8-K: Urban-Gro Announces Restatement of Financials and Delayed 10-Q Filing Due to Accounting Errors

Urban-Gro will restate its financial statements for 2022, 2023, and Q1 2024 due to accounting errors related to deferred tax liabilities, leading to a delay in its Q2 2024 10-Q filing.

Summary

• Urban-Gro has announced it will restate its previously issued financial statements for the years ended December 31, 2022 and 2023, as well as the first quarter of 2024.
• The restatement is due to accounting errors related to deferred tax liabilities associated with historical share-purchase acquisitions.
• The company incorrectly amortized these liabilities instead of recognizing them as income tax benefits shortly after the acquisitions.
• This error is expected to reduce cumulative net losses for fiscal years 2022 and 2023.
• As a result of the restatement process, the company will not be able to file its Quarterly Report on Form 10-Q for the second fiscal quarter of 2024 within the SEC's filing deadline.
• The company expects Q2 2024 revenue to be $17.5 million, a 13% sequential increase.
• The company is diligently pursuing completion of the restatements and intends to make the filings as soon as reasonably practicable.

Sentiment

Score: 4

Explanation: The sentiment is negative due to the restatement of financials and delayed filing, but the company is trying to mitigate the negative impact by highlighting expected revenue growth and no material impact on EBITDA and cash flows.

Positives

• The accounting error is expected to reduce cumulative net losses for fiscal years 2022 and 2023.
• The company expects Q2 2024 revenue to be $17.5 million, a 13% sequential increase.
• The company's third quarter-to-date performance has accelerated further, giving them confidence in stronger results in the second half of the year.
• There is no expected material impact on previously reported revenues, Adjusted EBITDA, or cash flows.

Negatives

• The company must restate its financial statements for multiple periods.
• The restatement is due to accounting errors related to deferred tax liabilities.
• The Q2 2024 10-Q filing will be delayed.
• Previously issued financial statements and related communications should no longer be relied upon.

Risks

• The company may discover additional information relevant to the restatement periods.
• The effects of the restatements on the company's financial statements or financial results could change.
• There could be delays in filing the company's periodic reports with the SEC.
• The company's internal control over financial reporting and its disclosure controls and procedures are under assessment.
• The company faces risks related to competition, supply chain issues, and economic downturns.

Future Outlook

The company expects stronger results in the second half of the year and aims to keep investors updated on overall progress and contract closures.

Management Comments

• Brad Nattrass, Chairman and CEO, stated that while it is disappointing to restate financials, they do not expect it to materially affect revenues, Adjusted EBITDA, or cash flows.
• He also mentioned that the company's third quarter-to-date performance has accelerated.

Industry Context

This announcement highlights the importance of accurate accounting practices, particularly in complex areas like deferred tax liabilities, and the potential impact of accounting errors on a company's financial reporting and investor confidence. It also shows the impact of the SEC's actions against BF Borgers on companies that used their services.

Comparison to Industry Standards

• The need to restate financial statements is a significant issue that can negatively impact investor confidence, and is not unique to Urban-Gro.
• Other companies that have had to restate financials due to accounting errors include Luckin Coffee and Valeant Pharmaceuticals, which faced significant market repercussions.
• The delay in filing the 10-Q is also not uncommon, but it is important for Urban-Gro to address the issues quickly and transparently to maintain investor trust.
• The company's focus on maintaining revenue and EBITDA despite the accounting issues is similar to how other companies try to reassure investors during restatements.

Stakeholder Impact

• Shareholders will be impacted by the restatement of financial statements and the delay in the 10-Q filing.
• Investors should be aware that previously issued financial statements and related communications should no longer be relied upon.
• The company is trying to reassure investors by highlighting expected revenue growth and no material impact on EBITDA and cash flows.

Next Steps

• The company will restate the Year-End Financial Statements, the 2022 Interim Financial Statements, the 2023 Interim Financial Statements, and the Q1 2024 Interim Financial Statements.
• The company will file an amended 10-K for the year ended December 31, 2023.
• The company will file an amended 10-Q for the three months ended March 31, 2024.
• The company will file its Quarterly Report on Form 10-Q for the quarter ended June 30, 2024 as soon as reasonably practicable.

Key Dates

Keywords

restatement, financial statements, deferred tax liabilities, accounting errors, 10-Q filing, revenue, Adjusted EBITDA, re-audit, acquisitions, SEC