Agrify (AGFY) - 2023 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS This section presents the unaudited condensed consolidated financial statements for Agrify Corporation Condensed Consolidated Balance Sheets 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] - Total liabilities decreased by approximately $14.4 million, with a notable reduction in current long-term debt[11] - Stockholders' deficit worsened from $(9.3) million to $(21.5) million, indicating a further erosion of equity[11] Condensed Consolidated Statements of Operations 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] - 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] - 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] Condensed Consolidated Statements of Stockholders' Equity (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] - 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] - Additional paid-in capital increased by $7.0 million, driven by stock-based compensation and proceeds from equity offerings and conversions[18] Condensed Consolidated Statements of Cash Flows 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][422] - 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][424] - 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][427] Notes to the Condensed Consolidated Financial Statements Note 1 — Overview, Basis of Presentation and Significant Accounting Policies - 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] - 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][29][30] - 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][35][41][43] - 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][50] - 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][99][106][107] Note 2 — Revenue and Deferred Revenue 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] - 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] Note 3 — Supplemental Consolidated Balance Sheet Information 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] - Construction in progress significantly decreased from $7.4 million to $2.9 million, contributing to the overall reduction in net property and equipment[142] Note 4 — Fair Value Measures 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][151] - 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][151][161] - 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][157][158][160] Note 5 — Loans Receivable 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][171] - 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] Note 6 — Inventory 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] - 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] Note 7 — Goodwill and Intangible Assets, Net 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][186] - 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][188] Note 8 – Debt 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] - 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] - 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][211] - 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] Note 9 - Leases 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] - Finance lease liabilities were fully settled by September 30, 2023, down from $299 thousand at December 31, 2022[225] Note 10 — Stockholders' Equity - The Company increased its authorized Common Stock to 10,000,000 shares and Preferred Stock to 3,000,000 shares in March 2023[228] - In January 2022, a private placement generated approximately $27.3 million in gross proceeds from the sale of Common Stock and warrants[229][232] - 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][234][235] - 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][242] Note 11 — Stock-Based Compensation and Employee Benefit Plans 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] - 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][255] - 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][257] Note 12 — Stock Warrants 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] - No proceeds were received from the exercise of cashless warrants for the three and nine months ended September 30, 2023[261] Note 13 — Income Taxes - 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] - 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] Note 14 — Net Loss Per Share 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] - 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][267] Note 15 — Commitments and Contingencies - 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][269] - 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] - 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][275][282] - 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] Note 16 — Related Parties 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] - 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][290] Note 17 — Subsequent Events - 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][293] - 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][296] - 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] - 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][299][300] - 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][303] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management discusses financial results, highlighting revenue declines, improved margins, and liquidity challenges 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] - 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] - 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][311] Recent Business Developments - In January 2022, a private placement generated approximately $27.3 million in gross proceeds from the sale of Common Stock and warrants[313][315] - 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][317][319] - 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] - 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][335] - 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] - A Confidentially Marketed Public Offering in December 2022 generated $8.2 million in net proceeds from the sale of Common Stock and warrants[352] Financial Overview - 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][355][372][375][379][380][383][384] - 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][362][374] - 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] Results of Operations 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] - 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] - 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][401][405] - 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][407] Liquidity and Capital Resources - 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][412] - The Company's working capital needs are substantial, particularly for funding TTK Solutions construction and equipment financing commitments[412] - 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] - 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] - 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] - 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] Off-Balance Sheet Arrangements - 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] Critical Accounting Policies and Estimates - 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][431][432] Recently Issued Accounting Pronouncements Adopted - This section refers readers to Note 1 for information on recently issued accounting pronouncements adopted by the Company[433] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 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] ITEM 4. CONTROLS AND PROCEDURES 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] - 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] - The Company is implementing remediation measures, including hiring technically qualified personnel and improving technical accounting resources and capabilities[438] PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS 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] ITEM 1A. RISK FACTORS 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] - 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][447] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS The Company reports no unregistered sales of equity securities - There were no unregistered sales of equity securities and use of proceeds to report[444] ITEM 3. DEFAULTS UPON SENIOR SECURITIES The Company reports no defaults upon senior securities - There were no defaults upon senior securities to report[445] ITEM 4. MINE SAFETY DISCLOSURES This item is not applicable to the Company - This item is not applicable to the Company[446] ITEM 5. OTHER INFORMATION The Company reports no other information - There is no other information to report[447] ITEM 6. EXHIBITS 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] - 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] 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]