UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM ~~10-Q/A~~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, 2022~~June 30, 2023

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

For the transition period from _________ to _________

Commission File Number: 001-39946

AGRIFY CORPORATION

(Exact name of registrant as specified in its charter)

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

2468 Industrial Row Dr.,

Troy, Michigan, 48084

(Address of principal executive offices, including zip code)

~~(617) 896-5243~~(855) 420-0020

(Registrant’s phone number, including area code)

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

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

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

YES ☐ NO ☒

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

YES ☐ NO ☒

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

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

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

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

YES ☐ NO ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class		Outstanding as of ~~May 12, 2022~~October 19, 2023
Common Stock, $0.001 par value		~~132,957~~1,651,281

~~EXPLANATORY NOTE~~

~~References throughout this Amendment No. 1 to the Quarterly Report on Form 10-Q to “we,” “us,” the “Company” or “our company” are to Agrify Corporation.~~

This Amendment No. 1 (“Amendment No. 1”) to the Quarterly Report on Form 10-Q/A amends the Quarterly Report on Form 10-Q of Agrify Corporation for the quarter ended March 31, 2022, as filed with the Securities and Exchange Commission (“SEC”) on May 16, 2022 (the “Original Filing”).

On April 12, 2023, the Audit Committee of the Board of Directors (the “Audit Committee”) of Agrify Corporation (the “Company”), in consultation with management of the Company and the Company’s independent registered public accounting firm, Marcum LLP (“Marcum”), concluded that the Company’s previously issued unaudited condensed consolidated interim financial statements as of and for the fiscal periods ended March 31, 2022, June 30, 2022 and September 30, 2022 included in the Company’s Quarterly Reports on Form 10-Q for such periods, should no longer be relied upon. Similarly, earnings releases, and investor communications describing the financial statements for the periods described above should no longer be relied upon. The Company identified errors in the accounting for warrants previously issued by the Company.

Specifically, the Audit Committee concluded 15,081 warrants issued in a private placement on January 28, 2022 and 34,406 warrants issued in a private placement on March 23, 2022 (collectively, the “Warrants”) should have been classified as a liability measured at fair value, with changes in fair value each period reported in earnings, rather than as a component of equity. The change in fair value of the Warrants is a non-cash charge and will be reflected in the Company’s statement of operations. Additionally, debt issuance costs were classified as an asset rather than a liability. The change will be reflected in the Company’s balance sheet.

~~As such, the Company is restating in this Form 10-Q/A the unaudited condensed consolidated interim financial statements for the three-month period ended March 31, 2022.~~

We are filing this Amendment No. 1 to amend and restate the Original Filing with modification as necessary to reflect the restatement. The following items have been amended to reflect the restatement:

~~Part I, Item 1, Financial Information~~

~~Part I, Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations~~

~~Part I, Item 4, Controls and Procedures~~

~~Part II, Item 1A, Risk Factors~~

Except as described above and set forth in this Amendment No. 1, this Amendment No. 1 does not amend or update any other information contained in the Original Filing. This Amendment No. 1 does not purport to reflect any information or events subsequent to the Original Filing, except as expressly described herein. Accordingly, this Amendment No. 1 should be read in conjunction with the Original Filing and with our filings with the SEC subsequent to the Original Filing.

TABLE OF CONTENTS

			Page
PART I	FINANCIAL INFORMATION		1

ITEM 1.	FINANCIAL STATEMENTS		1

	Condensed Consolidated Balance Sheets as of ~~March 31, 2022~~June 30, 2023 (unaudited) and December 31, ~~2021~~2022		1

	Condensed Consolidated Statements of Operations for the three and six months ended ~~March 31, 2022~~June 30, 2023 (unaudited) and ~~2021~~2022 (unaudited)		2


	Condensed Consolidated Statements of Stockholders’ Equity (Deficit) for the three and six months ended ~~March 31, 2022~~June 30, 2023 (unaudited) and ~~2021~~2022 (unaudited)		3


	Condensed Consolidated Statements of Cash Flows for the ~~three~~six months ended ~~March 31, 2022~~June 30, 2023 (unaudited) and ~~2021~~2022 (unaudited)		45

	Notes to the Condensed Consolidated Financial Statements	6	5

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		5651

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		7371

ITEM 4.	CONTROLS AND PROCEDURES		7372

PART II	OTHER INFORMATION		7473

ITEM 1.	LEGAL PROCEEDINGS		7473

ITEM 1A.	RISK FACTORS		7473

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		74

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES		74

ITEM 4.	MINE SAFETY DISCLOSURES		74

ITEM 5.	OTHER INFORMATION		74

ITEM 6.	EXHIBITS		75

SIGNATURES			76

PART I –- FINANCIAL INFORMATION

Item 1. Financial Statements

AGRIFY CORPORATION

~~AGRIFY CORPORATION~~

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

							June 30,			December 31,
	March 31, 2022 (As Restated)			December 31, 2021			2023			2022
	(Unaudited)						(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	25,205		$	12,014		$	308		$	10,457
Restricted cash		30,000			—			—			10,000
Marketable securities		38,211			44,550			4			460
Accounts receivable, net of allowance for doubtful accounts of $1,415 and $1,415 at March 31, 2022 and December 31, 2021, respectively		8,571			7,222
Inventory, net of reserves of $942 and $942 at March 31, 2022 and December 31, 2021, respectively		38,989			20,498
Prepaid and refundable taxes		194			—
Accounts receivable, net of allowance for doubtful accounts of $4,090 and $4,605 at June 30, 2023 and December 31, 2022, respectively								1,348			1,070
Inventory, net of reserves of $32,422 and $32,422 at June 30, 2023 and December 31, 2022, respectively								18,736			21,396
Prepaid expenses and other current assets		6,448			2,452			2,153			1,510
Total current assets		147,618			86,736			22,549			44,893
Loan receivable		34,738			22,255
Loan receivable, net of allowance for doubtful accounts of $19,215 and $33,050 at June 30, 2023 and December 31, 2022, respectively								11,257			12,214
Property and equipment, net		7,055			6,232			9,123			10,044
Right-of-use assets, net		1,554			1,479
Goodwill		54,544			50,090
Intangible assets, net		15,861			14,072
Operating lease right-of-use assets								2,359			2,210
Other non-current assets		3,105			1,184			156			326
Total assets	$	264,475		$	182,048		$	45,444		$	69,687

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	3,683		$	9,151		$	21,859		$	20,543
Accrued expenses and other current liabilities		30,112			28,764			12,109			16,380
Operating lease liabilities, current		911			814			831			734
Long-term debt, current		2,281			1,089			1,424			28,833
Deferred revenue		4,182			3,772			3,593			4,112
Total current liabilities		41,169			43,590			39,816			70,602
Warrant liabilities		29,711			—			4,361			5,985
Other non-current liabilities		275			318			86			147
Operating lease liabilities, non-current		689			704
Deferred tax liabilities, net		62			—
Long-term debt		35,697			12
Operating lease liabilities, net of current								1,703			1,587
Long-term debt, net of current								19,152			407
Total liabilities		107,603			44,624			65,118			78,728

Commitments and contingencies (Note 22)
Commitments and contingencies (Note 15)

Stockholders’ equity:
Common Stock, $0.001 par value per share, 250,000 shares authorized, 132,714 and 111,035 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively ⁽¹⁾		—			—
Stockholders’ (deficit) equity:
Common Stock, $0.001 par value per share, 10,000,000 and 5,000,000 shares authorized at June 30, 2023 and December 31, 2022, respectively, 1,622,946 and 1,038,298 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively ⁽¹⁾								2			1
Preferred Stock, $0.001 par value per share, 2,895,000 shares authorized, no shares issued or outstanding		—			—			—			—
Preferred A Stock, $0.001 par value per share, 105,000 shares authorized, no shares issued or outstanding		—			—			—			—
Additional paid-in capital ⁽¹⁾		213,701			196,034
Additional paid-in capital								244,373			237,875
Accumulated deficit		(57,195	)		(58,975	)		(264,282	)		(247,148	)
Total stockholders’ equity attributable to Agrify		156,506			137,059
Total stockholders’ deficit attributable to Agrify								(19,907	)		(9,272	)
Non-controlling interests		366			365			233			231
Total liabilities and stockholders’ equity	$	264,475		$	182,048		$	45,444		$	69,687

(1)

Periods presented have been adjusted to reflect ~~the 1-for-10 reverse stock split on October 18, 2022 and~~ the 1-for-20 reverse stock split on July 5, 2023. Additional information regarding the reverse stock splits may be found in Note 1 – Overview, Basis of Presentation, and Significant Accounting Policies,, included ~~elsewhere~~ in the notes to the ~~condensed~~ consolidated financial statements.

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

AGRIFY CORPORATION

~~AGRIFY CORPORATION~~

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share and per share data)

(Unaudited)

Three Months ended
March 31,

2022
(As Restated)
2021
Revenue (including $1,271 and $5,518 from related parties, respectively) $ 26,021 $ 7,008
Cost of goods sold 21,851 7,548
Gross profit (loss) 4,170 (540 )

General and administrative 9,759 4,458
Research and development 2,084 882
Selling and marketing 2,090 616
Total operating expenses 13,933 5,956
Loss from operations (9,763 ) (6,496 )
Interest income (expense), net 559 (32 )
Change in fair value of warrant liabilities 10,785 —
Gain on extinguishment of notes payable — 2,685
Other income, net 11,344 2,653
Net income (loss) before income taxes 1,581 (3,843 )
Income tax benefit (200 ) —
Net income (loss) 1,781 (3,843 )
Income (loss) attributable to non-controlling interest 1 (33 )
Net income (loss) attributable to Agrify Corporation $ 1,780 $ (3,810 )
Net income (loss) per share attributable to Common Stockholders – basic ⁽¹⁾ $ 14.48 $ (65.87 )
Net income (loss) per share attributable to Common Stockholders – diluted ⁽¹⁾ $ 13.79 $ (65.87 )
Weighted-average common shares outstanding – basic ⁽¹⁾ 122,946 57,841
Weighted-average common shares outstanding – diluted ⁽¹⁾ 129,045 57,841

	Three months ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
Revenue (including $0, $1,129, $46, and $1,763 from related parties, respectively)	$	5,066		$	19,329		$	10,870		$	45,350
Cost of goods sold		4,466			17,717			9,282			39,568
Gross profit		600			1,612			1,588			5,782

General and administrative		4,819			19,378			11,750			29,137
Selling and marketing		1,120			2,332			2,710			4,422
Research and development		643			2,438			1,378			4,522
Change in contingent consideration		(638	)		(907	)		(1,322	)		(907	)
Impairment of goodwill and intangible assets		—			69,904			—			69,904
Total operating expenses		5,944			93,145			14,516			107,078
Loss from operations		(5,344	)		(91,533	)		(12,928	)		(101,296	)
Interest expense, net		(400	)		(3,311	)		(1,199	)		(2,752	)
Change in fair value of warrant liabilities		(1,048	)		20,181			1,624			30,966
Gain (loss) on extinguishment of notes payable		(11	)		—			(4,631	)		—
Other expense, net		(4	)		—			—			—
Other (expense) income, net		(1,463	)		16,870			(4,206	)		28,214
Net loss before income taxes		(6,807	)		(74,663	)		(17,134	)		(73,082	)
Income tax benefit		—			62			—			262
Net loss		(6,807	)		(74,601	)		(17,134	)		(72,820	)
(Income) loss attributable to non-controlling interests		2			(3	)		2			(4	)
Net loss attributable to Agrify Corporation	$	(6,805	)	$	(74,604	)	$	(17,132	)	$	(72,824	)
Net loss per share attributable to Common Stockholders – basic and diluted	$	(4.39	)	$	(561.31	)	$	(13.05	)	$	(569.13	)
Weighted average common shares outstanding – basic and diluted ⁽¹⁾		1,549,669			132,911			1,312,299			127,956

(1)

Periods presented have been adjusted to reflect ~~the 1-for-10 reverse stock split on October 18, 2022 and~~ the 1-for-20 reverse stock split on July 5, 2023. Additional information regarding ~~the~~ reverse stock splits may be found in Note 1 – Overview, Basis of Presentation, and Significant Accounting Policies,, included ~~elsewhere~~ in the notes to the ~~condensed~~ consolidated financial ~~statements.~~statements

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

AGRIFY CORPORATION

~~AGRIFY CORPORATION~~

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(In ~~thousands, except share data)~~thousands)

(Unaudited)

Common Stock Preferred A
Stock Additional
Paid-In Accumulated Total
Stockholders’
Equity
attributable
Non-
Controlling Total
Stockholders’
Shares⁽¹⁾ Amount⁽¹⁾ Shares Amount Capital⁽¹⁾ Deficit to Agrify Interests Equity
Balance at January 1, 2021 21,058 $ — 100,000 $ — $ 19,831 $ (26,510 ) $ (6,679 ) $ 225 $ (6,454 )
Stock-based compensation — — — — 2,135 — 2,135 — 2,135
Beneficial conversion feature associated with amended Convertible Promissory Notes — — — — 3,869 — 3,869 — 3,869
Conversion of Convertible Notes 8,485 — — — 13,100 — 13,100 — 13,100
Issuance of Common Stock – Initial Public Offering (“IPO”), net of fees 31,050 — — — 56,961 — 56,961 — 56,961
Issuance of Common Stock – Secondary public offering, net of fees 31,945 — — — 79,839 — 79,839 79,839
Conversion of Preferred A Stock 6,865 — (100,000 ) — — — — — —
Exercise of options 872 — — — 439 — 439 — 439
Exercise of warrants 1,201 — — — 5 — 5 — 5
Net loss — — — — — (3,810 ) (3,810 ) (33 ) (3,843 )
Balance at March 31, 2021 101,476 $ — — $ — $ 176,179 $ (30,320 ) $ 145,859 $ 192 $ 146,051

	Common Stock				Preferred A Stock				Additional		Accumulated			Total Stockholders’ Equity attributable to			Non- Controlling		Total Stockholders’
	Shares		Amount		Shares		Amount		Paid-in-Capital		Deficit			Agrify			Interests		Equity
Balance at January 1, 2022		111,035	$	—		—	$	—	$	196,034	$	(58,975	)	$	137,059		$	365	$	137,424
Stock-based compensation		—		—		—		—		953		—			953			—		953
Issuance of Common Stock and warrants in private placement		12,252		—		—		—		14,800		—			14,800			—		14,800
Acquisition of Lab Society		1,490		—		—		—		1,903		—			1,903			—		1,903
Exercise of options		21		—		—		—		10		—			10			—		10
Exercise of warrants		7,916		—		—		—		1		—			1			—		1
Net income		—		—		—		—		—		1,780			1,780			1		1,781
Balance at March 31, 2022		132,714		—		—		—		213,701		(57,195	)		156,506			366		156,872
Stock-based compensation		—		—		—		—		940		—			940			—		940
Exercise of options		21		—		—		—		10		—			10			—		10
Exercise of warrants		222		—		—		—		1		—			1			—		1
Net loss		—		—		—		—		—		(74,604	)		(74,604	)		3		(74,601	)
Balance at June 30, 2022		132,957	$	—		—	$	—	$	214,652	$	(131,799	)	$	82,853		$	369	$	83,222

Common Stock
(As Restated)

Preferred A Stock
(As Restated)

Additional
Paid-In-
Capital ⁽¹⁾
Accumulated
Deficit Total
Stockholders’
Equity
attributable
to Agrify
Non-
Controlling
Interests
Total
Stockholders’
Equity

Shares⁽¹⁾ Amount⁽¹⁾ Shares Amount (As Restated)
(As Restated)

(As Restated)

(As Restated)

(As Restated)

Balance at January 1, 2022 111,035 $ — — $ — $ 196,034 $ (58,975 ) $ 137,059 $ 365 $ 137,424
Stock-based compensation — — — — 953 — 953 — 953
Issuance of Common Stock and warrants in private placement 12,252 — — — 14,800 — 14,800 — 14,800
Acquisition of Lab Society 1,490 — — — 1,903 — 1,903 — 1,903
Exercise of options 21 — — — 10 — 10 — 10
Exercise of warrants 7,916 — — — 1 — 1 — 1
Net income — — — — — 1,780 1,780 1 1,781
Balance at March 31, 2022, as restated 132,714 $ — — $ — $ 213,701 $ (57,195 ) $ 156,506 $ 366 $ 156,872

~~(1)~~

Periods presented have been adjusted to reflect the 1-for-10 reverse stock split on October 18, 2022 and the 1-for-20 reverse stock split on July 5, 2023. Additional information regarding the reverse stock splits may be found in ~~Note 1 –~~ ~~Overview, Basis of Presentation and Significant Accounting Policies, included elsewhere in the notes to the condensed consolidated financial statements.~~

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

~~AGRIFY CORPORATION~~

AGRIFY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF ~~CASH FLOWS~~STOCKHOLDERS’ EQUITY (DEFICIT)

(In thousands)

(Unaudited)

	Common Stock				Preferred A Stock				Additional		Accumulated			Total Stockholders’ Equity attributable to			Non- Controlling		Total Stockholders’
	Shares		Amount		Shares		Amount		Paid-in-Capital		Deficit			Agrify			Interests		Equity
Balance at January 1, 2023		1,038,298	$	1		—	$	—	$	237,875	$	(247,148	)	$	(9,272	)	$	231	$	(9,041	)
Stock-based compensation		—		—		—		—		859		—			859			—		859
Issuance of Common Stock through an “at the market” offering, net of fees		323,082		—		—		—		1,545		—			1,545			—		1,545
Issuance of Common Stock to Pure Pressure		366		—		—		—		—		—			—			—		—
Vesting of restricted stock units		17		—		—		—		—		—			—			—		—
Proceeds from Employee Stock Purchase Plan Shares		2,500		—		—		—		25		—			25			—		25
Net loss		—		—		—		—		—		(10,327	)		(10,327	)		—		(10,327	)
Balance March 31, 2023		1,364,263		1		—		—		240,304		(257,475	)		(17,170	)		231		(16,939	)
Stock-based compensation		—		—		—		—		752		—			752			—		752
Issuance of held-back shares to Lab Society		499		—		—		—		—		—			—			—		—
Exercise of prefunded warrants in private placement		35,000		—		—		—		—		—			—			—		—
Conversion of Exchange Note		69,567		—		—		—		2,146		—			2,146			—		2,146
Conversion of Convertible Note		153,617		1		—		—		1,171		—			1,172			—		1,172
Net loss		—		—		—		—		—		(6,807	)		(6,807	)		2		(6,805	)
Balance June 30, 2023		1,622,946	$	2		—	$	—	$	244,373	$	(264,282	)	$	(19,907	)	$	233	$	(19,674	)

Three Months ended
March 31,

2022
(Restated)
2021
Cash flows from operating activities
Net income (loss) attributable to Agrify Corporation $ 1,780 $ (3,810 )
Adjustments to reconcile net income (loss) attributable to Agrify Corporation to net cash used in operating activities:
Depreciation and amortization 1,052 147
Amortization of premium on investment securities 224 —
Amortization of debt discount 223 —
Amortization of issuance costs 143 —
Interest on investment securities (248 ) —
Deferred income taxes (200 ) —
Compensation in connection with the issuance of stock options 953 2,135
Non-cash interest (income) expense (406 ) 33
Change in fair value of warrant liabilities (10,785 ) —
Gain on extinguishment of notes payable, net — (2,685 )
Early termination of lease 26 —
Income (loss) attributable to non-controlling interests 1 (33 )
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable (838 ) (5,218 )
Inventory (16,361 ) (3,330 )
Prepaid expenses and other current assets (890 ) (2,155 )
Right of use assets, net (20 ) —
Accounts payable (2,838 ) 181
Accrued expenses and other current liabilities (2,120 ) 7,360
Deferred revenue, net (571 ) 96
Net cash used in operating activities (30,875 ) (7,279 )

Cash flows from investing activities
Purchases of property and equipment (3,728 ) (142 )
Purchase of securities (76,097 ) —
Proceeds from the sale of securities 82,460 —
Issuance of loan receivable (12,487 ) —
Cash paid for business combination, net of cash acquired (3,513 ) —
Net cash used in investing activities (13,365 ) (142 )

Cash flows from financing activities
Proceeds from issuance of debt and warrants in private placement, net 62,405 —
Proceeds from issuance of Common Stock and warrants in private placement, net of fees 25,797 —
Proceeds from IPO, net of fees — 56,961
Proceeds from Secondary public offering, net of fees — 79,839
Proceeds from exercise of options 10 439
Proceeds from exercise of warrants 1 5
Payments on other financing loans (273 ) —
Payments on insurance financing loan (428 ) —
Payments of financing leases (81 ) (47 )
Net cash provided by financing activities 87,431 137,197
Net increase in cash, cash equivalents, and restricted cash 43,191 129,776
Cash, cash equivalents, and restricted cash at the beginning of period 12,014 8,111
Cash, cash equivalents, and restricted cash at the end of period $ 55,205 $ 137,887
Cash, cash equivalents, and restricted cash at end of period
Cash and cash equivalents $ 25,205 $ 137,887
Restricted cash 30,000 —
Total cash, cash equivalents, and restricted cash at the end of period $ 55,205 $ 137,887
Supplemental disclosures of cash flow information
Conversion of Convertible Note to Common Stock — $ 13,100
Supplemental disclosures of non-cash flow information
Initial fair value of warrants $ 40,496 —
Financing of prepaid insurance $ 1,928 —

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

AGRIFY CORPORATION

~~AGRIFY CORPORATION~~CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

For the six months ended
June 30,
2023 2022
Cash flows from operating activities:
Net loss attributable to Agrify Corporation $ (17,132 ) $ (72,824 )
Adjustments to reconcile net loss attributable to Agrify Corporation to net cash used in operating activities:
Depreciation and amortization 938 2,193
Amortization of premium on investment securities — 1,055
Amortization of debt discount 70 2,735
Interest on investment securities — (1,247 )
Amortization of issuance costs 24 370
Deferred income taxes — (262 )
Stock based compensation expense 1,611 1,893
Early termination of lease — 26
Non-cash interest income — (1,010 )
Change in fair value of warrant liabilities (1,624 ) (30,966 )
Impairment of goodwill and intangible assets — 69,904
Provision for doubtful accounts (542 ) 8,630
Provision for slow-moving inventory (337 ) 929
Loss on disposal of fixed assets 5 8
Loss on extinguishment of notes payable, net 4,631 —
Change in fair value of contingent consideration — (907 )
(Income) Loss attributable to non-controlling interests (2 ) 4
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable 264 (4,305 )
Inventory 3,030 (20,171 )
Prepaid expenses and other current assets 739 785
Prepaid and refundable taxes — (16 )
Right of use assets, net (149 ) 60
Other non-current assets 170 —
Accounts payable 1,237 (2,324 )
Accrued expenses and other current liabilities (4,261 ) (4,049 )
Operating lease liabilities 213 —
Deferred revenue (519 ) (1,002 )
Net cash and cash equivalents used in operating activities (11,634 ) (50,491 )

Cash flows from investing activities:
Purchases of property and equipment (60 ) (9,100 )
Proceeds from disposal of property and equipment 5 —
Purchase of securities — (211,030 )
Proceeds from sale of securities 10,456 214,449
Issuance of loan (591 ) (20,443 )
Proceeds from repayment of loan receivable 1,548 —
Cash paid for business combination, net of cash acquired — (3,513 )
Net cash and cash equivalents provided by (used in) investing activities 11,358 (29,637 )

Cash flows from financing activities:
Proceeds from issuance of debt and warrants in private placement, net — 62,405
Proceeds from issuance of Common Stock and warrants in private placement, net of fees — 25,797
Proceeds from “at the market” Program, net 1,545 —
Proceeds from Employee Stock Purchase Plan Shares 25 —
Proceeds from exercise of options — 19
Proceeds from exercise of warrants — 2
Repayment of debt in private placement (10,307 ) —
Repayments of notes payable, other (71 ) —
Payments on other financing loans (2 ) (243 )
Payments on insurance financing loans (999 ) (1,071 )
Payments of financing leases (64 ) (187 )
Net cash and cash equivalents (used in) provided by financing activities (9,873 ) 86,722
Net (decrease) increase in cash and cash equivalents (10,149 ) 6,594
Cash and cash equivalents at the beginning of period 10,457 12,014
Cash and cash equivalents at the end of period $ 308 $ 18,608
Cash, cash equivalents, and restricted cash at end of period
Cash and cash equivalents 308 18,608
Restricted cash — 30,000
Total cash, cash equivalents, and restricted cash at the end of period $ 308 $ 48,608
Supplemental disclosures of non-cash flow information
Initial fair value of warrants $ — $ 40,496
Financing of prepaid insurance $ 1,820 $ 1,928
Conversion of private placement debt into Common Stock $ 3,160 $ —
Transfer of property and equipment to inventory $ 33 $ —
The accompanying notes are an integral part of these condensed consolidated financial statements.

AGRIFY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~(Unaudited)~~

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

Description of Business

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

The Company believes it is the only company with an automated and fully integrated grow solution in the industry. The Company’s cultivation and extraction solutions seamlessly combines its integrated hardware and software ~~grow solutions for~~offerings with a broad range of associated services including consulting, engineering, and construction and is designed to deliver the most complete commercial indoor ~~agriculture industry~~farming solution available from a single provider. The totality of its product offerings and ~~provides equipment~~service capabilities forms an unrivaled ecosystem in what has historically been a highly fragmented market. As a result, the Company believes it is well-positioned to capture market share and ~~solutions for cultivation, extraction, post-processing, and testing for~~create a dominant market position in the indoor cannabis ~~and hemp industries.~~ sector.

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

The Company has nine wholly-owned subsidiaries, which are collectively referred to as the “Subsidiaries”:

●

~~AGM Service Corp LLC (formerly AGM Service Corp Inc.);~~

●

~~TriGrow Systems, LLC (“TriGrow”, which acted as~~ and the ~~Company’s exclusive distributor and which was acquired in January 2020 as TriGrow Systems, Inc. and converted to TriGrow Systems, LLC in May 2020);~~

●

~~Ariafy Finance, LLC;~~

●

~~Agxiom, LLC;~~

●

~~Harbor Mountain Holdings, LLC (“HMH”) (acquired in July 2020);~~

●

~~Cascade Sciences, LLC (“Cascade”) (which was acquired by the Company on October 1, 2021);~~

●

Precision Extraction NewCo, LLC (“Precision”) (which was a newly formed subsidiary in connection with October 1, 2021 acquisition of Mass2Media, LLC, d/b/a PX2 Holdings, LLC, d/b/a Precision Extraction Solutions and Cascade); and

●

~~PurePressure, LLC (“PurePressure”) (which was acquired by the Company on December 31, 2021); and~~

●

~~Lab Society NewCo, LLC (“Lab Society”) (which was a newly formed subsidiary in connection with February 1, 2022 acquisition of LS Holdings Corp).~~

~~The~~ Company also has ownership interests in ~~the following companies:~~certain companies.

●

~~Teejan Podoponics International LLC (“TPI”) (the Company has owned 50% of TPI since December 2018);~~

●

~~Agrify-Valiant, LLC (“Agrify-Valiant”) (the Company owns 60% of Agrify-Valiant, which was formed in December 2019); and~~

●

Agrify Brands, LLC (“Agrify Brands”) (formerly TriGrow Brands, LLC) (the Company owns 75% of Agrify Brands, which ownership position was created as part of the January 2020 acquisition of TriGrow).

Reverse Stock ~~Split~~Splits

On January 12, 2021, the Company effected a 1-for-1.581804 reverse stock split (“Reverse Stock Split”) of its Common Stock, $0.001 par value per share (“Common Stock”). All share and per share information has been retroactively adjusted to give effect to the Reverse Stock Split for all periods presented, unless otherwise indicated.

On October 18, 2022, the Company effected a 1-for-10 reverse stock split of its Common Stock. All share and per share information has been retroactively adjusted to give effect to the reverse stock split for all periods presented unless otherwise indicated.

On July 5, 2023, the Company effected a 1-for-20 reverse stock split of its Common Stock, All share and per share information has been retroactively adjusted to give effect to the reverse stock split for all periods presented unless otherwise indicated.

No fractional shares of Common Stock were issued as a result of these reverse stock splits. Any fractional shares in connection with these reverse stock splits were rounded up to the nearest whole share and no stockholders received cash in lieu of fractional shares. The reverse stock splits had no impact on the number of shares of Common Stock that the Company is authorized to issue pursuant to its articles of incorporation or on the par value per share of the Common Stock. Proportional adjustments were made to the number of shares of Common Stock issuable upon exercise or conversion of the Company’s outstanding stock options and warrants, the exercise price or conversion price (as applicable) of the Company’s outstanding stock options and warrants, and the number of shares reserved for issuance under the Company’s equity incentive plan. All share and per share information included in this Quarterly Report on Form 10-Q has been retroactively adjusted to reflect the impact of these reverse stock splits.

~~Initial~~Confidentially Marketed Public Offering ~~and Secondary Public Offering~~

On ~~February 1, 2021,~~December 16, 2022, the Company ~~closed its initial public offering, or (“IPO”~~entered into an underwriting agreement (the “Underwriting Agreement”), with Canaccord Genuity LLC as the underwriter, pursuant to which the Company agreed to issue and sell an aggregate of ~~31,050~~594,232 shares of its Common Stock, ~~(inclusive~~and, in lieu of ~~4,050~~Common Stock to certain investors that so chose, pre-funded warrants (the “Pre-Funded 2022 Warrants”) to purchase 75,000 shares of our Common Stock, and accompanying warrants (the “December 2022 Warrants”) to purchase 1,338,462 shares of the Company’s Common Stock (the “Offering”). The shares of Common Stock ~~from~~(or Pre-Funded 2022 Warrants) and the ~~full exercise of~~accompanying December 2022 Warrants will be issued separately but can only be purchased together in this Offering. Additional information regarding the ~~over-allotment option of shares granted~~Company’s December 2022 Warrants may be found in Note 4 – Fair Value Measures and Note 10 – Stockholders’ Equity, included elsewhere in the notes to the underwriters). The offer and sale of all of the shares in the IPO were registered under the Securities Act of 1933, as amended, pursuant to a registration statement on Form S-1 (File Nos. 333- 251616 and 333-252490), which was declared effective by the SEC on January 27, 2021. In the IPO, Maxim Group LLC and Roth Capital Partners acted as the underwriters. The IPO price for shares of Common Stock was $2,000.00 per share. The total gross proceeds from the IPO were $62.1 million.consolidated financial statements.

After deducting underwriting discounts and commissions of $4 million and offering expenses paid or payable by us of approximately $1 million, the net proceeds from the IPO were approximately $57 million. The Company used the net proceeds from the IPO for its current working capital needs, to support revenue growth, to increase inventory to meet customer demand forecasts, and to support operational growth.

On February 19, 2021, the Company consummated a secondary public offering (the “February Offering”) of 27,778 shares of its Common Stock for a price of $2,700.00 per share, less certain underwriting discounts and commissions. On March 22, 2021, the Company closed on the sale of an additional 4,167 shares of Common Stock on the same terms and conditions pursuant to the exercise of the underwriters’ over-allotment option. The exercise of the over-allotment option brought the total number of shares of Common Stock sold by the Company in connection with the February Offering to 31,944 shares and the total net proceeds received in connection with the February Offering to approximately $80 million, after deducting underwriting discounts and estimated offering expenses. The Company used the net proceeds from the IPO for its current working capital needs, to support revenue growth, to increase inventory, to meet customer demand forecasts, and to support operational growth.

~~Coronavirus (“COVID-19”) Pandemic~~

The spread of COVID-19 beginning in the first quarter of 2020 has caused significant volatility in U.S. markets. There is significant uncertainty around the breadth and duration of business disruptions related to COVID-19, as well as its impact on the U.S. economy. To date, there has not been a material impact on the Company’s business operations and financial performance. The extent of the impact of COVID-19 on the Company’s operational and financial performance, if any, will depend, in part, on the length and severity of these restrictions and on the Company’s ability to conduct business in the ordinary course.

AGRIFY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The aggregate gross proceeds to the Company from the Offering were approximately $8.7 million including offering costs of approximately $0.5 million for broker fees and legal expenses, for net proceeds of $8.2 million. The Company has used the net proceeds from the Offering, together with its existing cash resources, for working capital and general corporate purposes, which may include capital expenditures and repayment of debt.

Nasdaq Deficiency Notice

On October 4, 2022, the Company received a deficiency letter from the Listing Qualifications Department (the “Staff”) of The Nasdaq Stock Market, LLC (“Nasdaq”) notifying the Company that, for the last 30 consecutive business days, the bid price for the Company’s Common Stock had closed below $1.00 per share, which is the minimum closing price required to maintain a continued listing on The Nasdaq Capital Market under Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Requirement”). In accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company had 180 calendar days to regain compliance with the Minimum Bid Requirement. To regain compliance with the Minimum Bid Requirement, the closing bid price of the Company’s Common Stock must be at least $1.00 per share for a minimum of 10 consecutive trading days during this 180-day compliance period, unless the Staff exercised its discretion to extend the minimum trading day period pursuant to Nasdaq Listing Rule 5810(c)(3)(G). On October 28, 2022, the Staff notified the Company that the closing bid price for its Common Stock was more than $1.00 for 10 consecutive trading days, and that the Company therefore regained compliance with the Minimum Bid Requirement.

On January 19, 2023, the Company received a new deficiency letter from the Staff of Nasdaq notifying the Company that, for the previous 30 consecutive business days, the bid price for its Common Stock had closed below $1.00 per share, which is the minimum closing price required to maintain a continued listing on The Nasdaq Capital Market under the Minimum Bid Requirement. In accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company had 180 calendar days to regain compliance with the Minimum Bid Requirement. To regain compliance with the Minimum Bid Requirement, the closing bid price of the Company’s Common Stock must be at least $1.00 per share for a minimum of 10 consecutive trading days during this 180-day compliance period, unless the Staff exercises its discretion to extend the minimum trading day period pursuant to Nasdaq Listing Rule 5810(c)(3)(G). On July 19, 2023, the Company received a notice from Nasdaq confirming its recompliance with the minimum bid price rule.

As disclosed in the Current Report on Form 8-K filed on April 17, 2023, the Company’s audit committee concluded that, as a result of inadvertent errors in the accounting for warrants previously issued by the Company, it was appropriate to restate the Company’s previously issued unaudited condensed consolidated interim financial statements as of and for the quarterly periods ended March 31, 2022, June 30, 2022 and September 30, 2022 included in the Company’s Quarterly Reports on Form 10-Q for such periods in amended quarterly reports for the affected periods. As a result of such restatements, the Company was unable to timely file the 2022 Form 10-K, the First Quarter 2023 Form 10-Q and the Second Quarter 2023 Form 10-Q without unreasonable effort or expense.

On April 18, 2023, the Company received a notice from Nasdaq (the “April Nasdaq Notice”) that it was noncompliant with Nasdaq Listing Rule 5250(c)(1) as a result of its failure to file its Annual Report on Form 10-K (the “Form 10-K”) with the SEC by the required due date.

On May 17, 2023, the Company received a second notice from Nasdaq (the “May Nasdaq Notice”) that it remained noncompliant with Nasdaq Listing Rule 5250(c)(1) as a result of its failure to file its Quarterly Report on Form 10-Q for the quarter ended March 31, 2023 (the “First Quarter Form 10-Q”) with the SEC by the required due date.

On August 16, 2023, the Company received a third notice from Nasdaq that it remain noncompliant with Nasdaq Listing Rule 5250(c)(1) as a result of its failure to file its Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2023 (the “Second Quarter Form 10-Q”) with the SEC by the required filing date (the “August Nasdaq Notice” and, together with the April Nasdaq Notice and the May Nasdaq Notice, the “Nasdaq Notices”).

The Nasdaq granted the Company an exception until October 16, 2023, to file its 2022 Form 10-K and First and Second Quarter 2023 Forms 10-Q. The Nasdaq Notice had no immediate effect on the listing of the Company’s Common Stock on The Nasdaq Stock Market LLC.

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

AGRIFY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

The Company timely requested a hearing before the Nasdaq Hearings Panel (the “Panel”), and the Panel scheduled a hearing for January 11, 2024. In connection with the hearing request, the Company requested that the stay be extended through the hearing and the expiration of any additional extension period granted by the Panel following the hearing. In that regard, pursuant to the Nasdaq Listing Rules, the Panel granted the additional extension period. However, there can be no assurance that the Company will be able to regain compliance by the end of any additional extension period.

The Paycheck Protection Program

In May 2020, the Company received an unsecured Paycheck Protection Program Loan (“PPP Loan”) from the Bank of America pursuant to the Paycheck Protection Program (the “PPP”) under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), administered by the U.S. Small Business Administration (the “SBA”). The Company received total loan proceeds of approximately $779 thousand from the PPP Loan. ~~The Company’s application~~On February 18, 2022, the Company applied for ~~the~~ forgiveness of the outstanding balance of the PPP Loan ~~is currently under review~~and the application was denied by the ~~SBA.~~

~~Note 2 — Restatement of Current Period~~

~~The Company’s financial statements as of and for the three months ended~~SBA on March ~~31, 2022 have been restated due to the following errors:~~

~~Pipe Warrants and SPA Warrants Classification and Measurement~~

~~During the three months ended March 31,~~18,2022. However, on June 23, 2022, the Company ~~entered into several debt and equity financing transactions including i)~~received a letter from Bank of America agreeing to extend the issuance of common stock and warrants in a private placement on January 25, 2022 (the “PIPE Warrants”) and ii) the issuance of a note payable with associated warrants on March 14, 2022 (the “SPA Warrants”).

~~The Company determined that the PIPE Warrants~~maturity date to May 7, 2025 and the ~~SPA Warrants were incorrectly classified as equity~~loan will bear interest at a rate of 1.00% per year. The PPP loan is payable in 34 equal combined monthly principal and ~~must be reclassified to liabilities measured at fair value upon issuance and remeasured to fair value at each reporting date. As a result~~interest payments of ~~these errors:~~approximately $24 thousand that commenced on August 7, 2022.

●

~~Additional paid-in capital was overstated by $24.2 million as of March 31, 2022 due to the incorrect classification of the SPA Warrants and the PIPE Warrants as equity rather than liabilities;~~

●

~~Warrant liabilities was understated by the fair value of the PIPE Warrants and the SPA Warrants of $29.7 million as of March 31, 2022;~~

●

Long-term debt and Long-term debt, current was overstated by $15.5 million and $0.7 million, respectively as of March 31, 2022 due to the incorrect allocation of the debt discount in connection with the issuance of debt and SPA Warrants, as a result of the improper classification of the SPA Warrants as equity rather than liabilities;

●

~~Accumulated deficit as of March 31, 2022 was overstated by $10.7 million as a result of the net impact of the following errors in the condensed consolidated statement of operations:~~

	ο	The change in fair value of warrant liabilities was understated by $10.8 million because the Company did not appropriately remeasure the fair value of the warrant liabilities as of March 31, 2022 through earnings;

	ο	Interest income, net was overstated by $123 thousand due to incorrect debt discount amortization in connection with the issuance of debt and SPA Warrants, as a result of the improper classification of the SPA Warrants as equity rather than liabilities.

~~Debt Issuance Costs Classification~~

The Company incorrectly classified debt issuance costs as an asset rather than as a direct deduction from the carrying value of the associated debt liability as of March 31, 2022. As a result of this error:

	●	~~Prepaid expenses and other current assets were understated by $0.8 million as of March 31, 2022;~~

	●	~~Other non-current assets were overstated by $0.8 million as of March 31, 2022;~~

~~The impact~~Basis of ~~these adjustments are shown below in the restated~~Presentation and ~~reclassified condensed consolidated balance sheet, condensed consolidated statement~~Principles of ~~operations, condensed consolidated statement of cash flows, and condensed consolidated statement of stockholders’ equity as of and for the three months ended March 31, 2022.~~Consolidation

Accounting for Wholly-Owned Subsidiaries

~~The following is a summary of the impact of the restatement and reclassifications on the Company’s condensed consolidated balance sheet:~~

March 31, 2022
Adjustments
Previously
Reported Warrants Reverse
Stock Split Debt
Issuance
Costs Restated
Assets
Current assets
Cash and cash equivalents $ 25,205 — — — $ 25,205
Restricted cash 30,000 — — — 30,000
Marketable securities 38,211 — — — 38,211
Accounts receivable, net of allowance for doubtful accounts of $1,415 8,571 — — — 8,571
Inventory, net of reserves of $942 38,989 — — — 38,989
Prepaid and refundable taxes 194 — — — 194
Prepaid expenses and other current assets 6,373 — — 75 6,448
Total current assets 147,543 147,618

Non-Current Assets
Loan receivable 34,738 — — — 34,738
Property and equipment, net 7,055 — — — 7,055
Right-of-use assets, net 1,554 — — — 1,554
Goodwill 54,544 — — — 54,544
Intangible assets, net 15,861 — — — 15,861
Other non-current assets 3,180 — — (75 ) 3,105
Total Assets $ 264,475 $ 264,475

Liabilities and stockholders’ equity
Current liabilities
Accounts payable $ 3,683 — — — $ 3,683
Accrued expenses and other current liabilities 30,112 — — — 30,112
Operating lease liabilities, current 911 — — — 911
Long-term debt, current 2,970 (689 ) — — 2,281
Deferred revenue 4,182 — — — 4,182
Total current liabilities 41,858 41,169

Non-current liabilities
Warrant liabilities — 29,711 — — 29,711
Other non-current liabilities 275 — — — 275
Operating lease liabilities, non-current 689 — — — 689
Deferred tax liabilities, net 62 — — — 62
Long-term debt 51,154 (15,457 ) — — 35,697
Total liabilities 94,038 107,603

Commitments and contingencies (Note 22)

Stockholders’ equity
Common Stock, $0.001 par value per share, 250,000 shares authorized, 132,714 shares issued and outstanding 25 — (25 ) — 0
Preferred Stock, $0.001 par value per share, 2,895,000 shares authorized, no shares issued or outstanding — — — — —
Preferred A Stock, $0.001 par value per share, 105,000 shares authorized, no shares issued or outstanding — — — — —
Additional paid-in capital 237,903 (24,227 ) 25 — 213,701
Accumulated deficit (67,857 ) 10,662 — — (57,195 )
Total stockholders’ equity attributable to Agrify 170,071 156,506
Non-controlling interests 366 — — — 366
Total liabilities and stockholders’ equity $ 264,475 $ 264,475

The ~~following is a summary of the impact of the restatement and reclassifications on the Company’s condensed consolidated statement of operations:~~

Three Months ended March 31, 2022
Adjustment
Previously
Reported Warrants Reverse
Stock Split Restated
Revenue (including $1,271 from related parties) $ 26,021 — — $ 26,021
Cost of goods sold 21,851 — — 21,851
Gross profit 4,170 4,170

General and administrative 9,759 — — 9,759
Research and development 2,084 2,084
Selling and marketing 2,090 — — 2,090
Total operating expenses 13,933 13,933
Loss from operations (9,763 ) (9,763 )
Interest income, net 682 (123 ) — 559
Change in fair value of warrant liabilities — 10,785 — 10,785
Gain on extinguishment of notes payable — — — —
Other income, net 682 10,662 — 11,344
Net (loss) income before income taxes (9,081 ) 10,662 — 1,581
Income tax benefit (200 ) — — (200 )
Net (loss) income (8,881 ) 10,662 — 1,781
Income attributable to non-controlling interest 1 — — 1
Net (loss) income attributable to Agrify Corporation $ (8,882 ) $ 10,662 $ 1,780
Net (loss) income per share attributable to Common Stockholders – basic $ (0.36 ) $ 0.43 $ 14.41 $ 14.48
Net (loss) income per share attributable to Common Stockholders -- diluted $ (0.36 ) $ 0.43 $ 13.72 $ 13.79
Weighted-average common shares outstanding – basic 24,589,113 — (24,466,167 ) 122,946
Weighted-average common shares outstanding – diluted 24,589,113 — (24,460,068 ) 129,045

~~The following is a summary of the impact of the restatement and reclassifications on the Company’s condensed consolidated statement of cash flows:~~

Three Months ended March 31, 2022
Previously Adjustment
Cash flows from operating activities Reported Warrants Restated
Net income (loss) attributable to Agrify Corporation $ (8,882 ) 10,662 $ 1,780
Adjustments to reconcile net loss (income) attributable to Agrify Corporation to net cash used in operating activities:
Depreciation and amortization 1,052 — 1,052
Amortization of premium on investment securities 224 — 224
Amortization of debt discount 20 203 223
Amortization of issuance costs — 143 143
Interest on investment securities (248 ) — (248 )
Debt issuance costs 2,700 (2,700 ) —
Deferred income taxes (200 ) — (200 )
Compensation in connection with the issuance of stock options 953 — 953
Non-cash interest (income) (406 ) — (406 )
Change in fair value of warrant liabilities — (10,785 ) (10,785 )
Gain on extinguishment of notes payable, net — — —
Early termination of lease 26 — 26
Income attributable to non-controlling interests 1 — 1
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable (838 ) — (838 )
Inventory (16,361 ) — (16,361 )
Prepaid expenses and other current assets (3,033 ) 2,143 (890 )
Right of use assets, net (20 ) — (20 )
Other non-current assets (1,867 ) 1,867 —
Accounts payable (2,765 )
(73
) (2,838 )
Accrued expenses and other current liabilities (2,120 ) — (2,120 )
Deferred (expense), net (2,407 ) 1,836 (571 )
Net cash used in operating activities (34,171 ) 3,296 (30,875 )

Cash flows from investing activities
Purchases of property and equipment (3,728 ) — (3,728 )
Purchase of securities (76,097 ) — (76,097 )
Proceeds from the sale of securities 82,460 — 82,460
Issuance of loan receivable (12,487 ) — (12,487 )
Cash paid for business combinations, net of cash acquired (3,513 ) — (3,513 )
Net cash used in investing activities (13,365 ) — (13,365 )

Cash flows from financing activities
Proceeds from issuance of debt and warrants in private placement, net 65,000 (2,595 ) 62,405
Proceeds from issuance of Common Stock and warrants in private placement, net of fees 25,797 — 25,797
Proceeds from IPO, net of fees — — —
Proceeds from Secondary public offering, net of fees — — —
Proceeds from exercise of options 10 — 10
Proceeds from exercise of warrants 1 — 1
Payments on other financing loans — (273 ) (273 )
Payments on insurance financing loan — (428 ) (428 )
Payments of financing leases (81 ) — (81 )
Net cash provided by financing activities 90,727 (3,296 ) 87,431
Net increase in cash, cash equivalents, and restricted cash 43,191 — 43,191
Cash, cash equivalents, and restricted cash at the beginning of period 12,014 — 12,014
Cash, cash equivalents, and restricted cash at the end of period $ 55,205 $ 55,205
Cash, cash equivalents, and restricted cash at end of period
Cash and cash equivalents $ 25,205 — $ 25,205
Restricted cash 30,000 — 30,000
Total cash, cash equivalents, and restricted cash at the end of period $ 55,205 $ 55,205
Supplemental disclosures of non-cash flow information
Initial fair value of warrants — 40,496 $ 40,496
Financing of prepaid insurance — 1,928 $ 1,928

~~The following is a summary of the impact of the restatement and reclassifications on the Company’s condensed consolidated statement of stockholders’ equity as of March 31, 2022:~~

Common Stock
(Previously Reported) Common Stock
(Restated) Additional
Paid-In
Capital
(Previously Reported) Additional
Paid-In
Capital
(Restated) Accumulated
Deficit
(Previously Reported) Accumulated
Deficit
(Restated) Total
Stockholders’
Equity
attributable
to Agrify
(Previously Reported) Total
Stockholders’
Equity
attributable
to Agrify
(Restated) Non-Controlling
Interests
(Previously Reported) Non-Controlling
Interests
(Restated) Total
Stockholders’
Equity
(Previously Reported) Total
Stockholders’
Equity
(Restated)
Shares Amount Shares Amount
Balance at January 1, 2022 22,207,103 $ 21 111,035 — $ 196,013 $ 196,034 $ (58,975 ) $ (58,975 ) $ 137,059 $ 137,059 $ 365 $ 365 $ 137,424 $ 137,424
Stock-based compensation — — — — 953 953 — — 953 953 — — 953 953
Issuance of Common Stock and warrants in private placement 2,450,350 2 12,252 — 25,795 14,800 — — 25,797 14,800 — — 25,797 14,800
Issuance of debt and warrants in private placement — — — — 13,230 — — — 13,230 — — — 13,230 —
Acquisition of Lab Society 297,929 — 1,490 — 1,903 1,903 — — 1,903 1,903 — — 1,903 1,903
Exercise of options 4,220 — 21 — 10 10 — — 10 10 — — 10 10
Exercise of warrants 1,583,288 2 7,916 — (1 ) 1 — — 1 1 — — 1 1
Net income — — — — — — (8,882 ) 1,780 (8,882 ) 1,780 1 1 (8,881 ) 1,781
Balance at March 31, 2022 26,542,890 $ 25 132,714 — $ 237,903 $ 213,701 $ (67,857 ) $ (57,195 ) $ 170,071 $ 156,506 $ 366 $ 366 $ 170,437 $ 156,872

~~The related notes to the condensed and~~accompanying consolidated financial statements ~~have also been restated to reflect the error corrections described above.~~

~~Note 3 — Summary of Significant Accounting Policies~~

~~Preparation of Condensed Consolidated Financial Statements~~

~~The condensed consolidated financial statements included herein~~ have been prepared in accordance with accounting principles generally accepted in the United States ~~of America~~ (“GAAP”), and on the same basis as the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 and filed with the SEC (“Form 10-K”), except for the recently adopted accounting pronouncements described below.

The condensed consolidated financial statements included herein reflect all normal and recurring adjustments which, in the opinion of management, are necessary for a fair presentation of the Company’s condensed consolidated statements of operations for the three months ended March 31, 2022 and 2021, condensed consolidated statements of stockholders’ equity for the three months ended March 31, 2022 and 2021, and the condensed consolidated cash flows for the three months ended March 31, 2022 and 2021.

The condensed consolidated balance sheet as of December 31, 2021 is derived from the audited consolidated financial statements presented in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. Certain information and disclosures normally included in annual consolidated financial statements have been omitted pursuant to the rules and regulations of the SEC. Because the condensed consolidated interim financial statements do not include all of the information and disclosures required by GAAP for a complete set of financial statements, they should be read in conjunction with the audited consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on March 31, 2022. The results for interim periods are not necessarily indicative of a full year’s results.

~~Basis of Presentation and Principles of Consolidation~~

~~Accounting for Wholly-Owned Subsidiaries~~

~~The accompanying condensed consolidated financial statements have been prepared in accordance with GAAP~~ and include the accounts of Agrify Corporation and its wholly-owned subsidiaries, as described above, ~~in Note 1 – Nature of Business and Basis of Presentation,~~ in accordance with the provisions required by the Consolidation Topic 810 of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”). The Company includes results of operations of acquired companies from the date of acquisition. All significant intercompany transactions and balances are eliminated.

Accounting for Less Than Wholly-Owned Subsidiaries

For the Company’s less than wholly-owned subsidiaries, which include, ~~TPI,~~ Agrify-Valiant LLC (“Agrify-Valiant”), and Agrify Brands, LLC (“Agrify Brands”), the Company first analyzes whether these entities are a variable interest entity (a “VIE”) in accordance with ASC Topic 810, Consolidation (“ASC 810”), and if so, whether the Company is the primary beneficiary requiring consolidation. A VIE is an entity that has (i) insufficient equity to permit it to finance its activities without additional subordinated financial support or (ii) equity holders that lack the characteristics of a controlling financial interest. The financial results of a VIE are consolidated by the primary beneficiary, which is the entity that has both the power to direct the activities that most significantly impact the entity’s economic performance and the obligation to absorb losses or the right to receive benefits from the entity that potentially could be significant to the entity. Variable interests in a VIE are contractual, ownership or other financial interests in a VIE that change with changes in the fair value of the VIE’s net assets. The Company continuously re-assesses (i) whether the ~~joint venture~~joint-venture is a VIE, and (ii) if the Company is the primary beneficiary of the VIE. If it is determined that the ~~joint venture~~joint-venture qualifies as a VIE and the Company is the primary beneficiary, the Company’s financial interest in the VIE is consolidated.

Based on the Company’s analysis ~~for~~of these entities, the Company has determined that Agrify-Valiant ~~LLC~~ and Agrify Brands ~~LLC~~ are each a VIE, and that the Company is the primary beneficiary. While the Company owns 60% of ~~Agrify-Valiant, LLC’s~~Agrify-Valiant’s equity interests and 75% of Agrify ~~Brands, LLC’s~~Brand’s equity interests, the remaining equity interests in Agrify-Valiant ~~LLC~~ and Agrify Brands ~~LLC~~ are owned by unrelated third parties, and the agreement with these third parties provides the Company with greater voting rights. Accordingly, the Company consolidates its interest in the financial statements of Agrify-Valiant ~~LLC~~ and Agrify Brands ~~LLC~~ under the VIE rules and reflects the third parties’ interests in the ~~condensed~~ consolidated financial statements as a non-controlling interest. The Company records this non-controlling interest at its initial fair value, adjusting the basis prospectively for the third parties’ share of the respective consolidated investments’ net income or loss or equity contributions and distributions. These non-controlling interests are not redeemable by the equity holders and are presented as part of permanent equity. Income and losses are allocated to the non-controlling interest holders based on its economic ownership percentage. ~~The investment in 50% of the shares of TPI is treated as an equity investment as the Company cannot exercise significant influence.~~

AGRIFY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Going Concern

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

The Company has incurred operating losses since its inception and has negative cash flows from operations and a working capital deficiency. The Company also has an accumulated deficit of $264 million as of June 30, 2023. The Company’s primary sources of liquidity are its cash and cash equivalents and marketable securities, with additional liquidity accessible, subject to market conditions and other factors, including limitations that may apply to the Company under applicable SEC regulations, from the capital markets, including under its at-the-market continuous equity offering (“ATM” or “ATM Program”).

As of June 30, 2023, the Company had $312 thousand of cash, cash equivalents, and marketable securities. The Company had no restricted cash as of June 30, 2023. As of December 31, 2022 the Company’s restricted cash balance of $10.0 million was associated with its new senior secured note (the “Exchange Note”). Current liabilities were $39.8 million as of June 30, 2023. Additional information regarding the Company’s Exchange Note may be found in Note 8 – Debt, included elsewhere in the notes to the consolidated financial statements.

On October 18, 2022, the Company entered into the ATM Program with Canaccord Genuity LLC (the “Agent”) pursuant to which it may issue and sell, from time to time, shares of its Common Stock having an aggregate offering price of up to $50 million, depending on market demand, with the Agent acting as an agent for sales. The ATM Program allowed the Company to sell shares of Common Stock pursuant to specific parameters defined by the Company as well as those defined by the SEC and the ATM Program agreement. In 2022, the Company sold 306,628 shares of Common Stock under the ATM at an average price of $50.85, resulting in gross proceeds of $15.6 million and net proceeds $15.1 million after commissions and fees to the Agent totaling $468 thousand and legal fees totaling $75 thousand. As of April 1, 2023, after which time the ATM program was discontinued, the Company sold an additional 323,082 shares of Common Stock under the ATM at an average price of $4.93, resulting in gross proceeds of $1.6 million and net proceeds of $1.6 million after commissions and fees to the Agent totaling $48 thousand. $3.0 million of the proceeds under the ATM Program were used to repay amounts due to the Investor under the Exchange Note. The Company used the net proceeds generated from the ATM Program for working capital and general corporate purposes, including repayment of indebtedness, funding its transformation initiatives and product category expansion efforts and capital expenditures. Due to the late filing of the Company’s 2022 Annual Report on Form 10-K, the Company is no longer eligible to utilize the registration statement on Form S-3 relating to the ATM Program.

Use of Estimates

The preparation of the Company’s ~~condensed~~ consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the ~~condensed~~ consolidated financial statements, and the reported amounts of expenses during the reporting period. Significant estimates include assumptions about collection of accounts and ~~assumptions reflected in these condensed consolidated financial statements include, but are not limited to,~~notes receivable, the ~~accrual~~valuation and recognition of ~~expenses.~~stock-based compensation expense, valuation allowance for deferred tax assets, the valuation of inventory, and useful life of fixed assets and intangible assets. The Company bases its estimates on historical experience, known trends and other market-specific information, other relevant factors that it believes to be reasonable under the circumstances, and management’s judgement. On an ongoing basis, management evaluates its estimates when there are changes in circumstances, facts, and experience. Changes in estimates are recorded in the period in which they become known. Actual financial results could differ from those estimates.

AGRIFY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Reclassifications

~~Fiscal Year~~

~~The Company, and its Subsidiaries, fiscal year ends on December 31, each year.~~

~~Emerging Growth Company~~

The Company qualifies as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, which we refer to as the JOBS Act. As a result, the Company is permitted to, and intends to, rely on exemptions from certain disclosure requirements that are applicable to companies that are not emerging growth companies.

~~In addition, the JOBS Act provides that an “emerging growth company” can use the extended transition period for complying with new or revised accounting standards.~~

~~The Company will remain an “emerging growth company” until the earliest to occur of:~~

●

~~reporting $1.0 billion or more in annual gross revenues;~~

●

~~the issuance, in a three-year period, of more than $1.0 billion in non-convertible debt;~~

●

~~the end of the fiscal year in which the market value of Common Stock held by non-affiliates exceeds $700 million on the last business day of our second fiscal quarter; or~~

●

~~December 31, 2026.~~

~~Reclassifications~~

Certain amounts in the Company’s prior period financial statements have been reclassified to conform to the presentation of the current period financial statements. In this Form 10-Q, the Company has reclassified selling, general and administrative expenses to two separate line items in the accompanying ~~condensed~~ consolidated ~~statement~~statements of operations as general and administrative expenses and selling and marketing expenses for the three months ended ~~March 31,~~June 30, 2023 and 2022.

In addition, the Company effected a 1-for-10 reverse stock split of its Common Stock on October 18, 2022 and ~~2021.~~a 1-for-20 reverse stock split of its Common Stock on July 5, 2023. All share and per share information has been retroactively adjusted to give effect to the reverse stock split for all periods presented unless otherwise indicated. The shares of Common Stock retained a par value of $0.001 per share. Accordingly, the Stockholders’ equity section of the Consolidated Balance Sheet reflects the reverse stock split by reclassifying from “Common Stock” to “Additional paid-in capital” an amount equal to the par value of the decreased shares resulting from the reverse stock split.

Cash and Cash Equivalents ~~and Restricted Cash~~

Cash and cash equivalents consist principally of cash and deposits with maturities of three months or less as of ~~March 31, 2022~~June 30, 2023 and December 31, ~~2021.~~2022. All cash equivalents are carried at cost, which approximates fair value. Restricted cash represents cash required to be held as collateral for the Company’s senior secured promissory note (the “SPA Note”). Accordingly, these balances contain restrictions as to their availability and usage and are classified as restricted cash in the condensed consolidated balance sheets. ~~Refer to Note 16 – Debt, included elsewhere in the notes to the condensed consolidated financial statements.~~

Cash deposits with financial institutions, including restricted cash and restricted marketable securities, generally exceed federally insured limits. Management believes minimal credit risk exists with respect to these financial institutions and the Company has not experienced any losses on such amounts. Balances held in a brokerage account are disclosed on the balance sheet as restricted cash.

Marketable Securities

The Company’s marketable security investments primarily include investments held in mutual funds, municipal bonds, and corporate bonds. The mutual funds are recorded at fair value in the accompanying ~~condensed~~ consolidated balance sheets as part of cash and cash equivalents. The municipal and corporate bonds are considered to be held-to-maturity securities and are recorded at amortized cost in the accompanying ~~condensed~~ consolidated balance sheets. The fair value of these investments ~~were~~was estimated using recently executed transactions and market price quotations. The Company considers current assets to be those investments ~~which~~that will mature within the next 12 months, including interest receivable on ~~the~~ long-term bonds.

Accounts Receivable, Net

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

Concentration of Credit Risk and Significant Customer

Financial instruments that potentially subject the Company to a concentration of credit risk primarily consist of cash, cash equivalents, restricted cash, marketable securities, and accounts receivable. ~~The Company places its cash~~Cash equivalents primarily consist of money market funds with original maturities of three months or less, which are invested primarily with U.S. financial institutions. Cash deposits with financial institutions, ~~in the United States. The~~including restricted cash, balances are insured by the FDIC up to $250 thousand per depositor with unlimited insurance for funds in noninterest-bearing transaction accounts through March 31, 2022. At times, the amounts in these accounts maygenerally exceed ~~the~~ federally insured limits.

~~The~~ Management believes minimal credit risk exists with respect to these financial institutions and the Company has ~~certain~~not experienced any losses on such amounts.

AGRIFY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The tables below show customers ~~from whom revenue individually represented~~who account for 10% or more of the Company’s total ~~revenue, or whose accounts receivable balances individually represent~~revenues and 10% or more of the Company’s ~~total~~ accounts ~~receivable.~~receivable for the periods presented:

~~Refer to the following tables below.~~

Revenue

For the three and six months ended ~~March 31,~~June 30, 2023 and 2022, ~~and 2021,~~ the Company’s customers that accounted for 10% or more of the total revenue were as follows:

	Three Months ended March 31, 2022					Three Months ended March 31, 2021					Three months ended June 30, 2023		Three months ended June 30, 2022					Six months ended June 30, 2023					Six months ended June 30, 2022
(In thousands)	Amount		% of Total Revenue			Amount		% of Total Revenue			Amount	% of Total Revenue	Amount		% of Total Revenue			Amount		% of Total Revenue			Amount		% of Total Revenue
New England Innovation Academy (“NEIA”) – Related Party		*		*		$	5,460		77.9	%
Customer A											*	*	$	4,835		25.0	%	$	627		5.8	%	$	8,628		19.0	%
Customer C	$	3,793		14.6	%		*		*		*	*		*		*			*		*		$	6,146		13.6	%
Customer D	$	4,697		18.1	%		*		*

*	Customer revenue, as a percentage of total revenue, was less than 10%

Accounts Receivable, Net

As of ~~March 31, 2022~~June 30, 2023 and December 31, ~~2021,~~2022, the Company’s customers that accounted for 10% or more of the total accounts receivable, net, were as follows:

As of
March 31, 2022 As of
December 31, 2021
(In thousands) Amount % of Total
Accounts
Receivable Amount % of Total
Accounts
Receivable

NEIA – Related Party $ 1,344 15.7 % $ 3,498 48.4 %
Customer B $ 1,541 18.0 % $ 1,541 21.3 %
Customer E $ 1,217 14.2 % * *

	As of June 30, 2023					As of December 31, 2022
(In thousands)	Amount		% of Total Accounts Receivable			Amount		% of Total Accounts Receivable
Company Customer Number - 10888-1	$	189		14.0	%		*		*
Company Customer Number – 15095	$	718		53.3	%	$	352		32.9	%
Company Customer Number - 16491		*		*		$	123		11.5	%
Company Customer Number - 10888		*		*		$	251		23.5	%

Customer accounts receivable, ~~balance,~~ as a percentage of total accounts receivable, ~~balance,~~ was less than 10%

Inventories

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

AGRIFY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization expenses are recognized using the straight-line method over the estimated useful life of each asset, as follows:

	Estimated Useful Life (Years)
Computer and office equipment		2 to 3
Furniture and fixtures		2
Software		3
Vehicles		5
Research and development of laboratory equipment		5
Machinery and equipment		3 to 5
Leased equipment ~~at customer~~		5 to 13
Trade show assets		3 to 5
Leasehold improvements		Lower of estimated useful life or remaining lease term

The estimated useful lives of the Company’s property and equipment are periodically assessed to determine if changes are appropriate. The Company charges maintenance and repairs to expense as incurred. When the Company retires or disposes of assets, the carrying cost of these assets and related accumulated depreciation or amortization are eliminated from the ~~condensed~~ consolidated balance sheet and any resulting gain or loss are included in the ~~condensed~~ consolidated ~~statement~~statements of operations in the period of retirement or disposal.

Costs for capital assets not yet placed into service are capitalized as construction-in-progress and depreciated once placed into service. During construction, costs are accumulated in a construction-in-progress account, with no depreciation. Upon completion, costs are transferred to the appropriate asset account, and depreciation begins when the asset is placed into service.

Goodwill

Goodwill is defined as the excess of cost over the fair value of assets acquired and liabilities assumed in a business combination. Goodwill is tested for impairment annually, and more frequently if events and circumstances indicate that the asset might be impaired. The Company has determined that it is a single reporting unit for the purpose of conducting the goodwill impairment assessment. A goodwill impairment charge is recorded if the amount by which the Company’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. Factors that could lead to a future impairment include material uncertainties such as a significant reduction in projected revenues, a deterioration of projected financial performance, future acquisitions and/or mergers, and/or a decline in the Company’s market value as a result of a significant decline in the Company’s stock price. ~~Based upon~~

During the quarter ended June 30, 2022, the Company identified an impairment-triggering event associated with both a sustained decline in the Company’s ~~2021 annual impairment testing analyses, including~~stock price and associated market capitalization, as well as a second-quarter slowdown in the ~~consideration of reasonably likely adverse changes in assumptions described above,~~cannabis industry as a whole. Due to these factors, the Company ~~determined~~deemed that there ~~are no~~was an impairment to the carrying value of its property and equipment and accordingly performed interim testing as of June 30, 2022.

Based on its interim testing, the Company noted that the carrying value of equity exceeded the calculated fair value by an amount greater than the aggregate value of our goodwill. Accordingly, the Company concluded that the entire carrying value of its goodwill ~~impairments~~was impaired, resulting in a second-quarter impairment charge of $54.7 million. Additional information regarding the Company’s interim testing on goodwill may be found in Note 7 – Goodwill and Intangible Assets, Net, included elsewhere in the notes to ~~date.~~the consolidated financial statements.

Intangible Assets

The Company initially records intangible assets at their estimated fair values and reviews these assets periodically for impairment. Identifiable intangible assets, which consist principally of ~~acquired customer related~~customer-related acquired assets, acquired and/or developed technology, non-compete agreements, and trade names, are reported net of accumulated amortization, and are being amortized over their estimated useful lives at amortization rates that are proportional to each asset’s estimated economic benefit. The Company’s intangible assets are amortized on a straight-line basis over the estimated useful lives of the assets. The Company reviews the carrying value of these intangible assets annually, or more frequently if indicators of impairment are present.

AGRIFY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The ~~finite-lived~~ useful lives are as follows:

Trade names		5 to 7 years
Acquired developed technology		5 to 8 years
Non-compete agreements		5 years
Customer relationships		5 to 8 years
Capitalized website costs		3 to 5 years

In performing the review of the recoverability of intangible assets, the Company considers several factors, including whether there have been significant changes in legal factors or the overall business climate that could affect the underlying value of an asset. The Company also considers whether there is an expectation that the asset will be sold or disposed of before the end of its remaining estimated useful life. If, as the result of examining any of these factors, the Company concludes that the carrying value of the intangible asset exceeds its estimated fair value, the Company recognizes an impairment charge and reduces the carrying value of the asset to its estimated fair value.

During the quarter ended June 30, 2022, the Company identified an impairment-triggering event associated with both a sustained decline in the Company’s stock price and associated market capitalization, as well as a second-quarter slowdown in the cannabis industry as a whole. Due to these factors, the Company deemed that there was an impairment to the carrying value of its property and equipment and accordingly performed interim testing as of June 30, 2022.

Based on its interim testing, the Company noted that the carrying value of equity exceeded the calculated fair value by an amount greater than the aggregate value of our intangible assets. Accordingly, the Company concluded that the entire carrying value of its intangible assets should be impaired, resulting in a second-quarter impairment charge of $15.2 million. Additional information regarding the Company’s interim testing on intangible assets may be found in Note 7 – Goodwill and Intangible Assets, Net, included elsewhere in the notes to the consolidated financial statements.

Convertible Notes Payable

The Company evaluates its convertible instruments to determine if those contracts or embedded components of those contracts qualify as derivative financial instruments to be separately accounted for in accordance with ASC Topic 815, Derivatives and Hedging (“~~ASC815”~~ASC 815”). The accounting treatment of derivative financial instruments requires that the Company identify and record certain ~~embedded conversion options (“ECOs”),~~ECOs, certain variable-share settlement features, and any related freestanding instruments at their fair values as of the inception date of the agreement and at fair value as of each subsequent balance sheet date. Any change in fair value is recorded as non-operating, non-cash income or expense for each reporting period at each balance sheet date. The Company reassesses the classification of its derivative instruments at each balance sheet date. If the classification changes as a result of events during the period, the contract is reclassified as of the date of the event that caused the reclassification. Bifurcated embedded conversion options, variable-share settlement features, and any related freestanding instruments are recorded as a discount to the host instrument which is amortized to interest expense over the life of the respective note using the effective interest method.

If the Company determines that an instrument is not a derivative liability, it then evaluates whether there is a ~~beneficial conversion feature (“BCF”),~~BCF, by comparing the commitment date fair value to the effective current conversion price of the instrument. The Company records a BCF as a debt discount which is amortized to interest expense over the life of the respective note using the effective interest method. BCFs that are contingent upon the occurrence of a future event are recognized when the contingency is resolved.

AGRIFY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Warrant Liabilities

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

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

On August 18, 2022, the Company reached an agreement with its institutional lender to amend its existing Securities Purchase Agreement and entered into a Securities Exchange Agreement (the “August 2022 Exchange Agreement”). Pursuant to the August 2022 Exchange Agreement, the Company issued a new warrant to purchase 71,139 shares of Common Stock (the “Note Exchange Warrant”) and modified an existing warrant (the “SPA Warrant”) to purchase up to an aggregate of 34,406 shares of Common Stock. The Company exchanged the SPA Warrant for a new warrant for the same number of underlying shares but with a reduced exercise price (the “Modified Warrants” and, collectively with the Note Exchange Warrant, the “August 2022 Warrants”). Additional information regarding the August 2022 Exchange Agreement and August 2022 Warrants may be found in Note 4 – Fair Value Measures and Note 9 – Debt, ~~Issue~~included elsewhere in the notes to the consolidated financial statements.

Additionally, on April 18, 2023, the Company undertook a warrant exercise inducement program, which it later cancelled. As a result, the warrant exercise price was reduced from $13.00 per share to $3.45 per share.

Debt Issuance Costs and Debt Discount

The Company may record debt issuance costs and/or debt discounts in connection with ~~issuing~~the issuance of debt. The Company may cover these costs by paying cash or issuing ~~or equity (such as warrants).~~warrants. These costs are amortized to interest expense over the expected life of the debt. If a conversion of the underlying debt occurs, a proportionate share of the unamortized amounts is immediately expensed.

Original Issue Discount

~~For certain~~Certain convertible debt issued by the Company, it may provide the debt holder with an original issue discount. The Company would record the original issue discount to debt discount, reducing the face amount of the note, and is then amortized to interest expense over the life of the debt.

~~Distinguishing Liabilities from Equity~~Leases

~~The Company relies on the guidance provided by ASC Topic 480, Distinguishing Liabilities from Equity and ASC 815-40,~~ ~~Derivatives and Hedging: Contracts in Entity’s Own Equity~~ (“ASC 815-40”), to classify certain redeemable and/or convertible instruments. The Company first determines whether a financial instrument should be classified as a liability. The Company will determine the liability classification if the financial instrument is mandatorily redeemable, or if the financial instrument, other than outstanding shares, embodies a conditional obligation that the Company must or may settle by issuing a variable number of its equity shares.

Once the Company determines that a financial instrument should not be classified as a liability, the Company determines whether the financial instrument should be presented between the liability section and the equity section of the balance sheet (“temporary equity”). The Company will determine temporary equity classification if the redemption of the financial instrument is outside the control of the Company (i.e. at the option of the holder). Otherwise, the Company accounts for the financial instrument as permanent equity.

~~Initial Measurement~~

~~The Company records its financial instruments classified as liability, temporary equity or permanent equity at issuance at the fair value, or cash received.~~

~~Subsequent Measurement – Financial instruments classified as liabilities~~

The Company records the fair value of its financial instruments classified as liabilities at each subsequent measurement date. The changes in fair value of its financial instruments classified as liabilities are recorded as other income, net.

~~Leases~~

The Company determines at the inception of ~~a right-of-use~~an asset contract if such arrangement is or contains a lease. A contract is or contains a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The Company classifies leases at the lease commencement date as operating or finance leases and records a right-of-use asset and a lease liability on its ~~condensed~~ consolidated balance sheet for all leases with an initial lease term of greater than 12 months. A lease with an initial term of 12 months or less is not recorded on the balance sheet, but related payments are recognized as an expense on a straight-line basis over the lease term.

The Company’s ~~right-of-use~~ asset contracts may contain both lease and non-lease components. Non-lease components may include maintenance, utilities, and other operating costs. The Company combines the lease and non-lease components of fixed costs in its lease arrangements as a single lease component. Variable costs, such as utilities or maintenance costs, are not included in the measurement of right-of-use assets and lease liabilities, but rather are expensed when the event determining the amount of variable consideration to be paid occurs.

Lease liabilities and their corresponding right-of-use assets are recorded based on the present value of future lease payments over the expected lease term. The Company determines the present value of future lease payments by using its estimated secured incremental borrowing rate for that lease term as the interest rate implicit in the lease is not readily determinable. The Company estimates its secured incremental borrowing rate for each lease based on the rate of interest that the Company would have to pay to borrow an amount equal to the lease payments on a collateralized basis over a similar term.

Certain of the Company’s ~~right-of-use asset~~ leases include options to extend or terminate the lease. The amounts determined for the Company’s right-of-use assets and lease liabilities generally do not assume that renewal options or early-termination provisions, if any, are exercised unless it is reasonably certain that the Company will exercise such options.

AGRIFY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Deferred Revenue

Deferred revenue includes amounts collected or billed in excess of revenue that itthe Company can recognize. The Company recognizes deferred revenue and non-current deferred revenue as revenue as the related performance obligation is satisfied. The Company records deferred revenue that will be recognized during the succeeding twelve-month period as a current liability on the ~~condensed~~ consolidated balance sheet.

Fair Value of Financial Instruments

The Company’s financial instruments consist of cash, accounts receivable, ~~warrants,~~ accounts payable and accrued expenses. The estimated fair ~~value~~values of ~~the~~ accounts receivable and accounts payable ~~approximates~~approximate their carrying ~~value~~values due to the short-term nature of these instruments.

Stock-Based Compensation

The Company measures all stock options and other stock-based awards granted to employees, directors and ~~directors~~consultants based on the fair value on the date of the grant and recognizes compensation expense of those awards, net of estimated forfeitures, over the requisite service period, which is generally the vesting period of the respective award. Historically, the Company has issued stock options to employees, directors and consultants with only service-based vesting conditions and records the expense for these awards using the straight-line method.

The Company classifies stock-based compensation expense in its ~~condensed~~ consolidated statements of operations ~~and comprehensive loss~~ in the same manner in which the ~~award’s~~award recipient’s payroll costs are classified.

The Company estimates the fair value of each stock option grant on the date of the grant using the Black-Scholes option-pricing model. Before the IPO, the Company was a private company and therefore lacks company-specific historical and implied volatility information. Therefore, it estimates its expected stock volatility based on the historical volatility of similar publicly-traded companies and expects to continue to do so until such time as it has adequate historical data regarding the volatility of its own traded stock price. The expected term of the Company’s stock options has been determined utilizing the “simplified” method for awards that qualify as “plain-vanilla” options. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. The expected dividend yield is based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future.

Business Combinations

The Company accounts for business acquisitions using the purchase method of accounting, in accordance with which assets acquired and liabilities assumed are recorded at their respective fair values at the acquisition date. The fair value of the consideration paid, including contingent consideration, is assigned to the assets acquired and liabilities assumed based on their respective fair values. Goodwill represents the excess of the purchase price over the estimated fair values of the assets acquired and liabilities assumed.

The Company’s management exercises significant judgments in determining the fair value of assets acquired and liabilities assumed, as well as intangibles and their estimated useful lives. Fair value and useful life determinations are based on, among other factors, estimates of future expected cash flows, royalty cost savings and appropriate discount rates used in computing present values. These judgments may materially impact the estimates used in allocating acquisition date fair values to assets acquired and liabilities assumed, as well as the Company’s current and future operating results. Actual results may vary from these estimates which may result in adjustments to goodwill and acquisition date fair values of assets and liabilities during a measurement period or upon a final determination of asset and liability fair values, whichever occurs first. Adjustments to the fair value of assets and liabilities made after the end of the measurement period are recorded within the Company’s operating results.

AGRIFY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For contingent consideration arrangements, the Company recognizes a liability at fair value as of the acquisition date with subsequent fair value adjustments recorded in the consolidated statements of operations. Additional information regarding the Company’s contingent consideration arrangements may be found in Note 64 – Fair Value Measures, included elsewhere in the notes to the ~~condensed~~ consolidated financial statements.

Revenue Recognition

Overview

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

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

●

identify the customer contract;

●

identify performance obligations that are distinct;

●

determine the transaction price;

●

allocate the transaction price to the distinct performance obligations; and

●

recognize revenue as the performance obligations are satisfied.

Identify the customer contract

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

Identify performance obligations that are distinct

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

Determine the transaction price

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

Allocate the transaction price to distinct performance obligations

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

AGRIFY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Recognize revenue as the performance obligations are satisfied

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

Significant Judgments

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

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

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

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

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

If a contract has payment terms that differ from the timing of revenue recognition, the Company will assess whether the transaction price for those contracts include a significant financing component. The Company has elected the practical expedient that permits an entity to not adjust for the effects of a significant financing component if the Company expects that at the contract inception, the period between when the entity transfers a promised good or service to a customer and when the customer pays for that good or service, will be one year or less. For those contracts in which the period exceeds the one-year threshold, this assessment, as well as the quantitative estimate of the financing component and its relative significance, requires judgment. Accordingly, the Company imputes interest on such contracts at an ~~agreed upon~~agreed-upon interest rate and will present the financing components separately as financial income. For the ~~three~~six months ended ~~March 31,~~June 30, 2023 and 2022, ~~and 2021,~~ the Company did not have any such financial income.

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

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

AGRIFY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

The Company generally provides a one-year warranty on its products for materials and workmanship but may provide ~~multiple-year~~multiple year warranties as negotiated, and ~~will pass on~~generally transfers to its customers the warranties it receives from its vendors, if any, which generally ~~covers~~cover this one-year period. In accordance with ASC 450-20-25, the Company accrues for product warranties when the loss is probable and can be reasonably estimated. The Company maintains a reserve for warranty returns of $592 thousand and $553 thousand for June 30, 2023 and December 31, 2022, respectively. The Company’s reserve for warranty returns is included in accrued expenses and other current liabilities in ~~the Company’s condensed~~its consolidated balance sheets. Additional information regarding the Company’s warranty reserve may be found in Note 3 – Supplemental Consolidated Balance Sheet Information, included elsewhere in the notes to the consolidated financial statements.

Research and Development Costs

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

Capitalization of Internal Software Development Costs

The Company capitalizes certain software engineering efforts related to the continued development of Agrify ~~Insights software~~Insights™ under ASC ~~985-20. Costs~~Topic 350-40 The costs incurred ~~during~~in the preliminary stages of development are expensed as incurred as research costs. Once the application has reached the development ~~phase~~stage, internal and external costs incurred to develop internal-use software are ~~only~~ capitalized ~~once technical feasibility has been established~~ and amortized on a straight-line basis over the ~~work performed will~~estimated useful life of the software. Maintenance and enhancement costs, including those costs in the post-implementation stages, are typically expensed as incurred, unless such costs relate to substantial upgrades and enhancements to the software that result in ~~new or additional functionality.~~added functionality, in which case the costs are capitalized and amortized on a straight-line basis over the estimated useful life of the software. The types of costs capitalized during the application development phase include employee compensation, as well as consulting fees for third-party software developers working on these projects. Costs related to the research and development are expensed as incurred until technical feasibility is established as well as post-implementation activities. Internal-use software is amortized on a straight-line basis over theThe estimated useful life of ~~the asset, which~~capitalized internal-use software ranges from two to five years.

~~Shipping and Handling Charges~~

The Company incurs costs related to shipping and handling of its manufactured products. These costs are expensed as incurred as a component of cost of goods sold. Shipping and handling charges related to the receipt of raw materials are also incurred, which are recorded as a cost of the related inventory.

~~Equity Method Investments~~

Investments in affiliates which are 50% or less owned by the Company for which the Company exercises significant influence but does not have control are accounted for using the equity method. The Company has investments in equity investments without readily determinable fair values, which represents investments in entities where the Company does not have the ability to significantly influence the operations of the entities.

An assessment of whether or not the Company (as a holder of 50% of TPI) has the power to direct activities that most significantly impact TPI’s economic performance and to identify the party that obtains the majority of the benefits of the investment was performed as of March 31, 2022 and December 31, 2021 and will be performed as of each subsequent reporting date. After each of these assessments, the Company concluded that the activities that most significantly impact TPI’s economic performance are the growth, marketing, sale, and distribution of products using TPI’s technology and IP, each of which are solely directed by TPI. Based on our consideration of these assessments, the Company concluded that the Company’s investment in TPI should be accounted for under the equity method.

The carrying value of the Company’s investment in TPI was $0 as of March 31, 2022 and December 31, 2021. The Company did not recognize revenue from TPI for the three months ended March 31, 2022 and March 31, 2021.

Income Taxes

The Company accounts for income taxes pursuant to the provisions of ASC Topic 740, ~~“Income~~Income Taxes,” which requires, among other things, an asset and liability approach to calculating deferred income taxes. The asset and liability approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. A valuation allowance is provided to offset any net deferred tax assets for which management believes it is more likely than not that the net deferred tax asset will not be realized.

~~The Company follows the provisions of ASC 740-10-25-5, “Basic Recognition Threshold.”~~

AGRIFY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. In accordance with the guidance of ASC 740-10-25-6, the benefit of a tax position is recognized in the ~~condensed~~ consolidated financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above should be reflected as a liability for unrecognized tax benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. The Company believes its tax positions are all highly certain of being upheld upon examination. As such, the Company has not recorded a liability for unrecognized tax benefits. ~~As of March 31, 2022, tax years 2016 through 2021 remain open for IRS audit. The Company has received no notice of audit from the IRS for any of the open tax years.~~

The Company recognizes the benefit of a tax position when it is effectively settled. ASC 740-10-25-10, ~~“Basic Recognition Threshold”~~ provides guidance on how an entity should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits. ASC 740-10-25-10 clarifies that a tax position can be effectively settled upon the completion of an examination by a taxing authority. For tax positions considered effectively settled, the Company recognizes the full amount of the tax benefit.

Net ~~Income (Loss)~~Loss Per Share

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

Net ~~income (loss)~~loss per share calculations for all periods have been adjusted to reflect the ~~Reverse Stock Split~~reverse stock splits effected on ~~January 12, 2021.~~October 18, 2022 and July 5, 2023. Net ~~income (loss)~~loss per share was calculated based on the weighted-average number of Common Stock outstanding.

~~Note 4 — Recent Accounting Pronouncements~~

Recently Adopted Accounting Pronouncements

In August 2020, the FASB issued ~~Accounting Standards Update (“ASU”)~~ASU No. 2020-06, ~~Debt -~~ Debt—Debt with Conversion and Other Options (Subtopic 470-20), and Derivatives and ~~Hedging -~~ Hedging—Contracts in an Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The amendments in ASU No. 2020-06 simplify the complexity associated with applying ~~U.S.~~ GAAP for certain financial instruments with characteristics of liabilities and equity. More specifically, the amendments focus on the guidance for convertible instruments and derivative scope exceptions for contracts in an entity’s own equity. ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. The adoption of this new accounting guidance had no impact on the Company’s consolidated financial position.

~~Pending Accounting Pronouncements~~

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326), which introduces a new methodology for accounting for credit losses on financial instruments, including available-for-sale debt securities and accounts receivable. The guidance establishes a new “expected loss model” that requires entities to estimate current expected credit losses on financial instruments by using all practical and relevant information. Any expected credit losses are to be reflected as allowances rather than reductions in the amortized cost of available-for-sale debt securities. ASU 2016-13 is effective ~~in the first quarter of~~for fiscal ~~2024.~~years beginning after December 15, 2022. The Company ~~is currently evaluating the potential impact~~adopted ASU 2016-13 on January 1, 2023. The adoption of this ~~adoption~~standard did not have a material impact on ~~its~~these condensed consolidated financial ~~statements and related disclosures.~~statements.

In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 606): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires that an entity recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606 as if it had originated the contracts. Generally, this should result in an acquirer recognizing and measuring the acquired contract assets and contract liabilities consistent with how they were recognized and measured in the acquiree’s financial statements, if the acquiree prepared financial statements in accordance with ~~U.S.~~ GAAP. The amendment in this update is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The ~~guidance should be applied prospectively to business combinations occurring~~Company adopted ASU 2021-08 on ~~or after the effective date of the amendment in this update.~~January 1, 2023. The ~~Company is currently evaluating the potential impact~~adoption of this ~~adoption~~standard did not have a material impact on ~~its~~these condensed consolidated financial ~~statements and related disclosures.~~statements.

~~The Company does~~

AGRIFY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Other recent accounting pronouncements did not ~~believe that any other ASU issued but~~or are not ~~yet effective, if adopted, will~~believed by management to have a material ~~effect~~impact on the Company’s present or future consolidated financial statements.

Note 52 — Revenue and Deferred Revenue

Revenue

~~During the three months ended March 31, 2022 and 2021, the Company generated revenue from the following sources: (1) equipment sales, (2) services sales and (3) construction contracts.~~

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

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

~~Disaggregation of Revenue —~~The following table provides the Company’s revenue disaggregated by the timing of revenue recognition:

	Three Months ended March 31,				Three months ended June 30,				Six months ended June 30,
(In thousands)	2022		2021		2023		2022		2023		2022
Transferred at a point in time	$	12,774	$	6,828	$	4,583	$	10,244	$	9,553	$	23,018
Transferred over time		13,247		180		483		9,085		1,317		22,332
Total revenue	$	26,021	$	7,008	$	5,066	$	19,329	$	10,870	$	45,350

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

The Company generally provides a one-year warranty on its products for materials and workmanship but may provide multiple year warranties as negotiated, and generally transfers to its customers the warranties it receives from its vendors, if any, which generally cover this one-year period. In accordance with ASC 450-20-25, the Company accrues for product warranties when the loss is probable and can be reasonably estimated. The Company maintains a reserve for warranty returns of $398 thousand for both March 31, 2022 and December 31, 2021. The Company’s reserve for warranty returns is included in accrued expenses and other current liabilities in its condensed consolidated balance sheets.

Deferred Revenue

Changes in the Company’s current deferred revenue balance for the ~~three~~six months ended ~~March 31, 2022~~June 30, 2023 and the year ended December 31, ~~2021~~2022 were as follows:

(In thousands)	Three Months ended March 31, 2022			Year ended December 31, 2021			Six months ended June 30, 2023			Year ended December 31, 2022
Deferred revenue – beginning of period	$	3,772		$	152		$	4,112		$	3,772
Additions		5,089			3,758			2,340			13,392
Interest income on deferred revenue		—			4
Recognized		(4,679	)		(142	)		(2,859	)		(13,052	)
Deferred revenue – end of period	$	4,182		$	3,772		$	3,593		$	4,112

AGRIFY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Deferred revenue balances primarily consist of customer deposits on ~~our~~the Company’s cultivation and extraction solutions equipment. As of ~~March 31, 2022~~June 30, 2023 and December 31, ~~2021,~~2022, all of the Company’s deferred revenue balances were reported as current liabilities in ~~our~~the accompanying ~~condensed~~ consolidated balance sheets.

Note 3 — Supplemental Consolidated Balance Sheet Information

Accounts Receivable

Accounts receivable consisted of the following as of June 30, 2023 and December 31, 2022:

(In thousands)	June 30, 2023			December 31, 2022
Accounts receivable, gross	$	5,438		$	5,675
Less allowance for doubtful accounts		(4,090	)		(4,605	)
Accounts receivable, net	$	1,348		$	1,070

The changes in the allowance for doubtful accounts consisted of the following:

(In thousands)	Six months ended June 30, 2023			Year ended December 31, 2022
Allowance for doubtful accounts - beginning of period	$	4,605		$	1,415
(Recovery of) Provision for doubtful accounts		(542	)		4,928
Write-offs of uncollectible accounts		—			(1,510	)
Other adjustments		27			(228	)
Allowance for doubtful accounts - end of period	$	4,090		$	4,605

Bad debt expense was $362 thousand and $1.6 million for the three months ended June 30, 2023 and 2022, respectively, and $542 thousand and $1.6 million for the six months ended June 30, 2023 and 2022, respectively.

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following as of June 30, 2023 and December 31, 2022:

(In thousands)	June 30, 2023		December 31, 2022
Other receivables, other	$	431	$	424
Prepaid expenses, other		235		230
Prepaid insurance		1,377		219
Deferred issuance costs, net		—		463
Prepaid software		83		129
Prepaid materials		27		45
Total prepaid expenses and other current assets	$	2,153	$	1,510

AGRIFY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Property and Equipment, Net

Property and equipment, net consisted of the following as of June 30, 2023 and December 31, 2022:

(In thousands)	June 30, 2023			December 31, 2022
Leasehold improvements	$	1,171		$	1,111
Machinery and equipment		1,060			1,049
Software		606			606
Computer and office equipment		651			627
Leased equipment		5,067			602
Furniture and fixtures		498			504
Research and development laboratory equipment		183			260
Vehicles		136			136
Trade show assets		78			78
Total property and equipment, gross		9,450			4,973
Accumulated depreciation		(3,280	)		(2,372	)
Construction in progress		2,953			7,443
Total property and equipment, net	$	9,123		$	10,044

Depreciation expense for the three months ended June 30, 2023 and 2022 was $493 thousand and $438 thousand, respectively, and $938 thousand and $817 thousand for the six months ended June 30, 2023 and 2022, respectively.

Other Non-Current Assets

Other non-current assets consisted of the following as of June 30, 2023 and December 31, 2022:

(In thousands)	June 30, 2023		December 31, 2022
Security deposits	$	156	$	153
Long-term deferred commissions expense		—		173
Total other non-current assets	$	156	$	326

AGRIFY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following as of June 30, 2023 and December 31, 2022:

(In thousands)	June 30, 2023		December 31, 2022
Accrued acquisition liabilities (1)	$	2,180	$	3,502
Sales tax payable (2)		5,927		5,950
Accrued construction costs		1,499		2,669
Compensation related fees		628		2,285
Accrued professional fees		449		313
Accrued warranty expenses		592		553
Accrued consulting fees		3		20
Accrued inventory purchases		80		569
Accrued interest expense		609		240
Financing lease liabilities		142		152
Other current liabilities		—		127
Total accrued expenses and other current liabilities	$	12,109	$	16,380

(1)	Accrued acquisition liabilities includes both the contingent consideration and the value of held back Common Stock associated with the 2022 acquisition of Lab Society and the 2021 acquisitions of Precision, Cascade and PurePressure.

(2)

Sales tax payable primarily represents identified sales and use tax liabilities arising from our acquisition of Precision and Cascade. These amounts are included as part of our initial purchase price allocations and are the subject matter of an indemnification claim under the Precision and Cascade acquisition agreement.

Accrued Warranty Costs

The following table summarizes the activity related to the Company’s accrued liability for estimated future warranty costs:

(In thousands)	June 30, 2023		December 31, 2022
Warranty accrual – beginning of period	$	553	$	398
Liabilities accrued for warranties issued during the period		39		155
Warranty accrual – end of period	$	592	$	553

AGRIFY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 64 — Fair Value Measures

Fair Values of Assets and Liabilities

In accordance with ASC Topic 820 “Fair Value Measurement”, the Company measures fair value at the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining fair value, the assumptions that market participants would use in pricing an asset or liability (the inputs) are based on a tiered fair value hierarchy consisting of three levels, as follows:

	Level 1:	Observable inputs such as quoted prices for identical assets or liabilities in active markets.

	Level 2:	Other inputs that are observable directly or indirectly, such as quoted prices for similar instruments in active markets or for similar markets that are not active.

	Level 3:	Unobservable inputs for which there is little or no market data which require the Company to develop its own assumptions about how market participants would price the asset or liability.

Valuation techniques for assets and liabilities include methodologies such as the market approach, the income approach or the cost approach, and may use unobservable inputs such as projections, estimates and management’s interpretation of current market data. These unobservable inputs are only utilized to the extent that observable inputs are not available or cost-effective to obtain.

At ~~March 31, 2022~~June 30, 2023 and December 31, ~~2021,~~2022, the Company’s assets and liabilities measured at fair value on a recurring basis were as follows:

	March 31, 2022								December 31, 2021								June 30, 2023								December 31, 2022
	Fair Value Measurements Using Input Types								Fair Value Measurements Using Input Types								Fair Value Measurements Using Input Types								Fair Value Measurements Using Input Types
(In thousands)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets:
Mutual funds (included in cash and cash equivalents)	$	43,528	$	-	$	-	$	43,528	$	178	$	-	$	-	$	178	$	—	$	—	$	—	$	—	$	33	$	—	$	—	$	33
Municipal bonds		19,306		-		-		19,306		9,961		-		-		9,961
Money market funds																		4		—		—		4		—		—		—		—
Corporate bonds		18,905		-		-		18,905		34,589		-		-		34,589		—		—		—		—		427		—		—		427
Total assets	$	81,739	$	-	$	-	$	81,739	$	44,728	$	-	$	-	$	44,728	$	4	$	—	$	—	$	4	$	460	$	—	$	—	$	460
Liabilities:
Contingent consideration	$	-	$	-	$	7,557	$	7,557	$	-	$	-	$	6,137	$	6,137
Warrant liabilities		-		-		29,711		29,711		-		-		-		-
Warrant liabilities - January 2022 warrants																		—		—		6		6		—		—		4		4
Warrant liabilities - March 2022 warrants																		—		—		32		32		—		—		34		34
Warrant liabilities - August 2022 warrants																		—		—		77		77		—		—		93		93
Warrant liabilities - December 2022 warrants																		—		—		4,246		4,246		—		—		5,854		5,854
Total liabilities	$	-	$	-	$	37,268	$	37,268	$	-	$	-	$	6,137	$	6,137	$	—	$	—	$	4,361	$	4,361	$	—	$	—	$	5,985	$	5,985

AGRIFY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Fair Value of Financial Instruments

The Company has certain financial instruments which consist of cash and cash equivalents, marketable securities, warrant liabilities, and contingent ~~consideration, and warrant liabilities.~~consideration. Fair value information for each of these instruments isas well as other balances of the Company are as follows:

●

Cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and deferred revenue liabilities approximate their fair values, ~~approximate their carrying values, due to~~based on the ~~expected duration~~short-term nature of these instruments.

●

Marketable securities classified as current held-to-maturity securities are recorded at amortized cost, which at ~~March 31, 2022,~~June 30, 2023, approximated fair value.

●

The Company’s deferred consideration was recorded in connection with acquisitions during the ~~three~~six months ended ~~March 31, 2022~~June 30, 2023 and fiscal ~~2021~~2022 using an estimated fair value discount at the time of the ~~transaction.~~transactions. As of ~~March 31, 2022~~June 30, 2023 and December 31, ~~2021,~~2022, the carrying value of the deferred consideration approximated fair ~~value, respectively.~~

value.

●

~~Warrant~~The Company’s warrant liabilities ~~were~~are marked-to-market each reporting period with the changes in fair value of warrant liabilities recorded in ~~connection with~~other income (expense), net in the ~~issuance~~accompanying consolidated statements of operations until the warrants ~~to purchase the Company’s common stock during the three months ended March 31, 2022. As~~are exercised. The fair value of ~~March 31, 2022,~~ the warrant liabilities ~~were recorded at fair value.~~are estimated using a Black-Scholes option-pricing model.

Marketable Securities

As of ~~March 31, 2022,~~June 30, 2023, the Company held investments in ~~mutual funds,~~ municipal bonds and corporate bonds. ~~The Company records mutual funds at fair value in the accompanying condensed consolidated balance sheet as part of cash and cash equivalents.~~ The municipal and corporate bonds are considered held-to-maturity securities and are recorded at amortized cost in the accompanying ~~condensed~~ consolidated balance sheet. The fair values of these investments were estimated using recently executed transactions and market price quotations. The Company considers current assets as those investments which will mature within the next 12 months including, interest receivable on ~~the~~ long-term bonds.

The composition of the Company’s marketable securities are as follows:

(In thousands) March 31,
2022 December 31,
2021
Current marketable securities:
Municipal bonds $ 19,306 $ 9,961
Corporate bonds 18,905 34,589
$ 38,211 $ 44,550

~~The amortized cost and estimated fair value of marketable securities as of March 31, 2022, are as follows:~~

(In thousands)	Amortized cost		Unrealized loss			Estimated fair value		June 30, 2023		December 31, 2022
Current marketable securities:
Municipal bonds	$	19,306	$	(26	)	$	19,280
Money market funds								$	4	$	—
Corporate bonds		18,905		(140	)		18,765		—		427
Mutual funds									—		33
	$	38,211	$	(166	)	$	38,045	$	4	$	460

AGRIFY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Contingent Consideration

The Company has classified its net liability for contingent earn-out considerations to the sellers relating to one acquisition completed during the ~~three months ended March 31,~~first quarter of 2022 and two acquisitions completed during fiscal 2021. The fair value for the contingent consideration associated with these acquisitions is within Level 3 of the fair value hierarchy because the associated fair value is determined using significant unobservable inputs, which included the key assumptions to model future revenue, costs of goods sold and operating expense projections. ~~A description of~~The company recorded no change in contingent consideration for the ~~Company’s acquisitions completed during the three~~six months ended ~~March 31, 2022 and fiscal 2021 are included within Note 15 – Business Combinations, included elsewhere in the notes to the condensed consolidated financial statements.~~

June 30, 2023. The contingent earn-out payments to the sellers for each acquisition are based on the achievement of certain revenue thresholds.

(In thousands)	Year ended December 31, 2022
Contingent consideration – beginning of period	$	6,137
Accrued contingent consideration		1,420
Accretion of contingent consideration		149
Payments made on contingent liabilities		(5,550	)
Change in estimated fair value		(2,156	)
Contingent consideration – end of period	$	—

See below for additional information related to each acquisition’s contingent consideration.

Contingent Consideration – PurePressure

The Company, in its review of actual revenue performance as compared to its originally projected revenue estimates, noted that PurePressure’s revenue trend is materially below the originally estimated revenue trends incorporated into the Company’s original fair value estimates at the time of the acquisition. As a result, the Company has reduced its fair value estimate of achievement for PurePressure’s first earn-out period. During the ~~three months~~third quarter ended ~~March~~September 30, 2022, the Company reduced the estimated fair value of the contingent consideration liability associated with PurePressure’s first earn-out period by approximately $602 thousand and their second earn-out by approximately $170 thousand. As required by ASC Topic 805 Business Combination (“ASC 805”), the change in contingent consideration was recorded as a reduction in operating expenses during the third and fourth quarters of 2022, respectively.

Contingent Consideration – Lab Society

The Company, in its review of actual revenue performance as compared to its originally projected revenue estimates, noted that Lab Society’s revenue trend is materially below the originally estimated revenue trends incorporated into the Company’s original fair value estimates at the time of the acquisition. As a result, the Company has reduced its fair value estimate of achievement for Lab Society’s first earn-out period. During the second quarter ended June 30, 2022, the Company reduced the estimated fair value of the contingent consideration liability associated with Lab Society’s first earn-out period by approximately $1.0 million and their second earn-out by approximately $484 thousand. As required by ASC 805, the change in contingent consideration was recorded as a reduction in operating expenses during the second and fourth quarters of 2022, respectively.

Contingent Consideration – Precision and Cascade

The earn-out period for the potential contingent consideration to be earned by the former members of Precision and Cascade concluded on December 31, 2021. The Company, during the second quarter of 2022, increased the amount of the contingent consideration earned by the former members of Precision and Cascade by approximately $121 thousand, to reflect the final contingent consideration amount due. This amount was recorded as an increase in operating expenses during the second quarter of 2022. During the period ended December 31, 2022, the Company ~~accrued $1.4~~made the final payment on the contingent consideration of approximately $5.6 million ~~relating~~ to the ~~Lab Society acquisition for contingent consideration recorded from the initial purchase price accounting.~~ members of Precision and Cascade.

(In thousands) Three Months ended
March 31,
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 — 1,412
Contingent consideration – end of period $ 7,557 $ 6,137

The Company included contingent consideration within accrued expense and other current liabilities in its condensed consolidated balance sheets as of March 31, 2022 and December 31, 2021, respectively.

~~Warrant Liabilities~~

In January 2022, the Company issued warrants to purchase up to an aggregate of 15,078 shares of Common Stock in connection with a private placement transaction (the “PIPE Warrants”). The warrants have an exercise price of $1,496.00.

In March, 2022, the Company issued warrants to purchase up to an aggregate of 34,406 shares of Common Stock in connection with the issuance of debt (the “SPA Warrants”). The warrants have an exercise price of $1,350.00.

The grant date fair value of the PIPE Warrants and the SPA Warrants issued during the three months ended March 31, 2022 was calculated using a Black-Scholes model and was determined to be $40.5 million using the following inputs:

PIPE SPA
Warrants Warrants
Stock price $ 1,100.00 $ 1,228.00
Exercise price $ 1,496.00 $ 1,350.00
Expected term (in years) 5.5 5.5
Annualized volatility 87.53 % 87.57 %
Annual rate of quarterly dividends 0.0 % 0.0 %
Discount rate -bond equivalent yield 1.65 % 2.12 %

AGRIFY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Warrant Liabilities

The estimated fair value of the ~~PIPE Warrants~~warrant liabilities on June 30, 2023 is determined using Level 3 inputs. Inherent in a Black-Scholes option-pricing model are assumptions used in calculating the estimated fair values that represent the Company’s best estimate. The volatility rate is determined utilizing the Company’s own share price and the ~~SPA~~share price of competitors over time.

However, inherent uncertainties are involved. If factors or assumptions change, the estimated fair values could be materially different.

January 2022 Warrants ~~were remeasured~~

The following table summarizes the Company’s assumptions used in the valuation as of June 30, 2023 and ~~determined to be $29.7 million at March~~for the year ended December 31, ~~2022, using a Black-Scholes model using the following inputs:~~2022:

	PIPE			SPA
	Warrants			Warrants			As of June 30, 2023			December 31, 2022
Stock price	$	926.00		$	926.00		$	3.80		$	6.66
Exercise price	$	1,496.00		$	1,350.00		$	1,496.00		$	1,496.00
Expected term (in years)		5.3			5.4			4.07			4.58
Annualized volatility		87.68	%		87.79	%
Annual rate of quarterly dividends		0.0	%		0.0	%
Discount rate -bond equivalent yield		2.42	%		2.42	%
Volatility								126.00	%		98.30	%
Discount rate - treasury yield								4.30	%		4.05	%

The following table sets forth a summary of the changes in the fair value of the Level 3 warrant liabilities for the three and six months ended June 30, 2023:

(In thousands)	Three and Six Months Ended June 30, 2023
Warrant liabilities – beginning of period	$	4
Change in estimated fair value		3
Warrant liabilities - March 31, 2023		7
Change in estimated fair value		(1	)
Warrant liabilities –June 30, 2023	$	6

March 2022 Warrants

The following table summarizes the Company’s assumptions used in the valuation as of June 30, 2023 and for the year ended December 31, 2022:

(In thousands) Three Months
ended
March 31,
2022
Warrant liabilities – beginning of period $ —
Initial fair value of warrant liabilities 40,496
Change in estimated fair value (10,785 )
Warrant liabilities – end of period $ 29,711

	As of June 30, 2023			December 31, 2022
Stock price	$	3.80		$	6.66
Exercise price	$	430.00		$	430.00
Expected term (in years)		4.63			5.13
Volatility		124.00	%		97.96	%
Discount rate - treasury yield		4.20	%		3.99	%

AGRIFY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following table sets forth a summary of the changes in the fair value of the Level 3 warrant liabilities for the three and six months ended June 30, 2023:

(In thousands)	Three and Six Months Ended June 30, 2023
Warrant liabilities – beginning of period	$	34
Change in estimated fair value		5
Warrant liabilities - March 31, 2023		39
Change in estimated fair value		(7	)
Warrant liabilities – June 30, 2023	$	32

August 2022 Warrants

The following table summarizes the Company’s assumptions used in the valuation as of June 30, 2023 and for the year ended December 31, 2022:

	As of June 30, 2023			December 31, 2022
Stock price	$	3.80		$	6.66
Exercise price	$	246.00		$	246.00
Expected term (in years)		4.63			5.13
Volatility		124.00	%		97.96	%
Discount rate - treasury yield		4.20	%		3.99	%

The following table sets forth a summary of the changes in the fair value of the Level 3 warrant liabilities for the three and six months ended June 30, 2023:

(In thousands)	Three and Six Months Ended June 30, 2023
Warrant liabilities – beginning of period	$	93
Change in estimated fair value		(4	)
Warrant liabilities - March 31, 2023		89
Change in estimated fair value		(12	)
Warrant liabilities – June 30, 2023	$	77

December 2022 Warrants

The following table summarizes the Company’s assumptions used in the valuation as of June 30, 2023 and for the year ended December 31, 2022:

	As of June 30, 2023			December 31, 2022
Stock price	$	3.80		$	6.66
Exercise price	$	3.40		$	13.00
Expected term (in years)		4.63			4.98
Volatility		124.00	%		98.00	%
Discount rate - treasury yield		4.20	%		3.99	%

AGRIFY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following table sets forth a summary of the changes in the fair value of the Level 3 warrant liabilities for the three and six months ended June 30, 2023:

(In thousands)	Three and Six Months Ended June 30, 2023
Warrant liabilities – beginning of period	$	5,854
Change in estimated fair value		(3,493	)
Warrant liabilities - March 31, 2023		2,361
Change in estimated fair value		1,885
Warrant liabilities – June 30, 2023	$	4,246

Note 75 — ~~Loan~~Loans Receivable

A portion of the capital raised from the Company’s IPO ~~has been~~was allocated to launch ~~Agrify’s total turn-key solution (“~~the Company’s TTK ~~Solution”)~~Solution program. The TTK Solution is the industry’s ~~first end-to-end solution that~~first-of-its-kind program in which the Company engages with qualified cannabis operators in the early phases of their business plans and provides critical support, typically over a 10-year period, which includes: access to capital for construction costs, ~~equipment lease(s) to VFUs~~the design and ~~other related operating~~build-out of their cultivation and extraction facilities, state-of-the-art cultivation and extraction equipment, subscription to the Company’s Agrify ~~Insights software,~~Insights™, process design, training, implementation, proven grow recipes, product formulations, data analytics, and ~~business consultation services, which will enable~~consumer branding.

On September 15, 2022, the ~~Company’s customers to go to market faster~~Company provided a notice of default under the term loan agreement between the Company and ~~better.~~

~~The Company’s initial allowable investment~~Bud & Mary’s (the “Bud & Mary’s TTK Agreement”). On October 5, 2022, Bud & Mary’s Cultivation, Inc. (the “Bud & Mary’s”) filed a complaint in the Superior Court of Massachusetts in Suffolk County naming the Company as defendant. Bud & Mary’s is seeking, among other relief, monetary damages in connection with alleged unfair or deceptive trade practices, breach of contract and conversion arising from the Bud & Mary’s TTK ~~Solution engagements~~Agreement. In response, the Company established a reserve of $14.7 million specifically related to Bud & Mary’s. The Company deemed it necessary to fully reserve the $14.7 million outstanding balance in the third quarter of 2022 due to the current litigation and the uncertainty of the customer’s ability to repay the outstanding balance. The Company believes that Bud & Mary’s claims have no merit and intends to defend itself vigorously. The Company is ~~currently capped at $50.0 million, as approved by~~taking all necessary steps to pursue repayment from Bud & Mary’s and is taking all actions necessary to protect its shareholders’ interests.

During the ~~Company’s Board of Directors. As of March~~year ended December 31, 2022, ~~and December 31, 2021,~~ the Company ~~has committed $32.9~~established a reserve of approximately $12.5 million specifically related to the Agrify TTK Solution for five customers under contract and $20.3 million to the Agrify TTK Solution for five customers under contract, respectively. Of the five parties who have purchased the Agrify TTK Solution to date,Greenstone. Greenstone ~~Holdings~~ is a related party ~~as of March 31, 2022 and December 31, 2021.~~

The loan agreements entered into with customers receiving the Agrify TTK Solution generally provide for loans ranging from approximately $200 thousand up to $13.5 million with maturity dates of approximately two to three years after the completionbecause one of the ~~construction projects. Typically,~~Company’s former Agrify Brands employees and its VP of Engineering had a minority ownership. The Company established the ~~TTK Solution construction loans~~reserve based upon its review of Greenstone’s financial stability, which would impact collectability, which is primarily the result of unfavorable market conditions within the Colorado market. The Company will continue to monitor the operations of Greenstone in an effort to collect all outstanding receivables but due to the uncertain nature of Greenstone’s business at this time the Company has made the decision to place a reserve against the receivables. During the quarter ended June 30, 2023 the Greenstone loan was fully written off against the reserve as a result of the sale of Greenstone to Denver Greens. It was agreed that Denver Greens would not have ~~interest rates ranging from 12%~~ to ~~18% per year.~~pay back Greenstone’s Loan.

AGRIFY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The breakdown of loans receivable by ~~Company~~customer as of ~~March 31, 2022~~June 30, 2023 and December 31, ~~2021 is~~2022 were as follows:

(In thousands) March 31,
2022 December 31,
2021
Company A – Agrify TTK Solution $ 9,579 $ 5,542
Greenstone Holdings – TTK Solution – Related Party 12,446 11,177
Company C – Agrify TTK Solution 7,479 2,439
Company D – Agrify TTK Solution 3,338 1,105
Company E – Agrify TTK Solution 46 46
Company F – Non-TTK Solution (1) 1,538 1,946
Other – Non-TTK Solutions 312 —
Total loan receivable $ 34,738 $ 22,255

(In thousands)	June 30, 2023			December 31, 2022
Customer 139	$	14,691		$	14,691
Customer 136		—			12,457
Customer 125		9,012			9,048
Customer 24096		6,769			5,890
Other – Non-TTK Solution (1)		—			3,178
Allowance for doubtful accounts (2)(3)		(19,215	)		(33,050	)
Total loan receivable	$	11,257		$	12,214

(1)	~~Current~~The current portion of loan receivable ~~are~~is included within Note 103 – ~~Prepaid Expenses and Other Current Receivables,~~Supplemental Consolidated Balance Sheet Information, included elsewhere in the notes to the ~~condensed~~ consolidated financial statements.

(2)	The balance was written off at December 31, 2022 due to the cancellation of this TTK Solution project.

(3)	The Company established an allowance for doubtful accounts of approximately $14.7 million related to Bud & Mary’s ongoing litigation. Approximately $12.5 million relates to Greenstone, which is a related party because one of the Company’s former Agrify Brands employees and its VP of Engineering had a minority ownership, consisting of capital advances, accrued interest, and VFUs sales. Approximately $4.5 million relates to Hannah, and $1.4 million relates to WhiteCloud.

At this time, the Company is not aware of, nor has it identified any risk or potential performance failure associated with any of its TTK Solution arrangements, other than the noted exceptions of Bud & Mary’s TTK Solution and Greenstone TTK Solution, which is a related party, as described above.

The Company analyzed whether any of the above customers are a VIE in accordance with ASC 810 and if so, whether the Company is the primary beneficiary requiring consolidation. Based on the Company’s analysis, the Company has determined that Greenstone, ~~Holdings~~which is a related party because one of the Company’s former Agrify Brands employees and its VP of Engineering had a minority ownership, is a VIE. As of ~~March 31, 2022,~~June 30, 2023, two of the Company’s employees own approximately 36.6% of the equity of Greenstone, ~~Holdings,~~ however, since the Company is not the primary beneficiary and does not hold significant influence over Greenstone ~~Holdings~~ business decisions, the Company is not required to consolidate ~~Greenstone Holdings.~~Greenstone.

Note 86 — ~~Accounts Receivable~~Inventory

~~Accounts receivable consisted of the following as of March 31, 2022 and December 31, 2021:~~

(In thousands) March 31,
2022 December 31,
2021
Accounts receivable, gross $ 9,986 $ 8,637
Less allowance for doubtful accounts (1,415 ) (1,415 )
Accounts receivable, net $ 8,571 $ 7,222

~~NEIA, a related party, accounted for $1.3 million and $3.5 million of the Company’s accounts receivable, net as of March 31, 2022 and December 31, 2021, respectively.~~

~~The changes in the allowance for doubtful accounts consisted of the following:~~

(In thousands) Three Months ended
March 31,
2022 Year ended
December 31,
2021
Allowance for doubtful accounts - beginning of period $ 1,415 $ 54
Provision for doubtful accounts — 1,187
Other adjustments — 174
Allowance for doubtful accounts - end of period $ 1,415 $ 1,415

~~Bad debt expense was~~ ~~nil~~ ~~for both the three months ended March 31, 2022 and March 31, 2021.~~

~~Note 9 — Inventory~~

Inventories are stated at the lower of cost or net realizable value, with cost principally determined by the weighted-average cost method on a ~~First-In, First-Out~~first-in, first-out basis. Such costs include the acquisition cost for raw materials and operating supplies. The Company’s standard payment terms with suppliers may require making payments in advance of delivery of the Company’s products. The Company’s prepaid inventory is a short-term, non-interest-bearing asset that is applied to the purchase of products once they are delivered.

Inventory consisted of the following as of ~~March 31, 2022~~June 30, 2023 and December 31, ~~2021:~~2022:

(In thousands)	March 31, 2022			December 31, 2021			June 30, 2023			December 31, 2022
Raw materials	$	7,211		$	6,393		$	25,059		$	24,960
Prepaid inventory		10,745			2,237			13,325			15,506
Finished goods		21,975			12,810			7,651			13,689
Inventory for resale								5,123			—
Inventory, gross		39,931			21,440			51,158			54,155
Inventory reserves		(942	)		(942	)		(32,422	)		(32,759	)
Total inventory, net	$	38,989		$	20,498		$	18,736		$	21,396

Inventory Reserves

The Company establishes an inventory reserve for obsolete, slow moving, and defective inventory. The Company calculates inventory reserves for obsolete, slow moving, or defective items as the difference between the cost of inventory and its estimated net realizable value. The reserves are based upon management’s expected method of disposition.

~~Changes in the Company’s inventory reserve are as follows:~~

(In thousands) Three Months ended
March 31,
2022 Year ended
December 31,
2021
Inventory reserves – beginning of period $ 942 $ —
Increase in inventory reserves — 942
Inventory write-offs — —
Inventory reserves – end of period $ 942 $ 942

~~Note 10 — Prepaid Expenses and Other Current Assets~~

~~Prepaid expenses and other current assets consisted of the following as of March 31, 2022 and December 31, 2021:~~

March 31, December 31,
(In thousands) 2022 2021
Prepaid insurance $ 2,353 $ 492
Prepaid software 151 173
Prepaid expenses, other 1,828 541
Deferred costs 492 353
Other note receivables (1) 1,240 807
Other receivables, other 384 86
Total prepaid expenses and other current assets $ 6,448 $ 2,452

~~(1)~~

~~Other note receivables relate to the current portion of one of our TTK Solutions loan receivable balances.~~

~~Note 11 — Property and Equipment, Net~~

~~Property and equipment, net consisted of the following as of March 31, 2022 and December 31, 2021:~~

(In thousands) March 31,
2022 December 31,
2021
Computer and office equipment $ 519 $ 473
Furniture and fixtures 458 385
Leasehold improvements 993 841
Machinery and equipment 990 898
Software 210 174
Vehicles 143 143
Research and development laboratory equipment 205 163
Leased equipment at customer 690 619
Trade show assets 80 80
Total property and equipment, gross 4,288 3,776
Accumulated depreciation (1,156 ) (780 )
Construction in progress 3,923 3,236
Total property and equipment, net $ 7,055 $ 6,232

~~Depreciation expense for the three months ended March 31, 2022 and 2021 was $379 thousand and $90 thousand, respectively.~~

AGRIFY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Changes in the Company’s inventory reserve are as follows:

(In thousands) Six Months Ended
June 30,
2023 Year Ended
December 31,
2022
Inventory reserves – beginning of period $ 32,759 $ 942
(Decrease) increase in inventory reserves (337 ) 31,817
Inventory reserves – end of period $ 32,422 $ 32,759

Note 127 — Goodwill and Intangible Assets, Net ~~and Goodwill~~

~~The Company records intangible~~Intangible assets are initially recorded at fair value and ~~tests these values~~tested periodically for impairment. Goodwill represents the excess of the purchase price over the fair value of identifiable tangible and intangible assets acquired and liabilities assumed in a business combination and is tested at least annually for impairment. The Company performs anits goodwill impairment ~~test of goodwill~~testing annually during the fourth quarter, ~~of each year~~ or sooner if indicators or if circumstances were to occur that would more likely than not reduce the fair value of ~~potential~~the Company’s reporting unit below its carrying amount. The Company would recognize an impairment ~~arise. There were no such~~charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, not to exceed the total amount of goodwill.

The Company has concluded that there was an impairment-triggering event during the quarter ended June 30, 2022 that required the Company to perform a detailed analysis of the current carrying value of its goodwill and intangible assets. For goodwill and intangible asset impairment testing purposes, the Company has one reporting unit.

During the quarter ended June 30, 2022, the Company’s market capitalization fell below total net assets. In addition, financial performance continued to weaken during the quarter, which was contrary to prior experience. Management reassessed business performance expectations following persistent adverse developments in equity markets, deterioration in the environment in which the Company operates, lower-than-expected sales, and an increase in operating expenses. These indicators, in the ~~three months ended March 31, 2022.~~

~~Intangible assets, net as of March 31, 2022 was as follows:~~

Intangible Assets, Gross Accumulated Amortization Intangible Assets, Net
(In thousands) January 1,
2022 Additions
and
Retirements,
net March 31,
2022 January 1,
2022 Expense
and
Retirements,
net March 31,
2022 January 1,
2022 March 31,
2022
Trade names $ 2,418 $ 317 $ 2,735 $ (227 ) $ (91 ) $ (318 ) $ 2,191 $ 2,417
Customer Relationships 6,176 713 6,889 (302 ) (247 ) (549 ) 5,874 6,340
Acquired developed Technology 4,911 1,432 6,343 (191 ) (255 ) (446 ) 4,720 5,897
Non-compete 1,202 — 1,202 (60 ) (60 ) (120 ) 1,142 1,082
Capitalized website costs 245 — 245 (100 ) (20 ) (120 ) 145 125
Total $ 14,952 $ 2,462 $ 17,414 $ (880 ) $ (673 ) $ (1,553 ) $ 14,072 $ 15,861

~~Intangible assets, net as of December 31, 2021 was as follows:~~

Intangible Assets, Gross Accumulated Amortization Intangible Assets, Net
(In thousands) January 1,
2021 Additions
and
Retirements,
net December 31,
2021 January 1,
2021 Expense
and
Retirements,
net December 31,
2021 January 1,
2021 December 31,
2021
Trade names $ 930 $ 1,488 $ 2,418 $ (88 ) $ (139 ) $ (227 ) $ 842 $ 2,191
Customer Relationships 850 5,326 6,176 (89 ) (213 ) (302 ) 761 5,874
Acquired developed Technology — 4,911 4,911 — (191 ) (191 ) — 4,720
Non-compete — 1,202 1,202 — (60 ) (60 ) — 1,142
Capitalized website costs 139 106 245 (48 ) (52 ) (100 ) 91 145
Total $ 1,919 $ 13,033 $ 14,952 $ (225 ) $ (655 ) $ (880 ) $ 1,694 $ 14,072

~~Amortization expense recorded in general~~aggregate, required impairment testing for goodwill and ~~administrative in the condensed consolidated statements of operations were $673 thousand and $58 thousand for the three months ended March 31, 2022 and 2021, respectively.~~intangible assets.

~~Estimated amortization expense for~~Based on the ~~remainder~~results of this testing, the Company determined that the carrying values of the aggregate value of its goodwill and intangible assets were not recoverable. The Company recorded impairment charges during the second quarter of 2022, representing a full impairment of the carrying value of its goodwill and ~~subsequent years for acquired~~ intangible ~~assets:~~assets. The Company recorded an impairment charge of approximately $69.9 million, representing the carrying values of goodwill and intangible assets, which totaled $54.7 million and $15.2 million, respectively.

Years ending December 31 (In thousands), Amount
Remaining 2022 $ 2,103
2023 2,772
2024 2,763
2025 2,737
2026 2,486
2027 and thereafter 3,000
Total $ 15,861

~~Goodwill~~Changes in goodwill consisted of the following:

(In thousands) Three Months ended
March 31,
2022 Year ended
December 31,
2021
Goodwill - beginning of period $ 50,090 $ 632
Goodwill acquired during period 4,368 49,458
Goodwill purchase accounting adjustment 86 —
Goodwill - end of period $ 54,544 $ 50,090

~~Note 13 — Other Non-Current Assets~~

~~Other non-current assets consisted of the following as of March 31, 2022 and December 31, 2021:~~

March 31, December 31,
(In thousands) 2022 2021
Long-term deferred commissions expense $ 3,008 $ 1,101
Security deposits 97 83
Total other non-current assets $ 3,105 $ 1,184

~~Note 14 — Accrued Expenses and Other Current Liabilities~~

~~Accrued expenses and other current liabilities consisted of the following as of March 31, 2022 and December 31, 2021:~~

(In thousands) March 31,
2022 December 31,
2021
Accrued acquisition liability (1) $ 11,179 $ 9,198
Sales tax payable (2) 5,520 5,290
Accrued construction costs 8,542 8,803
Compensation related fees 3,232 3,491
Accrued professional fees 466 1,104
Accrued warranty expenses 398 398
Accrued consulting fees — 75
Accrued inventory purchases 536 201
Financing lease liabilities 182 156
Accrued non-income taxes 57 48
Total accrued expenses and other current liabilities $ 30,112 $ 28,764

~~(1)~~

Accrued acquisition liabilities includes both the contingent consideration and the value of held back Common Stock associated with the 2022 acquisition of Lab Society and the 2021 acquisitions of Precision, Cascade and PurePressure.

~~(2)~~

~~Note 15 — Business Combination~~

~~Acquisition of Lab Society~~

On February 1, 2022, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Lab Society, Lab Society NewCo, LLC, a newly-formed wholly-owned subsidiary of the Company (“Merger Sub”), Michael S. Maibach Jr., as the Owner Representative thereunder, and each of the shareholders of Lab Society (collectively, the “Owners”), pursuant to which the Company agreed to acquire Lab Society. Concurrently with the execution of the Merger Agreement, the Company consummated the merger of Lab Society with and into Merger Sub, with Merger Sub surviving such merger as a wholly-owned subsidiary of the Company (the “Lab Society Acquisition”).

The aggregate consideration for the Lab Society Acquisition consisted of: (a) $4.0 million in cash, subject to certain adjustments for working capital, cash and indebtedness of Lab Society at closing; (b) 2,128 shares of Common Stock (the “Buyer Shares”); and (c) the Earn-out Consideration (as defined below), to the extent earned.

The Company withheld 638 of the Buyer Shares issuable to the Owners (the “Holdback Lab Buyer Shares”) for the purpose of securing any post-closing adjustment owed to the Company and any claim for indemnification or payment of damages to which the Company may be entitled under the Merger Agreement. The Holdback Lab Buyer Shares will be released following the twelve-month anniversary of the Closing Date in accordance with and subject to the conditions of the Merger Agreement.

The Merger Agreement includes customary post-closing adjustments, representations and warranties and covenants of the parties. The Owners may become entitled to additional consideration with a value of up to $3.5 million based on the eligible net revenues achieved by the Lab Society business during the fiscal years ending December 31, 2022 and December 31, 2023, of which 50% will be payable in cash and the remaining 50% will be payable by issuing shares of Common Stock.

Transaction and related costs, consisting primarily of professional fees, directly related to the acquisition, totaled approximately $28 thousand for the three months ended March 31, 2022. All transaction and related costs were expensed as incurred and are included in general and administrative expenses.

The Company has prepared purchase price allocations for the business combination with Lab Society on a preliminary basis. Changes to those allocations may occur as additional information becomes available during the respective measurement period (up to one year from the acquisition date). Fair values still under review as of March 31, 2022 include values assigned to identifiable intangible assets and goodwill.

~~The following table sets forth the components and the allocation of the purchase price for the business combination:~~

(In thousands)
Purchase price consideration:
Estimated closing proceeds $ 4,002
Transaction expenses 80
Closing buyer shares 1,904
Holdback buyer shares 816
Earn-out consideration 1,420
Estimated working capital adjustment (255 )
Fair value of total consideration transferred 7,967
Total purchase price, net of cash acquired $ 7,402

Fair value allocation of purchase price:
Cash and cash equivalents $ 565
Accounts receivable 511
Inventory 2,130
Prepaid expenses and other current receivables 55
Right of use assets, net 304
Property and equipment, net 177
Prepaid and refundable taxes 194
Accounts payable, accrued expenses, and other current liabilities (1,224 )
Deferred revenue (963 )
Deferred tax liability (237 )
Finance lease liabilities, current (36 )
Finance lease liabilities, noncurrent (35 )
Operating lease liabilities, current (112 )
Operating lease liabilities, noncurrent (192 )
Acquired intangible assets 2,462
Goodwill 4,368
Total purchase price $ 7,967

Identified intangible assets consist of trade names, technology, and customer relationships. The fair value of intangible assets and the determination of their respective useful lives were made in accordance with ASC 805 and are outlined in the table below:

(In thousands) Asset
Value Useful Life
Identified intangible assets:
Trade names $ 317 5 years
Acquired developed technology 1,432 8 years
Customer relationships 713 6 years
Total identified intangible assets $ 2,462

The Company’s initial fair value estimates related to the various identified intangible assets of Lab Society were determined under various valuation approaches including the Income Approach, Relief-from-Royalty Method, and Discounted Cash Flow Method. These valuation methods require management to project revenues, operating expenses, working capital investment, capital spending and cash flows for the reporting unit over a multiyear period, as well as determine the weighted-average cost of capital to be used as a discount rate.

(In thousands)	Year ended December 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 amortizes its intangible assets assuming no residual value over periods in which the economic benefit of these assets is consumed.~~

~~The amount of revenue of Lab Society included in the condensed consolidated statement of operations from the acquisition date of February 1, 2022 to March 31, 2022 was $1.5 million.~~

~~Acquisition of Precision and Cascade~~

On September 29, 2021 (the “Execution Date”), the Company entered into a Plan of Merger and Equity Purchase Agreement, as amended by an amendment dated as of October 1, 2021 (as amended, the “Purchase Agreement”), with Sinclair Scientific, LLC, a Delaware limited liability company (“Sinclair”), Mass2Media, LLC, d/b/a PX2 Holdings, LLC, d/b/a Precision Extraction Solutions, a Michigan limited liability company (“Precision”); and each of the equity holders of Sinclair named therein (collectively, the “Sinclair Members”). On October 1, 2021, the Company consummated the transactions contemplated by the Purchase Agreement.

Subject to the terms and conditions set forth in the Purchase Agreement, (1) Sinclair transferred, to the Company, and the Company purchased (the “Interest Purchase”) from Sinclair, 100% of the equity interests of Cascade Sciences, LLC, a Delaware limited liability company (“Cascade”), such that immediately after the consummation of such Interest Purchase, Cascade became a wholly-owned subsidiary of the Company, and (2) Precision merged (the “Merger”) with and into a newly-formed wholly-owned subsidiary of the Company, Precision Extraction NewCo, LLC.

The aggregate consideration for the Interest Purchase and the Merger consisted of: (a) the sum of $30 million in cash, plus consideration payable to holders of outstanding Sinclair equity awards, subject to certain adjustments for working capital, cash and indebtedness, payable in connection with the Interest Purchase; (b) the number of shares of Common Stock, subject to adjustment, equal to the quotient of (i) $20.0 million divided by (ii) the volume weighted-average price per share of Common Stock on The Nasdaq Capital Market for the 30 consecutive trading days ending on the Execution Date (the “VWAP Price”), issuable in connection with the Merger; and (c) the True-Up Buyer Shares, if any (as defined below), issuable in connection with the Merger.

The Purchase Agreement includes customary post-closing adjustments, representations and warranties and covenants of the parties. The Sinclair Members may become entitled to additional shares of Common Stock (the “True-Up Buyer Shares”) and cash (together with the True-Up Buyer Shares, the “Aggregate True-Up Payment) based on the eligible net revenues (as defined in the Purchase Agreement) achieved by the Cascade and Precision businesses during the fiscal year ending December 31, 2021. However, in no event shall the aggregate purchase price paid by the Company pursuant to the terms of the Purchase Agreement, taking into account any Aggregate True-Up Payment in favor of the Sinclair Members, exceed $65.0 million. ~~During the fourth quarter of 2021, the fair value of the contingent earn-out consideration totaled $5.4 million based on Sinclair Members achieving certain revenue targets.~~

Transaction and related costs, consisting primarily of professional fees, directly related to the acquisition, totaled approximately $38 thousand for the three months ended March 31, 2022. All transaction and related costs were expensed as incurred and are included in selling, general and administrative expenses. The purchase price allocation for the business combination has been prepared on a preliminary basis and changes to those allocations may occur as additional information becomes available during the measurement period (up to one year from the acquisition date).

~~The following table sets forth the components and the allocation of the purchase price for the business combination:~~

(In thousands)
Purchase price consideration:
Cash paid to Sinclair Members at close $ 23,000
Cash contributed to escrow accounts at close 7,000
Cash paid for excess net working capital 1,430
Stock issued at close 14,535
Fair value of contingent consideration to be achieved 3,953
Fair value of total consideration transferred 49,918
Total purchase price, net of cash acquired $ 48,630

Fair value allocation of purchase price:
Cash and cash equivalents $ 1,288
Accounts receivable 897
Inventory 6,761
Prepaid expenses and other current receivables 1,736
Property and equipment, net 970
Right of use assets, net 730
Capitalized web costs, net 2
Accounts payable and accrued expenses (9,223 )
Deferred revenue (5,419 )
Long-term debt (1,961 )
Operating lease liabilities, current (392 )
Operating lease liabilities, noncurrent (362 )
Acquired intangible assets 9,889
Goodwill 45,002
Total purchase price $ 49,918

Identified intangible assets consist of trade names, technology, non-compete agreements, and customer relationships. The fair value of intangible assets and the determination of their respective useful lives were made in accordance with ASC 805 and are outlined in the table below:

(In thousands) Asset
Value Useful Life
Identified intangible assets:
Trade names $ 1,260 6 to 7 years
Acquired developed technology 3,818 5 years
Non-compete agreements 1,202 5 years
Customer relationships 3,609 7 to 8 years
Total identified intangible assets $ 9,889

The Company’s initial fair value estimates related to the various identified intangible assets were determined under various valuation approaches including the Income Approach, Relief-from-Royalty Method, and Discounted Cash Flow Method. These valuation methods require management to project revenues, operating expenses, working capital investment, capital spending and cash flows for the reporting unit over a multiyear period, as well as determine the weighted-average cost of capital to be used as a discount rate.

~~The Company amortizes its intangible assets assuming no residual value over periods in which the economic benefit of these assets is consumed.~~

~~Acquisition of PurePressure~~

On December 31, 2021, the Company entered into a Membership Interest Purchase Agreement (the “Pure Purchase Agreement”) with PurePressure, LLC, a Colorado Limited liability company (“PurePressure”) and the members of PurePressure (collectively, the “Members”), Benjamin Britton as the Member Representative thereunder, and each of the Members. Concurrently with the execution of the Pure Purchase Agreement, the Company consummated the acquisition of all the outstanding equity interests of PurePressure, such that immediately after the consummation of such purchase, PurePressure became a wholly-owned subsidiary of the Company (the “Acquisition”).

The aggregate consideration for the Acquisition consisted of: (a) $4.0 million in cash, subject to certain adjustments for working capital, cash and indebtedness of PurePressure at closing; (b) 1,646 shares of Common Stock (the “Buyer Shares”); and (c) the Earn-out Consideration (as defined below), to the extent earned.

The Company withheld 444 of the Buyer Shares issuable to certain Members (the “Holdback Buyer Shares”) for the purpose of securing any post-closing adjustment owed to the Company and any claim for indemnification or payment of damages to which the Company may be entitled under the Pure Purchase Agreement. The Holdback Buyer Shares will be released following the twelve-month anniversary of the Closing Date in accordance with and subject to the conditions of the Pure Purchase Agreement.

The Pure Purchase Agreement includes customary post-closing adjustments, representations and warranties and covenants of the parties. The Members may become entitled to additional consideration with a value of up to $3.0 million based on the eligible net revenues achieved by the PurePressure business during the fiscal years ending December 31, 2022 and December 31, 2023, of which 40% will be payable in cash and the remaining 60% will be payable by issuing shares of Common Stock (collectively, the “Earn-out Consideration”).

Transaction and related costs, consisting primarily of professional fees, directly related to the acquisition, totaled approximately $562 thousand for the three months ended March 31, 2022. All transaction and related costs were expensed as incurred and are included in general and administrative expenses.

The purchase price allocation for the business combination has been prepared on a preliminary basis and changes to those allocations may occur as additional information becomes available during the respective measurement period (up to one year from the acquisition date). Fair values still under review as of March 31, 2022 include values assigned to identifiable intangible assets and goodwill.

~~The following table sets forth the components and the allocation of the purchase price for the business combination:~~

(In thousands)
Purchase price consideration:
Estimated closing proceeds $ 3,613
Indebtedness paid 320
Transaction expenses 115
Closing buyer shares 2,211
Holdback buyer shares 654
Earn-out consideration 707
Estimated working capital adjustments 330
Fair value of total consideration transferred 7,950
Total purchase price, net of cash acquired $ 7,647

Fair value allocation of purchase price:
Cash and cash equivalents $ 303
Accounts receivable, net 48
Inventory 1,537
Property and equipment, net 219
Right of use assets, net 191
Prepaid expenses and other current receivables 61
Other non-current assets 16
Accounts payable and accrued expenses (765 )
Deferred revenue (762 )
Operating lease liabilities, current (117 )
Operating lease liabilities, noncurrent (74 )
Finance lease liabilities, current (4 )
Finance lease liabilities, noncurrent (10 )
Notes payable, current (260 )
Notes payable, noncurrent (12 )
Acquired intangible assets 3,037
Goodwill 4,542
Total purchase price $ 7,950

(In thousands) Asset
Value Useful Life
Identified intangible assets:
Trade name $ 227 5 years
Acquired developed technology 1,093 8 years
Customer relationships 1,717 5 years
Total identified intangible assets $ 3,037

Subject to certain customary limitations, (i) the Members will indemnify the Company and its affiliates, officers, directors and other agents against certain losses related to, among other things, breaches of the Members’ and PurePressure’s representations and warranties, indebtedness, transaction expenses, pre-closing taxes and the failure to perform covenants or obligations under the Pure Purchase Agreement, and (ii) the Company will indemnify the Members and their respective affiliates, officers, directors and other agents against certain losses related to, among other things, breaches of the Company’s representations and warranties and the failure to perform covenants or obligations under the Pure Purchase Agreement.AGRIFY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Intangible assets, net as of December 31, 2022 were as follows:

	Intangible Assets, Gross						Accumulated Amortization and Impairment									Intangible Assets, Net
	January 1,		Additions and Retirements,		December 31,		January 1,			Expense and Retirements,			December 31,			January 1,		December 31,
(In thousands)	2022		net		2022		2022			net			2022			2022		2022
Trade names	$	2,418	$	317	$	2,735	$	(227	)	$	(2,508	)	$	(2,735	)	$	2,191	$	—
Customer relationships		6,176		713		6,889		(302	)		(6,587	)		(6,889	)		5,874		—
Acquired developed technology		4,911		1,432		6,343		(191	)		(6,152	)		(6,343	)		4,720		—
Non-compete		1,202		—		1,202		(60	)		(1,142	)		(1,202	)		1,142		—
Capitalized website costs		245		—		245		(100	)		(145	)		(245	)		145		—
Total	$	14,952	$	2,462	$	17,414	$	(880	)	$	(16,534	)	$	(17,414	)	$	14,072	$	—

Note ~~16 –~~8 — Debt

The Company’s debt consisted of:

	March 31, 2022			December 31, 2021
Note payable – SPA Note	$	65,000		$	—
(In thousands)							June 30, 2023			December 31, 2022
Note payable – Exchange Note							$	18,509		$	31,975
PPP Loan		794			804			541			656
Navitas loan								—			23
Other notes payable (1)		1,487			297			836			—
Total debt		67,281			1,101			19,886			32,654
Less: unamortized debt discount		(29,303	)		—			690			(3,415	)
Total debt, net of debt discount		37,978			1,101			20,576			29,239
Less: current portion, net of current unamortized debt discount		(2,281	)		(1,089	)		(1,424	)		(28,832	)
Long-term debt	$	35,697		$	12
Long-term debt, net of current							$	19,152		$	407

(1)	Other notes payable relates to a one-year insurance premium that was financed over nine-months.

Note Payable

Securities Purchase Agreement

On March 14, 2022, the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with ~~an accredited investor (the “Investor”),~~the Investor, pursuant to which the Company agreed to issue and sell to the Investor, in a private placement transaction, in exchange for the payment by the Investor of ~~$65~~$65.0 million, less applicable expenses, as set forth in the Securities Purchase Agreement, ~~(i)~~ a ~~SPA Note~~senior secured promissory note in an aggregate principal amount of ~~$65~~$65.0 million ~~and (ii) a warrant~~ (the “SPA ~~Warrant”~~Note”), and a SPA Warrant to purchase up to an aggregate of 34,406 shares of Common Stock.

AGRIFY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

August 2022 Securities Exchange Agreement

On August 18, 2022, the Company reached an agreement with the Investor to amend its existing senior SPA Note and entered into the August 2022 Exchange Agreement. Pursuant to the August 2022 Exchange Agreement, the Company partially paid $35.2 million along with approximately $300 thousand in repayments for other fees under the SPA Note and exchanged the remaining balance of the SPA Note for an Exchange Note with an aggregate original principal amount of $35.0 million and a new Note Exchange Warrant to purchase 71,139 shares of Common Stock and modified an existing SPA Warrants to purchase up to an aggregate of 34,406 shares of Common Stock. The Company exchanged the SPA Warrant for new August 2022 Warrants.

The ~~SPA~~Exchange Note is a senior secured obligation of the Company and ranks senior to all indebtedness of the Company. The ~~Company~~Exchange Note will mature on the three-year anniversary of its issuance (the “Maturity Date”) and contains a 9.0% annualized interest rate, with interest to be ~~required to make amortization payments equal to 4.0% of the original~~paid monthly, in cash, beginning September 1, 2022. The principal amount of the SPA Note on the first day of each calendar month starting on February 1, 2023 and extending through the maturity date of March 1, 2026 (the “Maturity Date”), at which time all remaining outstanding principal and accrued but unpaid interest will be due. The SPA Note has a stated interest rate of 6.75% per year, and the Company is required to pay interest on March 1, June 1, September 1, and December 1 of each calendar year through the Maturity Date. Following the one-year anniversary of the SPA Note’s issuance, the Company may, in lieu of paying interest in cash, pay such interest in kind, in which case interest on the SPAExchange Note will be ~~calculated at~~payable on the ~~rate of 8.75% per year and~~Maturity Date, provided that the Investor will be ~~added~~entitled to a cash sweep of 20% of the proceeds received by the Company in connection with any equity financing, which will reduce the outstanding principal amount ofunder the ~~SPA~~Exchange Note.

At any time, ~~following the one-year anniversary of the SPA Note’s issuance,~~ the Company may prepay all ~~(but not less than all)~~ of the ~~SPA~~Exchange Note by redemption at a price equal to ~~106.75%~~102.5% of the then-outstanding principal amount under the ~~SPA~~ Note plus accrued but unpaid interest. The Investor will also have the option of requiring the Company to redeem the ~~SPA~~Exchange Note on the one-year or two-year anniversaries of issuance at a price equal to the then-outstanding principal amount under the Exchange Note plus accrued but unpaid interest, or if the Company undergoes a fundamental change at a price equal to ~~107%~~102.5% of the then-outstanding principal amount under the ~~SPA~~Exchange Note plus ~~any~~ accrued but unpaid interest.

The Securities Purchase Agreement provides for up to two additional closings subject to certain conditions set forth in the Securities Purchase Agreement and on substantially the same terms as the initial closing. Each subsequent closing would result in the issuance of a senior secured note with an original principal amount of $35.0 million and warrants to purchase shares of Common Stock for up to 65% of such principal amount divided by the closing price of Common Stock on the trading day immediately prior to such subsequent closing.

~~The SPA~~Exchange Note imposes certain customary affirmative and negative covenants upon the Company, as well as covenants that ~~(i)~~ restrict the Company and its subsidiaries from incurring any additional indebtedness or suffering any liens, subject to specified exceptions, ~~(ii)~~ restrict the ability of the Company and its subsidiaries from making certain investments, subject to specified exceptions, ~~(iii)~~ restrict the declaration of any dividends or other distributions, subject to specified exceptions, ~~(iv)~~ require the Company not to ~~maintain specified earnings~~exceed maximum levels of allowable cash spend while the Exchange Note is outstanding, and ~~adjusted EBITDA targets, and (v)~~ require the Company to maintain minimum amounts of cash on hand. If an event of default under the ~~SPA~~Exchange Note occurs, the Investor can elect to redeem the ~~SPA~~Exchange Note for cash equal to 115% of the then-outstanding principal amount of the ~~SPA~~ Note (or such lesser principal amount accelerated by the Investor), plus accrued and unpaid interest, including default interest, which accrues at a rate per year equal to 15% from the date of a default or event of default.

Until the date the ~~SPA~~Exchange Note is fully repaid, the Investor has, subject to certain exceptions, the right to participate for up to 30% of any offering of debt, ~~Preferred Stock~~equity (other than an offering of solely Common Stock), or equity-linked ~~financing~~securities, including without limitation any debt, preferred stock or other instrument or security, of the Company or its subsidiaries.

~~Each SPA~~The Modified Warrant ~~issued in the initial closing~~ has an exercise price of ~~$1,350.00~~$430.00 per share, subject to adjustment for stock splits, reverse stock splits, stock dividends and similar transactions, ~~is immediately~~will be exercisable ~~has~~on and after the six-month anniversary of issuance, have a term of five and one-half years from the date of issuance and iswill be exercisable on a cash basis, unless there is not an effective registration statement covering the resale of the shares issuable upon exercise of the ~~SPA~~Modified Warrant (the ~~“SPA~~“Modified Warrant Shares”), or if shareholder approval for the full exercise of the Modified Warrant is not received, in which case the ~~SPA~~Modified Warrant iswill also be exercisable on a cashless exercise basis at the Investor’s election. The Securities Purchase Agreement requires the Company to file resale registration statements with respect to the SPA Warrant Shares as soon as practicable and in any event within 45 days following the initial closing and any subsequent closings.

The ~~SPA~~Note Exchange Warrant ~~provides~~has an exercise price of $246.00 per share, subject to adjustment for stock splits, reverse stock splits, stock dividends, and similar transactions, were exercisable upon issuance, and have a term of five and one-half years from the date of issuance and will be exercisable on a cash basis, unless there is not an effective registration statement covering the resale of the shares issuable upon exercise of the Warrant (the “Note Exchange Warrant Shares” and, together with the Modified Warrant Shares, the “Exchange Warrant Shares”) or if shareholder approval for the full exercise of the Note Exchange Warrant is not received, in which case the Note Exchange Warrant will also be exercisable on a cashless exercise basis at the Investor’s election. Until the Company completed a qualified equity financing of at least $15.0 million, which requirement was satisfied with sales under the ATM Program, the Note Exchange Warrant’s exercise price would have been reduced to the extent the Company issued securities, subject to certain exceptions, for a lower purchase price. The Note Exchange Warrant also prohibited the Company, until following the completion of such qualified equity financing, from issuing warrants with more favorable or preferential terms and/or provisions.

The August 2022 Warrants will each provide that in no event will the number of shares of Common Stock issued upon exercise of ~~the SPA Warrant~~such warrant result in the Investor’s beneficial ownership exceeding 4.99% of the Company’s shares of Common Stock outstanding at the time of exercise (which percentage may be decreased or increased by the Investor, but to no greater than 9.99%, and provided that any increase above 4.99% will not be effective until the sixty-first day after notice of such request by the Investor to increase its beneficial ownership limit has been delivered to the Company).

The Securities Purchase Agreement also contains customary representations and warranties of the Company and the Investor. There is no material relationship between the Company or its affiliates and the Investor other than in respect of the Securities Purchase Agreement, the SPA Note and the SPA Warrant.

~~The following table provides a breakdown of the note payable balances as of March 31, 2022:~~

(In thousands) Balance at
January 1,
2022 Additions Payments Amortization
of Debt
Discount Balance at
March 31,
2022
Accrued interest expense $ — (98 ) — — $ (98 )

Principal $ — $ 65,000 $ — $ — $ 65,000
Notes payable, discount — (29,527 ) — 224 (29,303 )
Net carrying amount $ — $ 35,473 $ — $ 224 $ 35,697

~~The following table summarizes short-term and long-term portion of the SPA Note as of March 31, 2022:~~

(In thousands) Short-Term Long-Term Notes
payable, net
Principal $ 5,200 $ 59,800 $ 65,000
Unamortized discount (5,200 ) (24,103 ) (29,303 )
Net carrying amount $ — $ 35,697 $ 35,697

AGRIFY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Modification of Notes Payable

On March 8, 2023, the Company entered into a Securities Exchange Agreement (the “Exchange Agreement” or “Second Amendment”) with the High Trail Special Situations LLC. Pursuant to the Exchange Agreement, at closing the Company will prepay approximately $10.3 million in principal amount under the August 2022 Note and exchange $10.0 in principal amount of the remaining balance of the August 2022 Note for a new senior secured convertible note (the “Convertible Note”) with an original principal amount of $10.0 million. After the closing of the Exchange Agreement, the August 2022 Note will remain outstanding with a remaining balance of $11.7 million (the “Modified August 2022 Note” and, collectively with the Convertible Note, the “Notes”).

This exchange was deemed to be an extinguishment under ASC 470, as the modified debt added a substantive conversion option that was not inherent in the August 2022 Note. As a result, the Company recognized a loss on the extinguishment of debt of $4,619,846.

Convertible Notes

On March 8, 2023, as a result of the Exchange Agreement, the Company issued a Convertible Note to High Trail Special Situations LLC (the “Lender”) with a principal balance of $10 million. The Convertible Note bears a 9.0% annualized interest rate, with interest to be paid monthly, in cash, beginning April 1, 2023. The principal amount of the Convertible Note will be payable on the Maturity Date, provided that the Lender will be entitled to a cash sweep of 30% of the proceeds of any at-the-market equity offering and 20% of the proceeds received by the Company in connection with any other equity financing, which will reduce the outstanding principal amount under the August 2022 Note or the Convertible Note.

At any time, the Company may prepay all of the Convertible Note by redemption at a price equal to 102.5% of the then-outstanding principal amount under the Convertible Note plus accrued but unpaid interest. The Lender will also have the option of requiring the Company to redeem the Convertible Note (i) on August 19, 2023 or August 19, 2024 at a price equal to the then-outstanding principal amount under the Convertible Note plus accrued but unpaid interest, provided that the redemption right on August 19, 2023 will not be exercisable if the Company raises at least $8.0 million in gross proceeds from equity offerings prior to such date, or (ii) if the Company undergoes a fundamental change (as defined below) at a price equal to 102.5% of the then-outstanding principal amount under the Convertible Note plus accrued but unpaid interest.

The Convertible Note will impose certain customary affirmative and negative covenants upon the Company, as well as covenants that will (i) restrict the Company and its subsidiaries from incurring any additional indebtedness or suffering any liens, subject to specified exceptions, (ii) restrict the ability of the Company and its subsidiaries from making certain investments, subject to specified exceptions, and (iii) restrict the declaration of any dividends or other distributions, subject to specified exceptions. If an event of default under the Convertible Note occurs, the Lender can elect to redeem the Convertible Note for cash equal to (A) 115% of the then-outstanding principal amount of the Convertible Note (or such lesser principal amount accelerated by the Investor), plus accrued and unpaid interest, including default interest, which accrues at a rate per annum equal to 15% from the date of a default or event of default, or, only in connection with certain events of default, (B) the greater of the amount under clause (A) or the sum of (i) 115% of the product of (a) the conversion rate in effect as of the trading day immediately preceding the date that the Lender delivers a notice of acceleration; (b) the total then outstanding principal amount under the Convertible Note (in thousands); and (c) the greater of (1) the highest daily volume weighted average price (“VWAP”) per share of Common Stock occurring during the fifteen consecutive trading days ending on, and including, the trading day immediately before the date the Lender delivers such notice and (2) the highest daily VWAP per share of Common Stock occurring during the fifteen consecutive trading days ending on, and including, the trading immediately before the date the applicable event of default occurred and (ii) the accrued and unpaid interest on the Convertible Note.

Until the date the Convertible Note is fully repaid, the Lender will have, subject to certain exceptions, the right to participate for up to 30% of any offering of debt, equity (other than an offering of solely Common Stock), or equity-linked securities, including without limitation any debt, preferred stock or other instrument or security, of the Company or its subsidiaries.

If the Lender elects to convert the Convertible Note, the conversion price per share will be $0.3820, subject to customary adjustments for certain corporate events. The conversion of the Convertible Note will be subject to certain customary conditions. The Convertible Note may not be converted into shares of Common Stock if such conversion would result in the Lender and its affiliates owning an aggregate of in excess of 4.99% of the then-outstanding shares of Common Stock, provided that upon 61 days’ notice, such ownership limitation may be adjusted by the Lender, but in any case, to no greater than 9.99%.

AGRIFY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Company evaluated the embedded features in accordance with ASC 815-15-25 and the determined embedded features are not required to be bifurcated and separately measured at fair value.

Interest expense related to the Convertible Notes described above was $609,001 for the six months ended June 30, 2023. Accrued interest totaled $136,913 as of June 30, 2023.

Notes Conversion

Pursuant to the Exchange Agreement the Company entered into with High Trail Special Situations LLC on March 8, 2023, the Lender elected on April 26, 2023, to convert $1.6 million of the remaining outstanding principal amount on the Convertible Note for 153,617 shares of Common Stock of the Company.

On May 1, 2023, the Company entered into a letter agreement with the above referenced accredited Lender (the “Letter Agreement”), pursuant to which the Company and the Lender agreed to exchange or redeem $2.0 million of the remaining outstanding principal amount under the Exchange Note for a total of 445,196 shares of Common Stock of the Company, subject to a Beneficial Ownership Limitation of 4.99% of the Company’s Common Stock. Due to the Beneficial Ownership Limitation of 4.99%, a total of 69,568 shares of Common Stock of the Company were issued to the Lender, with the remaining 375,629 shares held in abeyance until the balance (or portion thereof) may be issued in compliance with such limitations. As a result, the Company recognized a loss on the of $11,609.

The following table summarizes the short-term and long-term portions of the Exchange Note as of June 30, 2023:

(In thousands)	Short-Term		Long-Term		Notes payable, net
Principal	$	—		18,509		18,509
Unamortized discount		310		380		690
Net carrying amount	$	310	$	18,889	$	19,199

As of ~~March 31, 2022,~~June 30, 2023, future minimum payments were as follows:

Years ending December 31 (In thousands),
Remaining 2022	$	—
2023		28,600
Remaining 2023			$	970
2024		31,200		287
2025		5,200		18,629
Total future payments	$	65,000	$	19,886

Paycheck Protection Program Loan

Paycheck Protection Program Loans under the Coronavirus Aid, Relief, and Economic Security Act

In May 2020, the Company entered into a PPP Loan with Bank of America pursuant to the PPP under the CARES Act administered by the SBA.

The Company received total proceeds of approximately $779 thousand from the unsecured PPP Loan, which iswas originally scheduled to mature on May 7, 2022. ~~Subject to certain conditions, the PPP Loan may be forgiven in whole or in part by applying~~The Company applied for forgiveness ~~pursuant to~~on the ~~CARES Act and the PPP. The Company’s submission to have the remaining~~ $779 thousand of PPP ~~Loan forgiven is currently being reviewed~~loan, but forgiveness was denied by the SBA. ~~If the remaining principal amount from the $779 thousand PPP Loan is not forgiven in full,~~On June 23, 2022, the Company ~~would be obligated~~received a letter from Bank of America agreeing to ~~repay any~~extend the maturity date to May 7, 2025 and the loan bears interest at a rate of 1.00% per year. The PPP loan is payable in 34 equal combined monthly principal ~~amount not forgiven~~ and interest ~~accrued thereon. As~~payments of ~~March 31, 2022 and December 31, 2021, all of our PPP Loan balances were reported as current portion of long-term debt in the accompanying condensed consolidated balance sheets.~~

~~PurePressure SBA Debt~~

~~As part of the acquisition of PurePressure, $159~~approximately $24 thousand ~~of debt remained outstanding from a standard SBA loan as of December 31, 2021. This debt has subsequently been paid as a part of the PurePressure acquisition.~~that commenced on August 7, 2022.

~~Note 17 — Convertible Promissory Notes~~

On January 11, 2021, the Company’s Board of Directors and shareholders approved the amendment to the conversion formula of the Convertible Promissory Notes (the “Convertible Notes”) issued by the Company on dates between August 2020 and November 2020. Pursuant to the amendment, immediately prior to the consummation of a public transaction, the outstanding principal amount of the Convertible Notes, together with all accrued and unpaid interest, shall convert into a number of fully paid and non-assessable shares of Common Stock, at a conversion price of $1,544.00.

While the original conversion feature was bifurcated from the host instrument, the Company determined that the amended conversion feature would not require bifurcation. Since the accounting for the conversion feature changed because of the amendment, the Company applied extinguishment accounting pursuant to its accounting policy.

Accordingly, the Company recognized a gain on extinguishment of $2.7 million in connection with the derecognition of the net carrying amount of the extinguished debt of $19.6 million (inclusive of $13.1 million of principal, $7.1 million of derivative liabilities, less $587 thousand of debt discount) and the recognition of the $16.9 million fair value of the new convertible notes (including the same principal amount of $13.1 million plus the $3.8 million fair value of the beneficial conversion feature).

On February 1, 2021, in conjunction with the closing of the Company’s IPO, the Convertible Notes in the aggregate principal amount of $13.1 million were converted into 8,485 shares of Common Stock at the election of the Company at a conversion price of $1,544.00 per share.

AGRIFY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The breakdown of PPP Loan balances by current and non-current as of June 30, 2023 and December 31, 2022 were as follows:

(In thousands)	Balance Sheet Location	June 30, 2023		December 31, 2022
PPP Loan, current	Long-term debt, current	$	281	$	255
PPP Loan, non-current	Long-term debt		260		401
Total PPP Loan outstanding		$	541	$	656

Note 189 — ~~Capital Structure~~Leases

The determination if any arrangement contained a lease at its inception was done based on whether or not the Company has the right to control the asset during the contract period. The lease term was determined assuming the exercise of options that were reasonably certain to occur. Leases with a lease term of 12 months or less at inception were not reflected in the Company’s balance sheet and those lease costs are expensed on a straight-line basis over the respective term. Leases with a term greater than 12 months were reflected as non-current right-of-use assets and current and non-current lease liabilities in the Company’s consolidated balance sheets.

As the implicit interest rate in its leases was generally not known, the Company’s used its incremental borrowing rate as the discount rate for purposes of determining the present value of its lease liabilities. At June 30, 2023, the Company’s weighted-average discount rate utilized for its leases was 7.33%.

When a contract contained lease and non-lease elements, both were accounted for as a single lease component.

The Company had several non-cancelable finance leases for machinery and equipment. The Company’s finance leases have remaining lease terms of one year to five years.

The Company had several non-cancelable operating leases for corporate offices, warehouses, showrooms, research and development facilities and vehicles. The Company’s leases have remaining lease terms of one year to five years, some of which include options to extend. Some leases include payment for common area maintenance associated with the property.

The Company had several non-cancellable operating leases for corporate offices, warehouses, showrooms, research and development facilities and vehicles. The Company’s leases have remaining lease terms of one year to five years, some of which include options to extend. Some leases include payment for communal area maintenance associated with the property.

AGRIFY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Additional information on the Company’s operating and financing lease activity was as follows:

	Three months ended June 30,				Six months ended June 30,
(In thousands)	2023		2022		2023		2022
Operating lease cost	$	248	$	291	$	504	$	536
Finance lease cost:
Amortization of right-of-use assets		46		46		91		94
Interest on lease liabilities		5		9		11		18
Total lease cost	$	299	$	346	$	606	$	648

	June 30, 2023			December 31, 2022
Weighted-average remaining lease term – operating leases		3.29 years			3.59 years
Weighted-average remaining lease term – finance leases		1.94 years			2.30 years
Weighted-average discount rate – operating leases		7.40	%		6.76	%
Weighted-average discount rate – finance leases		7.81	%		7.83	%

(In thousands)	Balance Sheet Location	June 30, 2023		December 31, 2022
Assets
Right-of-use assets, net	Right-of-use, net	$	2,359	$	2,210
Finance lease assets	Property and equipment, net		602		261
Liabilities
Operating lease liabilities, current	Operating lease liabilities, current		831		734
Operating lease liabilities, non-current	Operating lease liabilities, non-current		1,703		1,587
Total operating lease liabilities		$	2,533	$	2,321

Finance lease liabilities, current	Accrued expenses and other current liabilities		142		152
Finance lease liabilities, non-current	Other non-current liabilities		86		147
Total finance lease liabilities		$	228	$	299

Maturities of operating and finance lease liabilities as of June 30, 2023 are as follows:

Years ending December 31 (In thousands),	Operating lease			Finance lease
Remaining 2023	$	494		$	89
2024		861			91
2025		748			50
2026		560			16
2027		202			—
Total minimum lease payments		2,865			246
Less imputed interest		(331	)		(18	)
Total lease liabilities	$	2,534		$	228

AGRIFY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 10 — Stockholders’ Equity

On ~~January 9, 2020,~~July 11, 2022, the Company increased its authorized number of shares ~~of Common Stock~~ to ~~265,000,~~8,000,000, consisting of: ~~250,000~~5,000,000 shares of Common Stock, par value $0.001 per share and 3,000,000 shares of ~~Preferred Stock. At that time, it also~~preferred stock, par value $0.001 per share. On January 9, 2020, the Company designated ~~100,000~~105,000 shares of the 3,000,000 authorized shares of Preferred Stock, as Series A Convertible Preferred Stock (“Series A Preferred Stock”).

~~Series A Convertible Preferred Stock~~

~~Beginning in the first quarter of 2020,~~On March 1, 2023, the Company ~~issued an aggregate~~further increased its authorized number of ~~60,000~~ shares of Series A Preferred Stock, for an aggregate purchase price of $6.0 million. In May 2020, the Company completed an offering of Series A Preferred Stock with the issuance of an additional 40,000 shares of Series A Preferred Stock for an aggregate purchase price of $4.0 million.

~~Amendment of Conversion Formulas~~

~~On January 11, 2021, the Company’s Board of Directors approved the amendment~~ to ~~the conversion formula of the Series A Preferred Stock and Convertible Notes. After the amendment:~~

the Series A Preferred Stock is convertible, at any time after issuance or immediately prior to the closing of a public transaction, into Common Stock in an amount of shares equal to (i) the product of the Series A Preferred Stock original price plus accrued but unpaid dividends on the shares being converted, multiplied by the number of shares of Series A Preferred Stock being converted, divided by (ii) a conversion price of $7.72 per share (after the reverse split taking effect); and

immediately prior to the consummation of a public transaction, the outstanding principal amount of the Convertible Notes together with all accrued and unpaid interest shall convert into a number of fully paid and non-assessable shares of Common Stock equal to the quotient of (i) the outstanding principal amount of the Convertible Notes together with all accrued and unpaid interest thereunder immediately prior to such public transaction divided by (ii) a conversion price of $7.72 (after the reverse split taking effect).

~~On January 11, 2021, the Company’s shareholders approved the amendment to the Series A Preferred Stock.~~

~~Initial Public Offering~~

~~On February 1, 2021, the Company completed an IPO for the sale of 27,000~~13,000,000, consisting of: 10,000,000 shares of Common Stock, at a price of $2,000.00 per share. The Company also granted the underwriters: (a) a 45-day option to purchase up to 4,050 additional shares of Common Stock on the same terms and conditions for the purpose of covering any over-allotments in connection with the IPO, and (b) warrants to purchase 810 shares of Common Stock (equal to 3% of the aggregate number of shares of Common Stock issued in the IPO) at an exercise price of $2,500.00 per share (which is equal to 125% of the IPO price). Subsequently, the underwriters exercised the over-allotment option, and on February 4, 2021, the Company closed on the sale of an additional 4,050 shares of Common Stock for a price of $2,000.00par value $0.001 per share and ~~granted to the underwriters warrants to purchase 121 additional~~3,000,000 shares of ~~Common Stock (equal to 3% of the amount of shares issued as part of the exercised of the over-allotment option) at an exercise price of $2,500.00~~preferred stock, par value $0.001 per share. The exercise of the over-allotment option brought the total number of shares of Common Stock sold by the Company in connection with the IPO to 31,050 shares and the total net proceeds received in connection with the IPO to approximately $57.0 million, after deducting underwriting discounts and estimated offering expenses.

Immediately prior to the closing of the Company’s IPO, all outstanding shares of Series A Preferred Stock and Convertible Notes were converted into 6,865 shares of Common Stock and 8,485 shares of Common Stock, respectively, at a conversion price of $1,544.00 per share.

~~Subsequent Public Offering~~

On February 19, 2021, the Company consummated a secondary public offering (the “February Offering”) for the sale of 27,778 shares of Common Stock for a price of $2,700.00 per share. The Company also granted the underwriters: (a) a 45-day option to purchase up to 4,167 additional shares of Common Stock on the same terms and conditions for the purpose of covering any over-allotments in connection with the February Offering, and (b) warrants to purchase 833 shares of Common Stock (equal to 3% of the aggregate number of shares of Common Stock issued in the February Offering) at an exercise price of $3,375.00 per share (which is equal to 125% of the February Offering). Subsequently, the underwriters exercised the over-allotment option, and on March 22, 2021, the Company closed on the sale of an additional 4,167 shares of Common Stock for a price of $2,700.00 per share and granted to the underwriters warrants to purchase 125 additional shares of Common Stock (equal to 3% of the amount of shares issued as part of the exercised of the over-allotment option) at an exercise price of $3,375 per share. The exercise of the over-allotment option brought the total number of shares of Common Stock sold by the Company in connection with the February Offering to 31,944 shares and the total net proceeds received in connection with the February Offering to approximately $80.0 million, after deducting underwriting discounts and estimated offering expenses.

Private Placement

On January 25, 2022, the Company entered into a Securities Purchase Agreement (the “Securities Agreement”) with an institutional investor and other accredited investors for the sale by the Company of ~~(i) 12,252~~12,253 shares (the “SA Shares”) of Common Stock, ~~(ii)~~ pre-funded warrants (the “Pre-Funded Warrants”) to purchase up to an aggregate of 7,853 shares of Common Stock and ~~(iii)~~ warrants to purchase up to an aggregate of 15,079 shares of Common Stock (the “Common Warrants” and, collectively with the Pre-Funded Warrants, the “SA Warrants”), in a private placement offering. The combined purchase price for one share of Common Stock (or one Pre-Funded Warrant) and the accompanying fraction of a Common Warrant was ~~$1,360.00.~~$1,360.00 per share.

Subject to certain ownership limitations, the SA Warrants are exercisable six months from issuance. Each Pre-Funded Warrant was exercisable into one share of Common Stock ~~at a price per share of $0.00001~~ (as adjusted from time to time in accordance with the terms thereof). Each Common Warrant is exercisable into one share of Common Stock at a price per share of $1,496.00 (as adjusted from time to time in accordance with the terms thereof) and will expire on the fifth anniversary of the initial exercise date. The institutional investor that received the Pre-Funded Warrants fully exercised such warrants in March 2022.

Raymond Chang, Chairman and Chief Executive Officer (“CEO”) of the Company, and Stuart Wilcox, who formerly served as our Chief Operating Officer, and at the time he was a member of the Company’s Board of Directors, participated in the private placement on essentially the same terms as other investors, except for having a combined purchase price of $1,380.00 per share.

The gross proceeds to the Company from the private placement were approximately $27.3 million, before deducting the placement agent’s fees and other offering expenses, and excluding the proceeds, if any, from the exercise of the SA Warrants.

Issuance of Common Stock in Connection with Acquisitions

On October 1, 2021, the Company issued an aggregate of 3,332 shares of its Common Stock to the Precision and Cascade shareholders in connection with the Company’s acquisition of Precision and Cascade. ~~Refer to Note 15 – Business Combinations, included elsewhere in~~On August 17, 2022, the ~~notes~~Company issued an additional 435 shares of its Common Stock to the ~~condensed consolidated financial statements.~~Precision and Cascade shareholders for contingent liabilities.

On December 31, 2021, the Company issued an aggregate of 1,202 shares of its Common Stock to the PurePressure shareholders in connection with the Company’s acquisition of PurePressure. ~~Refer~~On January 31, 2023, the remaining 372 Holdback Buyer Shares were released, including 6 Holdback Buyer Shares that were withheld to cover a tax indemnification claim in accordance with the Purchase Agreement. Additional information regarding the PurePressure Holdback Buyer Shares may be found in Note 158 – Business Combinations, included elsewhere in the notes to the ~~condensed~~ consolidated financial statements.

On February 1, 2022, the Company issued an aggregate of 1,491 shares of its Common Stock to the Lab Society shareholders in connection with the Company’s acquisition of Lab Society. ~~Refer to Note 15 – Business Combinations, included elsewhere in~~On April 28, 2023, the ~~notes~~Company issued the remaining 499 Holdback Buyer Shares to the ~~condensed consolidated financial statements.~~Lab Society Owners in accordance with the Lab Society Merger Agreement.

~~2020~~AGRIFY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

At The Marketing Offering

On October 18, 2022, the Company entered into the ATM Program with the Agent pursuant to which it may issue and sell, from time to time, shares of its Common Stock having an aggregate offering price of up to $50 million, depending on market demand, with the Agent acting as an agent for sales. The ATM Program allowed the Company to sell shares of Common Stock pursuant to specific parameters defined by the Company as well as those defined by the SEC and the ATM Program agreement. As of December 31, 2022, the Company sold 306,628 shares of Common Stock, under the ATM at an average price of $50.85 per share, resulting in gross proceeds of $15.6 million, and net proceeds of $15.0 million after commissions and fees to the Agent totaling $468 thousand and legal fees totaling $75 thousand. $3.0 million of the proceeds under the ATM Program were used to repay amounts due to the Investor under the Exchange Note. The Company used net proceeds generated from the ATM Program for working capital and general corporate purposes, including repayment of indebtedness, funding its transformation initiatives and product category expansion efforts and capital expenditures. Due to the late filing of this Annual Report on Form 10-K, the Company is no longer eligible to utilize the registration statement on Form S-3 relating to the ATM Program, and does not anticipate any further sales under the ATM Program in the foreseeable future.

Confidentially Marketed Public Offering

On December 16, 2022, the Company issued 594,232 shares of its Common Stock, Pre-Funded 2022 Warrants to purchase 75,000 shares of its Common Stock and accompanying December 2022 Warrants to purchase 1,338,471 shares of the Company’s Common Stock. The Company received net proceeds from the Offering of approximately $8.2 million, after deducting underwriting discounts and commissions and estimated expenses. The Company intends to use the net proceeds from the Offering, together with its existing cash resources, for working capital and general corporate purposes, which may include capital expenditures and repayment of debt.

The Pre-Funded 2022 Warrants were exercisable immediately upon issuance at an exercise price of $0.001 per share and do not have an expiration date. The December 2022 Warrants were exercisable immediately and have a term of exercise equal to five years from the initial exercise date at an exercise price of $13.00 per share. The offering price for the securities was $13.00 per share (or $12.98 for each Pre-Funded 2022 Warrant).

The December 2022 Warrants may not be exercised by the holder to the extent that the holder, together with its affiliates, would beneficially own, after such exercise more than 4.99% of the shares of the Company’s Common Stock then outstanding (subject to the right of the holder to increase or decrease such beneficial ownership limitation upon notice to the Company, provided that such limitation cannot exceed 9.99%) and provided that any increase in the beneficial ownership limitation shall not be effective until the sixty-first day after such notice is delivered.

The Pre-Funded 2022 Warrants were classified as a component of permanent equity and the December 2022 Warrants were liability-classified and were recorded at the issuance date using a relative fair value allocation method. The Pre-Funded 2022 Warrants are equity-classified because they are freestanding financial instruments that are legally detachable and separately exercisable from the equity instruments, are immediately exercisable, and permit the holders to receive a fixed number of shares of Common Stock upon exercise. In addition, such warrants do not provide any guarantee of value or return. The December 2022 Warrants are liability-classified as there is a volatility floor and these warrants are not indexed to the Company’s own stock.

As of December 31, 2022, the Company valued the December 2022 Warrants using the Black-Scholes option-pricing model and determined the fair value at $5.9 million. The key inputs to the valuation model included the annualized volatility of 98.0% and the expected term of about 5 years.

Raymond Chang, Chairman and CEO, participated in the Offering and purchased 115,385 shares of Common Stock and 230,769 December 2022 Warrants for an aggregate purchase price of approximately $1.5 million.

Additional information regarding the Company’s December 2022 Warrants may be found in Note 1 – Overview, Basis of Presentation, and Significant Accounting Policies and Note 4 – Fair Value Measures, included elsewhere in the notes to the consolidated financial statements.

AGRIFY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 11 — Stock-Based Compensation and Employee Benefit Plans

2022 Omnibus Equity Incentive Plan

On ~~December 18, 2020,~~April 29, 2022, the Company’s Board of Directors, and on ~~January 11, 2021,~~June 8, 2022, the Company’s stockholders, adopted and approved the ~~2020~~2022 Omnibus Equity Incentive Plan (the ~~“2020~~“2022 Plan”), which replaced the ~~2019~~2020 Stock Option Plan (the ~~“2019~~“2020 Plan”). The ~~2020~~2022 Plan provides for the grant of stock options, ~~SARs,~~stock appreciation right awards, performance share ~~awards, performance unit awards, distribution equivalent right~~ awards, restricted stock awards, restricted stock unit awards, other stock-based awards and ~~unrestricted stock awards to non-employee directors, officers, employees and non-employee consultants of the Company or its affiliates.~~cash-based awards. The aggregate number of shares of Common Stock that may be reserved and available for grant and issuance under the ~~2020~~2022 Plan is ~~22,669 shares.~~26,483 shares, which includes the 10,000 shares authorized under the 2022 Plan, plus the rollover of 16,483 issued and outstanding awards under the 2020 Plan. Shares will be deemed to have been issued under the ~~2020~~2022 Plan solely to the extent actually issued and delivered pursuant to an award. If any award granted under the ~~2019~~2020 Plan or the ~~2020~~2022 Plan expires, is ~~cancelled, or~~canceled, terminates unexercised or is forfeited, the number of shares subject thereto is again available for grant under the ~~2020~~2022 Plan. The ~~2020~~2022 Plan shall continue in effect, unless sooner terminated, until the tenth anniversary of the date on which it is adopted by the Board of Directors. As of June 30, 2023, there were 13,008 shares of Common Stock available to be granted under the Company’s 2022 Plan.

~~Stock-based Compensation~~

The Company’s stock ~~option~~ compensation expense was ~~$953 thousand~~$0.8 million and ~~$2.1~~$0.9 million for the three months ended ~~March 31,~~June 30, 2023 and 2022, respectively. The Company’s stock compensation expense was $1.6 million and ~~2021, respectively,~~$1.9 million for the six months ended June 30, 2023 and ~~there was $3.4 million of total unrecognized compensation cost related to unvested~~2022, respectively.

Stock Options

Stock options granted under the Company’s ~~options plans as~~2022 Plan are generally non-qualified and are granted with an exercise price equal to the market price of ~~March 31, 2022. This stock option expense will be recognized through 2025.~~

the Company’s Common Stock on the date of grant. The fair value of each option isgrant was estimated on the date of the grant using the Black-Scholes option-pricing model. This model incorporates certain assumptions for inputs including a risk-free market interest rate, expected dividend yield of the underlying Common Stock, expected option life, and expected volatility in the market value of the underlying Common Stock. No stock options were granted during the three and six months ended ~~March 31,~~June 30, 2023 and 2022.

~~The following table summarizes the Company’s assumptions used in the valuation of options granted during the year ended December 31, 2021:~~

~~Volatility~~			~~40%~~
~~Risk-free interest rate~~			~~1.10% – 1.63%~~
~~Dividend yield~~			~~0.00%~~
~~0% Expected life (years)~~			10
~~Forfeiture rate~~			~~0.00%~~

The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company’s stock options and warrants have characteristics different from those of its traded stock, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion the existing models do not necessarily provide a reliable single measure of the fair value of such stock options. The risk-free interest rate is based upon quoted market yields for United States Treasury debt securities with a term similar to the expected term. The expected dividend yield is based upon the Company’s history of having never issued a dividend and management’s current expectation of future action surrounding dividends. The Company calculates the expected volatility of the stock price based on the corresponding volatility of the Company’s peer group stock price for a period consistent with the underlying instrument’s expected term. The expected lives for such grants were based on the simplified method for employees and directors.

In arriving at stock-based compensation expense, the Company estimates the number of stock-based awards that will be forfeited due to employee turnover. The Company’s forfeiture assumption is based primarily on its employee turnover historical experience. If the actual forfeiture rate is higher than the estimated forfeiture rate, then an adjustment will be made to increase the estimated forfeiture rate, which will result in a decrease to the expense recognized in the Company’s consolidated financial statements. If the actual forfeiture rate is lower than the estimated forfeiture rate, then an adjustment will be made to lower the estimated forfeiture rate, which will result in an increase to expense recognized in the Company’s consolidated financial statements. The expense the Company recognizes in future periods will be affected by changes in the estimated forfeiture rate and may differ significantly from amounts recognized in the current period.

~~Stock Option Activity~~AGRIFY CORPORATION

~~As of March 31, 2022, there were 2,580 shares of Common Stock available to be granted under the Company’s 2020 Plan.~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following table presents option activity under the Company’s stock option plans for the three and six months ended ~~March 31, 2022 and 2021:~~June 30, 2023:

(In thousands, except share and per share data)	Number of Options			Weighted-Average Exercise Price		Aggregate Intrinsic Value		Number of Options			Weighted- Average Exercise Price		Aggregate Intrinsic Value
Options outstanding at January 1, 2021		15,666		$	702.00	$	—
Options outstanding at January 1, 2023									13,439		$	1,518.05	$	—
Granted		6,005			2,558.00				—			—
Exercised		(871	)		502.00				(104	)		6.67
Forfeited		(1,384	)		734.00				(260	)		—
Expired		(21	)		456.00				(67	)		699.97
Options outstanding at March 31, 2021		19,395		$	1,284.00	$	—
Options outstanding at June 30, 2023									13,008		$	1,564.69	$	—

Options outstanding at January 1, 2022		17,821			1,436.00	$	62.64
Granted		—			—
Exercised		(21	)		460.00
Forfeited		(758	)		1,370.00
Expired		(267	)		3,546.00
Options outstanding at March 31, 2022		16,775		$	1,406.00	$	12.23

Options vested and exercisable as of March 31, 2022		10,562		$	1,108.00
Options vested and expected to vest as of March 31, 2022		15,967		$	1,380.00
Options vested and exercisable as of June 30, 2023									10,969		$	1,404.60
Options vested and expected to vest as of June 30, 2023									12,124		$	1,498.89

As of June 30, 2023, total unrecognized compensation expense related to unvested options under the Company’s 2022 Plan was $1.9 million, which is expected to be recognized over a weighted average period of 0.71 years.

The following table summarizes information about options vested and exercisable at ~~March 31, 2022:~~ June 30, 2023:

		Options Vested and Exercisable						Options Vested and Exercisable
	Price ($)		Number of Options	Weighted-Average Remaining Contractual Life (Years)		Weighted-Average Exercise Price
Price ($)							Price ($)	Number of Options		Weighted-Average Remaining Contractual Life (Years)		Weighted-Average Exercise Price
$	456.00		4,210	8.14	$	456.00	456.00		3,758		5.63	$	456.00
$	972.00		4,174	8.57	$	972.00	972.00		3518		5.54	$	972.00
$	1,536.00-$2,898.00		2,178	8.82	$	2,624.00	1,536.00		21		6.63	$	1,536.00
$							1,840.00		125		8.51	$	1,840.00
$							2,768.00		3547		7.15	$	2,768.00

The following table summarizes information about options expected to vest after ~~March 31, 2022:~~June 30, 2023:

Options Vested and Expected to Vest
Price ($) Number of
Options Weighted-Average
Remaining Contractual
Life (Years)
Weighted-Average
Exercise Price

$ 456.00 5,073 8.14 $ 456.00
$ 972.00 5,375 8.57 $ 972.00
$ 1,536.00-$2,898.00 5,519 8.82 $ 2,628.00

		Options Vested and Expected to Vest
Price ($)		Number of Options		Weighted-Average Remaining Contractual Life (Years)		Weighted-Average Exercise Price
	456.00		3,758		5.63	$	456.00
	972.00		3,565		5.54	$	972.00
	1,536.00		50		6.63	$	1,536.00
	1,840.00		250		8.51	$	1,840.00
	2,768.00		4,500		7.15	$	2,768.00

~~Warrants~~

As of March 31, 2022, warrants to purchase 50,780 shares of Common Stock were outstanding. The following table presents the Company’s warrant activity for the three months ended March 31, 2022 and 2021:

Number
of Warrants
Weighted-Average
Exercise Price

Warrants outstanding at December 31, 2020 4,140 $ 4.00
Granted 1,890 4.00
Exercised (4,672 ) 4.00
Warrants outstanding at March 31, 2021 1,358 $ 4.00
Warrants outstanding at December 31, 2021 1,358 $ 4.00
Granted 57,339 1,204.00
Exercised (7,917 ) 0.00
Warrants outstanding at March 31, 2022 50,780 $ 1,360.00

~~The Company received proceeds from the exercise of warrants of less than $1 thousand and $5 thousand during the three months ended March 31, 2022 and March 31, 2021, respectively.~~AGRIFY CORPORATION

~~Note 19 —~~ NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Restricted Stock Units

Under the 2022 Plan, the Company may grant restricted stock units to employees, directors and officers. The restricted stock units granted generally vest equally over periods ranging from one to three years. The fair value of restricted stock units is determined based on the closing market price of the Company’s Common Stock on the date of grant. Compensation expense related to the restricted stock units is recognized using a straight-line attribution method over the vesting period.

	Number of Shares			Weighted- Average Grant Date Fair Value
Unvested at December 31, 2022		7,691		$	230.75
Granted		—			—
Vested		(17	)		230.80
Forfeited		(3,100	)		230.80
Unvested at June 30, 2023		4,574		$	230.80

As of June 30, 2023, total unrecognized compensation expense related to unvested restricted stock units was $1.0 million, which is expected to be recognized over a weighted average period of 2.11 years.

2022 Employee Stock Purchase Plan

On April 29, 2022, the Company’s Board of Directors, and on June 8, 2022, the Company’s stockholders, adopted and approved the 2022 Employee Stock Purchase Plan (“ESPP”). The Company has initially reserved 2,500 shares of Common Stock for issuance under the ESPP. On June 30, 2023, 2,500 shares were available for future issuance.

Under the ESPP, eligible employees are granted options to purchase shares of Common Stock at the lower of 85% of the fair market value of the stock at the time of grant or 85% of the fair market value at the time of exercise. Options to purchase shares are granted twice yearly on or about August 1 and February 1 and are exercisable on or about the succeeding January 31 and July 31, respectively, of each year. No participant may purchase more than $25 thousand worth of Common Stock annually. No Common Stock was granted under the 2022 ESPP during the three and six months ended June 30, 2023.

Employee Benefit Plan

The Company maintains an employee’s savings and retirement plan under Section 401(k) of the Internal Revenue Code (the ~~“401k~~“401(k) Plan”). All full-time U.S. employees become eligible to participate in the ~~401k~~401(k) Plan. The Company’s contribution to the ~~401k~~401(k) Plan is discretionary. During the three months and six months ended ~~March 31, 2022 and 2021,~~June 30, 2023, the Company did not contribute to the ~~401k~~401(k) Plan.

AGRIFY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 2012 — Stock Warrants

The following tables present all warrant activity of the Company for the six months ended June 30, 2023 and 2022:

	Number of Warrants			Weighted- Average Exercise Price
Warrants outstanding at December 31, 2022		1,530,001		$	38.07
Granted		—			—
Exercised		(35,000	)		—
Warrants outstanding at June 30, 2023		1,495,001		$	38.91

	Number of Warrants			Weighted- Average Exercise Price
Warrants outstanding at December 31, 2021		1,358		$	4.00
Granted		57,339			1,204.00
Exercised		(8,138	)		—
Warrants outstanding at June 30, 2022		50,559		$	1,364.00

The Company received proceeds from the exercise of warrants of $0 for the three and six months ended June 30, 2023, and $1 thousand and $2 thousand for the three and six months ended June 30, 2022, respectively.

Modification to December 2022 Warrants

On April 19, 2023, the Company entered into an agreement to reduce the exercise price for its December 2022 Warrants from approximately $13 to approximately $3.4 and had entered into agreements with certain holders of the December 2022 Warrants to exercise such warrants for gross proceeds of up to $1.84 million (the “Warrant Inducement”).

On April 24, 2023, the Company announced that it would not consummate the Warrant Inducement, however the reduction of the exercise price remained effective.

Note 13 — Income Taxes

The Company’s quarterly provision for income taxes is measured using an annual effective ~~income~~ tax rate, ~~was 2.0% and 0.0%~~adjusted for discrete items within the ~~three months ended March 31, 2022 and 2021, respectively. The provision for (benefit from) income taxes was approximately $(200) thousand and $0 for~~period presented. To determine the ~~three months ended March 31, 2022 and 2021, respectively. The difference between the Company’s~~annual effective tax ~~rates for~~rate, the ~~2022 and 2021 periods and~~Company estimates both the ~~U.S. statutory tax rate of 21% was primarily due a valuation allowance recorded against certain deferred tax assets. The change in the provision for (benefit from)~~total income (loss) before income taxes for the ~~three months ended March 31, 2022 compared~~full year and the jurisdictions in which that income (loss) is subject to tax. The actual effective tax rate for the full year may differ from these estimates if income (loss) before income taxes is greater than or less than what was estimated or if the allocation of income (loss) to jurisdictions in which it is taxed is different from the estimated allocations.

The provision for income taxes represents Federal and state and local income taxes. The effective rate differs from statutory rates due to the ~~three months ended March 31, 2021 was primarily due~~effect of certain nondeductible expenses. Our effective tax rate will change from quarter to quarter based on recurring and non-recurring factors including, but not limited to, the geographical mix of earnings, enacted tax legislation, and state and local income taxes. In addition, changes in judgment from the evaluation of new information resulting in the recognition de-recognition or re-measurement of a ~~discrete~~tax position taken in a prior annual period is recognized separately in the quarter of the change.

Tax contingencies are recorded, if needed, to address potential exposure involving tax positions the Company has taken that could be challenged by tax authorities. These potential exposures could result from applications of various statutes, rules, regulations and interpretations. Any estimates of tax contingencies contain assumptions and judgments about potential actions by taxing jurisdictions. Any interest and penalties related to uncertain tax positions would be included as part of the income tax ~~benefit~~provision. The Company’s conclusions regarding uncertain tax positions may be subject to review and adjustment at a later date based upon ongoing analysis of ~~approximately $(200) thousand recorded during the first quarter of 2022, which is attributable to a non-recurring partial release of the Company’s U.S. valuation allowance~~or changes in tax laws, regulations and interpretations thereof as ~~a result of the Lab Society acquisition.~~well as other factors.

AGRIFY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 2114 — Net ~~Income (Loss)~~Loss Per Share

Net ~~income (loss)~~loss per share calculations for all periods have been adjusted to reflect the Company’s ~~Reverse Stock Split.~~reverse stock splits. Net ~~income (loss)~~loss per share was calculated based on the weighted-average number of ~~its~~the Company’s Common Stock ~~then~~ outstanding.

Basic net ~~income (loss)~~loss per share is calculated using the weighted-average number of Common Stock outstanding during the periods. Diluted net loss per share is computed by giving effect to all potential shares of Common Stock, including outstanding stock options, stock related to unvested restricted stock units, and outstanding warrants to the extent dilutive. Net ~~income (loss)~~loss per share, assuming dilution, is calculated using the weighted-average number of common shares outstanding and the dilutive effect of all potentially dilutive securities, including Common Stock equivalents and convertible securities. For periods during which the Company recorded a net income (loss), diluted net income (loss) per share is equal to basic net ~~income (loss)~~loss per share because the effect of dilutive securities outstanding during the periods, including options and warrants computed using the treasury stock method, is anti-dilutive.

The components of basic and diluted net ~~income (loss)~~loss per share were as follows:

Three Months ended
March 31,
(In thousands, except share and per share data) 2022 2021
Numerator:
Net income (loss) attributable to Agrify Corporation $ 1,780 $ (3,810 )
Accrued dividend attributable to Preferred A Stockholders — (61 )
Net income (loss) available for common shareholders $ 1,780 $ (3,871 )
Denominator:
Weighted-average common shares outstanding – basic ⁽¹⁾ 122,946 57,841
Effect of dilutive securities
Options outstanding 4,807 —
Warrants outstanding 1,292 —
Weighted-average common shares outstanding – diluted ⁽¹⁾ 129,045 57,841
Net income (loss) per share attributable to Common Stockholders – basic ⁽¹⁾ $ 14.48 $ (65.87 )
Net income (loss) per share attributable to Common Stockholders – diluted ⁽¹⁾ $ 13.79 $ (65.87 )

~~(1)~~

As of March 31, 2021, the Company excluded the following securities from net loss per share as the effect of including them would have been anti-dilutive. The shares shown represent the number of shares of Common Stock which would be issued upon conversion in the period shown below:

	March 31, 2021
~~Options outstanding~~		~~19,395~~
~~Warrants outstanding~~		~~4,830~~
		~~24,225~~

~~Note 22 — Commitments and Contingencies~~

~~Leases~~

As the implicit interest rate in its leases was generally not known, the Company’s used its incremental borrowing rate as the discount rate for purposes of determining the present value of its lease liabilities. At March 31, 2022, the Company’s weighted-average discount rate utilized for its leases was 7.32%.

	Three months ended June 30,						Six months ended June 30,
(In thousands, except share and per share data)	2023			2022			2023			2022
Numerator:
Net loss attributable to Agrify Corporation	$	(6,805	)	$	(74,604	)	$	(17,132	)	$	(72,824	)
Denominator:
Weighted-average common shares outstanding – basic		1,549,669			132,911			1,312,299			127,956
Net loss per share attributable to Common Stockholders – basic and diluted	$	(4.39	)	$	(561.31	)	$	(13.05	)	$	(569.13	)

~~When a contract contained lease and non-lease elements, both were accounted as a single lease component.~~ AGRIFY CORPORATION

~~The Company had several non-cancellable finance leases for machinery and equipment. The Company’s finance leases have remaining lease terms of~~ ~~one~~ ~~year to~~ ~~five~~ ~~years.~~

The Company had several non-cancellable operating leases for corporate offices, warehouses, showrooms, research and development facilities and vehicles. The Company’s leases have remaining lease terms of ~~one~~ ~~year to~~ ~~five~~ ~~years, some of which include options to extend. Some leases include payment for common area maintenance associated with the property.~~

~~Additional information on the Company’s lease activity, for the three months ended March 31, 2022 and 2021, is as follows:~~

Three Months ended
March 31,
(In thousands) 2022 2021
Operating lease cost $ 254 $ 14
Finance lease cost:
Amortization of right-of-use assets 48 45
Interest on lease liabilities 9 12
Short-term lease cost — —
Total lease cost $ 311 $ 71

March 31,
2022 March 31,
2021
Weighted-average remaining lease term – operating leases 2.27 years 1.81 years
Weighted-average remaining lease term – finance leases 2.78 years 3.73 years
Weighted-average discount rate – operating leases 6.63 % 8.13 %
Weighted-average discount rate – finance leases 8.01 % 8.10 %

(In thousands) March 31,
2022 December 31,
2021

Right-of-use assets, net $ 1,962 $ 1,859

Operating lease liabilities, current 911 814
Operating lease liabilities, non-current 689 704
Total operating lease liabilities $ 1,600 $ 1,518

Finance lease liabilities, current $ 182 $ 156
Finance lease liabilities, non-current 275 293
Total finance lease liabilities $ 457 $ 449

~~Maturities of operating and finance lease liabilities as of March 31, 2022 are as follows:~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Years ending December 31 (In thousands), Operating
lease Finance
lease

Remaining 2022 $ 705 $ 163
2023 606 194
2024 250 92
2025 107 50
2026 63 16
Total minimum lease payments 1,731 515
Less imputed interest (131 ) (58 )
Total lease liabilities $ 1,600 $ 457

~~Legal Proceedings~~

On January 5, 2021, the Company received a demand letter from Nicholas Cooper and Richard Weinstein, (two of the Company’s former employees), and one of Mr. Cooper’s affiliated entities, asserting that Messrs. Cooper and Weinstein were entitled to compensation arising out of their employment by the Company, and their partial ownership of TriGrow Systems, LLC which had been acquired by the Company. The demand letter asserts that Messrs. Cooper and Weinstein are due certain sales commissions under their applicable bonus plan, equity earn-outs based on certain sales targets, and various equity purchases through the Company’s employee stock ownership plan. The demand letter also asserts various employment claims, including but not limited to, statutory wage withholding violations, wrongful termination, breach of contract, breach of the duty of good faith and fair dealing, fraud in the inducement, promissory estoppel, minority shareholder oppression, breach of fiduciary duty, unjust enrichment, and violations of state and federal securities laws.

On January 19, 2021, Messrs. Cooper and Weinstein filed a lawsuit against the Company in the United States District Court for the Western District of Washington, alleging the same claims made in their demand letter based on the facts disclosed above. The plaintiffs are seeking relief in the form of monetary damages in an amount to be determined. Messrs. Cooper and Weinstein are also seeking relief in the form of reinstatement and Mr. Weinstein is seeking rescission of his previously executed Release of Claims Agreement. On March 10, 2021, the Company moved to dismiss all Messrs. Cooper and Weinstein’s claims, asserting that the claims failed to allege legal grounds for relief. On May 12, 2021, a Magistrate issued a preliminary Report and Recommendation, which recommended dismissal of certain of Messrs. Cooper and Weinstein’s claims, and recommended others for additional factual discovery. On July 27, 2021, a District Judge entered an order partially adopting the Report and Recommendation, dismissing one claim with prejudice, dismissing a second claim with leave to amend, and permitting the remaining claims to proceed.

Additionally, on July 29, 2021, the Company filed a separate arbitration in Boston, Massachusetts against Messrs. Cooper and Weinstein, in which the Company alleges that Messrs. Cooper and Weinstein were liable for certain conduct during the time they were TriGrow employees, including breach of fiduciary duty, unjust enrichment, usurpation of corporate opportunity, conversion, fraudulent concealment, and false representation. Also on July 29, 2021, the Company submitted a claim for indemnification to certain legacy TriGrow Systems, LLC. shareholders. The claim for indemnification relates to conduct by Messrs. Cooper and Weinstein during the time they were TriGrow employees. The Company does not believe these claims have any merit and intends to vigorously defend its position.

~~Supply Agreement with Mack Molding Co.~~

In December 2020, the Company entered into a five-year supply agreement with Mack Molding Co. (“Mack”) pursuant to which Mack will become a key supplier of VFUs. In February 2021, the Company placed a purchase order with Mack amounting to approximately $5.2 million towards initial production of VFUs during 2021. In September 2021, the Company increased the purchase order with Mack to approximately $11.5 million towards production of VFUs during 2021 and 2022. The Company believes the supply agreement with Mack will provide the Company with increased scaling capabilities and the ability to more efficiently meet the potential future demand of its customers. The supply agreement contemplates that, following an introductory period, the Company will negotiate a minimum percentage of the VFU requirements that the Company will purchase from Mack each year based on the agreed-upon pricing formula. The introductory period is not time-based but rather refers to the production of an initial number of units after which the parties have rights to adjust pricing and negotiate a certain minimum requirements percentage. The Company believes this approach will result in both parties making a more informed decision with respect to the pricing and other terms of the supply agreement with Mack.

~~Distribution Agreements with Related Party~~The Company’s potential dilutive securities, which include stock options, restricted stock units, and warrants, have been excluded from the computation of diluted net loss per share as the effect would be to reduce the net loss per share. Therefore, the weighted-average number of Common Shares outstanding used to calculate both basic and diluted net loss per share attributable to Common Stockholders is the same. The Company excluded the following potential Common Stock equivalents presented based on amounts outstanding at each period end, from the computation of diluted net loss per share attributable to Common Stockholders for the periods indicated because including them would have had an anti-dilutive effect:

On September 7, 2019, the Company entered into a distribution agreement with Bluezone Products, Inc. (“Bluezone”) for distribution rights to the Bluezone products with certain exclusivity rights. The agreement requires minimum purchases amounting to $480 thousand and $600 thousand for the first and second contract anniversary years. The agreement auto renews for successive one-year periods unless earlier terminated. In March 2021, the Company notified Bluezone of non-renewal of the agreement which means it ended on May 31, 2021. The Company exceeded the minimum purchase amount for the first year and purchased approximately $309 thousand of the committed $660 thousand second year purchases through December 31, 2021. Bluezone is a related party to the Company.

~~Committed Purchase Agreement with Greenstone Holdings~~

On December 29, 2021, Greenstone Holdings purchased 239 VFUs from the Company of which 60 VFUs were already in Greenstone Holdings possession under a lease agreement. Under the lease agreement, Greenstone Holdings owed Agrify a production service fee of $300 per pound of flower produced and contained an option to purchase the equipment within the lease agreement. The term of this agreement was for ten years, but it was terminated upon signing the purchase agreement for the 239 VFUs. There is no remaining obligation under the lease agreement. The remaining 179 VFUs were shipped to Greenstone Holdings storage facility on December 30, 2021 and December 31, 2021.

	Six Months ended June 30, 2023		Six Months ended June 30, 2022
Shares subject to outstanding stock options		10,969		16,455
Shares subject to unvested restricted stock units		4,574		—
Shares subject to outstanding warrants		1,495,001		50,559
		1,510,544		67,014

Note 2315 — ~~Related Parties~~Commitments and Contingencies

~~Some of the officers and directors of the Company are involved in other business activities and may, in the future, become involved in other business opportunities that become available.~~Legal Matters

~~The following table describes the net purchasing (sales) activity with entities identified as related parties to the Company:~~

Three Months ended
March 31,
(In thousands) 2022 2021
Bluezone $ 5 $ —
4D Bios (1) — 447
Cannae Policy Group 25 —
Topline Performance Group 32 —
NEIA (634 ) (5,460 )
Greenstone Holdings (637 ) —
Valiant Americas, LLC 4,951 1,077
Living Greens Farm — (58 )

~~(1)~~

~~Purchases from 4D Bios for the three months ended March 31, 2021 include $384 thousand for a down payment on inventory orders.~~

~~The following table summarizes net related party (payable) receivable as of March 31, 2022 and December 31, 2021:~~

(In thousands) March 31,
2022 December 31,
2021
Cannae Policy Group $ — $ (8 )
Cannaquip (21 ) (21 )
Greenstone Holdings 12,446 11,177
Living Greens Farm 34 34
NEIA 1,344 3,500
Valiant Americas, LLC — (922 )

~~Note 24 — Subsequent Events~~

Bud & Mary’s Litigation

On September 15, 2022, the Company provided a notice of default to Bud & Mary’s and certain related parties notifying such parties that Bud & Mary’s was in default of its obligations under the Bud & Mary TTK Agreement. On October 5, 2022, Bud & Mary’s filed a complaint in the Superior Court of Massachusetts in Suffolk County, naming the Company as the defendant. Bud & Mary’s is seeking, among other relief, monetary damages in connection with alleged unfair or deceptive trade practices, breach of contract and conversion arising from the Agreement. While the Company believes the claim is without merit and will continue to vigorously defend itself against Bud & Mary’s allegations, litigation is inherently unpredictable and there can be no assurance that the Company will prevail in this matter.

During the third quarter of 2022, the Company deemed it necessary to fully reserve for the outstanding $14.7 million note receivable balance ~~outstanding~~ due to the current litigation and the uncertainty of the customer’s ability to repay the ~~outstanding~~ balance. The $14.7 million represents the amount of the contingent loss that the Company has determined to be reasonably possible and estimable. The actual cost of resolving this matter may be higher or lower than the amount the Company has reserved. ~~In addition, $5.3 million~~

If the Company is unable to realize revenue from its TTK Solution offerings on a timely basis or at all, or if it incurs an additional loss as a result of the ~~notes receivable balance for work performed~~Bud & Mary’s claim, the Company’s business and financial performance will be adversely affected. On November 14, 2022, the Company filed its answers and affirmative defenses to the Bud & Mary’s complaint and counterclaims. The Company is seeking, among other relief, monetary damages in connection with the breach of contract, breach of the implied covenant of good faith and fair dealing, unjust enrichment, and enforcement of the guarantees. Bud & Mary’s is permitted to file an amended complaint during October 2023, and Agrify will be permitted to make responsive filings, which may include an answer and counterclaim.

Bowdoin Construction Corp. Litigation

On February 22, 2023, Bowdoin Construction Corp. (“Bowdoin”) filed a complaint (the “Bowdoin Complaint”) in the ~~third quarter~~Superior Court of ~~2022 has been recorded~~Massachusetts in Norfolk County naming the Company, Bud & Mary’s and certain related parties as ~~an unbilled note receivable~~defendants, captioned Bowdoin Construction Corp. v. Agrify Corporation, Bud & Mary’s Cultivation, Inc. and ~~deferred the revenue~~BMLC2, LLC, case no. 2382CV00173. The Bowdoin Complaint relates to a ~~future period.~~construction contract between Bowdoin and the Company relating to the property that is the subject of the Bud & Mary’s Complaint, and alleges breach of contract by Bud & Mary’s and by the Company due to nonpayment of approximately $6.3 million due under the contract and related indemnification claims and mechanics’ liens. The Company ~~has recognized~~is entitled to indemnification by Bud & Mary’s and intends to vigorously defend this claim.

AGRIFY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Mack Molding Co.

In December 2020, the ~~expenses associated~~Company entered into a five-year supply agreement with Mack Molding Co. (“Mack”) pursuant to which Mack will become a key supplier of VFUs. In February 2021, the ~~work completed in~~Company placed a purchase order with Mack amounting to approximately $5.2 million towards the ~~current~~initial production of VFUs during 2021. Since February 2021, the Company increased the purchase order with Mack to approximately $26.5 million towards production of VFUs during 2021 and 2022. The Company believed the supply agreement with Mack would provide the Company with increased scaling capabilities and the ability to meet the potential future demand of its customers more efficiently. The supply agreement contemplates that, following an introductory period, ~~due~~the Company will negotiate a minimum percentage of the VFU requirements that the Company will purchase from Mack each year based on the agreed-upon pricing formula. The introductory period is not time-based but rather refers to the ~~uncertainty~~production of an initial number of units after which the parties have rights to adjust pricing and negotiate a certain minimum requirements percentage. The Company believed this approach would result in both parties making a more informed decision with respect to the pricing and other terms of the Company’s ability to recover the funds owed by the customer and its obligations to the vendors that have performed this work. The Company determined that it will only recognize unbilled notes receivable revenue if cash is collected from the customer in a future period.

~~Approval of Issuance of Shares Upon Exercise of Warrants~~supply agreement with Mack.

On October ~~14, 2022, the Company received approval for the~~ ~~issuance of up to 105,544 shares of Common Stock upon the exercise of the~~ ~~SPA Warrant and Note Exchange Warrant~~ in connection with the issuance of a senior secured note and the exchange of previously issued warrants in August 2022, and the reduction of the exercise price of certain of those warrants under certain circumstances, was approved. ~~Additional information regarding the Warrant Liabilities may be found in~~ ~~Note 10 – Debt, included elsewhere in the notes to the consolidated financial statements.~~

~~At The Marketing Offering~~

In October 2022, the Company entered into the ATM Program with the Agent. The ATM Program allows the Company to sell shares of Common Stock pursuant to specific parameters defined by the Company as well as those defined by the SEC and the ATM Program agreement. Subsequent to the quarter ended September 30, 2022, as of November 7, 2022, the Company sold 306,628 shares of Common Stock, under the ATM at an average price of $50.80 per share, resulting in gross proceeds to the Company of $15.6 million, and net proceeds of $15.1 million after commissions and fees to the Agent totaling $468 thousand. $3.1 million of the proceeds under the ATM Program were used to repay amounts due to the Investor under the Exchange Note. The ATM allows for quick and agile sales of Common Stock to interested investors and provides an opportunity to raise additional capital for working capital requirements or to fund strategic opportunities that may present themselves from time to time. The Company has used, and intends to continue to use, the net proceeds generated from the ATM Program for working capital and general corporate purposes, including repayment of indebtedness, funding its transformation initiatives and product category expansion efforts and capital expenditures.

~~Nasdaq Deficiency Notices~~

~~On October 4,~~11, 2022, the Company received a ~~deficiency letter (the “Notice”)~~$9.4 million invoice from Mack for inventory purchased on the ~~Listing Qualifications Department (the “Staff”)~~Company’s behalf to build VFUs. As part of ~~The Nasdaq Stock Market, LLC (“Nasdaq”) notifying~~the terms of the contract manufacturing agreement, Mack had the contractual right to bill the Company for any inventory that had aged greater than nine months. Due to the slowdown in the demand for the ~~last 30 consecutive business days,~~VFUs and the ~~bid price for the Company’s Common Stock had closed below $1.00 per share, which is the minimum closing price required to maintain~~lack of a continued listing on The Nasdaq Capital Market under Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Requirement”). In accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company had 180 calendar days to regain compliance with the Minimum Bid Requirement. To regain compliance with the Minimum Bid Requirement, the closing bid price of the Company’s Common Stock must be at least $1.00 per share for a minimum of 10 consecutive trading days during this 180-day compliance period, unless the Staff exercises its discretion to extend the minimum trading day period pursuant to Nasdaq Listing Rule 5810(c)(3)(G). On October 28, 2022, the Staff notified the Company that the closing bid price for its Common Stock was more than $1.00 for 10 consecutive trading days, anddemand forecast that the Company ~~therefore regained compliance~~could provide to the vendor, Mack exercised the right to invoice the Company for the slow-moving inventory. As of December 31, 2022, the Company owed Mack $8.4 million for purchased inventory on behalf of the Company to produce VFUs, which is included in accounts payable in the consolidated balance sheet.

On March 2, 2023, Mack filed an arbitration action seeking the amounts owed to Mack for purchased inventory. On October 27, 2023, and effective as of October 18, 2023, Mack and the Company entered into a Modification and Settlement Agreement with respect to the ~~Minimum Bid Requirement.~~dispute. See Note 17 – Subsequent Events.

TRC Electronics Litigation

The Company was named as a defendant in a complaint filed by TRC Electronics, Inc. (“TRC”) on April 13, 2023 in the United States District Court for the Eastern District of Pennsylvania. In the Complaint, TRC asserts two causes of action against the Company: (1) breach of contract, and (2) promissory estoppel. TRC’s claims are based on allegations that the Company failed to make payments due under three purchase orders for commercial electronics parts. TRC seeks damages in the amount of $565,210, plus attorneys’ fees, costs, and post-judgment interest. The Company has filed an answer denying liability on TRC’s claims and is proceeding with discovery.

Sinclair Scientific Litigation

On June 15, 2023, the Company and its wholly-owned subsidiary Precision Extraction Newco, LLC (“Precision”), filed an Amended Verified Complaint in the Court of Chancery of the State of Delaware against Sinclair Scientific, LLC (“Sinclair”) and certain individual defendants (the “Delaware Action”). The claims filed in the Delaware Action concern various breaches of the Plan of Merger and Equity Purchase Agreement dated September 29, 2021, by and between the Company, Sinclair, Mass2Media, LLC, and certain of their members (the “Merger Agreement”). In response to the Delaware Action, certain of the defendants filed counterclaims for breach of contract and declaratory judgment against the Company and Precision alleging breach of the Merger Agreement. The Company and Precision filed an answer to the counterclaims denying all liability on the claims and discovery in the Delaware Action has recently commenced.

Commitments

Supply Agreement with Mack Molding Co.

In December 2020, the Company entered into a five-year supply agreement with Mack Molding Co. (“Mack”) pursuant to which Mack would become a key supplier of VFUs. In February 2021, the Company placed a purchase order with Mack amounting to approximately $5.2 million towards the initial production of VFUs during 2021. Since February 2021, the Company increased the purchase order with Mack to approximately $26.5 million towards production of VFUs during 2021 and 2022. The Company believed the supply agreement with Mack would provide the Company with increased scaling capabilities and the ability to meet the potential future demand of its customers more efficiently. The supply agreement contemplates that, following an introductory period, the Company will negotiate a minimum percentage of the VFU requirements that the Company will purchase from Mack each year based on the agreed-upon pricing formula. The introductory period is not time-based but rather refers to the production of an initial number of units, after which the parties have rights to adjust pricing and negotiate a certain minimum requirements percentage. The Company believed this approach would result in both parties making a more informed decision with respect to the pricing and other terms of the supply agreement with Mack.

AGRIFY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

On ~~April 18, 2023,~~October 11, 2022, the Company received a ~~notice~~$9.4 million invoice from ~~Nasdaq stating that because~~Mack for inventory purchased on the Company’s behalf to build VFUs. As part of the terms of the contract manufacturing agreement, Mack had the contractual right to bill the Company for any inventory that had ~~not yet filed its Annual Report on Form 10-K~~aged greater than nine months. Due to the slowdown in the demand for the ~~fiscal~~VFUs and the lack of a demand forecast that the Company could provide to the vendor, Mack exercised the right to invoice the Company for the slow-moving inventory. As of June 30, 2023, the Company owed Mack $8.4 million for purchased inventory on behalf of the Company to produce VFUs, which is included in accounts payable in the consolidated balance sheet. On October 27, 2023, and effective as of October 18, 2023, Mack and the Company entered into a Modification and Settlement Agreement with respect to the dispute. See Note 17 – Subsequent Events.

Distribution Agreements with Related Party – Bluezone Products, Inc.

On September 7, 2019, the Company entered into a distribution agreement with Bluezone Products, Inc. (“Bluezone”) for distribution rights to the Bluezone products with certain exclusivity rights. The agreement requires minimum purchases amounting to $480 thousand and $600 thousand for the first and second contract anniversary years. The agreement auto-renews for successive one-year periods unless earlier terminated. In March 2021, the Company notified Bluezone of the non-renewal of the agreement which means it ended on May 31, 2021. The Company exceeded the minimum purchase amount for the first year ~~ended~~and purchased approximately $309 thousand of the committed $660 thousand second-year purchases through December 31, 2021. Bluezone is a related party to the Company.

Committed Purchase Agreement with Related Party – 4D Bios, Inc.

On September 18, 2021, the Company entered into an amended purchase agreement with 4D Bios, Inc. (“4D”) to secure purchases of horticultural equipment. The original agreement required minimum purchases of between $577 dollars and $607 dollars per unit of 4D products until December 31, 2020. The amended agreement requires minimum purchases of $582 dollars per unit with a final payment of approximately $864 thousand paid to 4D. 4D is a related party to the Company. The Company settled all outstanding commitments, leaving no open committed purchases as of December 31, 2021.

Committed Purchase Agreement with Related Party – Ora Pharm

In June 2022, the Company entered into an agreement with Ora Pharm (“Ora”) pursuant to which Ora will purchase approximately $1.6 million in equipment from the Company, and Ora may purchase software services from the Company in the future. Stuart Wilcox, the Company’s former Chief Operating Officer, is ~~no longer in compliance with Nasdaq Listing Rule 5250(c)(1). Nasdaq Listing Rule 5250(c)(1) requires listed companies to timely file all required periodic financial reports with~~ the ~~Securities and Exchange Commission.~~Chairman of Ora.

~~As disclosed by~~Other Commitments and Contingencies

The Company is potentially subject to claims related to various non-income taxes (such as sales, value-added, consumption, and similar taxes) from various tax authorities, including in jurisdictions in which the Company ~~on Form 8-K filed on April 17, 2023,~~already collects and remits such taxes. If the relevant taxing authorities successfully pursue these claims, the Company could be subject to additional tax liabilities.

Refer to Note 8 – Debt, included elsewhere in the notes to the consolidated financial statements for details of the Company’s ~~audit committee concluded that, as a result of inadvertent errors~~future minimum debt payments. Refer to Note 9 – Leases, included elsewhere in the ~~accounting~~notes to the consolidated financial statements for ~~warrants previously issued by~~details of the Company’s future minimum lease payments under operating and financing lease liabilities. Refer to Note 13 – Income Taxes, included elsewhere in the notes to the consolidated financial statements for information regarding income tax contingencies

AGRIFY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 16 — Related Parties

Some of the officers and directors of the Company ~~it was appropriate~~are involved in other business activities and may, in the future, become involved in other business opportunities that become available.

The following table describes the net purchasing (sales) activity with entities identified as related parties to ~~restate~~ the ~~Company’s previously issued unaudited condensed consolidated interim~~Company:

	Three months ended June 30,					Six months ended June 30,
(In thousands)	2023		2022			2023			2022
Bluezone	$	—	$	—		$	4		$	5
Cannae Policy Group		—		—			—			25
Topline Performance Group		—		38			(1	)		70
NEIA		—		(1,129	)		(43	)		(1,763	)
Greenstone Holdings		—		409			(2	)		180
Valiant Americas, LLC		—		4,855			—			9,805

The following table summarizes net related party (payable) receivable as of June 30, 2023 and December 31, 2022:

(In thousands)	June 30, 2023			December 31, 2022
Bluezone	$	(4	)	$	—
Valiant Americas, LLC		1			(1	)
Living Greens Farm		34			—
Topline Performance Group		—			1

Note 17 — Subsequent Events

The Company evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the financial statements as of and for the quarterly periods ended March 31, 2022, June 30, 2022 and September 30, 2022. Given the scope of the process for preparing the Amended 10-Qs, the Company was unable to complete and file the Form 10-K by the required due date of March 31, 2023. The Notice states that the Company has 60 calendar days from April 18, 2023, or until June 20, 2023, to regain compliance by filing the Form 10-K or to submit to Nasdaq a plan to regain compliance with the Nasdaq Listing Rules.were issued.

~~On May 17, 2023, the Company received a second notice from~~ Nasdaq that the Company remains noncompliant with the Nasdaq Listing Rule 5250(c)(1) as a result of its failure to file its Quarterly Report on Form 10-Q for the quarter ended March 31, 2023 with the SEC by the required due date. This notice requires the Company to submit a plan to regain compliance with the continued listing requirements by June 20, 2023. If Nasdaq accepts the Company’s plan, then Nasdaq may, in its discretion, grant the Company up to 180 days from the prescribed due date for filing the Form 10-K, or until October 16, 2023, to regain compliance.Deficiency Notices

On August 16, 2023, the Company received a third notice from Nasdaq that ~~the Company remains~~it remain noncompliant with ~~the~~ Nasdaq Listing Rule 5250(c)(1) as a result of its failure to file its Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2023 (the “Second Quarter Form 10-Q”) with the SEC by the required filing ~~date. This notice noted that~~date (the “August Nasdaq ~~has previously~~Notice” and, together with the April Nasdaq Notice and the May Nasdaq Notice, the “Nasdaq Notices”).

The Nasdaq granted the Company an exception until ~~September 30,~~October 16, 2023, to file its 2022 Form 10-K and First ~~Quarter Form 10-Q. This notice also requires the Company to update its original plan to regain compliance with the filing requirement, including the Company’s plans to file the~~and Second Quarter ~~Form~~2023 Forms 10-Q ~~and indicate~~(the “Delayed Reports”). The Nasdaq Notice had no immediate effect on the ~~progress the Company has made towards implementing the plan submitted in connection with the Initial Delinquent Filing.~~

~~Agrify-Valiant~~

~~On October 27, 2022, the Company provided notice to Valiant-America, LLC that the Company intended to begin the winding up of Agrify-Valiant.~~

~~Appointment of Raymond Chang as principal financial and accounting officer and Resignation of Timothy Oakes and Chief Financial Officer~~

On January 6, 2023, Timothy Oakes, the Chief Financial Officer of Agrify Corporation (the “Company”), resigned effective February 28, 2023. In connection with Mr. Oakes’ resignation, the Company has engaged WilliamsMarston LLC to assist with accounting and internal control matters and is continuing its process to identify a replacement Chief Financial Officer. Further, Raymond Chang, the Company’s Chief Executive Officer, will serve as the Company’s principal financial and accounting officer.

~~Bowdoin Litigation~~

On February 22, 2023, Bowdoin Construction Corp. (“Bowdoin”) filed a complaint in the Superior Court of Massachusetts in Norfolk County naming the Company, Bud & Mary’s and certain related parties as defendants. The Bowdoin Complaint relates to a construction contract between Bowdoin and Agrify relating to the property that is the subject of the Bud & Mary’s Complaint and alleges breach of contract by Bud & Mary’s and by Agrify due to nonpayment of approximately $7.0 million due under the contract and related indemnification claims and mechanics’ liens. While the Company believes the claim is without merit and will continue to vigorously defend itself against Bowdoin’s allegations, litigation is inherently unpredictable and there can be no assurance that the Company will prevail in this matter.

~~Amendments to Articles of Incorporation~~

On March 1, 2023, the Company filed Articles of Amendment (the “Charter Amendment”) to its Articles of Incorporation with the Secretary of State for the State of Nevada. The Charter Amendment increased the number of authorized shareslisting of the Company’s Common Stock ~~from 100,000,000 to 200,000,000, and correspondingly increased the total authorized shares of stock from 103,000,000 to 203,000,000.~~on The ~~Charter Amendment was approved by the Company’s stockholders at the Special Meeting on February 28, 2023 and became effective upon filing.~~

~~Securities Exchange Agreement~~Nasdaq Stock Market LLC.

On ~~March 8,~~October 17, 2023, the Company ~~entered into a new Securities Exchange Agreement (the “Exchange Agreement”) with an accredited lender. Pursuant to~~received the ~~Exchange Agreement, at closing~~Staff Determination from the Listing Qualifications Department of Nasdaq notifying the Company ~~will prepay approximately $10.3 million~~that it was not in ~~principal amount~~compliance with Nasdaq’s continued listing requirements under the ~~Exchange Note and exchange $10.0~~Listing Rule as a result of its failure to file the Delinquent Reports in ~~principal amount of~~a timely manner. The Company timely requested a hearing before the ~~remaining balance of the Exchange Note for a new senior secured convertible note~~Nasdaq Hearings Panel (the ~~“Convertible Note”~~“Panel”) with an original principal amount of $10.0 million. The Convertible Note will be a senior secured obligation of the Company and will rank senior to all indebtedness of the Company. The Convertible Note will mature on August 19, 2025 and will contain a 9.0% annualized interest rate, with interest to be paid monthly, in cash, beginning April 1, 2023.

~~Concurrently with the closing under the Exchange Agreement, the Company~~, and the Lender will enter into an Amendment to the Exchange Note (the “Note Amendment”). Pursuant to the Note Amendment, the Exchange Note will be amended to, among other changes, remove covenants that require the Company not to exceed maximum levels of allowable cash spend while the Exchange Note is outstanding and require the Company to maintain minimum amounts of cash on hand.

~~On April 26, 2023, the Company entered into~~Panel scheduled a letter agreement with the above referenced accredited lender (the “Letter Agreement”), pursuant to which the Company and the lender agreed to exchange $2.0 million of the remaining outstanding principal amount under the Exchange Notehearing for ~~8,903,927 shares of common stock of the Company, subject to a Beneficial Ownership Limitation of 4.99% of the Company’s Common Stock.~~January 11, 2024.

Issuance of Unsecured Promissory Note

On July 12, 2023, the Board of Directors of the Company approved the issuance of ~~an unsecured~~a secured promissory note (the “GIC Note”) in favor of GIC Acquisition, LLC (the ~~“Investor”~~“GIC Investor”), an entity that is ~~owned and~~ managed by Raymond Chang, the Company’s Chairman and Chief Executive ~~Officer.~~Officer, and on October 3, 2023, the Board of Directors of the Company approved the amendment and restatement of the GIC Note as well as the issuance of a new secured promissory note (the “CP Note” and together with the GIC Note, the “Promissory Notes”) in favor of CP Acquisitions, LLC (the “CP Investor”), an entity that is partially managed by Mr. Chang. Pursuant to the GIC Note, the GIC Investor has lent $500,000 to the Company. Pursuant to the CP Note, the CP Investor may lend up to $3,000,000 to the Company. The Promissory Notes bear interest at a rate of 10% per annum, will mature in full on December 31, 2023, and may be prepaid without any fee or penalty. The Promissory Notes rank junior to all existing secured indebtedness of the Company.

AGRIFY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Mack Molding Modification Agreement

On October 27, 2023, and with an effective date as of October 18, 2023, the Company entered into a Modification and Settlement Agreement (the “Modification Agreement”) with Mack Molding Company (“Mack”). Pursuant to the Modification Agreement, the Company and Mack agreed to settle an outstanding dispute under the Supply Agreement between the parties dated December 7, 2020 (the “Supply Agreement”). The Modification Agreement requires the Company to make payments of $500,000 and $250,000 to Mack on or before November 1, 2023 and February 15, 2024, respectively. The Company has made the first of these two payments in the amount of $500,000. Following the November 1, 2023 payment, the Company is entitled to take possession of certain Vertical Farming Units (“VFUs”) that were assembled under the Supply Agreement. The Modification Agreement also requires the Company to purchase from Mack a minimum of 25 VFUs per quarter for each quarter during 2024 and a minimum of 50 VFUs per quarter for the six quarters beginning with the first quarter of 2025. The Company is required to pay a storage fee of $25,000 per month for VFUs subject to the Modification Agreement.

Additionally, as part of the Modification Agreement, the Company agreed to issue to Mack a warrant to purchase 750,000 shares of Common Stock. The warrant has an exercise price of $4.00 per share, was exercisable upon issuance, has a term of three years from the date of issuance, and is exercisable on a cash basis unless at the time of exercise there is no effective registration statement for the resale of the underlying shares, in which case the warrant may be exercised on a cashless exercise basis at Mack’s election.

Warrant Issuance

On October 27, 2023, the Company entered into a letter agreement with the holder of the Exchange Note and the Convertible Note. Pursuant to the agreement, the Company agreed to exchange $3.0 million in principal and approximately $1.1 million in accrued but unpaid interest outstanding under the Exchange Note to purchase 2,809,669 shares of Common Stock (the “Exchange Warrant”). Additionally, the Company agreed to exchange the 375,629 shares of Common Stock held in abeyance for the lender under the terms of the Letter Agreement for a warrant to purchase 375,629 shares of Common Stock (the “Abeyance Warrant”).

Each warrant has an exercise price of $0.001 per share, was exercisable upon issuance, has a term of five years from the date of issuance and is exercisable on a cash basis or on a cashless exercise basis at the holder’s election.

The Exchange Warrant provides that in the event that Raymond Chang or his affiliates acquire securities from the Company, exercise convertible securities or amend the terms of convertible securities at a purchase or conversion price lower than $1.46, then the number of shares of Common Stock underlying Exchange Warrant will be increased to an amount equal to $3.0 million divided by such purchase or conversion price, subject to proportional adjustment in the event the Exchange Warrant has been partially exercised. Additionally, in the event that the Company has not issued equity securities in exchange for gross proceeds of at least $3.0 million to Mr. Chang or his affiliates (subject to certain offsets) by the third calendar day after the date when the Company receives stockholder approval, then on December 26, 2023, the number of shares of Common Stock underlying Exchange Warrant will be increased to an amount equal to $3.0 million divided by the Minimum Price as defined under Nasdaq listing rules, subject to proportional adjustment in the event the Exchange Warrant has been partially exercised.

AGRIFY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Letter Agreement requires that the Company issue equity securities to Mr. Chang or his affiliates for aggregate gross proceeds of at least $3.0 million, minus any funds advanced by Mr. Chang to the Company since July 1, 2023.

Note Purchase

On October 27, 2023, CP Acquisitions LLC (the “New Lender”), an entity affiliated with and controlled by Raymond Chang, the Company’s Chief Executive Officer, purchased the Exchange Note and the Convertible Note from their holder. In connection with the Note Purchase, the New Lender has agreed to waive any events of default under the acquired notes through December 31, 2023 and to enter into an agreement with the Company to extend the maturity date thereon to December 31, 2025.

Note Amendment and Secured Promissory Note

On July 12, 2023, the Company issued an unsecured promissory note (the “Note”) in favor of GIC Acquisition, LLC (“GIC”), an entity that is managed by Raymond Chang, the Company’s Chairman and Chief Executive Officer, with an original principal amount of up to $500,000. On October 27, 2023, GIC and the Company amended and restated the Note (the “Restated Note”). Pursuant to the terms of the Restated Note, the Maturity Date was extended until December 31, 2023 and the Company granted a security interest in the Company’s assets that ranks junior to the Exchange Note and the Convertible Note.

Concurrently with the Restated Note, the Company issued a junior secured promissory note (the “Junior Secured Note”) to the New Lender. Pursuant to the Junior Secured Note, the New Lender will lend up to ~~$500,000~~$3,000,000 to the Company. The Junior Secured Note bears interest at a rate of 10% per annum, will mature in full on ~~August 6,~~December 31, 2023, and may be prepaid without any fee or penalty. The Junior Secured Note is a secured obligation of the Company that ranks junior to ~~all existing secured indebtedness of~~ the ~~Company.~~

~~Leases~~

~~As of March 31, 2023,~~Exchange Note and the ~~Company extended its lease by three years until March 31, 2026, for the premises located at 2468 Industrial Row Dr., Troy, Michigan 48084.~~

~~As of May 23, 2023, the Company extended its lease by three years until July 31, 2026, for the premises located at 2625 S. Santa Fe Dr., Bldg. 1, Units 1H and 1IJ.~~Convertible Note.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The information contained in this Quarterly Report on Form 10-Q is intended to update the information contained in our Annual Report on Form 10-K for the year ended December 31, ~~2021~~2022 filed with the Securities and Exchange Commission on ~~March 31, 2022~~November 28, 2023 (the “Form 10-K”) and presumes that readers have access to, and will have read, the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other information contained in such Form 10-K. The following discussion and analysis also should be read together with our financial statements and the notes to the financial statements included elsewhere in this Quarterly Report on Form 10-Q.

The following discussion contains certain statements that may be deemed “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements appear in a number of places in this Report, including, without limitation, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These statements are not guarantees of future performance and involve risks, uncertainties and requirements that are difficult to predict or are beyond our control. Forward-looking statements speak only as of the date of this quarterly report. You should not put undue reliance on any forward-looking statements. We strongly encourage investors to carefully read the risk factors described in our Annual Report on Form 10-K in the section entitled “Risk Factors” ~~in the Annual Report on Form 10-K~~ for a description of certain risks that could, among other things, cause actual results to differ from these forward-looking statements. We assume no responsibility to update the forward-looking statements contained in this Quarterly Report on Form 10-Q. The following should also be read in conjunction with the unaudited financial statements and notes thereto that appear elsewhere in this report.

Except as otherwise indicated herein or as the context otherwise requires, references in this quarterly report to “we,” “us,” “our,” “Company,” and “Agrify” refer to Agrify Corporation, a Nevada corporation.

Overview

We are a developer of proprietary precision hardware and software grow solutions for the indoor commercial agriculture industry and ~~provides~~provide equipment and solutions for cultivation, extraction, post-processing, and testing for the cannabis and hemp industries. We believe we are the only company with an automated and fully integrated grow solution in the industry. Our Agrify “Precision Elevated™” cultivation solution seamlessly combines our integrated hardware and software offerings with a broad range of associated services including consulting, engineering, and construction and is designed to deliver the most complete commercial indoor farming solution available from a single provider. The totality of our product offerings and service capabilities forms an unrivaled ecosystem in what has historically been a highly fragmented market. As a result, we believe we are well situated to create a dominant market position in the indoor agriculture sector.

Agrify Corporation was incorporated in the state of Nevada on June 6, 2016, originally incorporated as Agrinamics, Inc. (or “Agrinamics”). On September 16, 2019, Agrinamics amended its articles of incorporation to reflect a name change to Agrify Corporation.

Our corporate headquarters are located in Troy, Michigan. We also lease properties located within various geographic regions in which we conduct business, including Colorado, Georgia, Massachusetts, Michigan, and Oregon.

Reverse Stock ~~Split~~Splits

On January 12, 2021, we effected a 1-for-1.581804 reverse stock split on our Common Stock. All share and per share information has been retroactively adjusted to give effect to the reverse stock split for all periods presented, unless otherwise indicated.

On July 5, 2023, the Company effected a 1-for-20 reverse stock split of its Common Stock. All share and per share information has been retroactively adjusted to give effect to the reverse stock split for all periods presented unless otherwise indicated.

No fractional shares of Common Stock were issued as a result of these reverse stock splits. Any fractional shares in connection with these reverse stock splits were rounded up to the nearest whole share and no stockholders received cash in lieu of fractional shares. The reverse stock splits had no impact on the number of shares of Common Stock that the Company is authorized to issue pursuant to its articles of incorporation or on the par value per share of the Common Stock. ~~Proportional adjustments were made to the number of shares of Common Stock~~ ~~issuable upon exercise or conversion of the Company’s~~ outstanding stock options and warrants, the exercise price or conversion price (as applicable) of the Company’s outstanding stock options and warrants, and the number of shares reserved for issuance under the Company’s equity incentive plan. ~~All share and per share information included in this Quarterly Report on Form 10-Q has been retroactively adjusted to reflect the impact of these reverse stock splits.~~

Recent Business Developments

Private Placement

On January 25, 2022, we entered into a Securities Purchase Agreement (the “Securities Agreement”) with an institutional investor and other accredited investors for the sale ~~by us~~ of ~~(i) 12,252~~12,253 shares (the “SA Shares”) of ~~the~~ our Common Stock, ~~(ii)~~ pre-funded warrants (the “Pre-Funded Warrants”) to purchase up to an aggregate of 7,853 shares of Common Stock and ~~(iii)~~ warrants to purchase up to an aggregate of 15,079 shares of Common Stock (the “Common Warrants” and, collectively with the Pre-Funded Warrants, the “SA Warrants”), in a private placement offering. The combined purchase price for one share of Common Stock (or one Pre-Funded Warrant) and the accompanying fraction of a Common Warrant was ~~$1,360.00.~~$1,360.00 per share.

Subject to certain ownership limitations, the SA Warrants ~~are~~became exercisable six months from issuance. Each Pre-Funded Warrant is exercisable into one share of Common Stock ~~at a price per share of $0.20~~ (as adjusted from time to time in accordance with the terms thereof). Each Common Warrant is exercisable into one share of Common Stock at a price per share of $1,496.00 (as adjusted from time to time in accordance with the terms thereof) and will expire on the fifth anniversary of the initial exercise date. The institutional investor that received the Pre-Funded Warrants fully exercised such warrants in March 2022.

Raymond Chang, our Chairman and Chief Executive Officer (“CEO”), and Stuart Wilcox, who previously served as our Chief Operating Officer, and at the time was a member of our Board of Directors, participated in the private placement on essentially the same terms as other investors, except for having a combined purchase price of $1,380.00 per share.

The gross proceeds to us from the private placement were approximately $27.3 million, before deducting the placement agent’s fees and other offering ~~expenses, and excluding the proceeds, if any, from the exercise of the SA Warrants.~~expenses.

Acquisition of Lab Society

On February 1, 2022, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with LS Holdings Corp. (“Lab Society”), Lab Society NewCo, LLC, a ~~newly formed~~newly-formed wholly-owned subsidiary of ~~the Company~~us (“Merger Sub”), Michael S. Maibach Jr. as the Owner Representative thereunder, and each of the shareholders of Lab Society (collectively, the “Owners”), pursuant to which we agreed to acquire Lab Society. Concurrently with the execution of the Merger Agreement, we consummated the merger of Lab Society with and into Merger Sub, with Merger Sub surviving such merger as a wholly-owned subsidiary of ~~the Company~~us (the “Lab Society Acquisition”).

The aggregate consideration for the Lab Society Acquisition consisted ~~of: (a)~~of $4.0 million in cash, subject to certain adjustments for working capital, cash and indebtedness of Lab Society at closing; ~~(b)~~ 2,128 shares of Common Stock (the “Buyer Shares”); and ~~(c)~~ the Earn-out Consideration (as defined below), to the extent earned.

We withheld 638 of the Buyer Shares issuable to the Owners (the “Holdback Lab Buyer Shares”) for the purpose of securing any post-closing adjustment owed to us and any claim for indemnification or payment of damages to which we may be entitled under the Merger Agreement. ~~The~~During the third quarter of 2022, 139 of the Holdback Lab Buyer Shares ~~shall be~~were forfeited after the finalization of the net working capital settlement. The remaining 499 Holdback Lab Buyer Shares were released following the twelve-month anniversary of the Closing Date in accordance with and subject to the conditions of the Merger Agreement. Additional information regarding our contingent consideration arrangements may be found in Note 4 – Fair Value Measures, included in the notes to the consolidated financial statements.

The Merger Agreement includes customary post-closing adjustments, representations, and warranties and covenants of the parties. The Owners may become entitled to additional consideration with a value of up to $3.5 million based on the eligible net revenues achieved by the Lab Society business during the fiscal years ending December 31, 2022, and December 31, 2023, of which 50% will be payable in cash and the remaining 50% will be payable by issuing shares of Common Stock.

The purchase price allocation for the business combination has been prepared on a preliminary basis and changes to those allocations may occur as additional information becomes available during the respective measurement period (up to one year from the acquisition date). The estimated fair value at acquisition is $7.9 million and may be adjusted upon further review of the values assigned to identifiable intangible assets and goodwill.

Our initial fair value estimates related to the various identified intangible assets were determined under various valuation approaches including the Income Approach, Relief-from-Royalty Method, and Discounted Cash Flow Method. These valuation methods require management to project revenues, operating expenses, working capital investment, capital spending and cash flows for the reporting unit over a multiyear period, as well as determine the weighted-average cost of capital to be used as a discount rate.

We amortize our intangible assets assuming no residual value over periods in which the economic benefit of these assets is consumed.

Securities Purchase Agreement

On March 14, 2022, we entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with an accredited investor (the “Investor”), ~~pursuant to which, among other things,~~ we agreed to issue and sell to the Investor, in a private placement transaction, ~~(the “Private Placement”),~~ in exchange for the payment by the Investor of $65 million, less applicable expenses as set forth in the Securities Purchase Agreement, ~~(i)~~ a senior secured promissory note in an aggregate principal amount of $65 million (the “SPA Note”), and ~~(ii)~~ a warrant (the “SPA Warrant”) to purchase up to an aggregate of 34,406 shares of Common Stock.

~~The~~August 2022 Securities Exchange Agreement

On August 18, 2022, we reached an agreement with the Investor to amend its existing SPA Note ~~will~~and entered into a Securities Exchange Agreement (the “August 2022 Exchange Agreement”). Pursuant to the August 2022 Exchange Agreement, we partially paid $35.2 million along with approximately $300 thousand in repayments for other fees under the SPA Note and exchanged the remaining balance of the SPA Note for a the Exchange Note with an aggregate original principal amount of $35.0 million and a new warrant to purchase 71,139 shares of Common Stock (the “Note Exchange Warrant”). Additionally, we exchanged the SPA Warrant for a new warrant for the same number of underlying shares but with a reduced exercise price (the “Modified Warrant” and, collectively with the Note Exchange Warrant, the “August 2022 Warrants”). Additional information regarding our August 2022 Warrants may be found in Note 1 – Overview, Basis of Presentation and Significant Accounting Policies and Note 4 – Fair Value Measures, included in the notes to the condensed consolidated financial statements.

The Exchange Note is a senior secured obligation of usours and ranks senior to all indebtedness of ~~us. We~~ours. The Exchange Note will mature on the three-year anniversary of its issuance (the “Maturity Date”) and contains a 9.0% annualized interest rate, with interest to be ~~required to make amortization payments equal to 4.0% of the original~~paid monthly, in cash, beginning September 1, 2022. The principal amount of the SPA Note on the first day of each calendar month starting on February 1, 2023 and extending through the maturity date of March 1, 2026 (the “Maturity Date”), at which time all remaining outstanding principal and accrued but unpaid interest will be due. The SPA Note has a stated interest rate of 6.75% per year, and we will be required to pay interest on March 1, June 1, September 1, and December 1 of each calendar year through and including the Maturity Date. Following the one-year anniversary of the SPA Note’s issuance, we may, in lieu of paying interest in cash, pay such interest in kind, in which case interest on the SPAExchange Note will be ~~calculated at~~payable on the ~~rate of 8.75% per year and~~Maturity Date, provided that the holder will be ~~added~~entitled to ~~the principal amount~~a cash sweep of 20% of the ~~SPA Note.~~

Atproceeds received by us in connection with any ~~time following~~equity financing, which will reduce the ~~one-year anniversary of the SPA Note’s issuance, we may prepay all (but not less than all) of the SPA Note by redemption at a price equal to 106.75% of the then-outstanding~~outstanding principal amount under the SPA Note plus accrued but unpaid interest. The Investor will also have the option of requiring us to redeem the SPA Note if we undergo a fundamental change at a price equal to 107% of the then-outstanding principal amount under the SPA Note plus any accrued interest thereon.

The Securities Purchase Agreement provides for up to two additional closings subject to certain conditions set forth in the Securities Purchase Agreement and on substantially the same terms as the initial closing. Each subsequent closing would result in the issuance of a senior secured note with an original principal amount of $35.0 million and warrants to purchase shares of Common Stock equal to 65% of such principal amount divided by the closing price of Common Stock on the trading day immediately prior to such subsequent closing.Exchange Note.

At any time, we may prepay all of the Exchange Note by redemption at a price equal to 102.5% of the then-outstanding principal amount under the Note plus accrued but unpaid interest. The ~~SPA~~holder will also have the option of requiring us to redeem the Exchange Note ~~will impose~~on the one-year or two-year anniversaries of issuance at a price equal to the then-outstanding principal amount under the Exchange Note plus accrued but unpaid interest, or if we undergo a fundamental change at a price equal to 102.5% of the then-outstanding principal amount under the Exchange Note plus accrued but unpaid interest.

The Exchange Note imposes certain customary affirmative and negative covenants upon us, as well as covenants that ~~(i)~~ restrict us and ~~its~~our subsidiaries from incurring any additional indebtedness or suffering any liens, subject to specified exceptions, ~~(ii)~~ restrict the ability of us and ~~its~~our subsidiaries from making certain investments, subject to specified exceptions, ~~(iii)~~ restrict the declaration of any dividends or other distributions, subject to specified exceptions, ~~(iv) require~~requires us not to ~~maintain specified earnings~~exceed maximum levels of allowable cash spend while the Exchange Note is outstanding, and ~~adjusted EBITDA targets, and (v) require~~requires us to maintain minimum amounts of cash on hand. If an event of default under the ~~SPA~~Exchange Note occurs, the ~~Investor~~holder can elect to redeem the ~~SPA~~Exchange Note for cash equal to 115% of the then-outstanding principal amount of the ~~SPA~~ Note (or such lesser principal amount accelerated by the ~~Investor)~~holder), plus accrued and unpaid interest, including default interest, which accrues at a rate per year equal to 15% from the date of a default or event of default.

Until the date the ~~SPA~~Exchange Note is fully repaid, the ~~Investor will,~~holder has, subject to certain exceptions, ~~have~~ the right to participate for up to 30% of any offering of debt, ~~Preferred Stock~~equity (other than an offering of solely Common Stock), or equity-linked ~~financing~~securities, including without limitation any debt, preferred stock or other instrument or security, of us or ~~its~~our subsidiaries.

~~Each SPA~~The Modified Warrant ~~to be issued in the initial closing will have~~has an exercise price of ~~$1,350.00~~$430.00 per share, subject to adjustment for stock splits, reverse stock splits, stock dividends and similar transactions, will be ~~immediately~~ exercisable on and after the six-month anniversary of issuance, has a term of five and one-half years from the date of issuance and will be exercisable on a cash basis, unless there is not an effective registration statement covering the resale of the shares issuable upon exercise of the Modified Warrant (the ~~“SPA~~“Modified Warrant Shares”), in which case the ~~SPA~~Modified Warrant ~~shall~~will also be exercisable on a cashless exercise basis at the ~~Investor’s~~holder’s election. The Securities Purchase Agreement requires us to file resale registration statements with respect to the SPA Warrant Shares as soon as practicable and in any event within 45 days following the initial closing and any subsequent closings.

The ~~SPA~~Note Exchange Warrant has an exercise price of $246.00 per share, subject to adjustment for stock splits, reverse stock splits, stock dividends and similar transactions, was exercisable upon issuance, and has a term of five and one-half years from the date of issuance and is exercisable on a cash basis, unless there is not an effective registration statement covering the resale of the shares issuable upon exercise of the Warrant (the “Note Exchange Warrant Shares” and, together with the Modified Warrant Shares, the “Exchange Warrant Shares”), in which case the Note Exchange Warrant will also be exercisable on a cashless exercise basis at the holder’s election. Until we completed a qualified equity financing of at least $15.0 million, which requirement was satisfied with sales under the at-the-market continuous equity offering (“ATM” or “ATM Program”), the Note Exchange Warrant’s exercise price would have been reduced to the extent we issued securities for a lower purchase price. The Note Exchange Warrant also prohibited us, until following the completion of such qualified equity financing, from issuing warrants with more favorable or preferential terms and/or provisions.

The August 2022 Warrants each provide that in no event will the number of shares of Common Stock issued upon exercise of ~~the SPA Warrant~~such warrants result in the ~~Investor’s~~holder’s beneficial ownership exceeding 4.99% of our shares of Common Stock outstanding at the time of exercise (which percentage may be decreased or increased by the ~~Investor,~~holder, but to no greater than ~~9.99%, and provided that any increase above 4.99% will~~9.99). Additionally, the August 2022 Warrants could not be ~~effective~~exercised for more than an aggregate of 26,542 shares of Common Stock unless and until ~~the sixty-first day after notice of such request by the Investor to increase its beneficial ownership limit has been delivered to us).~~

~~The Securities Purchase Agreement also contains customary representations and warranties of us and the Investor. There~~shareholder approval is ~~no material relationship between us or its affiliates and the Investor other than in respect of the Securities Purchase Agreement, the SPA Note and the SPA Warrant.~~

~~Impact of coronavirus pandemic (“COVID-19”)~~

The extensive impact of the pandemic caused by COVID-19 has resulted and will likely continue to result in significant disruptions to the global economy, as well as businesses and capital markets around the world. In an effort to halt the outbreak of COVID-19, a number of countries, states, counties, and other jurisdictions have imposed, and may impose in the future, various measures, including but not limited to, voluntary and mandatory quarantines, stay-at-home orders, travel restrictions, limitationsobtained, which approval was obtained on ~~gatherings of people, reduced operations, and extended closures of businesses.~~

To date, although all of our operations are functioning, COVID-19 has continued to cause some disruptions to our business, such as some temporary delays in the delivery of our inventory. Although the ability of our suppliers to timely ship their goods has affected some of our deliveries, currently the difficulties experienced by our suppliers have not yet materially impacted our ability to deliver products to our customers. However, if this continues, it may negatively affect any inventory we may have and more significantly delay the delivery of merchandise to our customers, which in turn will adversely affect our revenues and results of operations.

The extent to which COVID-19 and the related global economic crisis, affect our business, results of operations and financial condition, will depend on future developments that are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and any recovery period, future actions taken by governmental authorities, central banks and other third parties (including new financial regulation and other regulatory reform) in response to the pandemic, and the effects on our produce, clients, vendors and employees. We continue to service our customers amid uncertainty and disruption linked to COVID-19 and we are actively managing our business to respond to its impact.October 14, 2022.

March 2023 Securities Exchange Agreement

On March 9, 2023 we entered into a senior note with High Trail Special Situations LLC (“Holder”) for value received, promises to pay to High Trail Special Situations LLC (the “Initial Holder”), or its registered assigns, the principal sum of ten million dollars ($10,000,000) (such principal sum, the “Principal Amount”) on August 19, 2025, and to pay any outstanding interest thereon, as provided in this note, in each case as provided in and subject to the other provisions of this Note, including the earlier redemption, repurchase or conversion of this Note.

Modification of Notes Payable

On March 8, 2023, the Company entered into a Securities Exchange Agreement (the “Exchange Agreement” or “Second Amendment”) with High Trail Special Situations LLC. Pursuant to the Exchange Agreement, at closing the Company will prepay approximately $10.3 million in principal amount under the August 2022 Note and exchange $10.0 million in principal amount of the remaining balance of the August 2022 Note for a new senior secured convertible note (the “Convertible Note”) with an original principal amount of $10.0 million. After the closing of the Exchange Agreement, the August 2022 Note will remain outstanding with a remaining balance of $11.7 million (the “Modified August 2022 Note” and, collectively with the Convertible Note, the “Notes”)

Convertible Notes

The Company evaluated the embedded features in accordance with ASC 815-15-25 and the determined embedded features are not required to be bifurcated and separately measured at fair value.

Interest expense related to the Convertible Notes described above was $609,001 for the six months ended June 30, 2023. Accrued interest totaled $136,913 as of June 30, 2023.

At The Marketing Offering

On October 18, 2022, the Company entered into the ATM Program with the Agent pursuant to which it may issue and sell, from time to time, shares of its Common Stock having an aggregate offering price of up to $50 million, depending on market demand, with the Agent acting as an agent for sales. The ATM Program allowed the Company to sell shares of Common Stock pursuant to specific parameters defined by the Company as well as those defined by the SEC and the ATM Program agreement. As of December 31, 2022, the Company sold 306,628 shares of Common Stock, under the ATM at an average price of $50.85 per share, resulting in gross proceeds of $15.6 million, and net proceeds of $15.0 million after commissions and fees to the Agent totaling $468 thousand and legal fees totaling $75 thousand. $3.0 million of the proceeds under the ATM Program were used to repay amounts due to the Investor under the Exchange Note. The Company used net proceeds generated from the ATM Program for working capital and general corporate purposes, including repayment of indebtedness, funding its transformation initiatives and product category expansion efforts and capital expenditures. Due to the late filing of the Company’s Annual Report on Form 10-K, the Company is no longer eligible to utilize the registration statement on Form S-3 relating to the ATM Program, and does not anticipate any further sales under the ATM Program in the foreseeable future.

Confidentially Marketed Public Offering

On December 16, 2022, we entered into an underwriting agreement (the “Underwriting Agreement”) with Canaccord Genuity LLC as the underwriter, pursuant to which we agreed to sell an aggregate of 594,232 shares of our Common Stock, and, in lieu of Common Stock to certain investors that so chose, pre-funded warrants (the “Pre-Funded 2022 Warrants”) to purchase 75,000 shares of our Common Stock, and accompanying warrants (the “December 2022 Warrants”) to purchase 1,338,462 shares of our Common Stock (the “Offering”). The combined public offering price for each share of Common Stock and accompanying two warrants was $13.00 per share, and the combined offering price for each Pre-Funded Warrant and accompanying two warrants was $12.98 per share.

The December 2022 Warrants may not be exercised by the holder to the extent that the holder, together with its affiliates, would beneficially own, after such exercise more than 4.99% of the shares of our Common Stock then outstanding (subject to the right of the holder to increase or decrease such beneficial ownership limitation upon notice to us, provided that such limitation cannot exceed 9.99%).

Raymond Chang, our Chairman and CEO, participated in the Offering and purchased 115,385 shares of Common Stock and 230,769 warrants for an aggregate purchase price of approximately $1.5 million.

We received aggregate gross proceeds to us from the Offering of approximately $8.7 million including offering costs of approximately $0.5 million for broker fees and legal expenses, for net proceeds of $8.2 million. We intend to use the net proceeds from the Offering, together with our existing cash resources, for working capital and general corporate purposes, which may include capital expenditures and repayment of debt.

Use of Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include assumptions about collection of accounts and notes receivable, the valuation and recognition of stock-based compensation expense, valuation allowance for deferred tax assets and useful life of fixed assets and intangible assets.

Financial Overview

Critical Accounting Policies and Significant Judgments and Estimates

Our management’s discussion and analysis of our financial position and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP. The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. On an ongoing basis, we evaluate estimates, which include estimates related to accruals, stock-based compensation expense, and reported amounts of revenues and expenses during the reported period. We base our estimates on historical experience and other market-specific or other relevant assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from those estimates or assumptions.

We have a history of losses, expect to continue to incur losses in the near term and may not achieve or sustain profitability in the future, and as a result, our management has identified, and our auditors agreed that there is a substantial doubt about our ability to continue as a going concern.

Our financial statements have been prepared assuming we will continue as a going concern. Since inception, we have experienced recurring net losses. These factors, among others, raise substantial doubt about our ability to continue as a going concern. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Revenue Recognition

Overview

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

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

	●	identify the customer contract;

	●	identify performance obligations that are distinct;

	●	determine the transaction price;

	●	allocate the transaction price to the distinct performance obligations; and

	●	recognize revenue as the performance obligations are satisfied.

Identify the customer contract

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

Identify performance obligations that are distinct

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

Determine the transaction price

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

Allocate the transaction price to distinct performance obligations

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

Recognize revenue as the performance obligations are satisfied

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

Significant Judgments

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

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

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

We determine the SSP for services in time and materials contracts by observable prices in standalone services arrangements.

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

If a contract has payment terms that differ from the timing of revenue recognition, we will assess whether the transaction price for those contracts include a significant financing component. We have elected the practical expedient that permits an entity to not adjust for the effects of a significant financing component if we expect that at the contract inception, the period between when the entity transfers a promised good or service to a customer and when the customer pays for that good or service, will be one year or less. For those contracts in which the period exceeds the one-year threshold, this assessment, as well as the quantitative estimate of the financing component and its relative significance, requires judgment. Accordingly, we impute interest on such contracts at an agreed upon interest rate and will present the financing components separately as financial income. For the three months ended ~~March 31,~~June 30, 2023 and 2022, ~~and 2021,~~ we did not have any such financial income.

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

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

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

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

We generally provide a one-year warranty on our products for materials and workmanship but may provide ~~multiple-year~~multiple year warranties as negotiated, and will pass on the warranties from its vendors, if any, which generally covers this one-year period. In accordance with ASC 450-20-25, we accrue for product warranties when the loss is probable and can be reasonably estimated. The reserve for warranty returns is included in accrued expenses and other current liabilities in our ~~condensed~~ consolidated balance sheets.

Accounting for Business Combinations

We allocated the purchase price of acquired companies to the tangible and intangible assets acquired, including in-process research and development assets, and liabilities assumed, based upon their estimated fair values at the acquisition date. These fair values are typically estimated with assistance from independent valuation specialists. The purchase price allocation process requires us to make significant estimates and assumptions, especially at the acquisition date with respect to intangible assets, contractual support obligations assumed, contingent consideration arrangements, and pre-acquisition contingencies.

Although we believe the assumptions and estimates we have made in the past have been reasonable and appropriate, they are based in part on historical experience and information obtained from the management of the acquired companies and are inherently uncertain.

Examples of critical estimates in valuing certain of the intangible assets we have acquired or may acquire in the future include but are not limited to:

	●	future expected cash flows from software license sales, support agreements, consulting contracts, other customer contracts, and acquired developed technologies;

	●	expected costs to develop in-process research and development into commercially viable products and estimated cash flows from the projects when completed;

	●	the acquired company’s brand and competitive position, as well as assumptions about the period of time the acquired brand will continue to be used in the combined company’s product portfolio;

	●	cost of capital and discount rates; and

	●	estimating the useful lives of acquired assets as well as the pattern or manner in which the assets will amortize.

The fair value estimates related to the various identified intangible assets were determined under various valuation approaches including the Income Approach, Relief-from-Royalty Method, and Discounted Cash Flow Method. These valuation methods require management to project revenues, operating expenses, working capital investment, capital spending and cash flows for the reporting unit over a multiyear period, as well as determine the weighted-average cost of capital to be used as a discount rate.

Goodwill and Intangible Assets

Amortization of acquired intangible assets is the result of the acquisition of TriGrow, which occurred in 2020, the acquisition of Sinclair which occurred in 2021, the acquisition of PurePressure, which also occurred in 2021, and the acquisition of Lab Society, which occurred in 2022. As a result of these transactions, customer relationships, acquired developed technology, non-compete agreements and trade names were identified as intangible assets, and are amortized over their estimated useful lives.

We recognize the excess of the purchase price over the fair value of identifiable net assets acquired as goodwill. Goodwill is not amortized but is tested for impairment annually on December 2 or more frequently if events or changes in circumstances indicate that the carrying amount of the goodwill may not be recoverable. The Company has determined it is a single reporting unit for the purpose of conducting the goodwill impairment assessment. A goodwill impairment charge is recorded if the amount by which the Company’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. Factors that could lead to a future impairment include material uncertainties such as a significant reduction in projected revenues, a deterioration of projected financial performance, future acquisitions and/or mergers, and a decline in the Company’s market value as a result of a significant decline in the Company’s stock price. ~~There have been~~

During the three-month period ended June 30, 2022, the Company identified a potential impairment triggering event associated with both a sustained decline in the Company’s stock price and associated market capitalization, as well as a second-quarter slowdown in the cannabis industry as a whole. Due to these factors, the Company deemed that there may be an impairment to the carrying value of its long-lived assets and accordingly performed interim testing to determine the proper fair value of its long-lived assets as of June 30, 2022. Based on its interim testing, the Company noted that the entire carrying value of its goodwill and intangible assets should be impaired. Additional information regarding the Company’s interim testing on goodwill and intangible assets may be found in Note 8 – Intangible Assets, Net and Goodwill, included elsewhere in the notes to the condensed consolidated financial statements. During the three and six months ended June 30, 2023, no impairment charges ~~recorded for three months ended March 31, 2022 and 2021, respectively.~~were recorded.

Capitalization of Internal Software Development Costs

We capitalize certain software engineering efforts related to the continued development of Agrify Insights software under ASC 985-20. Costs incurred during the application development phase are only capitalized once technical feasibility has been established and the work performed will result in new or additional functionality. The types of costs capitalized during the application development phase include employee compensation, as well as consulting fees for third-party software developers working on these projects. Costs related to the research and development are expensed as incurred until technical feasibility is established as well as post-implementation activities. Internal-use software is amortized on a straight-line basis over the estimated useful life of the asset, which ranges from two to five years.

Income Taxes

We account for income taxes pursuant to the provisions of ASC Topic 740, “Income Taxes,” which requires, among other things, an asset and liability approach to calculating deferred income taxes. The asset and liability approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. A valuation allowance is provided to offset any net deferred tax assets for which management believes it is more likely than not that the net deferred asset will not be realized.

We follow the provisions of ASC 740-10-25-5, “Basic Recognition Threshold.” When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. In accordance with the guidance of ASC 740-10-25-6, the benefit of a tax position is recognized in the ~~condensed~~ consolidated financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above should be reflected as a liability for unrecognized tax benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. We believe our tax positions are all highly certain of being upheld upon examination. As such, we have not recorded a liability for unrecognized tax benefits.

We recognize the benefit of a tax position when it is effectively settled. ASC 740-10-25-10, “Basic Recognition Threshold” provides guidance on how an entity should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits. ASC 740-10-25-10 clarifies that a tax position can be effectively settled upon the completion of an examination by a taxing authority. For tax positions considered effectively settled, we recognize the full amount of the tax benefit.

Accounting for Stock-Based Compensation

We follow the provisions of ASC Topic 718, “Compensation — Stock Compensation.” ASC Topic 718 establishes standards surrounding the accounting for transactions in which an entity exchanges its equity instruments for goods or services. ASC Topic 718 focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions, such as options issued under our Stock Option Plans.

The fair value of each option is estimated on the date of grant using the Black-Scholes option-pricing model. This model incorporates certain assumptions for inputs including a risk-free market interest rate, expected dividend yield of the underlying Common Stock, expected option life, and expected volatility in the market value of the underlying Common Stock.

The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because our stock options and warrants have characteristics different from those of our traded stock, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of such stock options. The risk-free interest rate is based upon quoted market yields for United States Treasury debt securities with a term similar to the expected term. The expected dividend yield is based upon our history of having never issued a dividend and management’s current expectation of future action surrounding dividends. We calculate the expected volatility of the stock price based on the corresponding volatility of our peer group stock price for a period consistent with the underlying instrument’s expected term. The expected lives for such grants were based on the simplified method for employees and directors.

In arriving at stock-based compensation expense, we estimate the number of stock-based awards that will be forfeited due to employee turnover. Our forfeiture assumption is based primarily on its turn-over historical experience. If the actual forfeiture rate is higher than the estimated forfeiture rate, then an adjustment will be made to increase the estimated forfeiture rate, which will result in a decrease to the expense recognized in our financial statements. If the actual forfeiture rate is lower than the estimated forfeiture rate, then an adjustment will be made to lower the estimated forfeiture rate, which will result in an increase to expense recognized in our financial statements. The expense we recognize in future periods will be affected by changes in the estimated forfeiture rate and may differ significantly from amounts recognized in the current period.

It is important that the discussion of our operating results that follows be read in conjunction with the critical accounting policies disclosed above.

Results of Operations

Comparison of the Three and Six Months Ended ~~March 31,~~June 30, 2023 and 2022 ~~and 2021~~

The following table summarizes our results of operations for the three and six months ended ~~March 31, 2022~~June 30, 2023 and ~~March 31, 2021:~~2022:

Three Months ended
March 31,
(In thousands, except share and per share data)
2022
(As Restated)
2021
Revenue $ 26,021 $ 7,008
Cost of goods sold 21,851 7,548
Gross profit (loss) 4,170 (540 )

General and administrative 9,759 4,458
Research and development 2,084 882
Selling and marketing 2,090 616
Total operating expenses 13,933 5,956
Loss from operations (9,763 ) (6,496 )
Interest income (expense), net 559 (32 )
Change in fair value of warrant liabilities 10,785 —
Gain on extinguishment of notes payable — 2,685
Other income, net 11,344 2,653
Net income (loss) before income taxes 1,581 (3,843 )
Income tax benefit (200 ) —
Net income (loss) 1,781 (3,843 )
Income (loss) attributable to non-controlling interest 1 (33 )
Net income (loss) attributable to Agrify Corporation $ 1,780 $ (3,810 )
Net income (loss) per share attributable to Common Stockholders – basic ⁽¹⁾ $ 14.48 $ (65.87 )
Net income (loss) per share attributable to Common Stockholders – diluted ⁽¹⁾ $ 13.79 $ (65.87 )
Weighted-average common shares outstanding – basic ⁽¹⁾ 122,946 57,841
Weighted-average common shares outstanding – diluted ⁽¹⁾ 129,045 57,841

	Three months ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
Revenue (including $0, $1,129, $46, and $1,763 from related parties, respectively)	$	5,066		$	19,329		$	10,870		$	45,350
Cost of goods sold		4,466			17,717			9,282			39,568
Gross profit		600			1,612			1,588			5,782

General and administrative		4,819			19,378			11,750			29,137
Selling and marketing		1,120			2,332			2,710			4,422
Research and development		643			2,438			1,378			4,522
Change in contingent consideration		(638	)		(907	)		(1,322	)		(907	)
Impairment of goodwill and intangible assets		—			69,904			—			69,904
Total operating expenses		5,944			93,145			14,516			107,078
Loss from operations		(5,344	)		(91,533	)		(12,928	)		(101,296	)
Interest expense, net		(400	)		(3,311	)		(1,199	)		(2,752	)
Change in fair value of warrant liabilities		(1,048	)		20,181			1,624			30,966
Gain (loss) on extinguishment of notes payable		(11	)		—			(4,631	)		—
Other expense, net		(4	)		—			—			—
Other (expense) income, net		(1,463	)		16,870			(4,206	)		28,214
Net loss before income taxes		(6,807	)		(74,663	)		(17,134	)		(73,082	)
Income tax benefit		—			62			—			262
Net loss		(6,807	)		(74,601	)		(17,134	)		(72,820	)
Income (loss) attributable to non-controlling interests		2			(3	)		2			(4	)
Net loss attributable to Agrify Corporation	$	(6,805	)	$	(74,604	)	$	(17,132	)	$	(72,824	)
Net loss per share attributable to Common Stockholders – basic and diluted	$	(4.39	)	$	(561.31	)	$	(13.05	)	$	(569.13	)
Weighted average common shares outstanding - basic and diluted ⁽¹⁾		1,549,669			132,911			1,312,299			127,956

(1)

Periods presented have been adjusted to reflect ~~the 1-for-10 reverse stock split on October 18, 2022 and~~ the 1-for-20 reverse stock split on July 5, 2023. Additional information regarding ~~the~~ reverse stock splits may be found in Note 1 – Overview, Basis of Presentation, and Significant Accounting Policies,, included ~~elsewhere~~ in the notes to the ~~condensed~~ consolidated financial ~~statements.~~statements

Revenues

Our goal is to provide our customers with a variety of products to address their entire indoor agriculture needs. Our core product offering includes our Agrify Vertical Farming Units (or “VFUs”) and Agrify Integrated Grow Racks with our Agrify Insights software, which are supplemented with environmental control products, grow lights, facility build-out services and extraction equipment.

We continue to monitor and address COVID-19 pandemic impacts on our supply chain. Although the availability of various products is dependent on our suppliers, their locations, and the extent to which they are impacted by the COVID-19 pandemic, we are proactively working with manufacturers to meet the needs of our customers during the pandemic. Product shortages have generally led to increases in prices globally, with significant impacts to sales and interim profits.

We generate revenue from sales of cultivation solutions, including ancillary products and services, Agrify Insights software, facility build-outs and extraction equipment and solutions. We believe that our product mix ~~form~~forms an integrated ecosystem which allows us to be engaged with our ~~potential~~ customers from early stages of the grow cycle — first during the facility build-out, to the choice of cultivation solutions, running the grow business with our Agrify Insights software and finally, our extraction, post-processing and testing services to transform harvest into a sellable product. We believe that delivery of each solution in the various stages in the process will generate sales of additional solutions and services.

The following table provides a breakdown of our revenue for the three and six months ended ~~March 31, 2022~~June 30, 2023 and ~~2021:~~2022:

	Three Months ended March 31,										Three months ended June 30,							%			Six months ended June 30,							%
(In thousands)	2022		2021		Change			% Change			2023		2022		Change			Change			2023		2022		Change			Change
Cultivation solutions, including ancillary products and services	$	382	$	230	$	152			66	%	$	326	$	321	$	5			2	%	$	495	$	703	$	(208	)		(30	)%
Agrify Insights software		1		8		(7	)		(88	)%		35		44		(9	)		(20	)%		65		45		20			44	%
Facility build-outs		13,211		6,770		6,441			95	%		255		9,006		(8,751	)		(97	)%		882		22,217		(21,335	)		(96	)%
Extraction solutions		12,427		—		12,427			100	%		4,450		9,958		(5,508	)		(55	)%		9,428		22,385		(12,957	)		(58	)%
Total revenue	$	26,021	$	7,008	$	19,013			271	%	$	5,066	$	19,329	$	(14,263	)		(74	)%	$	10,870	$	45,350	$	(34,480	)		(76	)%

Revenues ~~increased~~decreased by ~~$19.0~~$14.3 million, or ~~271%~~74% for the three months ended ~~March 31, 2022~~June 30, 2023 compared to the same period in ~~2021.~~2022. Revenues decreased by $34.5 million, or 76%, for the six months ended June 30, 2023 compared to the same period in 2022. The comparative ~~increase~~decreases in revenue ~~was~~were generated primarily from decreases in revenue from facility build-outs and extraction solutions sales of equipment and services from our acquisition of Lab Society in 2022 and acquisitions of Precision, Cascade and PurePressure in 2021. Extraction division revenues totaled $12.4 million in the first quarter of 2022. Additionally, designsolutions. Design and build revenues ~~increased~~decreased by ~~$6.4~~$8.8 million and $21.3 million for the three and six months ended June 30, 2023, respectively, due to ~~the continued~~reduced build-out of facilities under our TTK Solutions. Additionally, extraction division revenues decreased by $5.5 million and $13.0 million for the three and six months ended June 30, 2023, respectively.

Cost of Goods Sold

Cost of goods sold represents a combination of the following: construction-related costs associated with our facility build-outs, internal and outsourced labor and material costs associated with the assembly of both cultivation equipment (primarily VFUs) and extraction equipment, as well as labor and parts costs associated with the sale or provision of other products and services.

The following table provides a breakdown of our cost of goods sold for the three and six months ended ~~March 31, 2022~~June 30, 2023 and ~~2021:~~2022:

	Three Months ended March 31,										Three months ended June 30,							%			Six months ended June 30,							%
(In thousands)	2022		2021		Change			% Change			2023		2022		Change			Change			2023		2022		Change			Change
Cultivation solutions, including ancillary products and services	$	405	$	769	$	(364	)		(47	)%	$	490	$	1,335	$	(845	)		(63	)%	$	1,023	$	1,740	$	(717	)		(41	)%
Agrify Insights software		—		—		—			—	%
Facility build-outs		13,076		6,779		6,297			93	%		248		8,712		(8,464	)		(97	)%		968		21,788		(20,820	)		(96	)%
Extraction solutions		8,370		—		8,370			100	%		3,728		7,670		(3,942	)		(51	)%		7,291		16,040		(8,749	)		(55	)%
Total cost of goods sold	$	21,851	$	7,548	$	14,303			189	%	$	4,466	$	17,717	$	(13,251	)		(75	)%	$	9,282	$	39,568	$	(30,286	)		(77	)%

Cost of goods sold ~~increased~~decreased by ~~$14.3~~$13.3 million, or ~~189%~~75%, for the three months ended ~~March 31, 2022~~June 30, 2023 compared to the same period in ~~2021.~~2022. Cost of goods sold decreased by $30.3 million, or 77%, for the six months ended June 30, 2023 compared to the same period in 2022. The comparative ~~quarterly increase~~decreases in cost of goods sold is associated with the ~~increased~~decreased amount of subcontractor construction costs related to facility build-outs, internal and outsourced labor and materials costs for the extraction solutions sales ~~combined with an~~ ~~increase in subcontractor construction costs related to our facility build-outs,~~and cultivation solutions, including ~~construction costs associated with design~~ancillary products and ~~build projects under our TTK Solutions.~~services.

Gross Profit (Loss)

	Three Months ended March 31,										Three months ended June 30,							%			Six months ended June 30,							%
(In thousands)	2022		2021			Change		% Change			2023		2022		Change			Change			2023		2022		Change			Change
Gross profit (loss)	$	4,170	$	(540	)	$	4,710		872	%
Gross profit											$	600	$	1,612	$	(1,012	)		(63	)%	$	1,588	$	5,782	$	(4,194	)		(73	)%

Gross profit totaled ~~$4.2 million,~~$600 thousand, or 16~~.0%~~11.8% of total revenue during the three months ended ~~March 31, 2022~~June 30, 2023 compared to ~~a gross loss of $(540) thousand,~~$1.6 million, or ~~(7.7)%~~8.3% of total revenue during the three months ended ~~March 31, 2021. The comparative $4.7~~June 30, 2022. Gross profit totaled $1.6 million, ~~first-quarter year over year improvement in gross profit, as well as~~or 14.6%, of total revenue during the ~~comparative improvement in gross profit margin, is primarily attributable~~six months ended June 30, 2023 compared to ~~the introduction of extraction solutions revenue in the first quarter of 2022, which contributes~~ ~~higher gross margins than those realized on our cultivation-related revenue, which includes our TTK Solutions design and build revenue. During the first quarter of 2022, we realized~~ a gross profit ~~margin~~ of ~~33% associated with our extraction solutions~~$5.8 million, or 12.7%, of total revenue ~~while we realized a gross profit margin of approximately 1% on our cultivation-related revenues.~~

~~On a forward-looking basis, with~~during the full year benefit of anticipated margin contribution associated with the extraction-related revenue contributions, the Company anticipates that gross margin performance, aided by our extraction-related equipment sales, will be in a mid-teens range. We anticipate that we will be able to improve upon that expected gross profit margin performance once we are able to generate meaningful software and production fee revenues from our TTK Solutions, which we currently expect to begin in the late third or early fourth quarter ofsix months ended June 30, 2022.

General and Administrative

	Three Months ended March 31,									Three months ended June 30,							%			Six months ended June 30,							%
(In thousands)	2022		2021		Change		% Change			2023		2022		Change			Change			2023		2022		Change			Change
General and administrative	$	9,759	$	4,458	$	5,301		119	%	$	4,819	$	19,378	$	(14,559	)		(75	)%	$	11,750	$	29,137	$	(17,387	)		(60	)%

General and administrative (“G&A”) expenses consist principally of salaries and related costs for personnel, including stock-based compensation and travel expenses, associated with executive and other administrative functions. Other G&A expenses include, but are not limited to, professional fees for legal, consulting, depreciation and amortization and accounting services, as well as facility-related costs.

G&A expense ~~increased~~decreased by ~~$5.3~~$14.6 million, or ~~119%~~75%, for the three months ended ~~March 31, 2022,~~June 30, 2023, compared to the same period in ~~2021.~~2022. G&A expense decreased by $17.4 million, or 60%, for the six months ended June 30, 2023, compared to the same period in 2022. The ~~increase~~decrease is largely attributable to payroll, benefits and related expenses ~~increase~~decreases of ~~$2.5~~$2.1 million, ~~an increase~~a decrease in acquisition-related expenses of $1.3 million, ~~an increase~~a decrease in ~~facility~~bad debt expense of $9.0 million, a decrease in consulting and other related expenses of ~~$964 thousand, an increase~~$0.7 million, a decrease in ~~investor relations~~stock based compensation of $0.9 million, a decrease in insurance expenses of $0.2 million, and ~~directors’ and officers’ insurance of $592 thousand, an increase~~a decrease in depreciation and amortization of ~~$865 thousand, which~~$0.7 million.

Selling and Marketing

	Three months ended June 30,							%			Six months ended June 30,							%
(In thousands)	2023		2022		Change			Change			2023		2022		Change			Change
Selling and marketing	$	1,120	$	2,438	$	(1,318	)		(54	)%	$	2,710	$	4,422	$	(1,712	)		(39	)%

Selling and marketing expenses consist primarily ~~reflects an increase~~of salaries and related costs of personnel, travel expenses, trade shows and advertising expenses.

Selling and marketing expenses decreased by $1.3 million, or 54%, for the three months ended June 30, 2023, compared to the same period in ~~amortization associated with~~2022. Selling and marketing expenses decreased by $1.7 million, or 39%, for the ~~identified intangible assets from our acquisition of Lab Society~~six months ended June 30, 2023, compared to the same period in ~~2022~~2022.The decreases are largely attributable to reduced payroll, advertising and ~~acquisitions of Precision, Cascade and PurePressure in 2021. These increases were partially offset by a reduction in stock compensation expense of $906 thousand.~~ trade show expenses.

Research and Development

	Three Months ended March 31,									Three months ended June 30,							%			Six months ended June 30,							%
(In thousands)	2022		2021		Change		% Change			2023		2022		Change			Change			2023		2022		Change			Change
Research and development	$	2,084	$	882	$	1,202		136	%	$	643	$	2,332	$	(1,689	)		(72	)%	$	1,378	$	4,522	$	(3,144	)		(70	)%

Research and development (“R&D”) expenses consisted primarily of costs incurred for the development of our Agrify Insights software and next generation VFUs, which ~~includes:~~include:

	●	employee-related expenses, including salaries, benefits, and travel;

	●	expenses incurred by the subcontractor under agreements to provide engineering work related to the development of our next generation ~~VFUs;~~VFUs: and

	●	expenses related to our facilities, depreciation, and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, insurance and other supplies.

R&D expense ~~increased~~decreased by ~~$1.2~~$1.7 million, or ~~136%~~72%, for the three months ended ~~March 31, 2022,~~June 30, 2023, compared to the same period in ~~2021.~~2022. R&D expense decreased by $3.1 million, or 70%, for the six months ended June 30, 2023, compared to the same period in 2022. The ~~increase is~~decreases are largely attributable to the personnel and facility costs associated with the continued development of our VFUs, specifically related to improving the individual unit cooling and humidity environments.

We expect to continue to invest in future developments of our VFUs, Agrify Insights software and our extraction products. As a percentage of net revenue, R&D expenses were 8.0% of total revenue for the three months ended March 31, 2022, compared to 12.6% for the three months ended March 31, 2021. Although we continue to increase our investment in R&D activities, we expect R&D expense to decrease as a percentage of revenue due to our revenue growth.

~~Selling and Marketing~~

Three Months ended
March 31,
(In thousands) 2022 2021 Change % Change
Selling and marketing $ 2,090 $ 616 $ 1,474 239 %

~~Selling and marketing expenses consist primarily of salaries and related costs of personnel, travel expenses, trade shows and advertising expenses.~~

Selling and marketing expenses increased by $1.5 million, or 239%, for the three months ended March 31, 2022, compared to the same period in 2021. The increase is attributable to payroll and related expenses increase of $1.2 million and an increase in advertising and trade show expenses of $152 thousand and an increase in travel and other expenses of $155 thousand.

~~Other Income (Expense), Net~~

Three Months ended March 31,
(In thousands)
2022
(As Restated)
2021 Change % Change
Interest income (expense), net $ 559 $ (32 ) $ 591 1,847 %
Change in fair value of warrant liabilities 10,785 — 10,785 100 %
Gain on extinguishment of notes payable — 2,685 (2,685 ) (100 )%
Total other income, net $ 11,344 $ 2,653 $ 8,691 328 %

Interest income (expense), net increased by $591 thousand, or 1,847%, for the three months ended March 31, 2022 compared to the same period in 2021. The increase in interest income is attributable mainly to interest from marketable securities and interest income from TTK Solutions.

~~The change in fair value of warrant liabilities during the three months ended March 31, 2022 is related to the fair value remeasurement of warrants issued during the three months ended 2022.~~

~~Gain on extinguishment of notes payable decreased by $2.7 million, or 100%, for the three months ended March 31, 2022 compared to the same period in 2021.~~

~~Provision for (benefit from)~~Other (Expense) Income, ~~Taxes~~Net

Three Months ended
March 31,
(In thousands) 2022 2021 Change % Change
Provision for (benefit from) income taxes $ (200 ) $ — $ (200 ) 100 %
Effective tax rate 2.0 % 0.0 %

	Three months ended June 30,									%			Six months ended June 30,									%
(In thousands)	2023			2022			Change			Change			2023			2022			Change			Change
Interest expense, net	$	(400	)	$	(3,311	)	$	2,911			(88	)%	$	(1,199	)	$	(2,752	)	$	1,553			(56	)%
Change in fair value of warrant liabilities		(1,048	)		20,181			(21,229	)		(105	)%		1,624			30,966			(29,342	)		(95	)%
Loss on extinguishment of notes payable		(11	)		—			(11	)		N/A			(4,631	)		—			(4,631	)		N/A
Other expense, net		(4	)		—			(4	)		N/A			—			—			—			—	%
Total other income, net	$	(1,463	)	$	16,870		$	(18,333	)		(109	)%	$	(4,206	)	$	28,214		$	(32,420	)		(115	)%

Interest income (expense), net decreased by $2.9 million, or 88%, for the three months ended June 30, 2023, compared to the same period in 2022. Interest income (expense), net decreased by $1.6 million, or 56%, for the six months ended June 30, 2023, compared to the same period in 2022.The decrease in interest expense is attributable mainly to the decrease in principal balance of the debt payable to High Trail Special Situations LLC on which interest in accrued.

The change in ~~the provision for (benefit from) income taxes for~~fair value of warrant liabilities decreased by $21.2 million, or 105% during the three months ended ~~March 31, 2022~~June 30, 2023, compared to the ~~three~~same period in 2022. The change in fair value of warrant liabilities decreased by $29.3 million, or 95% during the six months ended ~~March 31, 2021 was primarily due~~June 30, 2023, compared to the same period in 2022.The decrease is related to a ~~discrete income tax benefit~~significant decline in the fair value of ~~$(200) thousand recorded~~warrant liabilities during the ~~first quarter~~three and six months ended June 30, 2022 between the initial grant date fair value and the fair value as of ~~2022,~~June 30, 2022. This decline in fair value was driven by a significant decrease in stock price during that time, which is ~~attributable~~an input to the valuation calculation. Such a ~~non-recurring partial release~~fluctuation in stock price did not exist in the same period in 2023 and therefore there was not a significant change in the fair value of ~~our U.S. valuation allowance as a result of~~warrant liabilities in the ~~Lab Society acquisition.~~

current period.

~~Income (Loss) Attributable to Non-Controlling Interest~~

~~We consolidate the results~~The loss on extinguishment of ~~operations~~notes payable of two less than wholly-owned entities into our condensed consolidated results of operations. On December 8, 2019, we formed Agrify Valiant LLC, a joint-venture limited liability company in which we are 60% majority owner and Valiant-America, LLC owns 40%. Agrify Valiant LLC started its operations$4.6 million incurred during the ~~second quarter of 2020. On January 22, 2020, as part~~six months ended June 30, 2023 is driven by the modification of the ~~acquisition~~notes payable to High Trail Special Situations LLC through the Securities Exchange Agreement that was entered into on March 8, 2023 which was deemed to be an extinguishment of TriGrow, we received TriGrow’s 75% interest in Agrify Brands, LLC (formerly TriGrow Brands, LLC), a licensor of an established portfolio of consumer brands that utilize our grow technology. The license of these brands is ancillary to the sale of our VFUs and provides a means to differentiate customers’ products in the marketplace. It is not a material aspect of our business and we have not realized any royalty income. Accordingly, we are currently evaluating whether to continue this legacy business from an operational standpoint, as well as from a legal and regulatory perspective.

Loss attributable to non-controlling interest represents the portion of profit (or loss) that are attributable to non-controlling interest calculated as a product of the net income of the entity multiplied by the percentage of ownership held by the non-controlling interest.debt under ASC 470.

Liquidity and Capital Resources

As of ~~March 31, 2022,~~June 30, 2023, our principal sources of liquidity were cash and cash equivalents ~~and marketable securities~~ totaling $63.4 million and $30 million in restricted cash. We believe such amount, together with the proceeds from the private placement that closed on January 28, 2022 and the senior secured debt facility that closed on March 24, 2022, will be sufficient to support our planned operations for at least the next 12 months.$308 thousand. Our current working capital needs are to support revenue growth, to fund construction and equipment financing commitments associated with our TTK Solutions, manage inventory to meet demand forecasts and support operational growth. Our long-term financial needs primarily include working capital requirements and capital expenditures. We anticipate that we will allocate a significant portion of our current balance of working capital to satisfy the financing requirements of our current and future TTK arrangements. These arrangements require a significant amount of upfront capital necessary to fund construction, associated with facility build-outs, and equipment. There are many factors that may negatively impact our available sources of funds in the future, including the ability to generate cash from operations, raise debt capital and raise cash from the issuance of our securities. The amount of cash generated from operations is dependent upon factors such as the successful execution of our business strategy and general economic conditions.

We may opportunistically raise debt capital, subject to market and other conditions. Additionally, as part of our growth strategies, we may also raise debt capital for strategic alternatives and general corporate purposes. If additional financing is required from outside sources, we may not be able to raise such capital on terms acceptable to us or at all. If we are unable to raise additional capital when desired, ~~our business, operating results and financial condition~~we may be ~~adversely affected.~~forced to cease operations.

Indebtedness

We entered into one Loan Agreement and Promissory Note with Bank of America pursuant to the Paycheck Protection Program (the “PPP”) under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) administered by the U.S. Small Business Administration. We received total proceeds of approximately $779 thousand from the unsecured PPP Loan which iswas originally scheduled to mature in May 2022. ~~Subject to certain conditions,~~We applied for forgiveness on the $779 thousand of our PPP Loan ~~may be forgiven~~however was denied by the SBA. On June 23, 2022, we received a letter from Bank of America agreeing to extend the maturity date to May 7, 2025 and bears interest at a rate of 1.00% per year. The PPP loan is payable in ~~whole or in part by applying for forgiveness pursuant to the CARES Act and the PPP. If the remaining~~34 equal combined monthly principal ~~amount is not forgiven in full, we would be obligated to repay any principal amount not forgiven~~ and interest ~~accrued thereon.~~payments of approximately $24 thousand that commenced on August 7, 2022.

On March 14, 2022, we entered into a Securities Purchase Agreement with an institutional investor. The Purchase Agreement provides for of the issuance of ~~a senior secured note (the “SPA Note”)~~the SPA Note in the aggregate amount of ~~$65~~$65.0 million and a ~~warrant exercisable~~SPA Warrant to purchase up to an aggregate of 34,406 shares of Common Stock, with the potential for two potential subsequent closings for notes with an original principal amount of ~~$35~~$35.0 million each.

On August 18, 2022, we entered into a Securities Exchange Agreement. Pursuant to the August 2022 Exchange Agreement, we partially paid $35.2 million along with approximately $300 thousand in repayments for other fees under the SPA Note and exchanged the remaining balance of the SPA Note for an Exchange Note with an aggregate original principal amount of $35.0 million and a Note Exchange Warrant to purchase 71,139 shares of Common Stock. Additionally, we exchanged the SPA Warrant for a Modified Warrant for the same number of underlying shares but with a reduced exercise price.

On March 8, 2023, the Company entered into a new Securities Exchange Agreement. Pursuant to the March 2023 Exchange Agreement, we prepaid approximately $10.3 million in principal amount under the Exchange Note and exchanged $10.0 million in principal amount of the remaining balance of the Exchange Note for a new senior secured convertible note (the “Convertible Note”).

The ~~initial closing pursuant to this debt facility occurred on March 24, 2022. The SPA~~Convertible Note is a senior secured obligation and ~~ranks~~will rank senior to all ~~other~~of our indebtedness. WeThe Convertible Note will mature on August 19, 2025 (the “Maturity Date”) and has a 9.0% annualized interest rate, with interest to be ~~required to make amortization payments equal to 4.0% of the original~~paid monthly, in cash. The principal amount of the ~~SPA~~Convertible Note will be payable on ~~the first day of each calendar month starting on February 1, 2023 and extending through~~ the maturity date, provided that the lender will be entitled to a cash sweep of ~~March 1, 2026 (the “Maturity Date”), at~~30% of the proceeds of any at-the-market equity offering and 20% of the proceeds received by us in connection with any other equity financing, which ~~time all remaining~~will reduce the outstanding principal amount under the Exchange Note. On October 27, 2023, CP Acquisitions LLC, and ~~accrued but unpaid interest will be due. The SPA~~entity affiliated with and controlled by Raymond Chang, acquired the Exchange Note ~~has an interest rate~~and the Convertible Note. As of ~~6.75% per year,~~October 30, 2023, there was approximately $6.7 million outstanding under the Exchange Note and ~~we will be required to pay interest on March 1, June 1, September 1, and December 1 of each calendar year through~~$8.8 million outstanding under the Maturity Date. Following the one-year anniversary of the SPA Note’s issuance, we may, in lieu of paying interest in cash, pay such interest in kind, in which case interest on the SPA Note will be calculated at the rate of 8.75% per year and will be added to the principal amount of the SPAConvertible Note.

At any time, ~~following the one-year anniversary of the SPA Note’s issuance,~~ we may prepay all ~~(but not less than all)~~ of the ~~SPA~~Exchange Note by redemption at a price equal to ~~106.75%~~102.5% of the then-outstanding principal amount under the ~~SPA~~ Note plus ~~any~~ accrued but unpaid interest. The ~~noteholder~~holder will also ~~has~~have the option of requiring us to redeem the ~~SPA~~Exchange Note on the one-year or two-year anniversaries of issuance at a price equal to the then-outstanding principal amount under the Exchange Note plus accrued but unpaid interest, or if we undergo a fundamental change at a price equal to ~~107%~~102.5% of the then-outstanding principal amount under the ~~SPA~~Exchange Note plus ~~any~~ accrued but unpaid interest.

Cash Flows

The following table presents the major components of net cash flows from and used in operating, investing, and financing activities for the ~~three~~six months ended ~~March 31, 2022,~~June 30, 2023, and ~~2021:~~2022:

(In thousands)	March 31, 2022			March 31, 2021			June 30, 2023			June 30, 2022
Net cash (used in) provided by:
Net cash and cash equivalents (used in) provided by:
Operating activities	$	(30,875	)	$	(7,279	)	$	(11,634	)	$	(50,491	)
Investing activities		(13,365	)		(142	)		11,358			(29,637	)
Financing activities		87,431			137,197			(9,873	)		86,722
Net increase in cash, cash equivalents, and restricted cash	$	43,191		$	129,776
Net (decrease) increase in cash and cash equivalents							$	(10,149	)	$	6,594

Cash ~~Flow~~Flows from Operating Activities

For the ~~three~~six months ended ~~March 31, 2022,~~June 30, 2023, we incurred a net ~~income~~loss of ~~$1.8~~$17.1 million, which included a ~~non-cash gain~~$12.9 million loss from operations, a $4.6 million loss on extinguishment of notes payable, and $1.2 million of interest expense, net, partially offset by a $1.6 million credit related to the ~~remeasurement~~change in fair value of warrant liabilities of $10.8 million, non-cash expenses of $1.1 million related to depreciation and amortization, $1.0 million in connection with the issuance and acceleration of stock options, non-cash interest income of $0.4 million related to TTK Solutions, and gain attributed to non-controlling interest in the amount of $1 thousand.liabilities. Net cash used in operating activities for the six months ended June 30, 2023 was reduced by a $0.8 million increase in accounts receivable, a $0.6 million decrease in deferred revenue, a $16.4 million increase in inventory due to demand forecast, and a $0.9 million increase in prepaid expenses, a $2.1 million decrease in accrued expenses and other current liabilities and $2.8 million decrease in accounts payable.$11.6 million.

For the ~~three~~six months ended ~~March 31, 2021,~~June 30, 2022, we incurred a net loss of ~~$(3.8)~~$72.8 million, which ~~includes non-cash expenses~~included a $101.3 million loss from operations and $2.8 million of ~~$147 thousand related to depreciation and amortization, $2.1 million in connection with the issuance and acceleration of stock options, non-cash~~ interest ~~expenses of $33 thousand related to leases and the issuance of notes payable,~~expense, net, partially offset by a ~~gain of $2.7~~$31.0 million credit related to ~~extinguishment~~the change in fair value of ~~notes payable, loss attributed to non-controlling interest in the amount of $(33) thousand.~~warrant liabilities. Net cash used in operating activities for the six months ended June 30, 2022 was reduced by a $5.2 million increase in accounts receivable, a $3.3 million increase in prepaid inventory due to demand forecast, a $2.2 million increase in prepaid expenses, and a $96 thousand increase in deferred revenue, partially offset by a $7.4 million increase in accrued expenses ($6 million related to construction cots), and a $181 thousand increase in accounts payable.$50.5 million.

Cash ~~Flow~~Flows from Investing Activities

~~Net~~For the six months ended June 30, 2023, net cash ~~used in~~provided by investing activities ~~primarily relates~~was $11.4 million, which included cash inflows of $10.5 million in proceeds from the sale of securities and $1.5 million in proceeds from the repayment of a loan receivable, partially offset by cash outflows of $591 thousand in costs related to ~~net purchases of marketable securities, cash paid associated with the Company’s 2022 acquisition of Lab Society,~~ the issuance of loans receivable in connection with the Company’s financing of construction and equipment under its TTK Solutions offering, and for purchases of property and equipment, expenditures, and purchase of marketable securities. The capital expenditures support growth and investment in property and equipment, to expand research, development, and testing capabilities and, to a lesser extent, the replacement of existing equipment.loans.

For the ~~three~~six months ended ~~March 31,~~June 30, 2022, net cash used in investing activities was ~~$(13.4)~~$29.6 million, which included cash outflows of ~~$6.4 million in net purchases of marketable securities, $3.5 million paid in connection with our 2022 acquisitions of Lab Society, $12.5~~$20.4 million related to the issuance of TTK-related loans receivable, ~~and $3.7~~$9.1 million of expenditures for property and ~~equipment.~~

~~For the three months ended March 31, 2021,~~equipment, $3.5 million paid in connection with our 2022 acquisition of Lab Society and partially offset by $3.4 million in net ~~cash used in investing activities was $(142) thousand for leasehold improvements, purchasing computer equipment and small machinery.~~sales of marketable securities.

Cash ~~Flow~~Flows from Financing Activities

For the ~~three~~six months ended ~~March 31,~~June 30, 2023, net cash used in financing activities was $9.9 million, which was primarily driven by repayment of debt in a private placement of $10.3 million and payments on insurance financing loans of $999 thousand, partially offset by proceeds from the ATM Program of $1.5 million.

For the six months ended June 30, 2022, net cash provided by financing activities was ~~$87.4 million.~~ ~~Net cash provided by financing activities was primarily driven by the Company’s two private placements during 2022. The Company received~~$86.7 million, which consisted largely of $62.4 million in ~~net~~ proceeds from our issuance of debt and warrants in a private placement, and $25.8 million ~~in net proceeds~~ from ~~our~~the issuance of Common Stock and warrants in a private ~~placement. Additionally, the Company received $11 thousand in proceeds from the exercise~~placement, net of ~~stock options and warrants. Each of the above inflows of cash was offset by $782 thousand in payments relating to financing loans and financing leases.~~fees.

For the three months ended March 31, 2021, net cash provided by financing activities was $137 million, attributable to $57 million proceeds from our initial IPO, $80 million from our secondary public offering, both net of fees, and proceeds from the exercise of options and warrants of $444 thousand, slightly offset by $47 thousand payments relating to financing leases.

Off-Balance Sheet Arrangements

During the periods presented, we did not have, nor do we currently have, any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. We are therefore not exposed to the financing, liquidity, market, or credit risk that could arise if we had engaged in those types of relationships.

Critical Accounting Policies and Estimates

~~Part I, Item, 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” discusses our condensed~~Our consolidated financial statements ~~which~~ have been prepared in accordance with GAAP. The preparation of these ~~condensed~~ consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the ~~condensed~~ consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from these estimates under different assumptions or conditions.

These estimates are based on our knowledge and understanding of current conditions and actions that we may take in the future. Changes in these estimates will occur as a result of the passage of time and the occurrence of future events. Subsequent changes in these estimates may have a significant impact on our financial condition and results of operations and are recorded in the period in which they become known. We have identified the following estimates that, in our opinion, are subjective in nature, require the exercise of judgment and involve complex analysis: the fair value of derivative assets and liabilities, goodwill impairment assessment, revenue recognition and cost of goods sold.

The significant accounting policies and estimates that have been adopted and followed in the preparation of our ~~condensed~~ consolidated financial statements are detailed in Note 31 - ~~Summary~~Overview, Basis of Presentation and Significant Accounting Policies included in our ~~2021~~2022 Annual Report on Form 10-K and in Note 31 - ~~Summary~~Overview, Basis of Presentation and Significant Accounting Policies to our condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form ~~10-Q~~.10-Q. There have been no changes in these policies and estimates that had a significant impact on the financial condition and results of operations for the periods covered in this Quarterly Report.

Recently Issued Accounting Pronouncements Adopted

~~For more information~~Information on recently issued accounting pronouncements ~~are~~is included ~~within~~in Note 4 ~~– Recent~~1 - Overview, Basis of Presentation and Significant Accounting ~~Pronouncements,~~Policies, included ~~elsewhere~~ in the notes to condensed consolidated financial statements covered under Part I, Item 1 of this Quarterly Report on Form 10-Q.

New Accounting Pronouncements Not Yet Adopted

~~For more~~More information on new accounting pronouncements not yet adopted ~~are~~by the Company is included within Note 4 ~~– Recent~~1 - Overview, Basis of Presentation and Significant Accounting ~~Pronouncements,~~Policies, included ~~elsewhere~~ in the notes to ~~condensed~~ consolidated financial statements covered under Part I, Item 1 in this Quarterly Report on Form 10-Q.

Item 3. Quantitative and Qualitative Disclosures About Market ~~Risk.~~Risk

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide information required by this Item.

Item 4. Controls and ~~Procedures.~~Procedures

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer, to allow timely decisions regarding required disclosure.

Evaluation of Disclosure Controls and Procedures

As required by paragraph (b) of Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and ~~procedures.~~

The Company identified errors in the accounting for previously issued warrants, debt issuance costs and the classification of debt. Therefore, the Company restated it’s unaudited condensed financial statementsprocedures as of ~~and for the periods ended March 31, 2022,~~ June 30, ~~2022 and September 30, 2022. In connection with~~2023. Based on this evaluation, our Chief Executive Officer concluded that, due to the ~~restatements, the Company identified a~~ material ~~weakness~~weaknesses in ~~its internal controls related to accounting for complex financial instruments. A material weakness is a deficiency, or combination of deficiencies, in~~our internal control over financial reporting ~~such that there is a~~previously identified in Item 9A, “Controls and Procedures” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 and filed with the SEC on November 28, 2023, our disclosure controls and procedures were not effective at the reasonable ~~possibility that a material misstatement~~assurance level as of ~~the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.~~June 30, 2023.

Changes in Internal Control Over Financial Reporting

~~During~~We are implementing certain measures to remediate the ~~most recently completed fiscal quarter,~~material weaknesses identified in the design and operation of our internal control over financial reporting, including hiring technically qualified personnel and improving our technical accounting resources and capabilities. Other than those measures, there ~~has~~have been no ~~change~~changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended June 30, 2023 that ~~has~~have materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting. In light of the restatement of our financial statements as described above, we plan to enhance our processes to identify and appropriately apply applicable accounting requirements to better evaluate and understand the nuances of the complex accounting standards that apply to our condensed consolidated financial statements. Our plans at this time include providing enhanced access to accounting literature, research materials and documents and increased communication among our personnel and third-party professionals with whom we consult regarding complex accounting applications. The elements of our remediation plan can only be accomplished over time, and we can offer no assurance that these initiatives will ultimately have the intended effects.

PART II — OTHER INFORMATION

Item 1. Legal ~~Proceedings.~~Proceedings

From time to time, we are a party to various legal proceedings or claims arising in the ordinary course of business. For information related to legal proceedings, see the discussion under the caption Legal ~~Proceedings~~Matters in Note 2215 - Commitments and Contingencies to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report, which information is incorporated by reference into this Part II, Item 1.

Item 1A. Risk ~~Factors.~~Factors

As of the date of this report, there are no material changes to our risk factors as previously disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

Our recently completed reverse stock split is subject to several risks, and we cannot predict whether it will increase the market price for our Common Stock.

We cannot predict whether the 1-for-20 reverse stock split completed on July 5, 2023 will increase the market price for our Common Stock. The history of similar stock split combinations for companies in like circumstances is varied, and the market price of our Common Stock will also be based on our performance and other factors, some of which are unrelated to the number of shares outstanding. Further, there are a number of risks associated with the reverse stock split, including:

●

The market price per share of our shares of Common Stock post-split may not remain in excess of the Minimum Bid Requirement, or we may fail to meet the other requirements for continued listing on Nasdaq, resulting in the delisting of our Common Stock.

●

Although the Board of Directors believes that a higher stock price may help generate the interest of new investors, the reverse stock split may not result in a per-share price that will successfully attract certain types of investors and such resulting share price may not satisfy the investing guidelines of institutional investors or investment funds. Further, other factors, such as our financial results, market conditions and the market perception of our business, may adversely affect the interest of new investors in the shares of our Common Stock. As a result, the trading liquidity of the shares of our Common Stock may not improve as a result of the reverse stock split and there can be no assurance that the reverse stock split will result in the intended benefits.

●

The reverse stock split could be viewed negatively by the market and other factors may adversely affect the market price of the shares of our Common Stock. Consequently, the market price per post-split share may not increase in proportion to the reduction of the number of shares of our Common Stock outstanding before the implementation of the reverse stock split. Accordingly, the total market capitalization of our shares of Common Stock after the reverse stock split may be lower than the total market capitalization before the reverse stock split. Any reduction in total market capitalization as the result of the reverse stock split may make it more difficult for us to meet the Nasdaq Listing Rule regarding minimum value of listed securities, which could result in our shares of Common Stock being delisted from The Nasdaq Capital Market.

●

The reverse stock split may result in some stockholders owning “odd lots” of less than 100 shares of Common Stock. Odd lot shares may be more difficult to sell, and brokerage commissions and other costs of transactions in odd lots are generally somewhat higher than the costs of transactions in “round lots” of even multiples of 100 shares.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior ~~Securities.~~Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other ~~Information.~~Information

None.

Item 6. Exhibits

Exhibit No.		Description
~~2.1†~~3.1		~~Merger Agreement, dated as~~Certificate of ~~February 1, 2022, among~~Amendment to the Articles of Incorporation of the Registrant, ~~LS Holdings Corp., Lab Society NewCo, LLC, Michael S. Maibach Jr. as Owner Representative, and each of the Owners named therein~~filed July 11, 2022 (incorporated by reference to Exhibit ~~2.1~~3.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on ~~February 2,~~July 14, 2022).
3.2		Certified of Amendment to the Articles of Incorporation of the Registrant, filed October 17, 2022 (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 17, 2022).
4.1		Form of ~~Pre-Funded Warrant dated January 28, 2022~~Senior Secured Note (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on ~~January 26,~~August 19, 2022).
4.2		Form of ~~Common Stock Purchase~~ Warrant ~~dated January 28, 2022 (incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed with the Securities and~~ Exchange ~~Commission on January 26, 2022).~~
~~4.3~~		~~Form of Common Stock Purchase Warrant (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on March 18, 2022)~~.
~~4.4~~		~~Form of Senior Secured~~ Note (incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on ~~March 18,~~August 19, 2022).
4.3		Form of Note Exchange Note (incorporated by reference to Exhibit 4.3 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 19, 2022).
10.1†		Separation Agreement of Thomas Massie, dated as of July 8, 2022 (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form of8-K filed with the Securities ~~Purchase~~and Exchange Commission on July 14, 2022).
10.2†		Employment Agreement, dated as of ~~January 25,~~July 14, 2022, between the Registrant and ~~the Purchasers party thereto~~Stuart Wilcox (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on ~~January 26, 2022.~~July 14, 2022).
~~10.2~~10.3††		~~Form of Registration Rights~~Exchange Agreement, dated as of ~~January 25,~~August 18, 2022, between ~~the Registrant~~Agrify Corporation and the ~~Purchasers party thereto (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 26, 2022.~~
~~10.3†~~		~~Form of Securities Purchase Agreement, dated as of March 14, 2022, between the Registrant and High Trail Special Situations LLC~~investor listed therein (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on ~~March~~August 19, 2022).
10.4††		Equity Distribution Agreement, dated as of October 18, 2022, between the Registrant and Canaccord Genuity LLC (incorporated by reference to Exhibit 1.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 18, 2022).
31.1*		Rule 13(a)-14(a)/15(d)-14(a) Certification of principal executive officer and principal financial and accounting officer
32.1**		Section 1350 Certification of principal executive officer and principal financial and accounting officer
101.INS		Inline XBRL Instance Document
101.SCH		Inline XBRL Taxonomy Extension Schema Document.
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

Filed herewith.

Furnished herewith in accordance with Item 601 (b)(32) of Regulation S-K.

†

~~Certain information has~~Indicates a management contract, compensatory plan, or arrangement.

††	Schedules and exhibits have been omitted ~~from this exhibit in reliance upon~~pursuant to Item 601(a)(5) of Regulation S-K. The registrant hereby undertakes to furnish copies of any of the omitted schedules and exhibits upon request by the U.S. Securities and Exchange Commission.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		AGRIFY CORPORATION

	By:	/s/ Raymond Chang
		Raymond Chang

	Chief Executive Officer

	(Principal Executive Officer and Principal Financial and Accounting Officer)

Date: ~~October 2,~~December 11, 2023

iso4217:USD xbrli:shares

	Three Months ended March 31,
	2022 (As Restated)			2021
Revenue (including $1,271 and $5,518 from related parties, respectively)	$	26,021		$	7,008
Cost of goods sold		21,851			7,548
Gross profit (loss)		4,170			(540	)

General and administrative		9,759			4,458
Research and development		2,084			882
Selling and marketing		2,090			616
Total operating expenses		13,933			5,956
Loss from operations		(9,763	)		(6,496	)
Interest income (expense), net		559			(32	)
Change in fair value of warrant liabilities		10,785			—
Gain on extinguishment of notes payable		—			2,685
Other income, net		11,344			2,653
Net income (loss) before income taxes		1,581			(3,843	)
Income tax benefit		(200	)		—
Net income (loss)		1,781			(3,843	)
Income (loss) attributable to non-controlling interest		1			(33	)
Net income (loss) attributable to Agrify Corporation	$	1,780		$	(3,810	)
Net income (loss) per share attributable to Common Stockholders – basic ⁽¹⁾	$	14.48		$	(65.87	)
Net income (loss) per share attributable to Common Stockholders – diluted ⁽¹⁾	$	13.79		$	(65.87	)
Weighted-average common shares outstanding – basic ⁽¹⁾		122,946			57,841
Weighted-average common shares outstanding – diluted ⁽¹⁾		129,045			57,841

	Common Stock				Preferred A Stock					Additional Paid-In		Accumulated			Total Stockholders’ Equity attributable			Non- Controlling			Total Stockholders’
	Shares⁽¹⁾		Amount⁽¹⁾		Shares			Amount		Capital⁽¹⁾		Deficit			to Agrify			Interests			Equity
Balance at January 1, 2021		21,058	$	—		100,000		$	—	$	19,831	$	(26,510	)	$	(6,679	)	$	225		$	(6,454	)
Stock-based compensation		—		—		—			—		2,135		—			2,135			—			2,135
Beneficial conversion feature associated with amended Convertible Promissory Notes		—		—		—			—		3,869		—			3,869			—			3,869
Conversion of Convertible Notes		8,485		—		—			—		13,100		—			13,100			—			13,100
Issuance of Common Stock – Initial Public Offering (“IPO”), net of fees		31,050		—		—			—		56,961		—			56,961			—			56,961
Issuance of Common Stock – Secondary public offering, net of fees		31,945		—		—			—		79,839		—			79,839						79,839
Conversion of Preferred A Stock		6,865		—		(100,000	)		—		—		—			—			—			—
Exercise of options		872		—		—			—		439		—			439			—			439
Exercise of warrants		1,201		—		—			—		5		—			5			—			5
Net loss		—		—		—			—		—		(3,810	)		(3,810	)		(33	)		(3,843	)
Balance at March 31, 2021		101,476	$	—		—		$	—	$	176,179	$	(30,320	)	$	145,859		$	192		$	146,051

	Common Stock (As Restated)				Preferred A Stock (As Restated)				Additional Paid-In- Capital ⁽¹⁾		Accumulated Deficit			Total Stockholders’ Equity attributable to Agrify		Non- Controlling Interests		Total Stockholders’ Equity
	Shares⁽¹⁾		Amount⁽¹⁾		Shares		Amount		(As Restated)		(As Restated)			(As Restated)		(As Restated)		(As Restated)
Balance at January 1, 2022		111,035	$	—		—	$	—	$	196,034	$	(58,975	)	$	137,059	$	365	$	137,424
Stock-based compensation		—		—		—		—		953		—			953		—		953
Issuance of Common Stock and warrants in private placement		12,252		—		—		—		14,800		—			14,800		—		14,800
Acquisition of Lab Society		1,490		—		—		—		1,903		—			1,903		—		1,903
Exercise of options		21		—		—		—		10		—			10		—		10
Exercise of warrants		7,916		—		—		—		1		—			1		—		1
Net income		—		—		—		—		—		1,780			1,780		1		1,781
Balance at March 31, 2022, as restated		132,714	$	—		—	$	—	$	213,701	$	(57,195	)	$	156,506	$	366	$	156,872

	Three Months ended March 31,
	2022 (Restated)			2021
Cash flows from operating activities
Net income (loss) attributable to Agrify Corporation	$	1,780		$	(3,810	)
Adjustments to reconcile net income (loss) attributable to Agrify Corporation to net cash used in operating activities:
Depreciation and amortization		1,052			147
Amortization of premium on investment securities		224			—
Amortization of debt discount		223			—
Amortization of issuance costs		143			—
Interest on investment securities		(248	)		—
Deferred income taxes		(200	)		—
Compensation in connection with the issuance of stock options		953			2,135
Non-cash interest (income) expense		(406	)		33
Change in fair value of warrant liabilities		(10,785	)		—
Gain on extinguishment of notes payable, net		—			(2,685	)
Early termination of lease		26			—
Income (loss) attributable to non-controlling interests		1			(33	)
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable		(838	)		(5,218	)
Inventory		(16,361	)		(3,330	)
Prepaid expenses and other current assets		(890	)		(2,155	)
Right of use assets, net		(20	)		—
Accounts payable		(2,838	)		181
Accrued expenses and other current liabilities		(2,120	)		7,360
Deferred revenue, net		(571	)		96
Net cash used in operating activities		(30,875	)		(7,279	)

Cash flows from investing activities
Purchases of property and equipment		(3,728	)		(142	)
Purchase of securities		(76,097	)		—
Proceeds from the sale of securities		82,460			—
Issuance of loan receivable		(12,487	)		—
Cash paid for business combination, net of cash acquired		(3,513	)		—
Net cash used in investing activities		(13,365	)		(142	)

Cash flows from financing activities
Proceeds from issuance of debt and warrants in private placement, net		62,405			—
Proceeds from issuance of Common Stock and warrants in private placement, net of fees		25,797			—
Proceeds from IPO, net of fees		—			56,961
Proceeds from Secondary public offering, net of fees		—			79,839
Proceeds from exercise of options		10			439
Proceeds from exercise of warrants		1			5
Payments on other financing loans		(273	)		—
Payments on insurance financing loan		(428	)		—
Payments of financing leases		(81	)		(47	)
Net cash provided by financing activities		87,431			137,197
Net increase in cash, cash equivalents, and restricted cash		43,191			129,776
Cash, cash equivalents, and restricted cash at the beginning of period		12,014			8,111
Cash, cash equivalents, and restricted cash at the end of period	$	55,205		$	137,887
Cash, cash equivalents, and restricted cash at end of period
Cash and cash equivalents	$	25,205		$	137,887
Restricted cash		30,000			—
Total cash, cash equivalents, and restricted cash at the end of period	$	55,205		$	137,887
Supplemental disclosures of cash flow information
Conversion of Convertible Note to Common Stock		—		$	13,100
Supplemental disclosures of non-cash flow information
Initial fair value of warrants	$	40,496			—
Financing of prepaid insurance	$	1,928			—

	For the six months ended June 30,
	2023			2022
Cash flows from operating activities:
Net loss attributable to Agrify Corporation	$	(17,132	)	$	(72,824	)
Adjustments to reconcile net loss attributable to Agrify Corporation to net cash used in operating activities:
Depreciation and amortization		938			2,193
Amortization of premium on investment securities		—			1,055
Amortization of debt discount		70			2,735
Interest on investment securities		—			(1,247	)
Amortization of issuance costs		24			370
Deferred income taxes		—			(262	)
Stock based compensation expense		1,611			1,893
Early termination of lease		—			26
Non-cash interest income		—			(1,010	)
Change in fair value of warrant liabilities		(1,624	)		(30,966	)
Impairment of goodwill and intangible assets		—			69,904
Provision for doubtful accounts		(542	)		8,630
Provision for slow-moving inventory		(337	)		929
Loss on disposal of fixed assets		5			8
Loss on extinguishment of notes payable, net		4,631			—
Change in fair value of contingent consideration		—			(907	)
(Income) Loss attributable to non-controlling interests		(2	)		4
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable		264			(4,305	)
Inventory		3,030			(20,171	)
Prepaid expenses and other current assets		739			785
Prepaid and refundable taxes		—			(16	)
Right of use assets, net		(149	)		60
Other non-current assets		170			—
Accounts payable		1,237			(2,324	)
Accrued expenses and other current liabilities		(4,261	)		(4,049	)
Operating lease liabilities		213			—
Deferred revenue		(519	)		(1,002	)
Net cash and cash equivalents used in operating activities		(11,634	)		(50,491	)

Cash flows from investing activities:
Purchases of property and equipment		(60	)		(9,100	)
Proceeds from disposal of property and equipment		5			—
Purchase of securities		—			(211,030	)
Proceeds from sale of securities		10,456			214,449
Issuance of loan		(591	)		(20,443	)
Proceeds from repayment of loan receivable		1,548			—
Cash paid for business combination, net of cash acquired		—			(3,513	)
Net cash and cash equivalents provided by (used in) investing activities		11,358			(29,637	)

Cash flows from financing activities:
Proceeds from issuance of debt and warrants in private placement, net		—			62,405
Proceeds from issuance of Common Stock and warrants in private placement, net of fees		—			25,797
Proceeds from “at the market” Program, net		1,545			—
Proceeds from Employee Stock Purchase Plan Shares		25			—
Proceeds from exercise of options		—			19
Proceeds from exercise of warrants		—			2
Repayment of debt in private placement		(10,307	)		—
Repayments of notes payable, other		(71	)		—
Payments on other financing loans		(2	)		(243	)
Payments on insurance financing loans		(999	)		(1,071	)
Payments of financing leases		(64	)		(187	)
Net cash and cash equivalents (used in) provided by financing activities		(9,873	)		86,722
Net (decrease) increase in cash and cash equivalents		(10,149	)		6,594
Cash and cash equivalents at the beginning of period		10,457			12,014
Cash and cash equivalents at the end of period	$	308		$	18,608
Cash, cash equivalents, and restricted cash at end of period
Cash and cash equivalents		308			18,608
Restricted cash		—			30,000
Total cash, cash equivalents, and restricted cash at the end of period	$	308		$	48,608
Supplemental disclosures of non-cash flow information
Initial fair value of warrants	$	—		$	40,496
Financing of prepaid insurance	$	1,820		$	1,928
Conversion of private placement debt into Common Stock	$	3,160		$	—
Transfer of property and equipment to inventory	$	33		$	—

	March 31, 2022
				Adjustments
	Previously Reported			Warrants			Reverse Stock Split			Debt Issuance Costs			Restated
Assets
Current assets
Cash and cash equivalents	$	25,205			—			—			—		$	25,205
Restricted cash		30,000			—			—			—			30,000
Marketable securities		38,211			—			—			—			38,211
Accounts receivable, net of allowance for doubtful accounts of $1,415		8,571			—			—			—			8,571
Inventory, net of reserves of $942		38,989			—			—			—			38,989
Prepaid and refundable taxes		194			—			—			—			194
Prepaid expenses and other current assets		6,373			—			—			75			6,448
Total current assets		147,543												147,618

Non-Current Assets
Loan receivable		34,738			—			—			—			34,738
Property and equipment, net		7,055			—			—			—			7,055
Right-of-use assets, net		1,554			—			—			—			1,554
Goodwill		54,544			—			—			—			54,544
Intangible assets, net		15,861			—			—			—			15,861
Other non-current assets		3,180			—			—			(75	)		3,105
Total Assets	$	264,475											$	264,475

Liabilities and stockholders’ equity
Current liabilities
Accounts payable	$	3,683			—			—			—		$	3,683
Accrued expenses and other current liabilities		30,112			—			—			—			30,112
Operating lease liabilities, current		911			—			—			—			911
Long-term debt, current		2,970			(689	)		—			—			2,281
Deferred revenue		4,182			—			—			—			4,182
Total current liabilities		41,858												41,169

Non-current liabilities
Warrant liabilities		—			29,711			—			—			29,711
Other non-current liabilities		275			—			—			—			275
Operating lease liabilities, non-current		689			—			—			—			689
Deferred tax liabilities, net		62			—			—			—			62
Long-term debt		51,154			(15,457	)		—			—			35,697
Total liabilities		94,038												107,603

Commitments and contingencies (Note 22)

Stockholders’ equity
Common Stock, $0.001 par value per share, 250,000 shares authorized, 132,714 shares issued and outstanding		25			—			(25	)		—			0
Preferred Stock, $0.001 par value per share, 2,895,000 shares authorized, no shares issued or outstanding		—			—			—			—			—
Preferred A Stock, $0.001 par value per share, 105,000 shares authorized, no shares issued or outstanding		—			—			—			—			—
Additional paid-in capital		237,903			(24,227	)		25			—			213,701
Accumulated deficit		(67,857	)		10,662			—			—			(57,195	)
Total stockholders’ equity attributable to Agrify		170,071												156,506
Non-controlling interests		366			—			—			—			366
Total liabilities and stockholders’ equity	$	264,475											$	264,475

	Three Months ended March 31, 2022
				Adjustment
	Previously Reported			Warrants			Reverse Stock Split			Restated
Revenue (including $1,271 from related parties)	$	26,021			—			—		$	26,021
Cost of goods sold		21,851			—			—			21,851
Gross profit		4,170									4,170

General and administrative		9,759			—			—			9,759
Research and development		2,084									2,084
Selling and marketing		2,090			—			—			2,090
Total operating expenses		13,933									13,933
Loss from operations		(9,763	)								(9,763	)
Interest income, net		682			(123	)		—			559
Change in fair value of warrant liabilities		—			10,785			—			10,785
Gain on extinguishment of notes payable		—			—			—			—
Other income, net		682			10,662			—			11,344
Net (loss) income before income taxes		(9,081	)		10,662			—			1,581
Income tax benefit		(200	)		—			—			(200	)
Net (loss) income		(8,881	)		10,662			—			1,781
Income attributable to non-controlling interest		1			—			—			1
Net (loss) income attributable to Agrify Corporation	$	(8,882	)	$	10,662					$	1,780
Net (loss) income per share attributable to Common Stockholders – basic	$	(0.36	)	$	0.43		$	14.41		$	14.48
Net (loss) income per share attributable to Common Stockholders -- diluted	$	(0.36	)	$	0.43		$	13.72		$	13.79
Weighted-average common shares outstanding – basic		24,589,113			—			(24,466,167	)		122,946
Weighted-average common shares outstanding – diluted		24,589,113			—			(24,460,068	)		129,045

	Three Months ended March 31, 2022
	Previously			Adjustment
Cash flows from operating activities	Reported			Warrants			Restated
Net income (loss) attributable to Agrify Corporation	$	(8,882	)		10,662		$	1,780
Adjustments to reconcile net loss (income) attributable to Agrify Corporation to net cash used in operating activities:
Depreciation and amortization		1,052			—			1,052
Amortization of premium on investment securities		224			—			224
Amortization of debt discount		20			203			223
Amortization of issuance costs		—			143			143
Interest on investment securities		(248	)		—			(248	)
Debt issuance costs		2,700			(2,700	)		—
Deferred income taxes		(200	)		—			(200	)
Compensation in connection with the issuance of stock options		953			—			953
Non-cash interest (income)		(406	)		—			(406	)
Change in fair value of warrant liabilities		—			(10,785	)		(10,785	)
Gain on extinguishment of notes payable, net		—			—			—
Early termination of lease		26			—			26
Income attributable to non-controlling interests		1			—			1
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable		(838	)		—			(838	)
Inventory		(16,361	)		—			(16,361	)
Prepaid expenses and other current assets		(3,033	)		2,143			(890	)
Right of use assets, net		(20	)		—			(20	)
Other non-current assets		(1,867	)		1,867			—
Accounts payable		(2,765	)		(73	)		(2,838	)
Accrued expenses and other current liabilities		(2,120	)		—			(2,120	)
Deferred (expense), net		(2,407	)		1,836			(571	)
Net cash used in operating activities		(34,171	)		3,296			(30,875	)

Cash flows from investing activities
Purchases of property and equipment		(3,728	)		—			(3,728	)
Purchase of securities		(76,097	)		—			(76,097	)
Proceeds from the sale of securities		82,460			—			82,460
Issuance of loan receivable		(12,487	)		—			(12,487	)
Cash paid for business combinations, net of cash acquired		(3,513	)		—			(3,513	)
Net cash used in investing activities		(13,365	)		—			(13,365	)

Cash flows from financing activities
Proceeds from issuance of debt and warrants in private placement, net		65,000			(2,595	)		62,405
Proceeds from issuance of Common Stock and warrants in private placement, net of fees		25,797			—			25,797
Proceeds from IPO, net of fees		—			—			—
Proceeds from Secondary public offering, net of fees		—			—			—
Proceeds from exercise of options		10			—			10
Proceeds from exercise of warrants		1			—			1
Payments on other financing loans		—			(273	)		(273	)
Payments on insurance financing loan		—			(428	)		(428	)
Payments of financing leases		(81	)		—			(81	)
Net cash provided by financing activities		90,727			(3,296	)		87,431
Net increase in cash, cash equivalents, and restricted cash		43,191			—			43,191
Cash, cash equivalents, and restricted cash at the beginning of period		12,014			—			12,014
Cash, cash equivalents, and restricted cash at the end of period	$	55,205					$	55,205
Cash, cash equivalents, and restricted cash at end of period
Cash and cash equivalents	$	25,205			—		$	25,205
Restricted cash		30,000			—			30,000
Total cash, cash equivalents, and restricted cash at the end of period	$	55,205					$	55,205
Supplemental disclosures of non-cash flow information
Initial fair value of warrants		—			40,496		$	40,496
Financing of prepaid insurance		—			1,928		$	1,928

	Common Stock (Previously Reported)				Common Stock (Restated)				Additional Paid-In Capital (Previously Reported)			Additional Paid-In Capital (Restated)		Accumulated Deficit (Previously Reported)			Accumulated Deficit (Restated)			Total Stockholders’ Equity attributable to Agrify (Previously Reported)			Total Stockholders’ Equity attributable to Agrify (Restated)		Non-Controlling Interests (Previously Reported)		Non-Controlling Interests (Restated)		Total Stockholders’ Equity (Previously Reported)			Total Stockholders’ Equity (Restated)
	Shares		Amount		Shares		Amount
Balance at January 1, 2022		22,207,103	$	21		111,035		—	$	196,013		$	196,034	$	(58,975	)	$	(58,975	)	$	137,059		$	137,059	$	365	$	365	$	137,424		$	137,424
Stock-based compensation		—		—		—		—		953			953		—			—			953			953		—		—		953			953
Issuance of Common Stock and warrants in private placement		2,450,350		2		12,252		—		25,795			14,800		—			—			25,797			14,800		—		—		25,797			14,800
Issuance of debt and warrants in private placement		—		—		—		—		13,230			—		—			—			13,230			—		—		—		13,230			—
Acquisition of Lab Society		297,929		—		1,490		—		1,903			1,903		—			—			1,903			1,903		—		—		1,903			1,903
Exercise of options		4,220		—		21		—		10			10		—			—			10			10		—		—		10			10
Exercise of warrants		1,583,288		2		7,916		—		(1	)		1		—			—			1			1		—		—		1			1
Net income		—		—		—		—		—			—		(8,882	)		1,780			(8,882	)		1,780		1		1		(8,881	)		1,781
Balance at March 31, 2022		26,542,890	$	25		132,714		—	$	237,903		$	213,701	$	(67,857	)	$	(57,195	)	$	170,071		$	156,506	$	366	$	366	$	170,437		$	156,872

	As of March 31, 2022					As of December 31, 2021
(In thousands)	Amount		% of Total Accounts Receivable			Amount		% of Total Accounts Receivable

NEIA – Related Party	$	1,344		15.7	%	$	3,498		48.4	%
Customer B	$	1,541		18.0	%	$	1,541		21.3	%
Customer E	$	1,217		14.2	%		*		*

(In thousands)	Three Months ended March 31, 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		—		1,412
Contingent consideration – end of period	$	7,557	$	6,137

	March 31,		December 31,
(In thousands)	2022		2021
Prepaid insurance	$	2,353	$	492
Prepaid software		151		173
Prepaid expenses, other		1,828		541
Deferred costs		492		353
Other note receivables (1)		1,240		807
Other receivables, other		384		86
Total prepaid expenses and other current assets	$	6,448	$	2,452

	Intangible Assets, Gross						Accumulated Amortization									Intangible Assets, Net
(In thousands)	January 1, 2022		Additions and Retirements, net		March 31, 2022		January 1, 2022			Expense and Retirements, net			March 31, 2022			January 1, 2022		March 31, 2022
Trade names	$	2,418	$	317	$	2,735	$	(227	)	$	(91	)	$	(318	)	$	2,191	$	2,417
Customer Relationships		6,176		713		6,889		(302	)		(247	)		(549	)		5,874		6,340
Acquired developed Technology		4,911		1,432		6,343		(191	)		(255	)		(446	)		4,720		5,897
Non-compete		1,202		—		1,202		(60	)		(60	)		(120	)		1,142		1,082
Capitalized website costs		245		—		245		(100	)		(20	)		(120	)		145		125
Total	$	14,952	$	2,462	$	17,414	$	(880	)	$	(673	)	$	(1,553	)	$	14,072	$	15,861

(In thousands)
Purchase price consideration:
Estimated closing proceeds	$	4,002
Transaction expenses		80
Closing buyer shares		1,904
Holdback buyer shares		816
Earn-out consideration		1,420
Estimated working capital adjustment		(255	)
Fair value of total consideration transferred		7,967
Total purchase price, net of cash acquired	$	7,402

Fair value allocation of purchase price:
Cash and cash equivalents	$	565
Accounts receivable		511
Inventory		2,130
Prepaid expenses and other current receivables		55
Right of use assets, net		304
Property and equipment, net		177
Prepaid and refundable taxes		194
Accounts payable, accrued expenses, and other current liabilities		(1,224	)
Deferred revenue		(963	)
Deferred tax liability		(237	)
Finance lease liabilities, current		(36	)
Finance lease liabilities, noncurrent		(35	)
Operating lease liabilities, current		(112	)
Operating lease liabilities, noncurrent		(192	)
Acquired intangible assets		2,462
Goodwill		4,368
Total purchase price	$	7,967

(In thousands)	Asset Value		Useful Life
Identified intangible assets:
Trade names	$	317	5 years
Acquired developed technology		1,432	8 years
Customer relationships		713	6 years
Total identified intangible assets	$	2,462

(In thousands)
Purchase price consideration:
Cash paid to Sinclair Members at close	$	23,000
Cash contributed to escrow accounts at close		7,000
Cash paid for excess net working capital		1,430
Stock issued at close		14,535
Fair value of contingent consideration to be achieved		3,953
Fair value of total consideration transferred		49,918
Total purchase price, net of cash acquired	$	48,630

Fair value allocation of purchase price:
Cash and cash equivalents	$	1,288
Accounts receivable		897
Inventory		6,761
Prepaid expenses and other current receivables		1,736
Property and equipment, net		970
Right of use assets, net		730
Capitalized web costs, net		2
Accounts payable and accrued expenses		(9,223	)
Deferred revenue		(5,419	)
Long-term debt		(1,961	)
Operating lease liabilities, current		(392	)
Operating lease liabilities, noncurrent		(362	)
Acquired intangible assets		9,889
Goodwill		45,002
Total purchase price	$	49,918

(In thousands)	Balance at January 1, 2022		Additions			Payments		Amortization of Debt Discount		Balance at March 31, 2022
Accrued interest expense	$	—		(98	)		—		—	$	(98	)

Principal	$	—	$	65,000		$	—	$	—	$	65,000
Notes payable, discount		—		(29,527	)		—		224		(29,303	)
Net carrying amount	$	—	$	35,473		$	—	$	224	$	35,697

		Options Vested and Expected to Vest
Price ($)		Number of Options		Weighted-Average Remaining Contractual Life (Years)		Weighted-Average Exercise Price
$	456.00		5,073		8.14	$	456.00
$	972.00		5,375		8.57	$	972.00
$	1,536.00-$2,898.00		5,519		8.82	$	2,628.00

	Number of Warrants			Weighted-Average Exercise Price
Warrants outstanding at December 31, 2020		4,140		$	4.00
Granted		1,890			4.00
Exercised		(4,672	)		4.00
Warrants outstanding at March 31, 2021		1,358		$	4.00
Warrants outstanding at December 31, 2021		1,358		$	4.00
Granted		57,339			1,204.00
Exercised		(7,917	)		0.00
Warrants outstanding at March 31, 2022		50,780		$	1,360.00

Years ending December 31 (In thousands),	Operating lease			Finance lease

Remaining 2022	$	705		$	163
2023		606			194
2024		250			92
2025		107			50
2026		63			16
Total minimum lease payments		1,731			515
Less imputed interest		(131	)		(58	)
Total lease liabilities	$	1,600		$	457

	Three Months ended March 31,
(In thousands, except share and per share data)	2022 (As Restated)			2021
Revenue	$	26,021		$	7,008
Cost of goods sold		21,851			7,548
Gross profit (loss)		4,170			(540	)

General and administrative		9,759			4,458
Research and development		2,084			882
Selling and marketing		2,090			616
Total operating expenses		13,933			5,956
Loss from operations		(9,763	)		(6,496	)
Interest income (expense), net		559			(32	)
Change in fair value of warrant liabilities		10,785			—
Gain on extinguishment of notes payable		—			2,685
Other income, net		11,344			2,653
Net income (loss) before income taxes		1,581			(3,843	)
Income tax benefit		(200	)		—
Net income (loss)		1,781			(3,843	)
Income (loss) attributable to non-controlling interest		1			(33	)
Net income (loss) attributable to Agrify Corporation	$	1,780		$	(3,810	)
Net income (loss) per share attributable to Common Stockholders – basic ⁽¹⁾	$	14.48		$	(65.87	)
Net income (loss) per share attributable to Common Stockholders – diluted ⁽¹⁾	$	13.79		$	(65.87	)
Weighted-average common shares outstanding – basic ⁽¹⁾		122,946			57,841
Weighted-average common shares outstanding – diluted ⁽¹⁾		129,045			57,841

	Three Months ended March 31,
(In thousands)	2022 (As Restated)		2021			Change			% Change
Interest income (expense), net	$	559	$	(32	)	$	591			1,847	%
Change in fair value of warrant liabilities		10,785		—			10,785			100	%
Gain on extinguishment of notes payable		—		2,685			(2,685	)		(100	)%
Total other income, net	$	11,344	$	2,653		$	8,691			328	%