Item 1. Business
Item 1. Business.
Unless otherwise stated or the context otherwise
requires, references in this report to “Agrify”, the “Company,” “we,” “us,” “our,”
or similar references mean Agrify Corporation and its subsidiaries on a consolidated basis.
Overview
We are a rapidly growing developer of proprietary
hardware and software cultivation and extraction solutions for the cannabis and hemp industry. We believe we are passionately transforming
cannabis cultivation and extraction methods through innovation. Our mission is to become the world’s most vertically integrated
solution provider for the cannabis and hemp industry globally, while driving superior quality, consistency, and Return on Investment
(“ROI”) for our valued customers. We currently have three primary areas of business focus:
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Cultivation Solutions
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Extraction Solutions
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Facility Design & Building Services
Cultivation Solutions
While we do not cultivate, come in contact
with, distribute, process, or dispense cannabis or hemp or any cannabis or hemp derivatives that are currently prohibited under
United States federal law, our equipment and business solutions can be used within indoor grow and processing facilities by fully
licensed cannabis and hemp cultivators and processors or in some cases, by individual processors for individual use in compliance
with applicable law. We sell our proprietary cultivation solutions to independent licensed cultivators. The two primary products we
sell are the Agrify Vertical Farming Unit and Agrify Insights SaaS (“Software-as-a-Service”) software.
Agrify Vertical Farming Unit (“VFU”)
We believe our proprietary VFU technology is the
only product in the market that offers a modular, compartmentalized micro-climate growing system for indoor vertical farming. Our VFU
system is designed for large-state and multi-state operators who are looking to consistently produce higher-quality crops at scale. The
ideal facility size that we target in our sales process ranges from 20,000 square feet to 50,000 square feet. The VFU is an integrated
hardware and software growing system. These units are designed to line up horizontally in rows, and they can be stacked vertically up
to 3 units tall, taking advantage of unused indoor vertical space with the below advantages:
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Superior Floor Space Utilization . Each VFU provides two growing rows. Our design introduces
an open-room facility design approach to maximize available cultivation floor print while offering superior risk mitigation via individual
compartmentalized cultivation chambers.
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Precise Environmental Controls . Each VFU has an environmental control unit that is
integrated with our proprietary cultivation software, Agrify Insights software. This integration allows for precise control
and automation over light photoperiod and intensity, temperature, humidity, vapor pressure deficit (“VPD”), carbon dioxide,
fertigation, and irrigation throughout the life cycle of the plants.
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Modular Scalability . The VFU is designed with proper loading to stack up to 3 units
tall, sextupling production volume over the same footprint. Each unit is designed to easily integrate with a mezzanine catwalk system.
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Biosecurity and Risk Mitigation . The VFU has a motorized curtain on both sides of
the unit that enclose the grow area to prevent light-leak and spread of disease that would typically lead to facility-wide crop failure.
Contamination can be controlled and limited to the affected units, which are designed with sanitation in mind. From the aluminum
frame to the selection of antimicrobial plastics and down to the IP65 electronics and polycarbonate-lensed LED lights, the entire
VFU can be easily sanitized.
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Worker Safety . The VFU’s working area is 8 feet tall, allowing easy access
to both rows of plants within the unit. As the motorized curtains can be lifted on either side, this also allows efficient ergonomics
at arm’s length. Similarly, our Interlight LED technology is dimmed or turned-off when the curtains are raised for a more ambient
working environment.
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Examples
of VFU infrastructure verse traditional grows
To further illustrate the benefit of going with
the VFU infrastructure versus a more traditional indoor cultivation setup with conventional LED lights or conventional HPS lights, we
have conducted a comparative analysis internally on an approximately 45,000 square foot facility.
While the upfront cost is more for the facility
that is outfitted in VFUs, that is quickly offset by the fact that a VFU outfitted facility has the capacity to generate about 4x the
amount of estimated annual revenue and over 4x the annual estimated EBITDA. In looking at the numerical values in the model, it becomes
even more compelling when comparing the VFU facility to a facility with a traditional grow room. Assuming an initial investment of approximately
$27.7 million for the VFU facility build-out, our model indicates that the facility owner would recoup their initial investment and produce
significant free cash flow in the first year of operation assuming the facility should be able to achieve almost $88 million of estimated
annual revenue and roughly $78.4 million in annual estimated EBITDA. In contrast, the traditional indoor facilities would cost approximately
$8.8 million or a little less than $16.5 million to build out depending on which lights are used and would generate approximately $20.4
million or $22.5 million in estimated annual revenue and right around $16 million or just under $19 million in annual estimated EBITDA.
When comparing the different facility types on a side-by-side analysis, we believe the VFU facility is far more attractive than either
type of traditional facility given the financial upside is significantly higher and is a far more sophisticated way to grow crops.
We have also modelled out another scenario in
which a prospective customer has a license that stipulates that they are permitted to operate with at most 16,200 square feet of canopy
space in their facility (which is the exact same amount of canopy square footage displayed in the above model for the traditional setup
in the 45,000 square foot facility). However, given the modular and stackable nature of the VFUs, we are able to help the customer achieve
the same canopy square footage with 253 VFUs in a facility that is only 20,000 square feet, which is less than half the size of the traditional
facility. While canopy square footage is basically identical for all of the different cultivation approaches we looked at in this particular
simulation, the VFU setup requires a much smaller and theoretically much less expensive facility, and because the VFUs are more productive,
the estimated annual yield is about 31% higher than in the facility with the traditional grow room setup and conventional LED lights and
45% higher than in the facility with the traditional grow room setup and conventional HPS lights.
Agrify Insights SaaS Software Solution
Each individual VFU sold includes a license for
Agrify Insights SaaS Software (“Agrify Insights software”), and a monthly SaaS subscription fee is charged, per VFU. The VFU
cannot operate successfully without the use of Agrify Insights software, and we typically charge between $2,400 to $3,600 per VFU sold,
per year. On average Agrify Insights SaaS Software license agreement is for a multi-year term, with an annual auto renewal.
Agrify Insights software is cloud-based software
as a service that interfaces with a microservices middleware and relational database that integrates with our hardware and provides our
managers, facility owners, facility managers, and growers real-time control and monitoring of facilities, growing conditions, and insights
into both production and profit optimization. The combination of precise environmental control and automation with data collection and
actionable insights empowers our customers to be more efficient, more productive, and more intelligent about how they run their businesses.
We believe that the robust data analytics capabilities from our Agrify Insights software platform coupled with our VFU system is enabling
our customers to transform their businesses and quality of the product they are cultivating.
The Agrify Insights software is focused around
optimizing four key components:
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Optimization at the plant level;
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Optimization at the VFU unit level;
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Optimization at the facility level; and
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Optimization at the business level.
When these key components are combined, they encompass
the cultivation operations of an Agrify customer. By reducing human error and providing insights through data collection and analysis,
Agrify Insights software minimizes risk and increases operational efficiencies. Ultimately, our customers are seeking to produce the same
consistent end product no matter where they are located.
Plant-Level Optimization
Central to our solution is granular control of
the cultivation environment. The end-product of a crop is determined by both the plant’s genetics and the environment in which the
plants are grown. Control over the growing environment is accomplished through the Agrify Insights software. By recording over 1.5 million
data points per VFU per year and being able to reproduce specific environments based on the data, cultivators are effectively able to
minimize the variation in their crops and dial-in the maximum quality. Further individual plant varietals can be optimized by tailoring
the grow plan (recipe for cultivation) to enhance particular genetic traits; increasing the temperature can speed chemical processes and
growth rates and adjusting the length of different phases of a plant’s lifecycle can maximize the crop’s yield. Additionally,
when new varieties of plants are cultivated, having multiple controlled, compartmentalized, growth chambers allow for iterative experiments
which offer real insight into how new varieties are best cultivated. For example, you can grow a new variety in 5 different VFUs that
are set to mimic the climate of different geographies to see where the varieties are suited to grow.
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Our “Grow Plans” are the templates
or recipes that define the parameters for each lifecycle. Grow Plans define the environmental settings (light - photoperiod and intensity/
temperature / humidity / VPD / CO2 / irrigation / fertilization) for each crop variety and cultivator as well as the schedule for completing,
as applicable, “plant-hands-on” tasks such as bottoming, pruning, and harvest. Agrify Insights software ships to the customer
with many pre-developed Grow Plans and customers can create their own Grow Plans, electing to share them with other customers or not.
Individual VFU Level Optimization
Our VFU hardware provides cultivation environmental
control within the growth chamber. This hardware and its component valves, motors and sensors are directed and controlled by Agrify
Insights software.
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Monitor and Control Agrify Hardware . Agrify Insights software can either automatically
or manually control our hardware. For example, the water-chilled fan coil can keep temperature in a range accurate to 1.5 degrees
Fahrenheit.
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Cultivation Environmental Control . Using Agrify Insights software, users can
view environmental charts that plot temperature, humidity, carbon dioxide over time. It also shows when the plants were irrigated
and whether the unit is in cooling, circulating, or dehumidifying mode. We sample these values every minute and report them back
to the cloud every 15 minutes, or more often if there have been significant changes. Each growing chamber reports approximately 1.5
million data points annually, enabling our clients to perform in-depth analysis of grow performance. The manual control screen visualizes
the current state of the grow chamber and enables our technicians to take direct control for troubleshooting, if necessary. The device
log shows us what decisions were made by the onboard Agrify Insights software and why.
Facility Level Optimization
Our modular VFUs are deployed in scale at a customer’s facility
with the smallest commercial operation deployment to date being 63 VFUs. Agrify Insights software is designed to operate these individual
VFUs as a combined facility. Agrify Insights software features at the facility level include:
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Production Planning . The production planning feature is designed to maximize a facility’s
utilization by executing a “best-fit” scheduling algorithm to selected Grow Plans across the growing units that have
been deployed at a customer facility. Since grow plans typically have a different number of growing days that start on staggered
schedules, this module is a critical component for optimizing the planting and moving schedules, significantly increasing plant production,
and reducing the cost per pound of harvest.
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Workforce Management . Agrify Insights software includes a workforce planning
feature to assign tasks to staff. These tasks can be automatically assigned based on user role or their knowledge, skills, and abilities.
The calendar displays the estimated amount of time required to complete plant-touching tasks on any given day.
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Automatic Notification System . Users can select to subscribe to anomalous events,
and users are notified in the order in which they are listed. If a user does not acknowledge the notification within the specified
time frame, the next user in the list is notified, providing the business with 24/7 monitoring and notifications.
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Preventative Maintenance . Our equipment and facility preventative maintenance schedules
and related tasks are contained, tracked and monitored within Agrify Insights software.
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Facility Infrastructure Controls . Agrify Insights software controls the irrigation
on a facility level as well as connects with the water chilled HVAC system and ambient lighting system, providing our customers a
central piece of software for facility management.
Optimization at the Business Level
Agrify Insights software analysis features
enable customers to understand how cultivation decisions impact their overall business. Understanding the data from the cultivation facility
can help our customers better plan and make informed decisions that impact downstream parts of their business.
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Consumables Procurement Integration . Each task can also be assigned a set of consumables
whose inventory will be reduced when the task is started. This feature can help customers manage supply levels and can automatically
create purchase orders so that they never run out of required supplies.
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Online Standard Operating Procedures (“SOPs’’) and Safety Datasheets . Agrify Insights software hosts digital copies of our included Standard Operating Procedures and datasheets, or users can upload their own via our content management system, ensuring that the most recent version of SOPs and forms are available to users.
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Roles-Based Dashboards . Ability to obtain access to information specifically suited to your workforce’s various needs. Facility owners have access to high-level information about crop yields and equipment usage in an easy-to-understand scorecard. Farm managers receive a worksheet and calendar that lets them manage their workforce and automatically assign plant-touching tasks. This also provides facility managers with an ongoing window into consumables and lets them set inventory levels.
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Data Collection . Agrify Insights software is a centralized repository for
all data relating to the cultivation aspects of our clients’ business, including research and development testing data, and
the ability to capture and compare test results. By doing so, Agrify Insights software becomes a customers’ cultivation
statement of record.
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Financial Simulator / What If Scenarios . Our operating expenses (“OpEx”)
calculator enables users to evaluate impacts to profitability by changing hundreds of attributes including, but not limited to, changes
to costs in labor, electric, water, CO2, and growing media as well as potential volatility in yields and pricing.
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Regulatory Reporting Integration. We have integrated our software with Metrc, a leading
seed-to-harvest compliance management and tracking solution, which will enable our customers to handle most regulatory reporting
directly through Agrify Insights software.
Extraction Solutions
While we do not extract,
come in contact with, distribute, process, or dispense cannabis or hemp or any cannabis or hemp derivatives that are currently
prohibited under United States federal law, our extraction equipment and business solutions can be used within indoor processing
facilities by fully licensed cannabis and hemp cultivators and processors or in some cases, by individual processors for individual
use in compliance with applicable law. We sell our proprietary extraction solutions to independent, licensed cultivators and
processing labs.
Cannabis represents a potential cornucopia of
medicinal and pharmaceutical advancement. Cannabis produces over 550 different phytochemicals, over 120 of which are cannabinoids like
tetrahydrocannabinol (“THC”) and cannabidiol (“CBD”). Other cannabinoids like varins, cannabigerivarin (“CBGV”),
tetrahydrocannabivarin (“THCV”), and cannabidivarin (“CBDV”) are less well known and potentially offer significant
value. As we continue to learn more about the complex chemical composition of cannabis, the need for distillation solutions is clear. Distillation
enables the identification, isolation, and separation of valuable cannabis metabolites. The ability to take cannabis compounds distilled
into their pure forms, and then recombine them into specific, purposeful end-products could have significant potential for the pharmaceutical
industry in the future.
Since October 2021, we have been strategically
focused on establishing ourselves as a global leader in the cannabis and hemp extraction equipment industry, complementing our cutting-edge
cannabis and hemp cultivation solutions. Over a 5-month period, we acquired four of the top brand names in the industry:
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Mass2Media, LLC, d/b/a PX2 Holdings, LLC, d/b/a Precision Extraction Solutions (“Precision”)
- Market leader in developing and producing high-quality hydrocarbon extraction solutions was acquired by Agrify on October
1, 2021.
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Cascade Sciences, LLC (“Cascade”)- Market leader in developing and producing high-quality vacuum
purge ovens and decarboxylation ovens was acquired by Agrify on October 1, 2021.
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PurePressure, LLC (“PurePressure”) - Market leader in developing and producing high-quality solventless
extraction solutions was acquired by Agrify on December 31, 2021.
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LS Holdings Corp. (“Lab Society”) - Market leader in developing and producing
high-quality distillation and solvent separation extraction solutions was acquired by Agrify on February 1, 2022.
Combined, the four acquisitions listed above provide
what we believe to be the most comprehensive extraction solutions from a single provider, with over 7,000 customers, including over 30
Multi-State-Operators, and some of the best extraction labs in the industry. Our leading extraction brands provide equipment and solutions
for extraction, post-processing, and testing for the cannabis and hemp industry. The extraction, post-processing and testing services
are complementary and highly attractive areas of the supply chain.
Our extraction division now offers cutting-edge
technologies and end-to-end service solutions. Solutions from the extraction division include equipment, technology, facility and lab
design, and extensive research and development capabilities. By providing new hardware-as-a-service we intend to capture higher margin
recurring revenue and supply chain optimization through streamlined product sourcing, purchasing, manufacturing, and warehousing.
These acquisitions have greatly expanded our product
and service offerings in the post-harvest segment of the supply chain, and believe we are positioning the Company as the most vertically
integrated total solutions provider for our cannabis and hemp customers. The global cannabis extraction market is expected to potentially
grow to $24 billion by 2028, and as the cannabis industry continues to experience rapid growth globally, we expect the sales of our extraction
solutions to follow a similar growth trajectory.
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Facility Design & Building Services
Agrify provides fully integrated architectural,
engineering, and project management oversight of qualified General Contractors for its customers commercial cannabis facilities buildouts.
Each custom commercial cannabis facility is specifically designed to maximize the production output of Agrify’s proprietary VFU’s
and cannabis extraction product solutions.
Cannabis Market Opportunity
While we do not cultivate, come in contact with,
distribute or dispense cannabis or any cannabis derivatives that are currently prohibited under U.S. federal law, our cultivation solutions
can be used within indoor grow facilities by cannabis cultivators if they choose to do so.
In the U.S., the development and growth of the
regulated medical and recreational (adult use) cannabis industry has generally been driven by state law and regulation, and accordingly,
the market varies on a state-by-state basis. State laws that legalize and regulate cannabis for medicinal reasons allow patients to consume
cannabis with a designated healthcare provider’s recommendation, subject to various requirements and limitations. As of December
31, 2021, 38 states have passed laws allowing their citizens to use medical cannabis. On top of this medical condition growth trend, there
has been a slower but steady increase in the number of states that have chosen to legalize cannabis for recreational use. As of December
31, 2021, 18 states have passed laws allowing their citizens to use recreational cannabis. Shifting public attitudes and state law and
legislative activity are driving this change as indicated by a 2019 poll by Quinnipiac University that found that 93% of Americans support
patient access to medical-use cannabis, if recommended by a doctor, which was the same level of support from a similar poll conducted
by Quinnipiac University in 2018. Similarly, the trend toward further legalization and regulation of cannabis sales is spreading globally.
As of the date of this report, over 28 countries outside the U.S. currently have medicinal cannabis regulation in force, and that number
is expected to significantly increase over time.
Given that the market size of legal cannabis in
the U.S. in 2020 was expected to be $17 billion according to New Frontier, and 53% of cannabis volume is currently grown indoors according
to New Leaf Data Services, we estimate that the indoor segment of the legal U.S. cannabis sector is a $9 billion market with the expectation
that there will be even more growth on the horizon. In fact, according to a report from April 2020, BDSA, the leading provider of cannabis
industry market research, in conjunction with Arcview Market Research, forecasted that U.S. legal cannabis sales will approach $34 billion
by 2025, which represents 72% of their projection for total global sales of $47 billion in 2025.
The different cultivation environments for cannabis
each have advantages and disadvantages, and this leads to a variance in price points based on quality, actual and perceived, and process.
According to New Leaf Data Services’ March 25, 2022 U.S. cannabis spot index, the average wholesale price per pound of outdoor grown
flower was $502 per pound, greenhouse flower averaged $840 per pound, while indoor grown flower averaged $1,651 per pound and the total
market on average was $1,242 per pound. Based on the breakdown of production by cultivation environment, indoor grown flower represents
53% of total volume by type while greenhouse and outdoor represent 23% and 24%, respectively. Additionally, based on the breakdown of
percentage of observed transactions, indoor grown flower represents 64% of total volume by type while greenhouse and outdoor represent
18% and 18%, respectively.
Outdoor cannabis has the lowest initial capital
expenditures required to start cultivation. According to Marijuana Business Daily (“MBD”), the average start-up cost per
square foot of outdoor cultivation is $10. The expansive size of outdoor grows and their reliance on natural soil, lighting and weather
conditions means cultivators have relatively few infrastructure needs. They can get their business off the ground quickly and with minimal
upfront expenditures trading quality for lower cost production.
Greenhouse grown cannabis commands a higher price
per pound than field grown cannabis as the more protected environment produces higher quality flower. According to MBD, the average start-up
cost per square foot for greenhouse cultivation is $50, but the true costs tend to be all over the map with an executive from Ohio-based
Rough Brothers, an 84-year-old greenhouse company that started taking on cannabis clients in 2013, opining that such costs can vary greatly,
going so far as to say “I could build you a cannabis greenhouse for $20 a square foot or $200 a square foot.”
Indoor grown cannabis commands the highest price
per pound as it produces the highest quality flower due to the fact that growers have the most control over the environment. Indoor cultivation
facilities vary significantly in sophistication and technology with the build-out costs reflecting that fact. While MBD states that the
average start-up cost per square foot for indoor cultivation is $75, anything close to that cost would inevitably yield a primitive and
arguably insufficient setup. In contrast, Jennifer Martin, a prominent cannabis cultivation consultant, indicated on MarijuanaPropagation.com
that a far more advanced and scalable configuration would likely cost between $400 to $500 per square foot. In general, the more a company
invests up front, the higher the upside will be in the future. However, beyond initial build-out costs, it has historically been very
expensive to grow cannabis in an indoor facility. The industry norm for direct production-related operating costs ranges from approximately
$436 per pound according to a competitive cost analysis conducted by MJardin to $516 per pound, which is based on another examination
of cultivation costs by the website CannaBusinessPlans.com.
Our premium indoor grow solutions, whether it’s
our VFUs or our LED lights, are designed, engineered, and calibrated to drive significant improvements for our customers, who trust us
to deliver the type of productivity and quality that was previously unattainable.
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Competitive Landscape
We believe our full suite of product offerings
form an unmatched ecosystem for indoor growing and extraction. At this time, our Agrify Vertical Farming Unit, Agrify Insights
software, Extraction solutions, our facility design and build services, and our engineering/installation services are highly differentiated
from anything else on the market.
At the same time, our customers are actively being
approached by a variety of companies who do offer compelling standalone products and services, so we recognize that our customers do have
choices and alternatives, and they also need to factor in opportunity cost whenever they make purchasing decisions. Consequently, we more
broadly define our competition as any other company going after the same finite budget dollars as us in the indoor agriculture space.
We have highlighted below the most notable players that operate across some of the same functional, highly fragmented areas of agriculture
technology that we operate.
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Semi-Integrated Vertical Cultivation Systems — Sprout AI
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Aeroponic Systems — AEssenceGrows and Thrive Growing
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Horticultural Lighting — Gavita, Fluence, VividGro, Hydrofarm, GrowGeneration, Hawthorne and Heliospectra
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Extraction Solutions — Extraction Tech Solutions, Galenja
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Monitoring Software — Grownetics and Trym
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Cultivation Software — Quantum Leaf, Flourish, and Grow Link
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Vertical Cultivation Racking Systems — Pipp Horticulture and Montel
Despite the presence of some well-funded and
well-established competitors who offer pieces of what we do, we are able to compete on the basis of several defensible factors including
our industry experience, our technical expertise, the differentiated value proposition of our individual offerings, and our positioning
as a single-source provider. However, we believe above all else, it is our ability to offer an unrivaled level of precision through a
total end-to-end turnkey solution that sets us apart from existing competitors and potential new market entrants.
Our Competitive Strengths
We believe our business has, and our future success
will be driven by, the following competitive strengths:
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Innovative Technology in an Attractive Growing Industry . Our innovative solutions
are aimed at large and growing U.S. domestic and global markets. We believe we are the only provider of a fully integrated end-to-end
hardware and software turnkey solution for indoor cultivation and extraction facilities that allows customers to produce at scale,
high-quality products with consistency that meet the growing demand and needs of end users at a relatively low cost. As such, we
believe we have a first mover advantage due to innovating this new type of smart cannabis and hemp cultivation and processing solution,
which is already designed, manufactured, and implemented in a number of commercial scale deployments across multiple states within
the U.S.
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Integrated Proprietary Components . We design and create our own hardware, software and SOPs from the ground up, rather than buying piecemeal from third parties. We take a systems-engineered integrated approach that we believe has inherent advantages over other, ad-hoc systems.
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Emphasis on Precision and Consistency Through Our Proprietary Grow Solutions . While
being able to help our customers increase capacity, yield and consequently revenues hold a tremendous amount of value, we believe
that our biggest differentiator is our ability to impact the actual quality and consistency of the output by controlling the environment
in which the crops are grown and all of the variables that influence harvests with an unparalleled level of precision. The by-product
of our Agrify total turn-key solution (“TTK Solution”) is that our customers are able to create consistent high-quality
products with repeatability from anywhere similar to any other consumer product company that provides a branded food or drink product.
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Emphasis on Precision and Consistency Through Our Extraction Division. In addition
to our premium grow solutions, we have begun offering our customers industry leading cannabis and hemp extraction equipment, design
and training solutions. By acquiring leading brands earlier this year, we are immediately able to offer our customers premium solutions
to meet their processing needs in this rapidly expanding sector.
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Market Knowledge and Understanding . We have extensive experience with controlled
agriculture environments, extraction, post-processing and scale-up manufacturing, as well as industry technical knowledge and relationships.
We are keenly aware of the struggles that indoor cultivators and extractors face, and we serve as a credible and collaborative partner
through the entire customer lifecycle. We believe that our fully integrated TTK Solution, extraction equipment and ancillary services
are the key to resolving many of the challenges our customers face.
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Differentiated Business Model . Unlike many of our competitors, we offer a diversified
mix of hardware, software and services, which leads to multiple revenue streams. Given the nature of our deployments, we become deeply
embedded in our customers’ operations through our numerous product offerings, which include our TTK Solutions and the direct sale
of our VFUs, and various extraction and processing equipment and this puts us in a position where their success is directly tied to our
equipment. Our ability to differentiate our business model, through both our TTK Solutions, as well as through our direct VFU hardware
sales, provides us with multiple opportunities to expand our installed user base, which we believe will lead to future high-margin and
stable recurring SaaS revenues, via our Agrify Insights software, and production fee revenues.
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Novel Equipment Financing Solution . Limited access to outside capital is a significant
issue for cultivators as it can inhibit growth and cultivation facility expansion. We help solve this problem by offering equipment
financing plans for select good credit customers, which we believe further enables us to become a vendor of choice. Qualified customers
pay approximately 30%-50% upfront and finance the balance through a two-year payment plan.
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Experienced and Proven Management Team . Our leadership team has entrepreneurial experience,
technical expertise, and a track record of scaling up businesses and operating public companies. Additionally, our team is supported
by strong advisors and leading strategic and institutional investors.
Our Customers
We primarily market and sell our products to
newly licensed, well-funded producers in a single market as well as multi-state operators. Our customers choose us for a number of reasons,
including the breadth and availability of the products we offer, our extensive expertise, and the quality of our customer service. For
large multi-state operators, our solutions allow operators to produce consistent high-quality products regardless of the geographic locations
where they are licensed to operate. Our system removes the variations of local grow environment, and also provides consistent standard
operating procedures across different facilities, helping every facility to achieve the highest Good Manufacturing Processes standards.
Our ability to provide a “one-stop shop” experience allows us to be the preferred vendor to many of these customers by streamlining
their entry into or expansion of their cultivation capabilities. In addition, we believe our customers find great value in the advice
and recommendations provided by our knowledgeable sales and service associates, which further increases demand for our products.
We believe the nature of our solutions and our
high-touch customer service model strengthens relationships, builds loyalty and drives repeat business as our customers’ businesses
expand. In addition, we feel as if our premium product lines and comprehensive product portfolio position us well to meet our customers’
needs. Furthermore, we fully anticipate that we will be able to leverage all of the data that we are collecting from our existing customer
base to make continuous improvements to our offerings and better serve our current and new customers in the future.
To date, we have customers across the U.S. and
internationally in the cannabis and hemp industry and are of all sizes, ranging from small, single location/ single vertical businesses
to multi-state enterprise operations who use Agrify family of solutions.
In 2021, we had two customers that represented
more than 10% of total revenues and accounts receivable. In 2020, we had three customers that represented more than 10% of total revenues
and accounts receivable.
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Our Growth Strategy
We have developed a multi-pronged growth strategy
as described below to help us capitalize on the sizable opportunity at hand. Through methodical sales and marketing efforts, cultivation
and extraction solutions, facility design and building services, scale-up manufacturing, and equipment financing, we believe we have implemented
several key initiatives we can use to grow our business more effectively. We also intend to opportunistically pursue the strategies described
below to continue our upward trajectory and enhance shareholder value. In 2021 we believe we have significantly improved our new bookings
and qualified pipeline. With our expanded product line to included quality extraction solutions, we become more attractive to our prospects
and customers, enhancing our value-add and improved wallet share opportunities. We expect our qualified pipeline and new bookings of opportunities
to continue to grow.
Sales and Marketing
Rigorous Sales Process and Strong Infrastructure
in Place to Drive Revenue Growth
We embrace and utilize a rigorous Sandler sales
process to evaluate potential new opportunities and then advance vetted prospects through the different phases of our qualified pipeline.
The Sandler sales process is the leading enterprise sales process globally, which is based on the psychology of human behavior, is consistent
with the values and culture we have chosen to implement at Agrify, and consequently our salespeople spend most of their time building
relationships and qualifying opportunities in order to make closing new business more streamlined, collaborative and organic in nature.
There are specific requirements, milestones, and events that we have identified along the sales process that must be met to move prospects
through and convert them from vetted opportunities into committed sales orders within a 12-month period. At each phase of the pipeline,
a prospect opportunity is assigned a probability value for closing, providing management production forecast ability.
Our professional proactive sales team works to
convert our qualified pipeline of opportunities into confirmed contractual bookings. Given our emphasis on enterprise sales opportunities
we believe we are able to significantly scale our business in the coming year without significant increases our headcount. At the time
of this report, our sales team was made up of Sales Operations Specialist, Order Management Representatives, Solution Architects, Account
Managers, Director of Business Development, and Director of Channel Partners totaled 19 full-time employees.
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We believe our business has, and our future success
will be driven by, the following sales and marketing strategy:
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Marketing Team Aligned
with Sales Force to Maximize Our Industry Visibility to Drive Revenue . Our marketing department works in tandem with our sales
and business development representatives to best represent and sell our cultivation and extraction solutions to the cannabis industry.
The sales and business development representatives advance prospects
through our sales funnel, also known as a “buyer’s journey”.
Our sales funnel duties are completed using a customer relationship management (“CRM”) system, which allows us to track,
qualify, and report on the pipeline velocity and ROI of our marketing
initiatives. Leads are added into our funnel predominantly through our digital marketing efforts, including direct marketing, organic
social media growth, thought leadership, events, and demand generation
via paid advertisements.
●
Direct Marketing . We capitalize on our direct marketing
efforts by utilizing our internal CRM database, as well as the external help of trusted industry databases to target the right audience.
Emails go out on a weekly basis and are subdivided by product focus and state, depending on the campaign. We use A/B testing in our email
campaign strategy to harness meaningful messages that result around 35%-40% engagement for open and click rates. The average open and
click rates for all industries is 21.33%.
●
Social Media and Thought Leadership. Through the creation
and promotion of engaging content that positions us as a thought leader, we continue to organically grow our social media audience. We
share original video, photography, industry-related articles, and blog content on a consistent basis. By developing strategic partnerships
with well-known and respected brands, we are working to better position ourselves with marketing and branding efforts on social. Furthermore,
we promote our social media in our communication via email and on our website. We also keep our finger on the pulse of trends and competitors
in the market, remaining in-the-know.
●
Trade Shows. Trade shows and events related to the cannabis
industry have proven to be highly effective. When attending trade shows and events, we typically position ourselves front and center,
with high-level sponsorships, outstanding booth placement, and speaking opportunities. Our product and subject matter experts take advantage
of speaking opportunities, positioning Agrify as industry thought leaders. We expect to continue to grow our industry presence by generating
leads using conferences as a platform. The trade show plan has been carefully vetted to ensure that these shows are reputable, have a
strong business to business focus, high foot-traffic rates, as well as hosted in a desirable market.
●
Paid Advertising . We utilize paid
advertising such as banner ads on high-trafficked media sites that largely focus on cannabis and other relevant topics. We provide
content offers and other downloadable materials in order to capture these leads. As we gain experience through these different
marketing initiatives, we will make appropriate spending adjustments with our most effective outlets. We seek to expand our business
both nationally and internationally, and will do so when we have proven, viable marketing options available to us.
●
Public Relations Campaigns. We have successfully gained the interest of press from networks such as CFN and a number of other cannabis media outlets. With our industry positioning using thought-leadership and on-going participation in industry conferences, we have been highlighted through the Newswire and featured in a variety of media outlets. We will continue to sponsor and keynote in industry-related events including technology and agriculture conferences, podcasts, radio shows and more to continue to gain press and ultimately more exposure.
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Agrify Total Turn-key Solutions
We also believe that our data-driven TTK Solution
for cultivation solutions is unlike any other customer solution being offered and enables our customers to get to market faster
by providing them with our seamlessly integrated hardware and software offerings as well as access to capital and a wide range of associated
services from experts including consulting, training, design, engineering, and construction to form what we believe is the most complete
solution available from a single provider.
Agrify’s TTK Solution provides our valued
customers with the benefit of working with a single, highly qualified provider in what has historically been a decentralized market full
of piecemeal solutions that were not necessarily designed and engineered to work harmoniously with one another. Given the significant
shortcomings associated with traditional indoor grow methods across all commercial agriculture segments, it was apparent that a new paradigm
in indoor cultivation was desperately needed, which is precisely why we are bringing a more modern, manufacturing style approach that
is process driven through technology and measured via data and analytics. Overall, our holistic approach to addressing our customers’
cultivation needs treats their production facilities as an end-to-end ecosystem whose success depends on all of its components working
together optimally. Despite the rapidly growing cannabis and hemp industry, many grower and processor customers face some significant
obstacles to their operations that pose a serious threat to their long-term viability.
We believe Agrify proprietary TTK Solution is
the key to resolving many of the challenges our customers encounter. Since launching our TTK Solution in June of 2021, we have generated
significant momentum in the United States market and over time, we expect to have significant future TTK Solution opportunities both
domestically and abroad. We have set ourselves apart by bringing to market a horticulturist expertise, bundled solution of state-of-the-art
equipment, software and services that is turn-key, end-to-end, fully integrated and optimized for precision growing and extraction. Agrify’s
TTK Solution provides customers with the following bundled equipment and services:
●
Facility design, lab design, and engineering services
●
Facility and lab buildout project management
●
Agrify state of the art VFUs
●
Agrify data driven Insights SaaS software
●
Agrify state of the art extraction products
●
Expert horticulturist training and ongoing support
Agrify’s TTK Solution agreement terms are typically for ten years.
If facility design and building services are provided, on average the customer pays Agrify an annual interest rate ranging from 12% to
18% per annum and the money owed for the design and build services are completely repaid withing 24 months of facility occupancy certification.
During the remaining term of the agreement the Agrify receives monthly recurring SaaS fees and for a production success fee based on the
amount of each harvest. For extraction equipment and products, Agrify TTK Solution agreements range from five years to ten years and the
Company receives a production success fee based on the amount produced.
Equipment Financing
We recognize that many new cultivators face particular
capital and time constraints, and we also recognize that the initial cost of our equipment can be a deterrent for some. We solve this
problem by offering equipment financing plans for select good credit customers, which we believe further enables us to become a vendor
of choice. While we proactively show our prospects that the strong and immediate return on investment derived from Agrify solutions will
more than make up for associated start-up costs, we wanted to do even more to support our prospective customers, which is why we unveiled
an equipment financing program to help remove this final barrier to entry for otherwise excited cultivators. This requires participating
credit-worthy customers to pay a substantial down payment, typically between 30% and 50% of the purchase price, with the balance financed
over two years, with interest, under commercially reasonable terms.
Our individual offerings, which are described
in more detail below, are compelling on their own. However, we believe what really sets us apart is our ability to bring to the market
a tech-forward, bundled solution of equipment, software and services that is turn-key, end-to-end, fully integrated and optimized for
precision growing.
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Scale-Up Manufacturing Capabilities in Order to Meet the Increasing
Demand for Our Grow Solutions
We currently use contract manufacturers (“CMs”)
in the U.S. and in Asia for prototyping and volume manufacturing, and we plan to expand our capabilities in order to meet the increasing
demand for our grow solutions. We design the systems internally, and then work with our CMs and suppliers to refine, prototype, and test
the designs. The designs are documented at a level that allows us to have our products manufactured at multiple CMs, both in the U.S.
and abroad.
Additionally, we work with domestic suppliers
on a wide range of metal fabrication to allow for rapid prototyping and product development. One such CM and metal fabrication shop that
we have worked with extensively in the past is Harbor Mountain Holdings, LLC (“HMH”), which is based in the Atlanta, GA area.
HMH has been producing and assembling many of our products for over three years, and they have served our needs well as a versatile and
valued partner. On July 21, 2020, we acquired HMH, including the acquisition of HMH’s research and development, testing, and flexible
manufacturing plant located just outside Atlanta, GA, along with key personnel and equipment. We believe this acquisition fits in nicely
with our overall scale-up manufacturing strategy. We expect HMH to evolve into more of a service, engineering development and prototyping,
and test facility.
On December 7, 2020, we entered into a five-year
supply agreement with Mack Molding Co., a Vermont corporation (“Mack”), pursuant to which Mack will become a key supplier
of Company’s VFUs. Mack is a leading supplier of molded plastic parts, fabricated metal parts and high-level assemblies to the medical,
industrial, transportation, energy/environment, computer and business equipment, defense, aerospace and consumer markets. Founded in 1920,
Mack is a wholly owned subsidiary of the privately held Mack Group corporation, which also includes Mack Technologies and Mack Prototype.
The supply agreement contemplates that, following an introductory period, we will negotiate a minimum percentage of our VFU requirements
that we will purchase from Mack each year based on the agreed upon pricing formula. The introductory period is not time-based but rather
refers to the production of an initial number of units after which the parties have rights to adjust pricing and negotiate a certain minimum
requirements percentage. We believe this approach will result in both parties making a more informed decision with respect to the pricing
and other terms of the supply agreement with Mack. In the event we are unable to agree with Mack on pricing or a minimum requirements
percentage, either party may terminate the agreement upon notice without further consequence or obligation.
We believe the supply agreement with Mack provides
us with several key benefits, including:
●
Rapid Scaling : We can scale to customer orders, as Mack has agreed to maintain a minimum
safety stock of VFUs in inventory and allow us to store additional inventory pending customer deliveries; and
●
Long-Term Efficiencies : Under a strategic partner governance structure, we intend to meet
with Mack at least quarterly in efforts to improve components acquisition and logistics, to lower production costs over time, provide
additional alternatives for third party component vendors and allow us to provide input as to Mack’s overall production process
and operational effectiveness.
We anticipate that this key strategic relationship
with Mack will grow with our continued and expanding need for additional VFUs.
Overall, our approach to manufacturing is to
use CMs to prototype, iterate, and begin initial production, then transition to volume production including in lower cost geographies,
which results in both rapid time-to-market and low production costs. As we grow, we intend to continually analyze and evolve our manufacturing
capabilities to best meet our customer needs while always focusing on ways to maximize operating margins.
Intellectual Property
We rely on a combination of patent, trademark,
copyright, trade secret, including federal, state and common law rights in the United States and other countries, nondisclosure agreements,
and other measures to protect our intellectual property. We require our employees, consultants, and advisors to execute confidentiality
agreements and to agree to disclose and assign to us all inventions conceived under their respective employment, consultant, or advisor
agreement, using our property, or which relate to our business. Despite any measures taken to protect our intellectual property, unauthorized
parties may attempt to copy aspects of our products or to obtain and use information that we regard as proprietary. Our business is affected
by our ability to protect against misappropriation and infringement of our intellectual property, including our trademarks, service marks,
patents, domain names, copyrights and other proprietary rights.
Patents
We hold 17 patents in the United States and 3
international patents. We also have nine pending patent applications. These patents and patents applications are directed to, among other
things, extraction and processing of botanicals and particular compounds.
Trademarks and Copyrights
We own or have applications for numerous national
and state trademarks which are essential to our businesses, including Agrify, Precision, PurePressure, PressWare, Lab Society and Elitelab,
among others. In addition, we recognize common-law trademark rights AGRIFY INSIGHTS and AGRINAMICS for different software as a service
products.
Our subsidiary, Agrify Brands, LLC is the owner
of certain common-law trademarks that it licenses to third parties. Marks covered by the license include, DAWG STAR (including multiple
logo designs), WESTERN CULTURED (including multiple logo designs), TWISTED LEGION (logo), WAXTRONAUT (including multiple logo designs)
and WAXTRONAUT COSMICALLY CURATED EXTRACTS.
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Although we have not sought copyright registration
for our technology or works to date, we rely on common law copyright and trade secret protections in relation to our TechOps/ Agrify
Insights software computer program for indoor agriculture management. We have registered our Internet domain names related to our business.
We license software from third parties and utilize open-source software for integration into our applications.
In addition, while we know that our current product
and service capabilities are highly novel and compelling, we do not intend to be complacent. We will continue to learn from our customers
and from the market, and if there is an opportunity to deploy a new and improved version of one of our offerings or if we decide there
is room in the market for a new type of solution, we fully intend to diligently explore those possibilities to augment our existing business
and grow our reach.
Employees and Human Capital Resources
As of December 31, 2021, we had a total of 141
employees, of which 136 are full-time employees, with 36 located in the New England area, 35 in Georgia, 31 in Michigan, 17 in Oregon
and 22 in other states. None of our employees are subject to collective bargaining agreements. We consider our relationship with our
employees to be good.
Our human capital resources objectives include,
as applicable, identifying, recruiting, retaining, incentivizing, and integrating our existing and new employees, advisors, and consultants.
The principal purposes of our equity incentive plan are to attract, retain and reward personnel through the granting of stock-based compensation
awards, in order to increase stockholder value and the success of our company by motivating such individuals to perform to the best of
their abilities and achieve our objectives.
Legal Proceedings
From time to time, we may be subject to various
claims, legal actions and regulatory proceedings arising in the ordinary course of business.
On January 5, 2021, we received a demand
letter from Nicholas Cooper and Richard Weinstein, two of our former employees (and one of Mr. Cooper’s affiliated entities), asserting
that such individuals were entitled to compensation arising out of their employment by us, as well as their partial ownership of TriGrow
Systems, Inc. The demand letter asserts that the former employees are due certain sales commissions under their applicable bonus plan,
equity earn-outs based on certain sales targets, and various equity purchases through our employee stock ownership plan. The demand letter
also asserts various employment claims, including, but not limited to, statutory wage withholding violations, wrongful termination, breach
of contract, breach of the duty of good faith and fair dealing, fraud in the inducement, promissory estoppel, minority shareholder oppression,
breach of fiduciary duty, unjust enrichment, and violations of state and federal securities laws.
On January 19, 2021, Messrs. Cooper and Weinstein
filed a lawsuit against Agrify Corporation in the United States District Court for the Western District of Washington, alleging the same
claims made in their demand letter based on the same facts disclosed above. The plaintiffs are seeking relief in the form of monetary
damages in an amount to be determined. Messrs. Cooper and Weinstein are also seeking relief in the form of reinstatement and Mr. Weinstein
is seeking rescission of Mr. Weinstein’s Release of Claims Agreement. On March 10, 2021, we moved to dismiss all of Cooper and Weinstein’s
claims, asserting that the claims failed to allege legal grounds for relief. A decision on our motion is expected in the summer of 2021.
On May 12, 2021, a Magistrate issued a preliminary Report and Recommendation, which recommended dismissal of certain of Cooper and Weinstein’s
claims, and recommended others for additional factual discovery. On July 27, 2021, a District Judge entered an order partially adopting
the Report and Recommendation, dismissing one claim with prejudice, dismissing a second claim with leave to amend, and permitting the
remaining claims to proceed.
Additionally, on July 29, 2021, the Company
filed a separate arbitration in Boston, Massachusetts against Cooper and Weinstein, in which the Company alleges that Cooper and
Weinstein were liable for certain conduct during the time they were TriGrow employees, including breach of fiduciary duty, unjust
enrichment, usurpation of corporate opportunity, conversion, fraudulent concealment, and false representation. Also on July
29, 2021, the Company submitted a claim for indemnification to certain legacy TriGrow Systems, LLC. shareholders. The claim
for indemnification relates to conduct by Cooper and Weinstein during the time they were TriGrow employees. We do not believe these
claims have any merit and intend to vigorously defend against them (see Note 21, Commitments and Contingencies, in the notes to our
audited consolidated financial statements as of December 31, 2021).
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Corporate History
Agrify Corporation was incorporated in the state
of Nevada on June 6, 2016, originally incorporated as Agrinamics, Inc. (or Agrinamics). On September 16, 2019, Agrinamics amended its
articles of incorporation to reflect a name change to Agrify Corporation.
On December 8, 2019, we formed Agrify-Valiant, LLC, a 60/40 joint-venture
limited liability company, in which we are the 60% majority owner with Valiant-America, LLC, one of the largest premium integrated consulting
and general contracting firms in North America with more than ten years of facility general contracting experience across many states.
On January 22, 2020, we and Agrify Merger
Sub, Inc., our newly formed wholly owned subsidiary (or “Merger Sub”), entered into an Agreement of Merger with TriGrow
Systems, Inc., a Nevada corporation (or “TriGrow”), pursuant to which TriGrow was merged with and into Merger Sub, with
Merger Sub as the surviving corporation, resulting in our indirect acquisition of TriGrow.
On July 21, 2020, we acquired HMH, who we have
had a close working relationship with for over three years, including the acquisition of HMH’s research and development, testing,
and flexible manufacturing plant located just outside Atlanta, GA, along with key personnel and equipment. We believe this acquisition
will give us increased, and in some respects, new in-house resources and capabilities around engineering, prototyping, manufacturing,
testing, warehousing, and installation services.
On October 1, 2021, we acquired Mass2Media, LLC, d/b/a PX2 Holdings, LLC, d/b/a
Precision Extraction Solutions (“Precision”) and Cascade Sciences, LLC (“Cascade”). As part of the acquisition
of Precision, Precision merged with and into a wholly owned subsidiary of the Company, Precision Extraction NewCo, LLC.
On December 31, 2021, we acquired PurePressure,
LLC (“PurePressure”), a leader in solventless extraction and advanced ice water hash processing equipment in the cannabis
and hemp industry.
Subsequent to December 31, 2021, on February 1, 2022, we acquired
LS Holdings Corp. (“Lab Society”), a leader in distillation and solvent separation for the cannabis and hemp industry. As
part of the acquisition of Lab Society, Lab Society merged with and into a wholly owned subsidiary of the Company, Lab Society NewCo,
LLC.
Regulatory Implications of Providing Equipment and Services in
the Cannabis and Hemp Industry
We sell products and services that end users
may purchase for use in industries or segments, including the growing of cannabis and hemp, which are subject to varying, inconsistent,
and rapidly changing laws, regulations, administrative practices, enforcement approaches, judicial interpretations, and consumer perceptions.
For example, certain countries and 36 U.S. states have adopted frameworks that authorize, regulate, and tax the cultivation, processing,
sale, and use of cannabis for medicinal and/or non-medicinal use, while the U.S. Controlled Substances Act and the laws of other U.S.
states prohibit growing cannabis. In addition, with the passage of the Farm Bill in December 2018, hemp cultivation is now broadly permitted.
The Farm Bill explicitly allows the transfer of hemp-derived products across state lines for commercial or other purposes. It also removes
restrictions on the sale, transport, or possession of hemp-derived products, so long as those items are produced in a manner consistent
with the law. Our products are multi-purpose products and may be used on a wide range of plants and are purchased by cultivators who
may grow any variety of plants, including cannabis and hemp.
Despite well over a majority of state laws decriminalizing
varying types of its use, marijuana remains a Schedule I drug under the Controlled Substances Act, making it illegal under federal law
in the United States to, among other things, cultivate, distribute or possess cannabis in the United States. In those states in which
the use of marijuana has been legalized, its use remains a violation of federal law pursuant to the Controlled Substances Act. The Controlled
Substances Act classifies marijuana as a Schedule I controlled substance, and as such, medical and adult cannabis use is illegal under
U.S. federal law. Unless and until the U.S. Congress amends the Controlled Substances Act with respect to marijuana (and the President
approves such amendment), there is a risk that federal authorities may enforce current federal law. Financial transactions involving
proceeds generated by, or intended to promote, cannabis-related business activities in the United States may form the basis for prosecution
under applicable U.S. federal money laundering legislation. The approach to enforcement of such laws by the federal government in the
United States has trended toward non-enforcement against individuals and businesses that comply with medical or adult-use cannabis regulatory
programs in states where such programs are legal, strict compliance with state laws with respect to cannabis.
In most states that have legalized medical- and
recreational-use cannabis in some form, the growing, processing and/or dispensing of cannabis generally requires that the operator obtain
one or more licenses in accordance with applicable state requirements. In addition, many states regulate various aspects of the growing,
processing and/or dispensing of cannabis and hemp. Local governments in some cases also impose rules and regulations on the manner of
operating cannabis and hemp businesses. As a result, applicable state and local laws and regulations vary widely, including, but not
limited to, regulations governing the medical cannabis program, product testing, the level of enforcement by state and local authorities
on non-licensed cannabis operators, state and local taxation of regulated cannabis products, local municipality bans on operations and
operator licensing processes and renewals.
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As part of its rigorous due diligence policy
on all potential customers, the Company carefully reviews the appropriate licensure of each potential customers in the cannabis and hemp
industry for compliance with applicable local, state, and federal laws. The Company is not involved in the cultivation, processing or
retail of cannabis products and never takes a controlling interest in any of the operations of its cannabis customers as a matter of
state law.
Implications of Being an Emerging Growth Company and Smaller Reporting
Company
We qualify as an “emerging growth company” as
defined in the Jumpstart Our Business Startups Act of 2012, which we refer to as the JOBS Act. As a result, we are permitted to, and intend
to, rely on exemptions from certain disclosure requirements that are applicable to other companies that are not emerging growth companies.
Accordingly, for so long as we are an “emerging growth company,” we will not be required to:
●
engage an auditor to report on our internal controls over financial reporting pursuant to Section
404(b) of the Sarbanes–Oxley Act of 2002, or the Sarbanes–Oxley Act;
●
comply with any requirement that may be adopted by the Public Company Accounting Oversight Board,
or the PCAOB, regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information
about the audit and the financial statements (i.e., an auditor discussion and analysis);
●
submit certain executive compensation matters to shareholder advisory votes, such as “say-on-pay,”
“say-on-frequency,” and “say-on-golden parachutes;” or
●
disclose certain executive compensation related items such as the correlation between executive
compensation and performance and comparison of the chief executive officer’s compensation to median employee compensation.
In addition, the JOBS Act provides that an “emerging
growth company” can use the extended transition period for complying with new or revised accounting standards.
We will remain an “emerging growth company”
until the earliest to occur of:
●
our reporting $1 billion or more in annual gross revenues;
●
our issuance, in a three-year period, of more than $1 billion in non-convertible debt;
●
the end of the fiscal year in which the market value of our common stock held by non-affiliates
exceeds $700 million on the last business day of our second fiscal quarter; and
●
December 31, 2026.
We cannot predict if investors will find our
securities less attractive because we may rely on these exemptions, which could result in a less active trading market for our securities
and increased volatility in the price of our securities.
Finally, we are a “smaller reporting company”
(and may continue to qualify as such even after we no longer qualify as an emerging growth company) and accordingly may provide less
public disclosure than larger public companies, including the inclusion of only two years of audited financial statements and only two
years of management’s discussion and analysis of financial condition and results of operations disclosure. As a result, the information
that we provide to our stockholders may be different than you might receive from other public reporting companies in which you hold equity
interests.
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