1. Organization, Merger and Acquisitions; Business Plan; Liquidity

3 Months Ended

Mar. 31, 2019

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Organization, Basis of Presentation and Liquidity

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

Organization, Merger and Acquisitions

urban-gro, Inc. (the “Company”) is an end-to-end agricultural solutions firm focused on cannabis and traditional agricultural produce growers. It provides services that benefit commercial cannabis cultivation facilities needs to effectively manage investment in capital expenditures (CAPEX) and operating expenses (OPEX). OpEx-related product and services include recurring revenues realized in the Company’s Environmental Sciences and Ag-Technology divisions, while CapEx products and services include design, engineering, the sale of integrated, commissioning services. The types of integrated cultivation systems include environmental controls and automated fertigation and irrigation systems, commercial-grade light systems, including light-emitting diode (LED) and high-pressure sodium (HPS) grow light systems, a complete line of water treatment solutions, rolling and automated benching systems, air flow systems, and odor & microbial mitigation systems. In its Environmental Sciences division, the Company markets a line of Integrated Pest Management products. The Company markets its products and services throughout the United States and Canada. During 2018 the Company also made preliminary efforts on projects in other countries, including Latin America.

In June 2018, the Company formed urban-gro Canada Technologies, Inc. as a wholly owned Canadian subsidiary which it intends to utilize for its Canadian sales operations. As of March 31, 2019, this subsidiary is still in the development stage in preparation for operations with our Canadian customers.

Effective November 20, 2018, the Company entered into a letter of intent (“LOI”) with Hydrofarm Holdings Group, Inc. (“Hydrofarm”) whereby Hydrofarm agreed to acquire all of the Company’s issued and outstanding Common Stock (the “Merger”) utilizing a mutually agreed upon value of $65,000,000 for urban-gro. Pursuant to the terms of the LOI, Hydrofarm extended to the Company a secured, interest only note in the principal amount of $2,000,000. The note is secured by all of the Company’s currently existing and future assets. Although the Merger has not been abandoned and the LOI has not been terminated by either party, there are currently no discussions between the parties pertaining to the Merger. The Hydrofarm note requires the Company to obtain the permission of Hydrofarm to engage in various activities, including additional financing. In February 2019, the Company provided applicable notice to Hydrofarm of an agreement to raise additional debt and/or equity to which Hydrofarm consented.

Effective March 7, 2019, the Company acquired 100% of the stock of Impact Engineering, Inc. (“Impact”) D/B/A Grow2Guys, a provider of mechanical, electrical, and plumbing (MEP) engineering services predominantly focused on the cannabis industry. Management believes the acquisition of Impact will improve the Company’s ability to better serve its current and future customer base by expanding on the fully integrated products and services offered by the Company. The Company issued 500,000 shares of Common Stock valued at $2.00 per share to effect the acquisition of Impact. The Company has initially accounted for the acquisition of Impact as follows:

Purchase Price	$	1,000,000
Allocation of Purchase Price:
Cash	$	49,742
Accounts receivable, net	$	149,648
Goodwill	$	846,229
Accrued expenses	$	45,619

Business Plan

The Company’s diversification plans have led to the strategic decision to focus on brand as an ancillary national market leader delivering the value-added product solutions to cannabis cultivators. Management has implemented the following actions to increase profit margins and generate positive operating cash flow: 1) Establish strategic partnerships with our vendors to pool purchasing power to decrease costs; 2) Implement design fees associated with designing environmental controls and fertigation systems; 3) Create a commissioning team and charge commissioning fees for training staff and starting up new environmental controls and fertigation systems; 4) Sell engineered agricultural technology systems,; and 5) Design and implement integrated pest management plans, biological controls procedures and pesticide prescriptions to these customers. While no assurances can be provided, management believes these objectives will increase the Company’s gross profit and increase cash provided by operations.

Liquidity

Since inception the Company has incurred operating losses and has funded its operations primarily through issuance of equity securities, debt, and operating revenue. As of March 31, 2019, the Company had an accumulated deficit of $10,021,524, a working capital deficit of $6,294,451, and negative stockholders’ equity of $3,480,545. The Company has evaluated its projected cash flows for the next twelve months, which includes assumptions about future financings, and believes those projections along with its cash and cash equivalents of $888,848 as of March 31, 2019 will be sufficient to fund the Company’s operations through at least twelve months from the issuance date of these financial statements, or at least through May 17, 2020. These assumptions about future financings may not come to fruition or may not be available to the Company on acceptable terms. Should the Company need to sell additional equity securities to fund the Company, those sales would result in the dilution of equity interests of current shareholders. These facts and conditions raise substantial doubt about our ability to continue as a going concern, and our independent registered public accounting firm included an explanatory paragraph regarding going concern qualification in its annual audit report on the Company for the year ended December 31, 2018.