UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
For the quarterly period ended
or
For the transition period from _________ to _________.
Commission File Number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| (Address of principal executive offices) | (Zip Code) | (Registrant’s telephone number, including area code) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
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 ☐
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
☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
The number of shares of the registrant’s only class of common
stock outstanding as of February 17, 2026 was
TABLE OF CONTENTS
i
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 Form 10-K for the fiscal year ended December 31, 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 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 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).
ii
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
URBAN-GRO, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| September 30, | December 31, | |||||||
| 2025 | 2024 | |||||||
| (Unaudited) | (Audited) | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Contract receivables | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Current assets of discontinued operations | ||||||||
| Total current assets | ||||||||
| Non-current assets: | ||||||||
| Property and equipment, net | ||||||||
| Operating lease right-of-use assets | ||||||||
| Non-current assets of discontinued operations | ||||||||
| Total non-current assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Contract liabilities | ||||||||
| Accrued expenses | ||||||||
| Customer deposits | ||||||||
| Notes payable, current | ||||||||
| Operating lease liabilities, current | ||||||||
| Current liabilities of discontinued operations | ||||||||
| Total current liabilities | ||||||||
| Non-current liabilities | ||||||||
| Notes payable, long-term | ||||||||
| Deferred tax liability | ||||||||
| Operating lease liabilities, long-term | ||||||||
| Non-current liabilities of discontinued operations | ||||||||
| Total non-current liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Stockholders’ deficit: | ||||||||
| Preferred stock, $ | ||||||||
| Common stock, $ | ||||||||
| Additional paid-in capital | ||||||||
| Treasury shares, cost basis: | ( | ) | ( | ) | ||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ deficit | ( | ) | ( | ) | ||||
| Total liabilities and stockholders’ deficit | $ | $ | ||||||
The accompanying unaudited notes are an integral part of these condensed consolidated financial statements
1
URBAN-GRO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
(unaudited)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| Revenues | ||||||||||||||||
| Equipment | $ | $ | $ | $ | ||||||||||||
| Construction design-build | ||||||||||||||||
| Other | ||||||||||||||||
| Total revenues | ||||||||||||||||
| Cost of revenue | ||||||||||||||||
| Equipment | ||||||||||||||||
| Construction design-build | ||||||||||||||||
| Other | ||||||||||||||||
| Total cost of revenue | ||||||||||||||||
| Gross profit | ( | ) | ( | ) | ||||||||||||
| Operating expenses: | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Business development | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Non-operating income (expense): | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Interest income | ||||||||||||||||
| Gain on extinguishment of debt | ||||||||||||||||
| Loss on settlement | ( | ) | ( | ) | ||||||||||||
| Loss on assets foreclosure | ( | ) | ( | ) | ||||||||||||
| Other income (expense) | ( | ) | ( | ) | ||||||||||||
| Total non-operating income (expense) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss before income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income tax benefit | ||||||||||||||||
| Net loss from continuing operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net income (loss) from discontinued operations, net of tax | ( | ) | ( | ) | ||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss per share attributable to common stockholders: | ||||||||||||||||
| Net loss from continuing operations | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net income (loss) from discontinued operations, net of taxes | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||
| Net loss per share | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average common shares outstanding - basic and diluted | ||||||||||||||||
The accompanying unaudited notes are an integral part of these condensed consolidated financial statements
2
URBAN-GRO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’
DEFICIT
(unaudited)
| Common Stock | Additional Paid-in | Accumulated | Treasury | Total Stockholders’ Equity | ||||||||||||||||||||
| Shares | Amount | Capital | Deficit | Stock | (Deficit) | |||||||||||||||||||
| Balance at December 31,2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||
| Stock grant program vesting | ( | ) | ||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balances at March 31, 2024 | ( | ) | ( | ) | ||||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||
| Stock grant program vesting | ( | ) | ||||||||||||||||||||||
| Stock issued for contingent consideration | ||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balances at June 30, 2024 | ( | ) | ( | ) | ||||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||
| Stock grant program vesting | ( | ) | ||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balances at September 30, 2024 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
| Balance at December 31, 2024 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||
| Stock grant program vesting | ( | ) | ||||||||||||||||||||||
| Issuance of common stock for loan modification | ||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balances at March 31, 2025 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||
| Stock grant program vesting | ( | ) | ||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balances at June 30, 2025 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||
| Stock grant program vesting | ||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balances at September 30, 2025 | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||
The accompanying unaudited notes are an integral part of these condensed consolidated financial statements
3
URBAN-GRO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
| Nine Months Ended September 30, | ||||||||
| 2025 | 2024 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Amortization of right-of-use assets | ||||||||
| Stock-based compensation expense | ||||||||
| Amortization of debt discounts | ||||||||
| Common stock issued for debt modification | ||||||||
| Asset foreclosure loss | ||||||||
| Gain on disposition of assets | ( | ) | - | |||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable and contract receivables | ||||||||
| Prepaid expenses and other assets | ( | ) | ||||||
| Accounts payable, contract liabilities, customer deposits and accrued expenses | ||||||||
| Operating lease liability | ( | ) | ( | ) | ||||
| Deferred tax liability | ( | ) | ( | ) | ||||
| Net cash provided by (used in) operating activities of continuing operations | ( | ) | ||||||
| Net cash provided by (used in) operating activities of discontinued operations | ( | ) | ||||||
| Net cash provided by (used in) operating activities | ( | ) | ||||||
| Cash flows from investing activities: | ||||||||
| Proceeds from the sale of property and equipment | ||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Net cash (used in) provided by investing activities of continuing operations | ( | ) | ||||||
| Net cash (used in) provided by investing activities of discontinuing operations | ||||||||
| Net cash (used in) provided by investing activities | ( | ) | ||||||
| Cash flows from financing activities: | ||||||||
| Proceeds from promissory notes | ||||||||
| Repayments of notes payable | ( | ) | ( | ) | ||||
| Repayment of finance lease liability | ( | ) | ( | ) | ||||
| Net cash (used in) provided by financing activities of continuing operations | ( | ) | ||||||
| Net cash (used in) provided by financing activities of discontinuing operations | ( | ) | ||||||
| Net cash (used in) provided by financing activities | ( | ) | ||||||
| Net change in cash | ( | ) | ||||||
| Cash at beginning of period | ||||||||
| Cash at end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income taxes | $ | $ | ||||||
| Supplemental disclosure of non-cash investing and financing activities: | ||||||||
| Termination of operating lease | $ | $ | ||||||
| Prepaid expenses financed by notes payable | $ | $ | ||||||
| Debt Discount | $ | $ | ||||||
The accompanying unaudited notes are an integral part of these condensed consolidated financial statements
4
URBAN-GRO, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – ORGANIZATION, ACQUISITIONS, AND LIQUIDITY
Basis of Presentation
These consolidated financial statements are presented in United States dollars and have been prepared in accordance with United States generally accepted accounting principles (“GAAP”). On February 9, 2026, we effected a 1-for-25 reverse stock split with respect to our common stock. All share and per share information in these consolidated financial statements give effect to this reverse stock split, including restating prior period reported amounts.
Organization
urban-gro, Inc. (together
with its wholly owned subsidiaries, collectively “urban-gro,” “we,” “us,” or “the Company”)
was originally formed on March 20, 2014, as a Colorado limited liability company. On March 10, 2017, we converted to a Colorado corporation
and exchanged shares of our common stock for every member’s interest issued and outstanding on the date of conversion. On
In 2025, urban-gro, Inc. was an integrated professional services and design-build firm. 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 engineered, designed and managed the construction of indoor CEA facilities and then integrate complex environmental equipment systems into those facilities. Through this work, we 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 provided a single point of accountability across all aspects of indoor growing operations. 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 served a broad range of commercial and governmental entities, providing them with planning, consulting, architectural, engineering and construction design-build services for their facilities. We aimed to 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 advisor to our clients and offer a complete set of engineering and managed services complemented by a vetted suite of select cultivation equipment systems.
Dispositions
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.
See Note 4 for further detail on the dispositions.
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 September 30, 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 months from the date these consolidated financial statements are issued.
5
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 Form 10-K for the year ended December 31, 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 Form 10-K the year ended December 31, 2024. During the nine months ended September 30, 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.
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.
6
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.
| Three months ended September 30, | ||||||||||||||||||||||||
| CEA | Commercial | Total | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | 2025 | 2024 | |||||||||||||||||||
| Equipment systems | $ | $ | $ | $ | ||||||||||||||||||||
| Construction design-build | ( | ) | ||||||||||||||||||||||
| Other | ||||||||||||||||||||||||
| Total revenues and other income | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Relative percentage | % | % | % | % | % | % | ||||||||||||||||||
| Nine months ended September 30, | ||||||||||||||||||||||||
| CEA | Commercial | Total | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | 2025 | 2024 | |||||||||||||||||||
| Equipment systems | $ | $ | $ | $ | ||||||||||||||||||||
| Construction design-build | ||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||
| Total revenues and other income | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Relative percentage | % | % | % | % | % | % | ||||||||||||||||||
Under ASC Topic 606, Revenue from Contracts with Customers, a performance obligation is a promise in a contract with a customer, to transfer a distinct good or service to the customer. Equipment systems contracts are lump sum contracts, which require the performance of some, or all, of the obligations under the contract for a specified amount. Service revenue contracts, which include both architectural and engineering designs, generally contain multiple performance obligations which can span across multiple phases of a project and are generally set forth in the contract as distinct milestones. The majority of construction design-build contracts have a single performance obligation, as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts and, therefore, not distinct. Some contracts have multiple performance obligations, most commonly due to the contract covering multiple phases of the project life cycle (design and construction).
The transaction price for service contracts and construction design-build contracts is allocated to each distinct performance obligation and recognized as revenue when, or as, each performance obligation is satisfied. When there are multiple performance obligations under the same service contract, the Company allocates the transaction price to each performance obligation based on the standalone selling price. In general, payment is fixed at the time of the contract and are not subject to discounts, incentives, payment bonuses, credits, and penalties, unless negotiated in an amendment.
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 the contract. For 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 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. 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 revenues at the end of the reporting period.
Construction design-build revenues are recognized as the Company’s obligations are satisfied over time, using the ratio of project costs incurred to estimated total costs for each contract because of the continuous transfer of control to the customer as all of the work is performed at the customer’s site and, therefore, the customer controls the asset as it is being constructed. This continuous transfer of control to the customer is further supported by clauses in the contract that allow the customer to unilaterally terminate the contract for convenience, pay the Company for costs incurred plus a reasonable profit and take control of any work in process. This cost-to-cost measure is used for our construction design-build contracts because management considers it to be the best available measure of progress on these contracts.
Contract modifications through change orders, claims and incentives are routine in the performance of the Company’s construction design-build contracts to account for changes in the contract specifications or requirements. In most instances, contract modifications are not distinct from the existing contract due to the significant integration of services provided in the contract and are accounted for as a modification of the existing contract and performance obligation. Either the Company or its customers may initiate change orders, which may include changes in specifications or designs, manner of performance, facilities, equipment, materials, sites and period of completion of the work. Change orders that are unapproved as to both price and scope are evaluated as claims. The Company considers claims to be amounts in excess of approved contract prices that the Company seeks to collect from its customers or others for customer-caused delays, errors in specifications and designs, contract terminations, change orders that are either in dispute or are unapproved as to both scope and price, or other causes of unanticipated additional contract costs.
The timing of when the Company bills customers on long-term construction design-build contracts is generally dependent upon agreed-upon contractual terms, which may include milestone billings based on the completion of certain phases of the work, or when services are provided. When as a result of contingencies, billings cannot occur until after the related revenue has been recognized; the result is unbilled revenue, which is included in contract assets. Additionally, the Company may receive advances or deposits from customers before revenue is recognized; the result is deferred revenue, which is included in contract liabilities. Retainage subject to conditions other than the passage of time are included in contract assets and contract liabilities.
Contract assets represent revenues recognized in excess of amounts paid or payable (contract receivables) to the Company on uncompleted contracts. Contract liabilities represent the Company’s obligation to perform on uncompleted contracts with customers for which the Company has received payment or for which contract receivables are outstanding.
8
The following table provides information about contract assets and contract liabilities from contracts with customers:
| September 30, | December 31, | |||||||
| 2025 | 2024 | |||||||
| Contract assets | ||||||||
| Revenue recognized in excess of amounts paid or payable (contract receivables) to the Company on uncompleted contracts (contract asset), excluding retainage | $ | $ | ||||||
| Retainage included in contract assets due to being conditional on something other than solely passage of time | ||||||||
| Total contract assets | $ | $ | ||||||
| Contract liabilities | ||||||||
| Payments received or receivable (contract receivables) in excess of revenue recognized on uncompleted contracts (contract liability), excluding retainage | $ | $ | ||||||
| Retainage included in contract liabilities due to being conditional on something other than solely passage of time | ||||||||
| Total contract liabilities | $ | $ | ||||||
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 – DISCONTINUED OPERATIONS
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 total purchase price for the transaction was $
The Purchase Agreement includes customary representations and warranties, covenants, and mutual indemnification provisions between the parties. The agreement also contains non-competition and non-solicitation provisions applicable to the Seller Parties for a specified period following the closing. The Company recorded the disposition in the third quarter of 2025.
Subsequent to the August 27 Purchase Agreement, 2WR Holdco, LLC acquired
the customer list of 2WR of Colorado, Inc. for $
In connection with the sales described above, the Company discontinued
the operations of the remaining Services companies.
9
| 2WRGA | 2WRCO | 2WRMS | UGENG | Total | ||||||||||||||||
| Carrying amount of assets and liabilities | ||||||||||||||||||||
| Cash | $ | $ | $ | $ | $ | |||||||||||||||
| Accounts receivable, net | ||||||||||||||||||||
| Prepaid expenses and other current assets | ||||||||||||||||||||
| Property and equipment, net | ||||||||||||||||||||
| Operating lease right-of-use assets | ||||||||||||||||||||
| Goodwill | ||||||||||||||||||||
| Intangible assets, net | ||||||||||||||||||||
| Accounts payable | ( | ) | ( | ) | ||||||||||||||||
| Accrued expenses | ( | ) | ( | ) | - | ( | ) | |||||||||||||
| Operating lease liabilities, current | ( | ) | ( | ) | ||||||||||||||||
| Operating lease liabilities, long-term | ( | ) | ( | ) | ||||||||||||||||
| Total carrying amount of assets and liabilities (net deficit) | ( | ) | ( | ) | ||||||||||||||||
| Gain (loss) on sale or discontinuance of subsidiaries | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | |||||||||
The net gain on sale or discontinuance of subsidiaries is included as a component of discontinued operations, net of tax and reflected in the table below.
In accordance with the provisions
of ASC 205-20, the Company has excluded the results of discontinued operations from its results of continuing operations in the accompanying
consolidated statements of operations for the three and nine months ended September 30, 2025 and 2024.
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| Revenues | ||||||||||||||||
| Services | $ | $ | $ | $ | ||||||||||||
| Total revenues | ||||||||||||||||
| Cost of revenue | ||||||||||||||||
| Services | ||||||||||||||||
| Total cost of revenue | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from discontinued operations | ( | ) | ( | ) | ( | ) | ||||||||||
| Non-operating income (expense): | ||||||||||||||||
| Gain on sale or discontinuance of subsidiaries | ||||||||||||||||
| Total non-operating income (expense) | ||||||||||||||||
| Income (loss) before income taxes | ( | ) | ( | ) | ||||||||||||
| Income tax benefit | ||||||||||||||||
| Net income (loss) from discontinued operations, net of tax | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||
| Net income (loss) per share from discontinued operations-basic and diluted | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||
| Weighted average common shares outstanding - basic and diluted | ||||||||||||||||
10
NOTE 5 – 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.
There were material revenues from related party entities for the three and nine months ended September 30, 2025, and 2024.
NOTE 6 – 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:
| September 30, | December 31, | |||||||
| 2025 | 2024 | |||||||
| Vendor Prepayments | $ | $ | ||||||
| Prepaid Services and Fees | ||||||||
| Inventories | ||||||||
| Other current assets | ||||||||
| Total Prepaid expenses and other assets | $ | $ | ||||||
The decrease in prepaid expenses includes amounts disposed of in connection with the August 27, 2025 sale of certain subsidiaries. See note 4 – disposition.
NOTE 7 – PROPERTY AND EQUIPMENT, NET
Property and equipment balances are summarized as follows:
| September 30, | December 31, | |||||||
| 2025 | 2024 | |||||||
| Computers and technology equipment | $ | $ | ||||||
| Furniture and fixtures | ||||||||
| Leasehold improvements | ||||||||
| Vehicles | ||||||||
| Software | ||||||||
| R&D Assets | ||||||||
| Other equipment | ||||||||
| Accumulated depreciation | ( | ) | ( | ) | ||||
| Total Property and equipment, net | $ | $ | ||||||
Depreciation expense for the
three months ended September 30, 2025, and 2024 totaled $
NOTE 8 – GOODWILL AND INTANGIBLE ASSETS
The Company had recorded goodwill and intangibles in conjunction with the acquisitions it had completed. Goodwill was not amortized. The Company did record any impairment charges related to goodwill for the nine months ended September 30, 2025 and 2024. The Company’s goodwill and intangible assets were fully written off in connection with the August 27, 2025 sale of certain subsidiaries and related assets and discontinuing the operations of the Services segment. As a result, the balances of goodwill and intangible assets were as of September 30, 2025 and December 31, 2024. See Note 4 – Dispositions for further details.
11
NOTE 9 – ACCRUED EXPENSES
Accrued expenses are summarized as follows:
| September 30, | December 31, | |||||||
| 2025 | 2024 | |||||||
| Accrued operating expenses | $ | $ | ||||||
| Accrued wages and related expenses | ||||||||
| Business development accrual | ||||||||
| Accrued interest expense | ||||||||
| Accrued 401(k) | ||||||||
| Accrued sales tax payable | ||||||||
| $ | $ | |||||||
Accrued sales tax payable is comprised of amounts due to various states and Canadian provinces for 2017 through 2023.
Certain accrued liabilities were settled or transferred in connection with the August 27, 2025 sale of certain subsidiaries and related assets. See Note 4 – Dispositions for further details.
NOTE 10 – NOTES PAYABLE
The table below shows outstanding notes payable amounts as of September 30, 2025 and December 31, 2024.
| September 30, | December 31, | |||||||
| 2025 | 2024 | |||||||
| Gemini line of credit | $ | $ | ||||||
| DVO note | ||||||||
| Grow hill note, net | ||||||||
| Agile capital | ||||||||
| J Brrothers | ||||||||
| Other financing agreements | ||||||||
| Total | ||||||||
| Less current portion | ( | ) | ( | ) | ||||
| Notes payable, long-term | $ | $ | ||||||
Revolving Line of Credit with Gemini Finance Corp.
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 $
12
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
In connection with entering
in the Line of Credit, the Company agreed to issue to Bancroft Capital, LLC (the “Placement Agent”) cash and warrant compensation
in
| 1. | At closing of the Line of Credit, the Placement Agent earned a cash fee of $ |
| 2. | If and when Emerald draws more than $ |
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
13
Loan Agreement with Grow Hill, LLC
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:
| 1. | Loan Details |
| ● | Principal Amount: $ |
| ● | Interest Rate: |
| ● | Origination Fee: $ |
| ● | Repayment Terms: Monthly payments of interest and principal as per the Promissory Note. Ther term of the loan is |
| ● | Optional Prepayment: Allowed if the Grow Hill has received $ |
| ● | Mandatory Prepayment: Required if the Company fails to meet the Receivable Ratio negative covenants or events of default. |
| 2. | 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. |
| 3. | The loan became effective on October 1, 2024, when the Company issued Warrants to the Grow Hill for |
| 4. | 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 |
| 5. | 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. |
14
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 $
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 (
Truist Line of Credit
2WR of Georgia, Inc. (“2WR GA”), a subsidiary of the Company, maintained a line of credit with Truist Bank (the “Truist Line of Credit”) that was established prior to the Company’s acquisition of the architectural firm on July 30, 2021.
In May 2025, the Company became
aware of the Truist line of credit and subsequently borrowed $
In the third quarter of 2025,
in connection with the sale of 2WR GA to CM Capital for $
Settlement Agreement and Promissory Note with J Brrothers LLC
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 $
The Company is currently in a payment default under the terms of the Note.
Other
The other financing agreements have interest rates ranging from
15
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 $
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
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 $
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 $
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 $
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
16
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 $
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
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 $
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.
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 $
17
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 $
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 Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| Company Customer Number | 2025 | 2024 | 2025 | 2024 | ||||||||||||
| C000001462 | % | * | % | |||||||||||||
| C000002187 | % | % | * | % | ||||||||||||
| C000002607 | % | |||||||||||||||
| C000002552 | % | % | % | |||||||||||||
| C000001462 | * | * | % | * | ||||||||||||
| C000002607 | % | * | % | * | ||||||||||||
| C000002722 | % | |||||||||||||||
| C000002655 | % | |||||||||||||||
| * |
Customers exceeding 10% of accounts receivable
| Company Customer Number | September 30, 2025 | December 31, 2024 | ||||||
| C000002187 | % | |||||||
| C000002596 | % | |||||||
| C000002571 | % | |||||||
| C000001575 | % | |||||||
| C000002532 | % | |||||||
| * | Amounts less than 10% |
18
The table below shows vendors who account for 10% or more of the Company’s total purchases and 10% or more of the Company’s accounts payable for the periods presented:
Vendors exceeding 10% of purchases
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| Company Vendor Number | 2025 | 2024 | 2025 | 2024 | ||||||||||||
| V000002198 | % | % | ||||||||||||||
| V000002503 | % | % | ||||||||||||||
| V000001029 | % | |||||||||||||||
| V000001372 | % | |||||||||||||||
| V000002786 | % | |||||||||||||||
| * | Amounts less than 10% |
Vendors exceeding 10% of accounts payable
| Company Vendor Number | September 30, 2025 | December 31, 2024 | ||||||
| V000002503 |
| * | Amounts less than 10% |
Foreign Exchange Risk
Although our revenues and expenses are expected to be predominantly denominated in United States dollars, we may be exposed to currency exchange fluctuations. Recent events in the global financial markets have been coupled with increased volatility in the currency markets. Fluctuations in the exchange rate between the U.S. dollar, the Canadian dollar, the Euro, and the currency of other regions in which we may operate may have a material adverse effect on our business, financial condition and operating results. We may, in the future, establish a program to hedge a portion of our foreign currency exposure with the objective of minimizing the impact of adverse foreign currency exchange movements. However, even if we develop a hedging program, it may not mitigate currency risks.
NOTE 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 September 30,
2025 and 2024 totaled $
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
As of September 30, 2025, total unrecognized compensation expense was
$
19
NOTE 14 – STOCKHOLDERS’ EQUITY
Common Stock
The Company is authorized
to issue
Preferred stock
The Company is authorized
to issue
Treasury Stock
As
of September 30, 2025 and December 31, 2024, there were
NOTE 15 – SEGMENTS
The Company has identified the following operating segments related as of September 30, 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. |
| ● | 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.
20
The following tables present financial information relating to our operating segments for the period ended September 30, 2025 and 2024:
| Three months ended September 30, 2025 | ||||||||||||||||
| Equipment | Construction | Corporate/other | Total | |||||||||||||
| Revenues | $ | $ | $ | |||||||||||||
| Cost of revenues | ||||||||||||||||
| Gross profit | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Gross profit % | % | - | % | % | - | % | ||||||||||
| Intangible asset amortization | $ | $ | $ | $ | ||||||||||||
| Loss before income taxes | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Total assets | $ | $ | $ | $ | ||||||||||||
| Nine months ended September 30, 2025 | ||||||||||||||||
| Equipment | Construction | Corporate/other | Total | |||||||||||||
| Revenues | $ | $ | $ | |||||||||||||
| Cost of revenues | ||||||||||||||||
| Gross profit | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Gross profit % | % | - | % | % | - | % | ||||||||||
| Intangible asset amortization | $ | $ | $ | $ | ||||||||||||
| Loss before income taxes | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Total assets | $ | $ | $ | $ | ||||||||||||
| Three months ended September 30, 2024 | ||||||||||||||||
| Equipment | Construction | Corporate/other | Total | |||||||||||||
| Revenues | $ | $ | $ | |||||||||||||
| Cost of revenues | ||||||||||||||||
| Gross profit | $ | $ | $ | $ | ||||||||||||
| Gross profit % | % | % | % | % | ||||||||||||
| Intangible asset amortization | $ | $ | $ | $ | ||||||||||||
| Loss before income taxes | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Total assets | $ | $ | $ | $ | ||||||||||||
| Nine months ended September 30, 2024 | ||||||||||||||||
| Equipment | Construction | Corporate/other | Total | |||||||||||||
| Revenues | $ | $ | $ | |||||||||||||
| Cost of revenues | ||||||||||||||||
| Gross profit | $ | $ | $ | $ | ||||||||||||
| Gross profit % | % | % | % | % | ||||||||||||
| Intangible asset amortization | $ | $ | $ | $ | ||||||||||||
| Loss before income taxes | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Total assets | $ | $ | $ | $ | ||||||||||||
21
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:
| ● | 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 $ |
| ● | August 28, 2025 – Nasdaq sent the Company a determination letter (the “August 28 Determination”) stating that Nasdaq had determined that the Company did not regain compliance with the Minimum Bid Requirement by August 25, 2025. The August 28 Determination stated that the failure to comply with the Minimum Bid Requirement during the compliance period would serve as an additional basis for delisting the Company’s securities from the Nasdaq Capital Market and would be considered by a Hearings Panel (the “Panel”), in addition to the Company’s failure to comply with (i) Nasdaq Listing Rule 5250(c)(1) due to the Company’s delay in filing its Annual Report on Form 10-K for the fiscal year ended December 31, 2024 and its Quarterly Reports on Form 10-Q for the periods ended March 31, June 30, 2025 (the “Timely Filing Requirement”), and (ii) Nasdaq Listing Rule 5550(b)(1), which requires the Company to maintain minimum stockholders’ equity of $ |
| ● | October 14, 2025 – The Company presented to the Panel. |
| ● | October 30, 2025 – Nasdaq sent the Company a notice notifying the Company that the Panel had determined to grant the Company’s request to continue its listing on The Nasdaq Capital Market, subject to certain conditions. Specifically, the Panel conditioned the Company’s continued listing on the Company regaining compliance with the Timely Filing Requirement and the Stockholders’ Equity Requirement on or before December 31, 2025 and regaining compliance with the Bid Price Rule on or before January 28, 2026. During the exception period, the Company is required to provide prompt notification to the Panel of any significant event that may affect the 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. |
| ● | 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 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. |
22
| ● |
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. |
Services Business
During the fourth quarter of 2025, the Company continued 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 $
The LOI contemplates that
the former stockholders of Flash would own approximately
23
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.
Shareholder Approvals at the Annual Shareholder Meeting
On January 30, 2026, the shareholders of the Company approved the following:
| ● | An amendment to the Company’s 2021 Omnibus Stock Incentive Plan to increase the number of shares authorized for issuance under the plan by |
| ● | An amendment to the Company’s Amended and Restated Certificate of Incorporation to effect a reverse stock split of the shares of the Company’s common stock at a ratio of not less than 1-for-2 and not greater than |
| ● | An amendment of the Company’s Amended and Restated Certificate of Incorporation to increase the number of authorized shares of common stock to |
Private Placement of Common Stock
On January 19, 2026, the Company
entered into a private placement transaction pursuant to a Purchase and Subscription Agreement. Under the agreement, the Company agreed
to issue
The transaction was entered into with One Eyed Jack Enterprises LLC, an accredited investor, in a private offering exempt from registration under applicable securities laws.
Reverse Stock Split
On February 4, 2026, the Board of Directors approved a 1-for-25 reverse stock split of the Company’s common stock to take effect on February 9, 2026.
24
ELOC Purchase Agreement
On February 4, 2026,
the Company entered into an equity purchase agreement (the “ELOC Purchase Agreement”) with Hudson Global Ventures, LLC (the
“Investor”), pursuant to which the Company has the right, but not the obligation, to direct the Investor to purchase up to
$
The Investor has no right to require any sales by the Company but is
obligated to make purchases at the Company’s direction subject to certain conditions. Each purchase must involve an aggregate amount
of shares of the Company’s common stock of at least $
The purchase price to
be paid by the Investor for the ELOC Shares will be the lesser of (i) ninety percent (
Actual sales of ELOC Shares to the Investor from time to time will depend on a variety of factors, including, without limitation, market conditions, the trading price of the Company’s common stock and determinations by the Company as to the appropriate sources of funding for the Company and its operations. The net proceeds that the Company may receive under the ELOC Purchase Agreement, if any, cannot be determined at this time, since the amount will depend on the frequency and prices at which the Company sells ELOC Shares to the Investor, the Company’s ability to meet the conditions of the ELOC Purchase Agreement, the other limitations, terms and conditions of the ELOC Purchase Agreement, and any impacts of the beneficial ownership limitation (described below).
As consideration for the Investor’s execution and delivery of
the ELOC Purchase Agreement, the Company issued to the Investor certain common stock purchase warrant for the purchase of
The ELOC Purchase Agreement contains customary representations, warranties, conditions and indemnification obligations of the parties.
The Company must
obtain stockholder approval to issue an aggregate number of shares of common stock to the Investor, under the ELOC Purchase Agreement,
in excess of
In connection with the ELOC Purchase Agreement, the Company also entered a registration rights agreement with the Investor on February 4, 2026 (the “Registration Rights Agreement”). Under the Registration Rights Agreement, the Company is obligated to file with the SEC a registration statement for the resale by the Investor of a specified number of shares of the Company’s Common Stock issuable according to the ELOC Purchase Agreement. The Company agreed to file such registration statement within forty-five (45) days of the execution of the ELOC Purchase Agreement, and to file one or more additional registration statements if necessary.
Unless earlier terminated as provided in the ELOC Purchase Agreement, the ELOC Purchase Agreement will terminate automatically on the earliest to occur of: (i) twenty-four (24) months after the execution of the ELOC Purchase Agreement, (ii) the date on which the Investor shall have purchased the maximum amount of ELOC Shares issuable under the ELOC Purchase Agreement, or (iii) the effective date of any written notice of termination delivered pursuant to the terms of the ELOC Purchase Agreement.
25
Pursuant to the ELOC Purchase Agreement, as long as the ELOC Purchase Agreement is effective, the Company agreed not, without the prior written consent of the Investor, to enter into an agreement whereby the Company has the right to “put” its securities to an investor or underwriter over an agreed period of time and at an agreed price or price formula. Additionally, the Company agreed, without the prior written consent of the Investor, not to (i) issue or sell any debt or equity securities that are convertible into, exchangeable or exercisable for, or include the right to receive, additional shares of Common Stock (a) at a conversion price, exercise price or exchange rate or other price that is based upon, and/or varies with, the trading prices of or quotations for the shares of Common Stock at any time after the initial issuance of such debt or equity securities or (b) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of such debt or equity security or upon the occurrence of specified or contingent events directly or indirectly related to the business of the Company or the market for the Common Stock or (ii) issues securities at a future determined price (a “Variable Rate Transaction”), provided, however, that an Equity Line of Credit shall not be deemed to be a Variable Rate Transaction.
In connection with the
ELOC Purchase Agreement, the Company has reserved
The ELOC Purchase Agreement and Warrant were executed prior to the Company’s 1-for-25 reverse stock split effected on February 9, 2026. All share numbers and per-share prices in this Current Report have been adjusted to reflect the reverse stock split. Under the terms of the Warrant, the exercise price and number of shares issuable upon exercise automatically adjusted upon the reverse stock split.
Loan Agreement
On February 4, 2026, the Company entered into a business loan and security agreement (the “Loan Agreement”) with an effective date of February 3, 2026 (the “Effective Date”) by and among, Agile Capital Funding, LLC, Agile Lending , LLC, a Virginia limited liability company, each an existing lender to the Company and each assignee that becomes a party pursuant to Section 12.1 of the Loan Agreement (the “Lenders”), the Company and urban-gro Canada Technologies Inc., a wholly owned subsidiary of the Company (individually, collectively, jointly and severally, the “Guarantors”). The Company expects to use the proceeds for general working capital purposes, with a primary focus on vendor payments related to the Company’s efforts to comply with Nasdaq requirements.
Pursuant to the Loan Agreement, the Lenders extended to the Company
a term loan of $
The term loan is evidenced by a confessed judgment 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.
Other Stock Transactions
Subsequent to September 30, 2025,
26
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 “CAUTIONARY INFORMATION REGARDING FORWARD-LOOKING STATEMENTS” on page ii of this Report. When applicable, all share and per share amounts presented herein have been restated to reflect the implementation of the 1-for-25 reverse stock split as if it had occurred at the beginning of the earliest period presented.
OVERVIEW AND HISTORY
In 2025, urban-gro, Inc. was an integrated professional services and design-build firm. 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 engineered, designed and managed the construction of indoor CEA facilities and then integrate complex environmental equipment systems into those facilities. Through this work, we 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 provided a single point of accountability across all aspects of indoor growing operations. 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 served a broad range of commercial and governmental entities, providing them with planning, consulting, architectural, engineering and construction design-build services for their facilities. We aimed to 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 advisor to our clients and 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 September 30, 2025 and 2024
During the three months ended September 30, 2025, we generated revenues of $2.3 million compared to revenues of $7.98 million during the three months ended September 30, 2024, a decrease of $5.6 million, or approximately 70%. This decrease in revenues is the result of the following changes in individual revenue components:
| ● | Equipment systems revenue decreased $2.85 million. |
| ● | Construction design-build revenue decreased $2.7 million due to decreases in our construction design-build revenue contracts, and partially offset by: |
| ● | Other revenues increased $0.03 million. |
During the three months ended September 30, 2025, cost of revenues was $2.5 million compared to $7.3 million during the three months ended September 30, 2024, a decrease of $4.7 million, or approximately 65%. Gross loss was $0.17 million (approximately -7% of revenues) during the three months ended September 30, 2025, compared to gross income of $0.69 million (approximately 8.71% of revenue) during the three months ended September 30, 2024. This decrease in gross profit as a percentage of revenues, was primarily due to the 70% decrease in total revenues, compared to a lesser 65% decrease in total cost of revenues.
Operating expenses decreased by $1.8 million, or approximately 47%, to $2.1 million for the three months ended September 30, 2025, compared to $3.9 million for the three months ended September 30, 2024. This overall decrease in operating expenses was the result of a $1.6 million decrease in general and administrative operating expenses due to decreases in stock based expenses and a $0.2 million decrease in depreciation and amortization.
Non-operating expense increased for the three months ended September 30, 2025, compared to the three months ended September 30, 2024, primarily due to the loss recognized on the foreclosure of the Construction assets.
Net income (loss) from discontinued operations was $0.18 million and ($0.30 million), related to disposal of entities, during the three months ended September 30, 2025 and 2024, respectively.
27
Comparison of Results of Operations for the nine months ended September 30, 2025 and 2024
During the nine months ended September 30, 2025, we generated revenues of $16.9 million compared to revenues of $35.8 million during the nine months ended September 30, 2024, a decrease of $18.9 million, or approximately 53%. This decrease in revenues is the result of the following changes in individual revenue components:
| ● | Equipment systems revenue decreased $0.9 million. |
| ● | Construction design-build revenue decreased $17.8 million due to decreases in our construction design-build revenue contracts, and: |
| ● | Other revenues decreased $0.1 million. |
During the nine months ended September 30, 2025, cost of revenues was $17.1 million compared to $32.2 million during the nine months ended September 30, 2024, a decrease of $15.1 million, or approximately 47%. Gross profit (loss) was ($0.15) million (approximately -1% of revenues) during the nine months ended September 30, 2025, compared to $3.6 million (approximately 10.1% of revenue) during the nine months ended September 30, 2024. This decrease in gross profit as a percentage of revenues was primarily due to the 53% decrease in total revenues, compared to a lesser 47% decrease in total cost of revenues.
Operating expenses decreased by $1.1 million, or approximately 9%, to $11.5 million for the nine months ended September 30, 2025, compared to $12.6 million for the nine months ended September 30, 2024. This overall decrease in operating expenses was the result of a $0.5 million decrease in general and administrative operating expenses due to decreases in bad debt charges and a $0.6 million decrease in depreciation and amortization.
Non-operating expense increased for the nine months ended September 30, 2025, compared to nine three months ended September 30, 2024, primarily due to the loss recognized on the foreclosure of the Construction assets.
Net (loss) income from discontinued operations was ($0.4 million) and $0.4 million related to disposal of entities during the nine months ended September 30, 2025 and 2024, respectively
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2025, we had negative working capital of $39.7 million compared to negative working capital of $26.5 million as of December 31, 2024, a decrease of $13.2 million. This decrease in working capital was primarily due to a decrease in accounts receivable of $5.8 million, as well as increases in accounts payable and customer deposits of $4.1 million.
As of September 30, 2025, we had cash of $0.06 million, which represented a decrease of $0.8 million from December 31, 2024 due to the following changes during the nine months ended September 30, 2025:
| ● | Net cash provided by operating activities was $0.4 million. This source of cash is the net effect of the net loss of $14.6 million, offset by non-cash expenses of $3.6 million, and an increase in net operating assets and liabilities of $10.4 million, offset by net cash provided by operating activities of discontinued operations of $1.2 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; |
| ● | Net cash provided by investing activities was $2.0 million. We have no material commitments for capital expenditures as of September 30, 2025. Net cash provided by investing activities was primarily from discontinued operations. |
| ● | Net cash used in financing activities was $3.2 million. Cash used from financing activities primarily relates to payments made on the Line of Credit and other financing agreements. |
28
CRITICAL ACCOUNTING ESTIMATES
Critical Accounting Estimates
The Company’s Unaudited Condensed Consolidated Financial Statements are prepared in conformity with U.S. GAAP. In preparing the Company’s Unaudited Condensed Consolidated Financial Statements, management makes assumptions, judgments and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results could differ materially from these estimates under different assumptions or conditions. We regularly reevaluate our assumptions, judgments and estimates. The Company’s significant accounting policies are described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024.
Critical accounting estimates (“CAE”) are those estimates that involve a significant level of estimation uncertainty and could have a material impact on our financial condition or results of operations.
There have been no material changes in CAE in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024.
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).
These controls are designed to ensure that information required to be disclosed in the reports we file or submit pursuant to the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management, including our CEO and CFO to allow timely decisions regarding required disclosure.
Based on such evaluation, our CEO and CFO concluded, that our disclosure controls and procedures were not effective as of September 30, 2025 because of the material weaknesses resulting from lack of a formalized internal control framework in accordance with COSO, as described in Item 9A of our Annual Report on Form 10-K as of December 31, 2024.
In light of these material weaknesses, management performed additional analyses, reconciliations, and other post-closing procedures to determine that the Company’s unaudited condensed consolidated financial statements are prepared in accordance with U.S. GAAP. Based on this review, management concluded that the unaudited condensed consolidated financial statements included in this report fairly present in all material respects the Company’s financial condition, results of operations and cash flows for the periods presented.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the three months ended September 30, 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 September 30, 2025, we are in the process of designing and implementing remediation plans and taking steps to address the root cause of the material weaknesses as described in Annual Report on Form 10-K as of December 31, 2024. There have been no changes to the remediation plan that was disclosed in Annual Report on Form 10-K as of December 31, 2024.
29
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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, or 6,000 shares after giving effect to a 1-for-25 reverse stock split.
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.
30
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 agreed to issue 150,000 unregistered shares of our common stock, or 6,000 shares after giving effect to a 1-for-25 reverse stock split, 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.
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.
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.
31
ITEM 1A. RISK FACTORS
As of the date of this Quarterly Report on Form 10-Q, there have been no additional material changes to the risk factors disclosed in our annual report on Form 10-K for the fiscal year ended December 31, 2024. We may disclose changes to such risk factors or disclose additional risk factors from time to time in our future filings with the SEC.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Unregistered Shares Issued in Connection with Acquisitions
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
ITEM 6. EXHIBITS
| Exhibit No. | Exhibit Description | |
| 31.1 | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 31.2 | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 32.1 | Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 101.INS | Inline XBRL Instance Document | |
| 101.SCH | Inline XBRL Schema Document | |
| 101.CAL | Inline XBRL Calculation Linkbase Document | |
| 101.DEF | Inline XBRL Definition Linkbase Document | |
| 101.LAB | Inline XBRL Label Linkbase Document | |
| 101.PRE | Inline XBRL Presentation Linkbase Document | |
| 104 | Cover Page Interactive Data File (Embedded within the Inline XBRL document) | |
| 104 | Cover Page Interactive Data File (Embedded within the Inline XBRL |
32
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 17, 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) | ||
33