Filing Summary
Filing identity: The provided filing is Agrify Corporation’s Form 10-K for the fiscal year ended December 31, 2020, not RYTHM, Inc. Agrify began trading on Nasdaq under “AGFY” on January 28, 2021. The filing was signed April 2, 2021.
Business Context and Reporting Period
Agrify develops integrated indoor-agriculture solutions combining Agrify Vertical Farming Units, horticultural lighting, Agrify Insights cloud software, ancillary products, equipment financing, and facility design, engineering, construction, and installation services. The company serves indoor agriculture operators, including customers operating in the cannabis industry, but does not cultivate, distribute, or dispense cannabis.
2020 included the acquisition of TriGrow Systems in January, the acquisition of Harbor Mountain Holdings in July, and the initial operating period of the Agrify-Valiant joint venture. The company was an emerging growth company and smaller reporting company and provided reduced disclosure. The financial statements were audited by Marcum LLP, which issued an unqualified opinion on the financial statements but did not opine on internal control effectiveness.
Key Financial Metrics
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Revenue | $12.087 million | $4.088 million | +$7.999 million |
| Gross profit (loss) | $0.570 million | $(0.245) million | Improved by $0.815 million |
| Gross margin | 4.7% | (6.0%) | Improved by 10.7 percentage points |
| Operating loss | $(12.616) million | $(3.091) million | Loss increased |
| Net loss attributable to Agrify | $(21.617) million | $(3.042) million | Loss increased by $18.575 million |
| Basic and diluted loss per share | $(5.32) | $(0.99) | Loss increased |
| Cash used in operating activities | $(14.782) million | $(3.441) million | Use increased |
| Cash used in investing activities | $(1.228) million | $(0.184) million | Use increased |
| Cash provided by financing activities | $23.915 million | $3.746 million | Increased |
| Cash and cash equivalents at year-end | $8.111 million | $0.206 million | Increased |
Revenue consisted of $4.762 million from cultivation solutions and ancillary products, $24,000 from Agrify Insights software, $7.180 million from facility build-outs, and $121,000 from other services. The Agrify-Valiant joint venture generated $7.268 million, or 60.1%, of total revenue.
At December 31, 2020, total assets were $21.839 million, total liabilities were $28.293 million, and stockholders’ equity was negative $6.679 million, excluding non-controlling interests. Current liabilities of $27.029 million exceeded current assets of $18.640 million.
Material Changes Versus the Prior Comparable Period
- Revenue increased approximately 196%, primarily because of facility build-out activity and the acquisition of TriGrow, which contributed approximately $4.0 million of post-acquisition revenue.
- Cultivation-solutions revenue increased to $4.762 million from $4.066 million, while facility-build-out revenue contributed $7.180 million for the first time.
- Gross margin improved to 4.7% from negative 6.0%, attributed to higher negotiated prices, a more favorable product mix, and direct sales following the TriGrow acquisition.
- Research and development expense increased to $3.354 million from $109,000, reflecting development of Agrify Insights and next-generation units, personnel, consultants, and discontinued development activities.
- Selling, general and administrative expense increased to $9.832 million from $2.737 million, including higher payroll, stock-based compensation, public-company preparation costs, professional fees, and acquisition-related costs.
- Net loss increased substantially because of higher operating expenses and $5.618 million of loss on extinguishment of convertible notes, together with a $2.924 million loss from the change in fair value of derivative liabilities.
- Accounts receivable increased to $4.014 million from zero, inventory increased to $5.170 million from $2.481 million, and deferred revenue declined to $152,000 from $2.807 million.
- The company raised $10.0 million through Series A preferred stock, $13.1 million through convertible notes, and $823,000 through PPP loans during 2020.
Backlog, Outlook, Risks, and Unusual Items
- Backlog was $58.6 million at December 31, 2020. Management expected to recognize approximately $40 million as revenue in 2021 and the remainder thereafter, but cautioned that backlog may not convert as projected.
- The qualified sales pipeline was $105 million, including $78 million generated directly and $27 million through Agrify-Valiant. Pipeline opportunities were not firm bookings.
- The company reported 386 deployed AVFUs and 1,140 AVFUs in backlog, all expected to use Agrify Insights software.
- Management and the auditors identified substantial doubt regarding the company’s ability to continue as a going concern because of recurring losses and negative operating cash flow. Management expected available capital, including post-period financing, to fund planned operations for at least 12 months.
- Subsequent to year-end, the IPO generated approximately $57 million of net proceeds, and the February 2021 offering generated approximately $80 million of net proceeds. The convertible notes converted into 1,697,075 common shares upon the IPO.
- PPP loans totaled $823,410, carried a 1% interest rate, and had not yet been submitted for forgiveness. Any unforgiven amounts would require repayment.
- COVID-19 caused supply-chain delays, customer-site access restrictions, and pressure on customers’ financial condition. Management stated that operations continued, but the ultimate impact remained uncertain.
- Customer concentration was significant: three customers represented 79.2% of 2020 revenue, and three customers represented 88.8% of accounts receivable at year-end.
- The company reported material weaknesses in internal control over financial reporting related to insufficient technical accounting resources and lack of segregation of duties. Management began a remediation plan; the company’s auditor was not required to provide an attestation report.
- A lawsuit filed by two former employees alleges compensation, equity, employment, fiduciary-duty, and securities-law claims. The company moved to dismiss and stated that it believes the claims lack merit; the filing does not provide a quantified potential loss.
- Related-party arrangements included purchases from 4D Bios, Bluezone, and Enozo, as well as $7.085 million of purchases from Valiant Americas. Certain directors or executive officers held interests in or served on the boards of some counterparties.
- The company had no stated intention to pay cash dividends.
Most Important Facts for Investors to Verify
- Confirm that the intended issuer is Agrify Corporation rather than RYTHM, Inc.; the supplied filing identifies Agrify and ticker AGFY throughout.
- Reconcile the reported $58.6 million backlog and $105 million qualified pipeline to signed contracts, customer funding, facility readiness, licensing, and actual 2021 revenue.
- Assess liquidity after the 2021 IPO and follow-on offering against continuing operating losses, negative operating cash flow, working-capital needs, and planned capital expenditures.
- Review customer concentration, receivable collections, construction delays, and customer credit quality.
- Evaluate the impact of the internal-control material weaknesses and the status of remediation.
- Review the conversion, dilution, and subsequent settlement of convertible notes, warrants, preferred stock, and equity awards.
- Assess exposure to cannabis-related federal and state regulatory changes, supplier concentration, COVID-19 disruptions, cybersecurity risks, and related-party transactions.
- Review the pending former-employee litigation and other contractual purchase obligations, including PPP-loan forgiveness and distribution-agreement minimum purchases.