ugro-20240930

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2024

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

For the transition period from _________ to _________.

Commission File Number: 001-39933

URBAN-GRO, INC.

(Exact name of registrant as specified in its charter)


Delaware						46-5158469
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

1751 Panorama Point, Unit G

Lafayette, CO

80026

(720) 390-3880

(Address of principal executive offices)

(Zip Code)

(Registrant’s telephone number, including area code)

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.001 par value

UGRO

NASDAQ Capital Market

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

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

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


Large accelerated filer	o	Accelerated filer	o
Non-accelerated filer	x	Smaller reporting company	x
		Emerging growth company	o

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

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

The number of shares of the registrant’s only class of common stock outstanding as of February 18, 2025 was 12,696,557 shares.

TABLE OF CONTENTS


Item No.		Page No.
	PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)	5
	Unaudited Condensed Consolidated Balance Sheets	5
	Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss	6
	Unaudited Condensed Consolidated Statements of Stockholders’ Equity	7
	Unaudited Condensed Consolidated Statements of Cash Flows	8
	Notes to Unaudited Condensed Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	26
Item 4.	Controls and Procedures	26

	PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	27
Item 1A.	Risk Factors	27
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	27
Item 3.	Defaults Upon Senior Securities	27
Item 4.	Mine Safety Disclosures	27
Item 5.	Other Information	27
Item 6.	Exhibits	28
	Signatures	29

CAUTIONARY INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

Certain statements contained in this Quarterly Report on Form 10-Q constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including statements related to future events, challenges we may face, business strategy, future performance, future operations, backlog, financial position, estimated or projected revenues and losses, projected costs, prospects, plans and objectives of management. All statements other than statements of historical fact may be forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as “seek,” “anticipate,” “plan,” “continue,” “estimate,” “expect,” “may,” “will,” “project,” “predict,” “potential,” “intend,” “could,” “should,” “believe,” and variations of such words or their negative and similar expressions. Forward-looking statements should not be read as a guarantee of future performance or results, and may not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. Forward-looking statements are based on management’s belief, based on currently available information, as to the outcome and timing of future events. These statements involve estimates, assumptions, known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those expressed in such forward-looking statements. When evaluating forward-looking statements, you should consider the risk factors and other cautionary statements described in this Quarterly Report on Form 10-Q and under the heading “Risk Factors” in our Annual Report on Amendment No. 2 on Form 10-K/A for the fiscal year ended December 31, 2023. We believe the expectations reflected in the forward-looking statements contained in this report are reasonable, but no assurance can be given that these expectations will prove to be correct. Forward-looking statements should not be unduly relied upon. Important factors that could cause actual results or events to differ materially from those expressed in forward-looking statements include, but are not limited to:

•risks related to our operating strategy;

•competition for projects in our markets;

•our ability to predict and respond to new laws and governmental regulatory actions affecting our business, including foreign laws and governmental regulation;

•risks related to delays in the grant of necessary licenses to clients and delays in passage of legislation expected to benefit our clients, which could delay the funding and start of projects

•our ability to successfully develop new and/or enhancements to our product offerings and develop a product mix to meet demand;

•our ability to meet or exceed market expectations from analysts;

•unfavorable economic conditions, increases in interest rates and restrictive financing markets that may cause customers to cancel contracts reflected in our backlog or cause sales to decrease;

•our ability to successfully identify, manage and integrate acquisitions;

•our ability to accurately estimate the overall risks, requirements or costs when we bid on or negotiate contracts that are ultimately awarded to us;

•climate change and related laws and regulations;

•our ability to manage our supply chain in a manner that ensures that we are able to obtain adequate raw materials, equipment and essential supplies in a timely manner and at favorable prices;

•our ability to attract and retain key personnel;

•risks associated with concentration of a large portion of our business from a relatively small number of key clients/customers and the effect a loss of a key client/customer could have on our business;

•risks associated with customers or suppliers not fulfilling contracts;

•risks associated with reliance on key suppliers and risks such suppliers could change incentive programs that negatively affect our returns;

•the impact of inflation on costs of labor, raw materials and other items that are critical to our business;

•property damage and other claims and insurance coverage issues;

•the outcome of litigation or disputes;

•risks related to our information technology systems and infrastructure, including cybersecurity incidents;

•risks to our reputation from negative publicity, social media posts or negative interpretations of our Environmental, Social and Governance (ESG) efforts;

•our ability to maintain effective internal control over financial reporting; and

•other events outside of our control.

These factors are not necessarily all of the important factors that could cause actual results or events to differ materially from those expressed in the forward-looking statements. Other unknown or unpredictable factors could also cause actual results or events to differ materially from those expressed in the forward-looking statements. Our future results will depend upon various other risks and uncertainties, including those described in this Quarterly Report on Form 10-Q and in our Annual Report on Amendment No. 2 on Form 10-K/A for the fiscal year ended December 31, 2023. All forward-looking statements attributable to us are qualified in their entirety by this cautionary statement. Forward-looking statements speak only as of the date hereof. We undertake no obligation to update or revise any forward-looking statements after the date on which any such statement is made, whether as a result of new information, future events or otherwise, except as required by law. You are advised, however, to consult any future disclosures we make on related subjects in future reports to the Securities and Exchange Commission (SEC).

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (unaudited)

URBAN-GRO, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)


	September 30, 2024		December 31, 2023
ASSETS
Current assets:
Cash	$	1,136,840	$	1,074,842
Accounts receivable, net	24,040,022		21,648,901
Contract receivables	4,494,635		8,436,567
Prepaid expenses and other assets	4,110,494		1,751,564
Total current assets	33,781,991		32,911,874
Non-current assets:
Property and equipment, net	1,045,554		1,419,393
Operating lease right of use assets, net	1,822,881		2,041,217

Goodwill	9,688,975		9,688,975
Intangible assets, net	2,866,648		3,451,608
Total non-current assets	15,424,058		16,601,193
Total assets	$	49,206,049	$	49,513,067
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	26,529,832	$	24,203,769
Contract liabilities	5,582,430		3,950,133
Accrued expenses	4,496,227		5,284,278
Customer deposits	3,831,796		603,046
Contingent consideration	—		49,830
Notes payable	4,539,665		3,204,840
Operating lease liabilities	694,425		707,141
Total current liabilities	45,674,375		38,003,037
Non-current liabilities:
Operating lease liabilities	1,205,176		1,380,362
Deferred tax asset/(liability)	(66,138)		44,313
Total non-current liabilities	1,139,038		1,424,675
Total liabilities	46,813,413		39,427,712
Commitments and contingencies (note 11)

Stockholders’ equity:
Preferred stock, $0.10 par value; 3,000,000 shares authorized; 0 shares issued and outstanding	—		—
Common stock, $0.001 par value; 30,000,000 shares authorized; 14,063,337 issued and 12,613,504 outstanding as of September 30, 2024, and 13,522,669 issued and 12,072,836 outstanding as of December 31, 2023	14,063		13,523
Additional paid-in capital	89,979,596		88,389,756
Treasury shares, cost basis: 1,449,833 shares as of September 30, 2024 and as of December 31, 2023	(12,045,542)		(12,045,542)
Accumulated deficit	(75,555,481)		(66,272,382)
Total stockholders’ equity	2,392,636		10,085,355
Total liabilities and stockholders’ equity	$	49,206,049	$	49,513,067

The accompanying unaudited notes are an integral part of these condensed consolidated financial statements

URBAN-GRO, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Revenues:
Equipment systems	$	3,720,174	$	3,035,758	$	9,624,514	$	10,629,327
Services	1,913,246		2,898,741		7,404,843		9,399,968
Construction design-build	4,172,110		13,466,093		25,915,018		34,253,900
Other	83,727		186,337		291,161		509,981
Total revenues and other income	9,889,257		19,586,929		43,235,536		54,793,176
Cost of revenues:
Equipment systems	3,290,624		2,774,147		8,214,233		9,321,922
Services	1,356,925		1,768,166		4,379,087		5,692,663
Construction design-build	3,932,699		12,483,972		23,789,045		31,469,185
Other	57,935		137,359		200,328		365,306
Total cost of revenues	8,638,183		17,163,644		36,582,693		46,849,076
Gross profit	1,251,074		2,423,285		6,652,843		7,944,100

Operating expenses:
General and administrative	4,386,050		5,558,767		14,132,862		19,479,003

Depreciation and Amortization	383,304		372,969		1,169,250		1,201,201
Business development	—		—		25,000		—
Total operating expenses	4,769,354		5,931,736		15,327,112		20,680,204
Loss from operations	(3,518,280)		(3,508,451)		(8,674,269)		(12,736,104)

Non-operating income (expense):
Interest expense	(220,472)		(39,929)		(631,484)		(158,134)
Interest income	285		19,461		521		167,652
Write-down of investment	—		(258,492)		—		(258,492)
Contingent consideration - change in fair value	—		—		—		(160,232)
Loss on settlement	—		—		—		(1,500,000)
Other income (expense)	(33,026)		(34,711)		(88,318)		(191,922)
Total non-operating income (expense)	(253,213)		(313,671)		(719,281)		(2,101,128)
Loss before income taxes	(3,771,493)		(3,822,122)		(9,393,550)		(14,837,232)

Income tax benefit	13,685		—		110,451		—
Net loss	$	(3,757,808)	$	(3,822,122)	$	(9,283,099)	$	(14,837,232)

Comprehensive loss	$	(3,757,808)	$	(3,822,122)	$	(9,283,099)	$	(14,837,232)

Net loss per share - basic and diluted	$	(0.30)	$	(0.33)	$	(0.76)	$	(1.37)
Weighted average shares - basic and diluted	12,423,421		11,649,790		12,249,520		10,859,820

The accompanying unaudited notes are an integral part of these condensed consolidated financial statements

URBAN-GRO, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (unaudited)


	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Treasury Stock		Total Stockholders’ Equity
	Shares	Amount
Balance, December 31, 2023	13,522,669	$	13,523	$	88,389,756	$	(66,272,382)	$	(12,045,542)	$	10,085,355
Stock-based compensation	—	—		656,576		—		—		656,576
Stock grant program vesting	245,925	246		(246)		—		—		—

Net loss	—	—		—		(2,560,563)		—		(2,560,563)
Balance, March 31, 2024	13,768,594	$	13,769	$	89,046,086	$	(68,832,945)	$	(12,045,542)	$	8,181,368
Stock-based compensation	—	—		460,785		—		—		460,785
Stock grant program vesting	172,558	172		(172)		—		—		—
Stock issued for contingent consideration	71,147	71		129,064		—		—		129,135
Net loss	—	—		—		(2,964,728)		—		(2,964,728)
Balance, June 30, 2024	14,012,299	$	14,012	$	89,635,763	$	(71,797,673)	$	(12,045,542)	$	5,806,560
Stock-based compensation	—	—		343,884		—		—		343,884
Stock grant program vesting	51,038	51		(51)		—		—		—
Net loss	—	—		—		(3,757,808)		—		(3,757,808)
Balance, September 30, 2024	14,063,337	$	14,063	$	89,979,596	$	(75,555,481)	$	(12,045,542)	$	2,392,636


	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Treasury Stock		Total Stockholders’ Equity
	Shares	Amount
Balance, December 31, 2022	12,292,104	$	12,292	$	84,189,965	$	(40,834,721)	$	(12,045,542)	$	31,321,994
Stock-based compensation	—	—		479,641		—		—		479,641
Stock grant program vesting	96,285	96		(96)		—		—		—
Stock issued for contingent consideration	64,224	64		191,855		—		—		191,919
Net loss	—	—		—		(5,251,201)		—		(5,251,201)
Balance, March 31, 2023	12,452,613	$	12,452	$	84,861,365	$	(46,085,922)	$	(12,045,542)	$	26,742,353
Stock-based compensation	—	—		622,547		—		—		622,547
Stock grant program vesting	86,020	86		(86)		—		—		—
Stock issued for contingent consideration	517,776	518		1,292,165		—		—		1,292,683
Net loss	—	—		—		(5,763,909)		—		(5,763,909)
Balance, June 30, 2023	13,056,409	$	13,056	$	86,775,991	$	(51,849,831)	$	(12,045,542)	$	22,893,674
Stock-based compensation	—	—		343,884		—		—		343,884
Stock grant program vesting	8,772	9		(9)		—		—		—
Stock issued for contingent consideration	55,232	55		76,713		—		—		76,768
Net loss	—	—		—		(3,822,122)		—		(3,822,122)
Balance, September 30, 2023	13,120,413	$	13,120	$	87,196,579	$	(55,671,953)	$	(12,045,542)	$	19,492,204

The accompanying unaudited notes are an integral part of these condensed consolidated financial statements

URBAN-GRO, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)


	Nine Months Ended September 30,
	2024		2023
Cash flows from operating activities:
Net loss	$	(9,283,099)	$	(14,837,232)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	1,169,250		1,201,201
Amortization of right-of-use assets	156,742		323,002
Stock-based compensation expense	1,461,245		1,985,683
Impairment of investment	—		258,492
Change in fair value of contingent consideration	79,305		160,232

Interest income from investments	—		(25,653)
Changes in operating assets and liabilities (net of acquired amounts):
Accounts receivable and contract receivables	1,550,811		(6,881,091)
Prepaid expenses and other assets and property and equipment	(2,053,184)		1,316,110
Accounts payable, contract liabilities, customer deposits, and accrued expenses	6,399,059		11,017,672
Change in contingent consideration from indemnification	—		(917,699)
Operating lease liability	(146,029)		(298,405)
Deferred tax liability	(110,451)		—

Net cash provided by (used in) operating activities	(776,351)		(6,697,688)

Cash flows from investing activities:
Sale of investment	—		2,326,468
Purchases of property and equipment	(97,578)		(420,982)
Net cash provided by (used in) investing activities	(97,578)		1,905,486

Cash flows from financing activities:


Additions to notes payable	5,838,000		—
Repayment of notes payable	(4,808,921)		(1,867,907)
Repayment of finance lease liability	(93,152)		(117,586)
Payments to settle contingent consideration	—		(479,457)
Net cash used in financing activities	935,927		(2,464,950)

Net change in cash	61,998		(7,257,152)
Cash at beginning of period	1,074,842		11,754,349
Cash at end of period	$	1,136,840	$	4,497,197

Supplemental cash flow information:
Cash paid for interest	$	399,218	$	13,402
Net cash paid for income taxes	$	24,785	$	134,252

Supplemental disclosure of non-cash investing and financing activities:
Operating lease right of use assets and liabilities extension	$	—	$	295,631

The accompanying unaudited notes are an integral part of these condensed consolidated financial statements

URBAN-GRO, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – ORGANIZATION, ACQUISITIONS, AND LIQUIDITY

Organization

urban-gro, Inc. (“we,” “us,” “our,” the “Company,” or “urban-gro”) is an integrated professional services and Design-Build firm offering value-added architectural, engineering, and construction management solutions to the Controlled Environment Agriculture (“CEA”), industrial, healthcare, and other sectors. To serve our horticulture clients, we engineer, design and manage the construction of indoor CEA facilities and then integrate complex environmental equipment systems into those facilities. Through this work, we create high-performance indoor cultivation facilities for our clients to grow specialty crops, including leafy greens, vegetables, herbs, and plant-based medicines. Our custom-tailored approach to design, construction, procurement, and equipment integration provides a single point of accountability across all aspects of indoor growing operations. Further, we serve a broad range of commercial and governmental entities, providing them with planning, consulting, architectural, engineering and construction services for their facilities. As a full-service Design-Build provider, we serve as a trusted partner and advisor, affording clients the simplicity of a single point-of-contact and contract from project conception through completion.

Liquidity and Going Concern

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

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Unaudited Condensed Consolidated Financial Statements

The Company has prepared the accompanying condensed consolidated financial statements pursuant to the rules and regulations of the SEC for condensed financial reporting. The condensed consolidated financial statements are unaudited and, in the Company’s opinion, include all adjustments, consisting of normal recurring adjustments and accruals necessary for a fair presentation of the Company’s condensed consolidated balance sheets, condensed consolidated statements of operations and comprehensive loss, condensed consolidated statements of stockholders’ equity and condensed consolidated statements of cash flows for the periods presented. The results reported in these condensed consolidated financial statements should not be regarded as necessarily indicative of results that may be expected for the entire year. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been omitted in accordance with regulations of the SEC. These condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s consolidated financial statements in the Company’s Annual Report on Amendment No. 2 on Form 10-K/A for the year ended December 31, 2023.

Significant Accounting Policies

For a detailed discussion about the Company’s significant accounting policies, refer to Note 2 — “Summary of Significant Accounting Policies,” in the Company’s consolidated financial statements included in the Company’s Annual Report on Amendment No. 2 on Form 10-K/A for the year ended December 31, 2023. During the nine months ended September 30, 2024, there were no material changes made to the Company’s significant accounting policies.

Use of Estimates

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

Reclassification

Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations.

Balance Sheet Classifications

The Company includes in current assets and liabilities the following amounts that are in connection with construction contracts that may extend beyond one year: contract assets and contract liabilities (including retainage invoiced to customers

contingent upon anything other than the passage of time), capitalized costs to fulfill contracts, retainage payable to sub-contractors and accrued losses on uncompleted contracts. A one-year time period is used to classify all other current assets and liabilities when not otherwise prescribed by the applicable accounting principles.

Contract Assets and Liabilities

The timing between when the Company invoices for its construction design-build customers can create a contract asset or contract liability. Refer to Note 3 - Revenue from Contracts with Customers for further discussion of the Company's contract assets and liabilities.

Recently Issued Accounting Standards

From time to time, the Financial Accounting Standards Board (the "FASB") or other standards setting bodies issue new accounting pronouncements. The FASB issues updates to new accounting pronouncements through the issuance of an Accounting Standards Update. Unless otherwise discussed, the Company believes that the impact of recently issued guidance, whether adopted or to be adopted in the future, is not expected to have a material impact on the Company’s financial statements upon adoption.

Management has reviewed all other recently issued, but not yet effective, accounting pronouncements and does not believe the future adoption of any such pronouncements may be expected to cause a material impact on the Company's financial condition or the results of our operations.

NOTE 3 – REVENUE FROM CONTRACTS WITH CUSTOMERS

The Company recognizes revenue predominantly from the sale of equipment systems, services, construction design-build, and from other various immaterial contracts with customers from its CEA and Commercial sectors. The table below presents the revenue by source for the three and nine months ended September 30, 2024 and 2023:


	Three Months Ended September 30,
	CEA				Commercial				Total
	2024		2023		2024		2023		2024		2023
Equipment systems	$	3,720,174	$	3,035,758	$	—	$	—	$	3,720,174	$	3,035,758
Services	764,890		468,872		1,148,356		2,429,869		1,913,246		2,898,741
Construction design-build	(1,105,670)		1,739,867		5,277,780		11,726,226		4,172,110		<

SEC Form 10-Q filed by urban-gro Inc.