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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 ~~June~~March 3031, ~~2024~~2025

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 GLafayette, CO

80026

(720) 390-3880

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)

~~(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 ☒

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 o☐ No x☒

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~~January 27, ~~2025~~2026 was 1217,~~696~~470,~~557~~729 shares.

TABLE OF CONTENTS

Item No.		Page No.		~~Page No.~~
	PART I. FINANCIAL INFORMATION		~~PART I. FINANCIAL INFORMATION~~
Item 1.	Financial Statements (Unaudited)	1	~~Financial Statements (Unaudited)~~	5
	Unaudited Condensed Consolidated Balance Sheets	1	~~Unaudited Condensed Consolidated Balance Sheets~~	5
	Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss	2	~~Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss~~	6
			Unaudited Condensed Consolidated Statements of Stockholders’ Equity	7
	Unaudited Condensed Consolidated Statements of Stockholders’ Deficit	3
	Unaudited Condensed Consolidated Statements of Cash Flows	4	~~Unaudited Condensed Consolidated Statements of Cash Flows~~	8
	Notes to Unaudited Condensed Consolidated Financial Statements	5	~~Notes to Unaudited Condensed Consolidated Financial Statements~~	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24	~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~	22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25	~~Quantitative and Qualitative Disclosures About Market Risk~~	26
Item 4.	Controls and Procedures	26	~~Controls and Procedures~~	26
	PART II. OTHER INFORMATION		~~PART II. OTHER INFORMATION~~
Item 1.	Legal Proceedings	27	~~Legal Proceedings~~	27
Item 1A.	Risk Factors	29	~~Risk Factors~~	27
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29	~~Unregistered Sales of Equity Securities and Use of Proceeds~~	27
Item 3.	Defaults Upon Senior Securities	29	~~Defaults Upon Senior Securities~~	27
Item 4.	Mine Safety Disclosures	29	~~Mine Safety Disclosures~~	27
Item 5.	Other Information	29	~~Other Information~~	27
Item 6.	Exhibits	30	~~Exhibits~~	28
	Signatures	31	~~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~~2024. 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;

•These factors are not necessarily all of the ~~outcome~~important factors that could cause actual results or events to differ materially from those expressed in the forward-looking statements. Other unknown or unpredictable factors could also cause actual results or events to differ materially from those expressed in the forward-looking statements. Our future results will depend upon various other risks and uncertainties, including those described in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024. All forward-looking statements attributable to us are qualified in their entirety by this cautionary statement. Forward-looking statements speak only as of ~~litigation~~the date hereof. We undertake no obligation to update or ~~disputes;~~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).

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

•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

		June 30, 2024					December 31, 2023
	As of
ASSETS		(Unaudited)					(As Restated)
	March 31, 2025 (unaudited)			December 31, 2024 (audited)
Current assets:
ASSETS
Cash		$	384,796				$	1,074,842
Current Assets
Accounts receivable, net		28,938,666					21,648,901
Cash	$	696,996		$	819,050
Contract receivables		7,281,596					8,436,567
Accounts receivable, net		5,551,866			8,369,116
Prepaid expenses and other assets		2,753,752					1,751,564
Contract receivables		3,694,630			4,132,817
Total current assets		39,358,810					32,911,874
Prepaid expenses and other current assets		3,478,135			2,486,865
Non-current assets:
Total current assets	$	13,421,627			15,807,848
Property and equipment, net		1,152,119					1,419,393
Non-current assets
Operating lease right of use assets, net		1,746,022					2,041,217
Property and equipment, net	$	837,524			921,957
Goodwill		9,688,975					9,688,975
Operating lease assets		622,133			1,534,560
Intangible assets, net		3,061,633					3,451,608
Goodwill		1,080,638			1,080,638
Total non-current assets		15,648,749					16,601,193
Intangible assets, net		123,830			148,780
Total assets		$	55,007,559				$	49,513,067
Total non-current assets		2,664,125			3,685,935
LIABILITIES AND STOCKHOLDERS' EQUITY
Total assets	$	16,085,752		$	19,493,783
Current liabilities:
LIABILITIES
Accounts payable		$	31,716,810				$	24,203,769
Current liabilities
Contract liabilities		5,085,043					3,950,133
Accounts payable		16,863,418			14,724,589
Accrued expenses		4,655,619					5,284,278
Contract liabilities		12,546,624			14,094,176
Customer deposits		1,245,873					603,046
Accrued expenses		4,587,973			4,277,545
Contingent consideration		—					49,830
Customer deposits		4,942,145			2,682,099
Notes payable		4,~~710~~183,~~237~~660			5,968,145		~~3,204,840~~
Operating lease liabilities		~~631~~357,~~136~~641			552,933		~~707,141~~
Total current liabilities		4843,~~044~~481,~~718~~461			42,299,487		~~38,003,037~~
Non-current liabilities:
Non-current liabilities
Operating lease liabilities		1,208,733					1,380,362
Notes payable, long-term		559,521			795,531
Deferred tax liability		~~(52,452)~~-			14,608		~~44,313~~
Total non-current liabilities		1,156,281					1,424,675
Operating lease liabilities - LT		287,529			1,026,699
Total liabilities		49,200,999					39,427,712
Total non-current liabilities		847,050			1,836,838
Commitments and contingencies (note 11)
Total liabilities	$	44,328,511		$	44,136,325
Stockholders’ equity:
Commitments and contingencies (Note 11)
Preferred stock, $0.10 par value; 3,000,000 shares authorized; 0 shares issued and outstanding		—					—
SHAREHOLDERS’ DEFICIT
Common stock, $0.001 par value; 30,000,000 shares authorized; 14,012,299 issued and 12,562,466 outstanding as of June 30, 2024, and 13,522,669 issued and 12,072,836 outstanding as of December 31, 2023		14,012					13,523
Preferred stock, $0.10 par value; 3,000,000 shares authorized; 0 shares issued and outstanding as of March 31, 2025 and December 31, 2024	$	-		$	-
Additional paid-in capital		89,635,763					88,389,756
Common stock, $0.001 par value 30,000,000 shares authorized; 14,560,366 issued and 13,110,533 outstanding as of March 31, 2025, and 14,071,390 issued and 12,621,557 outstanding as of December 31, 2024		14,560			14,071
Treasury shares, cost basis: 1,449,833 shares as of June 30, 2024 and as of December 31, 2023		(12,045,542)					(12,045,542)
Additional paid in capital		90,590,343			90,157,137
Accumulated deficit		(71,797,673)					(66,272,382)
Treasury shares, cost basis: 1,449,833 shares as of March 31, 2025 and December 31, 2024		(12,045,542	)		(12,045,542	)
Total stockholders’ equity		5,806,560					10,085,355
Accumulated deficit		(106,802,120	)		(102,768,208	)
Total liabilities and stockholders’ equity		$	55,007,559				$	49,513,067
Total shareholders’ deficit		(28,242,759	)		(24,642,542	)
Total liabilities and shareholders’ deficit	$	16,085,752		$	19,493,783

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~~LOSS (unaudited)

		Three Months EndedJune 30,							Six Months EndedJune 30,
	Three Months Ended
		2024					2023		2024		2023
	March 31,
Revenues:		(Unaudited)					(As Restated)		(Unaudited)		(As Restated)
	2025			2024
Equipment systems		$	3,398,696				$	4,688,534	$	5,904,345	$	7,593,569
Revenues:
Services		2,357,806					3,030,574		5,491,598		6,501,227
Equipment systems	$	4,698,577		$	2,508,287
Construction design-build		12,059,096					10,592,469		21,742,909		20,787,807
Services		1,649,098			3,133,793
Other		129,651					139,899		207,434		323,644
Construction design-build		3,122,298			9,683,814
Total revenues and other income		17,945,249					18,451,476		33,346,286		35,206,247
Other		44,102			75,141
Cost of revenues:
Total revenues and other income		9,514,075			15,401,035
Equipment systems		2,753,497					4,139,294		4,923,608		6,547,775
Cost of revenues:
Services		1,513,715					1,949,959		3,022,163		3,924,497
Equipment systems		4,344,607			2,172,450
Construction design-build		11,181,017					9,755,240		19,856,346		18,985,213
Services		1,051,146			1,508,449
Other		86,704					94,805		142,393		227,947
Construction design-build		3,474,387			8,675,280
Total cost of revenues		15,534,933					15,939,298		27,944,510		29,685,432
Other		33,913			53,399
Gross profit		2,410,316					2,512,178		5,401,776		5,520,815
Total cost of revenues		8,904,053			12,409,578
Operating expenses:
Gross profit		610,022			2,991,457
General and administrative		4,668,954					6,235,206		9,746,820		13,920,236
Operating expenses:
Depreciation and Amortization		395,696					424,163		785,947		828,232
General and administrative		4,517,503			5,077,864
Business development		25,000					—		25,000		—
Depreciation and Amortization		167,694			390,250
Total operating expenses		54,~~089~~685,~~650~~197			5,468,114		~~6,659,369~~		~~10,557,767~~		~~14,748,468~~
Loss from operations		(24,~~679~~075,~~334)~~175	)		(2,476,657	)	~~(4,147,191)~~		~~(5,155,991)~~		~~(9,227,653)~~
Non-operating income (expense):
Interest expense		(~~311~~454,~~706)~~624	)		(99,306	)	~~(44,989)~~		~~(411,010)~~		~~(118,205)~~
Interest income		~~155~~268			81		~~75,060~~		~~236~~		~~148,191~~
Contingent consideration - change in fair value		—					—		—		(160,232)
Other income (expense)		481,011			(33,064	)
Loss on settlement		—					(1,500,000)		—		(1,500,000)
Total non-operating income (expense)		26,655			(132,289	)
Other income (expense)		(22,226)					(146,789)		(55,291)		(157,211)
Loss before income taxes		(4,048,520	)		(2,608,946	)
Total non-operating income (expense)		(333,777)					(1,616,718)		(466,065)		(1,787,457)
Income tax benefit		14,608			48,383
Loss before income taxes		(3,013,111)					(5,763,909)		(5,622,056)		(11,015,110)
Net loss	$	(4,033,912	)	$	(2,560,563	)
Income tax benefit		48,383					—		96,765		—
Comprehensive loss	$	(4,033,912	)	$	(2,560,563	)
Net loss		$	(2,964,728)				$	(5,763,909)	$	(5,525,291)	$	(11,015,110)
Net loss per share - basic and diluted	$	(0.31	)	$	(0.21	)
Comprehensive loss		$	(2,964,728)				$	(5,763,909)	$	(5,525,291)	$	(11,015,110)
Weighted average shares - basic and diluted		12,964,226			12,075,619
Net loss per share - basic and diluted		$	(0.24)				$	(0.53)	$	(0.45)	$	(1.01)
Weighted average shares - basic and diluted		12,423,421					10,945,978		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	~~Common Stock~~				Additional Paid-in			Accumulated	~~AdditionalPaid-inCapital~~		Treasury			~~AccumulatedDeficit~~	Total Shareholders’			~~TreasuryStock~~		~~TotalStockholders’Equity~~
	Shares	~~Shares~~	Amount		~~Amount~~	Capital			Deficit			Stock				Equity
Balance, December 31, 2023		13,522,669			$	13,523				$	88,389,756				$	(66,272,382)			$	(12,045,542)	$	10,085,355
Balance, December 31, 2024		14,071,390	$	14,071		$	90,157,147		$	(102,768,208	)	$	(12,045,542	)		$	(24,642,542	)
Stock-based compensation		—75,000		75	—		324,196			~~656,576~~—			—		—		324,271		—		~~656,576~~
Stock grant program vesting		~~245~~263,~~925~~976		264	~~246~~		(264	)		~~(246)~~—			—		—		—		—		—
Net loss		—			—					—					(2,560,563)				—		(2,560,563)
Issuance of common stock for loan modification		150,000		150			109,274										109,424
Balance, March 31, 2024		13,768,594			$	13,769				$	89,046,086				$	(68,832,945)			$	(12,045,542)	$	8,181,368
Net loss		—		—						(4,033,912	)		—				(4,033,912	)
Stock-based compensation		—			—					460,785					—				—		460,785
Balance, March 31, 2025		14,560,366	$	14,560		$	90,590,343		$	(106,802,120	)	$	(12,045,542	)		$	(28,242,759	)
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

	Common Stock	~~Common Stock~~				Additional Paid-in			Accumulated	~~AdditionalPaid-inCapital~~		Treasury			~~AccumulatedDeficit~~	Total Shareholders’			~~TreasuryStock~~		~~TotalStockholders’Equity~~
	Shares	~~Shares~~	Amount		~~Amount~~	Capital			Deficit			Stock				Equity
Balance, December 31, 2022		12,292,104			$	12,292				$	84,189,965				$	(40,834,721)			$	(12,045,542)	$	31,321,994
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			~~479,641~~—			—		—		656,576		—		~~479,641~~
Stock grant program vesting		96245,~~285~~925		246	96		(246	)		~~(96)~~—			—		—		—		—		—
Stock issued for contingent consideration		64,224			64					191,855					—				—		191,919
Net loss		—		—			—			(2,560,563	)		—				(2,560,563	)
Net loss		—			—					—					(5,251,201)				—		(5,251,201)
Balance, March 31, 2024		13,768,594	$	13,769		$	89,046,086		$	(68,832,945	)	$	(12,045,542	)		$	8,181,368
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

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

URBAN-GRO, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

		Six Months Ended June 30,
	Three Months Ended
		2024					2023
	March 31,
Cash flows from operating activities:		(Unaudited)					(As Restated)
	2025			2024
Net loss		$	(5,525,291)				$	(11,015,110)
Cash flows from operating activities:
Adjustments to reconcile net loss to net cash used in operating activities:
Net loss	$	(4,033,912	)	$	(2,560,563	)
Depreciation and amortization		785,947					828,232
Adjustments to reconcile net loss to net cash (used in) / provided by operating activities:
Amortization of right-of-use assets		263,775					168,250
Depreciation and amortization		167,694			390,250
Stock-based compensation expense		1,117,361					1,102,188
Amortization of right-of-use assets		136,582			134,054
Interest income on investments		—					(25,653)
Amortization of debt discount		38,990			-
Changes in operating assets and liabilities (net of acquired amounts):
Stock-based compensation expense		324,271			656,576
Accounts receivable and contract receivables		(6,134,794)					(3,875,451)
Common stock issued for debt modification		109,424			-
Prepaid expenses and other assets and property and equipment		(696,442)					938,035
Gain on disposal of assets		(64,114	)		-
Accounts payable, contract liabilities, customer deposits, and accrued expenses		8,741,425					11,815,704
Changes in operating assets and liabilities:
Change in contingent consideration from indemnification		—					(1,236,296)
Accounts receivable and contract receivables		3,255,437			3,680,141
Operating lease liability		(216,203)					(150,266)
Prepaid expenses and other assets and property and equipment		(708,950	)		(497,749	)
Deferred tax liability		(96,765)					—
Accounts payable, contract liabilities, customer deposits, and accrued expenses		3,161,755			(996,596	)
Net cash provided by (used in) operating activities		(1,760,987)					(1,290,135)
Operating lease liability		(158,616	)		(129,181	)
Cash flows from investing activities:
Deferred tax liability		(14,608	)		(48,383	)
Purchases of property and equipment		(45,999)					(225,901)
Net cash provided by operating activities		2,213,953			628,549
Net cash provided by (used in) investing activities		(45,999)					(225,901)
Cash flows from investing activities:
Cash flows from financing activities:
Purchase of property and equipment		(63,836	)		-
Additions to notes payable		4,500,000					—
Proceeds from disposal of property and equipment		77,600			8,486
Repayment of notes payable		(3,300,350)					(1,891,496)
Net cash provided by investing activities		13,764			8,486
Repayment of finance lease liability		(82,710)					(54,763)
Cash flows from financing activities:
Payments to settle contingent consideration		—					—
Additions to notes payable		-			2,000,000
Net cash used in financing activities		1,116,940					(1,946,259)
Repayment of finance lease liability		(7,963	)		(43,180	)
Net change in cash		(690,046)					(3,462,295)
Repayment of notes payable		(2,341,808	)		(3,020,100	)
Cash at beginning of period		1,074,842					11,754,349
Net cash used in financing activities		(2,349,771	)		(1,063,280	)
Cash at end of period		$	384,796				$	8,292,054
Net change in cash		(122,054	)		(426,245	)
Supplemental cash flow information:
Cash at beginning of period		819,050			1,074,842
Cash paid for interest		$	399,218				$	13,402
Cash at end of period	$	696,996		$	648,597
Net cash paid for income taxes		$	24,785				$	134,252
Supplemental cash flow information:
Supplemental disclosure of non-cash investing and financing activities:
Cash paid for interest	$	270,846		$	159,366
Operating lease right of use assets and liabilities extension		$	—				$	295,631
Net cash paid for income taxes	$	4,611		$	-
Supplemental disclosure of non-cash investing and financing activities:
Termination of operating lease	$	767,884		$	-
Prepaid expenses financed by notes payable		268,411			-

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. (together with its wholly owned subsidiaries, collectively "“urban-gro,"” "“we,"” "“us,"” or ~~the~~ “the Company"”) was originally formed on March 20, 2014, as a Colorado limited liability company. On March 10, 2017, we converted to a Colorado corporation and exchanged shares of our common stock for every member'’s interest issued and outstanding on the date of conversion. On October 29, 2020, we reincorporated as a Delaware corporation. On February 12, 2021, we completed an uplisting to the Nasdaq Capital Market ("“Nasdaq"”) under the ticker symbol "“UGRO"”.

In 2024, urban-gro, isInc. was an integrated professional services and ~~Design~~design-~~Build~~build firm. ~~offering~~We offered value-added architectural, engineering, and construction management solutions to the Controlled Environment Agriculture (“CEA”), industrial, healthcare, and other commercial sectors. Innovation, collaboration, and a commitment to sustainability drove our team to provide exceptional customer experiences. To serve our horticulture clients, we ~~engineer~~engineered, ~~design~~designed and ~~manage~~managed the construction of indoor CEA facilities and then integrate complex environmental equipment systems into those facilities. Through this work, we ~~create~~created 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~~provided a single point of accountability across all aspects of indoor growing operations. ~~Further~~ We also helped our clients achieve operational efficiency and economic advantages through a full spectrum of professional services and programs focused on facility optimization and environmental health which established facilities that allowed clients to manage, operate and perform at the highest level throughout their entire cultivation lifecycle once they are up and running. Further, we ~~serve~~served a broad range of commercial and governmental entities, providing them with planning, consulting, architectural, engineering and construction design-build services for their facilities. AsWe aimed to work with our clients from the inception of their project in a ~~full-service~~way ~~Design-Build~~that ~~provider,~~provided wevalue ~~serve~~throughout asthe life of their facility. We are a trusted partner and advisor, ~~affording~~to our clients ~~the~~and ~~simplicity~~offer of a ~~single~~complete set ~~point-~~of~~-contact~~ engineering and ~~contract~~managed ~~from~~services ~~project~~complemented ~~conception~~by ~~through~~a ~~completion~~vetted suite of select cultivation equipment systems.

Liquidity and Going Concern

The Company has produced multiple consecutive years of net losses and negative cash flows from operations. The financial results described in these financial statements and our financial position as of ~~June 30~~March 31, ~~2024~~2025 raise substantial doubt about our ability to continue as a going concern. However, the Company has recently taken actions to strengthen its liquidity, including decreasing headcount and operating expenses to expedite the Company'’s path to cash flow positive results. If necessary, the Company will seek to raise capital by issuing additional equity shares either through a private placement or on the open market. The Company may also seek to obtain additional debt financing for which there can be no guarantee. Management has concluded that these recent positive steps alleviate any substantial doubt about the Company'’s ability to continue its operations, and meet its financial obligations, for twelve ~~moths~~months from the date these consolidated financial statements are 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~~2024.

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~~2024. During the ~~six~~three months ended ~~June 30~~March 31, ~~2024~~2025, 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.

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 ("“ASU"”). Unless otherwise discussed, the Company believes that the impact of recently issued guidance, whether adopted or to be adopted in the future, is not expected to have a material impact on the Company’s financial statements upon adoption.

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 six~~ months ended ~~June 30~~March 31, ~~2024~~2025 and ~~2023~~2024:

		Three Months EndedJune 30,
	For the three months ended March 31, 2025
	CEA	~~CEA~~			Commercial				Total			Relative Percentage	~~Commercial~~						~~Total~~
		2024						2023					2024			2023			2024			2023
Equipment systems	$	4,685,825			$	12,752			$	4,698,577			49	%
Equipment systems		$	3,398,696					$	4,688,534				$	—		$	—		$	3,398,696		$	4,688,534
Services		682,714				966,384				1,649,098			17	%
Services		1,009,450						1,255,978					1,348,356			1,774,596			2,357,806			3,030,574
Construction design-build		2,836,453				285,845				3,122,298			33	%
Construction design-build		9,982,914						414,717					2,076,182			10,177,752			12,059,096			10,592,469
Other		43,298				804				44,102			1	%
Other		129,651						139,899					—			—			129,651			139,899
Total revenues and other income	$	8,248,290			$	1,265,786			$	9,514,075			100	%
Total revenues and other income		$	14,520,711					$	6,499,128				$	3,424,538		$	11,952,348		$	17,945,249		$	18,451,476
Relative percentage		87	%			13	%			100	%
Relative percentage		81		%				35		%			19		%	65		%	100		%	100		%

	For the three months ended March 31, 2024
	CEA			Commercial			Total		Relative Percentage

Equipment systems	$	2,508,287		$	—		$	2,508,287		16	%
Services		867,907			2,265,886			3,133,793		20	%
Construction design-build		957,623			8,726,191			9,683,814		63	%
Other		75,141			—			75,141		—	%
Total revenues and other income	$	4,408,958		$	10,992,077		$	15,401,035		100	%
Relative percentage		29	%		71	%		100

	Six Months EndedJune 30,
	CEA						Commercial						Total
	2024			2023			2024			2023			2024			2023
Equipment systems	$	5,904,345		$	7,593,569		$	—		$	—		$	5,904,345		$	7,593,569
Services	1,877,357			2,813,153			3,614,241			3,688,074			5,491,598			6,501,227
Construction design-build	10,798,893			786,560			10,944,016			20,001,247			21,742,909			20,787,807
Other	207,434			323,644			—			—			207,434			323,644
Total revenues and other income	$	18,788,029		$	11,516,926		$	14,558,257		$	23,689,321		$	33,346,286		$	35,206,247
Relative percentage	56		%	33		%	44		%	67		%	100		%	100		%

Under ASC Topic 606, Revenue from Contracts with Customers, a performance obligation is a promise in a contract with a customer, to transfer a distinct good or service to the customer. Equipment systems contracts are lump sum contracts, which require the performance of some, or all, of the obligations under the contract for a specified amount. Service revenue contracts, which include both architectural and engineering designs, generally contain multiple performance obligations which can span across multiple phases of a project and are generally set forth in the contract as distinct milestones. The majority of construction design-build contracts have a single performance obligation, as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts and, therefore, not distinct. Some contracts have multiple performance obligations, most commonly due to the contract covering multiple phases of the project life cycle (design and construction).

~~Under~~The transaction ~~Accounting~~price ~~Standards~~for ~~Codification~~service ~~(“ASC”)~~contracts ~~Topic~~and ~~606,~~construction ~~Revenue~~design-build ~~from~~contracts ~~Contracts~~is ~~with~~allocated ~~Customers,~~to aeach distinct performance obligation and isrecognized aas ~~promise~~revenue inwhen, aor ~~contract with a customer~~as, toeach ~~transfer~~performance aobligation ~~distinct~~is ~~good or service to the customer~~satisfied. ~~Equipment~~When ~~systems~~there ~~contracts~~ are ~~lump~~multiple ~~sum contracts, which require the~~ performance ~~of some, or all, of the~~ obligations under the ~~contract~~same ~~for~~service ~~a specified amount. Service revenue contracts~~contract, ~~which~~the ~~include~~Company ~~both~~allocates ~~architectural~~the ~~and~~transaction ~~engineering~~price ~~designs,~~to ~~generally~~each ~~contain multiple~~ performance ~~obligations~~obligation ~~which~~based ~~can~~on ~~span across multiple phases of a project and are generally set forth in~~ the ~~contract~~standalone ~~as distinct milestones~~selling price. ~~The~~In ~~majority~~general, ofpayment ~~construction~~is ~~design-build~~fixed ~~contracts~~at ~~have a single performance obligation, as~~ the ~~promise~~time toof ~~transfer~~ the ~~individual~~contract ~~goods~~and orare ~~services is~~ not ~~separately~~subject ~~identifiable~~to ~~from~~discounts, ~~other~~incentives, ~~promises~~payment ~~in the contracts and~~bonuses, ~~therefore~~credits, and ~~not distinct. Some contracts have multiple performance obligations~~penalties, ~~most~~unless ~~commonly~~negotiated ~~due~~in toan ~~the contract covering multiple phases of the project life cycle (design and construction)~~amendment.

The transaction price for service contracts and construction design-build contracts is allocated to each distinct performance obligation and recognized as revenue when, or as, each performance obligation is satisfied. When there are multiple performance obligations under the same service contract, the Company allocates the transaction price to each performance obligation based on the standalone selling price. In general, payment terms are fixed at the time of the contract and are not subject to discounts, incentives, payment bonuses, credits, or penalties, unless negotiated in an amendment.7

When establishing the selling price to the customer, the Company uses various observable inputs. For equipment systems, the stand-alone selling price is determined by forecasting the expected costs of the products, and then adding in the appropriate margins established by ~~management~~the contract. For service revenues and construction design-build revenues, the Company estimates the selling price by reference to certain physical characteristics of the project, which include the facility size, the complexity of the design, and the mechanical systems involved, which are indicative of the scope and complexity for those services. Significant judgments are typically not required with respect to the determination of the transaction price based on the nature of the selling prices of the products and services delivered and the collectability of those amounts. Accordingly, the Company does not consider estimates of variable consideration to be constrained.

The Company recognizes equipment systems, services, and construction design-build revenues when the performance obligation with the customer is satisfied. For satisfaction of equipment system revenues, the Company recognizes revenue when control of the promised good transfers to the customer, which predominately occurs at the time of shipment. For service revenues, satisfaction occurs as the services related to the distinct performance obligations are rendered or completed in exchange for consideration in an amount for which the Company is entitled. The time period between recognition and satisfaction of performance obligations is generally within the same reporting period; thus, there are no material unsatisfied or partially unsatisfied performance obligations for product or service revenues at the end of the reporting period.

Construction design-build revenues are recognized as the Company'’s obligations are satisfied over time, using the ratio of project costs incurred to estimated total costs for each contract because of the continuous transfer of control to the customer as all of the work is performed at the customer’s site and, therefore, the customer controls the asset as it is being constructed. This continuous transfer of control to the customer is further supported by clauses in the contract that allow the customer to unilaterally terminate the contract for convenience, pay the Company for costs incurred plus a reasonable profit and take control of any work in process. This cost-to-cost measure is used for our construction design-build contracts because management considers it to be the best available measure of progress on these contracts.

Contract modifications through change orders, claims and incentives are routine in the performance of the Company’s construction design-build contracts to account for changes in the contract specifications or requirements. In most instances, contract modifications are not distinct from the existing contract due to the significant integration of services provided in the contract and are accounted for as a modification of the existing contract and performance obligation. Either the Company or its customers may initiate change orders, which may include changes in specifications or designs, manner of performance, facilities, equipment, materials, sites and period of completion of the work. Change orders that are unapproved as to both price and scope are evaluated as claims. The Company considers claims to be amounts in excess of approved contract prices that the Company seeks to collect from its customers or others for customer-caused delays, errors in specifications and designs, contract terminations, change orders that are either in dispute or are unapproved as to both scope and price, or other causes of unanticipated additional contract costs.

11The timing of when the Company bills customers on long-term construction design-build contracts is generally dependent upon agreed-upon contractual terms, which may include milestone billings based on the completion of certain phases of the work, or when services are provided. When as a result of contingencies, billings cannot occur until after the related revenue has been recognized; the result is unbilled revenue, which is included in contract assets. Additionally, the Company may receive advances or deposits from customers before revenue is recognized; the result is deferred revenue, which is included in contract liabilities. Retainage subject to conditions other than the passage of time are included in contract assets and contract liabilities.

or others for customer-caused delays, errors in specifications and designs, contract terminations, change orders that are either in dispute or are unapproved as to both scope and price, or other causes of unanticipated additional contract costs.

The timing of when the Company bills customers on long-term construction design-build contracts is generally dependent upon agreed-upon contractual terms, which may include milestone billings based on the completion of certain phases of the work, or when services are provided. When as a result of contingencies, billings cannot occur until after the related revenue has been recognized, the result is unbilled revenue, which is included in contract assets. Additionally, when the Company receives advances or deposits from customers before revenue is recognized; the result is deferred revenue, which is included in contract liabilities. Retainage subject to conditions other than the passage of time are included in contract assets and contract liabilities.

Contract assets represent revenues recognized in excess of amounts paid or payable (contract receivables) to the Company on uncompleted contracts. Contract liabilities represent the Company’s obligation to perform on uncompleted contracts with customers for which the Company has received payment or for which contract receivables are outstanding.

The following table provides information about contract assets and contract liabilities from contracts with customers:

		June 30, 2024				December 31, 2023
	March 31, 2025			December 31, 2024
Contract assets:						(As Restated)
Contract assets
Revenue recognized in excess of amounts paid or payable (contract receivables) to the Company on uncompleted contracts (contract asset), excluding retainage	$	$2,751,391	~~6,338,357~~	$	3,757,641	$	~~7,729,531~~
Retainage included in contract assets due to being conditional on something other than solely passage of time		943,239			375,176	~~707,036~~
Total contract assets	$	$3,694,630	~~7,281,596~~	$	4,132,871	$	~~8,436,567~~
		June 30, 2024				December 31, 2023
Contract liabilities:						(As Restated)
Payments received or receivable (contract receivables) in excess of revenue recognized on uncompleted contracts (contract liability)		$	4,981,662			$	3,895,826
Retainage included in contract liabilities due to being conditional on something other than solely passage of time		103,381				54,307
Total contract liabilities		$	5,085,043			$	3,950,133

	March 31, 2025		December 31, 2024
Contract liabilities
Payments received or receivable (contract receivables) in excess of revenue recognized on uncompleted contracts (contract liability), excluding retainage	$	12,443,243	$	13,930,251

Retainage included in contract liabilities due to being conditional on something other than solely passage of time		103,381		163,925
Total contract liabilities	$	12,546,624	$	14,094,176

For equipment systems contracts, the Company’s predominant policy is to collect deposits from customers at the beginning of the contract and the balance of the contract payment prior to shipping. The Company does, in some cases, collect deposits or retainers as down payments on service contracts. Consumable products orders may be paid for in advance of shipment or for recurring customers with credit, payment terms of 30 days or less may be extended by the Company. Customer payments that have been collected prior to the performance obligation being recognized are recorded as customer deposit liabilities on the balance sheet. When the performance obligation is satisfied and all the criteria for revenue recognition are met, revenue is recognized. In certain situations when the customer has paid the deposit and services have been performed but the customer chooses not to proceed with the contract, the Company is entitled to keep the deposit and recognize revenue.

NOTE 4 – RELATED PARTY TRANSACTIONS

A director of the Company is an owner of Cloud 9 Support, LLC (“Cloud 9”) and Potco LLC (“Potco”). Cloud 9 purchases materials from the Company for use with its customers and Potco purchases equipment from the Company for use in its cultivation facility. Another director of the Company is working on a vertical farming innovation model with a group of CEA experts (the “CEA Consortium”). The CEA Consortium contracts services from the Company related to their business model. ~~The table below presents the revenues for these related party entities for the three and six months ended June 30, 2024, and 2023:~~

12There were no material revenues from related party entities for the three months ended March 31, 2025, and 2024.

	Three Months Ended June 30, 2024				Six Months Ended June 30, 2024
	2024		2023		2024		2023
Revenue - Cloud 9	$	—	$	462	$	—	$	462
Revenue - Potco	3,266		398,712		3,266		935,164
Revenue - CEA Consortium	$	—	$	—	$	—	$	—
Total revenues from related party transactions	$	3,266	$	399,174	$	3,266	$	935,626

The table below presents the accounts receivable from these related party entities as of June 30, 2024, and December 31, 2023:

	June 30, 2024		December 31, 2023
Accounts receivable - Cloud 9	$	—	$	—
Accounts receivable - Potco	159,822		163,088
Accounts receivable - CEA Consortium	$	245,000	$	245,000
Total accounts receivable due from related party transactions	$	404,822	$	408,088

NOTE 5 – PREPAID EXPENSES AND OTHER ASSETS

Prepayments and other assets are comprised of prepayments paid to vendors to initiate orders, prepaid services and fees, inventories, and other assets. These amounts are summarized as follows:

		June 30, 2024				December 31, 2023
	March 31, 2025			December 31, 2024
Vendor prepayments	$	$2,401,088	~~1,694,227~~	$	1,355,929	$	~~130,522~~
Prepaid services and fees		~~811~~830,~~845~~644			885,072	~~1,168,309~~
Inventories		~~212~~223,~~686~~120			222,582	~~228,858~~
Other assets		3423,~~994~~283			23,283	~~223,875~~
Total Prepaid expenses and other assets	$	$3,478,135	~~2,753,752~~	$	2,486,865	$	~~1,751,564~~

NOTE 6 – PROPERTY AND EQUIPMENT, NET

Property and equipment balances are summarized as follows:

		June 30, 2024					December 31, 2023
	March 31, 2025			December 31, 2024
Computers and technology equipment	$	$360,191	~~337,107~~	$	360,191		$	~~294,322~~
Furniture and fixtures		325,485			325,485		~~325,485~~
Leasehold improvements		228,~~759~~760			228,760		~~228,760~~
Vehicles		~~432~~201,~~823~~190			417,644		~~432,823~~
Software		1,~~090~~215,~~784~~134			1,151,298		~~1,087,569~~
Other equipment		145,950					145,950
R&D Assets		87,425			87,425
Total property and equipment		2,560,908					2,514,909
Other equipment		58,525			145,950
Accumulated depreciation		(1,~~408~~639,~~789)~~187	)		(1,707,372	)	~~(1,095,516)~~
Total property and equipment, net		$	1,152,119				$	1,419,393
Total Property and equipment, net	$	837,524		$	921,957

Depreciation expense for the three months ended ~~June 30,~~March ~~2024~~31,2025 and ~~2023~~2024 totaled $~~200~~34,~~708~~082 and $~~159~~195,~~997~~262, respectively ~~and totaled $395,972 and $254,047 for the six months June 30, 2024 and 2023 ended respectively~~.

1310

NOTE 7 – ~~INVESTMENTS~~GOODWILL & INTANGIBLE ASSETS

As of June 30, 2024 and December 31, 2023 the Company did not have any investments.

XS Financial

On October 30, 2021, the Company participated in a convertible note offering of Xtraction Services, Inc., a/k/a XS Financial Inc. (CSE: XSF) (OTCQB: XSHLF) ("XSF"), a specialty finance company providing CAPEX financing solutions, including equipment leasing, to CEA companies in the United States. The Company invested $2,500,000 of a total $43,500,000 raised by XSF. Prior to any Nasdaq listing, the investment incurs 9.5% interest payable, of which, 7.5% is cash interest and 2.0% is interest paid in kind. Subsequent to any Nasdaq listing by XSF, the investment incurs 8.0% cash interest. The debt matures on October 28, 2023, with a one-year option at the sole discretion of XSF to extend the maturity date. In addition, the Company received 1,250,000 warrants denominated in Canadian dollars ("C$") with a C$0.45 exercise price as subject to the warrant instrument. No value was attributed to the warrants at the time of the investment. In August 2023, the Company entered into an agreement to sell back its investment to XSF for $2.3 million and cancel the warrants. The Company received the $2.3 million in proceeds on August 30, 2023. In connection with the agreement to sell the investment, the Company recorded an impairment loss of $0.3 million for the three months ended September 30, 2023.

NOTE 8 – GOODWILL & INTANGIBLE ASSETS

Goodwill

The Company has recorded goodwill in conjunction with the acquisitions it has completed. The goodwill ~~balances~~balance as of ~~June 30~~March 31, ~~2024~~2025 and December 31, ~~2023~~2024 ~~were~~was $91,~~688~~080,~~975~~638 ~~and~~for ~~$9,688,975,~~both ~~respectively~~periods. Goodwill is not amortized. The Company did not record any impairment charges related to goodwill for the three ~~or six~~ months ended ~~June 30~~March 31, ~~2024~~2025 and ~~2023~~2024.

Intangible Assets Other Than Goodwill

Intangible assets as of ~~June 30~~March 31, ~~2024~~2025 and December 31, ~~2023~~2024 consisted of the following:

		As of June 30, 2024
	March 31, 2025
		Cost					Accumulated Amortization			Net Book Value
				Accumulated				Net Book
Finite-lived intangible assets:
	Cost			Amortization				Value
Customer relationships		$	3,269,201				$	(1,216,918)		$	2,052,283
Finite-lived intangible assets:
Trademarks and trade names	$	1499,~~778,~~000			(375,170	)	~~(841,217)~~		123,830	~~936,783~~
Backlog		~~707~~429,400			(429,400	)	~~(707,400)~~		-	—
Licenses		16,437			(16,437	)	~~(16,437)~~		-	—
Total finite-lived intangible assets:		5944,~~771,038~~837			(821,007	)	~~(2,781,972)~~		123,830	~~2,989,066~~
Indefinite-lived intangible assets:
Trade name		28,291					—			28,291
Patents		44,276					—			44,276
Total indefinite-lived intangible assets		72,567					—			72,567
Total intangible assets, net		$	5,843,605				$	(2,781,972)		$	3,061,633

	As of December 31, 2024
	Cost		Accumulated Amortization			Net Book Value
Finite-lived intangible assets:
Trademarks and trade names		499,000		(350,220	)		148,780
Backlog and other		429,400		(429,400	)		-
Licenses		16,437		(16,437	)		-
Total finite-lived intangible assets:		944,837		(796,057	)		148,780

	December 31, 2023
	(As Restated)
	Cost		Accumulated Amortization		Net Book Value
Finite-lived intangible assets:
Customer relationships	$	3,269,201	$	(1,004,743)	$	2,264,458
Trademarks and trade names	1,778,000		(663,417)		1,114,583
Backlog	707,400		(707,400)		—
Licenses	16,437		(16,437)		—
Total finite-lived intangible assets:	5,771,038		(2,391,997)		3,379,041
Indefinite-lived intangible assets:
Trade name	28,291		—		28,291
Patents	44,276		—		44,276
Total indefinite-lived intangible assets	72,567		—		72,567
Total intangible assets, net	$	5,843,605	$	(2,391,997)	$	3,451,608

Amortization expense for intangible assets subject to amortization for the three months ended March 31, 2025 and 2024 was $24,950 and $194,988, respectively.

Amortization expense for intangible assets subject to amortization for the three months ended June 30, 2024 and 2023 was $194,988 and $264,166, respectively and totaled $389,975 and $574,185 for the six months ended June 30, 2024 and 2023, respectively. The estimated future amortization expense for intangible assets subject to amortization as of June 30, 2024 is summarized below:11

For the years ending December 31,	Estimated FutureAmortization Expense
Remainder of 2024	$	389,980
2025	779,948
2026	738,364
2027	513,714
2028	405,306
2029	161,754
Total estimated future amortization expense	$	2,989,066

NOTE 9 – ACCRUED EXPENSES

Accrued expenses are summarized as follows:

		June 30,2024				December 31,2023
	March 31,			December 31,
Accrued operating expenses		$	304,330			$	277,987
	2025			2024
Accrued wages and related expenses		854,328				1,349,195
Accrued operating expenses	$	107,485		$	441,031
Business development accrual		196,187				376,816
Accrued wages and related expenses		1,093,432			799,969
Accrued 401(k)		60,468				66,642
Accrued interest expense		32,228			68,115
Accrued interest expense		74,795				26,000
Accrued 401(k)		17,138			17,138
Accrued sales tax payable		3,~~165~~337,~~511~~690			2,951,292	~~3,187,638~~
Total accrued expenses	$	$4,587,973	~~4,655,619~~	$	4,277,545	$	~~5,284,278~~

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

NOTE 10 – NOTES PAYABLE

The table below shows outstanding notes payable amounts as of ~~June 30~~March 31, ~~2024~~2025 and December 31, ~~2023~~2024.

	As of	~~As of~~
		June 30, 2024					December 31, 2023
	March 31, 2025			December 31, 2024
Line of credit	$	$2,842,151	~~4,500,000~~	$	4,405,402		$	~~2,500,000~~
DVO note		~~6,508~~-			135		~~575,240~~
Other financing agreements		203,729					129,600
Grow Hill Note, net		1,428,563			1,652,071
Total		$	4,710,237				$	3,204,840
Other financing agreements		472,467			706,068
Less current maturities		(4,710,237)					(3,204,840)
Total	$	4,743,181		$	6,763,676
Long Term		—					–
Less current portion		(4,183,660	)		(5,968,145	)
Long Term	$	559,521		$	795,531

On December 13, 2023, UG Construction, a wholly owned subsidiary of the Company, entered into an interest only asset based revolving Loan Agreement (the “Line of Credit”) with Gemini Finance Corp. (“Lender”) pursuant to which Lender extended to UG Construction a secured line of credit in an amount not to exceed $10,000,000, to be used to assist UG Construction and the Company with cash management. Lender will consider requests for advances under the Line of Credit, which Lender may accept or reject in its discretion, until September 12, 2024 (the “Initial Term”), subject to an automatic extension for an additional nine-month term until May 12, 2025, provided that UG Construction is in compliance with all the terms of the applicable loan documents and Lender has not sent a written notice of non-renewal at least 60 days prior to expiration of the Initial Term. The Line of Credit contains standard events of default and representations and warranties by UG Construction and the Lender and the Company have entered into a Continuing Guaranty pursuant to which the Company will guarantee repayment of the loans associated with the Line of Credit (the “Guaranty Agreement”).

Loans made under the Line of Credit shall be evidenced by a Secured Promissory Note - Revolving issued by UG Construction to the Lender (the “Promissory Note”), and each draw on the Promissory Note shall be due and payable on or before 180 days after such draw is funded to UG Construction; provided that, such draw is also subject to a mandatory prepayment upon UG Construction’s receipt of payment for any invoice previously submitted and approved for financing by Lender. Lender will receive a security interest in UG Construction’s Collateral (as defined in the “Security Agreement” entered into as part of the Line of Credit). The Promissory Note earns interest at a monthly rate of one and seventy-five hundredths percent (1.75%).

In connection with entering in the Line of Credit, the Company has agreed to issue to Bancroft Capital, LLC (the “Placement Agent”) cash and warrant compensation in two separate tranches, the first being earned upon closing of the Line of Credit and the remainder of which will be due if and when UG Construction draws more than $4,500,000 from the Line of Credit. Both instances are detailed as follows:12

~~1.At~~In connection ~~closing~~with ofentering in the Line of Credit, the ~~Placement~~Company ~~Agent~~agreed ~~earned a cash fee of $200,000. In addition~~ to ~~the cash fee, the Company will~~ issue to ~~the~~Bancroft ~~Placement Agent or its designees~~Capital, ~~$200,000~~LLC ~~worth of warrants~~ (the “Placement Agent~~’s Warrants~~”) cash toand ~~purchase~~warrant ~~the~~compensation ~~Company’s~~in ~~common~~two ~~stock~~separate attranches, ~~a price per share equal to 110% of~~ the ~~daily~~first ~~volume~~being ~~weighted~~earned ~~average~~upon closing ~~price~~ of the ~~Company’s~~Line ~~common stock on the Nasdaq exchange for a period consisting~~ of ~~ten~~Credit ~~(10) consecutive trading days ending on~~ and ~~inclusive of~~ the ~~trading~~remainder ~~day~~ of which ~~the~~would ~~Closing. The Placement Agent’s Warrants will~~ be ~~exercisable~~due atif ~~any time~~ and ~~from~~when ~~time~~UG toConstruction ~~time,~~draws inmore ~~whole~~than ~~or in part~~$4,500,000 ~~during the four and a half-year period commencing six (6) months~~ from the ~~date~~Line of ~~issuance~~Credit. ~~The~~Both ~~Placement~~instances ~~Agent’s~~are ~~Warrants~~detailed ~~will~~as provide for registration rights (including a one-time demand registration right and unlimited piggyback rights), cashless exercise and customary anti-dilution provisions (for stock dividends and splits) and anti-dilution protection (adjustment in the number and price of such warrants and the shares underlying such warrants) resulting from corporate events (which would include dividends, reorganizations, mergers, etc.).follows:

21.If ~~and~~At ~~when~~closing ~~Emerald~~of ~~draws more than $4,500,000 from~~ the Line of Credit, the Placement Agent ~~will~~earned ~~earn~~a ~~an additional~~ cash fee of $200,000. In addition to the cash fee, ~~and~~the anCompany ~~additional~~issued to the Placement Agent or its designees, $200,000 worth of warrants (the “Placement Agent’s Warrants”) to purchase the Company’s common stock at a price per share equal to 110% of the daily volume weighted average closing price of the Company’s common stock on the Nasdaq exchange for a period consisting of ten (10) consecutive trading days ending on and inclusive of the trading day of the ~~date~~Closing. ~~that~~The ~~the~~Placement ~~draws~~Agent’s ~~exceeding~~Warrants $4are exercisable at any time and from time to time,~~500~~ in whole or in part,~~000~~ ~~were~~during tothe ~~take~~four ~~place~~and a half-year period commencing six (6) months from the date of issuance. The Placement Agent’s Warrants provide for registration rights (including a one-time demand registration right and unlimited piggyback rights), cashless exercise and customary anti-dilution provisions (for stock dividends and splits) and anti-dilution protection (adjustment in the number and price of such warrants and the shares underlying such warrants) resulting from corporate events (which would include dividends, reorganizations, mergers, etc.).

As2. ~~part~~If ofand ~~the~~when ~~Asset~~Emerald ~~Purchase~~draws ~~Agreement~~more ofthan ~~DVO~~$4,500,000 afrom ~~non-negotiable promissory note in~~ the ~~aggregate~~Line ~~principal amount~~ of $3Credit,~~806,250,~~ ~~payable~~the toPlacement ~~DVO~~Agent ~~was~~will ~~issued~~earn ~~effective~~an ~~November~~additional 1,cash ~~2022~~fee ~~(the~~of ~~"DVO~~$200,000, ~~Promissory~~and ~~Note").~~an ~~The~~additional ~~principal amount~~$200,000 ~~together~~worth ~~with~~of ~~the~~Placement ~~simple~~Agent’s ~~interest~~Warrants ~~accrued on the unpaid principal amount outstanding was~~ to bepurchase ~~paid by~~ the Company’s oncommon astock ~~quarterly~~at ~~basis~~a ~~for~~price ~~the~~per ~~first~~share ~~four~~equal ~~consecutive~~to ~~quarters,~~110% ~~with~~of the ~~first~~daily ~~payment~~volume ~~paid~~weighted inaverage ~~January~~closing ~~2023,~~price ~~and~~of the ~~remaining~~Company’s ~~three~~common ~~payments~~stock ~~due~~on ~~ten~~the ~~days~~Nasdaq ~~following~~exchange ~~the~~for ~~end~~a ofperiod ~~each~~consisting ~~subsequent~~of ~~fiscal~~ten ~~quarter~~(10) ~~thereafter~~consecutive ~~until~~trading ~~the~~days ~~earlier~~ending ofon ~~the~~and ~~end~~inclusive of the ~~fourth~~trading ~~full~~day ~~fiscal~~of ~~quarter following~~ the ~~closing~~ date ~~December~~that ~~31, 2023 or~~ the ~~payment~~draws inexceeding ~~full of all amounts due. In the third quarter ended September 30~~$4, ~~2023~~500,000 awere ~~portion~~to oftake place.

Line of Credit Amendment – On March 18, 2025, UG Construction entered into an agreement with the “Lender”) to amend the terms of the original Loan Agreement and Promissory Note and waiver (the “Amendment”) between UG Construction and the Lender. Pursuant to the Amendment, the Lender waived any potential or perceived events of default arising under certain circumstances, which events did not constitute specified events of default under the Promissory Note or the Loan Agreement. Pursuant to the Amendment, the Promissory Note was amended to provide that (i) the term during which the Lender may consider advances under the Loan Agreement has been extended to January 1, 2026, and (ii) the interest applied on the outstanding principal amount of the Promissory Note will accrue interest at a monthly rate of 1.75%, and all accrued by unpaid interest shall be paid to the Lender on the first business day of each month for the prior month. The Amendment also amended the Loan Agreement to require monthly reporting of certain accounts receivable and to include a covenant that such accounts receivable equal or exceed 125% of the sum of the total amount drawn down under the Promissory Note, plus outstanding interest, as of the applicable measurement date. In connection with the execution of the Amendment, the Company issued to the Lender, as an amendment fee, one hundred and fifty thousand (150,000) shares (the “Fee Shares”) of the Company’s common stock, par value $0.001 per share. This resulted in an expense of $109,499, which is included in interest expense on the condensed consolidated statement of operations.

On October 1, 2024, the Company, entered into a loan with Grow Hill, LLC, a Washington limited liability company (“Grow Hill”). The terms are as follows:

Loan Details

●

Principal Amount: $2,000,000.

●

Interest Rate: 15% per annum, applied to the outstanding principal amount.

●

Origination Fee: $100,000 (5% of the loan amount), considered as debt issuance costs under GAAP and amortized over the loan term.

●

Repayment Terms: Monthly payments of interest and principal as per the Promissory Note. Ther term of the loan is 2 years.

●

Optional Prepayment: Allowed if the Grow Hill has received $150,000 or more in interest payments. If less, the Company must pay the difference to reach $150,000. Prepayment requires at least one Business Day’s notice.

●

Mandatory Prepayment: Required if the Company fails to meet the Receivable Ratio negative covenants or events of default.

Collateral and Security

●

Collateral: Defined in the Security Agreement.

●

Security Agreement: The Company grants a perfected security interest in the Collateral to the Grow Hill.

The loan became effective on October 1, 2024, when the Company issued Warrants to the Grow Hill for 160,000 shares of Borrower’s common stock at $2.50/share, exercisable immediately and valid for five years.

Covenants:

●

Affirmative Covenants:

Provide regular financial reports, compliance certificates, and notices of defaults or legal actions.

Comply with all applicable laws and regulations, including tax payments.

Cooperate with audits of accounts receivable (the Company pays audit fees unless an Event of Default occurs).

●

Negative Covenants:

Restrictions on creating liens, incurring additional debt, or guaranteeing third-party obligations without Grow Hill’s consent.

Maintain a Receivable Ratio of at least 2.00:1.00, calculated monthly.

Events of Default

●

Include failure to pay principal or interest, breach of covenants, misrepresentation, insolvency, or legal challenges to the validity of the Loan Documents.

●

Consequences: Grow Hill may accelerate repayment, enforce security interests, or exercise other remedies.

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

NOTE 11 – COMMITMENTS AND CONTINGENCIES

From time to time, the Company is involved in routine litigation that arises in the ordinary course of business. Other than below, there are no other legal proceedings for which management believes the ultimate outcome would have a material adverse effect on the Company’s results of operations and cash flows.

Gemini Loan Agreement Amendment and Default

On December 13, 2023, our wholly-owned subsidiary UG Construction, Inc. d/b/a Emerald Construction Management, Inc. (“UG Construction”) entered into (i) an interest only asset based revolving loan agreement (the “Loan Agreement”) with Gemini Finance Corp. (“Gemini”) pursuant to which Gemini extended to UG Construction a secured line of credit in an amount not to exceed $10,000,000, to be used to assist UG Construction and us with cash management, and (ii) a Secured Promissory Note - Revolving issued by UG Construction to Gemini (the “Promissory Note”). Pursuant to the Promissory Note, each draw was due and payable on or before 180 days after such draw is funded to UG Construction, subject to a mandatory pre-payment upon UG Construction’s receipt of payment for any invoice previously submitted and approved for financing by Gemini.

On March 18, 2025, UG Construction entered into an amendment to the Loan Agreement and Promissory Note and waiver with Gemini (the “Amendment”). Pursuant to the Amendment, Gemini waived any potential or perceived events of default arising under certain circumstances, which events did not constitute specified events of default under the Promissory Note or the Loan Agreement.

Pursuant to the Amendment, the Promissory Note was amended to provide that (i) the term during which Gemini may consider advances under the Loan Agreement has been extended to January 1, 2026, and (ii) the interest applied on the outstanding principal amount of the Promissory Note will accrue interest at an annual rate of 12%, and all accrued and unpaid interest shall be paid to Gemini on the first business day of each month for the prior month. The Amendment also amended the Loan Agreement to require monthly reporting of certain accounts receivable and to include a covenant that such accounts receivable equal or exceed 125% of the sum of the total amount drawn down under the Promissory Note, plus outstanding interest, as of the applicable measurement date. In connection with the execution of the Amendment, we issued to Gemini, as an amendment fee, 150,000 shares of our common stock

On July 31, 2025, Gemini issued a notice of default to UG Construction claiming that UG Construction was in default under the line of credit due to a failure to submit receivables calculations and failing to maintain sufficient eligible accounts and to forward accounts receivable. The notice indicated that the remaining outstanding amount due under the line of credit of approximately $1.76 million was immediately due and payable with default of 1% per week accruing from the June 16, 2025 date of default claimed by Gemini, and that Gemini intended to pursue legal action if full payment was not received by August 8, 2025.

On August 21, 2025, we received a notification from Gemini stating that Gemini would proceed with a foreclosure and private sale of substantially all of the assets of UG Construction in an Article 9 sale process, pursuant to Section 9601 et seq. of the California Commercial Code (the “Asset Sale”). The Asset Sale occurred on September 4, 2025, at which Gemini acquired the assets constituting the collateral under the line of credit for $450,000.

On August 29, 2025, Gemini commenced a lawsuit captioned Gemini Finance Corp. v. UG Construction, Inc. et al., case number 25CV2259 W SBC, in the U.S. District Court for the Southern District of California, which lawsuit (the “Lawsuit”) included us and certain of our officers as defendants and pursuant to which Gemini claimed it was owed $1,486,189 (the “Claim Amount”).

On September 26, 2025, we entered into a Settlement and Mutual General Release (the “Gemini Settlement Agreement”) with Gemini. Pursuant to the terms of the Gemini Settlement Agreement, among other things, we agreed to file a joint motion requesting an expedited fairness hearing under Section 3(a)(10) of the Securities Act of 1933, as amended (the “Securities Act”), which motion was filed on September 30, 2025. Following such fairness hearing, and subject to the satisfaction of all applicable conditions and requirements of Section 3(a)(10) of the Securities Act, we agreed to issue to Gemini shares of our common stock that, upon sale by Gemini, would result in net proceeds to Gemini equal to the Claim Amount, provided that Gemini shall at no time be issued shares if it would beneficially own more than 4.99% of our common stock, and the aggregate number of shares issued to Gemini may not exceed 19.99% of our outstanding common stock as of immediately prior to the signing of the Gemini Settlement Agreement to the extent required by Nasdaq Listing Rule 5635. Additionally, Gemini agreed to use its best efforts to not sell common stock exceeding 10% of our daily volume on any given trading day. Upon the issuance of the last tranche of shares under the Gemini Settlement Agreement, Gemini will dismiss the Lawsuit with prejudice. The Gemini Settlement Agreement also included a customary mutual release of claims by the parties. The fairness hearing occurred on October 14, 2025.

Grow Hill Default

On October 1, 2024, we entered into an asset-based term Loan Agreement with Grow Hill, LLC (“Grow Hill”) pursuant to which Grow Hill extended to us a secured loan of $2,100,000 with an origination fee of $100,000, which was added to the amount of the loan. The loan is evidenced by a Secured Promissory Note issued by us to Grow Hill. Grow Hill received a security interest in certain of our assets pursuant to a security agreement between us and Grow Hill (the “Security Agreement”), which does not include any assets of our subsidiaries.

On October 14, 2025, we received service of process for a lawsuit filed by Grow Hill against us in the District Court for the City and County of Denver, Colorado (Case No. 2025CV33546) alleging breach of contract and fraud. Pursuant the complaint, Grow Hill stated that we were in default under the Secured Promissory Note due to a failure to timely make payments, and elected to accelerate all amounts due under the Secured Promissory Note, including a default fee equal to 1% of the outstanding principal amount. We are currently investigating available options to resolve the complaint and intends to vigorously defend the allegation of fraud.

J Brrothers Settlement

On August 8, 2025, we entered into a Settlement and Release Agreement (the “Settlement Agreement”) with J Brrothers LLC (“J Brrothers”) and Herb-a-More LLC relating to a dispute arising from amounts due for certain heating, ventilation and air conditioning equipment. Pursuant to the terms of the Settlement Agreement, among other things, we issued a promissory note to J Brrothers with an original principal amount of $395,556 and issued 150,000 unregistered shares of our common stock to J Brrothers. The note accrues simple interest at an annual rate of 12% and has a maturity date of March 18, 2026. The note must be repaid in monthly installments over a period of eight months, with the first seven payments being $50,000 per month and the final monthly payment being $64,047. Any remaining principal and accrued but unpaid interest will become due and payable on the maturity date, and the note may be prepaid without penalty. The note includes customary representations and warranties, customary events of default and a 17% default interest rate.

2WR of Georgia Sale

On August 27, 2025, certain of our subsidiaries entered into a Stock and Asset Purchase Agreement (the “2WR Purchase Agreement”) with 2WR Holdco, LLC (the “Buyer”). Pursuant to the 2WR Purchase Agreement, the Buyer acquired all of the outstanding shares of stock of 2WR of Georgia, Inc. and certain assets of our other subsidiaries relating to those entities’ business of providing commercial, industrial and municipal architectural and construction administration services for projects not involving CEA. The purchase price paid by the Buyer consisted of $2.0 million in cash, offset by a previous deposit of $500,000 and by any assumed indebtedness.

MJ’s Market, Inc

MJ’s Market, Inc. v. Urban-Gro, Inc. et al, pending in the Suffolk County Superior Court in Massachusetts as Civil Action No. 2384-cv-02794. The original complaint, filed by MJ’s Market, Inc, alleged that the Corporation prepared deign drawings for the plaintiff and subsequently sold those drawings to a competitor. The original complaint asserted claims for Breach of Contract; violation of M.G.L. c. 93A; Breach of the Covenant of Good Faith and Fair Dealing; Trademark Infringement; and Interference with Contractual Relations against the Corporation. An amended complaint has been filed which names 2WR of Colorado, Inc., which is characterized as a subsidiary or affiliate of the Corporation, in place of the Corporation. The lawsuit is ongoing.

that quarter’s note payment was extended to the first quarter ended March 31, 2024. The DVO Promissory Note may be prepaid in whole or in part at any time without premium or penalty; provided, that each payment shall be accompanied by payment of all unpaid costs, fees and expenses, if any, which are due plus all accrued and unpaid interest due as of the date of such prepayment.

The outstanding principal balance under the DVO Promissory Note shall bear simple interest at a variable rate per annum equal to the rate of interest most recently published by JP Morgan Chase & Co. as the "prime rate" (the "Prime Rate"). Initially, interest will accrue at the Prime Rate as of the date of the DVO Promissory Note. The interest rate will be adjusted on a quarterly basis as of the first day of each full fiscal quarter following the first full fiscal quarter after the closing date to the then current Prime Rate. In connection with the extension of the DVO Promissory Note payment to the first quarter ended March 31, 2024, the interest rate was revised to a fixed rate of 10%, with principal and interest to be paid on a weekly basis.

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

NOTE 11 – OPERATING LEASE LIABILITIES AND COMMITMENTS AND CONTINGENCIES

The Company has seven operating office lease liabilities and one finance office lease liability with an imputed annual interest rate of 8.0%. Five of the leases were assigned to the Company in connection with its various acquisitions. The remaining lease terms range from less than a year to 6 years, as of June 30, 2024. The following is a summary of operating lease liabilities:

	June 30,2024		December 31,2023
Operating lease liabilities related to right of use assets	$	1,839,869	$	2,087,503
Less current portion	(631,136)		(707,141)
Long term	$	1,208,733	$	1,380,362

The following is a schedule showing total future minimum lease payments:

For the years ending December 31,	MinimumLease Payments
Remainder of 2024	$	386,553
2025	675,839
2026	488,853
2027	365,430
2028	256,844
Thereafter	82,488
Total minimum lease payments	2,256,007
Less: Amount representing interest	(416,138)
Net lease obligations	$	1,839,869

From time to time, the Company is involved in routine litigation that arises in the ordinary course of business. There are no ongoing legal proceedings for which management believes the ultimate outcome would have a material adverse effect on the Company’s results of operations and cash flows.

On August 11, 2023, the Company entered into a settlement agreement (the “Settlement Agreement”) with Crest Ventures, LLC (“Crest”) and Andrew Telsey to settle all claims in the litigation filed in the District Court for Arapahoe County, Colorado, Case No. 2021CV31301. Pursuant to the Settlement Agreement, the Company paid $1,500,000 to Crest on September 7, 2023. In connection with this settlement, the Company recorded a loss in the second quarter ended June 30, 2023 of $1,500,000 in accordance with GAAP related to loss contingencies.

NOTE 12 – RISKS AND UNCERTAINTIES

Concentration Risk

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

Customers exceeding 10% of revenue

				Three Months EndedJune 30,					Six Months EndedJune 30,
	Three Months Ended
Company Customer Number				2024			2023		2024		2023
	March 31,
C000002393				*			14	%	*		*
Company Customer Number	2025			2024
C000002187		10	%	*	42	%	26	%	24	%	26	%
C000002463				*			*		*		12	%
C000002596		-			13	%
C000002552				65		%	*		36	%	*
C000002463		-			11	%
*Amounts less than 10%
C000002722		26	%		-
C000001462		17	%		-
C000002607		13	%		-
C000002655		12	%		-

Amounts less than 10%

Customers exceeding 10% of accounts receivable

				As ofJune 30,			As ofDecember 31,
	As of			As of
Company Customer Number				2024			2023
	March 31,			December 31,
C000002187				14		%	57	%
Company Customer Number	2025			2024
C000002552				38		%	*
C000002187		*			14	%
*Amounts less than 10%
C000002596		25	%		*
C000002195		11	%		*
C000002607		11	%		*

Amounts less than 10%

The table below shows vendors who account for 10% or more of the Company’s total purchases and 10% or more of the Company’s accounts payable for the periods presented:

Vendors exceeding 10% of purchases

				Three Months EndedJune 30,				Six Months EndedJune 30,
	Three Months Ended
Company Vendor Number				2024			2023	2024		2023
	March 31,
V000002275				*			*	*		11	%
Company Vendor Number	2025			2024
V000002198				15		%	*	16	%	*
V000001029		20	%		*
V000002503		*		23	14	%	*	25	%	*
*Amounts less than 10%
V000002589		-			14	%

~~Vendors~~* ~~exceeding~~Amounts ~~10%~~less ofthan ~~accounts payable~~10%

	As ofJune 30,		As ofDecember 31,
Company Vendor Number	2024		2023
V000002275	11	%	13	%
V000002503	20	%	*
V000002198	10	%	*
*Amounts less than 10%

There were no vendors exceeding 10% of accounts payable.

Foreign Exchange Risk

Although our revenues and expenses are expected to be predominantly denominated in United States dollars, we may be exposed to currency exchange fluctuations. Recent events in the global financial markets have been coupled with increased volatility in the currency markets. Fluctuations in the exchange rate between the U.S. dollar, the Canadian dollar, the Euro, and the currency of other regions in which we may operate may have a material adverse effect on our business, financial condition and operating results. We may, in the future, establish a program to hedge a portion of our foreign currency exposure with the objective of minimizing the impact of adverse foreign currency exchange movements. However, even if we develop a hedging program, it may not mitigate currency risks.

1817

other regions in which we may operate may have a material adverse effect on our business, financial condition and operating results. We may, in the future, establish a program to hedge a portion of our foreign currency exposure with the objective of minimizing the impact of adverse foreign currency exchange movements. However, even if we develop a hedging program, it may not mitigate currency risks.

NOTE 13 – STOCK-BASED COMPENSATION

Based on the vesting schedule of the grants of restricted stock units (“RSU” or “RSUs”) and options, stock-based compensation expense for the three months ended ~~June 30,~~March ~~2024 and 2023 totaled $460~~31,~~785~~ ~~and~~2025 ~~$622,547, respectively,~~ and 2024 totaled $1324,~~117,361~~271 and $1656,~~102~~576,~~188~~ ~~for the six months ended June 30, 2024, and 2023,~~ respectively.

The Company has adopted the 2021 Omnibus Stock Incentive Plan, as amended (the “Omnibus Incentive Plan”), which provides for the issuance of incentive stock options, grants of RSUs, and stock-based awards to employees, directors, and consultants of the Company to reward and attract employees and compensate the Company’s Board of Directors (the “Board”) and vendors when applicable. The Omnibus Incentive Plan is administered by the Company'’s Board. Grants of RSUs under the Omnibus Incentive Plan are valued at no less than the market price of the stock on the date of grant. The fair value of the options is calculated using the Black-Scholes pricing model based on the estimated market value of the underlying common stock at the valuation measurement date, the remaining contractual term of the options, risk-free interest rate and expected volatility of the price of the underlying common stock of 100%. There is a moderate degree of subjectivity involved when estimating the value of stock options with the Black-Scholes option pricing model as the assumptions used are moderately judgmental. Grant of RSUs and stock options are sometimes offered as part of an employment offer package, to ensure continuity of service or as a reward for performance. Grants of RSUs and stock options typically require a 1 to 3 year period of continued employment or service performance before the grant of RSUs or stock options vest. No cash flow effects are anticipated for grants of RSUs or stock options.

~~The~~As of ~~following~~March ~~schedule~~31, ~~shows~~2025, ~~grants~~total unrecognized compensation expense was $1,050,543 of ~~RSU~~which ~~activity~~$1,049,405 ~~for~~was ~~the~~attributable ~~six~~to ~~months~~unvested ~~ended~~RSUs ~~June 30~~and $1,138 was ~~2024:~~attributable to unvested stock options.

			Number ofShares
Grants of RSUs unvested as of December 31, 2023			580,292
Grants of RSUs			1,034,551
Forfeiture/cancelled			(31,106)
Grants of RSUs vested and issued			(495,467)
Grants of RSUs unvested as of June 30, 2024			1,088,270

The following table summarizes the vesting time periods of these unvested RSUs:

Number of Shares						Vesting Time Period
119,812						Remainder of 2024
432,565						2025
315,851						2026
319,916						2027
1,188,144

The following schedule shows stock option activity for the six months ended June 30, 2024.

	Number of Shares	WeightedAverageRemainingLife (Years)	WeightedAverageExercisePrice
Stock options outstanding as of December 31, 2023	501,829	4.7	$	6.81
Issued	—	0	$	—
Forfeited	(41,409)	0	$	6.64
Exercised	—	0	$	—
Stock options outstanding as of June 30, 2024	460,420	4.3	$	6.82
Stock options exercisable as of June 30, 2024	446,511	6.8	$	6.82

As of June 30, 2024, the Company has $0 in unrecognized stock-based compensation expense related to these stock options. The aggregate intrinsic value of the options outstanding and exercisable at June 30, 2024 is $0.

NOTE 14 – STOCKHOLDERS’ EQUITY

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

The Company ~~did~~is ~~not~~authorized ~~repurchase~~to issue 30,000,000 shares of common stock ~~either~~at ~~during the six months ended June~~$0.001 ~~30,~~par ~~2024~~value. orThe ~~during~~holders of the ~~three~~Company’s common ~~months~~stock ~~ended~~are ~~June 30,~~entitled ~~2023. As of June~~to ~~30, 2024, we have $1.4~~one ~~million~~vote ~~remaining~~for ~~under~~each ~~the~~share ~~repurchase program~~held.

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

~~NOTE~~The Company 15is –authorized ~~WARRANTS~~to issue 3,000,000 shares of preferred stock with such designations, voting and other rights and preferences as may be determined from time to time by the Company’s Board of Directors. The preferred stock has a par value of $0.10.

~~The following table shows warrant activity for the six months ended June 30, 2024.~~Treasury Stock

	Number ofShares	WeightedAverageExercise Price
Warrants outstanding as of December 31, 2023	511,681	$	8.74
Issued	—	$	—
Exercised	—	$	—
Expired	(25,650)	$	14.46
Warrants outstanding as of June 30, 2024	486,031	$	8.44
Warrants exercisable as of June 30, 2024	486,031	$	8.44

As of March 31, 2025 and December 31, 2024, there were 1,449,833 shares of treasury stock outstanding.

~~The aggregate intrinsic value of the warrants outstanding and exercisable as of June 30, 2024 is $13,456.~~18

NOTE 15 16 – ~~INCOME TAXES~~SEGMENTS

~~The~~An operating ~~Company~~segment ~~has~~is ~~experienced~~defined ~~cumulative~~as ~~losses~~a ~~for~~component ~~both book and tax purposes since inception. The potential future recovery~~ of ~~any~~a ~~tax~~reporting ~~assets~~entity that ~~the~~engages ~~Company~~in ~~may~~business beactivities ~~entitled~~from towhich ~~due~~it torecognizes ~~these~~revenues and ~~accumulated~~incurs ~~losses~~expenses iswith ~~uncertain~~discrete ~~and~~financial ~~any~~information ~~tax~~available ~~assets~~ that ~~that~~is ~~the~~evaluated ~~Company~~regularly ~~may~~by bethe ~~entitled~~Chief toOperating ~~have~~Decision ~~been~~Maker ~~fully~~(“CODM”) of ~~reserved~~the ~~based~~operating ~~on management’s current estimates~~segment. ~~Management~~The ~~intends~~CODM toutilizes ~~continue~~this ~~maintaining~~financial ainformation ~~full~~to ~~valuation~~decide ~~allowance~~how ~~on the Company’s deferred tax assets until there is sufficient evidence~~ to ~~support~~allocate ~~the~~resources ~~reversal of all or some portion of these allowances.The deferred income tax benefit for the six months ended June 30~~to, ~~2024~~ and ~~2023 relates to the reduction~~ in ~~the~~assessing ~~deferred tax liability associated with the amortization~~ performance of, the ~~intangible~~operating ~~assets from the acquisitions of the 2WR Entities and Emerald~~segment. ~~The~~Management ~~Company~~evaluates ~~records~~segment ~~state~~performance ~~income~~primarily ~~taxes~~based ~~paid~~on ~~during~~operating ~~the~~segment ~~year~~gross ~~within the Other income (expense) financial statement line item~~profit.

The Company has identified the following operating segments related as of March 31, 2025 and 2024:

●

Equipment systems - Operating segment that acts as an experienced vendor providing value-added reselling to clients when selling vetted best-in-call commercial horticulture lighting solutions, rolling and automated container benching systems, specialty fans, fertigation/irrigation systems, environmental control systems, and microbial mitigation and odor reduction systems.

●

Services - Operating segment that generates revenue by providing clients with design-build service offerings that include architectural, interior, and engineering design, construction management, as well as services for the operational stages of the facility. The Company’s in-house architectural, interior design, engineering, construction and cultivation design services integrate design with pre-construction services and thereby reduce project schedule and capital investments.

●

Construction design-build - Operating segment that engages as a general contractor to provide all the additional necessary parts to deliver clients’ projects, from the initial estimate and bid process, to subcontractor selection, and management of all construction details.

In addition to the operating segments identified above, the Company recognizes other revenues and incurs costs at the corporate level where it develops and oversees the implementation of company-wide strategic initiatives and provides support to our operating segments by centralizing certain administrative functions. Corporate management is responsible for, among other things: evaluating and selecting the geographic markets in which we operate, consistent with our overall business strategy; making major personnel decisions related to employee compensation and benefits; and monitoring the financial and operational performance of the Company’s operating segments. Corporate costs include general and administrative expenses related to operating our corporate headquarters.

The Company’s operating segments follow the same accounting policies used for our consolidated financial statements as described in Note 1 – Summary of Significant Accounting Policies. The results of each operating segment are not necessarily indicative of the results that would have occurred had the operating segment been an independent, stand-alone entity during the periods presented, nor are they indicative of the results to be expected in future periods.

The following tables present financial information relating to our operating segments for the periods ended March 31, 2025 and 2024:

	Period Ended March 31, 2025
	Equipment			Services			Construction			Corporate/ Other			Total
Revenues	$	4,698,577		$	1,649,098		$	3,122,298		$	44,102		$	9,514,075
Cost of revenues		4,344,607			1,051,146			3,474,387			33,913			8,904,053
Gross profit	$	353,970		$	597,952		$	(352,089	)	$	10,189		$	610,022
Gross profit %		8	%		36	%		(11	)%		23	%		6	%

Intangible asset amortization	$	—		$	24,950		$	—		$	—		$	24,950

Income (Loss) before income taxes	$	(3,081,440	)	$	169,070		$	(1,105,719	)	$	(30,432	)	$	(4,048,520	)

Total assets	$	6,008,887		$	3,469,532		$	6,549,377		$	57,956		$	16,085,752

	Period Ended March 31, 2024
	Equipment			Services			Construction			Corporate/ Other			Total
Revenues	$	2,508,287		$	3,133,793		$	9,683,814		$	75,141		$	15,401,035
Cost of revenues		2,172,450			1,508,449			8,675,280			53,399		$	12,409,578
Gross profit	$	335,837		$	1,625,344		$	1,008,534		$	21,742		$	2,991,457
Gross profit %		13	%		52	%		10	%		29	%		19	%

Intangible asset amortization	$	—		$	56,194		$	138,793		$	—		$	194,987

Income (Loss) before income taxes	$	(587,408	)	$	491,265		$	(2,507,867	)	$	(4,937	)	$	(2,608,946	)

Total assets	$	7,984,497		$	19,801,413		$	28,344,394		$	—		$	56,130,304

NOTE 16 – SUBSEQUENT EVENTS

Nasdaq Deficiencies

The Company has received the following communications from The Nasdaq Stock Market LLC (“Nasdaq”) and, where required, responded as indicated:

●

April 16, 2025 – Nasdaq sent the Company a notice (the “April 16 Notice”) stating that because the Company had not yet filed its Annual Report on Form 10-K for the fiscal quarter ended December 31, 2024 (the “Form 10-K”), the Company was no longer in compliance with Nasdaq Listing Rule 5250(c)(1). Nasdaq Listing Rule 5250(c)(1) requires listed companies to timely file all required periodic financial reports with the Securities and Exchange Commission. The April 16 Notice stated that the Company had 60 calendar days from April 16, 2025, or until June 16, 2025, to submit to Nasdaq a plan to regain compliance with the Nasdaq Listing Rules. The Company intended to file the Form 10-K as soon as practicable and, if necessary, to submit a plan with Nasdaq to regain compliance. If Nasdaq accepted the Company’s plan, then Nasdaq may, at its discretion, grant the Company up to 180 days from the prescribed due date for filing the Form 10-K, or until October 13, 2025, to regain compliance. If Nasdaq did not accept the Company’s plan, then the Company had an opportunity to appeal that decision to a Nasdaq Hearings Panel. The April 16 Notice had no immediate effect on the listing of the Company’s common stock on The Nasdaq Capital Market.

~~NOTE~~● 17May 21, 2025 – ~~SUBSEQUENT~~Nasdaq ~~EVENTS~~sent the Company a notice (the “May 21 Notice”) stating that because the Company had not yet filed its Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2025 (the “March 31 Form 10-Q”) or its Annual Report on Form 10-K for the fiscal year ended December 31, 2024 (the “Form 10-K”), the Company continues to be out of compliance with Nasdaq Listing Rule 5250(c)(1). Nasdaq Listing Rule 5250(c)(1) requires listed companies to timely file all required periodic financial reports with the Securities and Exchange Commission. The May 21 Notice stated that the Company had 60 calendar days from April 16, 2025, or until June 16, 2025, to submit to Nasdaq a plan to regain compliance with the Nasdaq Listing Rules. The Company intended to file the Form 10-K as soon as practicable and, if necessary, to submit a plan with Nasdaq to regain compliance. If Nasdaq accepted the Company’s plan, then Nasdaq may, at its discretion, grant the Company up to 180 days from the prescribed due date for filing the Form 10-K, or until October 13, 2025, to regain compliance. If Nasdaq did not accept the Company’s plan, then the Company had the opportunity to appeal that decision to a Nasdaq Hearings Panel. The May 21 Notice had no immediate effect on the listing of the Company’s common stock on The Nasdaq Capital Market.

~~Term~~● ~~Loan~~August 18, 2025 – Nasdaq sent the Company a determination letter (the “August 18 Determination”) stating that Nasdaq had determined that the Company did not file the Form 10-K and the March 31 Form 10-Q by August 15, 2025, the date required for the delinquent filings by an exception previously received from Nasdaq staff. The August 18 Determination stated that, as a result, unless that Company timely requests an appeal, the trading of the Company’s common stock (the “Common Stock”) would be suspended at the opening of business on August 27, 2025 and (iii) a Form 25-NSE will be filed with the SEC, which would remove the Company’s securities from listing and registration on Nasdaq. The August 18 Determination also stated that the Company was not in compliance (i) with Listing Rule 5250(c)(1) due to the Company’s delay in filing its Quarterly Report on Form 10-Q for the period ended June 30, 2025, and (ii) with Listing Rule 5550(b)(1), which requires the Company to maintain minimum stockholders’ equity of $2.5 million. As previously reported, on February 24, 2025, Nasdaq notified the Company that it was not in compliance with Listing Rule 5550(b)(1) due to having stockholders’ equity of less than $2.5 million. The Determination informed the Company that it may appeal the decision to a Hearings Panel (the “Panel”). If the Company chose to appeal, the request must be received by Nasdaq no later than 4:00 p.m. Eastern Time on August 25, 2025. The Company requested a hearing before the Panel and a preliminary date of October 7, 2025 was set for the hearing. On October 7, 2025, the Company announced that the hearing was postponed to October 14, 2025. This request stayed the suspension of the Company’s Common Stock for a period of 15 days from the date of the request. In connection with this request, the Company also requested a stay of the suspension pending the hearing (the “Additional Stay”).

On● ~~October~~August 128, ~~2024,~~2025 ~~urban-gro,~~– ~~Inc.~~Nasdaq (sent the “Company”) ~~entered~~a ~~into~~determination anletter ~~asset based term Loan Agreement~~ (the “~~Loan~~August 28 Determination”) ~~with~~stating ~~Grow~~that ~~Hill,~~Nasdaq ~~LLC,~~had adetermined ~~Washington~~that ~~limited~~the ~~liability~~Company ~~company~~did (not regain compliance with the ~~“Lender”)~~Minimum ~~pursuant~~Bid toRequirement ~~which~~by ~~the~~August ~~Lender~~25, ~~extended~~2025. toThe ~~the~~August ~~Company~~28 aDetermination ~~secured~~stated ~~loan~~that ofthe ~~$2,100,000,~~failure to becomply ~~used~~with tothe ~~assist~~Minimum Bid Requirement during the ~~Company~~compliance ~~with~~period ~~cash~~would ~~management,~~serve ~~including~~as toan ~~support~~additional basis for delisting the Company’s ~~growth~~securities infrom the ~~cannabis~~Nasdaq ~~industry.~~Capital ~~The~~Market ~~Loan~~and iswould ~~for~~be considered by a ~~term~~Hearings ofPanel 24(the ~~months~~“Panel”), ~~and~~in ~~has~~addition anto ~~origination~~the ~~fee~~Company’s offailure ~~$100,000,~~to ~~which~~comply ~~was~~with ~~added~~(i) Nasdaq Listing Rule 5250(c)(1) due to the ~~amount~~Company’s ofdelay ~~the~~in ~~Loan.~~filing ~~There~~its isAnnual noReport ~~penalty~~on toForm ~~prepayment,~~10-K ~~except~~for the ~~Lender~~fiscal ~~will~~year ~~receive~~ended atDecember ~~least $150~~31,~~000~~ in2024 ~~minimum~~and ~~interest~~its ifQuarterly ~~Company~~Reports ~~chooses~~on toForm ~~prepay~~10-Q for the ~~Loan.~~periods ~~The~~ended ~~Loan~~March ~~contains~~31, ~~standard~~June ~~events~~30, of2025 ~~default~~(the ~~and~~“Timely ~~representations~~Filing Requirement”), and ~~warranties~~(ii) byNasdaq Listing Rule 5550(b)(1), which requires the Company ~~and~~to maintain minimum stockholders’ equity of $2.5 million (the ~~Lender~~“Stockholders’ Equity Requirement”).

~~The~~● ~~Loan~~October is14, ~~evidenced~~2025 by– ~~a Secured Promissory Note issued by the Company to the Lender (the “Grow Hill Promissory Note”).~~ The ~~Lender received a security interest in certain of the~~ Company’s ~~assets~~presented ~~pursuant~~ to ~~a security agreement between~~ the ~~Company and the Lender (the “Security Agreement”), which does not include any assets of the Company’s subsidiaries, including those securing the Company’s existing line of credit~~Panel. ~~The Grow Hill Promissory Note accrues simple interest at an annual rate of fifteen percent (15%).~~

In● ~~connection~~October ~~with~~30, ~~entering~~2025 in– ~~the~~Nasdaq ~~Loan,~~sent the Company ~~issued~~a tonotice ~~Lender~~notifying athe ~~warrant~~Company (that the ~~“Warrant”)~~Panel had determined to ~~purchase~~grant upthe Company’s request to ancontinue ~~aggregate~~its oflisting ~~160~~on The Nasdaq Capital Market,~~000~~ ~~shares~~subject ofto certain conditions. Specifically, the Panel conditioned the Company’s ~~common~~continued ~~stock~~listing aton anthe ~~exercise~~Company ~~price~~regaining ofcompliance ~~$2.50~~with ~~per~~the ~~share.~~Timely ~~The~~Filing ~~Warrant~~Requirement isand ~~exercisable~~the ~~immediately,~~Stockholders’ ~~will~~Equity ~~expire~~Requirement on or before December 31, 2025 and regaining compliance with the ~~five~~Bid ~~(5)~~Price ~~year~~Rule ~~anniversary~~on ofor ~~issuance~~before January 28, ~~and~~2026. During the exception period, the Company is ~~exercisable~~required onto aprovide ~~cashless~~prompt ~~basis~~notification atto the ~~election~~Panel of any significant event that may affect the ~~holder~~Company’s compliance with Nasdaq requirements. Any documentation evidencing the Company’s compliance will be subject to review by the Panel, which may, in its discretion, request additional information before determining whether the Company has regained compliance.

~~Modification~~● November 18, 2025 – Nasdaq sent the Company a notice (the “November 18 Notice”) stating that because the Company had not yet filed its Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2025 (the “September 30 Form 10-Q”) or its Annual Report on Form 10-K for the fiscal year ended December 31, 2024 (the “Form 10-K”), the Company continues to be out of ~~Agreement~~compliance with ~~Bancroft~~Nasdaq ~~Related~~Listing Rule 5250(c)(1). Nasdaq Listing Rule 5250(c)(1) requires listed companies to ~~Line~~timely offile ~~Credit~~all required periodic financial reports with the Securities and Exchange Commission.

On October 2, 2024, the Company amended its agreement with the Placement Agent to modify the terms of the cash and warrant compensation associated with the Line of Credit. Under this amendment, the threshold at which the second tranche of cash and warrant compensation was increased such that under the new agreement the Company has to draw more than $6,000,000 from the Line of Credit in order for the Placement Agent to earn an additional cash fee of $200,000 and an additional $200,000 worth of Placement Agent's Warrants to purchase the Company's common stock at a price per share equal to 110% of the daily volume weighted average closing price of the Company’s common stock on the Nasdaq exchange for a period consisting of ten (10) consecutive trading days ending on and inclusive of the trading day of the date that the draws exceeding $6,000,000 were to take place.

Equity Issuances After June 30, 2024

Subsequent to June 30, 2024, 216,500 RSUs were granted to employees, directors, and consultants with various vesting periods.

Settlement of Pullar Lawsuit

On May 5, 2022, Robert Pullar (“Pullar”) filed a lawsuit against urban-gro and Bradley Nattrass, in his capacity as the Company’s CEO, relating to a prior settlement agreement the Company had entered into with Pullar. On Friday, January 31, 2025, the parties entered a settlement agreement, without any admission of liability or wrongdoing, to settle all claims associated with the litigation in exchange for a cash payment by the Company to Pullar of $250,000 and an issuance of a warrant to purchase up to 75,000 shares of common stock with an exercise price per share of $1.00.

●

On January 6, 2026, the Company received a determination letter (the “January 6, 2026 Determination”) from Nasdaq stating that because the Company did not hold an annual meeting of stockholders within twelve months from the Company’s prior fiscal year end as required by Nasdaq Listing Rule 5620(a), the resulting non-compliance would be an additional basis for delisting the Company’s securities. The January 6, 2026 Determination notified the Company that the Panel would consider the matter in their decision regarding the Company’s continued listing on the Nasdaq Capital Market, and requested that the Company present its views with respect to the additional deficiency in writing by January 9, 2026. The Company intends to make a submission to the Panel by the requested date, and has requested an additional extension to comply with the Bid Price Rule, the Stockholders’ Equity Requirement and the Timely Filing Requirement.

●

On January 13, 2026, the Panel notified the Company that it had granted a further extension to regain compliance with the Stockholders’ Equity Requirement, the Annual Meeting Requirement and the Timely Filing Requirement on or before February 17, 2026 and with the Bid Price Rule on or before February 24, 2026.

Business Loan and Security Agreement with Agile Entities

On June 26, 2025, the Company entered into a business loan and security agreement (the “Loan Agreement”) with an effective date of June 24, 2025 (the “Effective Date”) by and among, Agile Capital Funding, LLC, Agile Lending , LLC, a Virginia limited liability company and each assignee that becomes a party pursuant to Section 12.1 of the Loan Agreement (the “Lenders”), the Company and 2WR Of Colorado Inc., UG Construction, Inc., 2WR of Georgia, Inc., urban-gro Canada Technologies Inc., urban-gro Engineering, Inc. and urban-gro Architect Holdings, LLC, each a wholly owned subsidiary of the Company (individually, collectively, jointly and severally, the “Guarantors”).

Pursuant to the Loan Agreement, the Lenders extended to the Company a term loan of $1,050,000 (the “Term Loan”) to be used to fund the Company’s general business requirements. The Loan Agreement is for a term of twenty-eight weeks from the Effective Date (the “Maturity Date”) and includes an administrative agent fee of $50,000 to be remitted to Agile Capital Funding, LLC which was added to the amount of the loan. The Company may make a full prepayment or partial prepayment of the Term Loan, however, upon the prepayment of any principal amount, the Company shall be obligated to pay a premium payment of such principal so paid, which shall be equal to the aggregate and actual amount of interest that would be paid through the Maturity Date (the “Prepayment Fee”); provided however that, if the Company made a prepayment within 60 calendar days after the Effective Date, the Company would receive the discounted Prepayment Fee that is included in Exhibit E to the Loan Agreement.

The Loan contains standard events of default and representations and warranties by the Company and the Lenders including a mandatory prepayment, and an additional five (5%) percent interest rate following the occurrence of an event of default. The term loan is evidenced by a secured promissory note issued by the Company to the Lenders (the “Promissory Note”). Pursuant to the Loan Agreement, upon an event of default, the Lenders will receive a security interest in certain of the Company’s assets, subject to certain exceptions.

RK Mechanical- complaint filed

On June 27, 2025, RK Mechanical LLC (“RK”) filed a complaint against UG Construction and certain other defendants, with SVC Manufacturing Inc. as cross-claimant and UG Construction as cross-defendant, in the Superior Court of Arizona for Maricopa County (Case No. CV2025-022680). The complaint alleged that UG Construction served as general contractor for the construction of the construction of a PepsiCo plant in Tolleson, Arizona, and that as a result of work completed by RK, UG Construction owed $1,522,716 to RK as a result of alleged breach of contract, breach of implied covenant of good faith and fair dealing, violation of the Arizona Prompt Payment Act, and lien foreclosure. On or about October 2025, a default judgment was entered against UG Construction for $1,511,716, plus prejudgment interest of $288,346 and post-judgment interest at 8.25% plus $10,057 in attorney fees.

Action Equipment- complaint filed

On April 21, 2025, Action Equip. & Scaffold Co. (“Action”) filed a complaint against UG Construction in the Superior Court of Arizona for Maricopa County (Case No. CV2025-014165). The complaint alleged that UG Construction owed Action $380,932 plus interest and attorneys’ fees in connection with a contract pursuant to which Action leased equipment to UG Construction, and alleged breach of contract, breach of covenant of good faith and fair dealing, and unjust enrichment. A default judgment was subsequently entered against UG Construction, and Action filed a writ of garnishment on October 21, 2025.

Settlement with Vendor

On August 8, 2025, the Company entered into a Settlement and Release Agreement (the “Settlement Agreement”) with J Brrothers LLC (“J Brrothers”) and Herb-a-More LLC relating to a dispute arising from amounts due for certain heating, ventilation and air conditioning equipment. Pursuant to the terms of the Settlement Agreement, among other things, the Company issued a promissory note to J Brrothers with an original principal amount of $395,556 (the “Note”) and issued 150,000 unregistered shares of the Company’s common stock to J Brrothers (the “Shares”). The Note will accrue simple interest at an annual rate of 12% and has a maturity date of March 18, 2026. The Note will be repaid in monthly installments over a period of eight months, with the first seven payments being $50,000 per month and the final monthly payment being $64,046.95. Any remaining principal and accrued but unpaid interest will become due and payable on the maturity date, and the Note may be prepaid without penalty. The Note includes customary representations and warranties, customary events of default and a 17% default interest rate.

The Company is currently in a payment default under the terms of the Note.

Services – Sale of 2WR Georgia, Inc.; Sale of Customer Lists: Remaining Services

On August 27, 2025, the Company announced that certain subsidiaries (the “Seller Parties”) of the Company entered into a Stock and Asset Purchase Agreement (the “August 27 Purchase Agreement”) with 2WR Holdco, LLC (the “Buyer”). Pursuant to the August 27 Purchase Agreement, the Buyer acquired (the “Acquisition”) all of the outstanding shares of stock of 2WR of Georgia, Inc. (“2WRGA”) and certain assets of other subsidiaries of the Company relating to those entities’ business of providing commercial, industrial and municipal architectural and construction administration services for projects not involving CEA, with such CEA business being retained by the Company.

The purchase price paid by the Buyer for the Acquisition consisted of $2.0 million in cash and by any assumed indebtedness. The August 27 Purchase Agreement includes non-competition and non-solicitation restrictions applicable to the Seller Parties and customary representations and warranties and covenants of the parties. Subject to certain limitations, (i) the Seller Parties will indemnify the Buyer and its affiliates and representatives against certain losses related to, among other things, breaches of the Seller Parties’ representations, warranties or covenants, any liabilities other than those assumed by the Buyer under the August 27 Purchase Agreement, assets excluded from the Acquisition, pre-closing taxes, operation of the CEA business and pre-closing employment matters, and (ii) the Buyer will indemnify the Seller Parties and their respective affiliates and representatives against certain losses related to breaches of the Buyer’s representations, warranties or covenants, and any losses related to any asset acquired by the Buyer or any liability assumed by the Buyer under the August 27 Purchase Agreement.

On November 5, 2025, the Seller Parties entered into a Bill of Sale, Assignment and Assumption, and Purchase Agreement (the “November 5 Purchase Agreement”) with 2WRGA. Pursuant to the November 5 Purchase Agreement, 2WRGA acquired (the “Follow On Acquisition”) certain customer lists of the Seller Parties.

The purchase price paid by 2WRGA for the Follow On Acquisition consisted of $143,000 in cash. Additionally, pursuant to the November 5 Purchase Agreement, the parties agreed to waive and terminate the non-solicitation provision applicable to 2WRGA that was contained in the August 27 Purchase Agreement among the Seller Parties, the Company and the other parties thereto.

During the fourth quarter of 2025, the Company began winding down the remaining services businesses and furloughed those employees.

Binding Letter of Intent with Flash Sports & Media, Inc.

On October 14, 2025, the Company entered into a binding letter of intent (the “LOI”) with Flash Sports & Media, Inc. (“Flash”) regarding a proposed transaction pursuant to which the parties intend to merge Flash with and into a newly formed wholly-owned subsidiary of the Company, which would then merge with and into a second wholly-owned subsidiary of the Company (collectively, the “Merger”).

Pursuant to the LOI, the parties have agreed, subject to satisfaction of certain conditions, to negotiate and execute a definitive merger agreement in accordance with the terms set forth in the LOI. The LOI provides that Flash would pay to the Company a cash deposit of $200,000 within fifteen days of its execution. In connection with the Merger, the stockholders of Flash would receive (i) unregistered shares of the Company’s common stock, par value $0.001 per share (“Common Stock”) equal to 19.99% of the outstanding shares of Common Stock as of immediately prior to the Merger, and (ii) unregistered shares of a newly-created series of non-voting preferred stock that would be economically equivalent to Common Stock (the “Preferred Stock”) and would automatically convert into Common Stock upon receipt of approval by the Company’s stockholders.

The LOI contemplates that the former stockholders of Flash would own approximately 90% of the Company following the Merger, assuming full conversion of the Preferred Stock. Upon closing of the Merger, the Company would change its name to Flash Sports & Media Holdings, Inc. or a similar name. The Company would be required to obtain approval of its stockholders for conversion of the Preferred Stock as soon as reasonably practicable following the Merger.

The LOI provides that following the Merger, the board of directors (the “Board”) of the Company would be reconstituted such that four members of the Board would be designated by the Board prior to the Merger and one member of the Board would be designated by the former stockholders of Flash. Upon approval of the Company’s stockholders for the conversion of the Preferred Stock, the Board would be further reconstituted such that one member of the Board would be designated by the Board prior to the Merger and four members of the Board would be designated by the former stockholders of Flash.

The LOI provides for an exclusivity period of 90 days following the execution of the LOI. During that period, the Company agreed that neither it nor its affiliates will, among other things, solicit, provide any information or enter into any agreement with any other party concerning a transaction similar to the Merger.

Equity Issuances After March 31, 2025

Subsequent to March 31, 2025, inclusive of RSU vesting, an additional 4,267,660 shares of common stock were issued.

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

The following discussion should be read in conjunction with our condensed consolidated financial statements and notes thereto included herein. See also “Forward Looking Statements” on pages ~~3-4~~ii of this Report.

OVERVIEW AND HISTORY

In 2025, urban-gro, Inc. iswas an integrated professional services and ~~Design~~design-~~Build~~build firm. ~~offering~~We offered value-added architectural, engineering, and construction management solutions to the Controlled Environment Agriculture (“CEA”), industrial, healthcare, and other commercial ~~industrial~~ sectors. ~~Our~~ ~~business~~Innovation, ~~specializes~~collaboration, inand ~~fee-based~~a commitment to sustainability drove our team to provide exceptional customer experiences. To serve our horticulture clients, ~~knowledge-driven~~we ~~services~~engineered, designed and ~~value-added~~managed ~~equipment~~the ~~procurement~~construction of indoor CEA facilities and ~~integration~~then integrate complex environmental equipment systems into those facilities. We ~~generate~~Through ~~income~~this ~~income~~work, ~~from~~we created high-performance indoor cultivation facilities for our ~~ability~~clients to ~~drive~~grow ~~revenue~~specialty ~~through~~crops, ~~the~~including ~~provision~~leafy ofgreens, ~~architectural~~vegetables, ~~engineering~~herbs, ~~systems~~and plant-based medicines. Our custom-tailored approach to design, construction, procurement, and equipment integration, ~~and~~provided ~~construction~~a ~~services~~single topoint ~~clients~~of accountability across ~~CEA~~all ~~and~~aspects ~~commercial~~of ~~markets~~indoor growing operations. In ~~CEA,~~We also helped our clients ~~include~~achieve ~~cannabis~~operational efficiency and ~~produce~~economic ~~operators~~advantages through a full spectrum of professional services and ~~facilitators~~programs ~~throughout~~focused ~~the~~on ~~United~~facility ~~States,~~optimization ~~Canada~~and environmental health which established facilities that allowed clients to manage, operate and ~~Europe~~perform at the highest level throughout their entire cultivation lifecycle once they are up and running. In Further, we served a broad range of commercial ~~sectors~~and governmental entities, weproviding ~~work~~them with ~~leading~~planning, ~~food~~consulting, architectural, engineering and ~~beverage~~construction ~~Commercial~~design-build ~~Packaged~~services ~~Goods~~for ~~(“CPG”)~~their ~~companies,~~facilities. ~~higher~~We ~~education~~aimed ~~institutions,~~to ~~municipalities~~work with our clients from the inception of their project in a way that provided value throughout the life of their facility. We are a trusted partner and ~~government~~advisor ~~agencies,~~to ~~hospitality~~our ~~brands,~~clients and ~~more~~offer a complete set of engineering and managed services complemented by a vetted suite of select cultivation equipment systems.

RESULTS OF OPERATIONS

Comparison of Results of Operations for the three months ended ~~June 30~~March 31, ~~2024~~2025 and ~~2023~~2024

During the three months ended ~~June 30~~March 31, ~~2024~~2025, we generated revenues of $~~17.~~9.5 million compared to revenues of $1815.54 million during the three months ended ~~June 30~~March 31, ~~2023~~2024, a decrease of $0.5.9 million, or approximately 338%. This decrease in revenues is the ~~net~~ result of the following changes in individual revenue components:

•● Equipment systems revenue ~~decreased~~increased $12.32 million due to continued weak market conditions in the CEA sector and a subsequent reduction in the number of projects available to bid on as our clients’ access to incremental capital continues to remain tight;.

•● Services revenue decreased $01.75 million due to ~~headwinds~~continued ~~that~~negative ~~continue~~market toconditions ~~be faced~~ in the CEA sector ~~that limited the kickoff of new design contracts as well as a decrease in revenue from commercial customers correlated with a reduction in the number of contracts signed; and~~.

•● Construction design-build revenue ~~increased~~decreased $16.56 million due to ~~the~~decreases ~~execution~~in ofour ~~a limited notice to proceed with a~~ construction design-build ~~contract~~revenue incontracts, ~~the CEA sector.~~and:

~~During~~● ~~the~~Other ~~three months ended June 30, 2024, cost of~~ revenues ~~was~~were ~~$15.5~~relatively ~~million compared to $15~~flat.9 million during the three months ended June 30, 2023, a decrease of $0.4 million, or approximately 3%. Gross profit was $2.4 million (13% of revenues) during the three months ended June 30, 2024, compared to $2.5 million (14% of revenue) during the three months ended June 30, 2023. The decrease in gross profit dollars was the result of the decrease in revenues. The decrease in gross profit as a percentage of revenues was the net result of reduced margins in Construction design-build projects and increased margins in Equipment systems as compared to the prior year. Construction design-build gross profit was reduced primarily due to a legacy project that incurred costs that could not be billed back to the customer.

~~Operating~~During ~~expenses~~the ~~decreased~~three bymonths ~~$1.6~~ended ~~million~~March 31, or2025, ~~approximately~~cost ~~24%,~~of revenues was $8.9 million compared to $512.14 million ~~for~~during the three months ended ~~June 30~~March 31, 2024, ~~compared~~a todecrease of $63.75 million, ~~for~~or approximately 28%. Gross profit was $0.6 million (approximately 6% of revenues) during the three months ended ~~June 30~~March 31, ~~2023.~~2025, ~~The~~compared to $13.60 million ~~decrease~~(approximately 19% inof ~~general~~revenue) ~~and~~during ~~administrative~~the ~~expenses~~three ~~was~~months aended ~~result~~March of31, ~~the~~2024. ~~previously~~This ~~disclosed~~decrease ~~initiative~~ in ~~the~~gross ~~first~~profit ~~quarter~~as toa ~~reduce~~percentage ~~operating~~of ~~expenses~~revenues, bywas ~~reducing~~primarily due ~~salary~~to ~~and~~the ~~personnel~~38% ~~related~~decrease ~~costs~~in ~~through~~total arevenues, ~~reduction~~compared into ~~force~~a ~~and~~much ~~elimination~~lesser of28% ~~the~~decrease ~~incentive~~in ~~retention~~total ~~plan~~cost inof ~~2024~~revenues.

~~Non-operating~~Operating expenses ~~expense~~decreased ~~was~~by $0.38 million, or approximately 14%, to $4.7 million for the three months ended ~~June 30~~March 31, ~~2024~~2025, compared to ~~non-operating expense of~~ $15.6 5 million for the three months ended ~~June 30~~March 31, ~~2023~~2024. ~~Non-~~This overall decrease in operating ~~expense~~expenses ~~for~~was the ~~three~~result ~~months~~of ~~ended~~a ~~June 30,~~$0.6 ~~2023~~million ~~included~~decrease in ageneral ~~settlement~~and ofadministrative operating expenses due to decreases in salary and personnel related costs, as well as a $10.52 million decrease in depreciation and amortization.

AsNon-operating expense awas ~~result~~relatively offlat ~~the above,~~ for the three months ended ~~June 30,~~March ~~2024~~31, ~~we incurred a net loss of $3.0 million~~2025, ~~or a net loss per share of $0.24,~~ compared to ~~a net loss of $5.8 million, or a net loss per share of $0.53 for~~ the three months ended ~~June 30~~March 31, ~~2023~~2024.

Comparison of Results of Operations for the six months ended June 30, 2024 and 2023

During the six months ended June 30, 2024, we generated revenues of $33.3 million compared to revenues of $35.2 million during the six months ended June 30, 2023, a decrease of $1.9 million, or approximately 5%. This decrease in revenues is the result of the following changes in individual revenue components:

•Equipment systems revenue decreased $1.7 million due to weak market conditions in the CEA sector and a subsequent reduction in the number of projects available to bid on as our clients’ access to incremental capital continues to remain tight;

•Services revenue decreased $1.0 million due to headwinds that continue to be faced in the CEA sector that limited the kickoff of new design contracts as well as a decrease in revenue from commercial customers correlated with a reduction in the number of contracts signed;

•Construction design-build revenue increased $1.0 million due to the execution of a limited notice to proceed with a construction design-build contract in the CEA sector; and

•Other revenues decreased $0.1 million.

During the six months ended June 30, 2024, cost of revenues was $27.9 million compared to $29.7 million during the six months ended June 30, 2023, a decrease of $1.7 million, or approximately 6%. Gross profit was $5.4 million (16% of revenues) during the six months ended June 30, 2024, compared to $5.5 million (16% of revenue) during the six months ended June 30, 2023. This decrease in gross profit dollars was due to lower revenue. Gross profit margins remained consistent between periods.

Operating expenses decreased by $4.2 million, or approximately 28%, to $10.6 million for the six months ended June 30, 2024 compared to $14.7 million for the six months ended June 30, 2023. This overall decrease in operating expenses was the result of decreases in salary and personnel related costs, including elimination of the incentive retention plan in 2024.

Non-operating expense was $0.5 million for the six months ended June 30, 2024, compared to non-operating expense of $1.8 million for the six months ended June 30, 2023. Non-operating expense for the six months ended June 30, 2023 included a settlement of $1.5 million.

As a result of the above, for the six months ended June 30, 2024, we incurred a net loss of $5.5 million, or a net loss per share of $0.45, compared to a net loss of $11.0 million, or a net loss per share of $1.01 for the six months ended June 30, 2023.

NON-GAAP FINANCIAL MEASURES

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

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

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

	Three Months EndedJune 30,				Six Months EndedJune 30,
	2024		2023		2024		2023
Net loss (GAAP)	$	(2,964,728)	$	(5,763,909)	$	(5,525,291)	$	(11,015,110)
Interest expense	311,706		44,989		411,010		118,205
Interest income	(155)		(75,060)		(236)		(148,191)
Federal and state income tax (provisions)	(48,383)		—		(96,765)		—
Federal and state income tax payments	15,175		110,765		38,150		134,252
Depreciation and amortization	395,696		424,160		785,947		828,232
EBITDA (non-GAAP)	(2,290,689)		(5,259,055)		(4,387,185)		(10,082,612)
Non-recurring professional fees	152,275		267,873		377,653		484,611
Contingent consideration - change in fair value	—		—		—		160,232
Contingent consideration - DVO acquisition	72,556		80,431		147,361		126,698
Reduction in force costs	21,232		263,003		465,027		263,003
One time business development expenses	25,000		—		25,000		—
Retention incentive	—		192,000		—		642,000
Loss on settlement	—		1,500,000		—		1,500,000
Stock-based compensation	460,785		622,547		1,117,361		1,102,188
Transaction costs	—		26,857		—		61,938
Adjusted EBITDA (non-GAAP)	$	(1,558,841)	$	(2,306,344)	$	(2,254,783)	$	(5,741,942)

LIQUIDITY AND CAPITAL RESOURCES

As of ~~June 30~~March 31, ~~2024~~2025, we had negative working capital of $830.71 million, compared to negative working capital of $526.15 million as of December 31, ~~2023~~2024, a decrease of $3.6 million. This decrease in working capital was primarily due to ~~the~~a ~~net~~decrease ~~effects~~in accounts receivable of ~~the~~$2.8 million, ~~following:~~as well as increases in accounts payable and customer deposits of $4.4 million.

~~•an~~As of ~~increase~~March in31, ~~accounts payable~~2025, ~~accrued~~we ~~expenses~~had cash of $0.7 million, ~~and~~which ~~contract~~represented ~~liabilities~~a decrease of $80.71 million; from December 31, 2024 due to the following changes during the three months ended March 31, 2025:

~~•an~~● ~~increase~~Net incash provided by operating activities was $2.2 million. This source of cash is the ~~line~~net effect of ~~credit~~the net loss of $24.0 million, offset by non-cash expenses of $0.7 million, and a reduction in net operating assets and liabilities of $5.5 million. See the condensed consolidated statements of cash flows for further details on the non-cash expenses and net changes in operating assets and liabilities;

~~•an~~● ~~increase~~Net incash ~~accounts~~provided ~~receivable,~~by ~~net~~investing ~~and~~activities ~~contract~~was ~~receivables of~~ $60.1 million. We have no material commitments for capital expenditures as of March 31, 2025.

~~These~~● ~~changes~~Net ~~were~~cash ~~primarily~~used ~~the~~in ~~result~~financing ofactivities ~~the~~was ~~negative~~$2.3 ~~operating~~million. ~~results~~Cash ~~experienced~~used ~~for~~from financing activities primarily relates to payments made on the ~~six~~Line ~~months~~of ~~ended~~Credit ~~June 30,~~and ~~2024~~other financing agreements.

OnCRITICAL ACCOUNTING 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. ("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. 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. 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”). Loans made under the Line of Credit earns interest at a monthly rate of one and seventy-five hundredths percent (1.75%). As of June 30, 2024, we had borrowed $4.5 million under the Line of Credit.ESTIMATES

AsCritical Accounting ~~of June 30, 2024, we had cash of $0.4 million, which represented a decrease of $0.7 million from December 31, 2023 due to the following changes during the three months ended June 30, 2024:~~Estimates

~~•Net~~The Company’s ~~cash~~Unaudited ~~used~~Condensed byConsolidated ~~operating~~Financial ~~activities~~Statements ~~was~~are $1prepared in conformity with U.8S. ~~million~~GAAP. ~~This~~In ~~use~~preparing ofthe ~~cash~~Company’s Unaudited isCondensed ~~the~~Consolidated ~~net~~Financial ~~effect~~Statements, ofmanagement ~~the~~makes ~~net~~assumptions, ~~loss~~judgments ofand ~~$3.0~~estimates ~~million,~~on ~~offset~~historical byexperience and ~~non-cash~~various ~~expenses~~other offactors $2that we believe to be reasonable under the circumstances.2 ~~million,~~Actual ~~and~~results acould ~~reduction~~differ inmaterially ~~net~~from ~~operating~~these estimates ~~assets~~under ~~and~~different ~~liabilities~~assumptions ofor $1conditions.6 ~~million. See~~We ~~the~~regularly ~~condensed~~reevaluate ~~consolidated~~our ~~statements~~assumptions, ofjudgments ~~cash~~and ~~flows~~estimates. ~~for~~The ~~further~~Company’s significant ~~details~~accounting onpolicies are described in the ~~non-cash~~Company’s ~~expenses~~Annual ~~and~~Report ~~net~~on ~~changes~~Form in10-K ~~operating~~for ~~assets~~the ~~and~~year ~~liabilities;~~ended December 31, 2024.

~~•Net~~Critical accounting ~~cash~~estimates ~~used~~(“CAE”) inare ~~investing~~those ~~activities~~estimates ~~was~~that ~~$0.0~~involve ~~million.~~a Wesignificant ~~have~~level noof estimation uncertainty and could have a material ~~commitments~~impact ~~for~~on ~~capital~~our ~~expenditures~~financial ascondition ofor ~~June 30,~~results ~~2024~~of operations.

~~•Net~~There have ~~cash~~been ~~provided~~no bymaterial ~~financing~~changes ~~activities~~in ~~was~~CAE ~~$1.1~~in ~~million.~~the ~~Cash~~Company’s ~~used~~Annual ~~from~~Report ~~financing~~on ~~activities~~Form ~~primarily~~10-K ~~relates~~for ~~to cash provided by our Line of Credit and other financing agreements of $4.5 million offset by $3.3 million of payments made on~~ the ~~line~~year ofended ~~credit~~December 31, ~~and other financing agreements~~2024.

~~INFLATION~~ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Inflation on the costs of labor, raw materials and other items that are critical to our business 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. 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 quarter ended March 31, 2024. We maintain strategies to mitigate the impact of higher material, energy and commodity costs, including cost reduction, alternative sourcing strategies, and passing along cost increase to customers, which may offset only a portion of the adverse impact.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Critical Accounting Policies and Estimates

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

December 31, 2023. During the six months ended June 30, 2024, there were no material changes made to the Company’s significant accounting policies.

OFF-BALANCE SHEET ARRANGEMENTS

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

As a smaller reporting company, we are not required to provide this information.

ITEM 4. CONTROLS AND PROCEDURES.

DISCLOSURE CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) ~~as of the end of the period covered by this Quarterly Report on Form 10-Q~~.

These controls are designed to ensure that information required to be disclosed in the reports we file or submit pursuant to the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management, including our CEO and CFO to allow timely decisions regarding required disclosure.

Based on ~~this~~such evaluation ~~by our management team~~, our CEO and CFO ~~have~~ concluded, that our disclosure controls and procedures were not effective as of ~~June 30~~March 31, ~~2024~~2025 because of the material weaknesses inresulting ~~our~~from lack of a formalized internal control ~~over~~framework ~~financial~~in ~~reporting~~accordance with COSO, as described in ~~the~~Item 9A ~~Amendment~~of ~~No.~~our 2Annual Report on Form 10-K/A ~~for~~as ~~the~~of ~~fiscal year ended~~ December 31, ~~2023~~2024.

WeIn light ~~believe~~of these material weaknesses, management performed additional analyses, reconciliations, and other post-closing procedures to determine that ~~our~~the Company’s unaudited condensed consolidated financial statements ~~presented~~are prepared in accordance with U.S. GAAP. Based on this review, ~~Form~~management ~~10-Q~~concluded that the unaudited condensed consolidated financial statements included in this report fairly present, in all material respects, ~~our~~the Company’s financial ~~position~~condition, results of operations, and cash flows for ~~all~~the periods presented ~~herein~~.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the ~~six~~three months ended ~~June 30~~March 31, ~~2024~~2025, which were identified in conjunction with management’s evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Management’s Plan to Remediate the Material Weaknesses

As it relates to the material weaknesses that existed as of ~~June 30~~March 31, ~~2024~~2025, we are ~~currently~~ in the process of designing and implementing remediation plans and taking steps to address the root cause of the material weaknesses as described in ~~the~~Annual ~~Amendment~~Report ~~No. 2~~ on Form 10-K/A ~~for~~as ~~the~~of ~~fiscal year ended~~ December 31, ~~2023~~2024. There have been no changes to the remediation plan ~~described~~since ~~in the Amendment No. 2 on Form 10-K/A for the fiscal year ended~~ December 31, ~~2023~~2024.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, wethe ~~become~~Company is involved in orroutine ~~are~~litigation ~~threatened~~that ~~with~~arises ~~legal~~in ~~disputes.~~the ~~Most~~ordinary course of ~~these~~business. ~~disputes~~Other ~~are~~than ~~not likely to have a material effect on our business~~below, ~~financial~~there ~~condition, or operations. There~~ are no ~~new~~other ~~material~~ legal proceedings ~~that~~for ~~were~~which ~~initiated~~management orbelieves ~~terminated during~~ the ~~period~~ultimate ~~covered~~outcome bywould ~~this~~have ~~report~~a ~~and there were no~~ material ~~developments~~adverse ineffect ~~the material proceedings identified in Part 1, Item 3 of our Annual Report~~ on ~~Form 10-K for~~ the ~~fiscal~~Company’s results ~~year~~of ~~ended~~operations ~~December 31,~~and ~~2023~~cash ~~during the period covered by this report~~flows.

Gemini Loan Agreement Amendment and Default

Grow Hill Default

J Brrothers Settlement

2WR of Georgia Sale

MJ’s Market, Inc

ITEM 1A. RISK FACTORS

InAs of ~~addition to~~ the ~~other~~date ~~information~~of ~~set forth in~~ this ~~report,~~Quarterly ~~you~~Report ~~should~~on ~~carefully~~Form ~~consider~~10-Q, ~~the~~there ~~risk~~have ~~factors~~been ~~discussed~~no inadditional ~~Part~~material I,changes ~~“Item~~to ~~1A.~~the ~~Risk~~risk ~~Factors”~~factors disclosed in our annual ~~Annual~~report ~~Report~~ on ~~Amendment No. 2 on~~ Form 10-K/A for the fiscal year ended December 31, ~~2023, each of which is incorporated herein by reference and which could materially affect our business, financial condition or future results~~2024. ~~The~~We ~~risks~~may ~~described~~disclose ~~herein~~changes ~~and in those filings are not the only risks facing our Company. Additional risks and uncertainties not currently known~~ to ussuch orrisk ~~that~~factors ~~we currently deem to be immaterial also may materially adversely affect our business, financial condition and/~~or ~~operating~~disclose ~~results.~~additional risk Wefactors ~~do not believe that there have been any material changes~~ from ~~the~~time ~~risk~~to ~~factors~~time ~~previously disclosed~~ in our ~~Annual~~future ~~Report~~filings onwith ~~Amendment No. 2 on Form 10-K/A for~~ the ~~fiscal year ended December 31, 2023~~SEC.

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

~~Sale~~Unregistered Shares ofIssued ~~Unregistered~~in ~~Securities~~Connection with Acquisitions

~~None~~The foregoing issuances of restricted shares of common stock were issued under Section 4(a)(2) of the Securities Act of 1933, as amended, and Rule 506 of Regulation D promulgated thereunder. The Company believes the issuances of the foregoing restricted shares were exempt from registration as each was 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.

Repurchase of Equity Securities

We did not repurchase any of our registered equity securities during the period covered by this Quarterly Report on Form 10-Q.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURE

Not Applicable.

ITEM 5. OTHER INFORMATION

None.

2729

ITEM 6. EXHIBITS

Exhibit No.	Exhibit Description	~~Exhibit Description~~
10.1		Amendment No. 2 to, urban-gro, Inc 2021 Omnibus Stock Incentive Plan.
31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.1		Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	Inline XBRL Instance Document
101.INS		Inline XBRL Instance Document
101.SCH	Inline XBRL Schema Document
101.SCH		Inline XBRL Schema Document
101.CAL	Inline XBRL Calculation Linkbase Document
101.CAL		Inline XBRL Calculation Linkbase Document
101.DEF	Inline XBRL Definition Linkbase Document
101.DEF		Inline XBRL Definition Linkbase Document
101.LAB	Inline XBRL Label Linkbase Document
101.LAB		Inline XBRL Label Linkbase Document
101.PRE	Inline XBRL Presentation Linkbase Document
101.PRE		Inline XBRL Presentation Linkbase Document
104	Cover Page Interactive Data File (Embedded within the Inline XBRL document)
104	Cover Page Interactive Data File (Embedded within the Inline XBRL	~~Cover Page Interactive Data File (Embedded within the Inline XBRL document)~~

2830

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized, on February 18 3, ~~2025~~2026.

	URBAN-GRO, INC.

	By:	/s/ Bradley Nattrass
		Bradley Nattrass
		Chairperson of the Board of Directors and
		Chief Executive Officer
		(Principal Executive Officer)

	By:	/s/ Richard Akright
		Richard A. Akright
		Chief Financial Officer
		(Principal Financial Officer)
		(Principal Accounting Officer)

2931

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