UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to _________

Commission File Number: 001-39946

AGRIFY CORPORATION

(Exact name of registrant as specified in its charter)

Nevada		30-0943453
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

2468 Industrial Row Dr.

Troy, Michigan 48084

(Address of principal executive offices, including zip code)

(855) 420-0020

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, par value $0.001 per share		AGFY		NASDAQ Capital Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES ☒ NO ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

YES ☒ NO ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES ☐ NO ☒

As of May 13, 2024, the registrant had 14,229,386 shares of common stock, $0.001 par value per share outstanding.

TABLE OF CONTENTS

		Page
PART I	FINANCIAL INFORMATION	1

ITEM 1.	FINANCIAL STATEMENTS	1

	Condensed Consolidated Balance Sheets as of March 31, 2024 (unaudited) and December 31, 2023	1

	Condensed Consolidated Statements of Operations for the three months ended March 31, 2024 (unaudited) and 2023 (unaudited)	2

	Condensed Consolidated Statements of Stockholders’ Deficit for the three months ended March 31, 2024 (unaudited) and 2023 (unaudited)	3

	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2024 (unaudited) and 2023 (unaudited)	5

	Notes to the Condensed Consolidated Financial Statements	6

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	34

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	48

ITEM 4.	CONTROLS AND PROCEDURES	48

PART II	OTHER INFORMATION	49

ITEM 1.	LEGAL PROCEEDINGS	49

ITEM 1A.	RISK FACTORS	49

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	49

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	49

ITEM 4.	MINE SAFETY DISCLOSURES	49

ITEM 5.	OTHER INFORMATION	49

ITEM 6.	EXHIBITS	49

SIGNATURES		50

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

AGRIFY CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

	March 31,			December 31,
	2024			2023
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	95		$	430
Marketable securities		4			4
Accounts receivable, net of allowance for credit losses of $2,512 and $1,887 at March 31, 2024 and December 31, 2023, respectively		211			1,149
Inventory, net of reserves of $17,184 and $17,599 at March 31, 2024 and December 31, 2023, respectively		18,862			19,094
Loan receivable, current		692			—
Prepaid expenses and other current assets		1,028			3,332
Total current assets		20,892			24,009
Loan receivable, net of allowance for credit losses of $18,885 and $19,215 at March 31, 2024 and December 31, 2023, respectively, net of current		10,891			11,583
Property and equipment, net		7,328			7,734
Operating lease right-of-use assets		1,651			1,803
Other non-current assets		99			141
Total assets	$	40,861		$	45,270
Liabilities and Stockholders’ Deficit
Current liabilities:
Accounts payable	$	12,428		$	20,766
Accrued expenses and other current liabilities		7,843			10,655
Operating lease liabilities, current		615			599
Notes payable, current		1,374			—
Long-term debt, current		696			766
Related party debt, current		1,000			4,444
Deferred revenue		3,784			4,019
Total current liabilities		27,740			41,249
Warrant liabilities		417			1,290
Operating lease liabilities, net of current		1,235			1,394
Notes payable, net of current		3,464			—
Related party debt, net of current		17,683			—
Long-term debt, net of current		47			16,047
Total liabilities		50,586			59,980

Commitments and contingencies (Note 14)

Stockholders’ deficit:
Common Stock, $0.001 par value per share, 35,000,000 and 10,000,000 shares authorized at March 31, 2024 and December 31, 2023, respectively, 13,275,702 and 1,702,243 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively ⁽¹⁾		13			2
Preferred Stock, $0.001 par value per share, 2,895,000 shares authorized, no shares issued or outstanding		—			—
Preferred A Stock, $0.001 par value per share, 105,000 shares authorized, no shares issued or outstanding		—			—
Additional paid-in capital		255,867			250,855
Accumulated deficit		(265,835	)		(265,797	)
Total stockholders’ deficit attributable to Agrify		(9,955	)		(14,940	)
Non-controlling interests		230			230
Total liabilities and stockholders’ deficit	$	40,861		$	45,270

(1)

Periods presented have been adjusted to reflect the 1-for-20 reverse stock split on July 5, 2023. Additional information regarding the reverse stock splits may be found in Note 1 – Overview, Basis of Presentation, and Significant Accounting Policies, included in the notes to the consolidated financial statements

The accompanying notes are an integral part of these condensed consolidated financial statements.

AGRIFY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share and per share data)

(Unaudited)

	Three months ended March 31,
	2024			2023
Revenue (including $0 and $46 from related parties, respectively)	$	2,598		$	5,804
Cost of goods sold		1,869			4,816
Gross profit		729			988

General and administrative		2,952			6,931
Selling and marketing		462			1,590
Research and development		275			735
Change in contingent consideration		(2,180	)		(684	)
Total operating expenses		1,509			8,572
Loss from operations		(780	)		(7,584	)
Interest expense, net		(145	)		(799	)
Change in fair value of warrant liabilities		873			2,672
Loss on extinguishment of long-term debt, net		—			(4,620	)
Other income, net		14			4
Total other income (expense), net		742			(2,743	)
Net loss before income taxes		(38	)		(10,327	)
Income tax benefit (expense)		—			—
Net loss		(38	)		(10,327	)
Net loss attributable to Agrify Corporation	$	(38	)	$	(10,327	)
Net loss per share attributable to Common Stockholders – basic and diluted (1)	$	—		$	(9.63	)
Weighted average common shares outstanding - basic and diluted (1)		8,894,229			1,072,292

(1)

Periods presented have been adjusted to reflect the 1-for-20 reverse stock split on July 5, 2023. Additional information regarding reverse stock splits may be found in Note 1 – Overview, Basis of Presentation, and Significant Accounting Policies, included elsewhere in the notes to the consolidated financial statements.

The accompanying notes are an integral part of these condensed consolidated financial statements.

AGRIFY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(In thousands)

(Unaudited)

	Common Stock				Preferred Stock				Preferred A Stock				Additional Paid-In-		Accumulated			Total Stockholders’ Deficit attributable to			Non- Controlling		Total Stockholders’
	Shares		Amount		Shares		Amount		Shares		Amount		Capital		Deficit			Agrify			Interests		Deficit
Balance at January 1, 2023		1,038,298	$	1		—	$	—		—	$	—	$	237,875	$	(247,148	)	$	(9,272	)	$	231	$	(9,041	)
Stock-based compensation		—		—		—		—		—		—		859		—			859			—		859
Issuance of Common Stock through an “at the market” offering, net of fees		323,082		—		—		—		—		—		1,545		—			1,545			—		1,545
Issuance of Common Stock to Pure Pressure		366		—		—		—		—		—		—		—			—			—		—
Vesting of restricted stock units		17		—		—		—		—		—		—		—			—			—		—
Proceeds from Employee Stock Purchase Plan Shares		2,500		—		—		—		—		—		25		—			25			—		25
Net loss		—		—		—		—		—		—		—		(10,327	)		(10,327	)		—		(10,327	)
Balance March 31, 2023		1,364,263	$	1		—	$	—		—	$	—	$	240,304	$	(257,475	)	$	(17,170	)	$	231	$	(16,939	)

AGRIFY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(In thousands)

(Unaudited)

	Common Stock				Preferred Stock				Preferred A Stock				Additional Paid-In-			Accumulated			Total Stockholders’ Deficit attributable to			Non- Controlling		Total Stockholders’
	Shares		Amount		Shares		Amount		Shares		Amount		Capital			Deficit			Agrify			Interests		Deficit
Balance at January 1, 2024		1,701,243	$	2		—	$	—		—	$	—	$	250,855		$	(265,797	)	$	(14,940	)	$	230	$	(14,710	)
Stock-based compensation		—		—		—		—		—		—		490			—			490			—		490
Issuance of Common Stock and prefunded warrants through public offering		2,760,000		3		—		—		—		—		2,120			—			2,123			—		2,123
Issuance of held-back shares from Sinclair acquisition		588		—		—		—		—		—		—			—			—			—		—
Cashless exercise of High Trail Warrants		3,132,217		3		—		—		—		—		(3	)		—			—			—		—
Exercise of Prefunded Warrants issued through public offering		3,010,000		3		—		—		—		—		—			—			3			—		3
Conversion of Convertible Note		2,671,633		2		—		—		—		—		1,729			—			1,731			—		1,731
Contribution from troubled debt restructuring with related party		—		—		—		—		—		—		676			—			676			—		676
Stock split share adjustment		21		—		—		—		—		—		—			—			—			—		—
Net loss		—		—		—		—		—		—		—			(38	)		(38	)		—		(38	)
Balance March 31, 2024		13,275,702	$	13		—	$	—		—	$	—	$	255,867		$	(265,835	)	$	(9,955	)	$	230	$	(9,725	)

The accompanying notes are an integral part of these condensed consolidated financial statements.

AGRIFY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	For the three months ended March 31,
	2024			2023
Cash flows from operating activities:
Net loss attributable to Agrify Corporation	$	(38	)	$	(10,327	)
Adjustments to reconcile net loss attributable to Agrify Corporation to net cash used in operating activities:
Depreciation and amortization		406			445
Amortization of debt (premium) discount		—			147
Amortization of issuance costs		—			24
Amortization of right of use assets		152			(133	)
Stock based compensation expense		490			859
Change in fair value of warrant liabilities		(873	)		(2,672	)
Loss on extinguishment of long-term debt, net		—			4,620
Provision for credit losses		642			—
Recovery of provision for credit losses		(330	)		—
Recovery of provision for slow-moving inventory		(415	)		—
Loss on disposal of property and equipment		2			—
Gain on supply agreement		(1,142	)		—
Gain on revaluation of contingent liability		(564	)		—
Change in accrued acquisition liabilities due to issuance of held-back shares		(2,180	)		—
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable		296			(127	)
Inventory		1,211			1,401
Prepaid expenses and other current assets		2,321			(31	)
Other non-current assets		42			173
Accounts payable		(2,361	)		585
Accrued expenses and other current liabilities		(268	)		(3,744	)
Operating lease liabilities		(143	)		184
Deferred revenue		(235	)		(873	)
Net cash and cash equivalents used in operating activities		(2,987	)		(9,469	)

Cash flows from investing activities:
Purchases of property and equipment		(2	)		(59	)
Proceeds from sale of marketable securities		—			10,446
Proceeds from repayment of loan receivable		330			—
Issuance of loans receivable		—			(592	)
Net cash and cash equivalents provided by investing activities		328			9,795

Cash flows from financing activities:
Proceeds from Issuance of Common Stock through an “S-1 and Prefunded Warrants” offering		2,123			—
Proceeds from issuance of Common Stock through an “at the market” offering, net of fees		—			1,478
Proceeds from Employee Stock Purchase Plan Shares		—			25
Proceeds from exercise of S-1 Prefunded Warrants		3			—
Proceeds from issuance of related party notes		355			—
Repayments of notes payable, other		—			(71	)
Repayment of debt in private placement		—			(10,307	)
Payments on other financing loans		—			(1	)
Payments on insurance financing loans		(157	)		(396	)
Payments of financing leases		—			(35	)
Net cash and cash equivalents provided by (used in) financing activities		2,324			(9,307	)
Net decrease in cash and cash equivalents		(335	)		(8,981	)
Cash and cash equivalents at the beginning of period		430			10,457
Cash and cash equivalents at the end of period	$	95		$	1,476
Supplemental disclosures
Cash paid for interest	$	47		$	—
Supplemental disclosures of non-cash flow information
Cashless exercise of High-Trail warrants	$	3		$	—
Financing of prepaid insurance	$	17		$	1,820
Trade payables refinanced into consolidated notes payable	$	4,838		$	—
Accrued interest consolidated into related party debt	$	364		$	—
Contribution from troubled debt restructuring with related party	$	676		$	—
Consolidation of related party debt principal	$	3,799		$	—
Conversion of convertible notes	$	1,731		$	—

The accompanying notes are an integral part of these condensed consolidated financial statements.

AGRIFY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 — Overview, Basis of Presentation and Significant Accounting Policies

Description of Business

Agrify Corporation (“Agrify” or the “Company”) is a provider of innovative cultivation and extraction solutions for the cannabis industry, bringing data, science, and technology to the forefront of the market. The Company’s proprietary micro-environment-controlled Agrify Vertical Farming Units (or “VFUs”) enable cultivators to produce the highest quality products with what we believe to be unmatched consistency, yield, and return investment at scale. The Company’s comprehensive extraction product line, which includes hydrocarbon, alcohol, solventless, post-processing, and lab equipment, empowers producers to maximize the quantity and quality of extract required for premium concentrates.

The Company was formed in the State of Nevada on June 6, 2016 as Agrinamics, Inc., and subsequently changed its name to Agrify Corporation. The Company is sometimes referred to herein by the words “we,” “us,” “our,” and similar terminology.

The Company has nine wholly-owned subsidiaries, which are collectively referred to as the “Subsidiaries” and the Company also has ownership interests in certain companies.

Nasdaq Deficiency Notice

The Nasdaq Notice had no immediate effect on the listing of the Company’s Common Stock on The Nasdaq Stock Market LLC.

On October 17, 2023, the Company received a Staff Delisting Determination (the “Staff Determination”) from the Listing Qualifications Department of Nasdaq notifying the Company that it was not in compliance with Nasdaq’s continued listing requirements under the Listing Rule as a result of its failure to file the First Quarter Form 10-Q, the Second Quarter Form 10-Q and the Form 10-K (collectively, the “Delinquent Reports”) in a timely manner.

On November 16, 2023, the Company received a notice from Nasdaq that the Company remains noncompliant with the Listing Rule as a result of its failure to file its Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2023 with the SEC by the required filing date.

On December 1, 2023, the Company received a notice from The Nasdaq Stock Market LLC (“Nasdaq”) stating that because the Company reported stockholders’ deficit of $(17.17) million in its Form 10-Q for the quarter ended March 31, 2023, the Company was no longer in compliance with Nasdaq Listing Rule 5550(b)(1) (the “Primary Equity Listing Rule”), which requires that listed companies maintain a minimum of $2.5 million in stockholders’ equity. In response, the Company timely requested a hearing before a Nasdaq Hearings Panel (the “Panel”), which stayed any further action by the Listing Qualifications Staff. The hearing was held on January 11, 2024. The Company arrived at the hearing having previously cured any additional grounds for delisting as a result of delinquent periodic filings during 2023 that were filed prior to the hearing.

On January 30, 2024, the Company received formal notice that the Panel had granted the Company’s request for an exception through April 15, 2024 to evidence compliance with the Listing Rule, which was subsequently extended to May 15, 2024. Accordingly, there can be no assurance that the Company will be able to regain compliance with the Nasdaq listing rules or maintain its listing on the Nasdaq Capital Market. If the Company’s common stock is delisted, it could be more difficult to buy or sell the Company’s common stock or to obtain accurate quotations, and the price of the Company’s common stock could suffer a material decline. Delisting could also impair the Company’s ability to raise capital.

On March 5, 2024, the Company received a deficiency letter from the Staff of Nasdaq notifying the Company that, for the last 30 consecutive business days, the bid price for the Company’s common stock had closed below $1.00 per share, which is the minimum closing price required to maintain continued listing on the Nasdaq Stock Market under Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Requirement”). The Notice has no immediate effect on the listing of the Company’s common stock on Nasdaq. In accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company has 180 calendar days to regain compliance with the Minimum Bid Requirement. The compliance period for the Company will expire on September 3, 2024.

AGRIFY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Basis of Presentation and Principles of Consolidation

These interim condensed consolidated financial statements of the Company and its subsidiaries are unaudited. In the opinion of management, all adjustments (consisting of normal recurring accruals) and disclosures necessary for a fair presentation of these interim condensed consolidated financial statements have been included. The results reported in the condensed consolidated financial statements for any interim periods are not necessarily indicative of the results that may be reported for the entire year. The accompanying condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission and do not include all information and footnotes necessary for a complete presentation of financial statements in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”).

Certain information and footnote disclosures normally included in the annual consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 filed with the Securities and Exchange Commission on April 15, 2024.

Accounting for Wholly-Owned Subsidiaries

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and include the accounts of Agrify Corporation and its wholly-owned subsidiaries, as described above, in accordance with the provisions required by the Consolidation Topic 810 of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”). The Company includes results of operations of acquired companies from the date of acquisition. All significant intercompany transactions and balances are eliminated.

Accounting for Less Than Wholly-Owned Subsidiaries

For the Company’s less than wholly-owned subsidiaries, which include, Agrify-Valiant LLC (“Agrify-Valiant”), and Agrify Brands, LLC (“Agrify Brands”), the Company first analyzes whether these entities are a variable interest entity (a “VIE”) in accordance with ASC Topic 810, Consolidation (“ASC 810”), and if so, whether the Company is the primary beneficiary requiring consolidation. The Company continuously re-assesses (i) whether the joint-venture is a VIE, and (ii) if the Company is the primary beneficiary of the VIE. If it is determined that the joint-venture qualifies as a VIE and the Company is the primary beneficiary, the Company’s financial interest in the VIE is consolidated.

Based on the Company’s analysis of these entities, the Company has determined that Agrify-Valiant and Agrify Brands are each a VIE, and that the Company is the primary beneficiary. While the Company owns 60% of Agrify-Valiant’s equity interests and 75% of Agrify Brand’s equity interests, the remaining equity interests in Agrify-Valiant and Agrify Brands are owned by unrelated third parties, and the agreement with these third parties provides the Company with greater voting rights. Accordingly, the Company consolidates its interest in the financial statements of Agrify-Valiant and Agrify Brands under the VIE rules and reflects the third parties’ interests in the consolidated financial statements as a non-controlling interest. The Company records this non-controlling interest at its initial fair value, adjusting the basis prospectively for the third parties’ share of the respective consolidated investments’ net income or loss or equity contributions and distributions. These non-controlling interests are not redeemable by the equity holders and are presented as part of permanent equity. Income and losses are allocated to the non-controlling interest holders based on its economic ownership percentage.

Going Concern

In accordance with the FASB Accounting Standards Update (“ASU”) 2014-15, “Presentation of Financial Statements - Going Concern”, the Company’s management evaluated whether there are conditions or events that raise substantial doubt about its ability to continue as a going concern within one year after the financial statements’ issuance date. The following matters raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date the financial statements are issued.

The Company has incurred operating losses since its inception and has negative cash flows from operations and a working capital deficit. The Company also has an accumulated deficit of $265.8 million as of March 31, 2024. The Company’s primary sources of liquidity are its cash and cash equivalents and marketable securities, with additional liquidity accessible, subject to market conditions and other factors, including limitations that may apply to the Company under applicable SEC regulations, from the capital market. As of March 31, 2024, the Company had $0.1 million of cash, cash equivalents, and marketable securities. The Company had no restricted cash as of March 31, 2024. Current liabilities were $27.7 million as of March 31, 2024.

AGRIFY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

These consolidated financial statements have been prepared on a going concern basis, which implies the Company believes these conditions raise substantial doubt about its ability to continue as a going concern within the next twelve-months from the date these consolidated financial statements are available to be issued. The Company’s continuation as a going concern is dependent upon its ability to obtain the necessary debt or equity financing to continue operations until the Company begins generating sufficient cash flows from operations to meet its obligations. If the Company is unable raise additional funds, it may be forced to cease operations.

As of February 28, 2024, the company raised net proceeds of $2.2 million via the issuance of common stock and prefunded warrants in a public offering through Alexander Capital and is recorded within common stock and additional paid-in capital on the Company’s condensed consolidated balance sheet. The Company intends to raise additional capital later this year to support its 2024 and 2025 funding needs. The Company also continues to make additional adjustments in headcount, salary, travel, sales and marketing spending, but there is no guarantee that these ongoing cost-cutting efforts or capital raises will be sufficient to maintain operations.

There is no assurance that the Company will ever be profitable. The consolidated financial statements do not include any adjustments to reflect the potential future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result should the Company be unable to continue as a going concern.

Use of Estimates

The preparation of the Company’s consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of expenses during the reporting period. Significant estimates include assumptions about collection of accounts and notes receivable, the valuation and recognition of stock-based compensation expense, valuation allowance for deferred tax assets, the valuation of inventory, and useful life of fixed assets and intangible assets. The Company bases its estimates on historical experience, known trends and other market-specific information, other relevant factors that it believes to be reasonable under the circumstances, and management’s judgement. On an ongoing basis, management evaluates its estimates when there are changes in circumstances, facts, and experience. Changes in estimates are recorded in the period in which they become known. Actual financial results could differ from those estimates.

Accounts Receivable, Net and Loans Receivable, Net

Accounts receivable, net, primarily consists of amounts for goods and services that are billed and currently due from customers. The composition of loan receivable, net is detailed in Note 5. In accordance with ASC 310-10, accounts receivable and loan receivable balances are presented net of an allowance for credit losses, which are an estimate of billed or borrowed amounts that may not be collectible. In determining the amount of the allowance at each reporting date, management makes judgments about general economic conditions, historical write-off experience, and any specific risks identified in customer or borrower collection matters, including the aging of unpaid accounts receivable and changes in customer or borrower financial conditions. Accounts and loans receivable balances are written off after all means of collection are exhausted and the potential for non-recovery is determined to be probable. Adjustments to the allowance for credit losses are recorded as general and administrative expenses in the consolidated statements of operations.

AGRIFY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Concentration of Credit Risk and Significant Customer

Financial instruments that potentially subject the Company to a concentration of credit risk primarily consist of cash, cash equivalents, restricted cash, marketable securities, and accounts receivable. Cash equivalents primarily consist of money market funds with original maturities of three months or less, which are invested primarily with U.S. financial institutions. Cash deposits with financial institutions, including restricted cash, generally exceed federally insured limits. Management believes minimal credit risk exists with respect to these financial institutions and the Company has not experienced any losses on such amounts.

During the year three -month period ended March 31, 2024, the Company has one customer that comprised approximately 1% of its revenue and two customers that comprised approximately 47% of its accounts receivable balance.

During the year three -month period ended March 31, 2023, the Company has one customer that comprised approximately 11% of its revenue and two customers that comprised approximately 84% of it accounts receivable balance.

Inventories

The Company values all its inventories, which consist primarily of significant raw material hardware components, at the lower of cost or net realizable value, with cost principally determined by the weighted-average cost method on a first-in, first-out basis. Write-offs of potentially slow-moving or damaged inventory are recorded through specific identification of obsolete or damaged material. The Company takes physical inventory at least once annually at all inventory locations.

Warrant Liabilities

The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all its financial instruments, including issued private placement stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives, pursuant to ASC Topic 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815. The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in ASC 480 and ASC 815. Management’s assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, whether they meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own Common Stock among other conditions for equity classification.

For issued or modified warrants that meet all of the criteria for equity classification, they are recorded as a component of additional paid-in capital at the time of issuance. For issued or modified warrants that are precluded from equity classification, they are recorded as a liability at their initial fair value on the date of issuance and subject to remeasurement on each balance sheet date with changes in the estimated fair value of the warrants to be recognized as an unrealized gain or loss in the consolidated statements of operations.

AGRIFY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Fair Value of Financial Instruments

The Company’s financial instruments consist of cash, marketable securities, accounts receivable, accounts payable, accrued expenses, warrant liabilities, and loans receivable. Refer to Note 4 - Fair Value Measures, included elsewhere in the notes to the consolidated financial statements for details of the Company’s financial instruments.

Revenue Recognition

Overview

The Company generates revenue from the following sources: (1) equipment sales, (2) providing services and (3) construction contracts.

In accordance with ASC 606 “Revenue Recognition”, the Company recognizes revenue from contracts with customers using a five-step model, which is described below:

●

identify the customer contract;

●

identify performance obligations that are distinct;

●

determine the transaction price;

●

allocate the transaction price to the distinct performance obligations; and

●

recognize revenue as the performance obligations are satisfied.

Identify the customer contract

A customer contract is generally identified when there is approval and commitment from both the Company and its customer, the rights have been identified, payment terms are identified, the contract has commercial substance and collectability is probable. Specifically, the Company obtains written/electronic signatures on contracts and purchase orders, if said purchase orders are issued in the normal course of business by the customer.

Identify performance obligations that are distinct

A performance obligation is a promise by the Company to provide a distinct good or service or a series of distinct goods or services. A good or service that is promised to a customer is distinct if the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer, and a company’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract.

Determine the transaction price

The transaction price is the amount of consideration to which the Company expects to be entitled in exchange for transferring goods or services to a customer, excluding sales taxes that are collected on behalf of government agencies.

Allocate the transaction price to distinct performance obligations

The transaction price is allocated to each performance obligation based on the relative standalone selling prices (“SSP”) of the goods or services being provided to the customer. The Company’s contracts typically contain multiple performance obligations, for which the Company accounts for individual performance obligations separately, if they are distinct. The standalone selling price reflects the price the Company would charge for a specific piece of equipment or service if it was sold separately in similar circumstances and to similar customers.

Recognize revenue as the performance obligations are satisfied

Revenue is recognized when, or as, performance obligations are satisfied by transferring control of a promised product or service to a customer.

AGRIFY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Significant Judgments

The Company enters into contracts that may include various combinations of equipment, services and construction, which are generally capable of being distinct and accounted for as separate performance obligations. Contracts with customers often include promises to transfer multiple products and services to a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. Once the Company determines the performance obligations, it determines the transaction price, which includes estimating the amount of variable consideration to be included in the transaction price, if any. The Company then allocates the transaction price to each performance obligation in the contract based on the SSP. The corresponding revenue is recognized as the related performance obligations are satisfied.

Judgment is required to determine the SSP for each distinct performance obligation. The Company determines SSP based on the price at which the performance obligation is sold separately and the methods of estimating SSP under the guidance of ASC 606-10-32-33. If the SSP is not observable through past transactions, the Company estimates the SSP, taking into account available information such as market conditions, expected margins, and internally approved pricing guidelines related to the performance obligations. The Company licenses its SaaS type subscription license, whereby the customer only has a right to access the software over a specified time period. The full value of the contract is recognized ratably over the contractual term of the SaaS subscription, adjusted monthly if tiered pricing is relevant. The Company typically satisfies its performance obligations for equipment sales when equipment is made available for shipment to the customer; for services sales as services are rendered to the customer and for construction contracts both as services are rendered and when the contract is completed.

The Company utilizes the cost-plus margin method to determine the SSP for equipment and build-out services. This method is based on the cost of the services from third parties, plus a reasonable markup that the Company believes is reflective of a market-based reseller margin.

The Company determines the SSP for services in time and materials contracts by observable prices in standalone services arrangements.

The Company estimates variable consideration in the form of royalties, revenue share, monthly fees, and service credits at contract inception and updated at the end of each reporting period if additional information becomes available. Variable consideration is typically not subject to constraint. Changes to variable consideration were not material for the periods presented.

If a contract has payment terms that differ from the timing of revenue recognition, the Company will assess whether the transaction price for those contracts include a significant financing component. The Company has elected the practical expedient that permits an entity to not adjust for the effects of a significant financing component if the Company expects that at the contract inception, the period between when the entity transfers a promised good or service to a customer and when the customer pays for that good or service, will be one year or less. For those contracts in which the period exceeds the one-year threshold, this assessment, as well as the quantitative estimate of the financing component and its relative significance, requires judgment. Accordingly, the Company imputes interest on such contracts at an agreed-upon interest rate and will present the financing components separately as financial income. As of March 31, 2024 and March 31, 2023, the Company did not have any such financial income.

AGRIFY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Payment terms with customers typically require payment 30 days from the invoice date. The Company’s agreements with its customers do not provide for any refunds for services or products and therefore no specific reserve for such is maintained. In the infrequent instances where customers raise concern over delivered products or services, the Company has endeavored to remedy the concern and all costs related to such matters have been insignificant in all periods presented.

The Company has elected to treat shipping and handling activities after the customer obtains control of the goods as a fulfillment cost and not as a promised good or service. Accordingly, the Company will accrue all fulfillment costs related to the shipping and handling of consumer goods at the time of shipment. The Company has payment terms with its customers of one year or less and has elected the practical expedient applicable to such contracts not to consider the time value of money. Sales, value add, and other taxes the Company collects concurrent with revenue-producing activities are excluded from revenue.

The Company receives payment from customers based on specified terms that are generally less than 30 days from the satisfaction of performance obligations. There are no contract assets related to performance under the contract. The difference in the opening and closing balances of the Company’s deferred revenue primarily results from the timing difference between the Company’s performance and the customer’s payment. The Company fulfills obligations under a contract with a customer by transferring products and services in exchange for consideration from the customer. Accounts receivable are recorded when the customer has been billed or the right to consideration is unconditional. The Company recognizes deferred revenue when consideration has been received or an amount of consideration is due from the customer, and the Company has a future obligation to transfer certain proprietary products.

In accordance with ASC 606-10-50-13, the Company is required to include disclosure on its remaining performance obligations as of the end of the current reporting period. Due to the nature of the Company’s contracts, these reporting requirements are not applicable. The majority of the Company’s remaining contracts meet certain exemptions as defined in ASC 606-10-50-14 through 606-10-50-14A, including (i) performance obligation is part of a contract that has an original expected duration of one year or less and (ii) the right to invoice practical expedient.

The Company generally provides a one-year warranty on its products for materials and workmanship but may provide multiple year warranties as negotiated, and generally transfers to its customers the warranties it receives from its vendors, if any, which generally cover this one-year period. In accordance with ASC 450-20-25, the Company accrues for product warranties when the loss is probable and can be reasonably estimated. The Company maintained a reserve for warranty returns of $0.4 million and $0.4 million as of March 31, 2024 and December 31, 2023, respectively. The Company’s reserve for warranty returns is included in accrued expenses and other current liabilities in its consolidated balance sheets. Additional information regarding the Company’s warranty reserve may be found in Note 3 – Supplemental Consolidated Balance Sheet Information, included elsewhere in the notes to the consolidated financial statements.

Research and Development Costs

The Company expenses research and development costs as incurred. Research and development expenses include payroll, employee benefits and other expenses associated with product development. The Company incurs research and development costs associated with the development and enhancement of both hardware and software products associated with its cultivation and extraction equipment, as well as its SaaS-based software offering, Agrify Insights™ cultivation software (“Agrify Insights™”).

Net Loss Per Share

The Company presents basic and diluted net loss per share attributable to Common Stockholders in conformity with the two-class method required for participating securities. The Company computes basic loss per share by dividing net loss available to Common Stockholders by the weighted-average number of common shares outstanding. Net loss available to Common Stockholders represents net loss attributable to Common Stockholders reduced by the allocation of earnings to participating securities. Losses are not allocated to participating securities as the holders of the participating securities do not have a contractual obligation to share in any losses. Diluted loss per share adjusts basic loss per share for the potentially dilutive impact of stock options and warrants. As the Company has reported losses for all periods presented, all potentially dilutive securities including stock options and warrants, are anti-dilutive, and accordingly, basic net loss per share equals diluted net loss per share.

Net loss per share calculations for all periods have been adjusted to reflect the reverse stock split effected on July 5, 2023. Net loss per share was calculated based on the weighted-average number of Common Stock outstanding.

AGRIFY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Recently Announced Accounting Pronouncements

ASU 2023-09, Improvements to Income Tax Disclosures ∙ On December 14, 2023, the FASB issued, ASU 2023-09, Improvements to Income Tax Disclosures, a final standard on improvements to income tax disclosures. The standard requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as information on income taxes paid. The standard applies to all entities subject to income taxes and is intended to benefit investors by providing more detailed income tax disclosures that would be useful in making capital allocation decisions. For public business entities (PBEs), the new requirements will be effective for annual periods beginning after December 15, 2024. The guidance will be applied on a prospective basis with the option to apply the standard retrospectively. The Company is currently in the process of evaluating the effect of this guidance on its financial statements.

Other recent accounting pronouncements did not or are not believed by management to have a material impact on the Company’s present or future consolidated financial statements.

Note 2 — Revenue and Deferred Revenue

Revenue

The Company sells its equipment and services to customers under a combination of a contract and purchase order. Equipment revenue includes sales from proprietary products designed and engineered by the Company such a VFUs, container farms, integrated grow racks, and LED grow lights, and non-proprietary products designed, engineered, and manufactured by third parties such as air cleaning systems and pesticide-free surface protection.

Construction contracts normally provide for payment upon completion of specified work or units of work as identified in the contract. Although there is considerable variation in the terms of these contracts, they are primarily structured as time-and-materials contracts. The Company enters into time-and-materials contracts under which the Company is paid for labor and equipment at negotiated hourly billing rates and other expenses, including materials, as incurred at rates agreed to in the contract. The Company uses three main sub-contractors to execute the construction contracts.

The following table provides the Company’s revenue disaggregated by the timing of revenue recognition:

	Three months ended March 31,
(In thousands)	2024		2023
Transferred at a point in time	$	2,465	$	4,920
Transferred over time		133		884
Total revenue	$	2,598	$	5,804

In accordance with ASC 606-10-50-13, the Company is required to include disclosure on its remaining performance obligations as of the end of the current reporting period. Due to the nature of the Company’s contracts, these reporting requirements are not applicable because the majority of the Company’s remaining contracts meet certain exemptions as defined in ASC 606-10-50-14 through 606-10-50-14A, including (i) performance obligation is part of a contract that has an original expected duration of one year or less and (ii) the right to invoice practical expedient.

AGRIFY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Deferred Revenue

Changes in the Company’s current deferred revenue balance for the three months ended March 31, 2024 and the year ended December 31, 2023 were as follows:

(In thousands)	Three months ended March 31, 2024			Year ended December 31, 2023
Deferred revenue – beginning of period	$	4,019		$	4,112
Additions		1,160			4,905
Recognized		(1,395	)		(4,998	)
Deferred revenue – end of period	$	3,784		$	4,019

Deferred revenue balances primarily consist of customer deposits on the Company’s cultivation and extraction solutions equipment. As of March 31, 2024 and December 31, 2023, all of the Company’s deferred revenue balances were reported as current liabilities in the accompanying consolidated balance sheets.

Note 3 — Supplemental Consolidated Balance Sheet Information

Accounts Receivable

Accounts receivable consisted of the following as of March 31, 2024 and December 31, 2023:

(In thousands)	March 31, 2024			December 31, 2023
Accounts receivable, gross	$	2,723		$	3,036
Less allowance for credit losses		(2,512	)		(1,887	)
Accounts receivable, net	$	211		$	1,149

The changes in the allowance for credit losses accounts consisted of the following:

(In thousands)	Three months ended March 31, 2024			Year ended December 31, 2023
Allowance for credit losses - beginning of period	$	1,887		$	4,605
(Recovery of) allowance for credit losses		642			(1,426	)
Write-offs of uncollectible accounts		(17	)		(1,292	)
Allowance for credit losses - end of period	$	2,512		$	1,887

AGRIFY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following as of March 31, 2024 and December 31, 2023:

(In thousands)	March 31, 2024		December 31, 2023
Prepaid settlement asset	$	—	$	2,054
Other receivables, other		536		659
Prepaid insurance		352		454
Prepaid expenses, other		93		82
Prepaid software		31		70
Prepaid materials		16		13
Total prepaid expenses and other current assets	$	1,028	$	3,332

Property and Equipment, Net

Property and equipment, net consisted of the following as of March 31, 2024 and December 31, 2023:

(In thousands)	March 31, 2024			December 31, 2023
Leased equipment	$	4,465		$	4,465
Leasehold improvements		702			702
Machinery and equipment		904			904
Software		606			606
Computer and office equipment		588			588
Research and development laboratory equipment		183			183
Furniture and fixtures		116			116
Trade show assets		78			78
Vehicles		43			43
Total property and equipment, gross		7,685			7,685
Accumulated depreciation		(3,300	)		(2,894	)
Construction in progress		2,943			2,943
Total property and equipment, net	$	7,328		$	7,734

SEC Form 10-Q filed by Agrify Corporation