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FORWARD LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The statements regarding urban-gro, Inc. contained in this Report that are not historical in nature, particularly those that utilize terminology such as “may,” “will,” “should,” “likely,” “expects,” “anticipates,” “estimates,” “believes” or “plans,” or comparable terminology, are forward-looking statements based on current expectations and assumptions, and entail various risks and uncertainties that could cause actual results to differ materially from those expressed in such forward-looking statements.
Important factors known to us that could cause such material differences are identified in this Report. We undertake no obligation to correct or update any forward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to consult any future disclosures we make on related subjects in future reports to the SEC.
Item 1. Business.
History
We were originally formed on March 20, 2014, as a Colorado limited liability company. In March 2017, we converted to a corporation and issued 193.3936722 shares of our Common Stock for every Member Interest issued and outstanding on the date of conversion.
In August 2016, when still an LLC, we undertook a private offering of our member interests wherein we received subscriptions of $575,107 in the form of 6,392 member interests to three (3) accredited investors (approximately $90 per member interest, or approximately $0.46 per share based upon the conversion rate of 193.3936722 shares per member interest issued when we converted into a corporation in 2017). These funds were used to (i) add two systems designers to expand our Cultivation Technologies team to support market demand; (ii) expand our operations into the expanding fertigation marketplace as States approving legalized cannabis increased, (iii) hire a mechanical engineer to begin vetting opportunities to add IP and technology to our future business offering, (iv) hired a strategic financial consultant to aid in compiling a business forecast model;, and (v) fund working capital to support brand building marketing initiatives focused on trade show participation and an Increased on-hand inventory position.
In May 2017, we commenced a private offering of our Common Stock wherein we received subscriptions of $2,546,000 from the sale of 2,546,000 shares, at $1 per share, to 76 investors, including 58 “accredited” investors, as that term is defined under the Securities Act of 1933, as amended. These funds were used to repay debt, expansion of our existing business operations, new investment opportunities and working capital.
Thereafter, on May 15, 2018, we filed a registration statement on Form S-1 with the US Securities and Exchange Commission (“SEC”) wherein we registered 4,157,936 shares of our Common Stock with the SEC. Our registration statement became effective on August 8, 2018. As part of this process we also filed a registration statement on Form 8-A, causing our Common Stock to be registered under the Securities Exchange Act of 1934, as amended.
In June 2018, we formed urban-gro Canada Technologies, Inc. as a wholly owned Canadian subsidiary company which we intend to utilize for all of our Canadian sales operations in the future.
Our Company website is www.urban-gro.com, which contain a description of our Company and products, but such websites and the information contained on our websites are not part of this Report. In addition, we also maintain branded technology product website under www.soleiltech.ag.
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Business Overview
We are an end-to-end agricultural solutions firm focused on cannabis and traditional agriculture produce growers. We provide design, engineering, and technology implementation in high-performance commercial cannabis cultivation facilities. Integration of systems through comprehensive design ensures a cohesive approach to cultivation that is both economical and regulatory compliant. We market our products and services throughout the United States and Canada. During 2018 we also made preliminary efforts on projects in other countries as well, including Mexico, Jamaica and Colombia.
Revenue is generated by 1) working with owners to design and engineer automated systems for large commercial facilities, and 2) delivering recurring consumable product sales and technology integration. Soleil® Technologies is our proprietary IoT platform providing sense and control capabilities, allowing the operator to remotely monitor the crop, ensuring real-time protection of investments.
Our current services and products include:
Since inception, we have serviced over 500 clients and have designed and assisted in build out of over 75 facilities owned by some of the largest multi-state cannabis focused operating companies in both the United States and Canada. While no assurances can be provided, we forecast over a thousand customers will be purchasing our cultivation products bi-monthly by 2020, provided that additional countries and states in the US continue to adopt legislation approving the use of medical or recreational marijuana. According to Viridian Capital Advisors, an estimated $13.8 billion was raised by cannabis companies in 2018. A significant portion of this capital is expected to be used for facility buildouts. New Cannabis Ventures reported that as of April 2018 there were over 7,000 cultivation licenses issued in the US. This number is rapidly increasing as more states enter the legal cannabis industry. While no assurances can be provided, we believe this gives us a large and growing market.
To date, our revenues have been derived from sales to the cannabis industry. On average, our revenues have grown by 70% per year since 2015. During 2018 we provided services to over 1.2 million square feet of canopy to the cannabis industry.
Our primary business purpose is to engage directly with large scale indoor and greenhouse commercial cultivators growing high-value crops and design and engineer state of the art facilities and systems that focus on maximizing plants yields and lowering overall operational costs. We have and will continue to work with grow operations and production facilities to pursue strategies to, provide services, products, and other potential revenue-producing opportunities in the high value crop arenas. We engage directly with the ownership groups and growers at these facilities and strategically work with them to provide value-added services and industry best products that assist them in lowering production costs and increasing crop yields. We believe our customers work with us because we save them time, money, and resources.
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In 2018, we accomplished several objectives, including the hiring and placement of our executive leadership team. We consider this a major milestone. To help us efficiently and effectively accomplish our growth objectives, management believes that hiring qualified, experienced persons and placing them into executive management is critical. During 2018 we hired George R. Pullar, our CFO; Larry Dodson, our CTO; Dan Droller, our EVP of Corporate and Business Development; and, Jonathan Nassar, our EVP of Sales. With this team in place, we believe we have the leadership necessary to help us to continue to expand our business. See “Part III, Item 10, Directors, Executive Officers and Corporate Governance”: included in our Proxy Statement, which has been incorporated herein as if set forth.
As discussed below we also increased our ownership in key technology companies. We believe that the additional investment into EDYZA (additional 5% ownership) and Total Grow Holdings (additional 10% ownership in 2018 and an additional 15% in 2019) will allow our technology team to continually integrate and solidify the Soleil Sense & Control platform to further gain meaningful and valuable insight from the mined data available in a closed-loop platform.
In 2018, we surpassed the 50-employee mark, and consequently, decided to seek out additional office space. The Company opened a satellite office in the downtown WeWork The Lab facility. This centrally located office allows us access to the larger technology and engineering talents pools located in the Denver metro area and the Denver Tech Center. Our technology team and design teams are now located in this facility. See “Item 2, Properties” below.
Current Business
Our intent is to continue to capture market share as the cannabis industry continues to develop and mature, and to leverage that experience and our technology development to penetrate the faster growing segments of the broader horticultural and agricultural industries. In the cannabis industry we engage directly with ownership groups and growers operating large indoor and outdoor greenhouse cultivation facilities and strategically work with them to provide value-added services and industry best products that assist them in lowering production costs and increasing crop yields.
We define our relationships with our customers through two areas comprised of design & integration services and agricultural technology:
We offer the following Design & Integration Services:
We also offer the following agricultural technology hardware and software solutions:
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As a part of our design and integration services and ag-tech offerings, we offer the following cultivation systems and crop management products:
Business Growth and Diversification
We are focused on driving shareholder value by continually developing the technology platform that we added to our business plan in 2017 and focusing on bringing more intellectual property (“IP”) in-house. We are focused on integrating technologies including high density wireless sensors, machine learning, and artificial intelligence into our product offerings. We intend to diversify our sector sales strategy by targeting traditional horticulture operators with our service and systems to companies involved in growing herbs, microgreens, leafy greens and lettuce, strawberries, and vine crops including tomatoes, cucumbers, chilies and peppers. The technologies we have developed, deployed, and in continuous innovation are described below as Soleil® 360, Soleil® Sense and Soleil® Control, within the section on Product Branding and Strategy.
Focusing on global agriculture and all high value crops, this technology is expected to allow us to offer our customers drastically better efficiencies while decreasing costs of production and increasing yields. There are no assurances this benefit will accrue.
Industry Partnerships
As a systems integrator we believe it is imperative for us to maintain close relationships with leading technology partners, and as such, we have attempted to integrate ourselves in the horticulture and agriculture industry, having formed strategic partnerships with a number of industry-leading solution providers like Edyza, Fluence Lighting, Priva, Argus, Total Grow Control, Netafim and Biobest Group NV. A brief description of these companies is as follows:
Edyza - Based in Irvine CA, Edyza is an advanced technology development company focusing on high-density IoT (Internet of Things), wireless networking and Cloud-based computing. Development includes proprietary designs of sensor nodes hardware and firmware, architecting wireless networks, and optimal use of network equipment such as Edge-servers, Gateways, wireless Hubs. Primary goals are to provide for high volume data acquisition and data visualizations, and software algorithm solutions.
Fluence Lighting - Fluence Bioengineering LED-based lighting systems are designed to provide high levels of photosynthetically active radiation (PAR) ideal for commercial cultivation and research applications from microgreens to cannabis. From sole-source indoor grow lighting to supplemental greenhouse lighting, Fluence custom tailors the light spectrum and form-factors to optimize plant growth and increase yields while consuming less energy and reducing operating costs versus legacy technologies. All of the LED-based grow lights are built in Austin, Texas. All grow lights are ETL listed and come with a 3-year or optional 5-year warranty.
Priva - Based in Ontario Canada, Priva provides building automation technology for the optimization of environmental conditions and process management for horticulture. Priva offers the best solutions for multiple indoor growing facilities from vertical farms to grow containers, warehouses to rooftop greenhouses. Priva’s solutions address water (hydroponics), climate & cultivation, and labor & management. Priva is a horticulture industry leader with more than 50 years of experience in horticulture developing algorithms for plant-based control strategies. These strategies create the best indoor growing solution when combined with Priva hardware and software modules.
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Argus – Argus Controls, a division of Conviron, provides automated control systems for the horticulture and aquaculture industries. Argus systems provide three essential functions: 1) Fully integrated equipment control; 2) Advanced monitoring and alarms, and 3) Comprehensive data acquisition and management information. Argus capabilities include facilities automation and specialty monitoring and control applications to support the needs of cultivators. With over 30 years of leadership and innovation in control technology, Argus systems are used in horticulture and biotechnology research facilities, universities, aquaculture and aquaponics, and many other custom control applications at sites throughout the world.
Total Grow Control – Total Grow Control (TGC) provides advanced control systems for large scale indoor facilities. TGC provides cultivators with a control system that manages watering & nutrient delivery, lighting and environmental control. With internet-based monitoring, cultivators have access to up-to-the-minute operational performance as well as complete control via mobile devices.
Netafim - Netafim is recognized as the world leader in drip irrigation systems and agricultural projects. Since 1965, Israel based Netafim has been a pioneer in drippers, dripper lines, sprinklers and micro-emitters. Netafim also manufactures and distributes crop management technologies including monitoring and control systems, dosing systems, and crop management software.
Biobest Group NV – This company specializes in pollination and biological control. In 1987, Biobest was the first company to put bumblebees on the market. With thirty years of expertise, Biobest continues to deliver high quality products at all times by maintaining quality at every level: in the factory and during the transport in order to guarantee an optimal result in the crop. Biobest strongly focuses on research and development, providing tailored advice for crops worldwide.
Product Branding and Strategy; Soleil® 360 Ag-Tech Platform, Soleil® Sense and Soleil® Control Technologies
Soleil® 360 Ag-Tech Platform
Soleil Technologies is one of our divisions. The Soleil’s technology platform comprises a Cloud-based services back-end management and administration system, and an intuitive customer graphical user interface (GUI). It is built with the capability to handle over 22 billion records per annum, and several thousands of subscription-paying customers.
Soleil sensors are connected to the Soleil 360 Platform employing a robust, high performance, proprietary, tree-mesh wireless network topology. The user interface is designed for intuitive ease-of-use navigation of the customer’s systems, and as a universal user interface that will integrate all typically disparate systems within the grow environment.
The Soleil 360 business model is a subscription-based, high-value data services product. Hardware and network services remain the property of the company, and subscription fees provide for data hosting, data analysis, reporting and visualizations. The subscription sales contracts will increase adoption in the industry due to lower capital costs for acceptance and implementation by customers.