TROY, Mich., Jan. 03, 2024 (GLOBE NEWSWIRE) -- Agrify Corporation (NASDAQ:AGFY) ("Agrify" or the "Company"), a leading provider of innovative cultivation and extraction solutions for the cannabis industry, today announced financial results for the third quarter ended September 30, 2023 ("Q3 2023"). "In the third quarter, we successfully negotiated with several vendors, resulting in approximately $1.1 million in reduced payments, exited additional leased properties and conducted several fixed asset sales to ...

PART I - FINANCIAL INFORMATION [ITEM 1. FINANCIAL STATEMENTS](index=3&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS) This section presents the unaudited condensed consolidated financial statements for Agrify Corporation [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Condensed Consolidated Balance Sheets (in thousands) | Metric | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total Assets | $43,065 | $69,687 | | Total Current Assets | $21,205 | $44,893 | | Cash and cash equivalents | $154 | $10,457 | | Restricted cash | $— | $10,000 | | Inventory, net | $17,724 | $21,396 | | Total Liabilities | $64,306 | $78,728 | | Total Current Liabilities | $41,372 | $70,602 | | Long-term debt, current | $1,140 | $28,833 | | Total Stockholders' Deficit | $(21,474) | $(9,272) | - Total assets decreased by approximately **$26.6 million** from December 31, 2022, to September 30, 2023, primarily driven by a significant reduction in cash and cash equivalents and restricted cash[11](index=11&type=chunk) - Total liabilities decreased by approximately **$14.4 million**, with a notable reduction in current long-term debt[11](index=11&type=chunk) - Stockholders' deficit worsened from **$(9.3) million** to **$(21.5) million**, indicating a further erosion of equity[11](index=11&type=chunk) [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Condensed Consolidated Statements of Operations (in thousands, unaudited) | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $3,139 | $7,019 | $14,009 | $52,369 | | Cost of goods sold | $2,165 | $11,135 | $11,447 | $50,703 | | Gross profit (loss) | $974 | $(4,116) | $2,562 | $1,666 | | Loss from operations | $(4,578) | $(31,547) | $(17,506) | $(132,843) | | Net loss attributable to Agrify Corporation | $(2,092) | $(57,413) | $(19,224) | $(130,235) | | Net loss per share (basic and diluted) | $(1.27) | $(429.98) | $(13.48) | $(1,003.10) | - Revenue significantly decreased by **55%** for the three months and **73%** for the nine months ended September 30, 2023, compared to the same periods in 2022[13](index=13&type=chunk) - Gross profit improved from a loss of **$4.1 million** to a profit of **$1.0 million** for the three months ended September 30, 2023, and from $1.7 million to $2.6 million for the nine months, despite lower revenue, due to a larger decrease in cost of goods sold[13](index=13&type=chunk) - Net loss attributable to Agrify Corporation substantially decreased from **$(57.4) million** to **$(2.1) million** for the three months and from **$(130.2) million** to **$(19.2) million** for the nine months ended September 30, 2023, primarily due to reduced operating expenses and changes in fair value of warrant liabilities[13](index=13&type=chunk) [Condensed Consolidated Statements of Stockholders' Equity (Deficit)](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity%20(Deficit)) Condensed Consolidated Statements of Stockholders' Equity (Deficit) (in thousands) | Metric | Balance at Jan 1, 2023 | Balance at Sep 30, 2023 | | :--- | :--- | :--- | | Common Stock (shares) | 1,038,298 | 1,651,281 | | Common Stock (amount) | $1 | $2 | | Additional Paid-in Capital | $237,875 | $244,898 | | Accumulated Deficit | $(247,148) | $(266,374) | | Total Stockholders' Deficit attributable to Agrify | $(9,272) | $(21,474) | - The Company's accumulated deficit increased from **$(247.1) million** at January 1, 2023, to **$(266.4) million** at September 30, 2023, reflecting ongoing net losses[18](index=18&type=chunk) - Common Stock shares outstanding increased from **1,038,298** to **1,651,281**, primarily due to issuances through an "at the market" offering, conversion of notes, and employee stock purchase plan shares[18](index=18&type=chunk) - Additional paid-in capital increased by **$7.0 million**, driven by stock-based compensation and proceeds from equity offerings and conversions[18](index=18&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Condensed Consolidated Statements of Cash Flows (in thousands, unaudited) | Cash Flow Activity | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | $(25,940) | $(58,020) | | Net cash provided by (used in) investing activities | $25,235 | $(4,135) | | Net cash used in financing activities | $(9,598) | $52,292 | | Net decrease in cash and cash equivalents | $(10,303) | $(9,863) | | Cash and cash equivalents at end of period | $154 | $2,151 | - Net cash used in operating activities significantly decreased from **$(58.0) million** in 2022 to **$(25.9) million** in 2023, primarily due to reduced net loss and favorable changes in operating assets and liabilities[21](index=21&type=chunk)[422](index=422&type=chunk) - Investing activities shifted from a net cash outflow of **$(4.1) million** in 2022 to a net inflow of **$25.2 million** in 2023, driven by proceeds from the sale of securities and repayment of loans receivable[21](index=21&type=chunk)[424](index=424&type=chunk) - Financing activities resulted in a net cash outflow of **$(9.6) million** in 2023, a substantial change from the **$52.3 million** inflow in 2022, mainly due to debt repayments offsetting proceeds from equity programs[21](index=21&type=chunk)[427](index=427&type=chunk) [Notes to the Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) [Note 1 — Overview, Basis of Presentation and Significant Accounting Policies](index=10&type=section&id=Note%201%20%E2%80%94%20Overview%2C%20Basis%20of%20Presentation%20and%20Significant%20Accounting%20Policies) - Agrify Corporation is a leading provider of innovative cultivation and extraction solutions for the cannabis industry, offering proprietary micro-environment-controlled Vertical Farming Units (VFUs) and a comprehensive extraction product line[25](index=25&type=chunk) - The Company effected two reverse stock splits: **1-for-10** on October 18, 2022, and **1-for-20** on July 5, 2023, retroactively adjusting all share and per share information[28](index=28&type=chunk)[29](index=29&type=chunk)[30](index=30&type=chunk) - The Company received multiple Nasdaq deficiency notices for failing to meet the minimum bid price requirement and for late filings of its 10-K and 10-Q reports, leading to a Staff Delisting Determination and a scheduled hearing[34](index=34&type=chunk)[35](index=35&type=chunk)[41](index=41&type=chunk)[43](index=43&type=chunk) - Management has evaluated conditions that raise substantial doubt about the Company's ability to continue as a going concern within one year, citing operating losses, negative cash flows, a working capital deficiency, and an accumulated deficit of **$266 million** as of September 30, 2023[49](index=49&type=chunk)[50](index=50&type=chunk) - Revenue is recognized using a five-step model, disaggregated into equipment sales, services, and construction contracts, with significant judgments required for identifying distinct performance obligations and determining standalone selling prices[98](index=98&type=chunk)[99](index=99&type=chunk)[106](index=106&type=chunk)[107](index=107&type=chunk) [Note 2 — Revenue and Deferred Revenue](index=23&type=section&id=Note%202%20%E2%80%94%20Revenue%20and%20Deferred%20Revenue) Revenue Disaggregation (in thousands) | Timing of Recognition | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Transferred at a point in time | $2,831 | $5,657 | $12,384 | $28,675 | | Transferred over time | $308 | $1,362 | $1,625 | $23,694 | | Total Revenue | $3,139 | $7,019 | $14,009 | $52,369 | Deferred Revenue Changes (in thousands) | Metric | 3 Months Ended Sep 30, 2023 | Year Ended Dec 31, 2022 | | :--- | :--- | :--- | | Deferred revenue – beginning of period | $4,112 | $3,772 | | Additions | $3,685 | $13,392 | | Recognized | $(3,718) | $(13,052) | | Deferred revenue – end of period | $4,079 | $4,112 | - The majority of revenue is recognized at a point in time, accounting for **$2.8 million (90%)** and **$12.4 million (88%)** of total revenue for the three and nine months ended September 30, 2023, respectively[135](index=135&type=chunk) - Deferred revenue balances, primarily from customer deposits on cultivation and extraction equipment, remained relatively stable at **$4.1 million** as of September 30, 2023, and December 31, 2022[137](index=137&type=chunk) [Note 3 — Supplemental Consolidated Balance Sheet Information](index=24&type=section&id=Note%203%20%E2%80%94%20Supplemental%20Consolidated%20Balance%20Sheet%20Information) Accounts Receivable, Net (in thousands) | Metric | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Accounts receivable, gross | $3,722 | $5,675 | | Less allowance for credit losses | $(2,535) | $(4,605) | | Accounts receivable, net | $1,187 | $1,070 | Property and Equipment, Net (in thousands) | Metric | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total property and equipment, gross | $8,137 | $4,973 | | Accumulated depreciation | $(2,695) | $(2,372) | | Construction in progress | $2,943 | $7,443 | | Total property and equipment, net | $8,385 | $10,044 | Accrued Expenses and Other Current Liabilities (in thousands) | Metric | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Sales tax payable | $6,019 | $5,950 | | Accrued acquisition liabilities | $2,180 | $3,502 | | Accrued construction costs | $1,540 | $2,669 | | Accrued interest expense | $1,041 | $240 | | Compensation related fees | $944 | $2,285 | | Accrued warranty expenses | $585 | $553 | | Total accrued expenses and other current liabilities | $12,824 | $16,380 | - The allowance for credit losses decreased from **$4.6 million** to **$2.5 million**, with a net recovery of bad debt of **$1.0 million** for the nine months ended September 30, 2023[138](index=138&type=chunk) - Construction in progress significantly decreased from **$7.4 million** to **$2.9 million**, contributing to the overall reduction in net property and equipment[142](index=142&type=chunk) [Note 4 — Fair Value Measures](index=26&type=section&id=Note%204%20%E2%80%94%20Fair%20Value%20Measures) Fair Value Measurements (in thousands) | Metric | Sep 30, 2023 (Total) | Dec 31, 2022 (Total) | | :--- | :--- | :--- | | Total Assets (Fair Value) | $4 | $460 | | Total Liabilities (Fair Value) | $2,386 | $5,985 | | Warrant liabilities - December 2022 warrants | $2,330 | $5,854 | - The Company's financial instruments measured at fair value on a recurring basis primarily include marketable securities (money market funds) and warrant liabilities, with warrant liabilities being the most significant component[150](index=150&type=chunk)[151](index=151&type=chunk) - Warrant liabilities, valued using Level 3 inputs and a Black-Scholes option-pricing model, decreased from **$5.9 million** at December 31, 2022, to **$2.4 million** at September 30, 2023, reflecting changes in estimated fair value[150](index=150&type=chunk)[151](index=151&type=chunk)[161](index=161&type=chunk) - Contingent consideration liabilities related to past acquisitions (PurePressure, Lab Society, Precision, and Cascade) were reduced or settled, with no change recorded for the nine months ended September 30, 2023[154](index=154&type=chunk)[157](index=157&type=chunk)[158](index=158&type=chunk)[160](index=160&type=chunk) [Note 5 — Loans Receivable](index=31&type=section&id=Note%205%20%E2%80%94%20Loans%20Receivable) Loans Receivable by Customer (in thousands) | Customer | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Customer 139 | $14,691 | $14,691 | | Customer 136 | $— | $12,457 | | Customer 125 | $9,012 | $9,048 | | Customer 24096 | $6,810 | $5,890 | | Allowance for credit losses | $(19,215) | $(33,050) | | Total loan receivable | $11,298 | $12,214 | - The Company's TTK Solution program provides capital and support to cannabis operators; a significant reserve of **$14.7 million** was established for Bud & Mary's due to ongoing litigation and collection uncertainty[170](index=170&type=chunk)[171](index=171&type=chunk) - The Greenstone loan, a related party, was fully written off against the reserve during Q2 2023 due to its sale to Denver Greens, which did not assume the loan[174](index=174&type=chunk) [Note 6 — Inventory](index=32&type=section&id=Note%206%20%E2%80%94%20Inventory) Inventory Composition (in thousands) | Metric | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Raw materials | $24,100 | $24,960 | | Prepaid inventory | $10,838 | $15,506 | | Finished goods | $7,607 | $13,689 | | Inventory for resale | $5,024 | $— | | Inventory, gross | $47,569 | $54,155 | | Inventory reserves | $(29,845) | $(32,759) | | Total inventory, net | $17,724 | $21,396 | Inventory Reserves (in thousands) | Metric | 9 Months Ended Sep 30, 2023 | Year Ended Dec 31, 2022 | | :--- | :--- | :--- | | Inventory reserves – beginning of period | $32,759 | $942 | | (Decrease) increase in inventory reserves | $(2,914) | $31,817 | | Inventory reserves – end of period | $29,845 | $32,759 | - Net inventory decreased from **$21.4 million** to **$17.7 million**, primarily due to a decrease in prepaid inventory and finished goods, partially offset by new inventory for resale[179](index=179&type=chunk) - Inventory reserves decreased by **$2.9 million** for the nine months ended September 30, 2023, indicating a reduction in provisions for obsolete, slow-moving, or defective items[182](index=182&type=chunk) [Note 7 — Goodwill and Intangible Assets, Net](index=33&type=section&id=Note%207%20%E2%80%94%20Goodwill%20and%20Intangible%20Assets%2C%20Net) Changes in Goodwill (in thousands) | Metric | Year Ended Dec 31, 2022 | | :--- | :--- | | Goodwill - beginning of period | $50,090 | | Goodwill acquired during period | $4,368 | | Goodwill purchase accounting adjustment | $289 | | Goodwill impairment loss | $(54,747) | | Goodwill - end of period | $— | - The Company recorded a full impairment charge of approximately **$69.9 million** for goodwill and intangible assets during the second quarter of 2022, due to a sustained decline in stock price, market capitalization, and a slowdown in the cannabis industry[185](index=185&type=chunk)[186](index=186&type=chunk) - As of December 31, 2022, and September 30, 2023, the net carrying value of goodwill and intangible assets was **zero** due to the full impairment recognized in 2022[187](index=187&type=chunk)[188](index=188&type=chunk) [Note 8 – Debt](index=35&type=section&id=Note%208%20%E2%80%93%20Debt) Debt Composition (in thousands) | Metric | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Note payable – Exchange Note | $18,509 | $31,975 | | PPP Loan | $518 | $656 | | Navitas loan | $10 | $23 | | Related party debt | $500 | $— | | Other notes payable | $487 | $— | | Total debt | $20,024 | $32,654 | | Long-term debt, net of current | $18,998 | $407 | - Total debt decreased from **$32.7 million** to **$20.0 million**, primarily due to repayments and conversions of the Exchange Note and Convertible Note[190](index=190&type=chunk) - The Company recognized a loss on extinguishment of debt of **$4.6 million** in March 2023 when the August 2022 Note was exchanged for a new Convertible Note[202](index=202&type=chunk) - In April and May 2023, the Company converted **$1.6 million** of the Convertible Note and **$2.0 million** of the Exchange Note into Common Stock[210](index=210&type=chunk)[211](index=211&type=chunk) - A **$0.5 million** unsecured promissory note was issued to GIC Acquisition, LLC, an entity owned by the Company's CEO, with a maturity date extended to December 31, 2023[215](index=215&type=chunk) [Note 9 - Leases](index=38&type=section&id=Note%209%20-%20Leases) Lease Costs (in thousands) | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Operating lease cost | $205 | $293 | $709 | $828 | | Finance lease cost | $23 | $61 | $125 | $174 | | Total lease cost | $228 | $354 | $834 | $1,002 | Lease Liabilities (in thousands) | Metric | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Right-of-use assets, net | $2,036 | $2,210 | | Operating lease liabilities, current | $669 | $734 | | Operating lease liabilities, non-current | $1,550 | $1,587 | | Total operating lease liabilities | $2,219 | $2,321 | | Total finance lease liabilities | $— | $299 | - The weighted-average remaining lease term for operating leases was **3.23 years** with a weighted-average discount rate of **7.39%** as of September 30, 2023[225](index=225&type=chunk) - Finance lease liabilities were fully settled by September 30, 2023, down from **$299 thousand** at December 31, 2022[225](index=225&type=chunk) [Note 10 — Stockholders' Equity](index=40&type=section&id=Note%2010%20%E2%80%94%20Stockholders'%20Equity) - The Company increased its authorized Common Stock to **10,000,000 shares** and Preferred Stock to **3,000,000 shares** in March 2023[228](index=228&type=chunk) - In January 2022, a private placement generated approximately **$27.3 million** in gross proceeds from the sale of Common Stock and warrants[229](index=229&type=chunk)[232](index=232&type=chunk) - Shares of Common Stock were issued in connection with the acquisitions of Precision, Cascade, PurePressure, and Lab Society, including the release of held-back shares[233](index=233&type=chunk)[234](index=234&type=chunk)[235](index=235&type=chunk) - A Confidentially Marketed Public Offering in December 2022 generated **$8.2 million** in net proceeds from the sale of Common Stock and warrants, with the CEO participating[238](index=238&type=chunk)[242](index=242&type=chunk) [Note 11 — Stock-Based Compensation and Employee Benefit Plans](index=41&type=section&id=Note%2011%20%E2%80%94%20Stock-Based%20Compensation%20and%20Employee%20Benefit%20Plans) Stock Compensation Expense (in thousands) | Period | Stock Compensation Expense | | :--- | :--- | | 3 Months Ended Sep 30, 2023 | $0.5 | | 3 Months Ended Sep 30, 2022 | $1.6 | | 9 Months Ended Sep 30, 2023 | $2.1 | | 9 Months Ended Sep 30, 2022 | $3.5 | - The 2022 Omnibus Equity Incentive Plan replaced the 2020 Plan, reserving **26,483 shares** for various awards, with **13,198 shares** available as of September 30, 2023[244](index=244&type=chunk) - Total unrecognized compensation expense for unvested options was **$1.3 million** (expected over 0.46 years) and for unvested restricted stock units was **$0.7 million** (expected over 2.10 years) as of September 30, 2023[250](index=250&type=chunk)[255](index=255&type=chunk) - The 2022 Employee Stock Purchase Plan (ESPP) reserved **2,500 shares**, with eligible employees able to purchase stock at a discount, but no shares were granted under the ESPP during the three and nine months ended September 30, 2023[256](index=256&type=chunk)[257](index=257&type=chunk) [Note 12 — Stock Warrants](index=44&type=section&id=Note%2012%20%E2%80%94%20Stock%20Warrants) Warrant Activity | Metric | Warrants Outstanding at Dec 31, 2022 | Warrants Outstanding at Sep 30, 2023 | | :--- | :--- | :--- | | Number of Warrants | 1,530,001 | 1,495,001 | | Weighted Average Exercise Price | $38.07 | $38.07 | - The number of outstanding warrants decreased by **35,000** from December 31, 2022, to September 30, 2023, due to exercises[261](index=261&type=chunk) - No proceeds were received from the exercise of cashless warrants for the three and nine months ended September 30, 2023[261](index=261&type=chunk) [Note 13 — Income Taxes](index=44&type=section&id=Note%2013%20%E2%80%94%20Income%20Taxes) - The Company's effective income tax rate was **0.0%** for the nine months ended September 30, 2023, compared to **0.2%** for the same period in 2022[262](index=262&type=chunk) - The difference from the U.S. statutory tax rate of **21%** is primarily due to a valuation allowance recorded against certain deferred tax assets[262](index=262&type=chunk) [Note 14 — Net Loss Per Share](index=44&type=section&id=Note%2014%20%E2%80%94%20Net%20Loss%20Per%20Share) Net Loss Per Share (basic and diluted) | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Net loss attributable to Agrify Corporation | $(2,092) | $(57,413) | $(19,224) | $(130,235) | | Weighted-average common shares outstanding | 1,649,741 | 133,526 | 1,426,016 | 129,832 | | Net loss per share | $(1.27) | $(429.98) | $(13.48) | $(1,003.10) | - Net loss per share significantly improved to **$(1.27)** for the three months and **$(13.48)** for the nine months ended September 30, 2023, compared to **$(429.98)** and **$(1,003.10)** in the prior year, reflecting reduced net losses and the impact of reverse stock splits[265](index=265&type=chunk) - All potential dilutive securities (stock options, restricted stock units, and warrants) were excluded from diluted EPS calculation as they were anti-dilutive due to the Company reporting losses[264](index=264&type=chunk)[267](index=267&type=chunk) [Note 15 — Commitments and Contingencies](index=45&type=section&id=Note%2015%20%E2%80%94%20Commitments%20and%20Contingencies) - The Company is involved in litigation with Bud & Mary's, which filed a complaint alleging unfair trade practices and breach of contract, leading the Company to fully reserve the **$14.7 million** outstanding note receivable[268](index=268&type=chunk)[269](index=269&type=chunk) - Bowdoin Construction Corp. filed a complaint against the Company and Bud & Mary's for approximately **$6.3 million** due to nonpayment under a construction contract, which the Company intends to defend vigorously[271](index=271&type=chunk) - Mack Molding Co. filed an arbitration action for **$9.4 million** related to inventory purchased for VFUs, which was subsequently settled in October 2023, requiring future payments and VFU purchases[274](index=274&type=chunk)[275](index=275&type=chunk)[282](index=282&type=chunk) - The Company settled a legal dispute with a customer in September 2023, resulting in a gain of approximately **$0.9 million** and a receivable balance, with payments scheduled through January 2024[278](index=278&type=chunk) [Note 16 — Related Parties](index=48&type=section&id=Note%2016%20%E2%80%94%20Related%20Parties) Net Purchasing (Sales) Activity with Related Parties (in thousands) | Related Party | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Bluezone | $0 | $0 | $4 | $5 | | NEIA | $0 | $0 | $(43) | $(1,763) | | Greenstone Holdings | $0 | $212 | $(2) | $392 | | Valiant Americas, LLC | $0 | $1,315 | $0 | $11,120 | - The Company had minimal net purchasing/sales activity with related parties for the three and nine months ended September 30, 2023, compared to more significant activity in the prior year[290](index=290&type=chunk) - A **$0.5 million** unsecured promissory note was issued to GIC Acquisition, LLC, an entity owned by the Company's Chairman and CEO, in July 2023[215](index=215&type=chunk)[290](index=290&type=chunk) [Note 17 — Subsequent Events](index=48&type=section&id=Note%2017%20%E2%80%94%20Subsequent%20Events) - The Company filed its overdue 2022 Form 10-K and Q1/Q2 2023 Form 10-Q reports in November and December 2023, but received a Staff Delisting Determination from Nasdaq and requested a hearing[292](index=292&type=chunk)[293](index=293&type=chunk) - In October 2023, the Company settled a dispute with Mack Molding Company, agreeing to make payments of **$750,000**, purchase minimum VFUs quarterly, and issued a warrant to purchase **750,000 shares** of Common Stock[294](index=294&type=chunk)[296](index=296&type=chunk) - CP Acquisitions LLC, an entity affiliated with the CEO, purchased the Exchange Note and Convertible Note in October 2023, waiving defaults and extending maturity dates to **December 31, 2025**[297](index=297&type=chunk) - The Company issued new warrants (Exchange Warrant for **2,809,669 shares** and Abeyance Warrant for **375,629 shares**) in October 2023 as a condition to the Note Purchase, with specific exercise prices and terms[298](index=298&type=chunk)[299](index=299&type=chunk)[300](index=300&type=chunk) - The Related Party Note with GIC was amended and restated, and a Junior Secured Note for up to **$4.0 million** was issued to CP Acquisitions LLC, both ranking junior to the acquired notes[302](index=302&type=chunk)[303](index=303&type=chunk) [ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=50&type=section&id=ITEM%202.%20MANAGEMENT'S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) Management discusses financial results, highlighting revenue declines, improved margins, and liquidity challenges [Overview](index=50&type=section&id=Overview) - Agrify is a developer of proprietary precision hardware and software grow solutions for the indoor commercial agriculture industry, specializing in cultivation, extraction, post-processing, and testing for cannabis and hemp[308](index=308&type=chunk) - The Company's 'Precision Elevated™' cultivation solution integrates hardware, software (Agrify Insights), and services (consulting, engineering, construction) to provide a comprehensive indoor farming solution[308](index=308&type=chunk) - The Company effected **1-for-10** (October 2022) and **1-for-20** (July 2023) reverse stock splits, retroactively adjusting all share and per share information[310](index=310&type=chunk)[311](index=311&type=chunk) [Recent Business Developments](index=51&type=section&id=Recent%20Business%20Developments) - In January 2022, a private placement generated approximately **$27.3 million** in gross proceeds from the sale of Common Stock and warrants[313](index=313&type=chunk)[315](index=315&type=chunk) - The Company acquired Lab Society in February 2022 for **$4.0 million** in cash, **2,128 shares** of Common Stock, and potential earn-out consideration of up to **$3.5 million**[316](index=316&type=chunk)[317](index=317&type=chunk)[319](index=319&type=chunk) - In August 2022, the Company amended its SPA Note, partially repaying **$35.2 million** and exchanging the remaining balance for a **$35.0 million** Exchange Note and new warrants[325](index=325&type=chunk) - In March 2023, the Company prepaid **$10.3 million** of the Exchange Note and exchanged **$10.0 million** for a new Convertible Note, resulting in a **$4.6 million** loss on extinguishment of debt[334](index=334&type=chunk)[335](index=335&type=chunk) - The ATM Program, which generated **$15.0 million** net proceeds in 2022, was discontinued due to the late filing of the 2022 Annual Report on Form 10-K[346](index=346&type=chunk) - A Confidentially Marketed Public Offering in December 2022 generated **$8.2 million** in net proceeds from the sale of Common Stock and warrants[352](index=352&type=chunk) [Financial Overview](index=56&type=section&id=Financial%20Overview) - Management's discussion emphasizes critical accounting policies, including revenue recognition (five-step model, SSP determination), accounting for business combinations (fair value estimates, intangible asset amortization), goodwill and intangible asset impairment, capitalization of internal software development costs, income taxes (deferred taxes, valuation allowance), and stock-based compensation (Black-Scholes model, forfeiture rates)[354](index=354&type=chunk)[355](index=355&type=chunk)[372](index=372&type=chunk)[375](index=375&type=chunk)[379](index=379&type=chunk)[380](index=380&type=chunk)[383](index=383&type=chunk)[384](index=384&type=chunk) - Significant judgments are required in determining standalone selling prices for performance obligations, valuing acquired assets and liabilities in business combinations, and estimating future cash flows for impairment testing[361](index=361&type=chunk)[362](index=362&type=chunk)[374](index=374&type=chunk) - The Company fully impaired its goodwill and intangible assets in Q2 2022 due to market conditions and financial performance, resulting in no impairment charges for the three and nine months ended September 30, 2023[377](index=377&type=chunk) [Results of Operations](index=61&type=section&id=Results%20of%20Operations) Revenue Breakdown (in thousands) | Revenue Source | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | % Change | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Cultivation solutions, including ancillary products and services | $138 | $4 | 3350% | $633 | $707 | (10)% | | Agrify Insights software | $58 | $1 | 5700% | $123 | $46 | 167% | | Facility build-outs | $0 | $1,334 | (100)% | $882 | $23,551 | (96)% | | Extraction solutions | $2,943 | $5,680 | (48)% | $12,371 | $28,065 | (56)% | | Total revenue | $3,139 | $7,019 | (55)% | $14,009 | $52,369 | (73)% | - Total revenue decreased by **55%** and **73%** for the three and nine months ended September 30, 2023, respectively, primarily due to significant decreases in facility build-outs and extraction solutions[392](index=392&type=chunk) - Gross profit improved to **$1.0 million (31.0% margin)** for the three months and **$2.6 million (18.3% margin)** for the nine months ended September 30, 2023, compared to gross losses/lower profits in the prior year, driven by a larger decrease in cost of goods sold relative to revenue decline[396](index=396&type=chunk) - Operating expenses (G&A, S&M, R&D) significantly decreased by **82%** and **70%** for the three and nine months ended September 30, 2023, respectively, primarily due to reductions in bad debt, personnel costs, and facility expenses[399](index=399&type=chunk)[401](index=401&type=chunk)[405](index=405&type=chunk) - Other income (expense), net, showed a positive change of **$28.4 million** for the three months and a negative change of **$(4.1) million** for the nine months, largely influenced by changes in the fair value of warrant liabilities and the loss on extinguishment of notes payable in 2022[406](index=406&type=chunk)[407](index=407&type=chunk) [Liquidity and Capital Resources](index=66&type=section&id=Liquidity%20and%20Capital%20Resources) - As of September 30, 2023, the Company's principal sources of liquidity were cash and cash equivalents and marketable securities totaling **$0.2 million**, down from **$10.5 million** cash and **$10.0 million** restricted cash at December 31, 2022[11](index=11&type=chunk)[412](index=412&type=chunk) - The Company's working capital needs are substantial, particularly for funding TTK Solutions construction and equipment financing commitments[412](index=412&type=chunk) - Net cash used in operating activities decreased to **$(25.9) million** for the nine months ended September 30, 2023, from **$(58.0) million** in the prior year[421](index=421&type=chunk) - Net cash provided by investing activities was **$25.2 million**, a significant improvement from a **$(4.1) million** outflow in the prior year, driven by proceeds from securities sales and loan repayments[421](index=421&type=chunk) - Net cash used in financing activities was **$(9.6) million**, a reversal from the **$52.3 million** provided in the prior year, primarily due to debt repayments[421](index=421&type=chunk) - The Company's ability to raise additional debt or equity capital is crucial, and there is no assurance it can do so on acceptable terms, which could adversely affect its business and financial condition[413](index=413&type=chunk) [Off-Balance Sheet Arrangements](index=68&type=section&id=Off-Balance%20Sheet%20Arrangements) - The Company confirms it did not have any off-balance sheet arrangements, such as relationships with unconsolidated entities or special purpose entities, during the periods presented[429](index=429&type=chunk) [Critical Accounting Policies and Estimates](index=68&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) - This section refers readers to Note 1 for a detailed discussion of critical accounting policies and estimates, including fair value of derivative assets and liabilities, goodwill impairment, revenue recognition, and cost of goods sold[430](index=430&type=chunk)[431](index=431&type=chunk)[432](index=432&type=chunk) [Recently Issued Accounting Pronouncements Adopted](index=68&type=section&id=Recently%20Issued%20Accounting%20Pronouncements%20Adopted) - This section refers readers to Note 1 for information on recently issued accounting pronouncements adopted by the Company[433](index=433&type=chunk) [ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=69&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) Agrify is exempt from market risk disclosures as a smaller reporting company - The Company is not required to provide quantitative and qualitative disclosures about market risk as it qualifies as a "smaller reporting company"[435](index=435&type=chunk) [ITEM 4. CONTROLS AND PROCEDURES](index=69&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) Disclosure controls were deemed ineffective due to material weaknesses in internal control - The Chief Executive Officer concluded that the Company's disclosure controls and procedures were **not effective** as of September 30, 2023[437](index=437&type=chunk) - This ineffectiveness is attributed to material weaknesses in internal control over financial reporting, as previously identified in the 2022 Annual Report on Form 10-K[437](index=437&type=chunk) - The Company is implementing remediation measures, including hiring technically qualified personnel and improving technical accounting resources and capabilities[438](index=438&type=chunk) PART II - OTHER INFORMATION [ITEM 1. LEGAL PROCEEDINGS](index=70&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) This section refers to Note 15 for details on legal proceedings - Information regarding legal proceedings is incorporated by reference from Note 15 – Commitments and Contingencies[441](index=441&type=chunk) [ITEM 1A. RISK FACTORS](index=70&type=section&id=ITEM%201A.%20RISK%20FACTORS) No material changes to risk factors are reported, but risks from a recent reverse stock split are noted - No material changes to risk factors were identified as of the report date, referring to the Annual Report on Form 10-K for the year ended December 31, 2022[442](index=442&type=chunk) - The **1-for-20** reverse stock split completed on July 5, 2023, carries risks, including no guarantee of increased market price, potential failure to meet Nasdaq listing requirements, negative market perception, and the creation of 'odd lots' for stockholders[443](index=443&type=chunk)[447](index=447&type=chunk) [ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS](index=70&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) The Company reports no unregistered sales of equity securities - There were no unregistered sales of equity securities and use of proceeds to report[444](index=444&type=chunk) [ITEM 3. DEFAULTS UPON SENIOR SECURITIES](index=70&type=section&id=ITEM%203.%20DEFAULTS%20UPON%20SENIOR%20SECURITIES) The Company reports no defaults upon senior securities - There were no defaults upon senior securities to report[445](index=445&type=chunk) [ITEM 4. MINE SAFETY DISCLOSURES](index=70&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) This item is not applicable to the Company - This item is not applicable to the Company[446](index=446&type=chunk) [ITEM 5. OTHER INFORMATION](index=70&type=section&id=ITEM%205.%20OTHER%20INFORMATION) The Company reports no other information - There is no other information to report[447](index=447&type=chunk) [ITEM 6. EXHIBITS](index=71&type=section&id=ITEM%206.%20EXHIBITS) This section lists all exhibits filed with the Form 10-Q - The report includes a list of exhibits, such as promissory notes, warrants, and certifications, with many incorporated by reference from prior 8-K filings[448](index=448&type=chunk) - Key exhibits include the Promissory Note to GIC Acquisition, LLC, Exchange and Abeyance Warrants to High Trail Special Situations LLC, and a Common Stock Purchase Warrant to Mack Molding Company[448](index=448&type=chunk) SIGNATURES - The report is signed by Raymond Chang, Chief Executive Officer (Principal Executive Officer and Principal Financial and Accounting Officer) on January 3, 2024[454](index=454&type=chunk)

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 June 30, 2023 or ☐ 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 juris ...

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, 2023 or ☐ 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 | | --- | --- | ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (mark one) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2022 OR ☐ 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) Securities Registered Pursuant to Sectio ...

PART I – FINANCIAL INFORMATION [ITEM 1. FINANCIAL STATEMENTS](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents Agrify Corporation's unaudited condensed consolidated financial statements for the periods ended June 30, 2022, and December 31, 2021, including balance sheets, statements of operations, stockholders' equity, and cash flows, along with detailed notes explaining the financial figures and accounting policies, highlighting a significant net loss and impairment charges that raise substantial doubt about its ability to continue as a going concern - Agrify is a provider of advanced cultivation and extraction solutions for the cannabis industry, offering proprietary Vertical Farming Units (VFUs), extraction product lines, and integrated hardware/software solutions[449](index=449&type=chunk)[450](index=450&type=chunk) - Management has identified substantial doubt about the company's ability to continue as a going concern within one year due to operating losses, negative cash flows, an **accumulated deficit of $161.3 million**, and default on debt covenants of its **$65 million SPA Note**[468](index=468&type=chunk)[469](index=469&type=chunk) - The company completed the acquisition of Lab Society in February 2022, and Precision, Cascade, and PurePressure in 2021, expanding its extraction solutions and contributing to revenue growth[451](index=451&type=chunk)[602](index=602&type=chunk)[611](index=611&type=chunk)[621](index=621&type=chunk) - A **$69.9 million impairment charge** was recorded in Q2 2022, fully impairing the carrying value of goodwill and intangible assets, driven by a decline in stock price, market capitalization, and a slowdown in the cannabis industry[492](index=492&type=chunk)[497](index=497&type=chunk)[597](index=597&type=chunk) [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The balance sheets show a decrease in total assets and stockholders' equity, alongside a significant increase in total liabilities, reflecting the company's financial challenges - Total Assets decreased from **$182.05 million** at December 31, 2021, to **$171.21 million** at June 30, 2022[436](index=436&type=chunk) - Total Liabilities increased significantly from **$44.62 million** at December 31, 2021, to **$93.22 million** at June 30, 2022[436](index=436&type=chunk) - Total Stockholders' Equity decreased from **$137.06 million** at December 31, 2021, to **$77.62 million** at June 30, 2022[436](index=436&type=chunk) Key Balance Sheet Changes (June 30, 2022 vs. December 31, 2021) | Metric | Dec 31, 2021 (in thousands) | Jun 30, 2022 (in thousands) | Change (in thousands) | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------- | | Cash and cash equivalents | $12,014 | $18,608 | $6,594 | | Restricted cash | $— | $30,000 | $30,000 | | Marketable securities | $44,550 | $11,323 | $(33,227) | | Inventory, net | $20,498 | $41,871 | $21,373 | | Goodwill | $50,090 | $— | $(50,090) | | Intangible assets, net | $14,072 | $— | $(14,072) | | Long-term debt | $12 | $45,014 | $45,002 | | Accumulated deficit | $(58,975) | $(161,258) | $(102,283) | [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) The statements of operations reveal a substantial increase in revenue for the six months ended June 30, 2022, but also a significantly higher net loss, primarily driven by impairment charges - Revenue for the six months ended June 30, 2022, increased by **141% to $45.35 million** from **$18.83 million** in the same period of 2021[438](index=438&type=chunk) - Net Loss for the six months ended June 30, 2022, increased significantly to **$(102.28) million** from **$(9.28) million** in the same period of 2021[438](index=438&type=chunk) - Net Loss Per Share for the six months ended June 30, 2022, increased to **$(4.00)** from **$(0.57)** in the same period of 2021[438](index=438&type=chunk) Key Operating Results (Three Months Ended June 30, 2022 vs. 2021) | Metric (in thousands) | 2022 | 2021 | Change | % Change | | :-------------------------------- | :---------- | :---------- | :---------- | :------- | | Revenue | $19,329 | $11,825 | $7,504 | 64% | | Cost of goods sold | $17,717 | $11,298 | $6,419 | 57% | | Gross profit (loss) | $1,612 | $527 | $1,085 | 206% | | General and administrative | $19,378 | $4,399 | $14,979 | 341% | | Selling and marketing | $2,332 | $782 | $1,550 | 198% | | Research and development | $2,438 | $774 | $1,664 | 215% | | Impairment of goodwill and intangible assets | $69,904 | $— | $69,904 | 100% | | Net loss attributable to Agrify Corporation | $(93,401) | $(5,636) | $(87,765) | 1557% | [Condensed Consolidated Statements of Stockholders' Equity](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders%27%20Equity) The statements of stockholders' equity reflect a substantial decrease in total equity, primarily due to accumulated net losses, despite an increase in common stock issued - Total Stockholders' Equity (attributable to Agrify) decreased from **$137.06 million** at January 1, 2022, to **$77.62 million** at June 30, 2022[443](index=443&type=chunk)[444](index=444&type=chunk) - Accumulated Deficit increased from **$(58.98) million** at January 1, 2022, to **$(161.26) million** at June 30, 2022, primarily due to net losses[443](index=443&type=chunk)[444](index=444&type=chunk) - Common Stock issued and outstanding increased from **22,207,103 shares** at December 31, 2021, to **26,591,430 shares** at June 30, 2022[436](index=436&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) The cash flow statements indicate a significant increase in cash used in operating activities and a decrease in net cash provided by financing activities, leading to a reduced net increase in cash and cash equivalents - Net Cash Used in Operating Activities increased from **$(13.84) million** for the six months ended June 30, 2021, to **$(57.58) million** for the same period in 2022[446](index=446&type=chunk)[831](index=831&type=chunk) - Net Cash Used in Investing Activities decreased from **$(51.87) million** in 2021 to **$(26.94) million** in 2022[446](index=446&type=chunk)[831](index=831&type=chunk) - Net Cash Provided by Financing Activities decreased from **$137.43 million** in 2021 to **$91.11 million** in 2022[446](index=446&type=chunk)[831](index=831&type=chunk) - Net Increase in Cash and Cash Equivalents decreased significantly from **$71.73 million** in 2021 to **$6.59 million** in 2022[446](index=446&type=chunk)[831](index=831&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed disclosures on Agrify Corporation's accounting policies, financial instrument fair values, debt, leases, equity, and recent business combinations, highlighting the company's going concern risk due to significant losses and debt covenant defaults, along with the impact of recent acquisitions on its financial position and operational results [Note 1 — Overview, Basis of Presentation and Significant Accounting Policies](index=9&type=section&id=Note%201%20%E2%80%94%20Overview%2C%20Basis%20of%20Presentation%20and%20Significant%20Accounting%20Policies) This note outlines Agrify's business, corporate structure, key accounting policies, and the significant going concern risk due to operational losses and debt covenant defaults - Agrify provides advanced cultivation and extraction solutions for the cannabis industry, including proprietary VFUs, extraction equipment, and integrated hardware/software (Agrify Insights™)[449](index=449&type=chunk)[450](index=450&type=chunk) - The company has nine wholly-owned subsidiaries and ownership interests in three other companies (TPI, Agrify-Valiant, Agrify Brands), with Agrify-Valiant and Agrify Brands consolidated as VIEs[451](index=451&type=chunk)[453](index=453&type=chunk)[467](index=467&type=chunk) - A **1-for-1.581804 reverse stock split** was effected on January 12, 2021, retroactively adjusted for all periods[454](index=454&type=chunk) - The company raised approximately **$57 million net** from its IPO and **$80 million net** from a secondary public offering in 2021, used for working capital, revenue growth, and inventory[456](index=456&type=chunk)[457](index=457&type=chunk) - Experienced minimal business interruption from COVID-19 but faced supply chain delays, higher operating costs, and increased shipping costs[458](index=458&type=chunk) - Substantial doubt exists about the company's ability to continue as a going concern due to operating losses, negative cash flows, accumulated deficit, and default on the SPA Note covenants[469](index=469&type=chunk)[470](index=470&type=chunk) - Forgiveness of the **$0.78 million PPP Loan** was denied; maturity extended to May 7, 2025, with **1.00% annual interest**[460](index=460&type=chunk) - Qualifies as an 'emerging growth company' under the JOBS Act, allowing exemptions from certain disclosure requirements and an extended transition period for new accounting standards[475](index=475&type=chunk) [Note 2 — Revenue and Deferred Revenue](index=23&type=section&id=Note%202%20%E2%80%94%20Revenue%20and%20Deferred%20Revenue) This note details Agrify's revenue streams from equipment sales, services, and construction contracts, and its revenue recognition policies under ASC 606 - Revenue is generated from equipment sales (VFUs, grow racks, LED lights, extraction equipment), services, and construction contracts[548](index=548&type=chunk) - Revenue recognition follows ASC 606's five-step model, with revenue recognized as performance obligations are satisfied[513](index=513&type=chunk)[521](index=521&type=chunk) Revenue Disaggregation (Six Months Ended June 30) | Category | 2022 (in thousands) | 2021 (in thousands) | | :------------------------ | :------------------ | :------------------ | | Transferred at a point in time | $23,018 | $1,353 | | Transferred over time | $22,332 | $17,480 | | **Total Revenue** | **$45,350** | **$18,833** | Deferred Revenue Balances (Six Months Ended June 30, 2022 vs. Year Ended Dec 31, 2021) | Metric (in thousands) | Six Months ended June 30, 2022 | Year ended December 31, 2021 | | :-------------------------------- | :----------------------------- | :--------------------------- | | Deferred revenue – beginning of period | $3,772 | $152 | | Additions | $7,493 | $3,758 | | Recognized | $(7,512) | $(142) | | Deferred revenue – end of period | $3,753 | $3,772 | - A reserve for warranty returns of **$0.58 million** was maintained at June 30, 2022, up from **$0.40 million** at December 31, 2021[552](index=552&type=chunk)[568](index=568&type=chunk) [Note 3 – Supplemental Consolidated Balance Sheet Information](index=24&type=section&id=Note%203%20%E2%80%93%20Supplemental%20Consolidated%20Balance%20Sheet%20Information) This note provides additional details on specific balance sheet accounts, including increases in accounts receivable, inventory, and property and equipment, along with changes in liabilities - Accounts receivable, net, increased to **$10.47 million** at June 30, 2022, from **$7.22 million** at December 31, 2021[556](index=556&type=chunk) - Allowance for doubtful accounts increased to **$2.74 million** at June 30, 2022, from **$1.42 million** at December 31, 2021, with a provision of **$1.55 million** for the six months ended June 30, 2022[556](index=556&type=chunk)[557](index=557&type=chunk) - Prepaid expenses and other current assets increased to **$5.93 million** at June 30, 2022, from **$2.45 million** at December 31, 2021, including deferred debt issuance costs of **$0.91 million**[558](index=558&type=chunk)[559](index=559&type=chunk) - Property and equipment, net, increased to **$11.93 million** at June 30, 2022, from **$6.23 million** at December 31, 2021, with construction in progress significantly rising to **$9.01 million**[560](index=560&type=chunk)[561](index=561&type=chunk) - Accrued expenses and other current liabilities decreased to **$27.46 million** at June 30, 2022, from **$28.76 million** at December 31, 2021, including **$10.58 million** for accrued acquisition liability and **$5.72 million** for sales tax payable[565](index=565&type=chunk) [Note 4 — Fair Value Measures](index=26&type=section&id=Note%204%20%E2%80%94%20Fair%20Value%20Measures) This note describes the company's fair value hierarchy for financial instruments, including marketable securities and contingent consideration, and details changes in their valuations - The company uses a three-level fair value hierarchy, with Level 1 for municipal and corporate bonds and Level 3 for contingent consideration[569](index=569&type=chunk)[570](index=570&type=chunk)[572](index=572&type=chunk)[578](index=578&type=chunk) Marketable Securities (June 30, 2022 vs. Dec 31, 2021) | Metric (in thousands) | June 30, 2022 | December 31, 2021 | | :-------------------- | :------------ | :---------------- | | Municipal bonds | $4,683 | $9,961 | | Corporate bonds | $6,640 | $34,589 | | **Total** | **$11,323** | **$44,550** | Contingent Consideration Balances (Six Months Ended June 30, 2022 vs. Year Ended Dec 31, 2021) | Metric (in thousands) | Six Months ended June 30, 2022 | Year ended December 31, 2021 | | :-------------------------------- | :----------------------------- | :--------------------------- | | Contingent consideration – beginning of period | $6,137 | $— | | Accrued contingent consideration | $1,420 | $4,725 | | Change in estimated fair value | $(907) | $1,412 | | Contingent consideration – end of period | $6,766 | $6,137 | - The estimated fair value of Lab Society's first earn-out period contingent consideration was reduced by approximately **$1.0 million** in Q2 2022 due to underperformance[581](index=581&type=chunk) - The contingent consideration for Precision and Cascade was increased by **$0.12 million** in Q2 2022 to reflect the final amount due, with payment expected in August 2022[582](index=582&type=chunk) [Note 5 — Loan Receivable](index=29&type=section&id=Note%205%20%E2%80%94%20Loan%20Receivable) This note details the company's loan receivables, primarily from its Total Turn-Key (TTK) Solution program, and highlights a significant reserve for doubtful accounts related to Greenstone Holdings - A portion of IPO capital is allocated to the Total Turn-Key (TTK) Solution program, providing capital, design, build-out, equipment, software, and services to cannabis operators over a 10-year period, with construction loans typically at **12-18% interest**[583](index=583&type=chunk)[585](index=585&type=chunk) - A **$7.1 million reserve for doubtful accounts** was established specifically for Greenstone Holdings due to unfavorable market conditions in Colorado impacting collectability[584](index=584&type=chunk) Loan Receivables by Customer (June 30, 2022 vs. Dec 31, 2021) | Customer (in thousands) | June 30, 2022 | December 31, 2021 | | :---------------------------------------------------- | :------------ | :---------------- | | Company Customer Number 139 – TTK Solution | $14,730 | $5,542 | | Greenstone – TTK Solution – Related Party | $12,457 | $11,177 | | Company Customer Number 136 – TTK Solution | $8,691 | $2,439 | | Greenstone – TTK Solution – Related Party – Allowance for doubtful accounts | $(7,079) | $— | | **Total loan receivable** | **$35,090** | **$22,255** | - Greenstone is identified as a Variable Interest Entity (VIE), but Agrify is not the primary beneficiary and does not consolidate it[589](index=589&type=chunk) [Note 6 — Inventory](index=30&type=section&id=Note%206%20%E2%80%94%20Inventory) This note outlines Agrify's inventory valuation methods and provides a breakdown of inventory composition, highlighting an increase in inventory reserves - Inventory is valued at the lower of cost or net realizable value, using the weighted-average cost method on a First-In, First-Out basis[590](index=590&type=chunk) Inventory Composition (June 30, 2022 vs. Dec 31, 2021) | Category (in thousands) | June 30, 2022 | December 31, 2021 | | :---------------------- | :------------ | :---------------- | | Raw materials | $16,405 | $6,393 | | Prepaid inventory | $9,429 | $2,237 | | Finished goods | $17,908 | $12,810 | | **Inventory, gross** | **$43,742** | **$21,440** | | Inventory reserves | $(1,871) | $(942) | | **Total inventory, net** | **$41,871** | **$20,498** | - Inventory reserves increased by **$0.93 million** for the six months ended June 30, 2022, to **$1.87 million**, for obsolete, slow-moving, or defective items[592](index=592&type=chunk)[593](index=593&type=chunk) [Note 7 — Intangible Assets, Net and Goodwill](index=30&type=section&id=Note%207%20%E2%80%94%20Intangible%20Assets%2C%20Net%20and%20Goodwill) This note details the significant impairment charge recorded in Q2 2022, which fully impaired the company's goodwill and intangible assets due to adverse market conditions - An impairment triggering event was identified in Q2 2022 due to a sustained decline in stock price, market capitalization, and a slowdown in the cannabis industry[596](index=596&type=chunk) - A **$69.9 million impairment charge** was recorded in Q2 2022, representing a full impairment of goodwill (**$54.7 million**) and intangible assets (**$15.2 million**)[597](index=597&type=chunk) - Goodwill balance was reduced from **$50.09 million** at January 1, 2022, to **$0** at June 30, 2022, after the impairment loss[598](index=598&type=chunk) - Intangible assets, net, balance was reduced from **$14.07 million** at January 1, 2022, to **$0** at June 30, 2022, after the impairment loss[599](index=599&type=chunk) - Amortization expense was **$1.4 million** for the three months ended June 30, 2022, and **$0.70 million** for the six months ended June 30, 2022[601](index=601&type=chunk) [Note 8 — Business Combination](index=32&type=section&id=Note%208%20%E2%80%94%20Business%20Combination) This note provides details on Agrify's recent acquisitions, including Lab Society, Precision, Cascade, and PurePressure, and the subsequent impairment of goodwill and intangible assets related to these transactions - Lab Society was acquired on February 1, 2022, for **$4.0 million cash**, **425,611 Common Stock shares**, and potential earn-out consideration up to **$3.5 million**[603](index=603&type=chunk) - Identified intangible assets from Lab Society acquisition include trade names (**$0.32 million**), acquired developed technology (**$1.43 million**), and customer relationships (**$0.71 million**)[608](index=608&type=chunk) - Revenue from Lab Society from acquisition date to June 30, 2022, was **$3.1 million**[610](index=610&type=chunk) - Precision and Cascade were acquired on October 1, 2021, for **$30 million cash**, Common Stock shares based on **$20 million value**, and potential earn-out up to **$65 million total**[612](index=612&type=chunk) - Identified intangible assets from Precision and Cascade acquisition include trade names (**$1.26 million**), acquired developed technology (**$3.82 million**), non-compete agreements (**$1.20 million**), and customer relationships (**$3.61 million**)[618](index=618&type=chunk) - PurePressure was acquired on December 31, 2021, for **$4.0 million cash**, **329,179 Common Stock shares**, and potential earn-out consideration up to **$3.0 million**[622](index=622&type=chunk)[623](index=623&type=chunk) - Goodwill and intangible assets from these acquisitions were fully impaired in Q2 2022 due to market conditions[609](index=609&type=chunk)[620](index=620&type=chunk)[631](index=631&type=chunk) [Note 9 – Debt](index=38&type=section&id=Note%209%20%E2%80%93%20Debt) This note details Agrify's debt obligations, including the $65 million Senior Secured Promissory Note (SPA Note), its default on covenants, and the potential financial implications - A **$65 million Senior Secured Promissory Note (SPA Note)** was issued on March 14, 2022, with a maturity date of March 1, 2026, and a stated interest rate of **6.75% per year**[633](index=633&type=chunk)[634](index=634&type=chunk) - The company defaulted on certain financial debt covenants of the SPA Note as of June 30, 2022[639](index=639&type=chunk) - In case of default, the lender could call the note, requiring approximately **$75.0 million repayment** (**$65.0 million principal + $9.8 million penalty**), which exceeds the company's **$59.9 million cash on hand**[639](index=639&type=chunk) - Subsequent to Q2 2022, an agreement in principle was reached to amend the SPA Note and modify certain financial covenants[640](index=640&type=chunk) - The **$0.78 million PPP Loan's** forgiveness was denied, and its maturity date was extended to May 7, 2025, with a **1.00% annual interest rate**[647](index=647&type=chunk) Total Debt, Net of Debt Discount (June 30, 2022) | Metric (in thousands) | Amount | | :-------------------------------- | :----- | | Total debt | $66,659 | | Less: unamortized debt discount | $(12,030) | | **Total debt, net of debt discount** | **$54,629** | Future Minimum Principal Payments (as of June 30, 2022, in thousands) | Year | Amount | | :--- | :----- | | Remaining 2022 | $980 | | 2023 | $28,894 | | 2024 | $31,483 | | 2025 | $5,302 | | 2026 and thereafter | $— | | **Total** | **$66,659** | [Note 10 — Leases](index=41&type=section&id=Note%2010%20%E2%80%94%20Leases) This note outlines Agrify's accounting for leases, including the recognition of right-of-use assets and lease liabilities, and provides a breakdown of lease obligations - Leases with terms greater than 12 months are recognized as non-current right-of-use assets and current/non-current lease liabilities[651](index=651&type=chunk) - The weighted-average discount rate for leases was **7.35%** at June 30, 2022 (**7.16%** at December 31, 2021)[653](index=653&type=chunk) Total Lease Liabilities (June 30, 2022 vs. Dec 31, 2021) | Metric (in thousands) | June 30, 2022 | December 31, 2021 | | :-------------------- | :------------ | :---------------- | | Operating lease liabilities, current | $1,084 | $814 | | Operating lease liabilities, non-current | $1,908 | $704 | | Financing lease liabilities, current | $166 | $156 | | Financing lease liabilities, non-current | $236 | $293 | | **Total lease liabilities** | **$3,394** | **$1,967** | Maturities of Lease Liabilities (as of June 30, 2022, in thousands) | Year | Operating Lease | Finance Lease | | :--- | :-------------- | :------------ | | Remaining 2022 | $649 | $89 | | 2023 | $971 | $199 | | 2024 | $614 | $97 | | 2025 | $493 | $51 | | 2026 | $461 | $11 | | Thereafter | $200 | $— | | **Total minimum lease payments** | **$3,388** | **$447** | [Note 11 — Convertible Promissory Notes](index=43&type=section&id=Note%2011%20%E2%80%94%20Convertible%20Promissory%20Notes) This note details the amendments and conversions of Agrify's Convertible Notes, including a significant gain on extinguishment and conversion into common stock prior to the IPO - The Board and shareholders approved an amendment to the conversion formula of Convertible Notes on January 11, 2021, setting a conversion price of **$7.72 per share**[658](index=658&type=chunk) - A **$2.7 million gain on extinguishment** was recognized due to the derecognition of **$19.6 million in extinguished debt** and recognition of **$16.9 million fair value of new convertible notes**[659](index=659&type=chunk) - Prior to the IPO on February 1, 2021, **$13.1 million in Convertible Notes** were converted into **1,697,075 shares of Common Stock** at **$7.72 per share**[659](index=659&type=chunk) [Note 12 — Stockholders' Equity](index=43&type=section&id=Note%2012%20%E2%80%94%20Stockholders%27%20Equity) This note outlines changes in Agrify's authorized and issued shares, including details on public offerings, private placements, and stock issued for acquisitions - Authorized shares of Common Stock increased to **50,000,000** and Preferred Stock to **3,000,000** on January 9, 2020[660](index=660&type=chunk) - **100,000 shares of Series A Preferred Stock** were issued for **$10.0 million** in 2020 and subsequently converted to Common Stock at **$7.72 per share** prior to the IPO[660](index=660&type=chunk)[662](index=662&type=chunk)[663](index=663&type=chunk)[666](index=666&type=chunk) - The Initial Public Offering (Feb 1, 2021) involved the sale of **6,210,000 shares of Common Stock** at **$10.00 per share**, generating approximately **$57.0 million net proceeds**[665](index=665&type=chunk) - A Secondary Public Offering (Feb 19, 2021) sold **6,388,888 shares of Common Stock** at **$13.50 per share**, generating approximately **$80.0 million net proceeds**[668](index=668&type=chunk) - A Private Placement on January 25, 2022, issued **2,450,350 Common Stock shares**, pre-funded warrants for **1,570,644 shares**, and common warrants for **3,015,745 shares**, generating approximately **$27.3 million gross proceeds**[669](index=669&type=chunk)[671](index=671&type=chunk) - Common Stock shares were issued in connection with acquisitions: **666,403 for Precision/Cascade**, **240,301 for PurePressure**, and **297,929 for Lab Society**[672](index=672&type=chunk) [Note 13 — Stock-Based Compensation and Employee Benefit Plans](index=46&type=section&id=Note%2013%20%E2%80%94%20Stock-Based%20Compensation%20and%20Employee%20Benefit%20Plans) This note details Agrify's stock-based compensation plans, including the 2022 Omnibus Equity Incentive Plan and the ESPP, along with associated expenses and unrecognized costs - The 2022 Omnibus Equity Incentive Plan replaced the 2020 Plan, reserving **5,296,647 shares** for various awards[674](index=674&type=chunk) - Stock-based compensation expense was **$0.94 million** for Q2 2022 (vs. **$0.93 million** in Q2 2021) and **$1.9 million** for H1 2022 (vs. **$3.1 million** in H1 2021)[675](index=675&type=chunk) - Total unrecognized compensation cost related to unvested options was **$3.4 million** as of June 30, 2022, to be recognized through 2025[675](index=675&type=chunk) Stock Option Activity (June 30, 2022 vs. Dec 31, 2021) | Metric | Options outstanding at Dec 31, 2021 | Options outstanding at Jun 30, 2022 | | :---------------------- | :---------------------------------- | :---------------------------------- | | Number of Options | 3,564,289 | 3,290,900 | | Weighted-Average Exercise Price | $7.18 | $7.05 | - The 2022 Employee Stock Purchase Plan (ESPP) was adopted with **500,000 shares reserved**, allowing eligible employees to purchase stock at **85% of fair market value**; no grants were made in H1 2022[682](index=682&type=chunk) - No contributions were made to the 401k Plan in Q2 or H1 2022/2021[684](index=684&type=chunk) [Note 14 — Stock Warrants](index=48&type=section&id=Note%2014%20%E2%80%94%20Stock%20Warrants) This note provides a summary of Agrify's stock warrant activity, including the number of warrants outstanding and their weighted-average exercise price Stock Warrant Activity (June 30, 2022 vs. Dec 31, 2021) | Metric | Warrants outstanding at Dec 31, 2021 | Warrants outstanding at Jun 30, 2022 | | :----------------------------------- | :----------------------------------- | :----------------------------------- | | Number of Warrants | 271,844 | 10,111,798 | | Weighted-Average Exercise Price | $0.02 | $6.82 | - **11.47 million warrants** were granted in H1 2022 with a weighted-average exercise price of **$6.02**[686](index=686&type=chunk) - Proceeds from warrant exercises were less than **$1 thousand** for Q2 2022 and **$2 thousand** for H1 2022[686](index=686&type=chunk) [Note 15 — Income Taxes](index=48&type=section&id=Note%2015%20%E2%80%94%20Income%20Taxes) This note details Agrify's effective income tax rates and benefits, primarily influenced by a valuation allowance against deferred tax assets and specific impairment-related reversals - The effective income tax rate was **0.1%** for Q2 2022 (vs. **0.0%** in Q2 2021) and **0.3%** for H1 2022 (vs. **0.0%** in H1 2021)[687](index=687&type=chunk)[688](index=688&type=chunk) - The income tax benefit was **$(0.06) million** for Q2 2022 (vs. **$0** in Q2 2021) and **$(0.26) million** for H1 2022 (vs. **$0** in H1 2021)[687](index=687&type=chunk)[688](index=688&type=chunk) - The low effective tax rate is primarily due to a valuation allowance recorded against certain deferred tax assets[687](index=687&type=chunk)[688](index=688&type=chunk) - The Q2 2022 benefit was due to a goodwill impairment charge, resulting in a **$(0.06) million benefit** from the reversal of deferred tax liability on indefinite-lived assets[687](index=687&type=chunk) - The H1 2022 benefit included a discrete income tax benefit of **$(0.20) million** from a non-recurring partial release of the U.S. valuation allowance due to the Lab Society acquisition[688](index=688&type=chunk) [Note 16 — Net Loss Per Share](index=49&type=section&id=Note%2016%20%E2%80%94%20Net%20Loss%20Per%20Share) This note explains that basic and diluted net loss per share are equal due to anti-dilutive securities, and provides a summary of the net loss per share calculation - Basic net loss per share equals diluted net loss per share because all potentially dilutive securities were anti-dilutive due to reported losses[690](index=690&type=chunk)[691](index=691&type=chunk) Net Loss Per Share (H1 2022 vs. H1 2021) | Metric | H1 2022 | H1 2021 | | :------------------------------------------ | :---------- | :---------- | | Net loss attributable to Agrify Corporation | $(102,283) | $(9,446) | | Net loss per share (basic and diluted) | $(4.00) | $(0.57) | | Weighted-average common shares outstanding | 25,591,114 | 16,661,948 | - **13,402,698 potential common shares equivalents** (**3,290,900 options** and **10,111,798 warrants**) were excluded from diluted EPS calculation at June 30, 2022[692](index=692&type=chunk) [Note 17 — Commitments and Contingencies](index=49&type=section&id=Note%2017%20%E2%80%94%20Commitments%20and%20Contingencies) This note outlines Agrify's various commitments and contingencies, including legal settlements, product seizures, supply agreements, and related-party transactions - The company tentatively agreed to settle claims with former employees (Cooper and Weinstein) for approximately **$0.80 million**, accrued as a liability as of June 30, 2022[696](index=696&type=chunk) - **123 cartons of horticulture grow lights**, valued at **$0.62 million**, were seized by United States Customs and Border Protection (CBP) due to alleged importation law violations; the company intends to dispute the seizure[697](index=697&type=chunk) - A five-year supply agreement with Mack Molding Co. for VFUs includes purchase orders totaling approximately **$11.5 million** for 2021-2022 production[698](index=698&type=chunk) - Greenstone, a related party, purchased **239 VFUs** in December 2021, terminating a prior lease agreement[700](index=700&type=chunk) - An agreement was entered into with Ora Pharm, a related party, for the purchase of approximately **$1.6 million in equipment**[701](index=701&type=chunk) [Note 18 — Related Parties](index=52&type=section&id=Note%2018%20%E2%80%94%20Related%20Parties) This note details Agrify's transactions and balances with related parties, including sales, purchases, and loan receivables, highlighting the allowance for doubtful accounts related to Greenstone Net Purchasing (Sales) Activity with Related Parties (Six Months Ended June 30, 2022) | Related Party | Amount (in thousands) | | :------------------------ | :-------------------- | | NEIA (sales) | $(1,763) | | Greenstone (purchases) | $180 | | Valiant Americas, LLC (purchases) | $9,805 | Net Related Party Receivable (Payable) (June 30, 2022) | Related Party | Amount (in thousands) | | :------------------------ | :-------------------- | | Greenstone (net of allowance) | $5,378 | | NEIA | $2,415 | | Valiant Americas, LLC | $98 | - The Greenstone loan receivable balance is net of a **$7.08 million allowance for doubtful accounts** at June 30, 2022[707](index=707&type=chunk) [Note 19 — Subsequent Events](index=53&type=section&id=Note%2019%20%E2%80%94%20Subsequent%20Events) This note reports on significant events occurring after the reporting period, including executive appointments, an increase in authorized common stock, and amendments to debt agreements - Stuart Wilcox was appointed Chief Operating Officer (COO) on July 14, 2022, succeeding Thomas Massie, who resigned; Chris Benyo was promoted to Chief Revenue Officer (CRO)[710](index=710&type=chunk)[712](index=712&type=chunk) - Max Holtzman was appointed as an independent Board Director on July 14, 2022[711](index=711&type=chunk) - The Articles of Incorporation were amended on July 11, 2022, increasing authorized Common Stock from **50,000,000 to 100,000,000 shares**[713](index=713&type=chunk) - An agreement in principle was reached with the institutional lender to amend the SPA Note and modify financial covenants, providing operational flexibility[714](index=714&type=chunk) - A post-closing adjustment settlement agreement was reached with Sinclair on August 10, 2022, for the Precision and Cascade acquisition, totaling **$5.6 million in contingent consideration** (cash and stock), with **$1.4 million returned from escrow** to the company[715](index=715&type=chunk) [ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=54&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on Agrify's financial performance and condition for the three and six months ended June 30, 2022, compared to 2021, discussing revenue growth driven by acquisitions, increased operating expenses due to impairment charges and allowances, and the company's liquidity challenges, including a default on debt covenants - Agrify provides advanced cultivation and extraction solutions for the cannabis industry, including VFUs, Agrify Insights™ software, and extraction equipment, aiming for an integrated ecosystem[719](index=719&type=chunk)[720](index=720&type=chunk) - Total revenue increased by **64% for Q2 2022** and **141% for H1 2022**, primarily driven by extraction solutions sales from recent acquisitions (Lab Society, Precision, Cascade, PurePressure)[789](index=789&type=chunk)[790](index=790&type=chunk) - Net loss attributable to Agrify Corporation increased substantially to **$(93.4) million for Q2 2022** and **$(102.3) million for H1 2022**, largely due to a **$69.9 million impairment charge**[786](index=786&type=chunk) - A **$69.9 million impairment charge** was recorded in Q2 2022 due to a decline in stock price, market capitalization, and a slowdown in the cannabis industry[807](index=807&type=chunk)[808](index=808&type=chunk) - General and administrative expenses rose significantly due to increased trade and loan receivable allowances (**$8.6 million in Q2 2022**, including **$7.1 million for Greenstone**), acquisition-related expenses, and payroll[799](index=799&type=chunk)[801](index=801&type=chunk)[802](index=802&type=chunk) - As of June 30, 2022, cash and equivalents (**$29.9 million**) plus restricted cash (**$30 million**) totaled **$59.9 million**, which is insufficient to cover a potential **$75.0 million debt repayment obligation** (principal + penalty) if the SPA Note lender calls the debt due to covenant default[818](index=818&type=chunk)[821](index=821&type=chunk) - Management expresses substantial doubt about the company's ability to continue as a going concern within the next twelve months without additional debt or equity financing[819](index=819&type=chunk) - An agreement in principle was reached with the institutional lender to amend the SPA Note and modify financial covenants, aiming to provide operational flexibility[819](index=819&type=chunk) [Overview](index=54&type=section&id=Overview) Agrify provides advanced cultivation and extraction solutions for the cannabis industry, leveraging data, science, and technology to offer integrated hardware, software, and services - Agrify provides advanced cultivation and extraction solutions for the cannabis industry, focusing on data, science, and technology[719](index=719&type=chunk) - Offers micro-environment-controlled Agrify Vertical Farming Units (VFUs) for consistent, high-quality yields, and a comprehensive extraction product line[719](index=719&type=chunk) - Believes it's the only company with an automated, fully integrated grow solution combining hardware, software (Agrify Insights™), and services[720](index=720&type=chunk) [Reverse Stock Split](index=55&type=section&id=Reverse%20Stock%20Split) This section notes the 1-for-1.581804 reverse stock split effected on January 12, 2021, and its retroactive adjustment to all share and per share information - A **1-for-1.581804 reverse stock split** of Common Stock was effected on January 12, 2021[723](index=723&type=chunk) - All share and per share information has been retroactively adjusted to give effect to the reverse stock split[723](index=723&type=chunk) [Recent Business Developments](index=55&type=section&id=Recent%20Business%20Developments) This section highlights key business developments, including a private placement, the acquisition of Lab Society, and the issuance and subsequent covenant default of a $65 million senior secured promissory note - A private placement on January 25, 2022, involved the issuance of **2,450,350 Common Stock shares**, pre-funded warrants for **1,570,644 shares**, and common warrants for **3,015,745 shares**, generating approximately **$27.3 million gross proceeds**[724](index=724&type=chunk)[726](index=726&type=chunk) - The acquisition of Lab Society on February 1, 2022, included **$4.0 million cash**, **425,611 Common Stock shares**, and potential earn-out consideration up to **$3.5 million**[728](index=728&type=chunk) - The estimated fair value of Lab Society's first earn-out period contingent consideration was reduced by **$1.0 million** in Q2 2022 due to underperformance[731](index=731&type=chunk) - A Securities Purchase Agreement on March 14, 2022, resulted in the issuance of a **$65 million senior secured promissory note (SPA Note)** and warrants for **6,881,108 Common Stock shares**[734](index=734&type=chunk) - The company defaulted on certain financial debt covenants of the SPA Note as of June 30, 2022, potentially triggering a **$75.0 million repayment obligation**[740](index=740&type=chunk) - An agreement in principle was reached subsequent to Q2 2022 to amend the SPA Note and modify financial covenants[741](index=741&type=chunk) [Impact of coronavirus pandemic ("COVID-19")](index=58&type=section&id=Impact%20of%20coronavirus%20pandemic%20%28%22COVID-19%22%29) This section discusses the ongoing impact of the COVID-19 pandemic on Agrify's operations, including supply chain delays and increased costs, noting the uncertainty of its full extent - COVID-19 has caused temporary delays in inventory delivery, higher operating costs, and increased shipping costs[746](index=746&type=chunk) - The full extent of the pandemic's impact on the business, results of operations, and financial condition remains highly uncertain[747](index=747&type=chunk) [Use of Estimates](index=58&type=section&id=Use%20of%20Estimates) This section highlights that Agrify's financial statements rely on management's estimates and assumptions for various accounts, acknowledging that actual results may differ materially - Financial statements rely on management estimates and assumptions for accounts/notes receivable collection, stock-based compensation, deferred tax assets, and useful lives of fixed and intangible assets[748](index=748&type=chunk) - Actual results could differ materially from these estimates[748](index=748&type=chunk) [Financial Overview](index=58&type=section&id=Financial%20Overview) This section outlines Agrify's critical accounting policies and the significant judgments required for financial reporting, including the **$69.9 million impairment charge** recorded in Q2 2022 - Critical accounting policies include revenue recognition (ASC 606), business combinations (ASC 805), goodwill and intangible assets impairment testing, capitalization of internal software development costs (ASC 985-20), income taxes (ASC 740), and stock-based compensation (ASC 718)[749](index=749&type=chunk)[750](index=750&type=chunk)[769](index=769&type=chunk)[772](index=772&type=chunk)[776](index=776&type=chunk)[777](index=777&type=chunk)[780](index=780&type=chunk) - Significant judgments are required for determining standalone selling prices, fair values in business combinations, impairment assessments, and stock option valuations[758](index=758&type=chunk)[769](index=769&type=chunk)[771](index=771&type=chunk)[774](index=774&type=chunk)[781](index=781&type=chunk) - A **$69.9 million impairment charge** was recorded in Q2 2022, fully impairing goodwill and intangible assets due to market conditions[775](index=775&type=chunk) [Results of Operations](index=63&type=section&id=Results%20of%20Operations) This section analyzes Agrify's operating results, highlighting significant revenue growth driven by acquisitions, but also a substantial increase in net loss due to impairment charges and higher operating expenses - The company has incurred recurring losses since inception and expects to require additional capital[784](index=784&type=chunk) - Revenue increased by **$7.5 million (64%) to $19.3 million** for Q2 2022, primarily from extraction solutions sales (**$10.0 million**); Cultivation products and facility build-out revenue decreased[789](index=789&type=chunk) - Revenue increased by **$26.5 million (141%) to $45.4 million** for H1 2022, primarily from extraction solutions sales (**$22.4 million**) and facility build-outs (**$4.7 million increase**)[790](index=790&type=chunk) - Cost of goods sold increased by **$6.4 million (57%) to $17.7 million** for Q2 2022, largely due to extraction-related equipment sales (**$7.7 million**) and increases in inventory (**$0.93 million**) and warranty (**$0.18 million**) reserves[794](index=794&type=chunk) - Cost of goods sold increased by **$20.7 million (110%) to $39.6 million** for H1 2022, primarily from extraction equipment sales (**$16.0 million**) and facility build-outs (**$4.8 million**)[795](index=795&type=chunk) - Gross profit increased by **$1.1 million (206%) to $1.6 million** for Q2 2022, with gross profit margin improving to **8.3%** (from **4.5%**), driven by higher-margin extraction solutions[796](index=796&type=chunk) - Gross profit improved from a loss of **$(13) thousand** to a profit of **$5.8 million** for H1 2022, with gross profit margin improving to **12.7%** (from **-0.1%**), also driven by extraction solutions[796](index=796&type=chunk) - General and administrative expenses increased by **$15.0 million (341%) to $19.4 million** for Q2 2022, mainly due to an **$8.6 million increase** in trade and loan receivable allowances (including **$7.1 million for Greenstone**)[799](index=799&type=chunk) - A **$69.9 million impairment charge** for goodwill and intangible assets was recorded in Q2 and H1 2022[807](index=807&type=chunk) - Net loss attributable to Agrify Corporation increased to **$(93.4) million** for Q2 2022 from **$(5.6) million** in Q2 2021, and to **$(102.3) million** for H1 2022 from **$(9.4) million** in H1 2021[786](index=786&type=chunk) [Liquidity and Capital Resources](index=70&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses Agrify's liquidity position, highlighting its cash on hand, working capital needs, and the significant going concern risk due to debt covenant defaults and insufficient cash to cover potential repayment obligations - As of June 30, 2022, cash and cash equivalents plus marketable securities totaled **$29.9 million**, with an additional **$30 million in restricted cash**, for a total of **$59.9 million**[821](index=821&type=chunk) - Current working capital needs include supporting revenue growth, funding construction and equipment financing for TTK Solutions, managing inventory, and supporting operational growth[821](index=821&type=chunk) - The company defaulted on certain financial debt covenants of the **$65 million SPA Note**, which could trigger a **$75.0 million repayment obligation** (principal + penalty), exceeding current cash on hand[827](index=827&type=chunk) - Management has substantial doubt about the company's ability to continue as a going concern without obtaining necessary debt or equity financing[827](index=827&type=chunk)[828](index=828&type=chunk) - An agreement in principle was reached subsequent to Q2 2022 to amend the SPA Note and modify financial covenants to provide operational flexibility[828](index=828&type=chunk) - Net cash used in operating activities was **$(57.6) million** for H1 2022, a significant increase from **$(13.8) million** in H1 2021[831](index=831&type=chunk)[832](index=832&type=chunk) - Net cash used in investing activities was **$(27.0) million** for H1 2022, including **$20.4 million** for TTK-related loans and **$6.4 million** for property and equipment[834](index=834&type=chunk)[835](index=835&type=chunk) - Net cash provided by financing activities was **$91.1 million** for H1 2022, primarily from private placements (**$65.0 million** from Common Stock/warrants, **$25.8 million** from debt/warrants)[836](index=836&type=chunk) [Off-Balance Sheet Arrangements](index=73&type=section&id=Off-Balance%20Sheet%20Arrangements) This section confirms that Agrify did not engage in any off-balance sheet arrangements with unconsolidated entities or financial partnerships during the reported periods - The company did not have any relationships with unconsolidated entities or financial partnerships for off-balance sheet arrangements during the periods presented[838](index=838&type=chunk) [Critical Accounting Policies and Estimates](index=73&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section identifies key accounting policies and estimates that require significant management judgment, such as fair value measurements, goodwill impairment, revenue recognition, and cost of goods sold - Management identifies the fair value of derivative assets and liabilities, goodwill impairment assessment, revenue recognition, and cost of goods sold as subjective estimates requiring complex analysis[840](index=840&type=chunk) - There have been no significant changes in these accounting policies and estimates for the periods covered in this report[841](index=841&type=chunk) [Recently Issued Accounting Pronouncements Adopted](index=73&type=section&id=Recently%20Issued%20Accounting%20Pronouncements%20Adopted) This section notes the adoption of ASU No. 2020-06 (Debt with Conversion and Other Options) and its non-impact on the company's financial position - The company adopted ASU No. 2020-06 (Debt with Conversion and Other Options) effective for fiscal years beginning after December 15, 2021, with no impact on its consolidated financial position[543](index=543&type=chunk) [New Accounting Pronouncements Not Yet Adopted](index=73&type=section&id=New%20Accounting%20Pronouncements%20Not%20Yet%20Adopted) This section lists new accounting pronouncements not yet adopted, including ASU 2016-13 (Credit Losses) and ASU 2021-08 (Business Combinations), and states that their potential impact is being evaluated - ASU 2016-13 (Financial Instruments—Credit Losses), effective Q1 2024, introduces an 'expected loss model' for financial instruments; the potential impact is currently being evaluated[544](index=544&type=chunk) - ASU 2021-08 (Business Combinations), effective for fiscal years beginning after December 15, 2022, requires recognizing contract assets and liabilities acquired in business combinations per Topic 606; the potential impact is currently being evaluated[546](index=546&type=chunk) [ITEM 3. Quantitative and Qualitative Disclosures About Market Risk](index=74&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a 'smaller reporting company,' Agrify Corporation is exempt from providing detailed quantitative and qualitative disclosures about market risk - The company is exempt from providing quantitative and qualitative disclosures about market risk as it qualifies as a 'smaller reporting company'[844](index=844&type=chunk) [ITEM 4. Controls and Procedures](index=74&type=section&id=Item%204.%20Controls%20and%20Procedures) This section reports on the effectiveness of Agrify's disclosure controls and procedures, concluding they were not effective as of June 30, 2022, due to material weaknesses in internal control over financial reporting, with remediation efforts underway - The CEO and CFO concluded that disclosure controls and procedures were not effective as of June 30, 2022[846](index=846&type=chunk) - The ineffectiveness is attributed to material weaknesses in internal control over financial reporting previously identified in the 2021 Annual Report on Form 10-K[846](index=846&type=chunk) - Remediation efforts include hiring additional qualified personnel, further documentation, and implementation of control monitoring[847](index=847&type=chunk) PART II – OTHER INFORMATION [ITEM 1. Legal Proceedings](index=75&type=section&id=Item%201.%20Legal%20Proceedings) This section refers to Note 17 for details on legal proceedings and claims arising in the ordinary course of business - Information on legal proceedings is incorporated by reference from Note 17 – Commitments and Contingencies[849](index=849&type=chunk) [ITEM 1A. Risk Factors](index=75&type=section&id=Item%201A.%20Risk%20Factors) This section states that there are no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2021 - No material changes to risk factors have occurred since the 2021 Annual Report on Form 10-K[850](index=850&type=chunk) [ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=75&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section indicates that there were no unregistered sales of equity securities or use of proceeds to report for the period - No unregistered sales of equity securities or use of proceeds are disclosed for the period[850](index=850&type=chunk) [ITEM 3. Defaults Upon Senior Securities](index=75&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section indicates that there were no defaults upon senior securities to report for the period - No defaults upon senior securities are disclosed for the period[850](index=850&type=chunk) [ITEM 4. Mine Safety Disclosures](index=75&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section states that mine safety disclosures are not applicable to the company - Mine safety disclosures are not applicable to the company[850](index=850&type=chunk) [ITEM 5. Other Information](index=75&type=section&id=Item%205.%20Other%20Information) This section indicates that there is no other information to report for the period - No other information is disclosed for the period[850](index=850&type=chunk) [ITEM 6. Exhibits](index=76&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed as part of the Form 10-Q, including separation and employment agreements, certifications, and XBRL documents - Exhibits include the Separation Agreement of Thomas Massie, Employment Agreement of Stuart Wilcox, Rule 13(a)-14(a)/15(d)-14(a) Certifications, Section 1350 Certifications, and Inline XBRL documents[852](index=852&type=chunk) SIGNATURES [Signatures](index=77&type=section&id=Signatures) This section contains the official signatures for the Form 10-Q report - The report was signed by Raymond Chang (Chief Executive Officer) and Timothy Oakes (Chief Financial Officer) on August 15, 2022[856](index=856&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Title of Class) Trading Symbol (s) (Name of exchange on which registered) Common Stock, par value $0.001 per share AGFY NASDAQ Capital Market FORM 10-K (mark one) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2021 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____ to ______ Commi ...

PART I FINANCIAL INFORMATION [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) The unaudited statements show significant revenue growth, increased net losses, and a strengthened equity position from public offerings [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets surged to $159.3 million while stockholders' equity became positive, driven by capital raised from public offerings Consolidated Balance Sheet Highlights (in thousands) | Balance Sheet Item | Sep 30, 2021 (Unaudited) | Dec 31, 2020 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $44,746 | $8,111 | | Marketable securities (Current) | $62,261 | $0 | | Total current assets | $132,865 | $18,640 | | Total Assets | $159,298 | $21,839 | | **Liabilities & Equity** | | | | Total current liabilities | $23,006 | $27,029 | | Total Liabilities | $24,623 | $28,293 | | Total Stockholders' Equity (Deficit) | $134,297 | ($6,679) | [Condensed Consolidated Statements of Operations](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Revenue grew substantially in Q3 2021, but higher costs led to a gross loss and an increased net loss for the period Statement of Operations Summary (in thousands, except per share data) | Metric | Q3 2021 | Q3 2020 | Nine Months 2021 | Nine Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Revenue, net | $15,751 | $2,813 | $34,584 | $7,734 | | Gross (loss) profit | ($380) | ($199) | ($393) | $860 | | Operating loss | ($9,802) | ($2,585) | ($21,726) | ($8,472) | | Net loss attributable to Agrify | ($9,758) | ($2,705) | ($19,204) | ($8,562) | | Net loss per share | ($0.47) | ($0.67) | ($1.07) | ($2.13) | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Financing activities provided $138.9 million, funding significant cash use in operations and investing activities for nine months Cash Flow Summary for Nine Months Ended Sep 30 (in thousands) | Cash Flow Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | ($17,557) | ($10,723) | | Net cash used in investing activities | ($84,683) | ($1,195) | | Net cash provided by financing activities | $138,875 | $16,670 | | **Net increase in cash** | **$36,635** | **$4,752** | [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Notes detail accounting policies, public offerings, a new loan program, and a significant subsequent acquisition - The company develops precision hardware and software grow solutions for the indoor agriculture marketplace, primarily serving the cannabis and hemp industry[21](index=21&type=chunk) - In February 2021, the company completed an **IPO and a secondary public offering**, raising significant capital[25](index=25&type=chunk) - The company launched the 'Agrify TTK Solution' program, providing capital for construction and equipment to customers; loan receivables under this program totaled **$13.1 million** as of September 30, 2021[59](index=59&type=chunk)[61](index=61&type=chunk) - Subsequent to the quarter end, on October 1, 2021, the company acquired Cascade Sciences and Precision Extraction Solutions for up to **$65 million** in cash and stock[123](index=123&type=chunk)[126](index=126&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=34&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses strong revenue growth from build-outs, declining gross margins, rising operating expenses, and a solid liquidity position [Results of Operations](index=38&type=section&id=Results%20of%20Operations) Revenue surged due to facility build-outs, while gross margin turned negative and SG&A expenses increased significantly Revenue Breakdown (in thousands) | Revenue Source | Q3 2021 | Q3 2020 | Nine Months 2021 | Nine Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Cultivation solutions | $2,702 | $99 | $3,969 | $4,594 | | Facility build-outs | $12,995 | $2,597 | $30,466 | $3,019 | | Services | $54 | $117 | $141 | $121 | | **Total Revenue** | **$15,751** | **$2,813** | **$34,584** | **$7,734** | - Gross profit margin decreased to **(1.1%)** for the nine months ended Sep 30, 2021, compared to 11.1% in the same period in 2020, primarily due to higher production costs and a different revenue mix[161](index=161&type=chunk) - SG&A expenses for the nine months of 2021 increased to **$18.85 million** from $6.94 million in 2020, largely due to higher payroll, stock-based compensation, and a **$2.4 million one-time financing termination fee**[167](index=167&type=chunk) [Liquidity and Capital Resources](index=42&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity was significantly enhanced by 2021 public offerings, providing sufficient capital for future operations - Following its February 2021 public offerings, the company had approximately **$139 million** in cash and cash equivalents and believes this is sufficient to fund planned operations for at least the next 12 months[172](index=172&type=chunk) Cash Flow Summary for Nine Months Ended Sep 30 (in thousands) | Cash Flow Activity | 2021 | 2020 | | :--- | :--- | :--- | | Operating Activities | ($17,557) | ($10,723) | | Investing Activities | ($84,683) | ($1,195) | | Financing Activities | $138,875 | $16,670 | [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=44&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is exempt from this disclosure requirement as a "smaller reporting company" - The Company is not required to provide information on market risk as it qualifies as a **"smaller reporting company"**[182](index=182&type=chunk) [Item 4. Controls and Procedures](index=44&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls were not effective as of September 30, 2021, and is implementing remediation measures - The CEO and CFO concluded that the company's disclosure controls and procedures were **not effective** at a reasonable assurance level as of September 30, 2021[184](index=184&type=chunk) - The company is implementing remediation measures for material weaknesses, including hiring additional qualified personnel and enhancing control procedures and monitoring[185](index=185&type=chunk) PART II OTHER INFORMATION [Item 1. Legal Proceedings](index=45&type=section&id=Item%201.%20Legal%20Proceedings) The company is defending against a lawsuit from two former employees concerning compensation and wrongful termination claims - The company is involved in a lawsuit with two former employees regarding compensation and employment claims, which the company believes **lack merit** and is defending against[113](index=113&type=chunk)[114](index=114&type=chunk) [Item 5. Other Information](index=45&type=section&id=Item%205.%20Other%20Information) The company announced significant management changes in November 2021, appointing a new President, COO, and CFO - Effective November 10, 2021, the company appointed **Thomas Massie as President and COO** and **Timothy Oakes as CFO**[188](index=188&type=chunk) [Item 6. Exhibits](index=46&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including officer certifications and XBRL financial data - The report includes a list of filed exhibits, such as officer certifications (31.1, 31.2, 32.1, 32.2) and Inline XBRL data files[190](index=190&type=chunk)