Business context and reporting period
This is the unaudited Form 10-Q for the quarter and nine months ended September 30, 2021. The filing identifies the registrant as AgriFORCE Growing Systems Ltd., not AVAX ONE TECHNOLOGY LTD.; verify that this is the intended filing. AgriFORCE describes itself as an agriculture-technology company developing controlled-environment growing systems and related intellectual property. The statements are in U.S. dollars.
Financial results and liquidity
- Revenue: No revenue has been generated since inception. Gross margin is therefore not applicable.
- Operating expenses and loss: Q3 operating expenses were $2.381 million versus $0.981 million in Q3 2020; operating loss was $2.381 million versus $0.981 million. For the first nine months, operating expenses were $3.986 million versus $2.585 million, and operating loss was $3.986 million versus $2.585 million.
- Net loss: Q3 net loss was $1.824 million versus $0.973 million; nine-month net loss was $3.915 million versus $2.587 million. Net loss attributable to common shareholders was $2.027 million for Q3 and $4.651 million for the nine months, including preferred dividends. Basic and diluted loss per common share were $0.14 and $0.46, respectively, for those periods.
- Cash flow: Nine-month cash used in operations was $3.017 million, compared with $1.634 million in 2020. Investing used $0.987 million, principally for construction in progress and intangible assets. Financing provided $13.396 million, largely reflecting the IPO, partly offset by debt repayment and offering costs.
- Cash and liquidity: Cash was $9.835 million at September 30, 2021, versus $0.653 million at December 31, 2020. Current assets were $10.346 million and current liabilities $1.830 million. Management believes cash will cover projected requirements for at least 12 months after issuance of the statements, while noting ongoing operating losses and possible additional capital needs.
- Debt and other liabilities: The $750,000 senior secured debentures were repaid in July 2021. Remaining long-term loan balance was $47,092. The balance sheet also included a $1.843 million warrant liability and $750,000 of current contingent consideration payable.
- Equity and financing: The July IPO raised $15.640 million gross and $14.389 million net of underwriting discounts and commissions. Common shares outstanding were 15,057,859 at September 30, 2021. The company reported an accumulated deficit of $17.173 million.
Material changes and notable items
- Nine-month operating expenses rose 54% year over year; management attributes the increase mainly to higher wages, investor relations, office and administrative, and consulting costs as the company expanded after its IPO. Q3 operating expenses increased 143% year over year.
- The company acquired Manna Nutritional Group intellectual property in September. The agreement provides for consideration of up to $14.475 million, including cash and shares, subject to conditions. At September 30, the company recorded a $1.470 million intangible asset, $500,000 accrued for seller secured-debt reimbursement, and $750,000 contingent consideration; other amounts were not considered probable and reasonably estimable at that date.
- Warrant fair-value movements materially affected results: the company recorded a $818,960 gain for the nine months, while also recording $375,123 in warrant issuance costs and $484,379 of debenture interest accretion.
- The company’s prior offtake agreements for its first three facilities were terminated in Q2 2021. It was renegotiating financing for the planned Coachella land purchase, with the purchase price stated as $4.4 million.
Outlook, risks, and contingencies
No quantified revenue, earnings, or cash-flow guidance is provided. Management expects continued investment in research and development, commercialization, facilities, and public-company costs, and does not expect positive operating cash flow in the near term. It states that additional capital may be needed and that liquidity assumptions could prove incorrect. Key execution dependencies include land financing, facility construction, commercialization, and development of the company’s technology.
The filing describes a pending lawsuit brought by HydroHaus Horticulture and associated parties concerning agreements, alleged expenses, and intellectual property. The company denies the allegations and has filed a counterclaim; management, based on counsel’s opinion, does not believe potential monetary damages are material. Approximately $100,000 of claimed expenses had not been accrued because management disputes the claim. The filing also reports total future office lease payments of $2.367 million.
Management concluded disclosure controls and procedures were effective as of September 30, 2021 and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Confirm the filing’s identity: the supplied document is AgriFORCE Growing Systems Ltd.’s 10-Q, despite the AVAX ONE TECHNOLOGY LTD. request metadata.
- Review the Manna IP agreement’s milestones, share issuance conditions, cash obligations, and potential adjustment if a patent is not issued.
- Assess the Coachella land financing and facility build-out plans, including the terminated offtake arrangements and absence of revenue to date.
- Monitor operating cash burn, funding needs, and the company’s stated 12-month liquidity assessment.
- Track warrant-liability valuation volatility and the status and potential exposure of the HydroHaus litigation.