AVAX ONE TECHNOLOGY LTD. quarterly report, Q2 FY2021

Vollständiges Dokument

Filing summary

Registrant and period: The supplied filing is AgriFORCE Growing Systems Ltd.’s unaudited Form 10-Q for the quarter ended June 30, 2021, not a filing identified as AVAX ONE TECHNOLOGY LTD. The company develops controlled-environment growing systems and had generated no revenue since inception.

Financial performance and position

  • Revenue: $0 for the three and six months ended June 30, 2021; the company reported no revenue since inception.
  • Losses: Q2 net loss was $1.207 million, versus $629,019 in Q2 2020. First-half net loss was $2.092 million, versus $1.614 million. Loss attributable to common shareholders was $1.739 million for Q2 and $2.624 million for the first half, including $532,258 of preferred dividends issued in common shares. Basic and diluted loss per common share was $0.20 for Q2 and $0.30 for the first half.
  • Operating expenses: Q2 operating expenses were approximately $715,000, up $72,345 year over year. First-half operating expenses were approximately $1.605 million, essentially unchanged year over year. No revenue-based margin is meaningful.
  • Cash flow: First-half operating cash use was $799,682, compared with $1.187 million in 2020. Investing cash use was $2,190; financing cash provided was $373,391. Cash fell from $653,410 at year-end 2020 to $157,051 at June 30, 2021.
  • Liquidity and liabilities: Current assets were $396,393, compared with current liabilities of $3.004 million. Total liabilities were $3.323 million and shareholders’ equity was $270,020. Accounts payable and accrued liabilities were $2.305 million, including $803,694 of unpaid IPO costs and $744,191 due to a construction contractor.
  • Debt: The company recorded $698,235 of current senior secured debentures, net, at June 30. The bridge financing had $750,000 principal against $600,000 of subscription proceeds, plus warrants and extension-related costs. It was repaid in full on July 13, 2021. A separate long-term loan was $48,411 at quarter-end.
  • Other balance-sheet items: Construction in progress was $2.128 million and deferred IPO costs were $1.043 million. The accumulated deficit was $15.146 million.

Changes and significant events

  • First-half net loss increased by $477,854 year over year, despite nearly flat operating expenses; the 2021 period included $427,360 of debenture interest accretion and a $59,259 loss on extending the debt term.
  • On July 12, 2021, after quarter-end, the company completed an IPO of 3,127,998 units at $5.00 each, receiving $15.640 million gross and $14.389 million net. Each unit included one common share and one Series A warrant.
  • At the IPO closing, 2,258,826 Series A preferred shares converted into common shares. The filing reported 14,983,761 common shares outstanding as of August 2, 2021.
  • The company’s plan included financing and purchasing a 41.37-acre Coachella, California site, developing facilities and a genetics lab, and pursuing additional facilities and acquisitions. The land purchase remained subject to financing and renegotiation of final terms; the scheduled escrow close had been extended.

Outlook, risks, and contingencies

  • Management said it did not expect positive operating cash flow in the near future and anticipated significant expenditures for growth, research and development, commercialization, construction, and public-company costs. It believed cash plus IPO proceeds would cover projected operating needs for at least 12 months after issuance of the statements, while cautioning that liquidity assumptions could prove incorrect and additional capital might be required.
  • A lawsuit filed in 2019 alleges breach of agreements and seeks damages and other relief, including transfer of alleged intellectual property. The company denies the allegations and counterclaims. Management, citing counsel, did not believe potential monetary damages were material; approximately $100,000 of claimed expenses had not been accrued. The filing reported no further lawsuit activity during the first half of 2021.
  • The company disclosed no new contingencies during the period. Its warrants were classified as a Level 3 derivative liability, valued at $270,669 at June 30; future fair value may fluctuate with share price and valuation assumptions.
  • Management reported disclosure controls and procedures were effective and no material internal-control changes occurred during the quarter. The filing checked “No” to whether the company had filed all required Exchange Act reports during the preceding 12 months.

Investor verification priorities

  1. Confirm the filing belongs to AgriFORCE Growing Systems Ltd.; the request metadata names a different company.
  2. Review the IPO’s net proceeds, use of funds, post-offering capitalization, warrant terms, and the subsequent repayment of the bridge loan.
  3. Assess the company’s cash runway against its operating plan, construction commitments, land financing, and continuing operating cash burn.
  4. Verify the status and potential exposure of the HydroHaus litigation and the unaccrued claimed expenses.
  5. Investigate the “No” response regarding timely filing of required reports and any related reporting or compliance implications.