exchange fluctuations. Recent events in the global financial markets have been coupled with increased volatility in the currency markets. Fluctuations in the exchange rate between the U.S. dollar, the Canadian dollar, the Euro, and the currency of other regions in which the Company may operate may have a material adverse effect on the Company’s business, financial condition and operating results. The Company may, in the future, establish a program to hedge a portion of the Company’s foreign currency exposure with the objective of minimizing the impact of adverse foreign currency exchange movements. However, even if the Company develops a hedging program, there can be no assurance that it will effectively mitigate currency risks.

 

NOTE 9 – STOCK-BASED COMPENSATION

 

Stock-based compensation expense for the nine months ended September 30, 2022, and 2021 was $1,860,767 and $1,096,441, respectively, based on the vesting schedule of the stock grants and options. Stock-based compensation expense for the three months ended September 30, 2022 and 2021 was $96,767 and $506,034, respectively, based on the vesting schedule of the stock grants and options. No cash flow effects are anticipated for stock grants.

 

The following schedule shows stock grant activity for the nine months ended September 30, 2022:

 

    

Number of

shares

 
     
Grants unissued as of December 31, 2021   153,673 
      
Issued   542,584 
Forfeiture/Cancelled   (139,226)
Grants Vested   (62,172)
Grants unissued as of September 30, 2022   494,859 

 

16

 

 

As of September 30, 2022, the Company has $2.3 million in unrecognized stock-based compensation expense related to these stock grants.

 

The following schedule shows stock option activity for the nine months ended September 30, 2022.

 

   Number of Shares  

Weighted

Average

Remaining

Life (Years)

  

Weighted

Average

Exercise

Price

 
Stock options outstanding as of December 31, 2021   641,337    7.55   $6.27 
Issued   76,246    

9.20

   $10.48 
Forfeiture/Expired   (40,982)   6.81   $6.05 
Exercised   (4,555)   -   $6.00 
Stock options outstanding as of September 30, 2022   672,046    7.83   $6.76 
Stock options exercisable as of September 30, 2022   462,798    7.01   $5.66 

 

The fair value of the options is calculated using the Black-Scholes pricing model based on the market value of the underlying common stock at the valuation measurement date of $10.48, the remaining contractual term of the options of 10 years, risk-free interest rate of 1.61% and expected volatility of the price of the underlying common stock of 100%.

 

As of September 30, 2022, the Company has $0.3 million in unrecognized stock-based compensation expense related to these stock options. The aggregate intrinsic value of the options outstanding and exercisable at September 30, 2022 is $0.

 

NOTE 10 – SHAREHOLDERS’ EQUITY

 

On May 24, 2021, the Board of Directors authorized a stock repurchase program to purchase up to $5.0 million of the currently outstanding shares of the Company’s common stock, over a period of 12 months through open market purchases, in compliance with Rule 10b-18 under the Securities Exchange Act of 1934. On January 18, 2022, the Board of Directors authorized a $2.0 million increase to the stock repurchase program, to a total of $7.0 million. On February 2, 2022, the Board of Directors authorized an additional $1.5 million increase to the stock repurchase, to a total of $8.5 million. On September 12, 2022, the Board of Directors authorized an additional $2 million increase to the stock repurchase, to a total of $10.5 million.

 

During the nine months ended September 30, 2022, the Company repurchased 482,211 shares of common stock at an average price per share of $8.20, for a total price of $4.0 million under this program. During the three months ended September 30, 2022, the Company repurchased 63,123 shares of common stock at an average price per share of $2.90, for a total price of $0.2 million. During the nine months ended September 30, 2021, the company repurchased 421,024 shares of common stock at an average price per share of $9.33, for a total price of $4.0 million. During the three months ended September 30, 2021, the Company repurchased 368,129 shares of common stock at an average price per share of $9.31, for a total of $3.4 million. In total, the Company has repurchased 987,126 shares of common stock at an average of $8.78 per share, for a total price of $8.7 million, under this program.

 

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

 

17

 

 

NOTE 11 – WARRANTS

 

The following table shows warrant activity for the nine months ended September 30, 2022.

 

  

Number of

shares

  

Weighted

Average

Exercise Price

 
Warrants outstanding as of December 31, 2021   374,088   $11.26 
Exercised   (18,196)  $6.00 
Terminated – cashless exercise   (44,393)  $6.00 
Warrants outstanding as of September 30, 2022   311,499   $12.32 
Warrants exercisable as of September 30, 2022   311,499   $12.32 

 

The weighted-average life of the warrants is 2.10 years. The aggregate intrinsic value of the warrants outstanding and exercisable as of September 30, 2022 is $0.

 

NOTE 12 – 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, during the third quarter of 2022, the Company agreed to supply the replacement lighting solution to the customer at the Company’s expense while the Company continues to work with the vendor to resolve the original defective lighting issue, including, claims for reimbursement of the expense.

 

During the three months ended and at September 30, 2022, the Company delivered $1.3 million of replacement lighting equipment and accrued an additional $2.0 million of expense for the remaining order total for shipments delivered in October 2022. The total business development expense recorded in the three months ended September 30, 2022 was $3.3 million. This expense is a one-time expense. 

 

NOTE 13 – INCOME TAXES

 

The Company has experienced losses for both book and tax purposes since inception. The deferred income tax benefit for the three and nine month periods ended September 30, 2022 relates to the reduction in the deferred tax liability associated with the amortization of the intangible assets from the acquisitions of the Emerald and 2WR Entities.

 

NOTE 14 – SUBSEQUENT EVENTS

 

The Company has evaluated events and transaction occurring subsequent to September 30, 2022 up to the date of this filing of these condensed consolidated financial statements. These statements contain all necessary adjustments and disclosures resulting from that evaluation.

 

On October 10, 2022, the Company signed a binding term sheet to acquire substantially all of the operating assets of Dawson Van Orden, Inc. (“DVO”), an engineering firm with significant experience in indoor CEA, for a total purchase consideration of up to $7.3 million. The asset acquisition of DVO was completed on October 31, 2022 by urban-gro Engineering, Inc., d/b/a DVO, a wholly owned subsidiary of the Company. The Company funded the $7.3 million purchase price, which includes a contingent consideration of up to $1.1 million paid in cash or equity at the Company’s discretion, with $1.3 million in cash, a promissory note of $3.8 million to be paid out over four quarters, and $1.1 million of its common stock at a pre-set price of $4 per share.

 

18

 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion should be read in conjunction with our condensed consolidated financial statements and notes thereto included herein. See also “Forward Looking Statements” on page 3 of this Report.

 

Overview and History

 

urban-gro, Inc. (“we,” “us,” “our,” the “Company,” or “urban-gro”) is an integrated professional services and design-build firm. We offer value-added architectural, engineering, and construction management solutions to the Controlled Environment Agriculture (“CEA”), industrial, healthcare, and other commercial sectors. Innovation, collaboration, and a commitment to sustainability drive our team to provide exceptional customer experiences.

 

On October 31, 2022, we acquired substantially all of the operating assets of Dawson Van Order, Inc, an engineering firm. On April 29, 2022, we acquired Emerald Construction Management, a general contracting and construction management firm. On July 30, 2021, we acquired three architecture design firms (2WR Colorado, Inc, 2WR Georgia, Inc. and MJ12 Design Studios, Inc., collectively the “2WR Entities”) from their shareholders. The 2WR Entities were under common ownership and management. We design and build high performance facilities in several sectors. Within the CEA sector, we design these facilities and while building them, we then integrate complex environmental equipment systems into them. Through this work, we create high-performance indoor cultivation facilities for our clients to grow specialty crops, including leafy greens, vegetables, herbs, and plant-based medicines. Our custom-tailored approach to design, procurement, and equipment integration provides a single point of accountability across all aspects of indoor growing operations. We also help our clients achieve operational efficiency and economic advantages through a full spectrum of professional services and programs focused on facility optimization and environmental health which establish facilities that allow clients to manage, operate and perform at the highest level throughout their entire cultivation lifecycle once they are up and running.

 

We aim to work with our clients in all sectors from inception of their project in a way that provides value throughout the life of their facility. We are a trusted partner and advisor to our clients and offer a complete set of design, engineering, construction management, and managed services. Within the CEA sector, this is complemented by a vetted suite of select cultivation equipment systems. We provide these services in a turnkey fashion, operating as a single point of responsibility for our clients, or they can pick and choose from the variety of services we offer. Outlined below is an example of a complete project that demonstrate how we provide value to our clients

 

 

19

 

 

Our indoor commercial cultivation solution offers an integrated suite of services and equipment systems that generally fall within the following categories:

 

  Service Solutions:

 

  Design, Engineering, and Construction Design-Build Services – A comprehensive collection of services including:

 

  i. Pre-Construction Services
     
  ii. Cultivation Space Planning (“CSP”)
     
  iii. Architectural Design
     
  iv. Engineering
     
  v. Integrated Cultivation Design (“ICD”)
     
  vi. Construction Management (“CM”)

 

  An ongoing service offering including:

 

  i. Facility and Equipment Commissioning Services
     
  ii. Gro-Care Crop and Asset Protection Services including Training Services, Equipment Maintenance Services, Crop Protection Program, and an Interactive Online Operating Support System (“OSS”) for Gro-Care

 

  Integrated Equipment Solutions:

 

  i. Design, Source, and Integration of Complex Environmental Equipment Systems Including Purpose-Built Heating, Ventilation, and Air Conditioning (“HVAC”) solutions, Environmental Controls, Fertigation, and Irrigation Distribution.
     
  ii. Value-Added Reselling (“VAR”) of Cultivation Equipment Systems
     
  iii. Strategic Vendor Relationships with Premier Manufacturers

 

Historically, the majority of our clients are commercial CEA cultivators. However, through our acquisitions we have seen our client base across the industrial, healthcare, and other commercial sectors grow as well. We believe one of the key points of our differentiation that clients value is the depth of experience of our employees and our Company. We currently employ approximately 140 individuals, inclusive of the DVO acquisition. Approximately two-thirds of our employees are considered experts in their areas of focus, and our team includes Designers (Architects, Interior Designers, Cultivation Space Planners), Professional Engineers (Mechanical, Electrical, Plumbing), Engineers (Controls, and Agricultural), Construction Managers (superintendents, supervisors, project managers) and individuals with Masters Degrees in Plant Science, Horticulture, and Business Administration. As a company, we have worked on 1000s of projects and well over 500 projects at indoor CEA facilities and believe that the experience of our team and Company provides clients with the confidence that will proactively keep them from making common costly mistakes during the build out process that impacts operational stages. Our expertise translates into clients saving time, money, and resources through expertise that they can leverage without having to add headcount to their own operations. We provide this experience in addition to offering a platform of the highest quality equipment systems that can be integrated holistically into our clients’ facilities.

 

20

 

 

Results of Operations

 

Comparison of Results of Operations for the three months ended September 30, 2022 and 2021

 

During the three months ended September 30, 2022, we generated revenues of $12.4 million compared to revenues of $18.3 million during the three months ended September 30, 2021, a decrease of $5.9 million, or 32%. This decrease in revenues is a result of the following changes in individual revenue components:

 

  Equipment systems revenue decreased $12.6 million due to a reduction in capital equipment spending by customers;
  Services revenue increased $1.4 million, primarily from the acquisition of the 2WR Entities;
  Construction design-build revenue increased $5.4 million, exclusively from the acquisition of Emerald; and
  Consumable product sales decreased $0.1 million.

 

During the three months ended September 30, 2022, cost of revenues was $9.8 million compared to $14.0 million during the three months ended September 30, 2021, a decrease of $4.2 million, or 30%. This decrease is directly attributable to the overall decrease in revenues indicated above.

 

Gross profit was $2.6 million (21% of revenues) during the three months ended September 30, 2022, compared to $4.2 million (23% of revenue) during the three months ended September 30, 2021. Gross profit as a percentage of revenues decreased primarily due to an increase in lower margin Construction design-build revenue offset by an increase in higher margin services revenue. Margins on equipment systems revenues did not materially impact the change in the overall gross profit percentages.

 

Operating expenses increased by $5.3 million, or 126%, to $9.5 million for the three months ended September 30, 2022 compared to $4.2 million for the three months ended September 30, 2021. This was due to a one-time $3.3 million increase in business development costs as well as a $2.2 million increase in general and administrative operating expenses in part due to an increase in salary, marketing, and travel expenses attributable to the acquisitions of the 2WR Entities and Emerald, a $0.4 million decrease in stock-based compensation expense, primarily due to the elimination of unvested stock grants for employees no longer employed by the Company, and a $0.2 million increase in intangible asset amortization due solely to the acquisitions of the 2WR Entities and Emerald.

 

Non-operating expense was $1.8 million for the three months ended September 30, 2022, compared to non-operating expenses of $0.0 million for the three months ended September 30, 2021, an increase of $1.8 million. This was primarily due to a $1.7 million loss from the impairment of the Edyza investment.

 

Deferred income tax benefit increased by $0.1 million due to the acquisitions of the 2WR Entities and Emerald.

 

As a result of the above, we incurred a net loss of $8.7 million for the three months ended September 30, 2022, or a net loss per share of ($0.81), compared to net income of $0.1 million for the three months ended September 30, 2021, or a fully diluted net income per share of $0.0.

 

Comparison of Results of Operations for the nine months ended September 30, 2022 and 2021

 

During the nine months ended September 30, 2022, we generated revenues of $49.7 million compared to revenues of $43.2 million during the nine months ended September 30, 2021, an increase of $6.5 million, or 15%. This increase in revenues is a result of the following changes in individual revenue components:

 

  Equipment systems revenue decreased $9.0 million primarily due to a decrease in capital equipment spending by our customers;
  Services revenue increased $7.5 million due primarily to the acquisition of the 2WR Entities;
  Construction design-build revenue increased $8.3 million exclusively due to the acquisition of Emerald; and
  Consumable product sales decreased $0.3 million.

 

21

 

 

During the nine months ended September 30, 2022, cost of revenues was $38.7 million compared to $33.3 million during the nine months ended September 30, 2021, an increase of $5.4 million, or 16%. This increase is directly attributable to the increase in revenues indicated above.

 

Gross profit was $11.0 million (22% of revenues) during the nine months ended September 30, 2022 compared to $9.8 million (23% of revenue) during the nine months ended September 30, 2021. Gross profit as a percentage of revenues decreased primarily due to an increase in lower margin construction design-build revenues offset by an increase in higher margin services revenues. Margins on equipment systems revenues did not materially impact the change in the overall gross profit percentages.

 

Operating expenses increased by $11.3 million, or 121%, to $20.7 million for the nine months ended September 30, 2022 compared to $9.4 million for the nine months ended September 30, 2021. This was due to a one-time $3.3 million increase in business development costs as well as a $6.5 million increase in general and administrative expenses, mainly due to an increase in salary, marketing, and travel expenses, in part related to the acquisitions of the 2WR Entities and Emerald, a $0.8 million increase in stock-based compensation expense, primarily due to an increase in the number of total employees included under the plan, and a $0.7 million increase in intangible asset amortization from the acquisitions of Emerald and the 2WR Entities.

 

Non-operating expense was $1.7 million for the nine months ended September 30, 2022, compared to non-operating expense of $0.7 million for the nine months ended September 30, 2021, a change of $1.0 million. Interest expense decreased by $0.3 million in the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021, due to the elimination of debt. Interest income increased by $0.2 million due to the interest earned on the XS Financial investment. The Company recorded a $1.7 million loss from the write-down of the Edyza investment in the nine months ended September 30, 2022. For the nine months ended September 30, 2021, the Company incurred a $1.0 million gain from the forgiveness of the PPP Loan, a $0.8 million loss on the extinguishment of debt, and $0.6 million in interest expense related to the conversion of debt to equity at a discount to the offering price.

 

Deferred income tax benefit increased by $0.3 million due to the acquisitions of the 2WR Entities and Emerald.

 

As a result of the above, we incurred a net loss of $11.1 million for the nine months ended September 30, 2022, or a net loss per share of ($1.05), compared to a net loss of $0.3 million for the nine months ended September 30, 2021, or a net loss per share of ($0.03).

 

NON-GAAP FINANCIAL MEASURES

 

The Company uses the supplemental financial measure of Adjusted Earnings before Interest, Taxes, Depreciation and Amortization (“Adjusted EBITDA”) as a measure of our operating performance. Adjusted EBITDA is not calculated in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and it is not a substitute for other measures prescribed by GAAP such as net income (loss), income (loss) from operations, and cash flows from operating activities. We define Adjusted EBITDA as net income (loss) attributable to urban-gro, Inc., determined in accordance with GAAP, excluding the effects of certain operating and non-operating expenses including, but not limited to, interest expense/income, income taxes/benefit, depreciation of tangible assets, amortization of intangible assets, impairment of investments, unrealized exchange losses, debt forgiveness and extinguishment, stock-based compensation expense, and non-recurring legal and acquisition costs, that we do not believe reflect our core operating performance.

 

Our board of directors and management team focus on Adjusted EBITDA as a key performance and compensation measure. We believe that Adjusted EBITDA assists us in comparing our operating performance over various reporting periods because it removes from our operating results the impact of items that our management believes do not reflect our core operating performance.

 

22

 

 

The following table reconciles net income (loss) attributable to the Company to Adjusted EBITDA for the periods presented:

 

   Three Months Ended September 30,  

Nine Months Ended September 30,

 
   2022   2021   2022   2021 
Net Income (Loss)  $(8,660,783)  $59,656   $(11,096,304)  $(271,482)
Interest expense   7,088    4,331    22,270    326,397 
Interest expense – beneficial conversion feature               636,075 
Interest income   (94,200)   (9,172)   (221,329)   (23,562)
Income tax benefit   (73,654)       (258,166)   

-

 
Depreciation and amortization   

526,750

    

154,306

    

1,116,585

    

263,932

 

EBITDA

   

(8,294,799)

    

209,121

    

(10,436,944)

    

931,360

 
Impairment loss   1,710,358        1,710,358     
Loss on extinguishment of debt               790,723 
Stock-based compensation   96,767    506,034    1,860,767    1,096,441 
Transaction costs   

39,182

    141,052    276,246    198,609 
One-time employee expenses   670,095    125,000    787,691    125,000 
Business development   3,299,864        3,299,864     
Non-recurring legal fees   205,486        258,111    

-

 
PPP loan forgiveness               (1,032,316)
Adjusted EBITDA  $(2,273,047)  $981,207   $(2,243,907)  $2,109,817 

 

BACKLOG

 

Backlog is a financial measure that generally reflects the dollar value of revenue that the Company expects to realize in the future. Although backlog is not a term recognized under generally accepted accounting principles in the United States (“GAAP”), it is a common measure used by companies operating in our industries. We report backlog for the following revenue categories: (i) Equipment Systems; (ii) Construction Design-Build; and (iii) Services. We define backlog for Equipment Systems and Services as signed contracts, with Equipment Systems contracts generally requiring a receipt of a customer deposit. Construction Design-Build backlog is comprised of construction projects once the contract is awarded and to the extent we believe funding is probable. Our Construction Design/Build backlog consists of uncompleted work on contracts in progress and contracts for which we have executed a contract but have not commenced the work. For uncompleted work on contracts in progress, we include (i) executed change orders, (ii) pending change orders for which we expect to receive confirmation in the ordinary course of business, and (iii) claims that we have made against our customers for which we have determined we have a legal basis under existing contractual arrangements and as to which we consider collection to be probable.

 

Our backlog as of September 30, 2022, June 30, 2022, March 31, 2022, and December 31, 2021 for each of our revenue categories is reflected in the following table (in millions of $):

 

Revenue Category 

September 30,

2022

   June 30, 2022   March 31, 2022  

December 31,

2021

 
Equipment Systems  $           5   $7   $16   $25 
Construction Design-Build (1)    56    10    NA    NA 
Services    6    5    6   $5 
Total Backlog  $ 67   $22   $22   $30 

 

(1) - Construction Design-Build revenue and backlog relate to the operations of Emerald which was acquired by the Company on April 29, 2022.

 

Historically, the majority of our Equipment Systems and Services backlog has been retired and converted into revenue within two quarters. At September 30, 2022, we expected approximately 70% of our Construction Design-Build backlog to be completed in the next 12 months. At September 30, 2022, one customer accounted for 63% of total backlog.

 

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Certain Construction Design-Build contracts contain options that are exercisable at the discretion of our customer to award additional work to us, without requiring us to go through an additional competitive bidding process. In addition, some customer contracts also contain task orders that are signed under master contracts pursuant to which we perform work only when the customer awards specific task orders to us.

 

Contracts in our Construction Design-Build backlog may be canceled or modified at the election of the customer. Many Construction Design-Build projects are added to our contract backlog and completed within the same fiscal year and therefore may not be reflected in our beginning or quarter-end Construction Design-Build backlog amounts.

 

Liquidity and Capital Resources

 

As of September 30, 2022, we had cash of $18.6 million, which represented a decrease of $16.0 million from December 31, 2021 due to the following changes during the nine months ended September 30, 2022:

 

 

Net cash used in operating activities was $9.0 million. This use of cash is the net effect of the net loss of $11.2 million, offset by non-cash expenses of $4.4 million, and a reduction in net operating assets and liabilities of $2.3 million. The $2.3 million reduction in net operating assets and liabilities is due to the net effects of an $11.4 million decrease in customer deposits, a $0.1 million decrease in accounts payable and accrued expenses, a $6.9 million decrease in prepayments and other assets, and a $2.2 million decrease in accounts receivable. The decrease in accounts receivable includes $1.8 million recovered from the bank wire fraud lawsuit.

     
  Net cash used in investing activities was $3.0 million, primarily from the acquisition of Emerald. We have no material commitments for capital expenditures as of September 30, 2022.
     
  Net cash used in financing activities was $4.0 million, primarily due to the repurchase of shares of the Company’s common stock.

 

Inflation

 

Although our operations are influenced by general economic conditions, we do not believe that inflation had a material effect on our results of operations during the nine months ended September 30, 2022.

 

Critical Accounting Policies and Estimates

 

Critical Accounting Policies and Estimates

 

The discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. For a detailed discussion about the Company’s significant accounting policies, refer to Note 2 — “Summary of Significant Accounting Policies,” in the Company’s consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. During the nine months ended September 30, 2022, there were no material changes made to the Company’s significant accounting policies.

 

24

 

 

Off-Balance Sheet Arrangements

 

We have not entered into any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources and would be considered material to investors.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

We are a smaller reporting company and are not required to provide the information under this Item pursuant to Regulation S-K.

 

ITEM 4. CONTROLS AND PROCEDURES.

 

Disclosure Controls and Procedures

 

Disclosure Controls and Procedures – Our management, with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“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 this evaluation, our CEO and CFO have concluded that our disclosure controls and procedures were effective as of September 30, 2022, at reasonable assurance levels.

 

We believe that our financial statements presented in this Form 10-Q fairly present, in all material respects, our financial position, results of operations, and cash flows for all periods presented herein.

 

Inherent Limitations – Our management team, including our CEO and CFO, does 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 the nine months ended September 30, 2022, 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.

 

25

 

 

PART II. OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

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

 

  Great Green Theory – Emerald filed a lien and brought a suit in the Superior Court of Berkshire, Massachusetts to foreclose on the lien against Great Green Theory Land, LLC and Great Green Theory Cultivation, LLC who are the owners of the land and a construction project in Lee, Massachusetts. Emerald is claiming breach of contract and quantum merit against Great Green Theory for failure to pay approximately $1.3 million in payment applications, of which approximately half of that amount is due and owed to subcontractors on the project. Great Green Theory has filed counterclaims against Emerald claiming liquidated damages of approximately $1.0 million for alleged unjustifiable delays on the project and alleging construction defects in the project. Two subcontractors on the project have brought suit against Emerald for non-payment to them of which Emerald has not received payment from Great Green Theory.

 

  o Account Receivable of $0.5 million acquired in Emerald transaction – The selling Emerald shareholders have agreed to indemnify and defend the Company for any litigation or judgement stemming from this lawsuit. The Company has recorded the full $0.5 million as a receivable on the opening balance sheet as of the date of the acquisition.
     
  o Legal Costs to collect the Account Receivable of $0.5 million – The Company has agreed to split the legal costs of this claim until the funds are recovered or until the claim of liquidated damages is relieved. Total estimated legal costs associated with this claim are approximately $0.3 million. The Company recorded 50% of this amount as a liability on the opening balance sheet as of the date of the acquisition.

 

  Pullar – urban-gro’s former Chief Financial Officer, George Pullar filed a suit in the District Court of Boulder County, Colorado against urban-gro and Bradley Nattrass, in his capacity as urban-gro’s CEO, claiming breach of fiduciary duty. urban-gro has since been dismissed without prejudice from the suit. The remaining claim stems from a settlement agreement with Mr. Pullar and allegations that Mr. Natrrass failed to share enough non-public material information about urban-gro’s plans for fundraising that would have impacted Mr. Pullar’s decision to enter into the settlement agreement. urban-gro’s director and officer liability insurance carrier has indicated coverage is available to Mr. Nattrass for this suit. We believe we have substantial defenses to the claim asserted in this lawsuit and intend to vigorously defend this action.
     
  Crest Ventures, LLC – The Company has been sued in a breach of contract case in the District Court for Arapahoe County, Colorado. The allegations in the action are based on a claim that Crest Ventures, LLC is entitled to commission compensation on the February 2021 uplisting of our common stock to the Nasdaq Capital Market. We believe we have substantial defenses to the claim asserted in this lawsuit and intend to vigorously defend this action.
     
  Sunflower Bank – The Company has filed a lawsuit against Sunflower Bank related to fraudulent wire transfers of approximately $5.1 million that were made from our accounts at Sunflower Bank in October 2021. As of the date of this Report, $1.8 million of these funds have been returned to us and we subsequently received $0.3 million from our insurance company. We are suing Sunflower Bank for the remaining $3.3 million, inclusive of the insurance proceeds, under a theory of breach of contract, negligence, and breach of UCC standards, as we believe that Sunflower Bank failed to follow industry standard procedures designed to prevent such a theft and is therefore liable for the unrecovered balance. Sunflower Bank has filed counterclaims against us for breach of contract and negligence. We expect Sunflower Bank, Sunflower Bank’s insurers, and/or our insurer to reimburse us for the remaining balance.

 

ITEM 1A. RISK FACTORS

 

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.

 

26

 

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

Stock Repurchase Program

 

The following table summarizes purchases by us of our common stock during the three months ended September 30, 2022:

 

   (a)   (b)   (c)   (d) 
Period  Total number of shares purchased   Average price paid per share   Total number of shares purchased as part of publicly announced plans or programs   Maximum number (or approximate dollar value ) of shares that may be purchased under the plan(s) 
July 1 – July 31, 2022   -    -    924,003   $18,333 
August 1 – August 31, 2022   -    -    924,003   $18,333 
New Program Authorization (1)                 $2,000,000 
September 1 – September 30, 2022   63,123    2.90    987,126   $1,835,063 
Total   63,123    2.90    987,126   $1,835,063 

 

  (1) The Company’s Board of Directors has authorized the Company to repurchase common stock through a variety of methods, including open market repurchases, purchases by contract (including, without limitation, 10b5-1 and 10b-18 plans), and/or privately negotiated transactions. The amount, timing, or prices of repurchases, may vary based on market conditions and other factors. The Program does not have an expiration date and can be modified or terminated by the Board of Directors at any time. On May 24, 2021, the Board of Directors authorized a stock repurchase program to purchase up to $5.0 million of outstanding shares of the Company’s common stock. On January 18, 2022, the Board authorized a $2.0 million increase to the stock repurchase program, to a total of $7.0 million. On February 2, 2022, the Board authorized an additional $1.5 million increase to the stock repurchase, to a total of $8.5 million. On September 12, 2022, the Board authorized an additional $2.0 million increase to the stock repurchase program, to a total of $10.5 million. Since inception of the stock repurchase programs, the Company has repurchased 1.0 million shares at an average price per share of $8.78 for a total of $8.7 million. In February 2021, the Company repurchased 350,000 shares of common stock with an average price per share of $8.50, for a total of $3.0 million, outside of any stock repurchase or publicly announced program.

 

Unregistered Shares Issued in Connection with the Emerald and 2WR Acquisitions

 

On April 29, 2022, the Company issued 283,515 shares of the Company’s common stock valued at $2.5 million as part of the Initial Purchase Price of the Emerald Acquisition as more fully described in Note 1 to the Unaudited Condensed Consolidated Financial Statements above.

 

On June 28, 2021, the Company issued 202,066 shares of the Company’s common stock valued at $2.0 million as part of the initial consideration paid pursuant to the 2WR Purchase Agreement as more fully described in Note 1 to the Unaudited Condensed Consolidated Financial Statements above.

 

The foregoing issuances of restricted shares of common stock were issued under Section 4(a)(2) of the Securities Act of 1933, as amended, and Rule 506 of Regulation D promulgated thereunder. The Company believes the issuance of the foregoing restricted shares was exempt from registration as a privately negotiated, isolated, non-recurring transaction not involving a public solicitation. No commissions were paid regarding the share issuances, and the share certificates were issued with a Rule 144 restrictive legend.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURE

 

Not Applicable.

 

ITEM 5. OTHER INFORMATION

 

None.

 

ITEM 6. EXHIBITS

  

 

 

Exhibit

No.

  Description
     

2.0

Stock Purchase Agreement (incorporated by reference to Exhibit 2.1 to Form 8-K filed June 28, 2021), by and between 2WR Entities, urban-gro, Inc., and urban-gro Architect Holdings, LLC.
     
2.1   Acquisition Agreement and Plan of Merger (incorporated by reference to Exhibit 2.1 to Form 8-K filed March 14, 2022), by and between Emerald Construction Management, Inc, urban-gro, Inc., and Emerald Merger Sub, Inc.
     
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), by and between Emerald Construction Management, Inc, urban-gro, Inc., and Emerald Merger Sub, Inc.
     
3.1   Certificate of Incorporation of urban-gro, Inc. (incorporated by reference to Exhibit 3.3 to Form 8-K filed October 30, 2020).
     
3.2   Certificate of Amendment to Certificate of Incorporation of urban-gro, Inc. (incorporated by reference to Exhibit 3.1 to Form 8-K filed January 5, 2021).
     
3.3   Bylaws of urban-gro, Inc. (incorporated by reference to Exhibit 3.4 to Form 8-K filed October 30, 2020).
     
3.4   Amendment No. 1 to Bylaws of urban-gro, Inc. (incorporated by reference to Exhibit 3.1 to Form 8-K filed January 12, 2021).
     
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   Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
     
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)

 

27

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized, on November 10 2022.

 

  URBAN-GRO, INC.
   
  By: /s/ Bradley Nattrass
    Bradley Nattrass,
    Principal Executive Officer, a duly authorized officer
     
  By: /s/ Richard Akright
    Richard A. Akright, Principal Financial Officer and Principal Accounting Officer

 

28