Annual report pursuant to Section 13 and 15(d)

Organization and Acquisitions, Business Plan, and Liquidity

v3.21.1
Organization and Acquisitions, Business Plan, and Liquidity
12 Months Ended
Dec. 31, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Organization and Acquisitions, Business Plan, and Liquidity

NOTE 1 – ORGANIZATION AND ACQUISITIONS, BUSINESS PLAN, AND LIQUIDITY

 

Organization and Acquisitions

 

urban-gro, Inc. (“we,” “us,” “our,” the “Company,” or “urban-gro”) is a leading engineering and design services company focused on the sustainable commercial indoor horticulture market. We engineer and design indoor controlled environment agriculture (“CEA”) facilities and then integrate complex environmental equipment systems into those facilities. Through this work, we create high-performance indoor cultivation facilities for our clients to grow specialty crops, including leafy greens, vegetables, herbs, and plant-based medicines. To date, a large number of our clients have been cannabis producers, and we will continue to do substantial work for those clients, but we have added a focus on non-cannabis crops as we seek to address a broader market. In particular, our focus going forward is on the vertical farming CEA sub-segment. Our custom-tailored approach to design, procurement, and equipment integration provides a single point of accountability across all aspects of indoor growing operations. We also help our clients achieve operational efficiency and economic advantages through a full spectrum of professional services and programs focused on facility optimization and environmental health which establish facilities that allow clients to manage, operate and perform at the highest level throughout their entire cultivation lifecycle once they are up and running.

 

We aim to work with our clients from inception of their project in a way that provides value throughout the life of their facility. We are a trusted partner and advisor to our clients and offer a complete set of engineering and managed services complemented by a vetted suite of select cultivation equipment systems.

 

Effective March 7, 2019, the Company acquired 100% of the stock of Impact Engineering, Inc. (d/b/a Grow2Guys) (“Impact”), a provider of mechanical, electrical and plumbing (“MEP”) engineering services predominantly focused on the indoor commercial horticulture industry. The Company believes the acquisition of Impact will improve the Company’s ability to better serve its current and future client base by expanding on the fully integrated products and services offered by the Company. The Company initially issued 83,333 shares of Common Stock valued at $12.00 per share to effect the acquisition of Impact. The Company accounted for the acquisition of Impact as follows:

 

Purchase Price   $ 1,000,000  
         
Allocation of Purchase Price:        
Cash   $ 49,742  
Accounts receivable, net   $ 93,811  
Goodwill   $ 902,067  
Accrued expenses   $ 45,620  

 

The following table summarizes the supplemental information on an unaudited pro forma basis, as if the acquisition had been consummated as of January 1, 2019:

 

    2019  
Revenue   $ 24,477,011  
Net loss     (8,268,920 )

 

The unaudited pro form results of operations do not purport to represent what the Company’s results of operations would actually have been had the acquisition occurred on January 1, 2019. Actual future results may vary considerably based on a variety of factors beyond the Company’s control.

 

Under the terms of the agreement to acquire Impact, the Company was required to issue additional shares of Common Stock to the former Impact owner if the average closing price per share of the Company’s Common Stock was less than or equal to $12.00 per share for the 30-day period beginning on the date that was 150 days after the initial date of the listing of the Company’s Common Stock on a national securities exchange or quotation on the OTCQB or OTCQX (the “Valuation Period”). The Company’s Common Stock price was lower than $12.00 per share during the Valuation Period and the Company was required to issue additional shares of the Company’s Common Stock to the former Impact owner. In September 2020, however, the Company and the former Impact owner agreed to satisfy this provision of the agreement by the Company issuing 41,667 additional shares of Common Stock to the former Impact owner. The Company valued the issuance of these additional 41,667 shares at $3.72 per share of Common Stock based on the market price of our shares on the date of the agreement and recorded the additional issuance of shares as contingent consideration in the statements of operations and comprehensive income (loss).

 

Basis of Presentation

 

These consolidated financial statements are presented in United States dollars and have been prepared in accordance with United States generally accepted accounting principles (“GAAP”). On December 31, 2020, we effected a 1-for-6 reverse stock split with respect to our common stock. All share and per share information in these consolidated financial statements gives effect to this reverse stock split, including restating prior period reported amounts.

 

Liquidity and Going Concern

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business within one year after the date the consolidated financial statements are available to be issued. Since inception, the Company has incurred significant operating losses and has funded its operations primarily through the issuance of equity securities, debt, and operating revenue. As of December 31, 2020, the Company had an accumulated deficit of $21,964,321, a working capital deficit of $9,300,836, and negative stockholders’ equity of $7,406,164. Prior consolidated financial statements contained an explanatory paragraph indicating that there could be no assurances that the Company would be able to raise equity or debt financing in sufficient amounts, when and if needed, on acceptable terms or at all, in order to provide assurances that the Company would be able to continue as a going concern. As indicated in Note 18 – Subsequent Events, on February 17, 2021 the Company received $62,100,000 in gross proceeds from completion of an equity offering and listing of the Company’s common shares on the Nasdaq Capital Market (“NASDAQ”) (the “Offering”). Based on management’s evaluation, the proceeds from the Offering will be more than sufficient for the Company to meet its obligations as they come due and to fund its operations for at least 12 months after the date the consolidated financial statements are available to be issued. Accordingly, the conditions that previously raised substantial doubt about the Company’s ability to continue as a going concern as of the date of issuance of the Company’s December 31, 2020 consolidated financial statements have been alleviated.