Financial Analysis

"NOTE 12 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 Companys 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 Constructions 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 ev …

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NOTE 10 NOTES PAYABLE The table below presents amounts due for notes payable as of December 31, 2025 and 2024. December 31, 2025 2024 Gemini line of credit $ 1,158,522 $ 4,405,402 DVO note - 135 Grow hill note, net 1,370,531 1,652,071 Agile capital 675,000 - J brothers 320,962 - Other financing agreements 8,240 706,068 Total 3,533,255 6,763,676 Less current portion (3,533,255 ) (5,968,145 ) Notes payable, long-term $ - $ 795,531 Revolving Line of Credit with Gemini Finance Corp. On December 13, 2023, UG Construction, Inc. d/b/a Emerald Construction Management, Inc.(Emarald), 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 $10,000,000, to be used to assist UG Construction and the Company with cash management. Lender will consider requests for advances under the Line of Credit, which Lender may accept or reject in its discretion, until September 12, 2024 (the Initial Term), sutbject to an automatic extension for an additional nine-month term until May 12, 2025, provided that UG Construction is in compliance with all the terms of the applicable loan documents and Lender has not sent a written notice of non-renewal at least 60 days prior to expiration of the Initial Term. The Line of Credit contains standard events of default and representations and warranties b …

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The table below presents the revenue by source for the years ended December 31, 2025 and 2024: Years ended December 31, CEA Commercial Total 2025 2024 2025 2024 2025 2024 Equipment systems $ 8,860,619 $ 12,245,675 $ 70,607 $ 8,751,226 12,245,675 Construction design-build 2,709,642 3,230,037 5,757,810 15,374,790 8,467,451 18,604,827 Other 76,673 352,798 104,088 180,761 352,798 Total revenues and other income $ 11,466,934 $ 15,828,510 $ 5,932,505 $ 15,374,790 $ 17,399,438 $ 31,203,300 Relative percentage 66 % 51 % 34 % 49 % 100 % 100 % …

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NOTE 14 STOCK-BASED COMPENSATION Stock-based compensation expense for the years ended December 31, 2025 and 2024 was $826,471 and $1,426,877 respectively, all of which relates to RSU vestings and board grants. No compensation expense was recognized from stock option activity during either year, as no options were granted or exercised in 2025 or 2024. During the year ended December 31, 2025, 20,649 RSUs vested and were issued to employees and directors. During the year ended December 31, 2024, 19,101 RSUs vested and were issued to employees and directors. No cash flow effects are anticipated for stock grants. The Companys shareholders approved the 2021 Omnibus Stock Incentive Plan, as amended (the Omnibus Incentive Plan), which provides for the issuance of incentive stock options, stock grants and stock-based awards to employees, directors, and consultants of the Company to reward and attract employees and compensate the Companys Board of Directors (the Board) and vendors when applicable, up to an aggregate 1,100,000 authorized shares of common stock. In 2023, an additional 1,200,000 shares were authorized by the shareholders. The Omnibus Incentive Plan is administered by the Companys 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 valuati …

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NOTE 8 GOODWILL & INTANGIBLE ASSETS The Company had recorded goodwill and intangibles in conjunction with the acquisitions it had completed. Goodwill was not amortized. The Company did not record any impairment charges related to goodwill for the years ended December 31, 2025 and 2024. The Companys 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 $0 as of December 31, 2025 and 2024. See Note 4 Dispositions for further details. …

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NOTE 16 INCOME TAXES The Company accounts for income taxes in accordance with the asset and liability method prescribed in ASC 740, Accounting for Income Taxes. The Company has adopted the provisions of ASC 740-10-25, which provides recognition criteria and a related measurement model for uncertain tax positions taken or expected to be taken in income tax returns. ASC 740-10-25 requires that a position taken or expected to be taken in a tax return be recognized in the financial statements when it is more likely than not that the position would be sustained upon examination by tax authorities. Tax positions that meet the more likely than not threshold are then measured using a probability weighted approach recognizing the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement. The Company had no tax positions relating to open income tax returns that were considered to be uncertain. The Company has experienced cumulative losses for both book and tax purposes since inception. The potential future recovery of any tax assets that the Company may be entitled to due to these accumulated losses is uncertain and any tax assets that that the Company may be entitled to have been fully reserved based on managements current estimates. Management intends to continue maintaining a full valuation allowance on the Companys deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of these allowances. …

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NOTE 11 RIGHT OF USE ASSETS AND LIABILITIES As of December 31, 2025 and 2024, the Company has four operating type leases with an imputed annual interest rate of 11%. The remaining lease terms range from less than one year to 3 years, as of December 31, 2025. In connection with the divestiture described in Note 4, certain operating leases previously associated with the divested entities and operations were transferred to the Buyer and are no longer reflected in the Companys consolidated balance sheet as of December 31, 2025. As a result of the divestiture, the number of operating leases decreased from seven as of December 31, 2024 to 4 as of December 31, 2025. The remaining lease terms range from less than one year to 3 years as of December 31, 2025. The CEA-related operations and their associated leases were retained by the Company and continue to be reflected in the accompanying consolidated financial statements. As the Company has wound down its CEA operations, the remaining four leases are under non-cancellable terms. The Company is currently evaluating its options with respect to these obligations, including subletting, negotiating early termination, or allowing the leases to expire at the end of their respective terms. As of December 31, 2025 and 2024, right of use assets were $321,303 and $550,175, respectively, and for the years ended December 31, 2025 and 2024 lease expense was $277,997 and $277,997, respectively. The following is a summary of finance and operating le …

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Recently Issued Accounting Pronouncements 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 Companys financial statements upon adoption. In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires greater disaggregation of information in the effective tax rate reconciliation, income taxes paid disaggregated by jurisdiction, and certain other amendments related to income tax disclosures. The Company adopted this guidance effective January 1, 2025. The adoption did not have a material impact on the Companys consolidated financial statements or disclosures, as the Company maintains a full valuation allowance against its net deferred tax assets and had minimal income tax activity during the year ended December 31, 2025. In November 2024, the FASB issued ASU No. 2024-03, Income Statement Reporting Comprehensive Income Expense Disaggregation Disclosures (Subtopic 220-40), which requires disaggregation of certain income statement expense line items. The guidance is effective for fiscal years beginning after December 1 …

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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 no revenues from related party entities for the years ended December 31, 2025 and 2024. The table below presents the revenues from related parties: Years Ended December 31, 2025 2024 Potco $ - $ 120,751 Total Revenue $ - $ 120,751 …

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NOTE 3 REVENUE FROM CONTRACTS WITH CUSTOMERS The Company recognizes revenue predominantly from the sale of equipment systems, construction design-build, and from other various immaterial contracts with customers from its CEA and Commercial sectors. The table below presents the revenue by source for the years ended December 31, 2025 and 2024: Years ended December 31, CEA Commercial Total 2025 2024 2025 2024 2025 2024 Equipment systems $ 8,860,619 $ 12,245,675 $ 70,607 $ 8,751,226 12,245,675 Construction design-build 2,709,642 3,230,037 5,757,810 15,374,790 8,467,451 18,604,827 Other 76,673 352,798 104,088 180,761 352,798 Total revenues and other income $ 11,466,934 $ 15,828,510 $ 5,932,505 $ 15,374,790 $ 17,399,438 $ 31,203,300 Relative percentage 66 % 51 % 34 % 49 % 100 % 100 % 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 t …

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NOTE 18 SEGMENTS An operating segment is defined as a component of a reporting entity that engages in business activities from which it recognizes revenues and incurs expenses with discrete financial information available that is evaluated regularly by the Chief Operating Decision Maker (CODM) of the operating segment. The CODM utilizes this financial information to decide how to allocate resources to, and in assessing performance of, the operating segment. Management evaluates segment performance primarily based on operating segment gross profit. The Company has identified the following continuing operating segments for fiscal year 2025. The Services segment was classified as discontinued operations effective August 27, 2025 and its results have been excluded from the segment disclosures below. See Note 4 Discontinued Operations for further detail. 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 …

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NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation, Principles of Consolidation and Business Combinations These consolidated financial statements include the accounts of urban-gro, Inc. and its wholly owned subsidiaries. They are presented in United States dollars and have been prepared in accordance with U.S. GAAP and pursuant to the rules and regulations of the SEC for financial reporting. All intercompany transactions and balances have been eliminated in the preparation of the consolidated financial statements. The consolidated financial statements are audited and, in the Companys opinion, include all adjustments, consisting of normal recurring adjustments and accruals necessary for a fair presentation of the Companys consolidated balance sheets, consolidated statements of operations and comprehensive loss, consolidated statements of shareholders equity and consolidated statements of cash flows for the periods presented. Acquisitions of businesses are accounted for using the acquisition method of accounting (Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 805-10-225). The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition date fair values of the assets transferred, liabilities incurred to the former owners of the acquired entities and the equity interests issued in exchange for control of the acquired entities. Acquisition-related costs are …

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NOTE 15 STOCKHOLDERS DEFICIT Common Stock The Company is authorized to issue 200,000,000 shares of common stock at $0.001 par value. At December 31, 2025 and 2024, there were 710,025 and 562,855 shares of common stock outstanding, respectively, after giving effect to the 1-for-25 reverse stock split effective February 9, 2026. During the year ended December 31, 2025, the Company issued the following shares of common stock (all share amounts presented on a post-reverse stock split basis): 20,649 shares pursuant to the vesting of restricted stock unit grants under the Companys 2021 Omnibus Stock Incentive Plan; 6,000 shares to Gemini Finance Corp. as an amendment fee in connection with the amendment to the Loan Agreement and Promissory Note, valued at $109,500; 56,000 shares to Gemini Finance Corp. pursuant to the first and second tranches of the Gemini Settlement Agreement under Section 3(a)(10) of the Securities Act, valued at $319,000; 28,000 shares to Gemini Finance Corp. pursuant to the third tranche of the Gemini Settlement Agreement; 6,000 shares to J Brothers LLC in connection with a settlement agreement, valued at $53,550; 30,521 shares to Hudson Global Ventures LLC, valued at $267,819; Preferred Stock The Company is authorized to issue 3,000,000 shares of preferred stock with such designations, voting and other rights and preferences as may be determined from time to time by the Companys Board of Directors. The preferred stock has a par value of $0.10. As of December …

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NOTE 19 SUBSEQUENT EVENTS Completion of the Merger On February 17, 2026, the Company completed the Merger with Flash Sports and Media, Inc. pursuant to the Merger Agreement dated February 17, 2026. Under the terms of the Merger Agreement, Flash stockholders received (i) shares of UGRO Common Stock equal to 19.99% of the outstanding shares of UGRO calculated based on the outstanding shares immediately prior to the issuance of 1,000,000 shares of Common Stock on January 23, 2026 (adjusted to 40,000 shares following the reverse stock split) as disclosed in the Current Report on Form 8-K filed January 29, 2026, and (ii) shares of UGRO Non-Voting Convertible Preferred Stock to be issued pro rata in proportion to their respective stock ownership in Flash, in an aggregate amount such that, upon effectiveness of the conversion, the total number of shares of UGRO Common Stock issuable to the stockholders of Flash shall equal a number of shares determined by dividing Flashs agreed equity valuation by $3.23, representing the closing price of UGRO Common Stock on February 17, 2026. The conversion of the Preferred Stock is subject to approval by the Companys stockholders in accordance with Nasdaq Listing Rule 5635(d). As a result of the Merger, the Company believes it has stockholders equity in excess of $2.5 million. On a pro forma basis as of December 31, 2024, the combined entity had total assets of approximately $265.4 million (including goodwill of approximately $225.5 million), tota …

SubsequentEventsTextBlock · excerpt; the full note is in the filing