SEC Filing Summary: Agrify Corporation Form 10-Q
Filing identity: The supplied filing is for Agrify Corporation (Nasdaq: AGFY), not RYTHM, Inc. It covers the quarterly period ended September 30, 2022, with comparative periods ended September 30, 2021. The financial statements are unaudited and prepared under U.S. GAAP.
Business Context and Reporting Period
Agrify provides cannabis cultivation and extraction solutions, including vertical farming units, cultivation software, facility build-outs, extraction equipment, consulting, engineering and construction services. The company completed the Lab Society acquisition in February 2022 and reported extraction-related revenue from Lab Society, Precision, Cascade and PurePressure.
Key Financial Metrics
| Metric | Three Months Ended September 30 | Nine Months Ended September 30 |
|---|---|---|
| Revenue | $7.0 million, down 55% from $15.8 million | $52.4 million, up 51% from $34.6 million |
| Gross profit/(loss) | $(4.1) million; margin of (58.6)% | $1.7 million; margin of 3.2% |
| Operating loss | $(31.5) million | $(132.8) million |
| Net loss attributable to Agrify | $(46.3) million | $(148.6) million |
| Net loss per share | $(17.33) | $(57.21) |
| Operating cash flow | Not separately reported for the quarter | $(66.1) million |
- Quarterly revenue weakness reflected a $11.7 million decline in facility build-outs and a $2.8 million decline in cultivation solutions, partly offset by $5.7 million of extraction solutions revenue.
- Nine-month revenue growth was primarily attributable to $28.1 million of extraction solutions revenue from acquired businesses.
- Extraction solutions generated approximately 27% to 28% gross margins, while cultivation-related revenue generated an approximately 26% gross loss for the nine-month period.
- General and administrative expense increased to $24.1 million in the quarter and $53.3 million year to date, including a $14.7 million allowance for the Bud & Mary’s loan receivable and other acquisition-related and personnel costs.
- Cash and cash equivalents were $2.2 million at September 30, 2022. Restricted cash was $10.0 million, and marketable securities were $0.4 million, resulting in reported liquidity of approximately $12.5 million including restricted cash.
- Current assets were $63.4 million versus current liabilities of $41.5 million. Inventory increased to $41.8 million from $20.5 million at December 31, 2021.
- Total debt was $36.0 million gross, or $30.9 million net of unamortized debt discount, including a $35.0 million senior secured Exchange Note and $0.7 million of PPP debt.
Material Changes Versus the Prior Comparable Period
- Third-quarter revenue declined 55%, while nine-month revenue increased 51% because of acquired extraction businesses and a shift in product mix.
- The third quarter moved to a $4.1 million gross loss from a $0.4 million gross loss in the prior-year quarter. The deterioration was driven substantially by $5.1 million of facility build-out costs recognized for the Bud & Mary’s project while related revenue was deferred.
- The company recorded a $69.9 million second-quarter impairment charge, eliminating all reported goodwill and intangible assets. Management cited lower-than-expected sales, weaker cannabis-industry conditions, higher operating expenses and a sustained decline in market capitalization.
- Nine-month operating loss expanded from $21.7 million to $132.8 million, and net loss attributable to Agrify increased from $19.2 million to $148.6 million.
- Operating cash usage increased to $66.1 million from $17.6 million, primarily reflecting losses, inventory purchases, construction costs and working-capital needs.
- The company paid $35.2 million under the prior SPA Note and exchanged the remaining balance for the $35.0 million Exchange Note. The transaction produced a $17.9 million loss on extinguishment of debt and resulted in liability-classified warrants covering 2.1 million shares.
Guidance, Outlook, Commentary, Risks and Unusual Items
- Management stated that recurring losses and negative operating cash flows raise substantial doubt about the company’s ability to continue as a going concern within twelve months. Continued operations depend on additional debt or equity financing and eventual positive operating cash flow.
- Management said it expected sufficient cash on hand to continue operations for approximately six months, while also stating that additional capital would be required for long-term operating needs and TTK Solution commitments.
- Subsequent to quarter-end, Agrify established a $50 million ATM program. By November 7, 2022, it had raised $15.1 million net, sold 6.1 million shares at an average price of $2.54, used $3.1 million to repay the Exchange Note and retained $34.4 million of ATM availability.
- The Exchange Note bears 9% annual interest, matures three years after issuance, includes a 20% cash sweep on equity-financing proceeds and contains minimum-cash, spending, debt and lien covenants. The company reported compliance with its financial covenants at September 30, 2022.
- Agrify fully reserved the $14.7 million Bud & Mary’s note receivable because of litigation and repayment uncertainty. It also deferred $5.3 million of related revenue and stated that revenue will be recognized only if cash is collected.
- The company had a $7.1 million allowance related to Greenstone, a related party, because of financial instability and unfavorable Colorado market conditions.
- Bud & Mary’s filed a lawsuit in October 2022 alleging, among other matters, unfair or deceptive practices, breach of contract and conversion. Management believes the claims lack merit but acknowledges litigation uncertainty.
- Other unusual items included a $5.7 million non-cash gain from remeasurement of warrant liabilities, a $1.5 million favorable acquisition-related adjustment and an $0.8 million settlement with former employees.
- Agrify effected a 1-for-10 reverse stock split on October 18, 2022. It received a Nasdaq minimum-bid deficiency notice but regained compliance on October 28, 2022.
- Disclosure controls and procedures were deemed ineffective because of previously reported material weaknesses in internal control over financial reporting. Management stated that remediation efforts were underway.
- COVID-19 continued to cause supply-chain delays, higher operating and shipping costs and potential delivery disruptions. The filing also describes inventory-obsolescence, customer-collection, cannabis-market, financing and dilution risks.
Facts an Investor Should Verify
- Confirm that the filing belongs to Agrify Corporation rather than RYTHM, Inc., as indicated in the request metadata.
- Reconcile the company’s liquidity after the November 2022 ATM issuance, restricted cash requirements and subsequent Exchange Note repayment.
- Review the Exchange Note’s cash-sweep, minimum-cash, default and redemption provisions, including the potential 15% default interest rate.
- Assess collectability of the remaining loan receivables, particularly the Greenstone balance and the fully reserved Bud & Mary’s balance.
- Evaluate dilution from the ATM program, 2.1 million Exchange Note warrant shares, other warrants, options and restricted stock units.
- Review the basis and sensitivity of the $69.9 million goodwill and intangible-asset impairment and whether additional impairments may be required.
- Track remediation of material weaknesses in internal controls and the company’s ability to fund operations beyond management’s stated approximately six-month horizon.