________

Other than as disclosed hereinabove, none of the other Selling Stockholders has had a material relationship with us or any of our affiliates other than as a stockholder at any time within the past three years.

PLAN OF DISTRIBUTION

The Selling Stockholders registering Common Stock and any of his/her pledges, assignees, and successors-in-interest may, from time to time, sell any or all of their shares of Common Stock on any stock exchange, market, or trading facility on which the shares are traded or in private transactions. The Selling Stockholders may offer shares in transactions at fixed or negotiated prices. We intend to encourage a securities broker-dealer to apply on Form 211 to quote our stock in the OTCQB, concurrent with the date of the Prospectus, but we cannot assure when or whether this application will be approved or that, if approved, quotations of our Common Stock will commence on any trading facility or will result in the development of a viable trading market for our shares sufficient to provide stockholders with the opportunity for liquidity.See “RISK FACTORS.” Sales may be at fixed or negotiated prices. A selling security holder may use any one or more of the following methods when selling shares:

Broker-dealers engaged by the Selling Stockholders may arrange for other broker-dealers to participate in sales in amounts to be negotiated, but in the case of an agency transaction not in excess of a customary brokerage commission, and in the case of a principal transaction a markup or markdown not in excessive amounts. Each Selling Stockholder is an underwriter, within the meaning of Section 2(a)(11) of the Securities Act. Any broker-dealers or agents that participate in the sale of the Common Stock or interests therein may also be deemed to be an “underwriter” within the meaning of Section 2(a)(11) of the Securities Act. Any discounts, commissions, concessions or profit earned on any resale of the shares may be underwriting discounts and commissions under the Securities Act. A Selling Stockholder, who is an “underwriter” within the meaning of Section 2(a)(11) of the Securities Act, is subject to the Prospectus delivery requirements of the Securities Act.

We are bearing all costs relating to the registration of the Common Stock, which are estimated at approximately $42,386. The Selling Stockholders, however, will pay any commissions or other fees payable to brokers or dealers in connection with the sale of the Common Stock. We are paying the expenses of the Offering because we seek to enable our Common Stock to be traded on the OTC Bulletin Board. We believe that the registration of the resale of shares on behalf of existing shareholders may facilitate the development of a public market in our Common Stock if our Common Stock is approved for trading on the OTC Bulletin Board. We have agreed to indemnify the Selling Stockholders against certain losses, claims, damages, and liabilities, including liabilities under the 33 Act.

We agreed to keep this Prospectus effective until the earlier of (i) the date on which the shares may be resold by the Selling Stockholders without registration by reason of Rule 144 under the Securities Act or any other rule of similar effect, or (ii) all of the shares have been sold pursuant to this Prospectus or Rule 144 under the Securities Act or any other rule of similar effect. The resale shares will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale shares may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with. 

Under applicable rules and regulations under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), any person engaged in the distribution of the resale shares may not simultaneously engage in market-making activities with respect to the Common Stock for the applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution. In addition, the Selling Stockholders will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of shares of the Common Stock by the selling stockholders or any other person. We will make copies of this Prospectus available to the Selling Stockholders and have informed them of the need to deliver a copy of this Prospectus to each purchaser at or prior to the time of the sale.

Some of the information in this Prospectus contains forward-looking statements that involve substantial risks and uncertainties. You can identify these statements by forward-looking words such as “may,” “will,” “expect,” “anticipate,” “believe,” “estimate” and “continue,” or similar words. You should read statements that contain these words carefully because they:

We believe it is important to communicate our expectations. However, there may be events in the future that we are not able to accurately predict or over which we have no control. Our actual results and the timing of certain events could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under “RISK FACTORS” and “DESCRIPTION OF BUSINESS” and elsewhere in this Prospectus.See “RISK FACTORS.”

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONSCAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

SomeThis prospectus includes statements that express our opinions, expectations, beliefs, plans, objectives, assumptions or projections regarding future events or future results and therefore are, or may be deemed to be, “forward-looking statements.” All statements other than statements of the informationhistorical facts contained in this Prospectus containsprospectus may be forward-looking statements. These forward-looking statements that involve substantial risks and uncertainties. You can identify these statementsgenerally be identified by the use of forward-looking words such asterminology, including the terms “believes,” “estimates,” “continues,” “anticipates,” “expects,” “seeks,” “projects,” “intends,” “plans,” “may,” “will,” “expect,” “anticipate,” “believe,” “estimate”“would” or “should” or, in each case, their negative or other variations or comparable terminology. They appear in a number of places throughout this prospectus, and “continue,”include statements regarding our intentions, beliefs or similar words. You should readcurrent expectations concerning, among other things, our results of operations, financial condition, liquidity, prospects, growth, strategies, future acquisitions and the industry in which we operate.

By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that containmay or may not occur in the future. We believe that these words carefully because they:risks and uncertainties include, but are not limited to, those described in the “Risk Factors” section of this prospectus, which include, but are not limited to, risks related to the following:

We believe it is important to communicate our expectations. However, there mayThese factors should not be eventsconstrued as exhaustive and should be read with the other cautionary statements in the futurethis prospectus.

Although we base these forward-looking statements on assumptions that we believe are reasonable when made, we caution you that forward-looking statements are not able to accurately predict or over which we have no control. Ourguarantees of future performance and that our actual results of operations, financial condition and the timing of certain events couldliquidity, and industry developments may differ materially from those anticipatedstatements made in theseor suggested by the forward-looking statements as a resultcontained in this prospectus. The matters summarized under “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of certain factors, including those set forth under “RISK FACTORS”Financial Condition and “DESCRIPTION OF BUSINESS”Results of Operations,” “Business” and elsewhere in this Prospectus.See “RISK FACTORS.”prospectus could cause our actual results to differ significantly from those contained in our forward-looking statements. In addition, even if our results of operations, financial condition and liquidity, and industry developments are consistent with the forward-looking statements contained in this prospectus, those results or developments may not be indicative of results or developments in subsequent periods.

Overview

We were originally formedIn light of these risks and uncertainties, we caution you not to place undue reliance on March 20, 2014,these forward-looking statements. Any forward-looking statement that we make in this prospectus speaks only as a Colorado limited liability company. In March 2017, we converted to a corporation and issued 193.3936722 shares of our Common Stock for every Member Interest issued and outstanding on the date of conversion.such statement, and we undertake no obligation to update any forward-looking statement or to publicly announce the results of any revision to any of those statements to reflect future events or developments, except as required by applicable law. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless specifically expressed as such, and should only be viewed as historical data.

We are an agricultural technology systems integrator that provides full design and expertise on climate and automated control of fertigation/irrigation systems, lighting systems, environmental, substrate and inventory monitoring, water treatment systems, integrated pest management solutions, and a complete line of cultivation equipment targeting growers of the world’s highest value crops including cannabis, tomatoes, strawberries, chilies and peppers, and leaf lettuce. While it is our intention to expand our operations to additional applications, to date, all of our revenues have been generated in the cannabis industry.

We engage directly in the business of manufacturing, distributing and selling lighting, pest management, fertigation, water and other products to the medical and recreational cannabis industry in states where operation of a cannabis production facility has been legalized. We have and will continue to work with grow operations and production facilities to pursue strategies to provide services, products, and other potential revenue-producing opportunities with respect to the cannabis industry in those states where the same is lawful. We engage directly with the ownership groups and growers at large indoor and outdoor greenhouse cultivation facilities and strategically work with them to provide value-added services and industry best products that assist them in lowering production costs and increasing crop yields. While earmarking the emerging cannabis market as our principal target market, we are also marketing to customers outside of the cannabis industry to diversify our operations.

Our executive office is located at 1751 Panorama Point, Unit G, Lafayette, CO 80026, and our phone number is (720) 390-3880. Our Company website iswww.urban-gro.com, which contain a description of our Company and products, but such websites and the information contained on our websites are not part of this Prospectus.  In addition, we also maintain branded product websites of www.soleiltech.ag and www.opti-dura.com.

Results of OperationsUSE OF PROCEEDS

ComparisonAssuming a public offering price of Results of Operations for$      per share, we estimate that the three months ended March 31, 2018 and 2017

During the three month period ended March 31, 2018, we generated revenue of $3,446,364, comparednet proceeds to revenue of $1,426,544 during the three months ended March 31, 2017, an increase of $2,019,820 (141%). While this increase may be attributable to the general growth of the cannabis industry in North America which has provided us with additional sales opportunities, we also believe that this increase in revenue occurred primarily as a result of an increase of $1,869,673 derived from our cultivation technologies segment. This segment included $800,067 in revenues derived from cultivation equipment (402%) which occurred as a result of our increased focus on the sale of cultivation equipmentour common stock in 2018, as well as anthis offering will be $      million (or $      million if the underwriters exercise their over-allotment option in full), after deducting underwriting discounts and commissions and the estimated offering expenses payable by us. Each $1.00 increase of $940,842 in fertigation (367%), which we attribute to increased marketing efforts and industry demand for large control systems. In addition, cultivation technology revenues increased in other segments, including integrated pest management, which increased by $166,805, which we believe was directly attributable to new employees hired to market this segment, inputs, which increased by $37,941, which we believe was due to increased sales of substrates due to more focus on consumables(decrease) in the cannabis industryassumed public offering price would increase (decrease) the net proceeds to us from this offering by approximately $      million (or $      million if the underwriters exercise their over-allotment option in full), assuming the number of shares we sell, as set forth on the cover page of this prospectus, remains the same, after deducting underwriting discounts and other cultivation revenue, which increasedcommissions and the estimated offering expenses payable by $83,519, which was primarily due to project management fees and forfeited deposits by clients who cancelled projects after the design work had commenced.us.

We also generated additional revenuesintend to use approximately $      million of the net proceeds as follows:

We intend to use the remaining net proceeds (which will be approximately $      million, or $      million if the underwriters exercise their over-allotment option in salesfull) to support our organic growth and for other general corporate purposes, including to fund potential future investments and acquisitions of companies that we believe are complementary to our lighting systems, which increasedbusiness and consistent with our growth strategy. Although we may, from the relevant periodtime to time, evaluate potential strategic investments and acquisitions, we do not have any definitive agreements in 2017 by $71,652 (11%) as a result of increased sales of our UG branded Soleil light systems. However, we incurred a large corresponding decrease in P.L. light sales, which we have discontinued.place to make any such acquisitions at this current time.

As discussed below,of September 30, 2020, our Credit Agreement bears interest at the annual rate established and designated by the Bank of Nova Scotia as the prime rate, plus 12% per annum (14.5% as of September 30, 2020), and matures on December 31, 2021. See the notes to our financial statements included in 2016, we began diversifying our business, moving from a lighting distribution company to emphasizing cultivation technologies. In 2015, we were considered a value added reseller of P.L. grow light systems, with 97% of our revenues generated from lighting related product sales. In the last calendar quarter of 2015, we made a strategic decision to:this prospectus for additional information.

·      focus on building/positioningThe expected use of net proceeds from this offering represents our brand as an ancillary national market leader delivering best in class value-added product solutions to Cannabis cultivators;

·      expandintentions based upon our sales reach to extend across the US;current plans and

·      expand our product offering to include a full line of other cultivation equipment and products used by cannabis cultivators.

We now consider ourselves a one-stop, turnkey provider of agricultural technology systems.

Cost of goods sold increased to $2,442,493 during the three months ended March 31, 2018, compares to $1,107,739 during the comparable period in 2017, an increase of $1,334,754 (120%). These increases are directly related to the increased revenues in all segments of our business.

Operating expenses also increased during the three months ended March 31, 2018 compared to the same period in 2017 by $968,259, from $1,771,894 in 2018 compared to $803,365 in 2017. Marketing expense increased by $62,183 (103%) due to increases in advertising expenses and costs of attendance at trade shows. Office costs and personnel expense increased by $123,500 and $649,136, respectively, due to our expanding work force. Many of our new employees are members of management, business conditions, which increased the compensation expense, as well as stock based compensation arising from our new compensation plan. Professional fees also increased by $55,246, from $163,395 during the three months ended March 31, 2018 compared to $108,148 for the comparable period in 2017.

Interest expensecould change in the three months ended March 31, 2018 was $18,713, compared to $87,153 incurred during the three months ended March 31, 2017,future as a result of reduced debt.

our plans and business conditions evolve and change. As a result, we incurred a net loss of ($782,649) duringour management will have broad discretion over how these proceeds are used. Proceeds held by us will be invested in short-term investments until needed for the three months ended March 31, 2018 ($0.03 per share), compared to a net loss of ($571,713) during the three months ended March 31, 2017 ($0.03 per share).uses described above.

Comparison of Results of Operations for the fiscal years ended December 31, 2017 and 2016MARKET FOR OUR COMMON STOCK

During 2017 and 2016, we generated revenues of $12,298,015 and $7,033,273, respectively, an increase of $5,264,742 (74%). We believe thatPrior to this increase in revenue occurred primarily as a result of an increase of over $2 million in revenues derived from cultivation technologies, approximately $3 million in fertigation, $2 million in the sale of cultivation equipment, while revenues from lighting decreased by approximately $400,000. As discussed below, in 2016, we began diversifying our business, moving from a lighting distribution company to emphasizing cultivation technologies. Our aggressive diversification plans in 2016 resulted in negative cash flow. In 2015, we were considered a value added reseller of P.L. grow light systems, with 97%offering, shares of our revenues generated from lighting related product sales. Incommon stock were quoted on the last calendar quarter of 2015, we made a strategic decision to:

·      focusOTC Markets Group, Inc. OTCQX Marketplace under the symbol “UGRO.” Although our shares have been quoted on building/positioning our brand as an ancillary national market leader delivering bestthe OTCQX Marketplace since October 7, 2019, because trading on the OTCQX Marketplace has been infrequent and limited in class value-added product solutions to Cannabis cultivators;

·      expand our sales reach to extend acrossvolume, the US; and

·      expand our product offering to include a full line of other cultivation equipment and products used by cannabis cultivators.

From 2015 to 2017, cultivation technologies as a percentage of revenue, increased from 2.78% of revenues, to 31.27% in 2016, and 63.48% in 2017. The impact of this change of focus to more cultivation technologies, resulted in gross margin percentages of 15.74%, 20.06%, and 24.36% respectively.

Our marketing expense was $185,346 in 2015, but increased to $308,529 in 2016, and to $402,621 in 2017. Travel associated with customer relations and sales, industry conferences, and product development increased from $95,854 in 2015, to $311,734 in 2016, and $502,452 in 2017. We also invested a substantial amount of available funds to retaining what we believe to be strong personnel including engineers, scientists, and highly skilled business management employee. In 2015, we spent $514,990 on personnel expenses, and increased spend in this area to $1,283,754 in 2016, and $3,041,934 in 2017. To betterprices at which such transactions occurred may not necessarily reflect the significant investmentprice that would be paid for our common stock in personnel, on a percentagemore liquid market. As of revenue basis, personnel expense was 6.47% in 2015, 18.25% in 2016, and 24.74% in 2017. While no assurances can be provided, we believe that our success to date is a direct resultNovember 13, 2020, there were approximately 155 record holders of our quality personnel.common stock.

We believeintend to apply to list our common stock on the loss incurredNasdaq Capital Market under the symbol “UGRO.” However, we cannot assure you that a liquid trading market for our common stock will develop or be sustained after this offering. You may not be able to sell your shares quickly or at the market price if trading in 2016 was directly tied to our investmentcommon stock is not active. See “Underwriting” for more information regarding our arrangements with the underwriters and the factors considered in personnel, marketing expenses to establish our brand, and all travel related expenses tied to building out sales territories and exhibiting at 10 trade shows/conferences. While no assurances can be provided, we believe our revenues will continue to grow in 2018 and we expect to become cash flow positive in 2018. There are no assurances this will occur.setting the public offering price.

Cost of sales in 2017 were $9,244,329, compared to $5,622,373 in 2016, an increase of $3,621,956 (64%), which we attribute to increased revenues. Specifically, total cultivation equipment costs increased by approximately $1.5 million in 2017 compared to 2016, total fertigation costs increased by approximately $1.7 million, while lighting systems costs decreased by approximately $500,000.

Operating expense incurred during the year ended December 31, 2017 was $5,416,829, compared to $3,020,352 during the comparable period in 2016, an increase of $2,396,477 (79%) . These increases were as a result of increased personnel expense arising from increased employees, of approximately $2 million, spending on marketing (approximately $100,000, office and facility expense of approximately $200,000. Travel expense and professional fees increased by approximately $180,000 each.

Interest expense remained relatively consistent, as we incurred $216,576 in 2017, compared to $218,430 in 2016.

As a result we generated net losses of ($2,577,395) in 2017 ($0.11 per share) and ($1,808,861) in 2016 ($0.09 per share).

Liquidity and Capital ResourcesDIVIDEND POLICY

At March 31, 2018,Since our inception, we had $633,730have not paid any dividends on our common stock, and we currently expect that, for the foreseeable future, all earnings, if any, will be retained for use in cash.the development and operation of our business. In the future, our Board may decide, at its discretion, whether dividends may be declared and paid to holders of our common stock.

Net cash provided by operations was $244,661 during the year ended December 31, 2017, compared to net cash used in operations of $(1,045,814) during the comparable period in 2016. We anticipate that overhead costs in current operations will increase in the future as a result of our anticipated increased marketing activities. Net cash used in operating activities was $(876,551) during the three months ended March 31, 2018, compared to net cash used in operating activities of $(67,432) during the comparable period in 2017. The variance was due to an increase in accounts receivable arising from increased sales and credit terms given to customers, as well as a decrease in accounts payable and accrued expenses due to our continued growth.

Cash flows provided or used in investing activities were $(612,543) during the year ended December 31, 2017, compared to ($136,406) during the comparable period in 2016. Cash flows provided or used by financing activities were $2,007,210 during the year ended December 31, 2017, compared to $1,168,182 during the comparable period in 2016.

The significant increase in customer deposits was due to an increase in customer orders. Customer orders require prepayments before the design work is commenced and before any material is ordered from the vendor. Prepayments are booked the customer deposits liability account when received. When the product ships to the customer, the customer is invoiced and an accounts receivable balance is created for the customer. The deposit is then moved from the customer deposit account to the customer accounts receivable account to clear the receivable. Our standard policy is to collect the following before action is taken: a 10% design deposit, 40% order deposit, and a 50% shipping deposit. We expect customer deposits to be relieved from the deposits account no longer than 12 months for each project. The net cash used in operations for prepayments and advances are for payments made to vendors for prepayments on orders. Due to the increase in projects, we increased our prepayments to order materials from our vendors.

In August 2016, when still an LLC, we undertook a private offering of member interests wherein we received subscriptions of $575,107 in the form of 6,392 member interests to three (3) accredited investors (approximately $90 per member interest) or approximately $0.46 per share based upon the conversion rate of 193.3636722 shares per member interest issued when we converted into a corporation in 2017). These funds were used to (i) add two systems designers to expand our Cultivation Technologies team to support market demand; (ii) expand our operations into the expanding fertigation marketplace as States approving legalized cannabis increased, (iii) hire a mechanical engineer to begin vetting opportunities to add IP and technology to our future business offering, (iv) hired a strategic financial consultant to aid in compiling a business forecast model;, and (v) fund working capital to support brand building marketing initiatives focused on trade show participation and an Increased on-hand inventory position.

In May 2017, we commenced a private offering of our Common Stock wherein we received aggregate subscriptions of $2,546,000 from the sale of 2,546,000 shares, at $1 per share, to 76 investors, including 58 “accredited” investors, as that term is defined under the Securities Act of 1933, as amended. These funds were used to repay debt, expansion of our existing business operations, new investment opportunities and working capital.

In March, 2018, the holder of a $300,000 note agreed to extend the loan through March 23, 2019. Interest accrues at the rate of 1.65% per month and interest payments are tendered twice a month. In consideration for the lender’s agreement to extend this note we issued 6,000 warrants, each exercisable to purchase one shares of our Common Stock at a price of $1 per share for a term of five years.

In September 2016, a shareholder and our Vice President of Marketing and Human Resources loaned us the principal amount of $14,500, with interest at 2% per month. The loan was due upon demand. At December 31, 2017 and December 31, 2016 the note payable balance was $0 and $14,500, respectively. In October 2016, he loaned an additional $17,815, with interest at 3% per month. The loan was due upon demand At December 31, 2017 and December 31, 2016, the note payable balance was $0 and $17,815, respectfully. All loans were repaid in full by September 2017.

We currently have three otherCAPITALIZATION

The following table sets forth our cash and cash equivalents and capitalization as of September 30, 2020:

This table should be read in conjunction with, and is qualified in its entirety by reference to, “Use of Proceeds,” “Selected Historical Consolidated Financial and Other Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes outstanding,appearing elsewhere in this prospectus.

Unless we indicate otherwise, all of which are unsecured. Twoinformation in this Capitalization section:

DILUTION

If you invest in our common stock in this offering, your interest will be diluted to the extent of the note holders agreed to convert $300,000difference between the public offering price per share of our common stock and $200,000the as adjusted net tangible book value per share of their respective notes intoour common stock immediately after the closing of this offering.

Our historic net tangible book value of our common stock as of September 30, 2020 was ($7.6) million, or $[●] per share, based on the number of shares of our Common Stockcommon stock outstanding as part of September 30, 2020. Historic net tangible book value per share represents our private placementtotal tangible assets less our total liabilities, divided by the number of outstanding shares of common stock.

After giving effect to the [●]-for-1 stock split and the receipt of the net proceeds from our sale of [●] shares of common stock in 2017, leavingthis offering at an assumed public offering price of $[●] per share, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, our as adjusted net tangible book value as of September 30, 2020, would have been $[●] million, or $[●] per share. This represents an immediate increase in as adjusted net tangible book value of $[●] per share to our existing stockholders and an immediate dilution of $[●] per share to investors purchasing common stock in this offering.

We calculate dilution per share to new investors by subtracting the historic net tangible book value per share from the public offering price paid by the new investor. The following table illustrates the dilution to new investors on a per share basis:

Each $1.00 increase (decrease) in the assumed public offering price of $[●] would increase (decrease) our as adjusted net tangible book value per share after this offering by $[●] per share and the dilution to new investors by $[●] per share, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase (decrease) of 1,000,000 shares in the number of shares of common stock offered by us would increase (decrease) the as adjusted net tangible book value by $[●] per share and the dilution to new investors by $[●] per share, assuming the assumed public offering price remains the same and after deducting underwriting discounts and commissions.

If the underwriters’ option to purchase additional shares to cover over-allotments is exercised in full, the as adjusted net tangible book value per share after giving effect to this offering would be $[●] per share, representing an immediate increase to existing stockholders of $[●] per share, and immediate dilution to new investors in this offering of $[●] per share.

The following table summarizes, as of September 30, 2020, on the as adjusted basis described above:

A $1.00 increase (decrease) in the assumed public offering price of $[●] per share would increase (decrease) total consideration paid by new investors by $[●] million and increase (decrease) the total consideration paid to us by new investors by [●]%, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

If the underwriters’ option to purchase additional shares to cover over-allotments is exercised in full, the number of shares held and the percentage of total consideration paid by the existing stockholders after this offering would be reduced to [●]% and [●]%, respectively, and the number of shares held and the percentage of total consideration paid by new investors would increase to [●]% and [●]%, respectively.

The foregoing calculations exclude:

SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA

The following tables set forth our summary historical consolidated financial data as of, and for the periods ended on, the dates indicated.

The summary consolidated statements of operations data for the years ended December 31, 2019 and 2018 and the summary consolidated balance sheet data as of $80,000December 31, 2019 and $100,000, respectively.2018 are derived from our audited consolidated financial statements and notes that are included elsewhere in this prospectus.

The summary consolidated statements of operations data for the three and nine months ended September 30, 2020 and 2019 and the summary consolidated balance sheet data as of September 30, 2020 are derived from our unaudited interim consolidated financial statements and notes that are included elsewhere in this prospectus. We have prepared the unaudited consolidated financial statements in accordance with generally accepted accounting principles (GAAP) and on the same basis as the audited consolidated financial statements. Our historical results are not necessarily indicative of our results in any future period and results from our interim period may not necessarily be indicative of the results of the entire year.

MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our results of operations and financial condition should be read together with “Selected Historical Consolidated Financial and Other Data” and the financial statements and related notes included elsewhere in this prospectus. Such discussion and analysis reflects our historical results of operations and financial position and does not give effect to the completion of this offering. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” and elsewhere in this prospectus. 

Overview and History

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. 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 through design 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. Outlined below is an example of a complete project with estimated time frames for each phase that demonstrate how we provide value to our clients.

Our indoor commercial cultivation solution offers an integrated suite of services and equipment systems that generally fall within the following categories:

The majority of our clients are commercial CEA cultivators. We believe one of the key points of our differentiation that our clients value is the depth of experience of our employees and our Company. We currently employ 40 individuals. Approximately two-thirds of our employees are considered experts in their areas of focus, and our team includes Engineers (Mechanical, Electrical, Plumbing, Controls, and Agricultural), Professional Engineers, and individuals with Masters Degrees in Plant Science, Horticulture, and Business Administration. As a company, we have worked on more than 300 indoor CEA facilities, and believe that the experience of our team and Company provide clients with the confidence that we will proactively keep them from making common costly mistakes during the build out and operational stages. Our expertise translates into clients saving time, money, and resources, and provides them ongoing access to expertise that they can leverage without having to add headcount to their own operations. We provide this experience in addition to offering a platform of the highest quality equipment systems that can be integrated holistically into our clients’ facilities.

Recent Developments

COVID-19 Pandemic

In December 2019, a novel strain of coronavirus, COVID-19, was reported to have surfaced in Wuhan, China. In January 2020, this coronavirus spread to other countries, including the United States, and efforts to contain the spread of this coronavirus intensified. In March 2020, the World Health Organization declared the outbreak of the coronavirus a pandemic. We are a business that supplies other essential businesses with support and supplies necessary to operate and we therefore believe we are an essential business allowed to continue operating under the Stay-At-Home Orders that may be issued by many states and cities. However, as discussed below, we have seen a decrease in revenues for the nine months ended September 30, 2020, a portion of which was the result of clients deferring spending due to the impacts of COVID-19. The extent to which the COVID-19 pandemic impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the actions to contain COVID-19 or treat its impact. The outbreak and any preventative or protective actions that governments or we may take in respect of COVID-19 may result in a period of business disruption, reduced client business and reduced operations.

Due to the uncertainty and adverse impact on our operations and financial condition resulting from the outbreak of COVID-19, we took the following actions:

The ultimate magnitude of COVID-19, including the extent of its impact on our financial and operational results, which could be material, will depend on the length of time that the pandemic continues, its effect on the demand for our products and our supply chain, the effect of governmental regulations imposed in response to the pandemic, as well as uncertainty regarding all of the foregoing. We cannot at this time predict the full impact of the COVID-19 pandemic, but it could have a larger material adverse effect on our business, financial condition, results of operations and cash flows beyond what is discussed within this prospectus.

Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”)

On March 27, 2020, the CARES Act was enacted. The CARES Act is an approximate $2 trillion emergency economic stimulus package passed in response to the coronavirus outbreak. The CARES Act, among other things, includes broad sweeping provisions such as direct financial assistance to Americans in the form of one-time payments to individuals; aid to businesses in the form of loans and grants; and efforts to stabilize the U.S. economy and keep Americans employed in general. On April 16, 2020, we received a loan in the amount of $1,020,600 under the Paycheck Protection Program (“PPP”) of the CARES Act. The PPP provides for loans to qualifying businesses for amounts up to 2.5 times the average monthly payroll expenses of the qualifying business. On June 5, 2020, the Paycheck Protection Program Flexibility Act of 2020 (the “PPPFA”) was enacted. The PPPFA extended the covered period of the loans under the PPP from eight weeks to 24 weeks from the origination date of the loan, or December 31, 2020, whichever is earlier. Therefore, the PPP now provides a mechanism for forgiveness of up to the full amount borrowed after 24 weeks as long as the borrower uses the loan proceeds during the 24-week period after the loan origination for eligible purposes, including payroll costs, certain benefits costs, rent and utilities costs or other permitted purposes, and maintains its payroll levels, subject to certain other requirements and limitations. The amount of loan forgiveness is subject to reduction, among other reasons, if the borrower terminates employees or reduces salaries during the 24-week period. The interest rate on the loan is 1.0% per annum. The PPPFA also extended the deferment period for principal and interest payments on PPP loans from six months to ten months. Therefore, the payments of principal and interest under our PPP loan are deferred for ten months from the final day of the loan forgiveness period (the “Deferral Period”). Although the Company believes the PPP loan proceeds were used in accordance with the CARES Act guidance, the Company has not yet determined if any of the PPP loan is subject to forgiveness and has therefore continued to show the entire PPP loan as an obligation on its financial statements. Any unforgiven portion of the PPP loan is payable over the two-year term, with payments deferred during the Deferral Period. The Company may elect to prepay the unforgiven loan at any time without payment of any premium.

Results of Operations

This section includes a summary of our historical results of operations, followed by detailed comparisons of our results for (i) the nine months and the three months ended September 30, 2020 and 2019 and (ii) the years ended December 31, 2019 and 2018. We have derived this data from our interim and annual consolidated financial statements included elsewhere in this prospectus.

Nine Months Ended September 30, 2020 Compared to Nine Months Ended September 30, 2019

During the nine months ended September 30, 2020, we generated revenues of $16.6 million compared to revenues of $17.1 million during the nine months ended September 30, 2019, a decrease of $0.5 million, or 3%. Product sales revenue increased $0.6 million primarily due to an increase in cultivation equipment sales while services revenue decreased $1.1 million primarily due to a decrease in the average size of the facilities being designed. A portion of the decrease in revenues was the result of clients deferring spending due to the impacts of COVID-19. As a result of the deferred spending, many of the completion dates in our client contracts were extended, but no contracts were lost. We signed 57 new engineering design project contracts in the nine-month period ended September 30, 2020, including six new projects in Europe, and secured our first horticulture commissioning project, an East Coast based lettuce facility.

During the nine months ended September 30, 2020, cost of revenues was $12.6 million compared to $11.5 million during the nine months ended September 30, 2019, an increase of $1.1 million, or 9%. This increase is attributable to an increase in revenue from our lower margin product equipment sales and a reduction in our higher margin services revenue.

Gross profit was $4.0 million (24% of revenue) during the nine months ended September 30, 2020 compared to $5.5 million (32% of revenue) during the nine months ended September 30, 2019. Gross profit as a percentage of revenue decreased due to a revenue mix shift in the current period favoring product versus services revenue as noted above.

Operating expenses decreased by $3.1 million, or 32%, to $6.5 million for the nine months ended September 30, 2020 compared to $9.6 million for the nine months ended September 30, 2019. The decrease in operating expenses was comprised of a $2.0 million reduction in general operating expenses, mainly due to reduced salary and travel expenses, a $0.7 million reduction of marketing related expenses, and a $0.2 million reduction in stock-based compensation expense.

Non-operating expenses decreased $0.2 million to $1.5 million for the nine months ended September 30, 2020, compared to $1.7 million for the nine months ended September 30, 2019. Interest accrues at 1.7%expense, excluding $0.8 million related to the amortization of convertible debentures in the nine months ended September 30, 2019, increased $0.7 million due to the increase in debt over the comparable periods. For the nine months ended September 30, 2020 and 1.5%2019, the Company recognized an impairment loss of $0.3 million and $0.5 million, respectively, related to the investment in Total Grow Holdings LLC (d/b/a Total Grow Control, LLC) (“TGH”). The Company also incurred a $0.2 million expense for contingent consideration from the acquisition of Impact during the nine months ended September 30, 2020.

As a result of the above, we incurred a net loss of ($4.0) million for the nine months ended September 30, 2020, or a net loss per month on these notes. Both are unsecuredshare of ($0.14), compared to a net loss of ($5.7) million for the nine months ended September 30, or a net loss per share of ($0.22).

Three Months Ended September 30, 2020 Compared to Three Months Ended September 30, 2019

During the three months ended September 30, 2020, we generated revenues of $8.4 million compared to revenues of $5.6 million during the three months ended September 30, 2019, an increase of $2.8 million, or 50%. Product sales revenue increased $3.3 million primarily due to an increase in cultivation equipment sales while services revenue decreased $0.5 million primarily due to a decrease in the average size of facilities being designed. We signed 15 new engineering design project contracts in the three-month period ended September 30, 2020.

During the three months ended September 30, 2020, cost of revenues was $6.7 million compared to $3.7 million during the three months ended September 30, 2019, an increase of $3.0 million, or 82%. This increase is attributable to an increase in revenue from our lower margin product equipment sales and a reduction in our higher margin services revenue.

Gross profit was $1.7 million (20% of revenue) during the three months ended September 30, 2020 compared to $1.9 million (35% of revenue) during the three months ended September 30, 2019. Gross profit as a percentage of revenue decreased due to a revenue mix shift in the current period favoring product versus services revenue as noted above.

Operating expenses decreased by $1.4 million, or 42%, to $1.9 million for the three months ended September 30, 2020 compared to $3.3 million for the three months ended September 30, 2019. The decrease in operating expenses was comprised of a $1.0 million reduction in general operating expenses mainly due to reduced salary and travel expenses, a $0.3 million reduction of marketing related expenses, and a $0.1 million reduction in stock-based compensation expense.

Non-operating expenses decreased $0.9 million to $0.5 million for the three months ended September 30, 2020, compared to $1.4 million for the three months ended September 30, 2019. Interest expense, excluding $0.8 million related to the amortization of convertible debentures in the nine months ended September 30, 2019, increased $0.3 million due to the increase in debt over the comparable period. In the three months ended September 30, 2019 the Company recorded a $0.5 million impairment loss related to TGH. The Company incurred a $0.2 million expense for contingent consideration from the acquisition of Impact during the three months ended September 30, 2020.

As a result of the above, we incurred a net loss of ($0.7) million for the three months ended September 30, 2020, or a net loss per share of ($0.02), compared to a net loss of ($2.8) million for the three months ended September 30, 2019, or a net loss per share of ($0.11).

Year Ended December 31, 2019 Compared to Year Ended December 31, 2018

During the year ended December 31, 2019, we generated revenues of $24.2 million compared to revenues of $20.1 million during the year ended December 31, 2018, an increase of $4.1 million (21%). While this increase was partially attributable to the demand for our solutions, we believe that our increased marketing efforts and industry demand for large, environmentally controlled, grow facilities primarily contributed to the increase in our revenues. The increase in revenue primarily resulted from an increase of $4.3 million in sales of cultivation equipment, an increase of $2.2 million in professional services, an increase of $0.8 million in environmental sciences revenues offset by a decrease in sales of complex equipment systems and other revenue of $3.2 million. The overall increase in our revenues was primarily driven by an increase in the number of sales that we generated.

In 2019, we implemented a strategic initiative to more closely align with our clients and sell an all-encompassing enterprise platform solution. This solution is a full service consultative integrated facility package for interior cultivation design. Supporting this directive, for the year ended December 31, 2019, the Company secured engineering design service contracts for 76 projects, totaling 1,914,030 square feet.

Cost of sales increased to $17.6 million during the year ended December 31, 2019, compared to $13.9 million during the year ended December 31, 2018, an increase of $3.7 million (27%). This increase was directly related to an increase in revenue from our lower margin equipment sales, change in salary allocation, and an increase in payables for contractors related to our design services.

Gross profit increased to $6.6 million (27% of revenue) during the year ended December 31, 2019, compared to $6.2 million (31% of revenue) during the year ended December 31, 2018. The third note hasGross profit as a principal balancepercentage of $300,000, accrues interest at the rate of 1.65% per month and wasrevenue decreased due to mature March 23, 2018. This note was extended for one year. Interest is paid twice monthly.increased sales of lower margin products, primarily lighting systems, during 2019.

While no assurances can be providedOperating expenses increased to $12.5 million for the year ended December 31, 2019, compared to $10.0 million for the year ended December 31, 2018, an increase of $2.5 million (25%). General and administrative expense, excluding amortization of broker issuing costs and broker warrants associated with our offering of convertible debentures of $0.4 million, increased by $1.5 million (19%), due primarily to our expanding work force. Many of our new employees are members of management, hold advanced degrees, and are experts in their area of focus, which increased compensation expense. Stock compensation expense increased by $0.6 million primarily as a result of the timing of vesting of stock grants and stock options previously issued under our stock grant and stock option programs.

Interest expense, excluding amortization related to the convertible debentures of $1.3 million in the year ended December 31, 2019, was $0.7 million compared to $0.1 million incurred during the year ended December 31, 2018, as a result of increased debt.

As a result of the above, we anticipateincurred a net loss of ($8.4) million for the year ended December 31, 2019, or a net loss per share of ($0.32), compared to a net loss of ($3.9) million for the year ended December 31, 2018, or a net loss per share of ($0.16).

Non-GAAP Financial Measures

The Company uses the supplemental financial measure of Adjusted Earnings before Interest, Taxes, Depreciation and Amortization (“Adjusted EBITDA”) as a measure of our operating performance. Adjusted EBITDA is not calculated in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and it is not a substitute for other measures prescribed by GAAP such as net income (loss), income (loss) from operations, and cash flows from operating activities. We define Adjusted EBITDA as net income (loss) attributable to urban-gro, Inc., determined in accordance with GAAP, excluding the effects of certain operating and non-operating expenses including, but not limited to, interest expense, depreciation of tangible assets, amortization of intangible assets, impairment of investments, and stock-based compensation that we willdo not believe reflect our core operating performance.

Our board of directors and management team focus on Adjusted EBITDA as a key performance and compensation measure. We believe that Adjusted EBITDA assists us in comparing our operating performance over various reporting periods because it removes from our operating results the impact of items that our management believes do not reflect our core operating performance.

The following table reconciles net loss attributable to the Company to Adjusted EBITDA for the periods presented:

Adjusted EBITDA for the nine months ended September 30, 2020 was a negative ($0.9) million, compared to a negative ($2.1) million for the nine months ended September 30, 2019, due to the offsetting effects of reduced operating expenses and reduced gross profit. Adjusted EBITDA for the three months ended September 30, 2020 was $0.3 million compared to a negative $0.7 million for the three months ended September 30, 2019, due primarily to reduced operating expenses.

Adjusted EBITDA for the year ended December 31, 2019 was a negative ($3.3) million, compared to a negative ($2.4) million for the year ended December 31, 2018, due to an increase in operating expenses primarily due to our expanding workforce when compared to the prior year.

There are limitations to using non-GAAP measures such as Adjusted EBITDA. Although we believe that Adjusted EBITDA can make an evaluation of our operating performance more consistent because it removes items that do not reflect our core operations, other companies in our industry may define Adjusted EBITDA differently than we do. As a result, it may be difficult to use Adjusted EBITDA to compare the performance of those companies to our performance. Adjusted EBITDA should not be considered as a measure of the income generated by our business or discretionary cash available to us to invest in the growth of our business.

Liquidity and Capital Resources

September 30, 2020 Compared to December 31, 2019

As of September 30, 2020, we had cash of $213,392, which represented a decrease of $235,311 from December 31, 2019.

Since inception, we have incurred significant operating losses and have funded our operations primarily through issuances of equity securities, debt, and operating revenue. As of September 30, 2020, we had an accumulated deficit of $20,850,508, a working capital deficit of $4,833,132, and negative stockholders’ equity of $6,703,947. Our ability to generate sufficient revenues duringto pay our debt obligations and accounts payable when due remains subject to risks and uncertainties. These risks and uncertainties raise substantial doubt about our ability to continue as a going concern within one year after the remainderdate that the condensed consolidated financial statements in connection with this prospectus were issued. The condensed consolidated financial statements included in this prospectus have been prepared on a going concern basis and do not include any adjustments relating to the recoverability and classification of 2018recorded asset amounts or amounts of liabilities that might result from the outcome of this uncertainty. Our ability to continue as a going concern is dependent upon, among other things, our ability to generate revenue, control costs and raise capital. Such capital, however, may not be available, if at all, on terms that are acceptable to us.

As described in the notes to the condensed consolidated financial statements included in this prospectus, on February 21, 2020, we entered into 2019the letter agreement by and among us, as borrower, urban-gro Canada Technologies Inc. and Impact Engineering, Inc., as guarantors, the lenders party thereto, and Bridging Finance Inc., as administrative agent for the lenders (the “Credit Agreement”), providing for a senior secured demand term loan facility in the amount of C$2.7 million ($2.0 million) and a demand revolving credit facility of up to satisfyC$5.4 million ($4.0 million). Our failure to obtain additional debt or equity financing in the future could have a negative impact on our needs. However, ifability to continue as a going concern or to grow and expand our operations, which will have a negative impact on our anticipated results of operations. As of September 30, 2020, we had no availability under the revolving credit facility.

If we do not raise enough funds from a financing, or generate profits,sufficient operating cash flow, or if such profits are insufficient, or if additional expenditures and acquisitions are identified and we cannot use our securities as compensation, we will need additional capitalfunding to continue to implement our business plan. If such capital is required,plan and to execute our strategic initiatives. Other than the availability pursuant to the revolving credit facility described above, we estimate that we will need approximately $500,000. While we believe we will be able to raise these funds in either debt or equity, wedo not currently have noan agreement with any third party to provide us the samewith such financing and there can be no assurances that we will be able to raise any capital on commercially reasonable terms, or at all. If we require additional capital and are unable to raise the same, it could have a material negative impact on our results of operations.

Net cash used in operating activities was $3.0 million during the nine months ended September 30, 2020, compared to $0.1 million used for the nine months ended September 30, 2019. Operating cash has been positively impacted from an increase in client deposits as demand for our services and equipment solutions increased in the nine months ended September 30, 2020. At September 30, 2020, we had $4.1 million in client deposits related to client orders, which compared favorably to client deposits of $2.9 million as of December 31, 2019. We require prepayments from clients before any design work is commenced and before any material is ordered from the vendor. These prepayments are booked to the client deposits liability account when received. Our standard policy is to collect the following before action is taken on a client order: 50% deposit; and the remaining 50% payment made prior to shipping. We expect client deposits to be relieved from the deposits account no longer than 12 months for each project. We do not have trade payable terms with most of our vendors and as a result, we are required to prepay a portion or all of the total order. At September 30, 2020, we had $1.1 million in accounts payable, compared to $3.8 million at December 31, 2019.

Net cash used in investing activities was $0.1 million for the nine months September 30, 2020, compared to $0.9 million during the nine months ended September 30, 2019. Historically, cash has been used to increase our investments in strategic partnerships and to acquire property and equipment. We do not anticipate using significant cash in the future to invest in strategic partnerships. We will continue to have ongoing needs to purchase property and equipment to maintain our operations. We had no material commitments for capital expenditures as of September 30, 2020.

Net cash provided by financing activities was $2.9 million for the nine months ended September 30, 2020, compared to $3.3 million during the nine months ended September 30, 2019. Cash provided from financing activities during the nine months ended September 30, 2020 primarily relates to $5.3 million in proceeds received from the issuance of debt and a $1.0 million long-term loan, offset by $2.8 million used in the repayment of notes payable and $0.6 million in financing fees related to the issuance of debt.

December 31, 2019 Compared to December 31, 2018

As of December 31, 2019, we had cash of $448,703, which represented a decrease of $730,149 from December 31, 2018.

Since inception, we have incurred significant operating losses and have funded our operations primarily through issuances of equity securities, debt, and operating revenue. As of December 31, 2019, we had an accumulated deficit of $16,890,626, a working capital deficit of $8,318,980, and negative stockholders’ equity of $5,008,334.

Effective January 9, 2019, we executed a letter agreement with 4Front Capital Partners, Inc., Toronto, Canada (“4Front”), whereby 4Front agreed to act as our exclusive placement agent in connection with a private placement offering. Beginning in March 2019, 4Front initiated an offering of up to $6.0 million from the sale of units, with each unit consisting of a $1,000 Convertible Debenture and Common Stock Purchase Warrants to purchase 207.46 shares of our Common Stock at $3.00 per share for a period of two years from the purchase date. The debentures were due May 31, 2021 and bore interest at 8%, compounded annually, with interest due at maturity. On October 16, 2019, the $2.6 million in debentures plus $92,037 in accrued interest were converted into 1,102,513 shares of common stock at $2.41 per share pursuant to their terms as a result of our registration of the securities on a registration statement that was declared effective on such date. The warrants contain a mandatory exercise provision if the weighted average share price of our common stock exceeds $5.00 per share for a period of five consecutive days.

Net cash used in operating activities was $2.5 million during the year ended December 31, 2019, compared to $2.3 million for the year ended December 31, 2018. Operating cash was positively impacted from an increase in deposits as our business continued to grow. At December 31, 2019, we had $2.9 million in deposits related to client orders. At December 31, 2019, we had $1.3 million in prepayments and advances, primarily comprised of prepayments to vendors to initiate orders.

Net cash used in investing activities was $1.1 million for the year ended December 31, 2019, compared to $1.3 million during the year ended December 31, 2018. We had no material commitments for capital expenditures as of December 31, 2019.

Net cash provided by financing activities was $2.9 million for the year ended December 31, 2019, compared to $3.1 million during the year ended December 31, 2018. Cash provided from financing activities during the year ended December 31, 2019 primarily related to $2.6 million in proceeds we received from our offering of units in addition to a short term note payable for $1.0 million.

In October 2018, we issued a $1.0 million unsecured note payable to Cloud9 Support, Inc. (“Cloud9”), an entity owned by James Lowe, a director, which became due April 30, 2019. The loan had a one-time origination fee of $12,500. Interest accrued at the rate of 12% per annum and was paid monthly. As additional consideration for the loan we granted Mr. Lowe, as designee for Cloud9, an option to purchase 30,000 shares of our common stock at an exercise price of $1.20 per share, which option is exercisable for a period of five years. The loan is guaranteed by Mr. Nattrass, our CEO, a director and one of our principal shareholders, and by Mr. Gutierrez, one of our principal shareholders, and a former officer and director of the Company. The due date for the note payable was extended in May 2019 to December 31, 2019 and the interest rate was decreased to 9% per year. In consideration for Cloud9 extending the maturity date of the note and reducing the interest rate, we agreed to issue 10,000 shares of our common stock to Mr. Lowe, as designee for Cloud9. In December 2019, in connection with our entry into the facilities under the Credit Agreement, the due date for the note payable was extended to December 31, 2021, and we agreed to issue Mr. Lowe, as designee for Cloud9, an additional 100,000 shares of common stock in exchange for this extension and his agreement to subordinate the loan to the obligations underlying the facilities.

Gross debt, excluding operating leases, was $3.8 million and $3.5 million as of December 31, 2019 and December 31, 2018, respectively. This represents an increase in gross debt of $0.3 million primarily due to a $0.7 million short term note payable offset by principal paydowns.

Inflation

Although our operations are influenced by general economic conditions, we do not believe that inflation had a material effect on our results of operations during the nine months ended September 30, 2020.

Critical Accounting Policies and Estimates

Critical accounting estimates – The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The following representsconditions For a summary of our criticaldetailed discussion about the Company’s significant accounting policies, defined as those policies that we believe arerefer to Note 2 — “Summary of Significant Accounting Policies,” in the most importantCompany’s consolidated financial statements included in this prospectus. During the nine months ended September 30, 2020, there were no material changes made to the portrayal of our financial condition and results of operations and that require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain.Company’s significant accounting policies.

Stock-based Compensation– We account for stock-based compensation using the fair value method following the guidance set forth in section 718-10 of the FASB Accounting Standards Codification for disclosure about Stock-Based Compensation. This section requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). That cost will be recognized over the period during which an employee is required to provide service in exchange for the award- the requisite service period (usually the vesting period). No compensation cost is recognized for equity instruments for which employees do not render the requisite service.

Leases– We follow the guidance in ASC 840 “Leases,” which requires us to evaluate the lease agreements we enter into to determine whether they represent operating or capital leases at the inception of the lease.

Inflation

Although our operations are influenced by general economic conditions, we do not believe that inflation had a material effect on our results of operations during the year ended December 31, 2017.

Off-Balance Sheet Arrangements

We have not entered into any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources and would be considered material to investors.

Recent Accounting Pronouncements

Under the Jumpstart Our Business Startups Act, or the JOBS Act, we meet the definition of an “emerging growth company.” We have irrevocably elected to opt out of the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act. As a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non- emerging growth companies.

From time to time, the FASB or other standards setting bodies issue new accounting pronouncements. Updates to the FASB ASCs are communicated through issuance of an Accounting Standards Update ("ASU"). Unless otherwise discussed, we believe 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 our consolidated financial statements upon adoption.

FASB ASU No. 2014-09 (Topic 606), “Revenue from Contracts with Customers” – Issued in May 2014, ASU 2014-09 will require an entity to recognize revenue when it transfers promised goods or services to customers using a five-step model that requires entities to exercise judgment when considering the terms of the contracts. In August 2015, the FASB issued ASU No. 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date”. This amendment defers the effective date of ASU 2014-09 by one year. In March 2016, the FASB issued ASU 2016-08, “Principal versus Agent Considerations (Reporting Gross versus Net)”, which amends the principal versus agent guidance and clarifies that the analysis must focus on whether the entity has control of the goods or services before they are transferred to the customer. In addition, the FASB issued ASU Nos. 2016-20, “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers” and 2016-12, “Narrow-Scope Improvements and Practical Expedients”, both of which provide additional clarification of certain provisions in Topic 606. These ASC updates are effective for annual reporting periods beginning after December 15, 2017, but early adoption is permitted. Early adoption is permitted only as of annual reporting periods after December 15, 2016. The standard permits the use of either the retrospective or cumulative effect transition method.

The Company expects to apply the guidance using the modified retrospective transition method. The Company does not expect the adoption of ASU 2014-09 to have a material impact on the Company’s financial position or results of operations but will result in additional disclosures regarding the Company’s revenue recognition policies. The Company also does not expect the adoption of ASU 2014-09 will require material or significant changes to its internal controls over financial reporting. In connection with the application of that guidance and the adoption of ASU 2014-09, the Company expects that it will expand its revenue recognition inquiries and update its questionnaires primarily to identify matters that would signal variable consideration implications under the new guidance.

FASB ASU 2016-02, Leases (Topic 842) - ASU 2016-02 requires that a lessee recognize the assets and liabilities that arise from operating leases. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its rightFASB ASU No. 2014-15, “Disclosure of Uncertainties about an Entities Ability to Continue as a Going Concern,to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. Public business entities should apply the amendments in ASU 2016-02 for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years (i.e., January 1, 2019, for a calendar year entity). Early application is permitted for all public business entities and all nonpublic business entities upon issuance. The adoption of this standard is not expected to have a material impact on the Company’s financial position and results of operations. 

There were various other accounting standards and interpretations issued during 2014, none of which are expected to have a material impact on our consolidated financial position, operations or cash flows.

DESCRIPTION OF BUSINESS

OverviewHistory

We were originally formed on March 20, 2014, as a Colorado limited liability company. In March 2017, we converted to a Colorado corporation and issued 193.3936722exchanged shares of our Common Stockcommon stock for every Member Interestmember interest issued and outstanding on the date of conversion.

We are an agricultural technology systems integrator that provides full design and expertise on lighting systems, climate control and automated control of fertigation/irrigation systems, environmental, substrate and inventory monitoring, water treatment systems, integrated pest management solutions, and On October 29, 2020, we reincorporated as a complete line of cultivation equipment. As of the date of this S1 Filing, all of our revenues have been derived from sales to the Cannabis industry. We are not required to be licensed by the Colorado Marijuana Enforcement Division, as we do not touch the plant, nor otherwise generate any revenues from the sale of marijuana. Rather, we are an ancillary company that provides supporting products and services to those who cultivate marijuana. In 2017 and in 2018, the National Cannabis Industry Association (NCIA) awarded its annual Cannavation Award, for innovation in Technology and Cultivation, to urban-gro. The NCIA is one of the larger national Cannabis associations in the US.Delaware corporation.

Our primary business purposewebsite is to engage directly with large scale indoor and greenhouse commercial cultivators growing high-value crops and design and engineer state of the art facilities and systems that focus on maximizing plants yields and lowering overall operational costs. We have and will continue to work with grow operations and production facilities to pursue strategies to, provide services, products, and other potential revenue-producing opportunities in the high value crop arenas. We engage directly with the ownership groups and growers at these facilities and strategically work with them to provide value-added services and industry best products that assist them in lowering production costs and increasing crop yields. We believe our customers work with us because we save them time, money, and resources.

Our strategic direction is to become a one-stop or “turnkey” provider of agricultural technology design and engineering, systems procurement, commissioning, operational support (consumables delivery, integrated pest management, materials reorder), and data acquisition and analysis services for large cultivation enterprises in the cannabis, horticultural, and high-value crop spaces. Executing this strategy will result in our pursuing strategic partnerships, investments and acquisitions in order to allow us to consolidate this complete portfolio of services and systems that we believe are necessary for a cultivator to meet yield, cost, and time to startup objectives. For example, and in addition to the current technology investments, it is likely that we will pursue vertically integrated strategic relationships with mechanical, electrical, and plumbing (MEP design firms). The MEP firm is usually the first to begin working with owners on designing the initial aspects of a facility. By doing so we believe we would have the ag tech design and engineering discussions six to nine months earlier and would also shorten the overall design to turn-up timeline for our client. There are no assurances we will be able to acquire companies on favorable terms, or at all. See “Growth by Acquisitions,” below.

In August 2016, when still an LLC, we undertook a private offering of our member interests wherein we received subscriptions of $575,107 in the form of 6,392 member interests to three (3) accredited investors (approximately $90 per member interest, or approximately $0.46 per share based upon the conversion rate of 193.3936722 shares per member interest issued when we converted into a corporation in 2017). These funds were used to (i) add two systems designers to expand our Cultivation Technologies team to support market demand; (ii) expand our operations into the expanding fertigation marketplace as States approving legalized cannabis increased, (iii) hire a mechanical engineer to begin vetting opportunities to add IP and technology to our future business offering, (iv) hired a strategic financial consultant to aid in compiling a business forecast model;, and (v) fund working capital to support brand building marketing initiatives focused on trade show participation and an Increased on-hand inventory position.

In May 2017, we commenced a private offering of our Common Stock wherein we received subscriptions of $2,546,000 from the sale of 2,546,000 shares, at $1 per share, to 76 investors, including 58 “accredited” investors, as that term is defined under the Securities Act of 1933, as amended. These funds were used to repay debt, expansion of our existing business operations, new investment opportunities and working capital.

Our Company website iswww.urban-gro.com,, which containcontains a description of our Company and products, but suchproducts. In addition, we also maintain a branded technology product website at www.soleiltech.ag. Such websites and the information contained on oursuch websites are not part of this Prospectus.  Inprospectus.

Overview

urban-gro, Inc. 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. 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.

Since commencing business in March 2014, we have introduced new equipment solutions, products and services to the CEA market, expanded our ongoing operations across North America, and most recently, we have entered into several engagements in Europe.

The majority of our clients are commercial CEA cultivators. We believe one of the key points of our differentiation that clients value is the depth of experience of our employees and our Company. We currently employ 40 individuals. Approximately two-thirds of our employees are considered experts in their areas of focus, and our team includes Engineers (Mechanical, Electrical, Plumbing, Controls, and Agricultural), Professional Engineers, and individuals with Masters Degrees in Plant Science, Horticulture, and Business Administration. As a company, we have worked on more than 300 indoor CEA facilities, and believe that the experience of our team and Company provide clients with the confidence that we will proactively keep them from making common costly mistakes during the build out that impact operational stages. Our expertise translates into clients saving time, money, and resources through expertise that they can leverage without having to add headcount to their own operations. We provide this experience in addition we also maintain branded product websitesto offering a platform of www.soleiltech.ag and www.opti-dura.com.the highest quality equipment systems that can be integrated holistically into our clients’ facilities.

Our Services and Integrated Equipment Solutions

We aim to work with our clients from inception through design of their project in a way that provides value throughout for 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. Outlined below is an example of a complete project with estimated time frames for each phase that demonstrate how we provide value to our clients.

Current Business

We view ourselves as a leading ancillary business in the rapidly expanding legalized cannabis market in the US. We currently haveOur indoor commercial cultivation solution offers an existing client baseintegrated suite of over 500 large commercial cannabis cultivators located throughout the US and Canada, and, while no assurances can be provided, we forecast 2,000+ customers purchasing our cultivation products bi-monthly by 2020, provided that additional countries, and states in the US continue to adopt legislation approving the use of medical or recreational marijuana, of which there can be no assurance. Our intent is to continue to capture market share as the cannabis industry continues to develop and mature, and to leverage that experience and our technology development to penetrate the faster growing segments of the broader horticultural and agricultural industries.In the cannabis industry we engage directly with ownership groups and growers operating large indoor and outdoor greenhouse cultivation facilities and strategically work with them to provide value-added services and industry best productsequipment systems that assist them in lowering production costs and increasing crop yields.

We are focused on driving shareholder value by continually developing the technology platform that we added to our business plan in 2017, and focusing on bringing more intellectual property (“IP”) in-house. We are focused on integrating technologies including high density wireless sensors, machine learning, and artificial intelligence into our product offerings. We intend to diversify our sector sales strategy by targeting traditional horticulture operators with our service and systems to companies involved in growing tomatoes, strawberries, chilies and peppers, and leaf lettuce. Focusing on global agriculture and all high value crops, this technology is expected to allow us to offer our customers drastically better efficiencies while decreasing costs of production and increasing yields. There are no assurances this benefit will accrue.

We define our relationships with our customers through three areas comprised of products, services and technology:

We offergenerally fall within the following cultivation equipment and crop management products:categories:

We offerService Solutions

Engineering and Design Services

As a leader in indoor CEA facilities, we provide our clients with service offerings that span from engineering design to the following Design & Integration Services:operational stages of the facility. Our engineering and design services offering includes three engagements: CSP, ICD, and MEP.

We also offer the following hardware and software solutions technology:

Industry PartnershipsOur Service Offering

As a systems integrator we believe it is imperativeWe provide value for us to maintain close relationships with leading technology partners, and as such, we have attempted to integrate ourselves in the horticulture and agriculture industry, having formed strategic partnerships with a number of industry-leading solution providers like Argus Control Systems, Biobest Group NV, Crop Production Services, Dosatron International, and Netafim,. A brief description of these companies is as follows:

Argus Control Systems, a Conviron Company -Argus provides automated environmental control and fertigation systems for horticulture, aquaculture, and related biotechnology industries. Argus’ capabilities Include facilities automation and specialty monitoring and control applications to support the needs of its customers. Argus is an automated control systems pioneer with over thirty years of leadership and innovation in control technology. Argus was among the first to use computers for integrating the control of greenhouse environments and irrigation systems. Argus systems are used in horticulture and biotechnology research facilities, universities, aquaculture and aquaponics, and many other custom control applications at sites throughout the world.

Biobest Group NV –This company specializes in pollination and biological control. In 1987, Biobest was the first company to put bumblebees on the market. With thirty years of expertise, Biobest continues to deliver high quality products at all times by maintaining quality at every level: in the factory and during the transport in order to guarantee an optimal result in the crop. Biobest strongly focuses on research and development, providing tailored advice for crops worldwide.

Crop Production Services (CPS), a division of Agrium - CPS is one of the largest farm market retailers in North America. With over 150 years in business, CPS is the most effective and efficient supply chain for rapid development of seed, fertilizer and crop protection products.

Dosatron International -Dosatron is the original inventor of the water-powered dosing pump. Since the first Dosatron was first manufactured in 1974, Dosatron has grown to be the world leader in water-powered dosing technology. Today, Dosatron manufactures and sells a wide variety of chemical injectors in over 100 countries worldwide.

Dosatron International has been serving North and Central America for nearly 30 years. Their full-service operation has an injector to meet virtually any chemical management need. Their injectors are used for everything from horticulture fertilization to vehicle wash chemical applications; from livestock medication and vaccination to pest control and plant sanitation. Dosatron injectors feature superior engineering to create the most durable, easy-to-use, low-maintenance product on the market. Dosatron manages its customers’ chemical application through repeatability, regardless of fluctuations in pressure or flow. Dosatron’s chemical injectors operate on a volumetric dosing principle, which allows them to inject the correct amount of concentrate, regardless of changes in water pressure or flow.

Netafim - Netafim is recognized as the world leader in drip irrigation systems and agricultural projects. Since 1965, Israel based Netafim has been a pioneer in drippers, dripper lines, sprinklers and micro-emitters. Netafim also manufactures and distributes crop management technologies including monitoring and control systems, dosing systems, and crop management software.

We procure raw materialsclients in the form of fertilizers, nutrients, substrates,facility commissioning and componentsstaff training. Combined, this solution focuses on the troubleshooting, tuning, and support of a myriad of cultivation systems and equipment while further providing guidance for technological systemsclient interactions with tradespeople working on HVAC, electrical, and plumbing in the formfacility.

Many of automated controls, water filteringthe current service options available to clients are isolated to vendors providing post-sale service for a single piece of equipment – whereas our service has a cultivation-level view of the complex system made up by each piece of equipment.