10-K: Agrify Corporation Reports Full Year 2023 Results, Navigates Financial Challenges

Sentiment:

Annual Results 15 April 2024 5:28 PM

Agrify Corporation's annual report reveals a significant decrease in revenue and ongoing financial challenges, including substantial losses and doubts about its ability to continue as a going concern.

Delay expectedThe company was unable to timely file its 2022 Form 10-K, the First Quarter 2023 Form 10-Q and the Second Quarter 2023 Form 10-Q.

Capital raiseThe company may require additional financing to achieve its goals.The company may opportunistically raise debt capital, subject to market and other conditions.The company may also raise debt capital for strategic alternatives and general corporate purposes.The company sold 629,710 shares of Common Stock under the ATM at an average price of $27.29 per share, resulting in gross proceeds of $17.2 million, and net proceeds of $16.7 million after commissions and fees to the Agent totaling $516,000.The company entered into a placement agency agreement with Alexander Capital, LP as placement agent, pursuant to which the company agreed to issue and sell an aggregate of 2,760,000 shares of common stock, and, in lieu of common stock to certain investors that so chose, pre-funded warrants to purchase 3,963,684 shares of common stock. The public offering price for each share of common stock was $0.38, and the offering price for each pre-funded warrant was $0.379.

Worse than expectedThe company's revenue decreased significantly year-over-year.The company has a substantial accumulated deficit and limited cash on hand.The company has received notices from Nasdaq regarding non-compliance with listing rules.

Summary

Agrify Corporation's annual report for 2023 shows a significant decrease in revenue, dropping to $16.9 million from $58.3 million in 2022.
The company experienced a net loss of $18.6 million in 2023, compared to a net loss of $188.3 million in 2022.
The report highlights substantial doubt about the company's ability to continue as a going concern due to recurring losses and a working capital deficiency.
The company's accumulated deficit reached approximately $265.8 million as of December 31, 2023.
A significant portion of the revenue decline was due to a reduction in facility build-out revenue and extraction solutions sales.
The company has implemented a strategic plan to foster sustainable long-term growth through cost efficiencies and enhanced sales and growth initiatives.
The company has been focused on growing its cultivation business by helping its existing Agrify Total Turn-Key customers to bring their facilities online and driving additional sales through its Rapid Deployment Pack (RDP).
The company has successfully installed and commenced its Las Vegas customer, Nevada Holistic Medicine, its Denver Colorado customer, Denver Greens, and signed several new customers such as Golden Lake Business Park in California, and Harvest Works in New Jersey.
The company has also made significant strides to receive UL Compliance for Precision Extractions EXP Explosion Proof Rooms in an effort to continue its commitment to safety and quality within cannabis extraction facilities.

Sentiment

Score: 3

Explanation: The document presents a challenging financial situation with significant revenue decline, substantial losses, and doubts about the company's ability to continue as a going concern. While there are some positive aspects, such as improved gross profit margin and reduced operating expenses, the overall sentiment is negative due to the significant financial risks and uncertainties.

Positives

Gross profit margin improved significantly, moving from a loss to a profit.
Operating expenses were substantially reduced, indicating cost-cutting measures.
The net loss was significantly reduced compared to the previous year.
The company has successfully installed and commenced its Las Vegas customer, Nevada Holistic Medicine, its Denver Colorado customer, Denver Greens, and signed several new customers such as Golden Lake Business Park in California, and Harvest Works in New Jersey.
The company has also made significant strides to receive UL Compliance for Precision Extractions EXP Explosion Proof Rooms in an effort to continue its commitment to safety and quality within cannabis extraction facilities.

Negatives

Revenue decreased significantly year-over-year.
The company has a substantial accumulated deficit.
The company has a limited amount of cash on hand.
The company has a significant amount of debt.
The company has identified material weaknesses in its internal control over financial reporting.
The company has received notices from Nasdaq regarding non-compliance with listing rules.

Risks

The company's ability to continue as a going concern is in doubt due to recurring losses and a working capital deficiency.
The company may require additional financing to achieve its goals, and a failure to obtain this necessary capital may force the company to delay, limit, reduce, or terminate its product manufacturing and development, and other operations.
The company faces risks associated with strategic acquisitions, including potential underperformance and integration challenges.
The company has substantial debt and other financial obligations, and any failure to meet these obligations could harm its business.
The company may be required to record impairment charges against the carrying value of its goodwill and other intangible assets in the future.
The company relies on a limited base of suppliers, which may result in disruptions to its supply chain.
The company faces risks associated with having clients operating in the cannabis industry, including regulatory uncertainty and potential enforcement actions.
The company's failure to meet the continued listing requirements of Nasdaq could result in a de-listing of its Common Stock.
The exercise of outstanding warrants or the issuance of stock-based awards may dilute the holdings of existing shareholders.
The company may face litigation that could adversely affect its business, financial condition, and results of operations.

Future Outlook

The company intends to continue to focus on cost efficiencies, enhanced sales and growth initiatives, and bringing its existing Total Turn-Key customers online. The company also intends to opportunistically raise debt capital, subject to market and other conditions.

Management Comments

The company has been focused on growing its cultivation business by helping its existing Agrify Total Turn-Key customers to bring their facilities online and driving additional sales through its RDP.
The company has successfully installed and commenced its Las Vegas customer, Nevada Holistic Medicine, its Denver Colorado customer, Denver Greens, and signed several new customers such as Golden Lake Business Park in California, and Harvest Works in New Jersey.
The company has also made significant strides to receive UL Compliance for Precision Extractions EXP Explosion Proof Rooms in an effort to continue its commitment to safety and quality within cannabis extraction facilities.

Industry Context

The report indicates that the cannabis industry is experiencing a slowdown, which has impacted Agrify's revenue. The company is positioning itself as a vertically integrated total solutions provider to capture market share in the indoor cannabis sector.

Comparison to Industry Standards

The report mentions a Grand View Research report projecting the global cannabis extraction market to reach $15.5 billion by 2030, indicating the potential for growth in this sector.
The report also cites a Fluence 2022 report stating that 88% of legal U.S. cannabis cultivators grow indoors, suggesting a large market for Agrify's cultivation solutions.
The company competes with various players in the indoor agriculture space, including mi-Integrated Vertical Cultivation Systems (Sprout AI), Aeroponic Systems (AEssenceGrows and Thrive Growing), Horticultural Lighting (Gavita, Fluence, VividGro, Hydrofarm, GrowGeneration, Hawthorne and Heliospectra), Extraction Solutions (ExtractionTek Solutions, Mach Technologies, Decimal Engineering, Low Temp Plates, Whistler Technologies, Maratek and Hashatron), Monitoring Software (Grownetics and Trym), Cultivation Software (Quantum Leaf, Flourish, and Grow Link), and Vertical Cultivation Racking Systems (Pipp Horticulture and Montel).
The company claims to be the only provider of a fully integrated end-to-end hardware and software turnkey solution for indoor cultivation and extraction facilities, which differentiates it from competitors offering standalone products and services.

Management Changes

Role	Previous Person	New Person	Effective Date	Reason
Chief Financial Officer	Timothy R. Oakes		February 28, 2023	Resignation to pursue other opportunities

Corporate Governance

Change Type	Description	Effective Date	Impact Assessment
Clawback Policy	The Board of Directors adopted a clawback policy which provides for the recoupment of certain executive compensation in the event of an Accounting Restatement resulting from material noncompliance with financial reporting requirements under the federal securities laws.	October 2, 2023	This policy is designed to comply with Section 10D of the Securities Exchange Act of 1934 and reinforces the company's pay-for-performance compensation philosophy.

Legal Proceedings

The company is involved in litigation with Bud & Marys, which has resulted in a $14.7 million reserve.
The company is involved in litigation with Bowdoin Construction Corp. related to a construction contract.
The company was named as a defendant in a complaint filed by TRC Electronics, Inc. on April 13, 2023.
The company and its wholly-owned subsidiary Precision Extraction Newco, LLC, filed an Amended Verified Complaint in the Court of Chancery of the State of Delaware against Sinclair Scientific, LLC and certain individual defendants.
The company settled a legal dispute with a specific customer which resulted in the recognition of a gain of approximately $0.9 million.

Related Party Transactions

The company issued an unsecured promissory note in favor of GIC Acquisition, LLC, an entity that is owned and managed by the Companys Chairman and Chief Executive Officer.
CP Acquisitions LLC, an entity affiliated with and controlled by the Companys Chief Executive Officer, purchased the Exchange Note and the Convertible Note from their holder.
The company has a committed purchase agreement with Ora Pharm, where Stuart Wilcox, the Companys former Chief Operating Officer, is the Chairman.

Stakeholder Impact

Shareholders face significant risks due to the company's financial challenges and potential delisting from Nasdaq.
Employees may be affected by cost-cutting measures and potential restructuring.
Customers may experience uncertainty due to the company's financial instability.
Suppliers may face risks due to the company's reliance on a limited base of suppliers and potential disruptions to the supply chain.
Creditors face risks due to the company's substantial debt and potential inability to meet its obligations.

Next Steps

The company will continue to focus on cost efficiencies and enhanced sales and growth initiatives.
The company will continue to help its existing Agrify Total Turn-Key customers to bring their facilities online and drive additional sales through its RDP.
The company will continue to invest in future developments for its VFUs, Agrify Insights, and extraction products.
The company will take all possible actions to restore its compliance with Nasdaq.

Key Dates

Date	Description
June 6, 2016	Agrify Corporation was incorporated in the state of Nevada.
September 16, 2019	Agrinamics, Inc. amended its articles of incorporation to reflect a name change to Agrify Corporation.
January 2020	Agrify acquired TriGrow Systems, Inc.
July 21, 2020	Agrify acquired Harbor Mountain Holdings, LLC.
October 1, 2021	Agrify acquired Precision Extraction Solutions and Cascade Sciences, LLC.
December 31, 2021	Agrify acquired PurePressure, LLC.
February 1, 2022	Agrify completed its acquisition of LS Holdings Corp.
March 14, 2022	Agrify entered into a Securities Purchase Agreement with High Trail Special Situations LLC.
August 18, 2022	Agrify reached an agreement with High Trail Special Situations LLC to amend the existing SPA Note and entered into a Securities Exchange Agreement.
October 18, 2022	Agrify effected a 1-for-10 reverse stock split on its Common Stock.
March 8, 2023	Agrify entered into a second Securities Exchange Agreement with High Trail Special Situations LLC.
April 18, 2023	Agrify received a notice from Nasdaq regarding non-compliance with Nasdaq Listing Rule 5250(c)(1).
May 17, 2023	Agrify received a second notice from Nasdaq regarding non-compliance with Nasdaq Listing Rule 5250(c)(1).
July 5, 2023	Agrify effected a 1-for-20 reverse stock split on its Common Stock.
August 16, 2023	Agrify received a third notice from Nasdaq regarding non-compliance with Nasdaq Listing Rule 5250(c)(1).
October 17, 2023	Agrify received a Staff Delisting Determination from Nasdaq.
October 27, 2023	CP Acquisitions LLC acquired the Notes from High Trail Special Situations LLC.
December 1, 2023	Agrify received a notice from Nasdaq stating that it was no longer in compliance with Nasdaq Listing Rule 5550(b)(1).
January 8, 2024	Agrify held an annual meeting of stockholders.
January 11, 2024	Agrify held a hearing before the Nasdaq Hearings Panel.
January 25, 2024	Agrify and the New Lender consolidated the outstanding principal and interest due under the Junior Secured Note and the Exchange Note into the Convertible Note and amended and restated the Convertible Note.
January 30, 2024	Agrify received formal notice that the Panel had granted its request for an exception through April 15, 2024 to evidence compliance with Rule 5550(b)(1).
February 27, 2024	Agrify entered into a placement agency agreement with Alexander Capital, LP.
February 28, 2024	Agrify closed its public offering.
March 5, 2024	Agrify received a deficiency letter from Nasdaq notifying it that the bid price for its common stock had closed below $1.00 per share.
April 15, 2024	Date of the annual report.

Keywords

cannabis, cultivation, extraction, vertical farming, software, SaaS, financial results, revenue, net loss, debt, going concern, Nasdaq, intellectual property, manufacturing, supply chain

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