DEF 14A: URBAN-GRO Faces Delisting, Proposes Reverse Split & Share Increase

URBAN-GRO, Inc. is seeking stockholder approval for a reverse stock split and a significant increase in authorized shares to address Nasdaq listing deficiencies and facilitate a proposed merger with Flash Sports & Media, Inc.

Summary

• Stockholders will vote on seven proposals at the Annual Meeting on January 30, 2026, including the election of five directors and key corporate actions.
• The company is facing multiple Nasdaq listing deficiencies, including a bid price below $1.00, stockholders' equity below $2.5 million, and failure to timely file several financial reports.
• Nasdaq granted an extension until February 17, 2026, to regain compliance with timely filing and stockholders' equity requirements, and until February 24, 2026, for the bid price rule.
• A reverse stock split, with a ratio between 1-for-2 and 1-for-25, is proposed to increase the per-share trading price and maintain Nasdaq listing.
• An amendment to increase authorized common stock from 30,000,000 to 200,000,000 shares is proposed to provide flexibility for capital raising, equity compensation, and strategic transactions, including a proposed merger.
• The company entered into a binding letter of intent on October 14, 2025, to merge with Flash Sports & Media, Inc., where Flash stockholders would own approximately 90% of the combined entity, and the company's name would change.
• The 2021 Omnibus Stock Incentive Plan is proposed to be amended to increase authorized shares for issuance by 5,000,000 and raise the individual award limit from 100,000 to 500,000 shares.
• The company's previous auditor, BF Borgers CPA PC, was dismissed on May 6, 2024, due to an SEC permanent bar, and Sadler, Gibb & Associates, LLC was appointed.
• Accounting errors related to deferred tax liabilities led to the restatement of audited financial statements for 2022 and 2023, and unaudited interim financial statements for 2022, 2023, and Q1 2024.
• Management concluded that internal control over financial reporting was not effective as of December 31, 2023, due to material weaknesses.

Sentiment

Score: 2

Explanation: The filing reveals severe financial distress, multiple Nasdaq listing deficiencies, a history of accounting errors requiring restatement, and significant management turnover. While a strategic merger is proposed, it comes with substantial dilution and uncertainty. The overall picture is highly negative, indicating significant challenges and risks for the company and its shareholders.

Positives

• The Board of Directors unanimously recommends a vote FOR all proposals, indicating internal alignment on the proposed strategic actions.
• The company secured an extension from Nasdaq until February 2026 to regain compliance with listing requirements, providing a window to implement corrective measures.
• The proposed merger with Flash Sports & Media, Inc. could offer a strategic pivot and potential for future growth, contingent on successful execution and stockholder approval.

Negatives

• The company is in non-compliance with multiple Nasdaq listing rules, including minimum bid price, stockholders' equity, and timely filing requirements, indicating significant operational and financial challenges.
• The necessity of a reverse stock split suggests a low current share price, which can deter institutional investors and negatively impact market perception.
• The restatement of past financial statements for 2022, 2023, and Q1 2024 due to accounting errors and material weaknesses in internal controls over financial reporting raises concerns about financial integrity and oversight.
• The departure of the Chief Operating Officer (Jason T. Archer) and Chief Financial Officer (Richard A. Akright) in early 2025, with the CFO ceasing consulting services by year-end 2025, indicates significant management turnover during a critical period.
• Net income (loss) for 2024 was $(17,246) thousand, and for 2023 was $(25,438) thousand, reflecting ongoing financial losses.
• Total Shareholder Return (TSR) based on a $100 investment declined to $8.87 in 2024 from $13.36 in 2023, indicating poor stock performance.

Risks

• The market price per share of common stock post-reverse stock split may not remain above the $1.00 minimum bid price required by Nasdaq, potentially leading to delisting.
• The reverse stock split may not successfully attract institutional investors or improve trading liquidity, and could be viewed negatively by the market, leading to a lower total market capitalization.
• Future issuances of common stock, including those for the proposed merger or capital raising, could have a dilutive effect on current stockholders' book value per share and voting power.
• The company's ability to raise additional capital through equity sales may be adversely affected by a low stock price or delisting.
• The proposed merger with Flash Sports & Media, Inc. is contingent on various approvals and conditions, including maintaining Nasdaq listing, and may not be completed.
• Material weaknesses in internal controls over financial reporting, as identified during the restatement process, pose ongoing risks to financial accuracy and regulatory compliance.

Future Outlook

The company's immediate future outlook is dominated by its efforts to regain compliance with Nasdaq listing standards by February 2026, primarily through a proposed reverse stock split to boost its share price and an increase in authorized shares to provide capital raising flexibility. A significant strategic move is the binding letter of intent for a merger with Flash Sports & Media, Inc., which, if completed, would transform the company's business and ownership structure, with Flash stockholders owning approximately 90% of the combined entity. The success of these initiatives is critical for the company's continued listing and long-term viability.

Management Comments

• "On behalf of the Board of Directors, I cordially invite you to attend the 2025 annual meeting of stockholders of urban-gro, Inc."
• "We will discuss the items of business described in the accompanying Notice of Annual Meeting and proxy statement, update you on important developments in our business."
• "Your vote is very important. Please take a moment now to cast your vote whether or not you plan to attend the Annual Meeting."
• "The Board recommends a vote FOR each director nominee and votes FOR each of proposals 2 through 7."
• "The Board believes that this structure [combined Chairperson and CEO roles] is the most appropriate structure at this time for several reasons."
• "The Board has determined the Share Increase and the increase to the individual award limit is necessary for the Company to continue to offer a competitive broad-based equity incentive program that enables us to recruit, motivate and retain talented and highly qualified employees and directors who are critical to the Companys plans and the Companys ability to successfully operate its business."
• "Due to the drop in our common stock price, the Company requires the Share Increase and the increase to the individual award limit to ensure incentive awards granted under the 2021 plan have the value the Company intended when approving the 2021 Plan."
• "The principal reason for the reverse stock split is to increase the per share trading price of our common stock in order to help ensure a share price high enough to satisfy the $1.00 per share minimum bid price requirement for continued listing on the Nasdaq Capital Market."
• "We believe that our best option to meet Nasdaqs $1.00 minimum bid price requirement before the end of the extension period granted by the Panel is to effect the Reverse Stock Split to increase the per-share trading price of our common stock."
• "We believe that a higher stock price could help us establish business development relationships with other companies."
• "We believe that a higher stock price could help us attract and retain employees and other service providers."
• "Our Board of Directors believes the proposed amendment to be advisable and in the best interests of the Company and our stockholders and is accordingly submitting the proposed amendment to be voted on by the stockholders in order to give the Company more flexibility in considering the planning for and responding quickly to future corporate needs."

Industry Context

URBAN-GRO operates in the controlled environment agriculture (CEA) sector, which includes cannabis and other specialty crops. The proposed merger with Flash Sports & Media, Inc. indicates a significant strategic shift, potentially moving the company into the sports and media industry. This pivot suggests challenges within its core CEA business or a strategic decision to diversify, possibly driven by the need to address financial distress and Nasdaq compliance issues. The industry context for the original business is not explicitly detailed, but the need for a reverse stock split and capital raise suggests a challenging operating environment or underperformance relative to broader market trends.

Comparison to Industry Standards

• The company's stock price falling below $1.00 and stockholders' equity below $2.5 million are direct violations of Nasdaq Capital Market listing standards (Rule 5550(a)(2) and 5550(b)(1)), indicating significant underperformance compared to exchange requirements.
• The need for a reverse stock split to meet minimum bid price requirements is a common tactic for companies facing delisting, but it does not guarantee sustained compliance or improved market perception, as seen with other small-cap companies struggling with liquidity and investor interest.
• The restatement of financial statements and identification of material weaknesses in internal controls are serious issues that deviate significantly from best practices in financial reporting and corporate governance, often leading to a loss of investor confidence and increased regulatory scrutiny, unlike well-managed industry peers.

Management Changes

Corporate Governance

Legal Proceedings

• The SEC entered an order instituting settled administrative and cease-and-desist proceedings against BF Borgers CPA PC and its sole audit partner, permanently barring them from appearing or practicing before the SEC as an accountant, which led to their dismissal as the company's auditor.

Related Party Transactions

• Cloud 9 Support, LLC (owned by Director James Lowe) purchased materials from the company, with no reported revenues in 2024 (vs. $462 in 2023) and no accounts receivable.
• Potco LLC (owned by Director James Lowe) purchased equipment from the company, generating $120,571 in revenues in 2024 (vs. $987,268 in 2023) and having $163,088 in accounts receivable as of December 31, 2024.
• The CEA Consortium (Director Sonia Lo involved) contracted services from the company, generating $245,000 in revenues in 2024 (vs. $245,000 in 2023) and having $245,000 in accounts receivable as of December 31, 2024.

Stakeholder Impact

• **Shareholders**: Face significant potential dilution from the proposed increase in authorized shares and the merger with Flash Sports & Media, Inc. The reverse stock split aims to prevent delisting, but its long-term effect on share price and liquidity is uncertain. Past financial restatements and ongoing losses indicate poor returns and increased risk.
• **Employees**: The proposed amendment to the 2021 Omnibus Stock Incentive Plan, increasing authorized shares and individual award limits, is intended to help recruit, motivate, and retain talented employees, especially given the company's compensation philosophy weighted towards equity awards. However, a low stock price and delisting risk could undermine the value of these incentives.
• **Customers/Suppliers**: The company's financial instability and strategic pivot could impact its ability to maintain existing business relationships or secure new ones, potentially affecting service delivery or payment terms.
• **Regulatory Authorities (Nasdaq, SEC)**: The company is under intense scrutiny due to multiple Nasdaq listing deficiencies and past accounting errors that led to financial restatements. Compliance with regulatory requirements is critical for continued operations as a public company.

Next Steps

• Hold the Annual Meeting of Stockholders on January 30, 2026, to vote on the proposed corporate actions.
• Implement the reverse stock split, if approved by stockholders and deemed appropriate by the Board, to increase the per-share trading price.
• File the necessary Certificate of Amendment with the State of Delaware to effect the reverse stock split and increase authorized shares, if approved.
• Regain compliance with Nasdaq's Timely Filing Requirement and Stockholders Equity Requirement by February 17, 2026.
• Regain compliance with Nasdaq's $1.00 minimum Bid Price Rule by February 24, 2026.
• Proceed with the proposed merger with Flash Sports & Media, Inc., contingent on stockholder approval and maintaining Nasdaq listing.
• Continue to address and remediate material weaknesses in internal controls over financial reporting.

Key Dates

Recommendation

The company is in a precarious position, facing imminent delisting from Nasdaq due to multiple severe compliance failures, including a sub-$1.00 bid price, insufficient stockholders' equity, and delinquent financial filings. The proposed reverse stock split is a desperate measure to maintain listing, which historically often fails to sustain long-term price improvement and can be viewed negatively by the market. Furthermore, the company has a history of accounting errors requiring restatements and acknowledged material weaknesses in internal controls, severely undermining investor confidence. Significant management turnover, including the CFO and COO, during this critical period adds to operational instability. While a merger with Flash Sports & Media, Inc. is proposed, it involves substantial dilution for existing shareholders (Flash stockholders would own ~90% post-merger) and a complete pivot from the company's core business, introducing new, unproven risks. The company's ongoing net losses and declining Total Shareholder Return further highlight its poor financial performance. Given the high risk of delisting, severe dilution, governance issues, and lack of profitability, a seasoned investor would likely recommend a strong sell to minimize further losses.

Keywords

Reverse Stock Split, Nasdaq Delisting, Proxy Statement, Shareholder Meeting, Corporate Governance, Equity Incentive Plan, Authorized Shares, Financial Restatement, Merger, Flash Sports & Media, URBAN-GRO, SEC Filing