| Overview, Basis of Presentation and Significant Accounting Policies | Note 1 — Overview, Basis of Presentation
and Significant Accounting Policies Description of Business Agrify Corporation (“Agrify”
or the “Company”) is a developer of branded innovative solutions for the cannabis and hemp industries in extraction, cultivation
and more. 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. Agrify’s proprietary micro-environment-controlled Vertical Farming Units (VFUs)
enable cultivators to produce the highest quality products with unmatched consistency, yield, and ROI at scale. Agrify’s comprehensive
extraction product line, which includes hydrocarbon, ethanol, solventless, post-processing, and lab equipment, empowers producers to maximize
the quantity and quality of extract required for premium concentrates. The Company was formed in
the State of Nevada on June 6, 2016 as Agrinamics, Inc., and subsequently changed its name to Agrify Corporation. The Company is sometimes
referred to herein by the words “we,” “us,” “our,” and similar terminology. The Company has ten wholly-owned
subsidiaries, which are collectively referred to as the “Subsidiaries” and the Company also has ownership interests in certain
companies. Nasdaq Deficiency Notice On October 17, 2023, the
Company received a Staff Delisting Determination from the Nasdaq Stock Market LLC (“Nasdaq”) Listing Qualifications Department
(the “Staff”) notifying the Company that it was not in compliance with Nasdaq’s continued listing requirements under
Nasdaq Listing Rule 5250(c)(1) (the “Listing Rule 5250(c)(1)”) as a result of its failure to file the Form 10-Q for the quarters
ended March 31, 2023, June 30, 2023 and the annual report on Form 10-K for the fiscal year ended December 31, 2022 in a timely manner. On November 16, 2023, the
Company received a notice from the Staff that the Company remained noncompliant with the 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 September 30, 2023 with the Securities And Exchange Commission
(the “SEC”) by the required filing date. The Company subsequently filed each of the delinquent reports and regained compliance
with the Listing Rule 5250(c)(1). On December 1, 2023, the
Company received a notice from Nasdaq stating that because the Company reported stockholders’ deficit of $(17.17) million in its
Form 10-Q for the quarter ended March 31, 2023, the Company was no longer in compliance with Nasdaq Listing Rule 5550(b)(1) (the “Listing
Rule 5550(b)(1)”), which requires that listed companies maintain a minimum of $2.5 million in stockholders’ equity. In response,
the Company timely requested a hearing before a Nasdaq Hearings Panel (the “Panel”), which stayed any further action by the
Staff. The hearing was held on January 11, 2024. The Company arrived at the hearing having previously cured any additional grounds for
delisting as a result of delinquent periodic filings during 2023 by making all filings prior to the hearing. On January 30, 2024, the
Company received formal notice that the Panel had granted the Company’s request for an exception through April 15, 2024 to evidence
compliance with the Listing Rule 5550(b)(1), which was subsequently extended to May 15, 2024. As a result of the conversion of the Convertible
Note (as defined below) and the Restated Junior Note (as defined below) as set forth below in Note 7, the Company regained compliance
with the stockholders’ equity requirement, On May 28, 2024, the Company received formal written notice from Nasdaq confirming that
the Company had regained compliance with the minimum stockholders’ equity requirement as set forth in Listing Rule 5550(b)(1). On March 5, 2024, the Company
received a deficiency letter from the Staff notifying the Company that, for the last 30 consecutive business days, the bid price for the
Company’s Common Stock had closed below $1.00 per share, which is the minimum closing price required to maintain continued listing
on the Nasdaq Stock Market under Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Requirement”). The Notice had no immediate
effect on the listing of the Company’s Common Stock on Nasdaq. In accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company
has 180 calendar days to regain compliance with the Minimum Bid Requirement. The compliance period for the Company expired on September
3, 2024. On September 4, 2024, the Staff notified the company in writing that it was eligible for an additional 180-day compliance period,
or until March 3, 2025, to regain compliance with the Minimum Bid Requirement. On October 8, 2024, the Company completed a 1-for-15 reverse
stock split of our Common Stock, in which each fifteen shares of Common Stock issued and outstanding was combined and converted into one
share of Common Stock to regain compliance with the Minimum Bid Requirement. On October 22, 2024, the Staff notified the Company that
it had regained compliance with the Minimum Bid Requirement. Basis of Presentation and Principles of Consolidation These interim condensed consolidated
financial statements of the Company and its subsidiaries are unaudited. In the opinion of management, all adjustments (consisting of normal
recurring accruals) and disclosures necessary for a fair presentation of these unaudited condensed consolidated financial statements have
been included. The results reported in the unaudited condensed consolidated financial statements for any interim periods are not necessarily
indicative of the results that may be reported for the entire year. The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with the rules and regulations of the SEC and do not include all information and footnotes necessary
for a complete presentation of financial statements in conformity with accounting principles generally accepted in the United States (“U.S.
GAAP”). Certain information and footnote
disclosures normally included in the annual consolidated financial statements prepared in accordance with U.S. GAAP have been condensed
or omitted. These unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s
audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended
December 31, 2023 filed with the SEC on April 15, 2024. The December 31, 2023 balances reported herein are derived from the audited consolidated
financial statements for the year ended December 31, 2023. The results of operations for the interim periods are not necessarily indicative
of the results of operations to be expected for the full year. Accounting for Wholly-Owned
Subsidiaries The accompanying unaudited
consolidated financial statements have been prepared in accordance with U.S. GAAP and include the accounts of the Company and its wholly-owned
subsidiaries, as described above, in accordance with the provisions required by Accounting Standards Codification (“ASC”)
Topic 810, Consolidation Accounting for Less
Than Wholly-Owned Subsidiaries For the Company’s less
than wholly-owned subsidiary, Agrify Brands, LLC (“Agrify Brands”), the Company first analyzes whether this entity is a variable
interest entity (a “VIE”) in accordance with ASC 810, and if so, whether the Company is the primary beneficiary requiring
consolidation. The Company continuously re-assesses (i) whether the joint-venture is a VIE, and (ii) if the Company is the primary beneficiary
of the VIE. If it is determined that Agrify Brands qualifies as a VIE and the Company is the primary beneficiary, the Company’s
financial interest in the VIE is consolidated. Based on the Company’s
analysis of this entity, the Company has determined that Agrify Brands is a VIE, and that the Company is the primary beneficiary. While
the Company owns 75% of Agrify Brand’s equity interests, the remaining equity interests in Agrify Brands are owned by unrelated
third parties, and the agreement with these third parties provides the Company with greater voting power as the majority owner. Accordingly,
the Company consolidates its interest in the financial statements of Agrify Brands under the VIE rules and reflects the third parties’
interests in the unaudited 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. Going Concern In accordance with the FASB
Accounting Standards Update (“ASU”) 2014-15, Presentation of Financial Statements - Going Concern The Company has incurred
operating losses since its inception and has negative cash flows from operations and a working capital deficit of $7.0 million. The Company
also has an accumulated deficit of $283.2 million as of September 30, 2024. The Company’s primary sources of liquidity are its cash
and cash equivalents and marketable securities, with additional liquidity accessible, subject to market conditions and other factors,
including limitations that may apply to the Company under applicable SEC regulations, from the capital market. As of September 30, 2024,
the Company had $0.3 million of cash, cash equivalents, and marketable securities. The Company had no restricted cash as of September
30, 2024. Current liabilities were $27.8 million as of September 30, 2024. These unaudited condensed
consolidated financial statements have been prepared on a going concern basis, which implies the Company believes these conditions raise
substantial doubt about its ability to continue as a going concern within the next twelve-months from the date these unaudited condensed
consolidated financial statements are available to be issued. The Company’s continuation as a going concern is dependent upon its
ability to obtain the necessary debt or equity financing to continue operations until the Company begins generating sufficient cash flows
from operations to meet its obligations. If the Company is unable raise additional funds, it may be forced to cease operations. During the nine months ended
September 30, 2024, the Company raised net proceeds of $2.1 million via the issuance of Common Stock and Pre-Funded Warrants in a public
offering through Alexander Capital, LP (“Alexander Capital”) that is recorded within Common Stock and additional paid-in capital
on the Company’s unaudited condensed consolidated balance sheet. During this period, the Company also raised an additional $4.0
million in proceeds through the issuance of notes to related parties. The Company intends to raise additional capital later this year
to support its 2024 and 2025 funding needs. The Company also continues to make additional adjustments in headcount, salary, travel, sales
and marketing spending, but there is no guarantee that these ongoing cost-cutting efforts or capital raises will be sufficient to maintain
operations. There is no assurance that
the Company will ever be profitable or that future capital raising efforts will be successful. The unaudited condensed consolidated financial
statements do not include any adjustments to reflect the potential future effects on the recoverability and classification of assets or
the amounts and classifications of liabilities that may result should the Company be unable to continue as a going concern. Use of Estimates The preparation of the Company’s
condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial
statements, and the reported amounts of expenses during the reporting period. On an ongoing basis, we evaluate estimates, which include
estimates related to accruals, stock-based compensation expense, reported amounts of revenues and expenses during the reported period,
fair value of warrant liabilities, sales tax liabilities, and net realizable value of inventory and collectability of trade accounts and
loans receivable. 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. The Company regularly evaluates
its assets, including asset groups or reporting units, for impairment in accordance with U.S. GAAP. The Company is aware of the impact
that prolonged net losses can have on the fair value of underlying assets and the overall company. The Company is committed to ensuring
that the carrying amounts of its assets are appropriately assessed and adjusted for any impairment, reflecting a true and fair view of
its financial position. Accounts Receivable, Net and Loans Receivable,
Net Accounts
receivable, net, primarily consists of amounts for goods and services that are billed and currently due from customers. The composition
of loan receivable, net is detailed in Note 5 - Loans Receivable. In accordance with ASC Topic 310-10, Receivables 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, marketable
securities, accounts receivable, and loans receivable. Cash equivalents primarily consist of money market funds with original maturities
of three months or less, which are invested primarily with U.S. financial institutions. Cash deposits with financial institutions 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. The
tables below show customers who account for 10% or more of the Company’s total revenues and 10% or more of the Company’s accounts
receivable for the periods presented. For the three and nine months ended September 30, 2024 and 2023, the
Company’s customers that accounted for 10% or more of the total revenue were as follows:
Three months ended Three months ended Nine months ended Nine months ended
(In thousands) Amount % of Total Amount % of Total Amount % of Total Amount % of Total
Customer A * * * * * * $ 1,930 13.8 %
Customer B $ 430,456 14.4 % * * * * $ 1,855 13.2 %
* Customer revenue, as a
percentage of total revenue, was less than 10% As of September 30, 2024
and December 31, 2023, the Company’s customers that accounted for 10% or more of the total accounts receivable, net, were as follows:
As of As of
(In thousands) Amount % of Total Amount % of Total
Company Customer Number – 24375 $ 95 29.0 % * *
Company Customer Number – 125 $ 69 21.0 % * *
Company Customer Number – 9142 $ 42 12.7 % * *
Company Customer Number – 15095 * * $ 712 62.0 %
Company Customer Number – 10888 * * $ 251 21.8 % * Customer accounts receivable, as a percentage of total accounts receivable, was less than 10% As of September 30, 2024
and December 31, 2023, the Company’s borrowers that accounted for 10% or more of the total loans receivable, net, were as follows:
As of As of
(In thousands) Amount % of Total Amount % of Total
Borrower - 01 $ 6,810 59 % $ 6,810 59 %
Borrower - 02 $ 4,774 41 % $ 4,774 41 % Inventories The Company values all its
inventories, which consist primarily of significant raw material hardware components, at the lower of cost or net realizable value, with
cost principally determined by the weighted-average cost method on a first-in, first-out basis. Write-offs of potentially slow-moving
or damaged inventory are recorded through specific identification of obsolete or damaged material. The Company takes a physical inventory
count at least once annually at all inventory locations. 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 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 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 sheets and any resulting gain or loss is included
in the condensed consolidated 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. Warrant Liabilities 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 Derivatives and Hedging 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 unaudited condensed consolidated statements of operations. Fair Value of Financial Instruments The Company’s financial
instruments consist of cash and cash equivalents, marketable securities, accounts receivable, loans receivable, accounts payable, accrued
expenses, contingent consideration, operating lease liabilities, long-term debt, related party debt, and warrant liabilities. Refer to
Note 4 - Fair Value Measures, included elsewhere in the notes to the unaudited condensed consolidated financial statements for details
of the Company’s financial instruments. Revenue Recognition Overview The Company generates revenue
from the following sources: (1) equipment sales, (2) providing services and (3) construction contracts. In accordance with ASC Topic
606, Revenue Recognition
● identify the customer contract;
● identify performance obligations
that are distinct;
● determine the transaction price;
● allocate the transaction price
to the distinct performance obligations; and
● recognize revenue as the performance
obligations are satisfied. Identify the customer
contract A customer contract is generally
identified when there is approval and commitment from both the Company and its customer, the rights have been identified, payment terms
are identified, the contract has commercial substance and collectability is probable. Specifically, the Company obtains written/electronic
signatures on contracts and purchase orders, if said purchase orders are issued in the normal course of business by the customer. Identify performance
obligations that are distinct A performance obligation
is a promise by the Company to provide a distinct good or service or a series of distinct goods or services. A good or service that is
promised to a customer is distinct if the customer can benefit from the good or service either on its own or together with other resources
that are readily available to the customer, and a company’s promise to transfer the good or service to the customer is separately
identifiable from other promises in the contract. Determine the transaction
price The transaction price is
the amount of consideration to which the Company expects to be entitled in exchange for transferring goods or services to a customer,
excluding sales taxes that are collected on behalf of government agencies and net of sales discounts. Allocate the transaction
price to distinct performance obligations The transaction price is
allocated to each performance obligation based on the relative standalone selling prices (“SSP”) of the goods or services
being provided to the customer. The Company’s contracts typically contain multiple performance obligations, for which the Company
accounts for individual performance obligations separately, if they are distinct. The standalone selling price reflects the price the
Company would charge for a specific piece of equipment or service if it was sold separately in similar circumstances and to similar customers. Recognize revenue as
the performance obligations are satisfied Revenue is recognized when,
or as, performance obligations are satisfied by transferring control of a promised product or service to a customer. 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 service (“SaaS”) type subscription
license, whereby the customer only has a right to access the software over a specified time period. The full value of the contract is
recognized ratably over the contractual term of the SaaS subscription, adjusted monthly if tiered pricing is relevant. The Company typically
satisfies its performance obligations for equipment sales when equipment is made available for shipment to the customer; for services
sales as services are rendered to the customer and for construction contracts both as services are rendered and when the contract is completed. The Company utilizes the
cost-plus margin method to determine the SSP for equipment and build-out services. This method is based on the cost of the services from
third parties, plus a reasonable markup that the Company believes is reflective of a market-based reseller margin. The Company determines the
SSP for services in time and materials contracts by observable prices in standalone services arrangements. The Company estimates variable
consideration in the form of royalties, revenue share, monthly fees, and service credits at contract inception and updated at the end
of each reporting period if additional information becomes available. Variable consideration is typically not subject to constraint. Changes
to variable consideration were not material for the periods presented. If a contract has payment
terms that differ from the timing of revenue recognition, the Company will assess whether the transaction price for those contracts include
a significant financing component. The Company has elected the practical expedient that permits an entity to not adjust for the effects
of a significant financing component if the Company expects that at the contract inception, the period between when the entity transfers
a promised good or service to a customer and when the customer pays for that good or service, will be one year or less. For those contracts
in which the period exceeds the one-year threshold, this assessment, as well as the quantitative estimate of the financing component and
its relative significance, requires judgment. Accordingly, the Company imputes interest on such contracts at an agreed-upon interest rate
and will present the financing components separately as financial income. As of September 30, 2024 and September 30, 2023, 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 concern
over delivered products or services, the Company has endeavored to remedy the concern and all costs related to such matters have been
insignificant in all periods presented. The Company has elected to
treat shipping and handling activities after the customer obtains control of the goods as a fulfillment cost and not as a promised good
or service. Accordingly, the Company will accrue all fulfillment costs related to the shipping and handling of consumer goods at the time
of shipment. The Company has payment terms with its customers of one year or less and has elected the practical expedient applicable to
such contracts not to consider the time value of money. Sales, value add, and other taxes the Company collects concurrent with revenue-producing
activities are excluded from revenue. The Company receives payment
from customers based on specified terms that are generally less than 30 days from the satisfaction of performance obligations. There are
no contract assets related to performance under the contract. The difference in the opening and closing balances of the Company’s
contract liabilities primarily results from the timing difference between the Company’s performance and the customer’s payment.
The Company fulfills obligations under a contract with a customer by transferring products and services in exchange for consideration
from the customer. Accounts receivable are recorded when the customer has been billed or the right to consideration is unconditional.
The Company recognizes a contract liability when consideration has been received or an amount of consideration is due from the customer,
and the Company has a future obligation to transfer certain proprietary products. In accordance with ASC 606-10-50-13,
the Company is required to include disclosure on its remaining performance obligations as of the end of the current reporting period.
Due to the nature of the Company’s contracts, these reporting requirements are not applicable. The majority of the Company’s
remaining contracts meet certain exemptions as defined in ASC 606-10-50-14 through 606-10-50-14A, including (i) performance obligation
is part of a contract that has an original expected duration of one year or less and (ii) the right to invoice practical expedient. The Company generally provides
a one-year warranty on its products for materials and workmanship but may provide multiple year warranties as negotiated, and generally
transfers to its customers the warranties it receives from its vendors, if any, which generally cover this one-year period. In accordance
with ASC Topic 450, Accounting for Contingencies Research and Development Costs The Company expenses research
and development costs as incurred. Research and development expenses include payroll, employee benefits and other expenses associated
with product development. The Company incurs research and development costs associated with the development and enhancement of both hardware
and software products associated with its cultivation and extraction equipment, as well as its SaaS-based software offering, Agrify Insights™
cultivation software (“Agrify Insights™”). Net Loss Per Share The Company presents basic
and diluted net (loss) income per share attributable to Common Stockholders in conformity with the one-class method. The Company computes
basic (loss) income per share by dividing net (loss) income available to Common Stockholders by the weighted-average number of Common
Stock outstanding. Diluted (loss) income per share adjusts basic (loss) income per share for the potentially dilutive impact of convertible
notes, stock options, restricted stock units and warrants. As the Company has reported losses for the three months ended September 30,
2024 and 2023 and the nine months ended September 30, 2023 and 2024, all potentially dilutive securities including convertible notes,
stock options, restricted stock units and warrants, are anti-dilutive, and accordingly, basic net loss per share equals diluted net loss
per share for those periods. Net (loss) income per share
calculations for all periods have been adjusted to reflect the reverse stock splits effected on July 5, 2023 and October 8, 2024. Recently Announced Accounting Pronouncements On December 14, 2023, the
FASB issued ASU 2023-09, Improvements to Income Tax Disclosures In November 2023, the FASB
issued ASU No. 2023-07, Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures, to provide enhanced segment disclosures.
The standard will require disclosures about significant segment expense categories and amounts for each reportable segment, for all periods
presented. Additionally, the standard requires public entities to disclose the title and position of the Chief Operating Decision Maker
(“CODM”) in the consolidated financial statements. These enhanced disclosures are required for all entities on an interim
and annual basis, effective for fiscal years beginning after December 15, 2023, and interim periods within annual periods beginning after
December 15, 2024. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial
statements. Other
recent accounting pronouncements did not or are not believed by management to have a material impact on the Company’s present or
future condensed consolidated financial statements. |
