10-K: Urban-Gro Faces Delisting Amidst Financial Decline and Strategic Shift

Urban-Gro, Inc. reported a significant net loss and revenue decline in 2024, is winding down core operations, and faces Nasdaq delisting while pursuing a merger with Flash Sports & Media, Inc.

Summary

• The company is winding down its core business sectors, including design, engineering, construction, and construction-management services, due to changing market conditions and an inability to raise significant funds.
• Urban-Gro is now primarily a value-added reseller of equipment systems to the Controlled Environment Agriculture (CEA) sector.
• Reported a net loss of $36.5 million for the fiscal year ended December 31, 2024, an increase from $25.4 million in 2023.
• Total revenues decreased by 43% to $40.0 million in 2024, down from $69.9 million in 2023.
• Gross profit declined to $2.9 million (7% of revenue) in 2024, compared to $9.9 million (14% of revenue) in 2023, primarily due to losses on certain construction design-build jobs.
• Operating expenses increased by $5.2 million, or 16%, to $38.4 million in 2024, largely driven by an $11.3 million impairment of goodwill and intangible assets.
• Experienced negative cash flow from operations of $2.8 million in 2024 and $10.5 million in 2023.
• Working capital worsened to a negative $26.5 million as of December 31, 2024, from a negative $5.1 million in 2023.
• The company faces multiple Nasdaq delisting deficiencies, including failure to meet timely filing, bid price, and stockholders' equity requirements, and not holding an annual meeting.
• Entered into a binding Letter of Intent (LOI) on October 14, 2025, to merge with Flash Sports & Media, Inc., with Flash stockholders expected to own approximately 90% of the resulting company.
• Defaulted on loan agreements with Gemini Finance Corp. and Grow Hill, LLC, leading to asset foreclosure, lawsuits, and settlements involving equity issuance.
• Sold 2WR of Georgia, Inc. and related assets for $2.0 million in cash on August 27, 2025.

Sentiment

Score: 2

Explanation: The company is in severe financial distress, marked by substantial and increasing net losses, significant revenue decline, negative cash flow, and deeply negative working capital. It has defaulted on multiple loans, leading to asset sales and lawsuits, and faces imminent delisting from Nasdaq due to numerous compliance failures. The strategic pivot and proposed merger indicate a desperate attempt to survive, but the current state is highly negative and uncertain for existing shareholders.

Positives

• The Board granted a request to continue listing on The Nasdaq Capital Market, conditioned on regaining compliance with listing rules by specific dates.
• Entered into a binding Letter of Intent for a merger with Flash Sports & Media, Inc., which could provide a new strategic direction and capital infusion.
• Successfully sold 2WR of Georgia, Inc. and certain assets for $2.0 million in cash, which provided some liquidity.
• Regained compliance with Nasdaq's Timely Filing Requirement in February 2025 after previous delinquencies, although new delinquencies have since occurred.

Negatives

• Net loss significantly increased to $36.5 million in 2024 from $25.4 million in 2023.
• Revenue decreased by 43% to $40.0 million in 2024 from $69.9 million in 2023.
• Gross profit margin declined from 14% in 2023 to 7% in 2024, with the construction design-build segment reporting a negative gross profit of -12%.
• Negative cash flow from operations persisted, with $2.8 million used in 2024 and $10.5 million in 2023.
• Negative working capital worsened to $26.5 million as of December 31, 2024, from $5.1 million in 2023.
• Recognized significant impairment charges of $11.3 million for goodwill and intangible assets in 2024.
• Defaulted on a $10.0 million line of credit with Gemini Finance Corp., leading to asset foreclosure and a lawsuit for $1.49 million, settled by issuing common stock.
• Defaulted on a $2.1 million secured loan with Grow Hill, LLC, resulting in a lawsuit alleging breach of contract and fraud.
• Received default judgments in lawsuits from RK Mechanical LLC for $1.51 million plus interest and fees, and from Action Equip. & Scaffold Co. for $380,932 plus interest and fees.
• Currently in payment default on a $395,556 promissory note issued to J Brrothers LLC as part of a settlement.
• Faces multiple Nasdaq delisting deficiencies, including timely filing, bid price, stockholders' equity, and failure to hold an annual meeting.
• Winding down core business sectors due to market conditions and inability to raise funds, indicating a significant contraction and strategic failure in previous areas.

Risks

• Limited operating history and a history of losses, leading to uncertainty about future earnings and cash flows.
• Negative cash flow from operations may necessitate raising additional funds through equity or debt, which may not be available on favorable terms.
• Continued losses could lead to falling below Nasdaq's listing requirement of $2.5 million net equity, resulting in delisting.
• Dependence on third-party suppliers for equipment solutions, with risks of supply disruption or sole-source issues.
• Historical reliance on a small number of clients for a substantial portion of revenue, making the company vulnerable to client concentration risks.
• Business depends on clients obtaining and retaining appropriate licenses, particularly in the emerging and highly regulated cannabis industry.
• System security risks, data protection breaches, cyber-attacks, and systems integration issues could disrupt internal operations or services.
• Potential for costly litigation to defend intellectual property rights or against third-party claims.
• Inability to successfully identify, consummate, or integrate acquisitions, or manage their impacts.
• The legal cannabis industry, a historical revenue source, is subject to quickly changing and inconsistent laws, regulations, and federal prohibition, making demand forecasting difficult.
• Risk of federal enforcement against cannabis-related activities, potentially impacting clients and operations.
• Uncertainty regarding the continued re-authorization of temporary federal safeguards (FinCEN Memo, Appropriations Rider) for the cannabis industry.
• The legal cannabis industry could face strong opposition from established businesses in other sectors.
• The legality of cannabis could be reversed in one or more states, negatively impacting clients and operations.
• Regulatory scrutiny of the legal cannabis industry may negatively impact the company's ability to raise additional capital.
• Banking regulations could limit access to banking services for cannabis-related businesses, affecting clients and the company.
• A drop in the retail price of cannabis products may negatively impact the company's business.
• Contracts related to ancillary cannabis activities may not be legally enforceable in U.S. federal and certain state courts.
• Failure to meet Nasdaq continued listing requirements could result in delisting, leading to reduced liquidity and ability to raise financing.
• The company's stock price could be extremely volatile due to various factors, including operating performance, competition, and regulatory changes.
• Shareholders may experience significant dilution from future issuances of preferred stock or additional common stock.
• No anticipation of paying cash dividends on common stock in the foreseeable future.
• Taking advantage of reduced disclosure requirements as an emerging growth company may make common stock less attractive to investors.
• Provisions in the certificate of incorporation and bylaws may delay or prevent a takeover.
• Requirements of being a public company may strain resources and divert management's attention.
• Ongoing regulatory burdens from public listing.
• Identified material weaknesses in internal control over financial reporting (lack of technical accounting expertise, insufficient personnel for segregation of duties).
• High dependence on the management team; loss of key employees could harm the business.
• Insurance may not adequately cover operating risks.
• Exposure to currency fluctuations.
• Changes in accounting standards and subjective assumptions could significantly affect financial results.
• Failure to maintain the company's reputation could adversely affect business.
• Failure to retain the existing workforce and attract qualified new personnel in the current labor market.
• Concentration risk with customers (Customer C accounted for 21% of 2024 revenue) and vendors (Vendor V accounted for 14% of 2024 purchases).

Future Outlook

The company is undergoing a significant strategic shift, winding down its previous full design-build solutions and focusing solely on value-added reselling of equipment systems to the Controlled Environment Agriculture (CEA) sector. A binding Letter of Intent has been signed for a merger with Flash Sports & Media, Inc., which would result in Flash stockholders owning approximately 90% of the combined entity and a change of the company's name. Management plans to address ongoing Nasdaq delisting deficiencies and may seek to raise additional capital through equity or debt financing. Remediation efforts are also underway to improve internal controls over financial reporting.

Management Comments

• "We are focused significantly on controlling our operating expenses by managing variable expenses, employee count, and marketing activities in order to become cash flow positive."
• "We believe we have substantial defenses to the claim asserted in [the Pullar] lawsuit and intend to vigorously defend this action."
• "We are currently investigating available options to resolve the [Grow Hill] complaint and intends to vigorously defend the allegation of fraud."
• "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."
• "Management intends to continue maintaining a full valuation allowance on the Company's deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of these allowances."

Industry Context

The company's historical reliance on the legal cannabis industry, an emerging sector characterized by inconsistent and rapidly changing laws and regulations, has proven challenging. Federal prohibition makes forecasting demand difficult and poses significant enforcement risks. The strategic shift away from full design-build solutions and into value-added reselling of equipment for CEA, including produce-focused CEA, indicates an adaptation to market conditions and an attempt to diversify beyond the volatile cannabis sector. The proposed merger with Flash Sports & Media, Inc. suggests a complete pivot away from its original industry focus, highlighting severe difficulties in its current market and a potential entry into an entirely different business segment.

Comparison to Industry Standards

• NA. The filing does not provide specific comparable companies, projects, or results to assess against global benchmarks. However, the company's financial performance, including significant losses, negative working capital, and declining revenue, indicates severe underperformance relative to healthy industry standards.

Management Changes

Corporate Governance

Legal Proceedings

• **Great Green Theory Lawsuit**: Emerald (a subsidiary) filed a lien and suit in Massachusetts Superior Court against Great Green Theory Land, LLC and Great Green Theory Cultivation, LLC for breach of contract and quantum merit, claiming approximately $1.3 million. Great Green Theory filed counterclaims for approximately $1.0 million in liquidated damages for alleged delays and construction defects. Selling Emerald shareholders agreed to indemnify the company for this litigation.
• **Pullar Lawsuit Settlement**: Former Chief Financial Officer, George Pullar, filed a suit in Colorado District Court against urban-gro and CEO Bradley Nattrass for breach of fiduciary duty. The lawsuit was settled on January 31, 2025, for a cash payment of $250,000 and the issuance of a warrant to purchase 75,000 shares of common stock.
• **Gemini Loan Agreement Default and Lawsuit**: UG Construction defaulted on a $10.0 million secured line of credit with Gemini Finance Corp., leading to a notice of default for approximately $1.76 million. Gemini subsequently foreclosed on and acquired substantially all of UG Construction's assets for $450,000. Gemini then commenced a lawsuit claiming $1,486,189. The lawsuit was settled on September 26, 2025, with the company agreeing to issue common stock to Gemini for net proceeds equal to the claim amount, subject to ownership limits.
• **Grow Hill Default and Lawsuit**: The company defaulted on a $2.1 million secured loan from Grow Hill, LLC. On October 14, 2025, Grow Hill filed a lawsuit alleging breach of contract and fraud, accelerating all amounts due under the promissory note. The company intends to vigorously defend the fraud allegation.
• **J Brrothers Settlement**: On August 8, 2025, the company settled a dispute with J Brrothers LLC and Herb-a-More LLC by issuing a promissory note for $395,556 (12% annual interest, due March 18, 2026) and 150,000 unregistered shares of common stock. The company is currently in payment default under the terms of this note.
• **RK Mechanical LLC Complaint**: On June 27, 2025, RK Mechanical LLC filed a complaint against UG Construction, resulting in a default judgment of $1,511,716, plus $288,346 prejudgment interest and $10,057 in attorney fees, related to a PepsiCo plant construction project.
• **Action Equip. & Scaffold Co. Complaint**: On April 21, 2025, Action Equip. & Scaffold Co. filed a complaint against UG Construction, resulting in a default judgment for $380,932 plus interest and attorney fees for leased equipment.
• **MJs Market, Inc. Lawsuit**: A lawsuit is pending in Massachusetts Superior Court alleging breach of contract, violation of M.G.L. c. 93A, breach of good faith and fair dealing, trademark infringement, and interference with contractual relations. An amended complaint names 2WR of Colorado, Inc., a subsidiary or affiliate.

Related Party Transactions

• James Lowe, a director, is an owner of Cloud 9 Support, LLC and Potco LLC. Potco LLC purchased $120,571 in equipment from the company in 2024 (compared to $987,268 in 2023). Cloud 9 Support, LLC had no purchases in 2024 (compared to $462 in 2023).
• Sonia Lo, a director, is involved with the CEA Consortium, which contracted services from the company. The CEA Consortium had no revenues from the company in 2024 (compared to $245,000 in 2023).
• Accounts receivable from related parties were $0 as of December 31, 2024, down from $408,088 as of December 31, 2023 (from Potco and CEA Consortium).

Stakeholder Impact

• **Shareholders**: Face significant dilution risk from future equity issuances (e.g., Gemini settlement, potential capital raises, Flash merger where existing shareholders would own ~10%). High stock price volatility and potential delisting from Nasdaq could severely impact liquidity and investment value. No dividends are anticipated.
• **Employees**: The company is winding down core operations and furloughed employees in the services businesses, indicating job losses and uncertainty for the remaining workforce. Resignations of the COO and CFO, and the Senior VP of Technology moving to a consulting role, suggest instability in leadership.
• **Customers**: The strategic shift means the company no longer offers full design-build solutions, potentially impacting existing and future clients seeking integrated services. The focus is now solely on equipment reselling.
• **Creditors**: Multiple loan defaults, asset foreclosures, and lawsuits (Gemini, Grow Hill, J Brrothers, RK Mechanical, Action Equipment) indicate high risk for creditors, with some settlements involving equity issuance rather than cash repayment.
• **Regulatory Bodies (Nasdaq, SEC)**: The company is under intense scrutiny due to numerous compliance deficiencies (timely filing, bid price, stockholders' equity, annual meeting), leading to ongoing delisting threats and requiring significant management attention and resources to address.

Next Steps

• Negotiate and execute a definitive merger agreement with Flash Sports & Media, Inc.
• Obtain stockholder approval for the conversion of Preferred Stock in connection with the merger.
• Reconstitute the Board of Directors following the merger.
• Regain compliance with Nasdaq's Timely Filing Requirement and Stockholders' Equity Requirement on or before December 31, 2025.
• Regain compliance with Nasdaq's Bid Price Rule on or before January 28, 2026.
• Address the Nasdaq deficiency for not holding an annual meeting of stockholders by presenting views to the Panel by January 9, 2026, and requesting an additional extension.
• Continue investigating available options to resolve the Grow Hill lawsuit and vigorously defend the allegation of fraud.
• Implement remediation plans to address identified material weaknesses in internal control over financial reporting.
• Seek to raise additional capital through equity issuance or debt financing if needed to strengthen liquidity.

Key Dates

Recommendation

The company is in severe financial distress, evidenced by substantial and increasing net losses, significant revenue decline, negative cash flow, and a deeply negative working capital position. It has defaulted on multiple loans, leading to asset sales and lawsuits, and faces imminent delisting from Nasdaq due to numerous compliance failures. The strategic pivot away from its core business and the proposed merger with Flash Sports & Media, Inc., which would result in existing shareholders owning only about 10% of the combined entity, indicate a highly speculative and unfavorable outlook for current investors. The material weaknesses in internal controls further compound the risk. Given the overwhelming negative financial indicators and operational instability, a strong sell recommendation is warranted.

Keywords

Controlled Environment Agriculture, CEA, Cannabis Industry, Nasdaq Delisting, Merger, Financial Losses, Liquidity Crisis, SEC Filing, 10-K, Corporate Governance, Risk Factors, Financial Reporting, Internal Controls, Debt Default, Strategic Shift, Equipment Reselling, Vertical Farming