EX-99.3 4 ex99-3.htm

 

Exhibit 99.3

 

urban-gro, Inc.

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

 

The following unaudited pro forma condensed combined balance sheet and statements of operations and comprehensive income (loss) are presented to give effect to the acquisition by urban-gro, Inc. (the “Company”) on July 30, 2020 of all of the issued and outstanding common stock (the “Acquisition”) of: 2WR of Colorado, Inc., a Colorado corporation; 2WR of Georgia, Inc., a Georgia corporation; and MJ12 Design Studio, Inc., a Colorado corporation (collectively, the “Acquired Entities”) from their shareholders (collectively, the “Sellers”). The pro forma information was prepared based on the historical financial statements and related notes of the Company and the Acquired Entities, as adjusted for the pro forma impact of applying the acquisition method of accounting in accordance with Generally Accepted Accounting Principles in the United States (“U.S. GAAP”). The pro forma adjustments are based upon available information and assumptions that the Company believes are reasonable. The allocation of the purchase price of the Acquired Entities reflected in these unaudited pro forma condensed combined financial statements have been based upon the fair value of assets acquired and liabilities assumed as of the date indicated and not as of the closing date. The pro forma adjustments are therefore preliminary and have only been prepared to illustrate the estimated effect of the Acquisition.

 

The unaudited pro forma condensed combined balance sheet has been prepared to reflect the Acquisition as if the Acquisition had occurred on June 30, 2021. The unaudited pro forma condensed combined statements of operations and comprehensive income (loss) combine the results of operations of the Company and of the Acquired Entities for the six months ended June 30, 2021 and for the year ended December 31, 2020 as if the Acquisition had occurred on January 1, 2021 and January 1, 2020, respectively.

 

The unaudited pro forma condensed combined financial statements were prepared using the acquisition method of accounting with the Company treated as the acquiring entity. The aggregate value of the consideration paid by the Company to complete the acquisition was allocated to the assets acquired and liabilities assumed from the Acquired Entities based upon their estimated fair values as of June 30, 2021, and not the actual closing date of the Acquisition. The Company has not completed the detailed valuations necessary to estimate the fair value of the assets acquired and the liabilities assumed from the Acquired Entities and the related allocations of purchase price, nor has the Company identified all adjustments necessary to conform the Acquired Entities’ accounting policies to the Company’s accounting policies. Additionally, a final determination of the fair value of assets acquired and liabilities assumed from the Acquired Entities will be based on the actual net tangible and intangible assets and liabilities of the Acquired Entities that existed as of the closing date. Accordingly, the pro forma purchase price adjustments presented herein are preliminary, and may not reflect any final purchase price adjustments made in connection with the Acquisition. The Company has estimated the fair value of the Acquired Entities’ assets and liabilities based on discussions with the Acquired Entities’ management and due diligence procedures. As the final valuations are being performed, increases or decreases in the fair value of relevant balance sheet amounts will likely result in adjustments, which may result in material differences from the information presented herein.

 

The unaudited pro forma condensed combined financial statements should be read in conjunction with the Company’s historical consolidated financial statements and related notes included in its Quarterly Report on Form 10-Q for the six months ended June 30, 2021 and Annual Report on Form 10-K for the year ended December 31, 2020 filed with the Securities and Exchange Commission (the “SEC”) on August 11, 2021 and March 31, 2021, respectively.

 

There were no transactions between the Company and the Acquired Entities during the periods presented in the pro forma condensed combined financial statements. The Company expects to incur costs and realize benefits associated with integrating the operations of the Company and the Acquired Entities. The unaudited pro forma condensed combined financial statements do not reflect the costs of any integration activities or any benefits that may result from operating efficiencies or revenue synergies. The unaudited pro forma condensed combined statements of operations and comprehensive income (loss) do not reflect any non-recurring charges directly related to the Acquisition that the combined entities may incur upon completion of the Acquisition.

 

 

 

 

urban-gro, Inc.

Unaudited Pro Forma Condensed Combined Balance Sheets

As of June 30, 2021

 

   Historical Amounts            
   urban-gro, Inc.   Acquired Entities   Pro Forma Adjustments   Note 3  Pro Forma 
Assets                        
Current Assets                        
Cash   $50,444,738   $884,395   $(6,300,000)  (a)  $45,029,133 
Accounts receivable, net    2,977,167    1,144,533            4,121,700 
Inventories    627,276    -            627,276 
Related party receivable    5,626    -            5,626 
Prepayments and other assets    6,212,891    73,561            6,286,452 
Total Current Assets    60,267,698    2,102,489            56,070,187 
                        
Non-current assets:                        
Property and equipment, net    96,734    66,732            163,466 
Operating lease right of use assets, net    22,222    45,828            68,050 
Investments    1,710,358    -            1,710,358 
Goodwill    902,067    -    8,329,173   (d)   9,231,240 
Other assets    83,936    -            83,936 
Total non-current assets    2,815,317    112,559            11,257,049 
                        
Total Assets   $63,083,015   $2,215,049           $67,327,237 
                        
Liabilities                        
Current liabilities                        
Accounts payable   $2,265,840   $51,843           $2,317,683 
Accrued expenses    1,971,405    546,547    1,600,000   (a) (b)   4,117,952 
Notes payable, current    -    449,222    (449,222)  (b)   - 
Deposits    9,354,279    -            9,354,279 
Operating lease liabilities    22,222    45,833            68,055 
Total Current Liabilities    13,613,746    1,093,444            15,857,968 
                        
Non-current liabilities                        
Notes Payable    -    560,694    (560,694)  (b)   - 
Right of Use Liabilities    -    -            - 
Total Long Term Liabilities    -    560,694            - 
                        
Total Liabilities    13,613,746    1,654,137            15,857,968 
                        
Shareholders’ equity                       
Preferred stock    -    -            - 
Common stock    11,223    965    (763)  (a) (c)   11,425 
Additional paid in capital    75,227,775    8,281    1,991,517   (a) (c)   77,227,573 
Treasury shares    (3,474,270)   -            (3,474,270)
(Accumulated deficit) Retained earnings    (22,295,459)   551,666    (551,666)  (c)   (22,295,459)
Total shareholders’ equity   49,469,269    560,912            51,469,269 
                        
Total liabilities and shareholders’ equity  $63,083,015   $2,215,049           $67,327,237 

 

 

 

 

urban-gro, Inc.

Unaudited Pro Forma Condensed Combined Statements of Operations and Comprehensive Income (Loss)

For the Six Months Ended June 30, 2021

 

    Historical Amounts                  
    urban-gro, Inc.     Acquired Entities     Pro Forma Adjustments     Note 3   Pro Forma  
Revenue                                    
Equipment systems     $ 23,524,066     $ -                 $ 23,524,066  
Services       548,920       3,752,080                   4,301,000  
Consumable products     792,667       -                   792,667  
Total Revenue     24,865,653       3,752,080                   28,617,733  
                                     
Cost of Revenue     19,302,626       1,934,249                   21,236,875  
Gross Profit     5,563,027       1,817,831                   7,380,858  
                                     
Operating expenses                                    
General and administrative       4,597,835       1,010,710                   5,608,545  
Stock-based compensation     590,407       -                   590,407  
Total operating expenses     5,188,242       1,010,710                   6,198,952  
                                     
Income from operations     374,785       807,121                   1,181,906  
                                     
Non-operating income (expense):                                    
Interest expense     (322,067 )     (9,282 )                 (331,349 )
Interest expense - beneficial conversion of notes payable     (636,075 )     -                   (636,075 )
Loss on extinguishment of debt     (790,723 )     -                   (790,723 )
PPP loan forgiveness     1,032,316       265,883                   1,298,199  
Other income     10,626       8                   10,634  
Total non-operating income (expense)     (705,923 )     256,609                   (449,314 )
                                     
Income (loss) before income taxes     (331,138 )     1,063,730                   732,592  
                                     
Income tax expense (benefit)     -       -                   -  
Net income (loss)   $ (331,138 )   $ 1,063,730                 $ 732,592  
                                     
Comprehensive income (loss)   $ (331,138 )                       $ 732,592  
                                     
Earnings (loss) per share:                                    
Earnings (loss) per share - basic   $ (0.03 )                       $ 0.08  
Earnings (loss) per share - diluted   $ (0.03 )                       $ 0.07  
                                     
Weighted average share - basic     9,535,630               202,066     (a)     9,737,696  
Weighted average share - dilutive     9,963,957               202,066     (a)     10,166,023  

 

 

 

 

urban-gro, Inc.

Unaudited Pro Forma Condensed Combined Statements of Operations and Comprehensive Income (Loss)

For the Year Ended December 31, 2020

 

    Historical Amounts                  
    urban-gro, Inc.     Acquired Entities     Pro Forma Adjustments     Note 3   Pro Forma  
Revenue                                    
Equipment systems     $ 22,058,696     $ -                 $ 22,058,696  
Services       1,902,969       6,183,895                   8,086,864  
Consumable products     1,876,252       -                   1,876,252  
Total Revenue     25,837,917       6,183,895                   32,021,812  
                                     
Cost of Revenue     20,122,281       3,509,713                   23,631,994  
Gross Profit     5,715,636       2,674,182                   8,389,818  
                                     
Operating expenses                                    
General and administrative       6,657,903       1,695,707                   8,353,610  
Stock-based compensation     1,803,403       -                   1,803,403  
Total operating expenses     8,461,306       1,695,707                   10,157,013  
                                     
Income from operations     (2,745,670 )     978,475                   (1,767,195 )
                                     
Non-operating income (expense):                                    
Interest expense     (1,497,469 )     (45,378 )                 (1,542,847 )
Unrealized exchange loss     (397,292 )     -                   (397,292 )
Impairment loss on investment     (310,000 )     -                   (310,000 )
Contingent consideration     (155,000 )     -                   (155,000 )
Other income     31,736       12,261                   43,997  
Total non-operating income (expense)     (2,328,025 )     (33,117 )                 (2,361,142 )
                                     
Income (loss) before income taxes     (5,073,695 )     945,358                   (4,128,337 )
                                     
Income tax expense (benefit)     -       -                   -  
Net income (loss)   $ (5,073,695 )   $ 945,358                 $ (4,128,337 )
                                     
Comprehensive income (loss)   $ (5,073,695 )                       $ (4,128,337 )
                                     
Earnings (loss) per share:                                    
Earnings (loss) per share - basic and diluted   $ (1.06 )                       $ (0.83 )
                                     
Weighted average share - basic and diluted     4,766,294               202,066     (a)     4,968,360  

 

 

 

 

urban-gro, Inc.

Notes to Unaudited Pro Forma Condensed Combined Financial Statements

 

Note 1 - Description of the Transaction

 

On July 30, 2021 (the “Closing Date”), urban-gro, Inc. (the “Company”), through its wholly owned subsidiary urban-gro Architect Holdings, LLC, acquired all of the issued and outstanding capital stock (the “Acquisition”) of: 2WR of Colorado, Inc., a Colorado corporation; 2WR of Georgia, Inc., a Georgia corporation; and MJ12 Design Studio, Inc., a Colorado corporation (collectively, the “Acquired Entities”) from their shareholders (collectively, the “Sellers”). The aggregate purchase price for the Acquisition for purposes of these unaudited pro forma condensed combined financial statements (the “Pro Forma Financial Statements”) was $10,300,000 (the “Purchase Price”) which represented $9,100,000 in initial purchase price and an estimated $1,200,000 in working capital adjustments. The Purchase Price was payable as follows: $6,300,000 in cash to the Sellers, net of satisfaction of the Acquired Entities entire outstanding debt and approximately $400,000 in accrued expenses payable to other third parties; 202,066 shares of the Company’s common stock valued at $2,000,000 transferred to the Sellers; and up to $2,000,000 of contingent consideration (the “Contingent Consideration”) which can be earned by and payable to the Sellers based on the performance of the Acquired Entities during the 2-year period following the Closing Date. 75,773 shares of the 202,066 shares of the Company’s common stock that were transferred to the Sellers are being escrowed for a period of up to twelve months to satisfy indemnification obligations of the Acquisition. Any Contingent Consideration amounts earned by and payable to the Sellers may be paid in cash or the Company’s common stock at the discretion of the Company.

 

Note 2 - Basis of Presentation

 

The Pro Forma Financial Statements are based on the Company’s historical consolidated financial statements and the Acquired Entities historical combined financial statements as adjusted to give effect to the Acquisition. For purposes of the Pro Forma Financial Statements, the Company has (i) assumed that the carrying value of all assets and liabilities acquired, other than any potential intangible assets and goodwill identified upon acquisition, approximated their respective financial statement values, and (ii) computed the value of goodwill based on the Purchase Price after deducting the assets and liabilities identified in (i).

 

The pro forma balance sheet has been prepared as if the Acquisition had occurred on June 30, 2021. The pro forma statements of operations and comprehensive income (loss) for the six months ended June 30, 2021 and for the year ended December 31, 2020, have been prepared as if the transaction had occurred on January 1, 2021 and 2020, respectively.

 

Note 3 - Pro Forma Adjustments

 

The following pro forma adjustments are included in the Pro Forma Financial Statements as of June 30, 2021, and for the six months ended June 30, 2021 and the year ended December 31, 2020:

 

a)To reflect the Purchase Price of the Acquisition based on the following:
i.$6,300,000 in Cash
ii.$2,000,000 in Contingent Consideration
iii.$2,000,000 in common stock representing 202,066 of common shares at $9.90 per shares. The $2,000,000 in common stock is recorded as $202 in common stock and $1,999,798 in additional paid in capital. This issuance of common stock increases the number of shares issued and outstanding of the Company’s common stock to 11,424,980 and 11,022,085, respectively, as of June 30, 2021.
b)To eliminate $400,000 in accrued expenses and all of the notes payable of the Acquired Entities that were paid off as of the Closing Date.
c)To eliminate the Acquired Entities historical equity balances.
d)To reflect the preliminary estimate of goodwill, which represents the excess of the Purchase Price over the estimated fair value of the Acquired Entities identifiable assets acquired and liabilities assumed. Upon final completion of the fair value assessment, the ultimate purchase price may differ from the preliminary assessment outlined above. Any changes to the initial estimates of the fair value of the assets and liabilities will be allocated to goodwill.