Item 1A. Risk Factors
ITEM 1A. RISK FACTORS
In addition to the updated risk factor and other
information set forth below and elsewhere in this Report, you should carefully consider the information set forth in Part 1, Item 1A.
“Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024.
Risks Related to the Acquisition of Ceres Partners, LLC
We have made certain assumptions relating to the Ceres
Acquisition which may prove to be materially inaccurate, and we may fail to realize all of the anticipated benefits of the acquisition.
We have made certain assumptions relating to
the Ceres Acquisition, which may prove to be materially inaccurate. Our failure to identify, or understand the magnitude of, the problems,
liabilities or other challenges associated with the Ceres Acquisition could result in incorrect expectations of future results and increased
risk of unanticipated or unknown issues or liabilities. Our mitigation strategies for such risks that are identified may be ineffective.
These assumptions relate to numerous matters, including:
● opportunities for revenue, earnings and growth in the short- and long-term that may be realized by acquiring
Ceres and entering the private asset markets;
● rates of growth in revenue, earnings, margin and AUM;
● demand for and performance of private investments, particularly in real estate and farmland;
● opportunities in strategic adjacencies in demand for solar energy, AI data infrastructure and water;
● Ceres’ ability to raise additional capital into Ceres’ funds;
● general economic and business conditions, and the performance of the Ceres business against this backdrop;
● potential unknown liabilities and unforeseen delays or regulatory conditions associated with the Ceres
Acquisition;
● faulty assumptions or incorrect expectations regarding the process of integrating the Ceres business
with ours, including unanticipated delays, costs or inefficiencies;
● the anticipated benefits and synergies, including timing for when such benefits and synergies may be
realized through combining the Ceres business with ours;
● the amount of attention and resources needed to successfully align our and Ceres’ business practices
and operations, which may disrupt our business;
● the complexities associated with managing the combined businesses; and
● other financial and strategic risks of the Ceres Acquisition.
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We cannot guarantee that we will achieve our
goals or meet our expectations with respect to the Ceres Acquisition. The full benefits of the Ceres Acquisition, including the anticipated
financial benefits and the synergies and growth opportunities, may not be realized as expected or may not be achieved within the anticipated
timeframe, or at all. Such benefits may not be fully realized for various reasons, including, among others, changes in the assumptions
described above.
In addition, we caution you not to place undue
reliance on our current expectations regarding the financial impact of the Ceres Acquisition because they are based solely on information
provided to us by Ceres in the due diligence process and our internal estimates, which are based on numerous factors, including specifically
identified financial benefits and growth avenues. Our experience integrating and operating Ceres may change our expectations with respect
to the financial impact of the Ceres Acquisition. In addition, the financial impact of the Ceres Acquisition may differ from our expectations
based on numerous other factors, including our failure to fully realize the expected financial benefits as described in the risk factors
set forth in this Report. We can provide no assurance that the actual financial impact of the Ceres Acquisition will be consistent with
our current expectations.
If our assumptions are inaccurate or we are
unable to meet our expectations (including our expectations regarding financial targets and growth rates), our business, financial performance
and operating results could be materially and adversely affected. See “Cautionary Note Regarding Forward-Looking Statements”
above.
Completion of the Ceres Acquisition is subject to conditions,
and if these conditions are not satisfied or waived, the Ceres Acquisition will not be completed.
On July 31, 2025, we agreed to acquire Ceres
pursuant to the Purchase Agreement. Completion of the Ceres Acquisition is subject to the satisfaction or waiver of a number of conditions
in the Purchase Agreement. These conditions include, among others, obtaining regulatory approvals, required consents, and financing. In
addition, completion of the Ceres Acquisition is conditioned upon (i) employment agreements with certain key employees of Ceres being
in full force and effect, (ii) Ceres delivering executed consents from both Ceres, as general partner of Ceres Farms, LLC (“Ceres
Farms”), and a majority of the investors in Ceres Farms, (iii) the Closing Revenue Run-Rate being no less than 85% of the Base Revenue
Run-Rate (each as defined in the Purchase Agreement) and (iv) tail coverage for the insurance coverages currently in effect for the directors,
managers and officers of the acquired companies being in full force and effect. Our obligation to consummate the Ceres Acquisition is
further subject to the condition that, during the period between July 31, 2025 and the closing of the Ceres Acquisition, there has not
been a Material Adverse Effect (as defined in the Purchase Agreement). The Purchase Agreement will terminate if the closing of the Ceres
Acquisition has not occurred on or prior to December 31, 2025, subject to the parties agreeing to extend such date, as well as for material
breaches not cured prior to December 31, 2025. If we terminate the Purchase Agreement, subject to certain other conditions, we will reimburse
Ceres for its Eligible Expenses (as defined in the Purchase Agreement) subject to a $2.0 million cap.
The failure to satisfy all of the required conditions
in the Purchase Agreement could delay the completion of the Ceres Acquisition or prevent it from occurring. Any delay in completing the
Ceres Acquisition could cause us not to realize some or all of the benefits that we expect to achieve if the Ceres Acquisition is successfully
completed within the expected timeframe. There can be no assurance that the conditions to the closing of the Ceres Acquisition will be
satisfied or waived or that the Ceres Acquisition will be completed, or as to whether the Ceres Acquisition will be completed on terms
other than those set forth in the Purchase Agreement.
Failure to complete the Ceres Acquisition could negatively
affect the price of our common stock, as well as our future business and financial results.
If the Ceres Acquisition is delayed or not completed,
we may be adversely affected by, among other things, the failure to pursue other beneficial opportunities during the pendency of the Ceres
Acquisition, the failure to obtain the anticipated benefits of completing the Ceres Acquisition, and the focus of our management on the
Ceres Acquisition rather than on normal business operations or opportunities. We may experience negative reactions from the financial
markets, including negative impacts on the market price of our common stock. The manner in which industry contacts, business partners
and other third parties perceive us may be negatively affected, which in turn could affect our marketing operations or our ability to
compete more broadly.
Additionally, even if the Ceres Acquisition
is not completed, we will be responsible for certain transaction costs associated with the Ceres Acquisition including financial advisory,
legal, accounting, consulting and other advisory fees and expenses. If we terminate the Purchase Agreement, subject to certain other conditions,
we will reimburse Ceres for its Eligible Expenses (as defined in the Purchase Agreement) subject to a $2.0 million cap. Any of these factors,
among others, could have a material impact on our business, prospects, financial condition and results of operations.
We will incur direct and indirect costs as a result of
the Ceres Acquisition.
We have incurred and expect to continue to incur
a number of non-recurring costs associated with negotiating and completing the Ceres Acquisition, combining the operations of our business
and the Ceres business and achieving desired synergies. Anticipated
forthcoming non-recurring expenses include professional fees to be incurred in connection with completing the Ceres Acquisition
and costs associated with retaining the Ceres employees. While fees and costs to date have been modest, additional unforeseen
expenses related to the Ceres Acquisition and the integration of the Ceres business may arise and could ultimately have a material impact
on our results of operations.
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Completion of the Ceres Acquisition will mark our entry into
the private asset markets, specifically farmland, and this may result in changes in our business. Our failure to integrate and manage
Ceres successfully could materially and adversely affect our business, results of operations and financial condition.
If the Ceres Acquisition is completed, we will
face numerous risks, including, among others:
• failure to achieve financial, operating or business objectives and synergies;
• failure to integrate successfully and in a timely manner any operations, products, services or technology;
• diversion of the attention of management and other personnel;
• failure to raise additional capital into Ceres’ funds;
• failure to integrate Ceres into our compliance and internal control systems, including regulatory compliance applicable to registered
investment advisers and broker-dealers;
• failure to retain personnel;
• unforeseen liabilities or expenses;
• failure of counterparties to indemnify us against liabilities arising from the transaction;
• potential loss of, or harm to, our relationship with our and the counterparties’ employees, customers and suppliers due to the
integration of a new business;
• accounting charges;
• assumption of the liabilities, and exposure to unforeseen liabilities, of Ceres and its subsidiaries, including liabilities subject
to indemnification;
• unfavorable market conditions that could negatively impact the acquired or combined businesses; and
• legal proceedings which may result in expenses and/or have a material adverse effect on our business.
We could be prevented from, or significantly
delayed in, achieving our strategic goals if we are unable to successfully integrate Ceres. Integration may be more difficult, time-consuming
or costly than expected. Our failure to integrate and manage Ceres successfully could materially and adversely affect our business, results
of operations and financial condition.
Risks Related to the Business of Ceres Partners, LLC
Our acquisition of Ceres and entry into the private asset markets,
specifically farmland, subject us to increased operational, regulatory, financial and other risks.
If the Ceres Acquisition is completed, we will
face increased operational, regulatory, financial, compliance and reputational risks. The expansion of our business also may place significant
demands on our existing infrastructure and employees. The failure of our compliance and internal control systems to properly mitigate
such additional risks, or of our operating infrastructure to support such expansion, could result in operational failures and regulatory
fines or sanctions. If our products and operations experience any negative consequences, it may harm our reputation in the markets in
which we operate.
For example, upon the closing of the Ceres Acquisition,
we will acquire Ceres, a registered investment adviser regulated by the SEC under the Investment Advisers Act of 1940, as amended, and
Ceres Securities, LLC (“Ceres Securities”), a limited purpose broker-dealer registered with the SEC under the Securities Exchange
Act of 1934, as amended, and a member of FINRA. The successful integration of Ceres and Ceres Securities into our existing compliance
and internal control frameworks will require significant attention and resources. Any failure to do so in a timely and effective manner,
or any failure by Ceres or Ceres Securities to maintain compliance with applicable legal and regulatory requirements, could subject Ceres
and us to heightened regulatory scrutiny, including potential investigations or enforcement actions by the SEC or FINRA. Such actions
could result in fines, censures, suspensions of personnel, or other sanctions, including the possible revocation of registration. These
risks, if realized, could have a material adverse effect on our business, financial condition, and results of operations.
We are entering the private asset markets for the first time
and may not be successful.
Acquiring Ceres, an alternative asset management
firm specializing in farmland investments, will mark our entry into the private asset markets, specifically farmland. There is high competition
in the private asset markets and real estate industry. There can be no assurance that we will be successful in the private assets market,
that Ceres will be able to raise additional capital into Ceres’ funds, that Ceres will achieve its objectives and operate successfully,
that we will have a suitable return on our investment in Ceres or that we will be able to recover the costs we have incurred in acquiring
Ceres. Our management team currently does not have experience in private asset markets or farmland investments and will be largely dependent
on the experience and performance of key employees of Ceres. Although we have entered into employment agreements with certain key employees
of Ceres, which will become effective as of the closing of the Ceres Acquisition, there can be no assurance that such employees will continue
their employment with us. Loss of key employees of Ceres could have a material adverse effect on our ability to implement our business
strategy and to achieve our objectives with respect to the Ceres Acquisition.
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Ceres’ performance is subject to risks associated with
investments in direct real estate-related assets.
Ceres provides investment advisory services
to, and manages, private funds, and a separate pooled investment vehicle that invests its assets in farmland real estate, Ceres Farms.
Investments in direct real estate-related assets are subject to various risks, including without limitation: the cyclical nature of the
real estate market and changes in national or local economic or market conditions; the financial condition of the buyers and sellers of
properties; government regulation and increases in trade tariffs; changes in supply of, or demand for, properties in a geographic area;
illiquidity of farmland investments; various forms of competition; fluctuations in lease rates; changes in interest rates and in the availability,
cost and terms of financing; promulgation and enforcement of governmental regulations, including rules relating to zoning, land use and
environmental protection; impact of third-party mineral rights ownership on properties; changes in real estate tax rates, energy prices
and other operating expenses; changes in applicable laws and increased governmental regulation; and various uninsured or uninsurable risks
and losses.
Ceres is subject to concentration risks arising
from its concentration in real estate. Given the cyclical nature of the real estate market, changes in national or local economic or market
conditions could have an adverse effect on Ceres. In addition, changes in the financial condition of tenants, buyers and sellers of property,
competition, fluctuations in lease rates, the length of leases, and in the availability of financing will have a significant impact on
Ceres’ performance. The geographic concentration of Ceres Farms’ properties in the U.S. Midwest makes its operations more
vulnerable to local economic downturns and adverse farm-specific risks, such as adverse weather events, changes in the local climate,
access to water and plant disease, than those of larger, more diversified companies.
Ceres Farms pays real estate taxes on its properties
and such taxes may increase. Ceres Farms acquires real properties primarily by borrowing new funds secured by a mortgage on the purchased
real estate, and incurring mortgage debt increases the risk of loss since defaults on indebtedness secured by a property may result in
lenders initiating foreclosure.
Ceres’ business is dependent
in part upon the profitability of Ceres Farms’ tenants’ farming operations, and a sustained downturn in the profitability
of their farming operations could have a material adverse effect on the amount of rent Ceres Farms can collect and, consequently, its
cash flow and net profits, and Ceres’ results of operations.
Ceres Farms depends on its tenants to operate
the farms it owns in a manner that generates revenues sufficient to allow them to meet their obligations to Ceres Farms, including their
obligations to pay rent, maintain certain insurance coverage and maintain the properties generally. The ability of Ceres Farms’
tenants to fulfill their obligations under their leases depends, in part, upon the overall profitability of their farming operations,
which could be adversely impacted by, among other things, adverse weather conditions, crop prices, crop disease, pests and unfavorable
or uncertain political, economic, business, trade or regulatory conditions. Ceres is susceptible to any decline in the profitability of
Ceres Farms’ tenants’ farming operations, to the extent that it would impact the tenants’ abilities to pay rents. In
addition, many farms are dependent on a limited number of key individuals whose injury or death may affect the successful operation of
the farm. We can provide no assurances that, if a tenant defaults on its obligations to Ceres Farms under a lease, Ceres Farms will be
able to lease or re-lease that farm on economically favorable terms in a timely manner, or at all. In addition, Ceres Farms may experience
delays in enforcing its rights as landlord and may incur substantial costs in protecting its investment. As a result, any downturn in
the profitability of the farming operations of Ceres Farms’ tenants, or a downturn in the farming industry as a whole, could have
a material adverse effect on Ceres’ business, results of operations and financial condition.
Ceres Farms’ revenues is subject to risks associated
with growing crops and the performance of the agricultural industry.
Ceres Farms’ investment strategy is to
acquire and manage farmland which may also include directly managing the operations of these farms. Ceres Farms’ properties grow
corn, soybeans, wheat and other primary crops, and specialty crops including seed corn and vegetables. As these crops are commodities,
they are subject to wide fluctuations in price. If the value of these crops declines, it could negatively impact the level of rent that
Ceres Farms can charge to tenant farmers and cause Ceres Farms to operate at a loss. In circumstances where Ceres Farms’ revenue
from a farm is based on a share of crop production, in addition to risks associated with commodity price fluctuations, adverse weather
conditions such as flooding or drought, or pest or plant disease problems could damage or destroy the crops and may cause Ceres Farms
to operate unprofitably. The value of and revenues from farmland in which Ceres Farms invests will be largely dependent on the performance
of the agricultural industry, which is historically cyclical. Crop yields can be affected by numerous factors beyond the control of Ceres
Farms, including reductions in the market prices for the farmers’ products, adverse weather and growing conditions, pest and disease
problems, and new government regulations regarding farming and the marketing of agricultural products.
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Adverse changes in government policies and regulations related
to farming could affect the prices of crops and the profitability of farming operations, which could materially and adversely affect the
value of Ceres Farms’ properties and its results of operations.
There are a number of government policies and
programs that directly or indirectly affect the profitability of farm operators. These include marketing, export, renewable fuel and insurance
policies and programs. Government policies and regulations affecting the agricultural industry, such as taxes, tariffs, duties, subsidies,
incentives, and import and export restrictions on agricultural commodities and commodity products, can influence the planting of certain
crops, the location and size of crop production, whether unprocessed or processed commodity products are traded, the volume and types
of imports and exports, the availability and competitiveness of feedstocks as raw materials, and industry profitability. Government policies
and regulations may adversely affect the supply of, demand for, and prices of agricultural products. In addition, international trade
disputes can adversely affect agricultural commodity trade flows by limiting or disrupting trade between countries or regions. Significant
changes to or the elimination of programs and policies could adversely affect crop prices and the profitability of farming operations,
including farms owned by Ceres Farms, and adversely affect its business, results of operations and financial condition.
On July 4, 2025, the One Big Beautiful Bill
Act (“OBBBA”) was signed into law, enacting changes to U.S. agricultural policy, including updates to commodity support programs,
crop insurance and trade promotion funding. The legislation poses risks to Ceres’ business. The OBBBA raises statutory reference
prices for major commodities, including corn and soybeans, with further annual escalations beginning in 2031. These changes may incentivize
increased domestic production, potentially leading to oversupply and downward pressure on market prices, particularly if global demand
does not rise proportionately. The OBBBA allocates $2.2 billion toward agricultural trade promotion, which may be deemed a subsidy by
international trading partners, potentially triggering retaliatory measures or disputes under World Trade Organization rules and
restricting market access for U.S. corn and soybean exports. Delays or inconsistencies by federal agencies in administering new reference
prices, crop insurance enhancements, or trade programs could create uncertainty for the agricultural industry. In addition, certain tax
provisions of the OBBBA may adversely impact Ceres Farms’ tenant farmers who own small farms.
Federal, state and county governments have implemented
laws and regulations in connection with farming operations, including those relating to taxes, trade, environmental, labor, immigration
and food safety, among others. For example, labor and immigration regulations seek to provide for minimum wages and minimum and maximum
work hours, as well as to restrict the hiring of illegal immigrants. If one of Ceres Farms’ tenants is accused of violating, or
found to have violated such regulations, it could have a material adverse effect on the tenant’s operating results, which could
adversely affect its ability to make its rental payments to Ceres Farms. Increased enforcement of federal immigration policy could adversely
affect the overall farming labor market, which could result in upward pressure on wages for farm labor and adversely affect Ceres Farms’
tenants’ profitability and ability to pay rent. In addition, certain states, including Iowa, Minnesota, Wisconsin, Missouri and
Kansas, in which a substantial amount of primary crop farmland is located, have laws that prohibit or restrict, to varying degrees, the
ownership of agricultural land by corporations or business entities similar to Ceres Farms. Additional states may, in the future, pass
similar or more restrictive laws, and Ceres Farms may not be legally permitted, or it may become overly burdensome or expensive, to acquire
farms in these states, which could impede the growth of Ceres Farms’ portfolio and its ability to diversify geographically in states
that might otherwise offer compelling investment opportunities.
Potential liability for environmental
matters could materially and adversely affect Ceres’ business, results of operations and financial condition.
Ceres is subject to the risk of liability under federal, state and local environmental laws applicable to agricultural properties, including those related to wetlands, groundwater
and water runoff. Some of these laws could subject Ceres to responsibility and liability for: the cost of removal or remediation of hazardous
substances released on its properties, generally without regard to Ceres’ knowledge of or responsibility for the presence of the
contaminants; the costs of investigation, removal or remediation of hazardous substances or chemical releases at disposal facilities for
persons who arrange for the disposal or treatment of these substances; and claims by third parties for damages resulting from environmental
contaminants. Ceres’ costs of investigation, remediation or removal of hazardous substances may be substantial. In addition, the
presence of hazardous substances on one of Ceres’ properties, or the failure to properly remediate a contaminated property, could
adversely affect Ceres’ ability to sell or lease the property or to borrow using the property as collateral. Ceres may be subject
to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from a property.
Additionally, Ceres could become subject to new, stricter environmental regulations, which could diminish the utility of its properties
and have a material adverse impact on its business, results of operations and financial condition. The potential of finding endangered
species on or near Ceres Farms’ properties could restrict certain activities on its properties under federal, state and local laws
and regulations intended to protect threatened or endangered species.
The failure of Ceres Farmland, LLC to maintain qualification
as a REIT for U.S. federal income tax purposes would subject it to U.S. federal income tax on taxable income at regular corporate rates,
which could adversely impact its business, results of operations and financial condition.
Ceres Farmland, LLC, a subsidiary of Ceres Farmland
Holdings, LP, has elected to be taxed as a REIT for U.S. federal income tax purposes. To maintain qualification as a real estate investment trust (“REIT”), Ceres Farmland,
LLC must meet various requirements set forth in the Internal Revenue Code of 1986, as amended (the “Code”) concerning, among
other things, the ownership of its outstanding interests, the nature of its assets, the sources of its income and the amount of its distributions.
There can be no assurance that Ceres Farmland, LLC will remain qualified as a REIT. We believe that the current organization and method
of operation will enable Ceres Farmland, LLC to continue to qualify as a REIT. However, at any time, new laws, interpretations or court
decisions may change the U.S. federal tax laws relating to, or the U.S. federal income tax consequences of, qualification as a REIT. Ceres
Farmland, LLC’s Board of Directors may at any time, in its sole discretion, determine that it is no longer in Ceres Farmland, LLC’s
best interest to qualify as a REIT. Failure of Ceres Farmland, LLC in any taxable year to qualify as a REIT will, among other things,
subject Ceres Farmland, LLC’s taxable income to tax at regular corporate rates and distributions to members of Ceres Farmland, LLC
in any non-qualifying years will not be deductible by Ceres Farmland, LLC. If Ceres Farmland, LLC’s status as a REIT is terminated
or revoked, it may not be eligible to elect REIT status again prior to the fifth taxable year following the year in which it fails to
qualify under the Code as a REIT unless certain relief provisions apply. The requirements for qualification as a REIT are extremely complex,
and Ceres Farmland, LLC’s compliance with such requirements may depend on factors that are outside of its control or upon the resolution
of legal issues for which guidance is lacking. Losing its REIT status would reduce its net earnings available for investment or distribution
because of the additional tax liability, which could substantially reduce its ability to pay performance fees to Ceres. Even if Ceres
Farmland, LLC qualifies as a REIT, it may be subject to federal income tax in certain circumstances. In addition, any taxable REIT subsidiary
of Ceres Farmland, LLC will be subject to federal, state and local income taxes at the applicable corporate rates. To remain qualified
as a REIT and to avoid the payment of U.S. federal income and excise taxes, Ceres Farmland, LLC may be forced to borrow funds, use proceeds
from the issuance of securities, pay taxable dividends of stock or debt securities or sell assets to make distributions, which may result
in Ceres Farmland, LLC distributing amounts that may otherwise be used for operations.
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Ceres may not be successful in pursuing new business opportunities,
including in solar, artificial intelligence (“AI”) data infrastructure and water rights, which could adversely affect its financial performance and strategic objectives.
Ceres continues to evaluate opportunities
to grow its business, including through the acquisition and leasing of properties for solar energy generation and AI data infrastructure, and the monetization of water rights. While Ceres currently leases and enters into option
agreements with respect to certain properties for solar energy development and use and may expand such arrangements, there can be no
assurance that it will be able to identify, negotiate or execute additional opportunities on favorable terms or at all.
Ceres’ efforts to pursue strategic adjacencies or enter new markets may be hindered by a variety of factors, including
regulatory or permitting challenges, lack of demand, competition, technological or infrastructure constraints or insufficient
capital investment. There can be no assurance that Ceres’ initiatives to explore new business opportunities, enter new
markets or make investments or acquisitions will benefit our or its business operations, generate sufficient revenues to offset
related costs, or produce the anticipated benefits of past or future investments.
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