Financial Performance - Revenues for the year ended December 31, 2024, were $40.0 million, a decrease of $29.9 million, or 43%, compared to $69.9 million in 2023[179]. - Gross profit was $2.9 million (7% of revenue) in 2024, compared to $9.9 million (14% of revenue) in 2023, reflecting reduced margins due to losses on certain jobs[182]. - The net loss for the year ended December 31, 2024, was $36.5 million, or a net loss per share of $2.98, compared to a net loss of $25.4 million, or $2.34 per share in 2023[185]. Cost Management - Cost of revenues decreased to $37.1 million in 2024, down $22.9 million, or 38%, from $60.0 million in 2023[181]. - Operating expenses increased by $5.2 million, or 16%, to $38.4 million in 2024, primarily due to a $5.0 million increase in impairment of goodwill and intangibles[183]. Working Capital and Cash Flow - Negative working capital increased to $26.5 million as of December 31, 2024, from negative working capital of $5.1 million in 2023, an increase of $21.4 million[186]. - Cash decreased to $0.8 million as of December 31, 2024, down $0.3 million from $1.1 million in 2023[187]. - Net cash used in operating activities was $2.8 million in 2024, compared to $10.5 million in 2023[190][191]. - Net cash provided by financing activities was $2.7 million in 2024, primarily from additions to notes payable of $8.1 million[194]. - The company entered into a $10.0 million revolving loan agreement to assist with cash management, with $4.4 million borrowed under this line of credit as of December 31, 2024[188].

Adams District CourtSmyrna Ready Mix Concrete LLC dba SRM Concrete v. JE & RO Concrete LLC; Rosalio Mayo Felix; Gumja N. Shadan; Ze Se NhkumMechanic’s lien foreclosure at 21268 E. 63rd Ave. in Aurora due to $1,961 in unpaid concrete.Attorneys: Michael J. Decker and Eric M. Lee, Murphy & Decker P.C.Filed: 12/16/202525cv32042LMREC IV Note Holder Inc. v. 6980 Stuart St. LLCThe plaintiff says it lent $16,300,000 to the defendant and has not been repaid. It seeks to foreclose on The Atrium Apartments, 6980 Stuar ...

Company Performance - MillerKnoll Inc reported quarterly adjusted earnings of 43 cents per share, exceeding the analyst estimate of 41 cents [1] - Quarterly sales reached $955.2 million, surpassing the Street estimate of $943.13 million [1] - The company's shares rose 8.8% to $19.07 in pre-market trading following the earnings report [2] Market Reactions - Other stocks also experienced significant movements in pre-market trading, with Sable Offshore Corp surging 44.5% to $7.63 after federal confirmation of interstate pipeline classification [5] - Micron Technology Inc gained 9.4% to $247.20 after reporting better-than-expected earnings for the first quarter of fiscal 2026 [5] - Conversely, Mega Fortune Co Ltd fell 53.5% to $6.07 after a previous jump of 144% [5]

Company Overview - urban-gro is an early-stage A/E/C (Architecture, Engineering, and Construction Management) company with over 1000 projects completed[9] - The company offers complete Design-Build and à la carte platform capabilities[9] - urban-gro serves multiple sectors including Controlled Environment Agriculture ("CEA"), Light Industrial, Healthcare, and more[9] - The company has four U S offices and one European office[8] Financial Performance - The company is focused on achieving positive Adjusted EBITDA[9, 39] - In FY 2021, CEA revenue was $21.6 million, representing 51% of total revenue[38] - In FY 2022, CEA revenue increased to $44 million, accounting for 96 8% of total revenue[38] - In FY 2023, CEA revenue was $21 4 million, representing 30% of total revenue[38] - For FY 2024 YTD, CEA revenue is $23 million, accounting for 64 5% of total revenue, while Non-CEA revenue is $12 1 million, accounting for 34 3% of total revenue[38] Strategic Focus - The company is focused on brand alignment and unification through corporate sector rebranding[9, 39] - The company sees opportunities in the CEA sector with potential rescheduling of Cannabis and passage of the SAFER Banking Bill[39]

Core Viewpoint - urban-gro, Inc. has appointed Sadler, Gibb & Associates LLC as its independent registered public accounting firm following a thorough evaluation process approved by the Board of Directors and the Audit Committee [1] Company Overview - urban-gro, Inc. is an integrated professional services and Design-Build firm that provides architectural, engineering, and construction management solutions primarily for the Controlled Environment Agriculture (CEA) sector, as well as industrial, healthcare, and other commercial sectors [2] - The company emphasizes innovation, collaboration, and creativity to enhance customer experiences and operates offices across North America and Europe [2]

Core Points - urban-gro, Inc. has appointed Sadler, Gibb & Associates LLC as its independent registered public accounting firm following a thorough evaluation process approved by the Board of Directors and Audit Committee [1] Company Overview - urban-gro, Inc. is an integrated professional services and Design-Build firm that provides architectural, engineering, and construction management solutions primarily for the Controlled Environment Agriculture (CEA) sector, as well as industrial, healthcare, and other commercial sectors [2] - The company emphasizes innovation, collaboration, and creativity to enhance customer experiences and operates offices across North America and Europe [2]

Financial Data and Key Metrics Changes - The company reported revenue of $15.5 million for Q1 2024, representing a sequential improvement of 4% from $15.0 million in Q4 2023, but a 7% decrease from $16.8 million in Q1 2023 [45] - The net loss was $2.1 million, or a negative $0.18 per diluted share, compared to a net loss of $5.1 million, or a negative $0.48 per diluted share in the prior year period [46] - Adjusted EBITDA improved by $2.7 million sequentially to a loss of $0.3 million in Q1 2024, marking a $3.1 million improvement compared to the prior year period [46] Business Line Data and Key Metrics Changes - Equipment Systems revenue decreased by $0.4 million, and services revenue decreased by $0.3 million, reflecting the downturn in the cannabis industry [27] - Gross profit was $3.1 million, or 20% of revenue, in Q1 2024, compared to 11% in Q4 2023 and 17% in the prior year period, driven by improved margins in services and construction design-build revenues [27] Market Data and Key Metrics Changes - Approximately 72% of revenues in Q1 2024 came from commercial sectors, while 28% came from Controlled Environment Agriculture (CEA) [24] - The company’s backlog as of March 31, 2024, was approximately $99 million, reflecting a sequential decrease of 10% [28] Company Strategy and Development Direction - The company is focused on diversifying revenue streams and reducing operating expenses, which has led to positive cash flow from operations and the strongest quarterly adjusted EBITDA results in two years [8][9] - The successful rescheduling of cannabis is seen as a significant catalyst for the industry, potentially leading to increased working capital for operators to reinvest in their businesses [22] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism about the future, indicating that they believe they have turned a corner and are well-positioned to build momentum through the end of the year [33][44] - The company is maintaining its revenue guidance of more than $84 million for 2024, which does not account for recent regulatory developments [42] Other Important Information - Operating expenses were $5.2 million in Q1 2024, a decrease of $1.2 million sequentially and $2.7 million year-over-year, attributed to expense optimization initiatives [13] - The company ended the quarter with $0.7 million in cash and a $2.0 million balance on its line of credit, indicating a stable cash position [28] Q&A Session Summary Question: Are operators engaging more in services due to the potential vote in Florida? - Management noted that there is cautious optimism and increased engagement from operators in Florida, with preparations underway for potential facility build-outs [30][31] Question: Can you provide more cadence on the remaining of 2024? - Management remains cautiously optimistic and believes they have turned a corner, with a strong backlog and reduced break-even levels [33] Question: What is the typical timing for projects in the cannabis industry? - Project timelines can range from nine months to two years, depending on size and location, with proactive involvement potentially shortening these timelines [39] Question: What percentage of the $99 million backlog is cannabis-related? - 76% of the backlog is related to Controlled Environment Agriculture (CEA), while 24% is from commercial sectors [68] Question: How does the rescheduling of cannabis impact future business? - The removal of the 280E tax burden is expected to significantly benefit cannabis operators, leading to increased reinvestment in their businesses [71][72]

[PART I. FINANCIAL INFORMATION](index=5&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section provides the unaudited financial statements and management's analysis for the first quarter of 2024 [Financial Statements (Unaudited)](index=5&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) The company reported a reduced net loss of $2.1 million in Q1 2024, driven by improved gross margin and lower operating expenses despite a 7% revenue decline [Unaudited Condensed Consolidated Balance Sheets](index=5&type=section&id=Unaudited%20Condensed%20Consolidated%20Balance%20Sheets) Total assets decreased to $56.1 million and liabilities to $37.5 million as of March 31, 2024, primarily due to changes in accounts receivable and contract liabilities Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | **Total Current Assets** | $33,229 | $40,952 | | **Total Assets** | $56,130 | $64,379 | | **Total Current Liabilities** | $35,483 | $42,111 | | **Total Liabilities** | $37,545 | $44,308 | | **Total Stockholders' Equity** | $18,586 | $20,071 | [Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss](index=6&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Loss) Q1 2024 revenues decreased 7% to $15.5 million, but improved gross margin and reduced operating expenses led to a net loss of $2.1 million, down from $5.1 million Q1 2024 vs Q1 2023 Statement of Operations (in thousands) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | **Total Revenues** | $15,543 | $16,765 | | **Gross Profit** | $3,116 | $2,842 | | *Gross Margin* | *20.0%* | *17.0%* | | **Loss from Operations** | $(2,064) | $(5,047) | | **Net Loss** | $(2,142) | $(5,145) | | **Net Loss per Share** | $(0.18) | $(0.48) | [Unaudited Condensed Consolidated Statements of Stockholders' Equity](index=7&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) Stockholders' equity decreased to $18.6 million as of March 31, 2024, primarily due to the net loss, partially offset by stock-based compensation - The change in stockholders' equity during Q1 2024 was primarily driven by a **net loss of $2.14 million** and **stock-based compensation of $0.66 million**[18](index=18&type=chunk) [Unaudited Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Operating cash flow turned positive at $0.3 million in Q1 2024, a significant improvement from a $4.3 million use of cash in the prior year Q1 2024 vs Q1 2023 Cash Flow Summary (in thousands) | Cash Flow Activity | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | **Net cash provided by (used in) operating activities** | $329 | $(4,273) | | **Net cash provided by (used in) investing activities** | $8 | $(134) | | **Net cash used in financing activities** | $(758) | $(274) | | **Net change in cash** | $(420) | $(4,681) | | **Cash at end of period** | $693 | $7,327 | [Notes to Unaudited Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) Notes detail accounting policies, revenue recognition, debt facilities, and significant customer concentration, with the Commercial sector contributing 72% of Q1 2024 revenue - The company operates as an integrated professional services and design-build firm in the **Controlled Environment Agriculture (CEA)** and other commercial sectors[20](index=20&type=chunk) - In Q1 2024, the **Commercial sector contributed 72% ($11.1 million)** of total revenue, with the **CEA sector contributing 28% ($4.4 million)**[35](index=35&type=chunk) - One customer accounted for **42% of total revenues** for the three months ended March 31, 2024[69](index=69&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=26&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes the 7% revenue decline to CEA market conditions, while improved gross margin and a 34% reduction in operating expenses significantly narrowed the net loss, with backlog decreasing to $99 million Q1 2024 vs Q1 2023 Key Metrics | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Revenues | $15.5 million | $16.8 million | | Gross Profit | $3.1 million | $2.8 million | | Gross Margin | 20% | 17% | | Operating Expenses | $5.2 million | $7.9 million | | Net Loss | $2.1 million | $5.1 million | - The decrease in operating expenses was primarily due to a **$2.8 million reduction in general and administrative costs**, including the elimination of an incentive retention plan[89](index=89&type=chunk) - Total backlog was **$99 million** as of March 31, 2024, a decrease from **$110 million** at year-end 2023, with construction design-build projects comprising **94%**[95](index=95&type=chunk)[96](index=96&type=chunk) - As of March 31, 2024, the company had **negative working capital of $2.3 million** and had drawn **$2.0 million** from its **$10.0 million line of credit**[100](index=100&type=chunk)[101](index=101&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=30&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a smaller reporting company, the registrant is not required to provide quantitative and qualitative disclosures about market risk - As a smaller reporting company, the registrant is not required to provide information for this item[105](index=105&type=chunk) [Controls and Procedures](index=30&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of March 31, 2024, with no material changes in internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were **effective** as of March 31, 2024[108](index=108&type=chunk) - No material changes in internal control over financial reporting occurred during the quarter[110](index=110&type=chunk) [PART II. OTHER INFORMATION](index=31&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section provides updates on legal proceedings, risk factors, equity sales, and other miscellaneous information [Legal Proceedings](index=31&type=section&id=Item%201.%20Legal%20Proceedings) No new material legal proceedings were initiated or terminated, nor were there material developments in ongoing proceedings during Q1 2024 - No new material legal proceedings were initiated or terminated during the period, and there were no material developments in ongoing proceedings[113](index=113&type=chunk) [Risk Factors](index=31&type=section&id=Item%201A.%20Risk%20Factors) No material changes to risk factors were reported from those disclosed in the Annual Report on Form 10-K for fiscal year 2023 - There have been no material changes from the risk factors previously disclosed in the Annual Report on Form 10-K for the fiscal year ended December 31, 2023[114](index=114&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=31&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company did not repurchase any of its equity securities during the first quarter of 2024 - The company did not repurchase any of its equity securities during the period covered by the report[116](index=116&type=chunk) [Defaults Upon Senior Securities](index=31&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) No defaults upon senior securities were reported - None[117](index=117&type=chunk) [Mine Safety Disclosures](index=31&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company's operations - Not Applicable[118](index=118&type=chunk) [Other Information](index=31&type=section&id=Item%205.%20Other%20Information) No other material information was reported - None[119](index=119&type=chunk) [Exhibits](index=32&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including CEO and CFO certifications and Inline XBRL documents - Exhibits filed include **CEO and CFO certifications** under Sarbanes-Oxley Sections 302 and 906, and various **Inline XBRL documents**[121](index=121&type=chunk)

[Management Commentary and Strategic Outlook](index=1&type=section&id=Management%20Commentary%20and%20Strategic%20Outlook) Management emphasizes successful diversification, significant Q1 bottom-line improvement from cost reductions, and anticipates cannabis reclassification as a major industry catalyst - The company's diversification strategy is leveraging its professional services talent to evolve into a multi-sector focused firm[3](index=3&type=chunk) - Q1 performance showed solid bottom-line improvement on both a sequential and year-over-year basis, aided by reductions in operating expenses[3](index=3&type=chunk) - The potential reclassification of cannabis from Schedule I to Schedule III is anticipated to be a significant industry catalyst, expected to increase operator working capital for reinvestment in facilities[3](index=3&type=chunk) [First Quarter 2024 Financial Performance](index=1&type=section&id=First%20Quarter%202024%20Financial%20Performance) Q1 2024 saw revenue of **$15.5 million**, improved gross margin to **20%**, and significantly reduced net loss and Adjusted EBITDA loss, reflecting strong cost control Q1 2024 Key Financial Metrics | Metric | Q1 2024 | Q4 2023 | Q1 2023 | YoY Change (%) | QoQ Change (%) | | :--- | :--- | :--- | :--- | :--- | :--- | | Revenue (in millions) | $15.5 | $15.0 | $16.7 | -7 | +4 | | Gross Profit (in millions) | $3.1 | $1.7 | $2.8 | +10.7 | +82.4 | | Gross Margin (%) | 20 | 11 | 17 | +300 bps | +900 bps | | Net Loss (in millions) | ($2.1) | ($4.7) | ($5.1) | +58 | +55 | | Adjusted EBITDA (in millions) | ($0.3) | ($3.0) | ($3.4) | +91 | +90 | | GAAP Net Loss per Share | ($0.18) | ($0.40) | ($0.48) | +62.5 | +55 | - General and Administrative (G&A) expenses were significantly reduced to **$4.3 million**, a decrease of **$2.8 million** year-over-year and **$1.2 million** sequentially[6](index=6&type=chunk)[8](index=8&type=chunk) - The improvement in Adjusted EBITDA was primarily driven by the company's previously announced **$8 million** G&A expense optimization and resource reallocation initiative[10](index=10&type=chunk) - Cash stood at **$0.7 million** at quarter-end, down from **$1.1 million** in the prior quarter. The balance on the lending facility was reduced by **$0.5 million** to **$2.0 million**[10](index=10&type=chunk) [Backlog as of March 31, 2024](index=3&type=section&id=Backlog%20as%20of%20March%2031%2C%202024) As of March 31, 2024, total project backlog reached approximately **$99 million**, with **94%** attributed to construction design-build projects Backlog by Revenue Category (as of March 31, 2024) | Revenue Category | Amount (in millions) | Percentage of Total (%) | | :--- | :--- | :--- | | Construction design-build | $93 | 94 | | Professional services | $5 | 5 | | Equipment systems | $1 | 1 | | **Total backlog** | **$99** | **100** | [Full Year 2024 Guidance](index=3&type=section&id=Revenue%20and%20Adjusted%20EBITDA%20Guidance%20-%202024) The company reaffirms its full-year 2024 guidance, projecting consolidated revenues exceeding **$84 million** and positive Adjusted EBITDA - The company reaffirms its guidance for fiscal year 2024, projecting consolidated revenues of more than **$84 million** and the achievement of positive Adjusted EBITDA[12](index=12&type=chunk) [Financial Statements](index=7&type=section&id=Financial%20Statements) This section presents unaudited condensed consolidated financial statements, including balance sheets, statements of operations, and reconciliations of GAAP to non-GAAP measures [Condensed Consolidated Balance Sheets](index=7&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of March 31, 2024, the balance sheet reports total assets of **$56.1 million**, total liabilities of **$37.5 million**, and total stockholders' equity of **$18.6 million** Condensed Consolidated Balance Sheets (unaudited) | (in thousands) | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | **Total current assets** | $33,229 | $40,952 | | **Total assets** | **$56,130** | **$64,379** | | **Total current liabilities** | $35,483 | $42,111 | | **Total liabilities** | **$37,545** | **$44,308** | | **Total stockholders' equity** | **$18,586** | **$20,071** | [Condensed Consolidated Statements of Operations](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) For Q1 2024, the company reported **$15.5 million** in revenue and a net loss of **$2.1 million**, or **($0.18)** per share, a significant improvement year-over-year Condensed Consolidated Statements of Operations (unaudited, for three months ended March 31) | (in thousands) | 2024 | 2023 | | :--- | :--- | :--- | | Total revenues | $15,543 | $16,765 | | Gross profit | $3,116 | $2,842 | | Total operating expenses | $5,180 | $7,889 | | Loss from operations | ($2,064) | ($5,047) | | **Net loss** | **($2,142)** | **($5,145)** | | **Net loss per share** | **($0.18)** | **($0.48)** | [Reconciliation of GAAP to Non-GAAP Measures](index=9&type=section&id=Reconciliation%20of%20GAAP%20to%20Non-GAAP%20Measures) This section reconciles GAAP Net Loss to non-GAAP Adjusted EBITDA and Adjusted Net Loss, showing Q1 2024 Adjusted EBITDA of **($0.3 million)** and Adjusted Net Loss of **($1.5 million)** Net Loss (GAAP) to Adjusted EBITDA (Non-GAAP) Reconciliation | (in thousands) | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | **Net loss (GAAP)** | **($2,141.5)** | **($5,144.6)** | | Depreciation and amortization | $434.6 | $404.1 | | Stock-based compensation | $656.6 | $479.6 | | Reduction in force costs | $443.8 | $0.0 | | Other adjustments | $238.4 | $458.3 | | **Adjusted EBITDA (non-GAAP)** | **($294.3)** | **($3,394.2)** | Net Loss (GAAP) to Adjusted Net Loss (Non-GAAP) Reconciliation | (in thousands, except per share data) | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | **Net loss (GAAP)** | **($2,141.5)** | **($5,144.6)** | | Non-recurring adjustments, net of taxes | $682.2 | $908.3 | | **Adjusted net loss (non-GAAP)** | **($1,459.3)** | **($4,236.3)** | | **Adjusted net loss per share (non-GAAP)** | **($0.12)** | **($0.39)** | [Use of Non-GAAP Financial Information](index=5&type=section&id=Use%20of%20Non-GAAP%20Financial%20Information) The company utilizes non-GAAP measures like Adjusted EBITDA and Adjusted Net Loss to provide a clearer view of core operating performance by excluding non-recurring or non-cash expenses - Adjusted EBITDA is defined as GAAP net income (loss) excluding interest, taxes, depreciation, amortization, stock-based compensation, and other one-time or non-recurring expenses[15](index=15&type=chunk) - Management and the board of directors use Adjusted EBITDA as a key performance and compensation measure to compare performance across reporting periods by removing items not reflective of core operations[15](index=15&type=chunk) - The company acknowledges that non-GAAP measures have limitations and may be defined differently by other companies, potentially making direct comparisons difficult[18](index=18&type=chunk)

Part I [Business](index=4&type=section&id=Item%201.%20Business) urban-gro, Inc. is an integrated professional services and design-build firm specializing in Controlled Environment Agriculture (CEA) and Commercial sectors, offering turnkey solutions and diversifying beyond cannabis CEA - The company operates as an integrated professional services and construction design-build firm, offering solutions to Controlled Environment Agriculture (CEA) and other Commercial sectors[15](index=15&type=chunk) - As of December 31, 2023, the company employed **130 full-time employees**, a **14% decrease** from the previous year, with approximately two-thirds considered experts in their fields[18](index=18&type=chunk)[85](index=85&type=chunk) Announced Contracts (Since Jan 1, 2023) | Announcement Date | Value | Sector | Expected Recognition Period | | :--- | :--- | :--- | :--- | | Sep 26, 2023 | > $11.0M | Hospitality & Recreation | Extended into 2025 (originally 6 quarters) | | Oct 2, 2023 | ~$8.0M | CEA | Extended into Q1 2025 (originally 4 quarters) | | Oct 4, 2023 | > $4.5M | N/A | Next 2 quarters (on track) | | Nov 30, 2023 | $11.0M (increased from $9.6M) | Industrial CPG | Extended by one quarter (originally 3 quarters) | | Jan 2, 2024 | ~$20.0M | Cannabis CEA | Next 6 quarters (on track) | Targeted Gross Profit Margins by Revenue Category | Revenue Category | Targeted Gross Profit Margin | | :--- | :--- | | Professional services | > 40% | | Construction design-build services | > 6% | | Customized equipment systems | > 10% | | Other products revenues | > 15% | [Growth Strategy](index=17&type=section&id=Growth%20Strategy) The company's growth strategy focuses on leveraging diversified capabilities, pursuing larger turnkey projects, and expanding its regional client base, especially in the European CEA market - The growth strategy is based on three main pillars: leveraging sector diversification and in-house capabilities, focusing on comprehensive design-build solutions, and expanding the regional client base with a specific focus on Europe[59](index=59&type=chunk)[64](index=64&type=chunk) [Regulation](index=18&type=section&id=Regulation) Serving the cannabis-focused CEA segment exposes the company to significant regulatory risks due to federal prohibition of THC, potentially harming business operations and client relationships - While not selling cannabis, the company serves clients in the industry, facing financial damage risk from federal enforcement due to THC's Schedule I controlled substance status[71](index=71&type=chunk)[72](index=72&type=chunk) - The Rohrabacher-Farr amendment, preventing DOJ interference with state medical cannabis laws since 2014, requires annual re-authorization which is not guaranteed[76](index=76&type=chunk) [Human Capital](index=23&type=section&id=Human%20Capital) As of December 31, 2023, urban-gro had 130 full-time employees, a 14% decrease from 2022, with its experienced workforce considered a key competitive advantage Quarterly Headcount Changes (2022-2023) | Quarter | 2023 Ending Headcount | 2022 Ending Headcount | | :--- | :--- | :--- | | Q1 | 165 | 98 | | Q2 | 137 | 121 | | Q3 | 131 | 115 | | Q4 | 130 | 152 | [Risk Factors](index=23&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant operational risks including historical net losses, negative cash flow, client concentration, and the federal illegality of cannabis, alongside stock-related risks like price volatility Historical Operating Performance | Year Ended Dec 31 | Revenue | Net Loss | | :--- | :--- | :--- | | 2023 | $71.5M | $18.7M | | 2022 | $67.0M | $15.3M | | 2021 | $62.1M | $0.9M | | 2020 | $25.8M | $5.1M | - The company experienced negative cash flow from operations of **$11.2 million** in FY2023 and **$12.6 million** in FY2022[91](index=91&type=chunk) - Significant client concentration risk exists, with **two clients accounting for 43% of total revenue in 2023** and **three clients representing 40% in 2022**[100](index=100&type=chunk) - The majority of historical revenues have been generated from clients in the legal cannabis industry, which is subject to significant regulatory risk due to federal prohibition[107](index=107&type=chunk)[108](index=108&type=chunk) [Cybersecurity](index=43&type=section&id=Item%201C.%20Cybersecurity) The company manages cybersecurity risks through employee training, cloud-based systems, NIST framework adherence, and board oversight, having enhanced security measures like MFA after a 2019 wire fraud incident - The company has implemented security measures including employee training, a fully cloud-based environment, and adherence to the NIST Cybersecurity Framework 2.0[165](index=165&type=chunk)[168](index=168&type=chunk) - In 2019, the company was a victim of a wire fraud scheme, which prompted the implementation of multi-factor authentication (MFA) across all systems[171](index=171&type=chunk) [Legal Proceedings](index=45&type=section&id=Item%203.%20Legal%20Proceedings) The company is involved in several material legal disputes, including a $1.3 million breach of contract claim against Great Green Theory, and recently settled cases with Crest Ventures for $1.5 million and Sunflower Bank for $2.4 million - Settled a lawsuit with Crest Ventures, LLC for **$1.5 million** in Q2 2023, paid in September 2023[174](index=174&type=chunk) - Settled a lawsuit against Sunflower Bank related to fraudulent wire transfers, receiving **$2.4 million** in settlement proceeds on March 27, 2023[174](index=174&type=chunk) - A subsidiary is involved in a lawsuit with Great Green Theory over an unpaid amount of approximately **$1.3 million**, with counterclaims for **$1.0 million** in liquidated damages[173](index=173&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=48&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock trades on Nasdaq under 'UGRO', has 89 record holders, does not pay dividends, and has **$1.4 million** remaining on its **$10.5 million** stock repurchase program - The company has not paid any dividends since inception and does not anticipate paying any in the foreseeable future[180](index=180&type=chunk) - The Board has authorized a stock repurchase program of up to **$10.5 million**, with **$9.1 million** repurchased and **$1.4 million** remaining as of December 31, 2023[185](index=185&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=50&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) FY2023 revenues increased 7% to **$71.5 million**, but a shift to lower-margin construction work reduced gross margin to **14%** and increased net loss to **$18.7 million**, while cash decreased to **$1.1 million** despite a new **$10 million** line of credit Comparison of Operations (FY 2023 vs. FY 2022) | Metric | 2023 | 2022 | Change | | :--- | :--- | :--- | :--- | | Total Revenues | $71.5M | $67.0M | +7% | | Gross Profit | $10.3M | $14.2M | -27% | | Gross Margin | 14% | 21% | -7 p.p. | | Net Loss | ($18.7M) | ($15.3M) | +22% | | Adjusted EBITDA | ($9.7M) | ($3.9M) | +149% | Backlog Comparison (in millions) | Category | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Equipment systems | $1M | $5M | | Services | $7M | $6M | | Construction design-build | $102M | $82M | | **Total backlog** | **$110M** | **$93M** | - As of December 31, 2023, the company had cash of **$1.1 million**, a decrease of **$10.9 million** from year-end 2022, with working capital turning negative to **($1.2) million** from **$10.3 million**[204](index=204&type=chunk)[205](index=205&type=chunk) - In December 2023, a subsidiary entered into a **$10.0 million** asset-based revolving line of credit to manage cash flow, borrowing **$2.5 million** by year-end[206](index=206&type=chunk) [Controls and Procedures](index=57&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2023, with no public accounting firm attestation due to its emerging growth company status - Based on their evaluation, the CEO and CFO concluded that the company's disclosure controls and procedures were effective as of December 31, 2023[224](index=224&type=chunk) - Management assessed the effectiveness of internal control over financial reporting using the COSO framework (2013) and concluded it was effective as of December 31, 2023[230](index=230&type=chunk) Part III [Directors, Executive Officers, Corporate Governance, Compensation, Security Ownership, and Related Transactions](index=59&type=section&id=Items%2010-14) Information for Items 10 through 14, covering directors, executive officers, corporate governance, compensation, security ownership, and related transactions, is incorporated by reference from the company's definitive 2024 proxy statement - Information for Items 10, 11, 12, 13, and 14 is incorporated by reference from the Registrant's definitive proxy statement to be filed with the SEC[236](index=236&type=chunk)[237](index=237&type=chunk)[238](index=238&type=chunk) Part IV [Exhibits, Financial Statement Schedules](index=60&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists financial statements and provides an index of all exhibits, including agreements, bylaws, and certifications, with financial statement schedules omitted as not applicable - This section contains the index of exhibits filed with the Form 10-K, including various agreements, certifications, and the company's clawback policy[243](index=243&type=chunk)[246](index=246&type=chunk) Financial Statements [Consolidated Financial Statements](index=65&type=section&id=Consolidated%20Financial%20Statements) The consolidated financial statements for FY2023 and FY2022 reveal a significant decline in liquidity and profitability, with cash decreasing to **$1.1 million**, net loss increasing to **$18.7 million**, and total liabilities rising to **$44.3 million** Consolidated Balance Sheet Highlights (As of Dec 31) | Account | 2023 | 2022 | | :--- | :--- | :--- | | Cash | $1.1M | $12.0M | | Total Current Assets | $41.0M | $34.6M | | Goodwill | $15.6M | $15.6M | | Total Assets | $64.4M | $62.1M | | Total Current Liabilities | $42.1M | $24.3M | | Total Liabilities | $44.3M | $27.3M | | Total Shareholders' Equity | $20.1M | $34.7M | Consolidated Statement of Operations Highlights (Year Ended Dec 31) | Account | 2023 | 2022 | | :--- | :--- | :--- | | Total Revenues | $71.5M | $67.0M | | Gross Profit | $10.3M | $14.2M | | Loss from Operations | ($16.7M) | ($12.6M) | | Net Loss | ($18.7M) | ($15.3M) | | Loss per Share | ($1.66) | ($1.44) | Consolidated Statement of Cash Flows Highlights (Year Ended Dec 31) | Account | 2023 | 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | ($11.2M) | ($12.6M) | | Net cash provided by (used in) investing activities | $1.7M | ($4.5M) | | Net cash used in financing activities | ($1.4M) | ($5.5M) | | **Net change in cash** | **($10.9M)** | **($22.6M)** | [Notes to Consolidated Financial Statements](index=73&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail financial statement explanations, including DVO and Emerald acquisitions, a significant revenue shift from Equipment Systems to Construction Design-Build, and high customer concentration with one customer accounting for **28%** of 2023 revenue Revenue Breakdown by Source (FY 2023 vs. FY 2022) | Revenue Source | 2023 Revenue | 2022 Revenue | | :--- | :--- | :--- | | Equipment systems | $12.7M | $33.3M | | Services | $11.9M | $12.9M | | Construction design-build | $46.3M | $19.8M | | Other | $0.7M | $1.0M | | **Total** | **$71.5M** | **$67.0M** | Revenue Breakdown by Sector (FY 2023 vs. FY 2022) | Sector | 2023 Revenue | 2022 Revenue | | :--- | :--- | :--- | | CEA | $21.6M (30%) | $44.0M (66%) | | Commercial | $50.0M (70%) | $23.0M (34%) | | **Total** | **$71.5M** | **$67.0M** | - Customer concentration risk is high, with one customer (C000002187) accounting for **28% of total revenue** and **57% of accounts receivable** in 2023[363](index=363&type=chunk)[365](index=365&type=chunk) - The company fully impaired its **$1.7 million** investment in Edyza, Inc. during the third quarter of 2022[346](index=346&type=chunk)