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What changed in urban-gro, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of urban-gro, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+172 added−174 removedSource: 10-K (2024-03-28) vs 10-K (2023-03-30)

Top changes in urban-gro, Inc.'s 2023 10-K

172 paragraphs added · 174 removed · 119 edited across 5 sections

Item 1. Business

Business — how the company describes what it does

41 edited+33 added−18 removed70 unchanged
Biggest changeWe publish our Board Diversity Matrix on our website at ir.urban-gro.com as well as within our proxy materials each year. ◦ Board Committees: We currently utilize four Board committees: • The Audit Committee which is focused on internal controls, risk management, and multi-discipline oversight enabled by its charter and structure; ▪ The Compensation Committee which is focused on compensation principles, policies, and practices for all employees; ▪ The Nominating and Corporate Governance Committee which oversees the Company's corporate governance practices and procedures; and ▪ The Environmental, Social, and Governance Committee, recently created, which is overseeing the Company's approach to ESG practices and procedures. ◦ Guiding Policies: In addition to the above committee charters, we have a Code of Business Ethics and Conduct as well as a Whistleblower Policy which can be found on our website. ◦ Cybersecurity: We utilize external consultants to help inform cybersecurity best practices, employ cybersecurity software that is preventative and detective for our infrastructure, and require and provide consistent ongoing training for all employees.
Biggest changeCurrently, we utilize four Board committees: 10- • The Audit Committee: Focuses on internal controls, risk management, and multi-discipline oversight enabled by its charter and structure. • The Compensation Committee: Focuses on compensation principles, policies, and practices for all employees. • The Nominating and Corporate Governance Committee: Oversees the Company’s corporate governance practices and procedures and recruits, nominates, and makes recommendations to retain Board members. • The Environmental, Social, Governance Committee: Oversees the Company’s approach to ESG practices and procedures.
As of the date of this Report, the following summarizes the status of our registrations, pending applications, and issued U.S. patents: 12 Trademarks We have received the following trademark registrations: Trademark Jurisdiction Registration Number Registration Date Status URBAN-GRO United States 4618322 October 07, 2014 Registered URBAN-GRO United Kingdom 3266415 January 19, 2018 Registered URBAN-GRO European Union 017391806 October 31, 2018 Registered URBAN-GRO WIPO 1548013 July 08, 2020 Registered URBAN-GRO United Kingdom UK0081548013 July 08, 2020 Registered URBAN-GRO Canada (Madrid) A0098111 July 08, 2020 Registered URBAN-GRO European Union (Madrid) A0098111 July 08, 2020 Registered URBAN-GRO United States 97213742 February 7, 2023 Registered SOLEIL United States 5209707 May 23, 2017 Registered SOLEIL United Kingdom 3266410 March 09, 2018 Registered SOLEIL Canada 1083969 October 07, 2020 Registered SOLEIL European Union 017391781 September 11, 2018 Registered SOLEIL United Kingdom UK00917391781 September 08, 2018 Registered OPTI-DURA United States 5770091 June 04, 2019 Registered OPTI-DURA Canada TMA1070145 January 20, 2020 Registered GRO-CARE European Union 1560748 August 24, 2020 Registered GRO-CARE European Union 017391806 October 29, 2019 Registered GRO-CARE United Kingdom UK00917391806 October 29, 2018 Registered GRO-CARE Canada (Madrid) A0099548 August 24, 2020 Registered GRO-CARE WIPO A0099548 August 24, 2020 Registered We have applied for and are awaiting receipt of the following trademark registrations: Trademark Jurisdiction Application Number Filing Date Status URBAN-GRO Canada 1930075 November 13, 2018 Pending URBAN-GRO United States 88898690 May 03, 2020 Pending URBAN-GRO United States 97213778 January 11, 2022 Pending GRO-CARE United States 88898692 May 03, 2020 Pending Patents Title Jurisdiction Application Number Filing Date Patent Number and Issue Date Status Sensor bus architecture for modular sensor systems United States 15/626,085 June 17, 2017 10,499,123 (December 3, 2019) Issued Expire in 2037 Modular sensor architecture for soil and water analysis at various depths from the surface United States 15/626,079 June 17, 2017 10,405,069 (September 3, 2019) Issued Expire in 2037 Modular sensor architecture for soil and water analysis at various depths from the surface United States 16/519,800 July 23, 2019 10,955,402 (March 23, 2021) Issued Expire in 2037 13 We rely on trade secret protection and confidentiality agreements to safeguard our interests with respect to proprietary know-how that is not patentable and processes for which patents are difficult to enforce.
As of the date of this Report, the following summarizes the status of our registrations, pending applications, and issued U.S. patents: 13- Trademarks We have received the following trademark registrations: Trademark Jurisdiction Registration Number Registration Date Status URBAN-GRO United States 4618322 October 07, 2014 Registered URBAN-GRO United Kingdom 3266415 January 19, 2018 Registered URBAN-GRO European Union 017391806 October 31, 2018 Registered URBAN-GRO Canada 1930075 November 13, 2018 Registered URBAN-GRO WIPO 1548013 July 08, 2020 Registered URBAN-GRO United Kingdom UK0081548013 July 08, 2020 Registered URBAN-GRO Canada (Madrid) A0098111 July 08, 2020 Registered URBAN-GRO European Union (Madrid) A0098111 July 08, 2020 Registered URBAN-GRO United States 97213742 February 7, 2023 Registered SOLEIL United States 5209707 May 23, 2017 Registered SOLEIL United Kingdom 3266410 March 09, 2018 Registered SOLEIL Canada 1083969 October 07, 2020 Registered SOLEIL European Union 017391781 September 11, 2018 Registered SOLEIL United Kingdom UK00917391781 September 08, 2018 Registered OPTI-DURA United States 5770091 June 04, 2019 Registered OPTI-DURA Canada TMA1070145 January 20, 2020 Registered GRO-CARE European Union 1560748 August 24, 2020 Registered GRO-CARE European Union 017391806 October 29, 2019 Registered GRO-CARE United Kingdom UK00917391806 October 29, 2018 Registered GRO-CARE Canada (Madrid) A0099548 August 24, 2020 Registered GRO-CARE WIPO A0099548 August 24, 2020 Registered We have applied for and are awaiting receipt of the following trademark registrations: Trademark Jurisdiction Application Number Filing Date Status URBAN-GRO United States 88898690 May 03, 2020 Pending URBAN-GRO United States 97213778 January 11, 2022 Pending GRO-CARE United States 88898692 May 03, 2020 Pending Patents Title Jurisdiction Application Number Filing Date Patent Number and Issue Date Status Sensor bus architecture for modular sensor systems United States 15/626,085 June 17, 2017 10,499,123 (December 3, 2019) Issued Expire in 2037 Modular sensor architecture for soil and water analysis at various depths from the surface United States 15/626,079 June 17, 2017 10,405,069 (September 3, 2019) Issued Expire in 2037 Modular sensor architecture for soil and water analysis at various depths from the surface United States 16/519,800 July 23, 2019 10,955,402 (March 23, 2021) Issued Expire in 2037 We rely on trade secret protection and confidentiality agreements to safeguard our interests with respect to proprietary know-how that is not patentable and processes for which patents are difficult to enforce.
Property Condition Assessment ("PCA") 5 • Integrated Equipment Systems Solutions: • Design, Source, and Integration of Complex Environmental Equipment Systems including Heating, Ventilation, and Air Conditioning ("HVAC") solutions, Environmental Controls, Fertigation, and Irrigation Distribution • Value-Added Reselling ("VAR") of Cultivation Equipment Systems • Strategic Vendor Relationships with Premier Manufacturers Service Solutions Architectural Design, Engineering, and Construction Services We generate revenue by providing our clients with design-build service offerings that include architectural, interior, and engineering design, construction and construction management, as well as services for the operational stages of the facility.
Property Condition Assessment ("PCA") • Integrated Equipment Systems Solutions: • Design, Source, and Integration of Complex Environmental Equipment Systems including Heating, Ventilation, and Air Conditioning ("HVAC") solutions, Environmental Controls, Fertigation, and Irrigation Distribution • Value-Added Reselling ("VAR") of Cultivation Equipment Systems • Strategic Vendor Relationships with Premier Manufacturers Service Solutions Architectural Design, Engineering, and Construction Services We generate revenue by providing our clients with design-build service offerings that include architectural, interior, and engineering design, construction and construction management, as well as services for the operational stages of the facility.
Though the cultivation and distribution of cannabis containing THC remains illegal under federal law, H.R. 83, enacted by Congress on December 16, 2014, provides that none of the funds made available to the DOJ pursuant to the 2015 Consolidated and Further Continuing Appropriations Act may be used to prevent states from implementing their own laws that authorize the use, distribution, possession, or cultivation of medical cannabis.
Though the cultivation and distribution of cannabis containing THC remains illegal under federal law, H.R. 83, enacted by Congress on December 16, 2014, provides that none of the 12- funds made available to the DOJ pursuant to the 2015 Consolidated and Further Continuing Appropriations Act may be used to prevent states from implementing their own laws that authorize the use, distribution, possession, or cultivation of medical cannabis.
Our design-build solution, when focused on indoor CEA, offers an integrated suite of in-house services and equipment systems that generally fall within the following categories: • Service Solutions: • Architectural Design, Engineering, and Construction Services – A comprehensive collection of services including: i. Pre-Construction Services ii. Cultivation Space Programming ("CSP") iii. Architectural Design and Interior Design iv. Engineering v.
Our design-build solution, when focused on indoor CEA, offers an integrated suite of in-house services and equipment systems that generally fall within the following categories: • Service Solutions: • Architectural Design, Engineering, and Construction Services – A comprehensive collection of services including: i. Pre-Construction Services ii. Cultivation Space Programming ("CSP") 5- iii. Architectural Design and Interior Design iv. Engineering v.
As an example, some clients may currently only be engaged with us for architectural design - we plan to leverage our in-house model and take advantage of every opportunity to cross sell our other services such as engineering; or construction management or general contracting, to provide further value to our clients and grow our revenues and margin dollars. 2.
As an example, some clients may currently only be engaged with us for architectural design - we plan to leverage our in-house model and take advantage of every opportunity to cross sell our other services such as engineering; or construction management or general contracting, to provide further value to our clients and grow our revenues and margin dollars.
Maintaining a consistent desired temperature and humidity level within the cultivation spaces ensures less stress on plants. urban-gro designs these systems to fit within our clients' budgets and provides our clients' facilities a more stable environment to maximize plant health and yields, minimize crop loss, minimize utility costs, save on capital equipment, and maximize sustainability.
Maintaining a consistent desired temperature and humidity level within the cultivation spaces ensures less stress on plants. urban-gro designs these systems to fit within our clients' 7- budgets and provides our clients' facilities a more stable environment to maximize plant health and yields, minimize crop loss, minimize utility costs, save on capital equipment, and maximize sustainability.
We believe that many elements of our design and engineering processes involve proprietary know-how, technology or data that are not covered by patents or patent applications, including technical processes, test equipment designs, algorithms and procedures.
We believe that many elements of our design and 14- engineering processes involve proprietary know-how, technology or data that are not covered by patents or patent applications, including technical processes, test equipment designs, algorithms and procedures.
We expect these larger projects will also provide us with the foresight to more accurately forecast our future quarterly business performance. 3.
We expect these larger projects will also provide us with the foresight to more accurately forecast our future quarterly business performance.
We attempt to protect our intellectual property via the deployment of non-disclosure agreements with both prospective clients and business partners as well as licensees; however, these non-disclosure agreements may not prevent a third party from infringing upon our rights. Human Capital As of December 31, 2022, we employed 152 employees, all of which were full-time employees.
We attempt to protect our intellectual property via the deployment of non-disclosure agreements with both prospective clients and business partners as well as licensees; however, these non-disclosure agreements may not prevent a third party from infringing upon our rights. Human Capital As of December 31, 2023, we employed 130 employees, all of which were full-time employees.
As of December 31, 2022, we employed 152 full time employees, approximately two-thirds of which are considered experts in their areas of focus. Our team includes Designers (Architects, Interior Designers, Cultivation Space Planners), Engineers (Mechanical, Electrical, Plumbing, Controls, and Fire Protection), Construction Managers (Project Managers and Supervisors), and horticulturists.
As of December 31, 2023, we employed 130 full time employees, approximately two-thirds of which are considered experts in their areas of focus. Our team includes Designers (Architects, Interior Designers, Cultivation Space Planners), Engineers (Mechanical, Electrical, Plumbing, Controls, and Fire Protection), Construction Managers (Project Managers and Supervisors), and horticulturists.
Expansion of Geographical Reach While continuing to focus on building out our solution set and expanding our client base in all sectors, and more specifically establishing our end-to-end solution as the industry standard for CEA indoor cultivation in the U.S. market, we also plan to continue to expand our reach within Europe.
Expand our Regional Client Base 11- While continuing to focus on building out our solution set and expanding our client base in all sectors, and more specifically establishing our end-to-end solution as the industry standard for CEA indoor cultivation in the U.S. market, we also plan to continue to expand our reach within Europe.
Our collaborative and integrated approach from our award-winning team begins with inspiration boards focused on understanding the client’s aesthetic desires. Interior design is holistic and thereby includes all aspects of the building interiors from full branding to the selection and design of all finishes and interior systems. Common discussions beyond aesthetics include the cost, durability, and maintainability of systems presented.
Our collaborative and integrated approach from our award-winning team begins with inspiration boards focused on understanding the client’s aesthetic desires. Interior design is holistic and thereby includes all aspects of the building interiors from full branding to the selection and design of all finishes and interior systems.
The table below summarizes the change in full-time employee headcount that has occurred by quarter for the years ended December 31, 2022 and 2021: 2022 2021 Fourth Quarter Third Quarter Second Quarter First Quarter Fourth Quarter Third Quarter Second Quarter First Quarter Beginning of period headcount 115 121 98 86 77 51 46 40 Net change in headcount 13 (6) 3 12 9 6 5 6 2WR acquisition 0 0 0 0 0 20 0 0 Emerald acquisition 0 0 20 0 0 0 0 0 DVO acquisition 24 0 0 0 0 0 0 0 Ending of period headcount 152 115 121 98 86 77 51 46 Available Information Our internet address is www.urban-gro.com and our investor relations internet address is ir.urban-gro.com.
The table below summarizes the change in full-time employee headcount that has occurred by quarter for the years ended December 31, 2023 and 2022: 2023 2022 Fourth Quarter Third Quarter Second Quarter First Quarter Fourth Quarter Third Quarter Second Quarter First Quarter Beginning of period headcount 131 137 165 152 115 121 98 86 Net change in headcount (1) (6) (28) 13 13 (6) 3 12 Emerald acquisition 0 0 0 0 0 0 20 0 DVO acquisition 0 0 0 0 24 0 0 0 Ending of period headcount 130 131 137 165 152 115 121 98 Available Information Our internet address is www.urban-gro.com and our investor relations internet address is ir.urban-gro.com.
This is an increase of 66 employees (77%) from December 31, 2021. Our employees are critical to our continued success. With approximately two-thirds of our employees considered experts, we view our employees and the depth and breadth of their experience and expertise as our competitive advantage.
This is a decrease of 22 employees (14%) from December 31, 2022. Our employees are critical to our continued success. With approximately two-thirds of our employees considered experts, we view our employees and the depth and breadth of their experience and expertise as our competitive advantage.
Growth Strategy Our employees and the application of their acquired knowledge are our most valuable assets as an organization. Our growth strategy involves leveraging this considerable strength as a basis for growth across three pillars of focus and exploration. These three pillars allow us to continue to provide value to our current and future clients: 1.
Growth Strategy Our employees and the application of their acquired knowledge are our most valuable assets as an organization. Our growth strategy involves leveraging this considerable strength as a basis for growth across three pillars of focus and exploration.
This competition comes from traditional wholesale horticulture dealers, online retailers, and some manufacturers who sell direct. 10 Greenhouse manufacturers and European systems integrators may increasingly seek to offer comprehensive product and service solutions to compete with our integrated solution, but they are primarily focused on the greenhouse industry, and not on indoor-CEA facilities.
Greenhouse manufacturers and European systems integrators may increasingly seek to offer comprehensive product and service solutions to compete with our integrated solution, but they are primarily focused on the greenhouse industry, and not on indoor-CEA facilities.
We derive income from our ability to generate revenue from our clients through the billing of our employees’ time spent on client projects. We offer value-added architectural, engineering, systems procurement and integration, and construction design-build solutions to customers operating in the controlled environment agriculture ("CEA") and industrial and other commercial ("Commercial") sectors.
We offer value-added architectural, engineering, systems procurement and integration, and construction design-build solutions to customers operating in the controlled environment agriculture ("CEA") and industrial and other commercial ("Commercial") sectors.
ITEM 1. BUSINESS Background 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. In March 2017, we converted to a Colorado corporation and exchanged shares of our common stock for every member interest issued and outstanding on the date of conversion.
ITEM 1. BUSINESS Background 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.
The majority of equipment sales are sold as part of a larger all-encompassing project solution that spans over a 12 to 24 month period and includes design, engineering, and the sale of both custom complex and more standard equipment systems. 7 Strategic Vendor Relationships with Premier Manufacturers We work closely with leading technology and manufacturing providers to deliver an integrated solution designed to achieve the stated objectives of our clients.
The majority of equipment sales are sold as part of a larger all-encompassing project solution that spans over a 12 to 24 month period and includes design, engineering, and the sale of both custom complex and more standard equipment systems.
These detailed ICD plans are taken through the construction document stage and are leveraged by our clients to efficiently solicit contractor bids. Construction and Construction Management provides all the additional necessary parts to deliver our clients' projects, from the initial estimate and bid process, to subcontractor selection, and management of all construction details.
Construction and Construction Management provides all the additional necessary parts to deliver our clients' projects, from the initial estimate and bid process, to subcontractor selection, and management of all construction details.
We cannot predict the nature of any future laws, regulations, interpretations or applications, nor can we determine what effect additional governmental regulations or administrative policies and procedures, when and if promulgated, could have on our business. 11 Canadian Regulations Summary of the Cannabis Act In 2001, Canada began the legislative path towards the eventual legalization and regulation of recreational and medical cannabis.
Regulations may be enacted in the future that may be directly applicable to our business. We cannot predict the nature of any future laws, regulations, interpretations or applications, nor can we determine what effect additional governmental regulations or administrative policies and procedures, when and if promulgated, could have on our business.
Our ICD team’s deep understanding of cultivation systems provides the foundation for ensuring optimal space utilization as they utilize an integrated and collaborative design process focused on understanding, vetting, and implementing the client’s vision. Products utilized in the ICD’s basis-of-design ensures the integration of high-quality systems and product performance.
ICD creates cultivation space-focused design layouts that integrate climate control, fertigation, benching, air flow, and lighting. Our ICD team’s deep understanding of cultivation systems provides the foundation for ensuring optimal space utilization as they utilize an integrated and collaborative design process focused on understanding, vetting, and implementing the client’s vision.
Our trademarks are solely for branding purposes, although we no longer sell any goods or services under the Soleil brand.
Our patents are limited to certain sensors that we obtain from third party manufacturers that do not contribute materially to our sales or profitability. Our trademarks are solely for branding purposes, although we no longer sell any goods or services under the Soleil brand.
Our skilled project managers, specialized within our clients' sectors, maintain knowledgeable open lines of communication with both clients, onsite superintendents, and internal and external construction partners to manage expectations, costs and schedules. 6 Our Additional Service Offerings Our Facility and Equipment Commissioning Services provide a cultivation-level view of the complex system made up by each piece of equipment and ensures systems are running properly.
Our skilled project managers, specialized within our clients' sectors, maintain knowledgeable open lines of communication with both clients, onsite superintendents, and internal and external construction partners to manage expectations, costs and schedules.
Many of the current service options available to CEA cultivation clients are isolated to vendors providing post-sale service for a single piece of equipment.
Our Additional Service Offerings Our Facility and Equipment Commissioning Services provide a cultivation-level view of the complex system made up by each piece of equipment and ensures systems are running properly. Many of the current service options available to CEA cultivation clients are isolated to vendors providing post-sale service for a single piece of equipment.
Leverage our Sector Diversification and In-House Capability Offerings 2. Focus on Design-Build Solution 3. Expansion of Geographical Reach 9 1. Leverage our Sector Diversification and In-House Capability Offerings Our vision is to be the global leading provider for purpose-built turnkey indoor CEA facilities.
These three pillars allow us to continue to provide value to our current and future clients: • Leverage our sector diversification and in-house capability offerings • Focus on design-build solution • Expand our regional client base Leverage our Sector Diversification and In-House Capability Offerings Our vision is to be a leading provider for purpose-built turnkey indoor CEA facilities.
In general, we are aligned with industry best practices around CEA, which include a focus on water conservation and reuse, reducing the carbon footprint of the production and distribution process, and increasing the efficiency of harvests.
We aim to be a part of the solution to the climate challenge by aligning with CEA industry best practices around water conservation and reuse, reduction of the carbon footprint associated with production and distribution, and increasing the efficiency of harvests.
On February 12, 2021, we completed an uplisting to the Nasdaq Stock Market under the ticker symbol UGRO. Overview urban-gro is an integrated professional services and construction design-build firm. Our business focuses primarily on providing fee-based knowledge-based services as well as the value-added reselling of equipment.
All information in this Report gives effect to this reverse stock split, including restating prior period reported amounts. On February 12, 2021, we completed an uplisting to the Nasdaq Capital Market ("Nasdaq") under the ticker symbol "UGRO". Overview urban-gro is an integrated professional services and construction design-build firm.
In the Commercial sector, we work with leading food and beverage consumer packaged goods companies in the United States, and clients in healthcare, higher education, and hospitality. Environment, Social, and Governance We are continuously striving to develop, maintain, and build upon our environmental, social, and governance ("ESG") practices and credentials.
In the Commercial sector, we work with leading food and beverage consumer packaged goods companies in the United States, and clients in healthcare, higher education, and hospitality. Environment, Social, and Governance At urban-gro, we recognize the critical role that sustainable and responsible business practices play in shaping a resilient and prosperous future.
Mechanical, Electrical, and Plumbing ("MEP") engineering design focuses on the entire building, not just the cultivation space, which in turn eliminates the "gap" between cultivation systems and the building systems. We provide engineered construction contract documents for mechanical, HVAC, plumbing and electrical systems required for the building permits necessary to obtain a Certificate of Occupancy.
Common discussions beyond aesthetics include the cost, durability, and maintainability of systems presented. 6- Mechanical, Electrical, and Plumbing ("MEP") engineering design focuses on the entire building, not just the cultivation space, which in turn eliminates the "gap" between cultivation systems and the building systems.
For services, we see these competitors as offering similar specific area solutions, though not integrated nor as in depth on fertigation design. For product sales, we currently view our competition to be focused on predominantly commodity "off-the-shelf" items like lighting and other cultivation staple products, both pre-startup and post-startup.
For product sales, we currently view our competition to be focused on predominantly commodity "off-the-shelf" items like lighting and other cultivation staple products, both pre-startup and post-startup. This competition comes from traditional wholesale horticulture dealers, online retailers, and some manufacturers who sell direct.
We rely primarily on patent, trademark, copyright and trade secret laws in the U.S. and similar laws in other countries, confidentiality agreements and procedures and other contractual arrangements to protect our technology and confidential information. Our patents are limited to certain sensors that we obtain from third party manufacturers that do not contribute materially to our sales or profitability.
Intellectual Property The success of our business depends, in part, on our ability to maintain and protect our proprietary technologies, information, processes and know-how. We rely primarily on patent, trademark, copyright and trade secret laws in the U.S. and similar laws in other countries, confidentiality agreements and procedures and other contractual arrangements to protect our technology and confidential information.
We have thus far signed several engagements with CEA clients in multiple countries and look to continue our growth through this geographic expansion. Our Competition We believe that our experience and expertise combined with our complex end-to-end design-build solutions places us as a growing leader in the indoor-CEA sector.
Our Competition We believe that our experience and expertise combined with our complex end-to-end design-build solutions places us as a growing leader in the indoor-CEA sector. Within that CEA sector, we do face competition from companies that offer some, but not all, portions of an all-encompassing design-build facility solution.
In addition, we currently are members of and work with the following organizations: ◦ Charities: We have been a supporter of Teens for Food Justice ("TFFJ") which is catalyzing a youth-led movement to end food insecurity in one generation through high-capacity, school-based hydroponic farming.
The ‘floating holiday’ aims to empower each of our team members to celebrate meaningful moments in a way that aligns with their values and beliefs. We are also proud supporters of several charities and associations including Teens for Food Justice, an organization that is catalyzing a youth-led movement to end food insecurity through high-capacity, school-based hydroponic farming.
On October 29, 2020, we reincorporated as a Delaware corporation. On December 31, 2020, we effected a 1-for-6 reverse stock split with respect to our common stock. All information in this Report gives effect to this reverse stock split, including restating prior period reported amounts.
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 December 31, 2020, we effected a 1-for-6 reverse stock split with respect to our common stock.
Our team evaluates client capabilities, needs, desires, and budget in development of recommended systems through a client-focused collaborative process culminating in the delivery of high-performance and low-maintenance systems. ICD creates cultivation space-focused design layouts that integrate climate control, fertigation, benching, air flow, and lighting.
We provide engineered construction contract documents for mechanical, HVAC, plumbing and electrical systems required for the building permits necessary to obtain a Certificate of Occupancy. Our team evaluates client capabilities, needs, desires, and budget in development of recommended systems through a client-focused collaborative process culminating in the delivery of high-performance and low-maintenance systems.
We are focused on securing and providing value to clients in the CEA sector, and continue to develop and iterate on our marketing and outreach plans, including taking part in trade shows, speaking engagements, and business development travel to areas in Europe with existing clients as well as other developing markets.
We are focused on securing and providing value to clients in the CEA sector, and continue to develop and iterate on our marketing and outreach plans as the sector comes online slowly. We have thus far signed several engagements with CEA clients in multiple countries and look to continue our growth through this geographic expansion.
Within that CEA sector, we do face competition from companies that offer some, but not all, portions of an all-encompassing design-build facility solution. We compete for projects with other smaller and mid-sized companies that focus solely on architectural and interior design, engineering, construction, or product sales.
We compete for projects with other smaller and mid-sized companies that focus solely on architectural and interior design, engineering, construction, or product sales. For services, we see these competitors as offering similar specific area solutions, though not integrated nor as in depth on fertigation design.
Utilizing the expertise of our employees, we have assisted in the creation of over 500 CEA facilities worldwide and counting with Leadership in Energy and Environmental Design ("LEED") certified and/or GMP facilities in a variety of commercial sectors focused on reducing waste, water consumption, and carbon consumption.
Our team has worked on over 1,000 CEA projects around the 9- world and combined with our team’s experience with Leadership in Energy and Environmental Design (LEED) and (EU)GMP facility certification, we are successfully reducing waste, water consumption, and carbon consumption across multiple market sectors.
We have helped build out and commission their first in-classroom vertical farm in the Denver area located near our headquarters and have committed our team’s time to mentoring students and helping further TFFJ’s goals in addition to working with them on future vertical farms. ◦ Associations and Organizations: We are currently members of good standing in several industry organizations and trade groups such as the New England Healthcare Engineer Society ("NEHES"), the Georgia City-County Management Association ("GCMA"), The Georgia Chapter of APPA ("GAPPA"), American Hort, Association for Vertical Farming, the American Society of Heating, Refrigerating, and Air-Conditioning Engineers ("ASHRAE"), the National Cannabis Industry Association ("NCIA") and the National Cannabis Roundtable ("NCR").
Our company and/or employees are also members of industry associations and trade groups like American Hort, Association for Vertical Farming, the American Society of Heating, Refrigeration, and Air-Conditioning (ASHRAE), the Georgia City-County Management Association (GCCMA), the Georgia Chapter of APPA (GAPPA), the Global Cannabis Network Collective (GCNC), the National Cannabis Industry Association (NCIA), and the National Cannabis Roundtable (NCR).
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We greatly value ESG considerations as they enable us to better identify material risks and growth potential, leading to better-informed decisions and business outcomes with the goal of maximizing value creation for our shareholders. To this end, the urban-gro Board of Directors ("Board") recently established an ESG committee as part of our Board.
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Our business focuses primarily on providing fee-based knowledge-based services as well as the value-added reselling of equipment. We derive income from our ability to generate revenue from our clients through the billing of our employees’ time spent on client projects.
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In addition, we have engaged with the services of an independent consulting solution to help educate us and guide us as we develop our ESG roadmap and work towards establishing our priorities in this space.
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Since January 1, 2023, we have announced the following contracts: • September 26, 2023 - Awarded contract for more than $11.0 million of design-build services with an existing client in the Hospitality & Recreation sector to be recognized over the next six quarters.
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While we engage in those activities, we continue to support ESG in the following ways: • Environment: As a professional services design-build firm, and a leader in the CEA space, urban-gro has a continuing commitment to Environmental Sustainability in order to help form a better, healthier world for our and future generations.
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While this contract has been started as of December 31, 2023, the Company now expects that the contract will take two quarters longer than expected to complete, therefore extending into 2025. • October 2, 2023 - Secured contracts of nearly $8.0 million across four clients in the CEA sector to be recognized over the next four quarters.
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We believe we present a strong opportunity for investors looking for companies focused on providing a more sustainable world for generations to come. As technological advancement continues, we plan to work with our partners to create even more earth-friendly cultivation sites within the CEA sector and projects within other sectors.
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While the largest of these contracts, valued at approximately $7 million dollars, did start in the first quarter of 2024, the Company now it will be completed by the first quarter of 2025, one additional quarter more than had been forecast.
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We are actively exploring opportunities to lower energy use for our customers including but not limited to: active energy management, efficiency measures in HVAC, and innovations in lighting. 8 • Social : We strive to hire and promote from underrepresented communities in order to become a diverse organization which we believe will bring strength and value to our organization and our shareholders.
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The Company expects that the other three contracts will be completed in the previously announced timeframe. • October 4, 2023 - Signed multiple contracts valued at more than $4.5 million to be recognized over the next two quarters.
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Those last two groups, as a part of their work and being born out of the cannabis industry, are dedicated to sensible regulation, criminal justice reform, social equity and community reinvestment. • Governance: We have several approaches we utilize to guide us for a successful governance program to ensure that our stakeholders’ best interests are acted upon: ◦ Board Composition: We have a strong and diverse Board made up of leaders from a variety of fields that help guide our overall efforts.
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The Company expects that these contracts will be completed in the previously announced timeframe. • November 30, 2023 - Awarded $9.6 million industrial design-build contract with an existing CPG client to be recognized over the next three quarters.
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After completing approximately 18 months of due diligence in the European market, in Q3 of 2022, we hired a Netherlands-based Managing Director, with experience and expertise in horticulture and pre-harvest and post-harvest equipment automation, to lead our Europe, Middle East, and Africa ("EMEA") market expansion.
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While this contract did not start as anticipated in the fourth quarter of 2023, the value was increased to $11 million dollars with the addition of supplying mechanical equipment systems to the scope, it did kick off in the first quarter of 2024.
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After opening an office in Dordrecht, Netherlands shortly thereafter, we began to build our European team, including investing in hiring in-market as well as relocating a previously U.S. based Company Vice President with vast experience in CEA cultivation design to the region.
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The Company now expects that the contract will take one additional quarter over the previously announced timeframe to be completed. • January 2, 2024 - Secures design-build contract valued at approximately $20.0 million of design-build services with an existing vertically integrated United States based multi-state cannabis cultivation and retail dispensary operator to be recognized over the next six quarters.
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Regulations may be enacted in the future that may be directly applicable to our business.
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This contract was not started as of December 31, 2023, but kicked off in the first quarter of 2024, and the Company still expects that the contract will be completed in the previously announced timeframe.
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The laws in Canada have been revised since then and in 2018, the Cannabis Act came into effect and legalized adult recreational use of cannabis across Canada. The Cannabis Act regulates the production, distribution and sale of cannabis and related oil extracts in Canada for both recreational and medical purposes.
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Products utilized in the ICD’s basis-of-design ensures the integration of high-quality systems and product performance. These detailed ICD plans are taken through the construction document stage and are leveraged by our clients to efficiently solicit contractor bids.
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Under the Cannabis Act, Canadians who are authorized by their health care practitioner to use medical cannabis have the option of purchasing cannabis from one of the producers licensed by Health Canada and are also able to register with Health Canada to produce a limited amount of cannabis for their own medical purposes or to designate a registered individual to produce cannabis on their behalf for such purposes.
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Strategic Vendor Relationships with Premier Manufacturers We work closely with leading technology and manufacturing providers to deliver an integrated solution designed to achieve the stated objectives of our clients.
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Pursuant to the Cannabis Act, subject to provincial regulations, individuals over the age of 18 are able to purchase fresh cannabis, dried cannabis, cannabis oil, and cannabis plants or seeds and are able to legally possess up to 30 grams of dried cannabis, or the equivalent amount in fresh cannabis or cannabis oil.
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In 2023, we partnered with an ESG service provider to proactively embark on our corporate ESG journey. While we are not formally aligning with a specific framework, we are using the World Economic Forum (WEF)’s Stakeholder Capitalism Metrics as a guide for our reporting.
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The Cannabis Act also permits households to grow a maximum of four cannabis plants. In addition, the Cannabis Act provides provincial and municipal governments the authority to prescribe regulations regarding retail and distribution, as well as the ability to alter some of the existing baseline requirements of the Cannabis Act, such as increasing the minimum age for purchase and consumption.
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The WEF has created a framework of ESG metrics and disclosures based on what it refers to as 8- the four pillars: Planet, People, Prosperity, and Governance.
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Provincial and territorial governments in Canada have made varying announcements on the proposed regulatory regimes for the distribution and sale of cannabis for adult-use purposes. For example, Québec, New Brunswick, Nova Scotia, Prince Edward Island, Yukon and the Northwest Territories have chosen the government-regulated model for distribution, whereas Saskatchewan and Newfoundland and Labrador have opted for a private sector approach.
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Currently in the final stages of development, our inaugural ESG report will be published on our website and will serve as a reflection of our commitment to transparency and the integration of ESG principles into our core business strategies. urban-gro’s ESG initiative is led by a Board of Directors subcommittee which was formed in recognition of the increasing importance of sustainable and ethical business practices and responsible governance in the modern business landscape.
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Alberta, Ontario, Manitoba, Nunavut and British Columbia, have announced plans to pursue a hybrid approach of public and private sale and distribution.
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In partnership with the broader Board of Directors, the ESG committee aims to: • Strengthen the alignment of our corporate values • Align stakeholder expectations • Manage risk • Ensure compliance • Support investor relations • Enhance the brand • Boost innovation and efficiency • Boost employee engagement • Create long-term value • Adapt to changing markets and trends To better understand the topics most material to our business and actively engage stakeholders, urban-gro conducted a double materiality assessment to gain ‘inside-out’ and ‘outside-in’ perspectives.
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In connection with this framework for regulating cannabis in Canada, the federal government introduced new penalties under its criminal code, including penalties for the illegal sale of cannabis, possession of cannabis over the prescribed limit, and production of cannabis beyond personal cultivation limits.
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We engaged 29 internal and external stakeholders with a web-based materiality survey to gather quantitative and qualitative insights on impacts, risks, and opportunities. Analysis of this data identified 14 sustainability areas that present material impacts and opportunities for our organization. Of those 14, we prioritized the top five to inform our decision-making and reporting goals for the upcoming year.
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In 2018, the Canadian federal government published new regulations and amended existing regulations to support the Cannabis Act. These regulations outline the rules for the legal cultivation, processing, research, analytical testing, distribution, sale, importation and exportation of cannabis and hemp in Canada, including the various classes of licenses that can be granted, and set standards for cannabis and hemp products.
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The top five topics are listed below: • Data and Cybersecurity • Business Ethics • Diversity, Inclusion, and Equal Opportunity • Energy Management • Recruitment, Development, and Retention Environment Focus on environmental material matters, stakeholders emphasized energy and water management alongside clean technology to foster sustainable, efficient, and regulatory compliance in our operational practices.
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They also include stringent security requirements for all federally licensed production sites. The regulations maintain a distinct system for access to cannabis. Intellectual Property The success of our business depends, in part, on our ability to maintain and protect our proprietary technologies, information, processes and know-how.
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Climate adaptation and transition risk management were classified as essential in the Materiality Assessment in navigating the shift toward a low-carbon economy. As a professional services design-build firm focused on Controlled Environment Agriculture (CEA), our approach to sustainable facility design and construction has a direct impact on environmental well-being.
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As technological advancement continues, we intend to work with our partners to incorporate more earth-friendly practices and solutions in CEA and other commercial sectors. Such concepts include, but are not limited to, active energy management, HVAC efficiency, and innovations in lighting.
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By helping to reduce our clients’ footprints, we recognize the importance of measuring and reducing our own carbon footprint as well.
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While we have not formally begun measuring and reporting on our greenhouse gas (GHG) emissions due to our small size and the early nature of our operations, as we grow and add resources—or if the results of future stakeholder Materiality Assessments emphasize a growing interest in this metric—we will further investigate regular GHG emissions monitoring and reporting.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeAs a result, we may face difficulties in enforcing our contracts in U.S. federal and certain state courts. 20 Risks Related to Ownership of Our Common Stock Our stock price could be extremely volatile. As a result, shareholders may not be able to resell their shares at or above the price they paid for them.
Biggest changeRisks Related to Ownership of Our Common Stock Our stock price could be extremely volatile. As a result, shareholders may not be able to resell their shares at or above the price they paid for them. The market price of our common stock may be highly volatile and could be subject to wide fluctuations.
The price of our common stock has been, and could continue to be, subject to wide fluctuations in response to a number of factors, including those described elsewhere in this Report and others such as: • the effect of the COVID-19 pandemic on our business and operations; • our ability to generate revenues sufficient to achieve profitability and positive cash flow; • competition in our industry and our ability to compete effectively; • our ability to attract, recruit, retain and develop key personnel and qualified employees; • reliance on significant clients and third-party suppliers; • our ability to successfully identify and complete acquisitions and effectively integrate those acquisitions into our operations; • our actual or anticipated operating and financial results, including how those results vary from the expectations of management, securities analysts and investors; • changes in financial estimates or publication of research reports and recommendations by financial analysts or actions taken by rating agencies with respect to us or other industry participants; • developments in our business or operations or our industry sectors generally; • any future offerings by us of our common stock; • any coordinated trading activities or large derivative positions in our common stock, for example, a "short squeeze" (a short squeeze occurs when a number of investors take a short position in a stock and have to buy the borrowed securities to close out the position at a time that other short sellers of the same security also want to close out their positions, resulting in a surge in stock prices, i.e., demand is greater than supply for the stock sold short); • legislative or regulatory changes affecting our industry generally or our business and operations specifically; • the operating and stock price performance of companies that investors consider to be comparable to us; • announcements of strategic developments, acquisitions, restructurings, dispositions, financings and other material events by us or our competitors; • actions by our current shareholders, including future sales of common shares by existing shareholders, including our directors and executive officers; • proposed or final regulatory changes or developments; • anticipated or pending regulatory investigations, proceedings, or litigation that may involve or affect us; and • the other factors described under Risk Factors in Part I, Item 1A of this Report.
The price of our common stock has been, and could continue to be, subject to wide fluctuations in response to a number of factors, including those described elsewhere in this Report and others such as: • our ability to generate revenues sufficient to achieve profitability and positive cash flow; • competition in our industry and our ability to compete effectively; • our ability to attract, recruit, retain and develop key personnel and qualified employees; • reliance on significant clients and third-party suppliers; • our ability to successfully identify and complete acquisitions and effectively integrate those acquisitions into our operations; • our actual or anticipated operating and financial results, including how those results vary from the expectations of management, securities analysts and investors; • changes in financial estimates or publication of research reports and recommendations by financial analysts or actions taken by rating agencies with respect to us or other industry participants; • developments in our business or operations or our industry sectors generally; • any future offerings by us of our common stock; • any coordinated trading activities or large derivative positions in our common stock, for example, a "short squeeze" (a short squeeze occurs when a number of investors take a short position in a stock and have to buy the borrowed securities to close out the position at a time that other short sellers of the same security also want to close out their positions, resulting in a surge in stock prices, i.e., demand is greater than supply for the stock sold short); • legislative or regulatory changes affecting our industry generally or our business and operations specifically; • the operating and stock price performance of companies that investors consider to be comparable to us; • announcements of strategic developments, acquisitions, restructurings, dispositions, financings and other material events by us or our competitors; • actions by our current shareholders, including future sales of common shares by existing shareholders, including our directors and executive officers; • proposed or final regulatory changes or developments; • anticipated or pending regulatory investigations, proceedings, or litigation that may involve or affect us; and • the other factors described under Risk Factors in Part I, Item 1A of this Report.
Changes to any regulations and laws that could complicate the engineering of these CEA facilities, such as waste water treatment and electricity-related mandates, make it possible that potential related enforcement could decrease the demand for our services, and in turn negatively impact our revenues and business opportunities. Competition in our industry is intense.
Changes to any regulations and laws 16- that could complicate the engineering of these CEA facilities, such as waste water treatment and electricity-related mandates, make it possible that potential related enforcement could decrease the demand for our services, and in turn negatively impact our revenues and business opportunities. Competition in our industry is intense.
The fluctuations in economic and market conditions that impact the prices of commercially grown cannabis, such as increases in the supply of cannabis and decreases in demand for cannabis, could have a negative impact on our clients that are legal cannabis producers, and therefore could negatively impact our business. Our contracts may not be legally enforceable in the United States.
The fluctuations in economic and market conditions that impact the prices of commercially grown cannabis, such as increases in the supply of cannabis and decreases in demand for cannabis, could have a negative impact on our clients that are legal cannabis producers, and therefore could negatively impact our business. 20- Our contracts may not be legally enforceable in the United States.
We may experience a labor shortage preventing us from filling targeted staffing levels. A labor shortage may also impact our ability to attract qualified new personnel. Additionally, the COVID pandemic has changed the way businesses operate with companies allowing employees to work remotely from home or in hybrid work models.
We may experience a labor shortage preventing us from filling targeted staffing 25- levels. A labor shortage may also impact our ability to attract qualified new personnel. Additionally, the COVID pandemic has changed the way businesses operate with companies allowing employees to work remotely from home or in hybrid work models.
Changes to these rules or their interpretation or changes in underlying assumptions, estimates or judgments by our management could significantly change our reported results. 24 Our ability to maintain our reputation is critical to the success of our business, and the failure to do so may materially adversely affect our business and the value of our common stock.
Changes to these rules or their interpretation or changes in underlying assumptions, estimates or judgments by our management could significantly change our reported results. Our ability to maintain our reputation is critical to the success of our business, and the failure to do so may materially adversely affect our business and the value of our common stock.
Delayed sales, lower profits, or lost clients resulting from these disruptions could adversely affect our financial results, stock price and reputation. We may be forced to litigate to defend our intellectual property rights, or to defend against claims by third parties against urban-gro relating to intellectual property rights.
Delayed sales, lower profits, or lost clients resulting from these disruptions could adversely affect our financial results, stock price and reputation. 17- We may be forced to litigate to defend our intellectual property rights, or to defend against claims by third parties against urban-gro relating to intellectual property rights.
Our reputation is a valuable component of our business. Threats to our reputation can come from many sources, including adverse sentiment about our industry generally, unethical practices, employee misconduct, failure to deliver minimum standards of service or quality, compliance deficiencies, and questionable or fraudulent activities of our clients.
Our reputation is a valuable component of our business. Threats to our reputation can come from many sources, including adverse sentiment about our industry generally, unethical practices, employee misconduct, failure to deliver minimum standards of 24- service or quality, compliance deficiencies, and questionable or fraudulent activities of our clients.
In response to any one or more of these events, the market price of shares of our common stock could decrease significantly. In the past, securities class action litigation has often been initiated against companies following periods of volatility in their stock price.
In response to any one or more of these events, the market price of shares of our common stock could decrease significantly. In the past, securities class action litigation has often been initiated against companies following periods of volatility in their stock 21- price.
Clients who represented a substantial portion of our 16 historical revenue may decide to purchase products and services from other providers in the future, which could cause our revenue to decline materially and negatively impact our financial condition and results of operations.
Clients who represented a substantial portion of our historical revenue may decide to purchase products and services from other providers in the future, which could cause our revenue to decline materially and negatively impact our financial condition and results of operations.
Collectively, this may impact our ability to implement our business strategy and adversely affect our financial condition. This potentially would have a negative impact on our share price. 15 We may become subject to additional regulation of CEA facilities.
Collectively, this may impact our ability to implement our business strategy and adversely affect our financial condition. This potentially would have a negative impact on our share price. We may become subject to additional regulation of CEA facilities.
These areas include corporate governance, corporate controls, disclosure controls and procedures and financial reporting and accounting systems. 23 We have made, and will continue to make, changes in these and other areas, including our internal controls over financial reporting.
These areas include corporate governance, corporate controls, disclosure controls and procedures and financial reporting and accounting systems. We have made, and will continue to make, changes in these and other areas, including our internal controls over financial reporting.
The additional costs that we incur, the timing of such costs and the impact that management’s attention to these matters may adversely affect our business and operating results.
The additional costs that we incur, 23- the timing of such costs and the impact that management’s attention to these matters may adversely affect our business and operating results.
See the section entitled Cautionary Information about Forward-Looking Statements in Part I of this Report. 14 Risks Related to Our Operations We have a relatively limited history of operations, a history of losses, and our future earnings, if any, and cash flows may be volatile, resulting in uncertainty about our prospects generally.
See the section entitled Cautionary Information about Forward-Looking Statements in Part I of this Report. 15- Risks Related to Our Operations We have a relatively limited history of operations, a history of losses, and our future earnings, if any, and cash flows may be volatile, resulting in uncertainty about our prospects generally.
While we believe that there are sufficient sources of supply available, if the third-party suppliers, such as Fluence, were to cease production or otherwise fail to supply us with products in sufficient quantities on a timely basis and we were unable to contract on acceptable terms for these equipment type products with alternative suppliers, our ability to sell these solutions would be materially adversely affected.
While we believe that there are sufficient sources of supply available, if the third-party suppliers were to cease production or otherwise fail to supply us with products in sufficient quantities on a timely basis and we were unable to contract on acceptable terms for these equipment type products with alternative suppliers, our ability to sell these solutions would be materially adversely affected.
In addition, our certificate of incorporation authorizes the issuance of up to 10,000,000 shares of preferred stock with such rights and preferences determined from time to time by our Board. None of our preferred shares are currently issued or outstanding.
In addition, our certificate of incorporation authorizes the issuance of up to 3,000,000 shares of preferred stock with such rights and preferences determined from time to time by our Board. None of our preferred shares are currently issued or outstanding.
This resulted in decisive measures implemented by the European 25 Union to help manage security of supply and establish new sources of gas. Our customers and potential customers experienced a rapid increase in energy costs and our expectation is that the energy cost inflation will continue into 2023.
This resulted in decisive measures implemented by the European Union to help manage security of supply and establish new sources of gas. Our customers and potential customers experienced a rapid increase in energy costs and our expectation is that the energy cost inflation will continue into 2024.
Further, the conflict has led to increases in the cost of energy and the potential for energy shortages, especially in Europe. The European energy crisis escalated in 2022 amid the Russia and Ukraine war, fueling supply uncertainties and increasing the risk of energy shortages across Europe due to the lack of gas from Russia.
Further, the conflict has led to increases in the cost of energy and the potential for energy shortages, especially in Europe. The European energy crisis has continued in 2023 amid the Russia and Ukraine war, fueling supply uncertainties and increasing the risk of energy shortages across Europe due to the lack of gas from Russia.
We had negative cash flow from operations of $12.6 million for the fiscal year ended December 31, 2022 and $1.6 for the fiscal year ended December 31, 2021. To the extent that we have negative cash flow from operations in future periods, we may need to allocate a portion of our cash reserves to fund such negative cash flow.
We had negative cash flow from operations of $11.2 million for the fiscal year ended December 31, 2023 and $12.6 for the fiscal year ended December 31, 2022. To the extent that we have negative cash flow from operations in future periods, we may need to allocate a portion of our cash reserves to fund such negative cash flow.
If we fail to retain or expand our client relationships, or if a significant client were to terminate its relationship with us or reduce its purchases, our revenue could decline significantly. During the year ended December 31, 2022, three clients represented 40% of total revenue. During the year ended December 31, 2021 one client represented 46% of total revenue.
If we fail to retain or expand our client relationships, or if a significant client were to terminate its relationship with us or reduce its purchases, our revenue could decline significantly. During the year ended December 31, 2023, two clients represented 43% of total revenue. During the year ended December 31, 2022 three clients represented 40% of total revenue.
Since federal law criminalizing the use of cannabis is not preempted by state laws that legalize its use, strict enforcement of federal law regarding cannabis may result in the inability of our clients that are involved in the cannabis industry to proceed with their operations, which would adversely affect our operations. 18 Our solutions are used by legal and licensed cannabis growers.
Since federal law criminalizing the use of cannabis is not preempted by state laws that legalize its use, strict enforcement of federal law regarding cannabis may result in the inability of our clients that are involved in the cannabis industry to proceed with their operations, which would adversely affect our operations.
Many of our historic contracts, and those we may enter into in the future, relate to services that are ancillary to the legal cannabis industry and other activities that are not legal under U.S. federal law and under some state laws.
Many of our historic contracts, and those we may enter into in the future, relate to services that are ancillary to the legal cannabis industry and other activities that are not legal under U.S. federal law and under some state laws. As a result, we may face difficulties in enforcing our contracts in U.S. federal and certain state courts.
While we have attempted to identify our business risks in the legal cannabis industry, investors should carefully consider that there are other risks that cannot be foreseen or are not described in this Report, which could materially and adversely affect our business and financial performance. There is heightened scrutiny by Canadian regulatory authorities related to the cannabis industry.
While we have attempted to identify our business risks in the legal cannabis industry, investors should carefully consider that there are other 18- risks that cannot be foreseen or are not described in this Report, which could materially and adversely affect our business and financial performance.
Laws and regulations affecting the legal medical and adult-use cannabis industry are constantly changing, which could detrimentally affect our clients involved in that industry and, in turn, our operations.
Changing legislation and evolving interpretations of law, which could negatively impact our clients and, in turn, our operations. Laws and regulations affecting the legal medical and adult-use cannabis industry are constantly changing, which could detrimentally affect our clients involved in that industry and, in turn, our operations.
As a result of the foregoing, and concerns regarding the economic impact from the coronavirus disease of 2019 ("COVID-19"), an investment in our securities necessarily involves uncertainty about the stability of our operating results, cash flows and, ultimately, our prospects generally. We had negative cash flow from operations for the fiscal years ended December 31, 2022 and December 31, 2021.
As a result of the foregoing, an investment in our securities necessarily involves uncertainty about the stability of our operating results, cash flows and, ultimately, our prospects generally. We had negative cash flow from operations for the fiscal years ended December 31, 2023 and December 31, 2022.
The voters or legislatures of states in which cannabis has already been legalized could potentially repeal applicable laws which permit the operation of both legal medical and retail cannabis businesses.
The voters or legislatures of states in which cannabis has already been legalized could potentially repeal applicable laws which permit the operation of both legal medical and retail cannabis businesses. These actions might force us to cease operations in one or more states entirely.
The majority of our revenues to date have been generated from clients that operate in the legal cannabis industry. We are broadening our market reach beyond the legal cannabis industry and are placing a substantial sales effort on expansion into the rapidly growing non-cannabis CEA vertical farming sector as well as the Commercial sector.
We are broadening our market reach beyond the legal cannabis industry and are placing a substantial sales effort on expansion into the rapidly growing non-cannabis CEA vertical farming sector as well as the Commercial sector.
To the extent new rules, if finalized, impose additional reporting obligations on us, we could face increased costs. The SEC has also announced that it is scrutinizing climate-change related disclosures in public filings, increasing the potential for enforcement if the SEC were to allege that our existing climate disclosures are misleading or deficient.
The SEC has also announced that it is scrutinizing climate-change related disclosures in public filings, increasing the potential for enforcement if the SEC were to allege that our existing climate disclosures are misleading or deficient.
An inability to realize any or all of the anticipated synergies or other benefits of an acquisition as well as any delays that may be encountered in the integration process, which may delay the timing of such synergies or other benefits, could have an adverse effect on our business, results of operations and financial condition. 17 Risks Related to the Legal Cannabis Industry To date, the majority of our revenues have come from providing architecture and engineering design services and selling equipment systems into facilities prior to the facility becoming operational.
An inability to realize any or all of the anticipated synergies or other benefits of an acquisition as well as any delays that may be encountered in the integration process, which may delay the timing of such synergies or other benefits, could have an adverse effect on our business, results of operations and financial condition.
Cannabis may be seen by companies in other industries as an attractive alternative to their products, including recreational cannabis as an alternative to alcohol, and medical cannabis as an alternative to various commercial pharmaceuticals.
We believe that established businesses in other industries may have a strong economic interest in opposing the development of the cannabis industry. Cannabis may be seen by companies in other industries as an attractive alternative to their products, including recreational cannabis as an alternative to alcohol, and medical cannabis as an alternative to various commercial pharmaceuticals.
This type of litigation could result in substantial costs and divert our management’s attention and resources and could also require us to make substantial payments to satisfy judgments or to settle litigation. 21 Shareholders may be diluted by future issuances of preferred stock or additional common stock in connection with our incentive plans, acquisitions or otherwise; future sales of such shares in the public market, or the expectations that such sales may occur, could lower our stock price.
Shareholders may be diluted by future issuances of preferred stock or additional common stock in connection with our incentive plans, acquisitions or otherwise; future sales of such shares in the public market, or the expectations that such sales may occur, could lower our stock price.
The following is a summary of our recent historical operating performance: • During the year ended December 31, 2022, we generated revenue of $67.0 million and incurred a net loss of $15.3 million. • During the year ended December 31, 2021, we generated revenue of $62.1 million and incurred a net loss of $0.9 million. • During the year ended December 31, 2020, we generated revenue of $25.8 million and incurred a net loss of $5.1 million. • During the year ended December 31, 2019, we generated revenue of $24.2 million and incurred a net loss of $8.3 million.
In March 2017, we converted into a corporation and on February 12, 2021, we completed an uplisting to Nasdaq under the ticker symbol "UGRO." The following is a summary of our recent historical operating performance: • During the year ended December 31, 2023, we generated revenue of $71.5 million and incurred a net loss of $18.7 million. • During the year ended December 31, 2022, we generated revenue of $67.0 million and incurred a net loss of $15.3 million. • During the year ended December 31, 2021, we generated revenue of $62.1 million and incurred a net loss of $0.9 million. • During the year ended December 31, 2020, we generated revenue of $25.8 million and incurred a net loss of $5.1 million.
While there may be ample public support for legislative action, numerous factors impact the legislative and regulatory process, including election results, scientific findings or general public events. Any one of these factors could slow or halt progressive legislation relating to cannabis and the current tolerance for the use of cannabis by consumers, which could adversely affect our operations.
While there may be ample public support for legislative action, numerous factors impact the legislative and regulatory process, including election results, scientific findings or general public events.
We were initially organized as a limited liability company in the State of Colorado on March 20, 2014. In March 2017, we converted into a corporation and on February 12, 2021, we completed an uplisting to the Nasdaq Stock Market under the ticker symbol UGRO.
We were initially organized as a limited liability company in the State of Colorado on March 20, 2014.
In March 2022, the SEC issued proposed rules on climate change disclosure requirements that, if adopted as proposed, will require disclosure of extensive and detailed climate-related information, by all registrants, including us. The final rules have not yet been adopted, and the ultimate scope and impact of the proposed rules on our business remain uncertain.
In March 2024, the SEC issued final rules on climate change disclosure requirements that will require disclosure of climate-related information by all registrants. To the extent new rules impose additional reporting obligations on us, we could face increased costs.
Increased competition is likely to result in price reductions, reduced gross margins and a potential loss of market share. The COVID-19 pandemic could continue to materially adversely affect our business, financial condition, results of operations, cash flows and day-to-day operations.
Increased competition is likely to result in price reductions, reduced gross margins and a potential loss of market share. We depend upon third-party suppliers for the equipment solutions that we sell. We depend on outside manufacturers for the equipment solutions that we sell.
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The outbreak of COVID-19, a novel strain of coronavirus first identified in China, which has spread across the globe including the U.S., had an adverse impact on our operations and financial condition by causing temporary delays in our projects.
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Risks Related to the Legal Cannabis Industry To date, the majority of our revenues have come from providing architecture and engineering design services and selling equipment systems into facilities prior to the facility becoming operational. The majority of our revenues to date have been generated from clients that operate in the legal cannabis industry.
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The response to coronavirus by federal, state and local governments resulted in significant market and business disruptions across many industries and affected businesses of all sizes. This pandemic also caused significant stock market volatility and further tightened capital access for most businesses.
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Our solutions are used by legal and licensed cannabis growers.
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Given that the COVID-19 pandemic and its disruptions are of an unknown duration, they could have an adverse effect on our liquidity and profitability. We continue to monitor the status of COVID-19.
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Any one of these factors could slow or halt progressive legislation relating to cannabis and the current tolerance for the use of cannabis by consumers, which could adversely affect our operations. 19- The legal cannabis industry could face strong opposition from other industries.
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While it seems like the negative effects of the virus have largely dissipated, if a new variant or other new development cause a substantial increase of cases, it could disrupt the businesses of our customers and suppliers, which, in turn, could negatively impact market demand, interfere with our ability to timely service the needs of our clients and prospects, cause contract cancellations, scope reductions and delays, and interfere with our ability to procure equipment and raw materials from our suppliers.
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This type of litigation could result in substantial costs and divert our management’s attention and resources and could also require us to make substantial payments to satisfy judgments or to settle litigation.
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Any of these effects could thereby negatively impact our business, financial condition, results of operations or prospects. We depend upon third-party suppliers for the equipment solutions that we sell. We depend on outside manufacturers for the equipment solutions that we sell. For the year ended December 31, 2022, one vendor, Fluence Bioengineering, Inc.
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We may take advantage of these reporting exemptions until we are no longer an "emerging growth company." December 31, 2023 was our last day as an emerging growth company, and we will no longer be eligible for these exemptions going forward.
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("Fluence"), a provider of lighting systems, was particularly important to our integrated sales solutions. We use Fluence as one of the LED lighting systems options in our designs and then act as VAR and sell these systems to our clients as part of our overall package.
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Our existing operations in the United States, and any future operations or investments, may become the subject of heightened scrutiny by regulators and other authorities in Canada. As a result, we may be subject to significant direct and indirect interaction with public officials.
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This heightened scrutiny may in turn lead to the imposition of certain restrictions on our ability to operate or invest in the United States.
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On February 8, 2018, following discussions with the Canadian Securities Administrators and recognized Canadian securities exchanges, the TMX Group announced the signing of the TMX Memorandum of Understanding ("MOU") with Aequitas NEO Exchange Inc., the Canadian Securities Exchange ("CSE"), the Toronto Stock Exchange, and the TSX Venture Exchange ("TSXV").
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The MOU outlines the parties’ understanding of Canada’s regulatory framework applicable to the rules, procedures, and regulatory oversight of the exchanges and Canadian Depository for Securities Limited ("CDS") as it relates to issuers with cannabis-related activities in the United States.
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The MOU confirms, with respect to the clearing of listed securities, that CDS relies on the exchanges to review the conduct of listed issuers. As a result, there is no CDS ban on the clearing of securities of issuers with cannabis-related activities in the United States. However, this approach to regulation may not continue in the future.
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If such a ban were to be implemented, and our shares were listed on a Canadian exchange, it would have a material adverse effect on the ability of holders of our securities to make and settle trades.
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The legal cannabis industry could face strong opposition from other industries. We believe that established businesses in other industries may have a strong economic interest in opposing the development of the cannabis industry.
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These actions might force us to cease operations in one or more states entirely. 19 Changing legislation and evolving interpretations of law, which could negatively impact our clients and, in turn, our operations.
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The market price of our common stock may be highly volatile and could be subject to wide fluctuations.
Removed
We may take advantage of these reporting exemptions until we are no longer an "emerging growth company." We would cease to be an "emerging growth company" upon the earliest of: (i) the last day of the fiscal year following the fifth anniversary of the first sale of our common stock under an effective Securities Act registration statement, which will occur on December 31, 2023; (ii) the first fiscal year after our annual gross revenues are $1.07 billion or more; (iii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt securities; or (iv) as of the end of any fiscal year in which the market value of the common stock held by non-affiliates exceeded $700 million as of the end of the second quarter of that fiscal year.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeTelsey claim the finder's fee agreement also applies to the uplisting onto the Nasdaq. urban-gro denies these claims, believes Crest Ventures and Mr. Telsey are perpetrating fraud, and Mr. Telsey breached his fiduciary duties as legal counsel for urban-gro in the transaction.
Biggest changeTelsey are perpetrating fraud, and Mr. Telsey breached his fiduciary duties as legal counsel for urban-gro in the transaction. We believe we have substantial defenses to the claim asserted in this lawsuit and intend to vigorously defend this action.
There can be no assurance that future developments related to pending claims filed in the future, whether as a result of adverse outcomes or as a result of significant defense costs, will not have a material effect on urban-gro's financial condition, results of operations or cash flows. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 27 PART II
There can be no assurance that future developments related to pending claims filed in the future, whether as a result of adverse outcomes or as a result of significant defense costs, will not have a material effect on urban-gro's financial condition, results of operations or cash flows. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 28- PART II
The allegations in the action are based on a claim that Crest Ventures, LLC is entitled to commission compensation on the February 2021 uplisting of our common stock to the Nasdaq Capital Market. urban-gro joined as a third-party defendant, Andrew Telsey, for breach of fiduciary duty and fraud. urban-gro also counter-claimed Crest Ventures, LLC for fraud and declaratory judgment. Mr.
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 Nasdaq. urban-gro joined as a third-party defendant, Andrew Telsey, for breach of fiduciary duty and fraud. urban-gro also counter-claimed 27- Crest Ventures, LLC for fraud and declaratory judgment. Mr.
Two subcontractors on the project have brought suit against Emerald for non-payment to them of which Emerald has not received payment from Great Green Theory. ◦ Accounts receivable and accounts payable related to Great Green Theory – The selling Emerald shareholders have agreed to indemnify and defend the Company for any litigation or judgement stemming from this lawsuit.
Emerald has settled two subcontractor suits against Emerald for non-payment to them of which Emerald has not received payment from Great Green Theory. ◦ Accounts receivable and accounts payable related to Great Green Theory – The selling Emerald shareholders have agreed to indemnify and defend the Company for any litigation or judgement stemming from this lawsuit.
Telsey was urban-gro's counsel at the 26 time and he claims he was also a member of Crest Ventures. urban-gro entered into a finder's fee agreement with Crest Ventures for a potential M&A transaction. Crest Ventures and Mr.
Telsey was urban-gro's counsel at the time and he claims he was also a member of Crest Ventures. urban-gro entered into a finder's fee agreement with Crest Ventures for a potential M&A transaction. Crest Ventures and Mr. Telsey claim the finder's fee agreement also applies to the uplisting onto the Nasdaq. urban-gro denies these claims, believes Crest Ventures and Mr.
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.
Emerald is claiming breach of contract and quantum merit against Great Green Theory for failure to pay approximately $1.3 million in payment applications. 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.
We believe we have substantial defenses to the claim asserted in this lawsuit and intend to vigorously defend this action. • Sunflower Bank – urban-gro filed a lawsuit on November 5, 2021, against Sunflower Bank in the District Court for Boulder County, Colorado related to fraudulent wire transfers of approximately $5.1 million that were made from our accounts at Sunflower Bank in October 2021.
The case was dismissed with prejudice by the Court on October 5, 2023. • Sunflower Bank – urban-gro filed a lawsuit on November 5, 2021, against Sunflower Bank in the District Court for Boulder County, Colorado related to fraudulent wire transfers of approximately $5.1 million that were made from our accounts at Sunflower Bank in October 2021.
Removed
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.
Added
On August 11, 2023, the Company entered into a settlement agreement and mutual release (the “Settlement Agreement”) with Crest Ventures, LLC and Andrew Telsey to settle all claims in the litigation filed in the District Court for Arapahoe County, Colorado, Case No. 2021CV31301.
Added
Pursuant to the Settlement Agreement, the Company made a payment of $1,500,000 to Crest Ventures, LLC 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.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe 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.
Biggest changeThe 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.
In connection with the offering, we received approval to list our common stock on the Nasdaq Capital Market under the symbol "UGRO." Prior to the offering, shares of our common stock were quoted on the OTC Markets Group, Inc.
In connection with the offering, we received approval to list our common stock on Nasdaq Capital Market under the symbol "UGRO." Prior to the offering, shares of our common stock were quoted on the OTC Markets Group, Inc.
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.
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.
The trading price of our common stock has been, and may continue to be, subject to wide price fluctuations in response to various factors, many of which are beyond our control, including those described in Part I, Item 1A, "Risk Factors." The following table sets forth the high and low closing bid price information for our common stock on the Nasdaq Capital Market for the time periods indicated.
The trading price of our common stock has been, and may continue to be, subject to wide price fluctuations in response to various factors, many of which are beyond our control, including those described in Part I, Item 1A, "Risk Factors." HOLDERS As of March 16, 2024, we had 89 holders of record of our Common Stock.
On May 24, 2021, the Board 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.
The program does not have an expiration date and can be modified or terminated by the Board at any time. On May 24, 2021, the Board authorized a stock repurchase program to purchase up to $5.0 million of outstanding shares of the Company’s common stock.
Since inception of the stock repurchase programs, the Company has repurchased 1.1 million shares at an average price per share of $8.25 for a total of $9.1 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. In total, the Company has repurchased 1,099,833 shares of common stock at an average price per share of $8.25 for a total of $9.1 million, under this program.
Removed
Trading activity for our common stock on the OTCQX Marketplace can be found at www.otcmarkets.com .
Added
All reports and information filed by us can be found at the SEC website, www.sec.gov.
Removed
Quarter Ended Low High December 31, 2022 $ 2.63 $ 2.87 September 30, 2022 $ 2.76 $ 2.98 June 30, 2022 $ 4.68 $ 5.12 March 31, 2022 $ 10.26 $ 11.24 Quarter Ended Low High December 31, 2021 $ 8.78 $ 14.77 September 30, 2021 $ 8.51 $ 17.30 June 30, 2021 $ 6.75 $ 10.50 March 31, 2021 $ 6.90 $ 13.80 HOLDERS As of March 16, 2023, we had 52 holders of record of our Common Stock.
Added
UNREGISTERED SALES OF EQUITY SECURITIES During the quarter ended December 31, 2023, we issued the following securities that were not registered under the Securities Act: • During the quarter ended, December 31, 2023, the Company issued shares of the Company's common stock to satisfy contingent consideration purchase price liabilities for the Emerald and DVO acquisitions as follows: ◦ Emerald - 85,639 shares at an average price per share of $1.31. ◦ DVO - 110,486 shares at an average price per share of $1.33.
Removed
All reports and information filed by us can be found at the SEC website, www.sec.gov. 28 UNREGISTERED SALES OF EQUITY SECURITIES During the years ended December 31, 2022, 2021 and 2020, we issued the following securities that were not registered under the Securities Act: • On October 31, 2022 the Company issued 271,875 shares of the Company’s common stock at a price per share of $4.06 for a total value of $1.1 million as part of the Initial Purchase Price of the DVO Acquisition as more fully described in Note 1 to the Condensed Consolidated Financial Statements. • On April 29, 2022, the Company issued 283,515 shares of the Company’s common stock at a price per share of $8.82 for a total value of $2.5 million as part of the Initial Purchase Price of the Emerald Acquisition as more fully described in Note 1 to the Condensed Consolidated Financial Statements. • On June 28, 2021, the Company issued 202,066 shares of the Company’s common stock at a price per share of $9.90 for a total value of $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 Condensed Consolidated Financial Statements. • On February 21, 2020, we entered into a letter agreement (the "Credit Agreement") by and among us, as borrower, urban-gro Canada Technologies Inc. and Impact Engineering, Inc., as guarantors, various lenders, which may include Bridging Finance Inc., as administrative agent for the lenders (the "Agent").
Added
No commissions were paid regarding the share issuances, and the share certificates were issued with a Rule 144 restrictive legend. Purchase of Equity Securities by Issuer and Affiliated Purchasers During the year ended December 31, 2023, the Company did not repurchase common stock.
Removed
As additional consideration for the entering into the Credit Agreement, we issued 83,333 shares of our common stock and warrants to purchase 20,746 shares of common stock with an exercise price of $14.46 per share to the Agent.
Added
The Company’s Board has authorized the Company to repurchase common stock through a variety of methods, including open market repurchases, purchases by 29- 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.
Removed
We relied upon the exemption from registration provided by Section 4(a)(2) of the Securities Act to issue the securities. • On December 15, 2020, we signed a $1,854,500 convertible note (the "Note") by and among us, as borrower, and various lenders, which may include Bridging Finance Inc., as lender (the "Bridge Financing").
Added
As of December 31, 2023, we have $1.4 million remaining under the repurchase program. ITEM 6. [RESERVED]
Removed
The Bridge Financing was a combination of $1,354,500 received on November 20, 2020, and an additional $500,000 received on December 15, 2020. The lenders in our Bridge Financing were a combination of our Board, our current investors and two new institutional funds.
Removed
In connection with the Bridge Financing, an outstanding $1,000,000 promissory note and $4,500 interest accrued thereon was converted into the Notes. The Notes were issued in reliance upon the exemption from registration under Section 4(a)(2) of the Securities Act. The Notes carried interest at the rate of 12% and were scheduled to mature on December 31, 2021.
Removed
Pursuant to the mandatory conversion provisions therein, the Notes plus accrued interest of $53,725 were converted into 254,430 shares of common stock upon completion of our 2021 public offering. 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.
Removed
Purchase of Equity Securities by Issuer and Affiliated Purchasers The following table summarizes purchases by us of our common stock during the during the indicated quarters and months, and year ended December 31, 2022: 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) First quarter of 2022 419,088 9.00 924,003 $ 18,333 Second quarter of 2022 — — 924,003 $ 18,333 Third quarter of 2022 63,123 2.90 987,126 $ 1,835,063 October 1 - October 31, 2022 73,784 3.62 1,060,910 $ 1,567,666 November 1 - November 30, 2022 29,690 3.64 1,090,600 $ 1,459,466 December 1 - December 31, 2022 9,233 3.25 1,099,833 $ 1,429,458 Total 594,918 7.33 1,099,833 $ 1,429,458 29 The Company’s Board 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.
Removed
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 at any time.
Removed
In February 2021, the Company repurchased 350,000 shares of common stock with an average price per share of $8.50, for a total repurchase of $3.0 million, outside of any stock repurchase or publicly announced program. ITEM 6. [RESERVED]

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

29 edited+8 added−9 removed19 unchanged
Biggest changeThe following table reconciles net loss attributable to the Company to Adjusted EBITDA for the periods presented: Years Ended December 31, 2022 2021 Net loss $ (15,277,909) $ (875,667) Interest expense 54,579 334,056 Interest expense – beneficial conversion of notes payable — 636,075 Interest income (329,012) — Income tax benefit (322,092) — Depreciation and amortization 1,483,065 495,276 EBITDA $ (14,391,369) $ 589,740 Loss on extinguishment of debt — 790,723 PPP loan forgiveness — (1,032,316) Non-recurring legal fees 352,173 126,246 One-time employee expense 819,089 125,000 Contingent consideration 436,905 – Business development 3,299,864 — Impairment loss 2,660,934 — Stock-based compensation 2,571,785 1,840,913 Transaction costs 347,317 238,495 Adjusted EBITDA $ (3,903,302) $ 2,678,801 32 Backlog Backlog is a financial measure that generally reflects the dollar value of revenue that the Company expects to realize in the future.
Biggest changeThe following table reconciles net loss attributable to the Company to Adjusted EBITDA for the periods presented: Years Ended December 31, 2023 2022 Net loss $ (18,681,061) $ (15,277,909) Interest expense 271,686 54,579 Interest income (173,895) (329,012) Federal and state income tax (provisions) (215,864) (322,092) Federal and state income tax payments 185,910 16,253 Depreciation and amortization 1,636,667 1,483,065 EBITDA $ (16,976,557) $ (14,375,116) Non-recurring legal fees 1,249,133 352,173 One-time employee expenses — 819,089 Contingent consideration - change in fair value 160,232 436,905 Contingent consideration - DVO acquisition 278,559 — Reduction in force costs 346,725 — One time business development expenses – 3,299,864 Impairment loss 258,492 2,660,934 Loss on settlement 1,500,000 – Retention incentive 1,242,000 – Stock-based compensation 2,199,046 2,571,785 Transaction costs 30,197 347,317 Adjusted EBITDA (non-GAAP) $ (9,712,173) $ (3,887,049) 32- BACKLOG Backlog is a financial measure that generally reflects the dollar value of revenue that the Company expects to realize in the future.
We derive income from our ability to generate revenue from our clients through the billing of our employees’ time spent on client projects. We offer value-added architectural, engineering, systems procurement and integration, and construction design-build solutions to customers operating in the CEA and Commercial sectors.
We derive income from our ability to generate revenue from our clients through the billing of our employees’ time spent on client projects. We offer value-added architectural, engineering, systems procurement and integration, and construction solutions to customers operating in the CEA and Commercial sectors.
We believe this has resulted in some customers delaying projects, reducing the scope of projects or potentially canceling projects, as well as increased costs of our operations, which has negatively impacted the results of our operations during the year ended December 31, 2022.
We believe this has resulted in some customers delaying projects, reducing the scope of projects or potentially canceling projects, as well as increased costs of our operations, which has negatively impacted the results of our operations during the year ended December 31, 2023.
In the CEA sector, our clients include operators and facilitators in both the cannabis and produce markets in the United States, Canada, and Europe. In the Commercial sector, we work with leading Food and Beverage CPG companies in the United States, and clients in other commercial sectors including healthcare, higher education, and hospitality.
In the CEA sector, our clients include operators and facilitators in both the cannabis and produce markets in the United States, Canada, and Europe. In the Commercial sector, we work with leading Food and Beverage CPG companies in the United States, and clients in other commercial sectors including light industrial, healthcare, higher education, laboratories, and hospitality.
The reductions in customer deposits and prepaid expenses and other current assets 33 corresponds to a reduction in customer orders for equipment systems which is reflected in the reduction in equipment systems backlog from December 31, 2021 to December 31, 2022 outlined in Backlog above.
The reductions in customer deposits and prepaid expenses and other current assets corresponds to a reduction in customer orders for equipment systems which is reflected in the reduction in equipment systems backlog from December 31, 2022 to December 31, 2023 outlined in Backlog above.
B USINESS" FOR A FURTHER DESCRIPTION OF OUR H ISTORY AND B ACKGROUND urban-gro is an integrated professional services and design-build firm. Our business focuses primarily on providing fee-based knowledge-based services as well as the value-added reselling of equipment.
B USINESS" FOR A FURTHER DESCRIPTION OF OUR H ISTORY AND B ACKGROUND urban-gro is an integrated professional services and Design-Build firm. Our business focuses primarily on providing fee-based professional services, Design-Build solutions, as well as the value-added reselling and integration of equipment systems.
The $4.2 million reduction in net operating assets and liabilities was due to the net effects of a $10.8 million decrease in customer deposits, a $1.1 million increase in accounts payable and accrued expenses, a $8.2 million decrease in prepayments and other assets, and a $2.5 million increase in accounts receivable.
The $4.2 million decrease in net operating assets and liabilities was primarily due to the net effects of a $2.5 million increase in accounts receivable, a $10.8 million increase in customer deposits, offset by a $1.1 million increase in accounts payable and accrued expenses, and an $8.4 million increase in prepayments and other assets.
During 2021 and 2022, we made the following acquisitions: • July 2021 - Three affiliated architecture design companies (the "2WR Entities") • April 2022 - A construction design-build firm ("Emerald") • October 2022 - An engineering firm ("DVO") RESULTS OF OPERATIONS Comparison of Results of Operations for the years ended December 31, 2022 and 2021 During the year ended December 31, 2022, we generated revenues of $67.0 million compared to revenues of $62.1 million during the year ended December 31, 2021, an increase of $4.9 million, or 8%.
During 2021 and 2022, we made the following acquisitions: • July 2021 - Three affiliated architecture design companies (the "2WR Entities") • April 2022 - A construction Design-Build firm ("Emerald") • October 2022 - An engineering firm ("DVO") RESULTS OF OPERATIONS Comparison of Results of Operations for the years ended December 31, 2023 and 2022 During the year ended December 31, 2023, we generated revenues of $71.5 million compared to revenues of $67.0 million during the year ended December 31, 2022, an increase of $4.5 million, or 7%.
As a result of the above, we incurred a net loss of $15.3 million for the year ended December 31, 2022, or a net loss per share of $1.44, compared to a net loss of $0.9 million for the year ended December 31, 2021, or a net loss per share of $0.09. 31 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.
As a result of the above, we incurred a net loss of $18.7 million for the year ended December 31, 2023, or a net loss per share of $1.66, compared to a net loss of $15.3 million for the year ended December 31, 2022, or a net loss per share of $1.44. 31- 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.
Net cash used in operating activities was $1.6 million during the year ended December 31, 2021. This use of cash was the net effect of the net loss of $0.9 million, offset by non-cash expenses of $2.9 million, and a decrease in net operating assets and liabilities of $3.6 million.
Net cash used in operating activities was $12.6 million during the year ended December 31, 2022. This use of cash was the net effect of the net loss of $15.3 million, offset by non-cash expenses of $6.9 million, and a decrease in net operating assets and liabilities of $4.2 million.
This increase is directly attributable to the increase in revenues indicated above. Gross profit was $14.2 million (21% of revenue) during the year ended December 31, 2022, compared to $14.8 million (24% of revenue) during the year ended December 31, 2021.
This increase is directly attributable to the increase in revenues indicated above. Gross profit was $10.3 million (14% of revenue) during the year ended December 31, 2023, compared to $14.2 million (21% of revenue) during the year ended December 31, 2022.
This decrease in working capital was primarily due to a decrease in cash of $22.6 million (which is further detailed below) and the net effects of reductions in customer deposits of $10.8 million and prepaid expenses and other current assets of $7.4 million.
This decrease in working capital was primarily due to a decrease in cash of $10.9 million (which is further detailed below) and the net effects of reductions in customer deposits of $2.0 million and prepaid expenses and other current assets of $1.4 million.
This use of cash was the net effect of the net loss of $15.3 million, offset by non-cash expenses of $6.9 million, and a reduction in net operating assets and liabilities of $4.2 million.
This use of cash was the net effect of the net loss of $18.7 million, offset by non-cash expenses of $4.8 million, and a reduction in net operating assets and liabilities of $2.7 million.
Backlog for each of our revenue categories as of December 31, 2022 and December 31, 2021 is reflected in the following tables: December 31, 2022 CEA Commercial Total Relative Percentage (in millions) Equipment systems $ 5 $ — $ 5 5 % Services 4 2 6 6 % Construction design-build (1) 67 15 82 88 % Total backlog $ 76 $ 17 $ 93 100 % Relative percentage 82 % 18 % 100 % Note: Percentages may not add up due to rounding.
December 31, 2022 CEA Commercial Total Relative Percentage (in millions) Equipment systems $ 5 $ — $ 5 6 % Services $ 4 $ 2 $ 6 6 % Construction design-build (1) $ 67 $ 15 $ 82 88 % Total backlog $ 76 $ 17 $ 93 100 % Relative percentage 82 % 18 % 100 % Note: Percentages may not add up due to rounding.
Investing Activities: Net cash used in investing activities was $4.5 million for the year ended December 31, 2022. This use of cash was due to $0.6 million for the purchase of fixed assets needed for our growing workforce and $3.9 million in net cash used to acquire Emerald and DVO.
Net cash used in investing activities was $4.5 million for the year ended December 31, 2022. This use of cash was due to $3.9 million from the acquisition of the DVO Entities and $0.6 million for the purchase of fixed assets. Financing Activities: Net cash used by financing activities was $1.4 million for the year ended December 31, 2023.
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.
At December 31, 2022, three customers were in excess of 10% of total backlog and in total they accounted for 81% of our total backlog. 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.
This increase in revenues is the net result of the following changes in individual revenue components: • Construction design-build revenues increased $19.8 million as a result of the acquisition of Emerald; • Services revenue increased $7.8 million, primarily from the acquisition of the 2WR Entities; • Equipment systems revenue decreased $22.2 million due to negative market conditions in the cannabis sector and a reduction in capital equipment spending by customers; and • Other revenue decreased $0.5 million. 30 During the year ended December 31, 2022, cost of revenues was $52.8 million compared to $47.4 million during the year ended December 31, 2021, an increase of $5.47 million, or 12%.
This increase in revenues is the net result of the following changes in individual revenue components: • Construction design-build revenues increased $26.4 million, primarily due to significant organic growth within this group; • Services revenue decreased $0.9 million, which was the result of a decrease in revenues in our existing business due to negative market conditions in the CEA sector; • Equipment systems revenue decreased $20.7 million due to negative market conditions in the CEA sector and a reduction in capital equipment spending by customers; and • Other revenue decreased $0.3 million. 30- During the year ended December 31, 2023, cost of revenues was $61.3 million compared to $52.8 million during the year ended December 31, 2022, an increase of $8.4 million, or 16%.
The $3.6 million decrease in net operating assets and liabilities was due to the net effects of a $10.5 million increase in accounts receivable, an $8.1 million increase in prepayments and other assets, an $8.5 million increase in customer deposits, and a $6.5 million increase in accounts payable and accrued expenses.
The $2.7 million reduction in net operating assets and liabilities was due to the net effects of a $23.4 million increase in accounts payable, contract liabilities and accrued expenses, a $2.2 million decrease in prepayments and other assets, offset by an $19.2 million increase in accounts receivable and a decrease in contract assets, customer deposits, operating lease liability, and contingent consideration of $3.6 million.
(1) Construction design-build revenue and backlog relate to the operations of Emerald, which was acquired by the Company on April 29, 2022.
(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.
We believe the current inflationary environment has negatively impacted our customers which has led to delays in our customers starting projects, which in turn has delayed our customers from signing contracts with us. 34 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 generally accepted accounting principles in the United States.
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 generally accepted accounting principles in the United States.
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.
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. 33- LIQUIDITY AND CAPITAL RESOURCES As of December 31, 2023, we had negative working capital of $1.2 million, compared to positive working capital of $10.3 million as of December 31, 2022, a decrease of $11.5 million.
Government has responded to inflation by raising interest rates, which has increased the cost of capital for our customers.
These obligations are described in detail in our consolidated financial statements, including the accompanying notes. INFLATION Inflation has resulted in increased costs for our customers. In addition, the U.S. Government has responded to inflation by raising interest rates, which has increased the cost of capital for our customers.
Non-operating expense was $3.0 million for the year ended December 31, 2022, compared to $0.7 million for the year ended December 31, 2021, an increase of $2.3 million.
Non-operating expense was $2.2 million for the year ended December 31, 2023, compared to $3.0 million for the year ended December 31, 2022, a decrease of $0.7 million. This decrease was primarily due to a $1.5 million loss on settlement and a $0.3 million impairment loss in 2023 compared to a $2.7 million impairment loss recorded in 2022.
Cash used from financing activities during the year ended December 31, 2022 primarily relates to $4.4 million used in the repurchase of common stock and $1.0 million paid for acquisition related contingent consideration. Net cash provided by financing activities was $44.3 million for the year ended December 31, 2021.
Cash used from financing activities during the year ended December 31, 2023 primarily relates to cash provided by our line of credit and other financing agreements of $3.0 million offset by $3.8 million of payments made on the promissory note related to the DVO acquisition and $0.7 million of payments made for the contingent consideration and finance lease. 34- Net cash used by financing activities was $5.5 million for the year ended December 31, 2022.
We had no material commitments for capital expenditures as of December 31, 2022. Net cash used in investing activities was $8.3 million for the year ended December 31, 2021.
Investing Activities: Net cash provided by investing activities was $1.7 million for the year ended December 31, 2023, primarily from the sale of our investment in XS Financial for $2.3 million offset by the acquisition of property, plant and equipment of $0.6 million. We had no material commitments for capital expenditures as of December 31, 2023.
Historically, the majority of our Equipment Systems and Services backlog has been retired and converted into revenue within two quarters. At December 31, 2022, we expected approximately 60% of our Construction Design-Build backlog to be completed in the next 12 months. At December 31, 2022, one customer accounted for 46% of total backlog.
At December 31, 2023, we expected approximately 57% of our Construction Design-Build backlog to be completed in the next 12 months. At December 31, 2023, three customers were each in excess of 10% of total backlog and in total they accounted for 74% of total backlog.
As of December 31, 2022, we had cash of $12.0 million, which represented a decrease of $22.6 million from $34.6 million as of December 31, 2021. As of December 31, 2021, we had cash of $34.6 million, which represented an increase of $34.4 million from $0.2 million as of December 31, 2020.
As of December 31, 2023, we had cash of $1.1 million, which represented a decrease of $10.9 million from $12.0 million as of December 31, 2022. Changes in cash during 2023 and 2022 are discussed below.
December 31, 2021 CEA Commercial Total Relative Percentage (in millions) Equipment systems $ 25 $ — $ 25 83 % Services 3 2 5 17 % Total backlog $ 28 $ 2 $ 30 100 % Relative percentage 93 % 7 % 100 % Note: Percentages may not add up due to rounding.
Backlog for each of our revenue categories as of December 31, 2023 and December 31, 2022 is reflected in the following tables: December 31, 2023 CEA Commercial Total Relative Percentage (in millions) Equipment systems $ 1 $ — $ 1 1 % Services $ 3 $ 4 $ 7 6 % Construction design-build $ 73 $ 29 $ 102 93 % Total backlog $ 77 $ 33 $ 110 100 % Relative percentage 70 % 30 % 100 % Note: Percentages may not add up due to rounding.
This increase was due to: • a $7.1 million increase in general and administrative expenses due to an increase in personnel, salaries, marketing, and travel expenses attributable to the acquisitions, investments made to service our backlog and future growth, and expansion into Europe; • a one-time $3.3 million business development expense related to satisfying a lighting issue encountered by a major customer; • a $0.7 million increase in stock-based compensation expense due to increased personnel; and • a $0.8 million increase in intangible asset amortization related to the acquisitions.
This increase was due to the net effects of the following: • a $3.8 million increase in general and administrative expenses due to an increase in legal fees defending lawsuits, increases in the average number of personnel and increases in construction design-build revenue which increased business insurance and lease costs; • a $3.3 million decrease in a one-time business development expense related to satisfying an equipment lighting issue encountered by a major customer; and • a $0.4 million decrease in share based compensation due to a reduction in the number of employees who received grants in 2023 as compared to 2022.
Removed
Gross profit as a percentage of revenues decreased overall due to the offsetting effects of the following: initiation of lower margin construction design-build revenue (10% gross profit margin); margins on equipment systems revenue, which made up 89% of total revenues in 2021 and 50% of total revenues in 2022, declined from 24% in 2021 to 16% in 2022; and an increase in services revenue which had a 52% gross profit margin in 2022.
Added
Gross profit as a percentage of revenues decreased overall due to increases in lower margin construction design-build revenue combined with decreases in higher margin equipment systems and services revenue. Operating expenses increased by $0.1 million, or 0%, to $27.0 million for the year ended December 31, 2023 compared to $26.8 million for the year ended December 31, 2022.
Removed
Operating expenses increased by $11.9 million, or 79%, to $26.8 million for the year ended December 31, 2022 compared to $15.0 million for the year ended December 31, 2021.
Added
On December 13, 2023, UG Construction, 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.
Removed
This increase was primarily due to a $2.7 million expense from the impairment of the Edyza investment of $1.7 million and an impairment recorded upon settlement of a wire fraud receivable of $1.0 million, as well as a $0.4 million expense recognized from the remeasurement of contingent consideration from the 2WR acquisition.
Added
("Lender") pursuant to which Lender extended to UG Construction the Line of Credit in an amount not to exceed $10.0 million to be used to assist UG Construction and the Company with cash management.
Removed
LIQUIDITY AND CAPITAL RESOURCES As of December 31, 2022, we had working capital of $10.3 million, compared to working capital of $34.5 million as of December 31, 2021, a decrease of $24.2 million.
Added
Lender will consider requests 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.
Removed
Changes in cash during 2022 and 2021 are discussed below. Operating Activities: Net cash used in operating activities was $12.6 million during the year ended December 31, 2022.
Added
The Line of Credit contains standard events of default and representations and warranties by UG Construction and the Lender and the Company has 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”).
Removed
This use of cash was due to $5.5 million from the acquisition of the 2WR Entities, $2.5 million to acquire an investment in XS Financial and $0.3 million for the purchase of fixed assets.
Added
Loans made under the Line of Credit earns interest at a monthly rate of one and seventy-five hundredths percent (1.75%). As of December 31, 2023, we had borrowed $2.5 million under the Line of Credit. Operating Activities: Net cash used in operating activities was $11.2 million during the year ended December 31, 2023.
Removed
Financing Activities: Net cash used by financing activities was $5.5 million for the year ended December 31, 2022, compared to $44.3 million cash provided by financing activities during the year ended December 31, 2021.
Added
This decrease in cash primarily relates to $4.4 million used in the repurchase of common stock and $1.0 million paid for acquisition related contingent consideration. Material Cash Requirements: Our material cash requirements include payments on the promissory note associated with the DVO acquisition and operating lease payments.
Removed
This increase in cash was the net effect of $57.7 million raised from the issuance of common stock in connection with our uplisting to Nasdaq offset by repurchases of common stock of $7.7 million and repayments of debt of $5.8 million.
Added
We believe the current inflationary environment has negatively impacted our customers which has led to delays in our customers starting projects, which in turn has delayed our customers from signing contracts with us.
Removed
Material Cash Requirements: Our material cash requirements include payments on the promissory note associated with the DVO acquisition and operating lease payments. These obligations are described in detail in our consolidated financial statements, including the accompanying notes. INFLATION Inflation has resulted in increased costs for our customers. In addition, the U.S.

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