urban-gro(UGRO) - 2019 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements The company reported significant revenue growth alongside a widening net loss, a substantial working capital deficit, and doubt about its ability to continue as a going concern Consolidated Balance Sheets (Unaudited) As of March 31, 2019, total assets increased to $8.0 million from $5.7 million at year-end 2018, driven by an acquisition, while a working capital deficit of $6.3 million persisted Consolidated Balance Sheet Highlights (Unaudited) | Balance Sheet Item | March 31, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Total Current Assets | $4,943,648 | $3,945,305 | | Total Assets | $7,973,042 | $5,744,764 | | Total Current Liabilities | $11,238,099 | $9,571,315 | | Total Liabilities | $11,453,587 | $9,571,315 | | Total Shareholders' Deficit | ($3,480,545) | ($3,826,551) | Consolidated Statements of Operations (Unaudited) For Q1 2019, revenue grew 69% to $5.8 million, but a 76% rise in operating expenses led to a wider net loss of $1.48 million compared to the prior year Q1 2019 vs Q1 2018 Performance (Unaudited) | Metric | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--- | :--- | :--- | | Revenue | $5,834,016 | $3,446,364 | | Gross Profit | $1,744,176 | $1,003,871 | | Loss from Operations | ($1,382,008) | ($768,023) | | Net Loss | ($1,481,471) | ($782,649) | | Net Loss Per Share | ($0.06) | ($0.03) | Consolidated Statements of Shareholders' Deficit (Unaudited) The shareholders' deficit improved to ($3.48 million) from ($3.83 million), mainly due to non-cash stock issuance for an acquisition and stock-based compensation - The shareholders' deficit decreased to $3,480,545 as of March 31, 2019, from $3,826,551 as of January 1, 2019[14] - Key changes included a $1,481,471 net loss, offset by $588,697 in stock-based compensation and $1,000,000 in stock issued for an acquisition[14] Consolidated Statements of Cash Flows (Unaudited) In Q1 2019, cash used in operations improved, but the overall cash position decreased by $0.29 million, ending the quarter with $0.89 million in cash Cash Flow Summary (Unaudited) | Cash Flow Activity | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--- | :--- | :--- | | Net Cash Used In Operating Activities | ($418,405) | ($876,551) | | Net Cash Used In Investing Activities | ($241,133) | ($222,510) | | Net Cash Provided by Financing Activities | $369,534 | $76,000 | | Net Decrease in Cash | ($290,004) | ($1,023,061) | | Cash at End of Period | $888,848 | $633,730 | Notes to Consolidated Financial Statements The notes highlight the acquisition of Impact Engineering, substantial doubt about going concern status, and reliance on a new convertible debenture offering for liquidity - The company is an end-to-end agricultural solutions firm focused on cannabis growers, providing services and products for both capital expenditures (CapEx) and operating expenses (OpEx)[17] - On March 7, 2019, the company acquired 100% of Impact Engineering, Inc. by issuing 500,000 shares of common stock valued at $1,000,000[20] - The company has incurred operating losses since inception, had an accumulated deficit of $10.0 million and a working capital deficit of $6.3 million as of March 31, 2019, raising substantial doubt about its ability to continue as a going concern[22] - In Q1 2019, the company initiated a private placement offering of up to $6,000,000 in convertible debentures and warrants, raising $425,000 by March 31, 2019[74][76] - Concentration Risk: In Q1 2019, one customer accounted for 27% of total revenue, and one vendor accounted for 24% of total purchases[78][79] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses strong revenue growth driven by industry demand, offset by rising expenses, and outlines a plan to raise $4.5 million in capital to fund operations Q1 2019 vs Q1 2018 Operational Results | Metric | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--- | :--- | :--- | | Revenues | $5,834,016 | $3,446,364 | | Cost of Sales | $4,089,840 | $2,442,493 | | Operating Expenses | $3,126,184 | $1,771,894 | | Net Loss | ($1,481,471) | ($782,649) | - Revenue growth of 69% was primarily driven by a 163% increase in lighting sales and a 63% increase in environmental sciences sales[102] - Management estimates a need for up to an additional $4,500,000 in capital for advanced inventory purchases ($2.5M) and expanding operations ($1.0M)[111] - To address capital needs, the company initiated an offering of up to $6,000,000 in Units (convertible debentures and warrants), and as of May 20, 2019, it had accepted total subscriptions of $1,735,000[113][114] Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, urban-gro, Inc. is not required to provide information for this item - The company is a smaller reporting company and is not required to provide the information under this Item pursuant to Regulation S-K[118] Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of the end of the quarter, with no material changes to internal controls - Based on an evaluation, the CEO and CFO concluded that the company's disclosure controls and procedures were effective as of March 31, 2019[121] - There were no changes in internal control over financial reporting during the period that have materially affected, or are reasonably likely to materially affect, internal controls[123] PART II. OTHER INFORMATION Legal Proceedings The company reports that there are no material legal claims that have been brought against it, nor are there any known threatened claims - To the best of management's knowledge, there are no material claims brought against the company nor have there been any claims threatened[125] Risk Factors As a smaller reporting company, urban-gro, Inc. is not required to provide information for this item - The company is a smaller reporting company and is not required to provide the information under this item pursuant to Regulation S-K[126] Unregistered Sales of Equity Securities and Use of Proceeds The company details unregistered stock issuances for an acquisition and employee grants, and an ongoing $6 million convertible debenture offering to raise capital - In Q1 2019, 500,000 shares of Common Stock were issued for the acquisition of Impact Engineering, Inc., and 20,000 shares were issued to employees under the Stock Grant program[127] - The company initiated an offering of up to $6,000,000 in Units, consisting of convertible debentures and warrants, and as of May 20, 2019, it had accepted subscriptions totaling $1,735,000[129][130] Defaults Upon Senior Securities None reported - None[132] Mine Safety Disclosures Not applicable - Not Applicable[133] Other Information None reported - None[134] Exhibits This section lists the exhibits filed with the report, including Sarbanes-Oxley Act certifications and XBRL interactive data files - Filed exhibits include CEO and CFO certifications pursuant to Section 302 and 906 of the Sarbanes-Oxley Act of 2002, and XBRL Instance Documents[135] Signatures The report was duly signed on May 20, 2019, by the Principal Executive Officer and Principal Financial Officer