Jul. 29—More Information

The numbers in this article reflect the direct numbers from the reports and are true; however, those numbers are listed in these reports as "in the thousands", so $83,324 is actually *83,324,000 and so on. To get the full number, multiply it by 1,000.

Sierra Marling

Local leaders expressed excitement when AppHarvest announced plans to expand into Madison County in 2020; however, the promised economic impact may not pan out as described.

AppHarvest had a tumultuous path toward declaring bankruptcy earlier this week and has not evaded the potential ramifications of doing so.

How did AppHarvest fail?

AppHarvest broke onto the agribusiness scene in Morehead in 2018. The company's goal to open 12 high-tech indoor farms throughout Central Appalachia by 2025 was notably ambitious at the time.

The company announced plans to expand into Madison County in October 2020. In that time, they built a growing facility in Richmond and Berea, announced an expansion on the produce they will offer, became a publicly traded company, and offered its first commercial tomato harvest.

However, merely a month after the Berea facility opened in November 2022, AppHarvest announced "substantial doubt" about its future. Before the new year, the Berea facility had already been sold to Mastronardi Produce for $127M.

The company declared bankruptcy on July 24, less than two weeks after Tony Martin was named chief executive officer (CEO), effective immediately. The press release regarding Martin's ascension expressed that this was done to "accelerate its strategic plan, Project New Leaf, which has shown strong progress toward operational efficiencies resulting in higher sales, cost savings, and product quality as the company works to increase production across its four-farm network."

This came after a considerable drop in projected net sales in 2022, as the company had originally projected net sales for 2022 at $24 million to $32 million, but it later revised it to $14 million to $17 million. Following those drops, the company forecasted in an announcement that it would see "significant year-over-year sales increases" throughout 2023 and 2024, giving a range of $40 million to $50 million for net sales in 2023.

The reasoning it gave for this significant increase was because now, according to the company, "all four facilities in the AppHarvest farm network will be shipping commercially to top national grocery store chains, restaurants, and food service outlets."

This claim came out via a press release about Q4 earnings on March 9, while company management disclosed "substantial doubt about the company's ability to continue as a going concern" in both its September 2022 and March 2023 quarterly reports.

According to those reports, the company had incurred losses from operations and generated negative cash flows from operating activities since its inception. Those reports also indicated that management was aware of the failures in its current operating plan, which included its planting and harvesting activities, with the report stating that "it will continue to incur losses from operations and generate negative cash flows from operating activities."

In the September 2022 report, it was noted that "their debt service requirements and the company's plans to continue to invest in the build-out and start-up of its new and future CEA facilities, including AppHarvest Berea, AppHarvest Richmond, and AppHarvest Somerset, will have an adverse impact on its liquidity."

On September 30, 2022, the company noted in its reports that it had incurred net losses of $83,324 and generated negative cash flows from operations of $61,052. By March 31, 2023, they had incurred additional net losses of $33,630 and generated negative cash flows from operations of $25,002.

The company reportedly had $36,231 of cash on hand and an accumulated deficit of $270,638 on September 30, 2022. Even after the sale of its Berea facility and an attempt at "restructuring" in December 2022, the company had only accumulated $50,017 cash on hand, and an accumulated deficit of $397,590 by March 31, 2023 — which was still not enough to remove the "substantial doubt" disclaimer from their reports.

In September 2022, the company noted, "If the Company becomes unable to continue as a going concern, it may have to dispose of assets and might realize significantly less than the values at which they are carried on its consolidated financial statements. These actions may cause the company's stockholders to lose all or part of their investment in the company's common stock. The condensed consolidated financial statements do not include any adjustments that might result from this uncertainty."

In their first quarterly report of 2023, the company noted that their existing cash and cash equivalents would only allow them to continue planned operations into the third quarter of 2023, citing higher expenses in the first quarter of 2023 as a contributing factor.

On July 13, 2023, the company named Tony Martin its chief executive officer, effective immediately. The press release expressed that this was done to "accelerate its strategic plan, Project New Leaf, which has shown strong progress toward operational efficiencies resulting in higher sales, cost savings, and product quality as the company works to increase production across its four-farm network."

"The AppHarvest board of directors and executive leadership evaluated several strategic alternatives to maximize value for all stakeholders prior to the Chapter 11 filing," Martin said in the release. "The Chapter 11 filing provides protection while we work to transition operation of our strategic plan, Project New Leaf, which has shown strong progress toward operational efficiencies resulting in higher sales, cost savings, and product quality."

AppHarvest facilities' future

According to media reports, the Richmond facility is now facing foreclosure. However, officials assert that this is false.

According to Travis Parman, the company's chief communications officer, "Richmond does not face foreclosure. We have funding to keep the business running as usual for the next 60 days at Morehead, Richmond, and Somerset."

He said that, in that time, the company will be working to sell the farms to investors with the goal of keeping them operational so they continue to employ about the same number of people as they did under AppHarvest's leadership.

Parman confirmed that "multiple parties have expressed interest" and outlined the company's expectations for its next steps.

"The goal is to minimize any disruption to employees," he explained. "We expect to transition the Berea farm to Mastronardi Produce—the company from which we currently lease that farm. We expect Mastronardi to make employment offers to the team in Berea. We expect compensation and benefits to be comparable to what employees currently receive."

If these buyers do not do so, then the 1,000 jobs that AppHarvest created over its four-farm network will no longer exist.

There is no legal guarantee that the facilities, once bought, will upkeep the current operations or provide a similar agribusiness boost. What these facilities are used for is up to the new operators, Parman noted.

Employee concerns

Shandi Johnson worked as a crop care specialist in the Berea facility — sowing blocks, clearing gutters, and working in the greenhouses.

According to Johnson, workers are subjected to difficult work conditions, alleging that the quarters where she worked could exceed 100 degrees. She also claimed that workers have requested chairs to rest and were refused, even with the heat.

"Sometimes it makes you dizzy and nauseous, but they refused to give us chairs. We do have some fans, but it doesn't do that much. Because it just kind of blows hot air around," she commented.

She recalled an alleged incident where she and other employees watched a man pass out.

"We screamed for the supervisor. She came running back over and they got medical attention but then we never saw him again," the former employee said.

She also had what she described as a "terrifying" experience while working there. She claimed that it was the reason that she had decided to leave the position, saying, "I feared for my life."

While tending to the normal wares of her work, Johnson had fallen into an unmarked manhole. According to Johnson, the manhole had a lid on it; however, the lid was not secure, causing her to fall. While she was able to quickly maneuver herself to hang onto the side, she said that she had to call for help and worried that she would go unheard over the mechanical sounds of the machines.

As a result, the employee said she had contusions, a cut, and had to get a tetanus shot.

However, Johnson also expressed another concern about fair working conditions. She alleged that contract workers at the Berea facility, who she said are contracted from a non-local company, are paid less.

This allegation is supported by language in previous legal suits against the company that alleged that AppHarvest was misleading about issues it has with hiring, training, production, and produce quality at its farm at Morehead, which contained claims that it had to bring in contract labor from outside the region to that farm.

"I got to talking to one of them, and they get paid less than the full-time workers there. One of the contract workers I was talking to was telling me that most other places that hire them will put them up with a place to stay while they're working and that AppHarvest didn't, so they're paying for a hotel room out of their own pocket and getting paid less than the actual full-time workers there," Johnson alleged.

Local officials speak out

According to Berea Mayor Bruce Fraley, a representative from AppHarvest contacted him early on Monday, July 24 to advise him of the Chapter 11 filing.

"As I understand it, the business operation in Berea will transition from AppHarvest to Mastronardi, who has owned the greenhouse on Farristown Industrial Road since December, with court approval. The growing, packaging, and distribution of produce here is expected to continue without disruption and they do not expect any changes in employment. I am optimistic that the new owner will be successful moving forward," he said.

Due to the business's status as a publicly traded company, company officials said they were only able to share information as it was shared publicly, meaning none of the local officials were aware of the bankruptcy announcement until it was shared.

According to local officials, no Madison County entity gave any financial incentives or benefits to AppHarvest for them to build and operate the company's greenhouses in Richmond and Berea.

Madison County Judge Executive Reagan Taylor said, "Our goal is for every Madison County business, corporation, or entity to be successful, and AppHarvest is no different. AppHarvest has had some tough setbacks and our hope is they bounce back with this current restructure. They've made a significant investment in Madison County and the region, and we don't want to see them walk away from that investment. At this point, we are going to continue to support job creation because we know it has a lasting impact on this community.

In June 2023 interview with WKYT, Mayor Blythe expressed potential concern over the situation.

However, in his latest written contribution to the Richmond Register, the mayor noted that "our economy remains strong."

In his column, which serves as "an update from the mayor's office", he does not mention the strife within AppHarvest and instead focuses on the positive economic progress Richmond is seeing.

"Industry across the city continues to prosper. New prospects continue to contact us and the existing industry continues to grow and expand. It is our hope that as the next few months unfold, we will be able to make some announcements of progress in both of these areas. Richmond is becoming more and more attractive to business and industry and we shall continue to work to make our efforts fruitful for the people of our city," he said.

In an interview with the Commonwealth Journal in Somerset, Chris Girdler, CEO of SPEDA (Somerset-Pulaski Economic Development Authority) expressed that he believes that the former agribusiness could potentially rise from the ashes of this bankruptcy and improve practices following their announcement to focus on their strategic plan, Project New Leaf.

"There are many other businesses that have gone through Chapter 11 reorganization throughout the history of our country, so that is without one question one point that needs to be made," said Girdler. "... They may potentially come out bigger, better, and stronger after all of this."

Girdler said that if SPEDA had the chance to go back and reconsider its efforts to recruit AppHarvest to Pulaski County, "I don't know that we would have done anything differently. Everybody in the state was after them. ... They were valued at over a billion dollars. So I make no apologies for trying to recruit and bringing to this community a company that was going to and still is right now employing over 150 people from this community right here."