Business Context and Reporting Period
The filing is Agrify Corporation’s unaudited Form 10-Q for the three and nine months ended September 30, 2023. The request identifies the company as RYTHM, Inc., but the supplied filing identifies the registrant as Agrify Corporation, trading under “AGFY.” Agrify provides cultivation, extraction, post-processing, testing, facility build-out, equipment, and software solutions for the cannabis and hemp industries.
Financial Results and Key Metrics
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $3.1 million | $7.0 million | $14.0 million | $52.4 million |
| Gross profit (loss) | $1.0 million | $(4.1) million | $2.6 million | $1.7 million |
| Gross margin | 31.0% | (58.6)% | 18.3% | 3.2% |
| Loss from operations | $(4.6) million | $(31.5) million | $(17.5) million | $(132.8) million |
| Net loss attributable to Agrify | $(2.1) million | $(57.4) million | $(19.2) million | $(130.2) million |
| Basic and diluted loss per share | $(1.27) | $(429.98) | $(13.48) | $(1,003.10) |
| Cash used in operating activities | Not separately provided | Not separately provided | $(25.9) million | $(58.0) million |
At September 30, 2023, cash and cash equivalents were $154 thousand, marketable securities were $4 thousand, and total assets were $43.1 million. Current liabilities were $41.4 million, compared with current assets of $21.2 million, producing a substantial working-capital deficiency.
Total debt, net of debt discount, was $20.6 million, including $18.5 million of Exchange Note principal, $518 thousand of PPP loan debt, $500 thousand of related-party debt, and other notes. Stockholders’ deficit attributable to Agrify was $21.5 million, and accumulated deficit was $266.4 million.
Material Changes Versus the Prior Comparable Period
- Revenue declined 55% in the third quarter and 73% for the first nine months, primarily because facility build-out and extraction solutions revenue decreased.
- Facility build-out revenue fell from $1.3 million to zero in the quarter and from $23.6 million to $0.9 million year to date.
- Extraction solutions revenue declined 48% in the quarter and 56% year to date.
- Gross margin improved materially because cost of goods sold declined faster than revenue, but cultivation-related revenues generated gross losses of approximately 303% in the quarter and 149% year to date.
- General and administrative expense decreased 82% in the quarter and 70% year to date, primarily reflecting lower bad-debt expense, depreciation, stock compensation, personnel, and insurance costs.
- The company recorded no goodwill or intangible-asset impairment in 2023; the comparable 2022 period included a $69.9 million impairment charge.
- Warrant-liability gains declined to $2.0 million in the quarter and $3.6 million year to date, compared with $16.3 million and $47.2 million, respectively, in 2022.
- Common shares outstanding increased to 1,651,281 at September 30, 2023 from 1,038,298 at December 31, 2022, reflecting equity issuances and debt conversions. The company completed a 1-for-20 reverse stock split on July 5, 2023.
Cash Flow, Outlook, Risks, and Unusual Items
- Operating cash burn remained significant at $25.9 million for the first nine months. Investing activities provided $25.2 million, mainly from $10.5 million of securities sales and $15.3 million of loan repayments. Financing activities used $9.6 million, primarily for $10.3 million of debt repayment.
- Management states that substantial doubt exists regarding the company’s ability to continue as a going concern within one year after issuance of the financial statements. The company has recurring operating losses, negative operating cash flow, a working-capital deficiency, and only approximately $0.2 million of cash, cash equivalents, and marketable securities at quarter end.
- No formal revenue or earnings guidance is provided. Management expects continued investment in VFUs, Agrify Insights software, and extraction products, but states that additional financing may be required and may not be available on acceptable terms.
- On October 27, 2023, an entity affiliated with CEO Raymond Chang purchased the Exchange Note and Convertible Note, agreed to waive defaults through December 31, 2023, and agreed to extend maturities to December 31, 2025. Subsequent transactions also included warrants covering 2,809,669 and 375,629 shares, subject to the disclosed terms.
- A Mack Molding settlement requires $500 thousand and $250 thousand payments, minimum future VFU purchases, monthly storage fees, and issuance of a warrant for 750,000 shares. The company made the $500 thousand payment.
- Material legal and contingency matters include Bud & Mary’s litigation involving a $14.7 million fully reserved loan receivable, Bowdoin construction litigation involving approximately $6.3 million of claimed amounts, TRC litigation seeking approximately $565 thousand plus costs, and Sinclair-related litigation and counterclaims.
- The company recognized approximately $0.9 million of gain from a customer settlement and approximately $1.0 million of aggregate gains from vendor settlements during the quarter.
- Nasdaq issued delinquency notices and a Staff Delisting Determination because of late SEC filings. The company requested a hearing, and the Nasdaq Hearings Panel scheduled a hearing for January 11, 2024. The filing states that continued compliance was not assured.
- Disclosure controls and procedures were ineffective as of September 30, 2023 because of previously identified material weaknesses in internal control over financial reporting. Remediation efforts include hiring technically qualified personnel and improving technical accounting resources.
Most Important Facts for Investors to Verify
- Confirm the correct issuer: the supplied filing is for Agrify Corporation, not RYTHM, Inc.
- Assess the going-concern disclosure, near-term cash needs, debt maturities, cash-sweep provisions, and access to additional financing.
- Review the October and December 2023 related-party financing, note purchases, maturity extensions, warrants, and required equity issuances.
- Evaluate Nasdaq listing status and the outcome of the scheduled delisting hearing.
- Review the material weaknesses in internal controls and the status of remediation.
- Assess customer concentration, collectability of loans and receivables, inventory reserves of $29.8 million, and the $14.7 million Bud & Mary’s reserve.
- Review dilution exposure from approximately 1.5 million outstanding warrants at September 30, 2023, plus subsequent warrants issued after quarter end.