AVAX ONE TECHNOLOGY LTD. annual report, FY2021

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Filing Summary

Entity and period: The supplied filing is AgriFORCE Growing Systems Ltd.’s Form 10-K for the fiscal year ended December 31, 2021—not a filing for AVAX ONE TECHNOLOGY LTD. It compares fiscal 2021 with fiscal 2020; standalone fourth-quarter results are not provided. Figures are in U.S. dollars unless noted.

Business context

AgriFORCE is an early-stage agricultural technology and food-products company. Its planned AgriFORCE Solutions business centers on proprietary controlled-environment grow facilities, automation and micropropagation. AgriFORCE Brands is developing products using acquired Manna Nutritional Group intellectual property. The company had not completed a grow house or generated revenue by year-end.

Financial performance and position

  • Revenue: No revenue since inception. Gross margin is not applicable.
  • Operating loss and expenses: Operating loss was $6.93 million in 2021 versus $3.35 million in 2020. Operating expenses increased 107%, or $3.58 million, as the company expanded staffing, public-company activities, consulting and development.
  • Net loss: $6.64 million, compared with $3.22 million in 2020. Loss attributable to common shareholders was $7.38 million, including $736,000 of preferred-share dividends; basic and diluted loss per share was $0.66 versus $0.53.
  • Cash flow: Cash used in operations was $5.14 million, up from $1.85 million. Investing activities used $1.01 million, principally for construction in progress and acquired intellectual property. Financing provided $13.41 million, primarily from the IPO.
  • Liquidity: Year-end cash was $7.78 million versus $653,000 a year earlier; working capital was approximately $5.8 million. The company reported $11.77 million in total assets and $3.77 million in total liabilities.
  • Debt and other liabilities: The $750,000 principal senior secured bridge debenture was repaid in July 2021. Year-end long-term loan was $47,000; warrant liability was $1.42 million. Current liabilities included $754,000 of contingent consideration related to the Manna IP acquisition.
  • Margins: The filing reports no sales, so operating and net margins are not meaningful.

Material changes versus 2020

  • Net loss roughly doubled and operating cash use increased substantially, while year-end cash rose following the July 2021 IPO.
  • Operating expenses increased as the company entered a growth phase; research and development expense rose to $474,000 from $124,000.
  • The company acquired Manna Nutritional Group IP in September 2021. It recorded an intangible asset of $1.48 million at year-end; the agreement provides for additional cash and share consideration subject to terms and conditions.
  • Series A preferred shares converted into common shares upon the IPO. Common shares outstanding increased from 8.44 million at year-end 2020 to 15.18 million at year-end 2021.

Outlook, risks and unusual items

  • Outlook: No financial guidance is provided. Management’s stated plans include financing and developing the Coachella site, building initial facilities and micropropagation capacity, and commercializing food products. These are plans, not assured outcomes.
  • Going concern: The auditor’s report and management disclose substantial doubt about the company’s ability to continue as a going concern. The company expects further losses and says additional financing is needed; it warns that unavailable financing could require operations to be scaled back or discontinued.
  • Execution and funding risks: No grow house had been constructed, and the facility model’s commercial viability had not been demonstrated. Construction costs, delays, customer/operator participation and further equity or debt financing are significant uncertainties.
  • Key commercial developments: The prior exclusive operator and related offtake arrangements were terminated in 2021. A new offtake agreement with Humboldt Bliss was signed in November 2021; a company director had a controlling interest in Humboldt and recused himself from board deliberations and approval.
  • Subsequent events: In February 2022, the company signed a definitive agreement to acquire Delphy Groep BV for $26 million in cash and stock, with closing expected after signing. It also signed a binding letter of intent to acquire Deroose Plants NV for an expected approximately $69 million, subject to due diligence and a definitive agreement. These were not completed acquisitions as of the filing date. A license agreement with Radical Clean Solutions was also signed in February 2022.
  • Unusual accounting item: A $1.19 million gain from the change in fair value of warrants reduced reported loss; warrant remeasurement is non-cash and may fluctuate with valuation inputs and share price.
  • Contingency: The company disputes a BC Supreme Court claim by HydroHaus Horticulture and related plaintiffs concerning prior agreements, expenses and intellectual property. Management did not believe an adverse outcome would reasonably be expected to have a material adverse effect, but litigation costs and outcomes remain uncertain.

Important facts for investors to verify

  • Confirm the issuer identity: the supplied 10-K is for AgriFORCE Growing Systems Ltd., not AVAX ONE TECHNOLOGY LTD.
  • Review the audited statements, going-concern disclosure and cash runway against subsequent financing and spending needs.
  • Reconcile IPO proceeds disclosures: the filing cites $14.39 million net proceeds after underwriting discounts in one section, while the cash-flow statement reports $13.36 million of net financing proceeds from the IPO after stated costs.
  • Check the status, funding, closing conditions and dilution implications of the Delphy and Deroose transactions, and the terms and commercial progress of the Humboldt agreement.
  • Assess construction progress, land-purchase status, facility economics, Manna IP performance milestones and the HydroHaus litigation developments.