UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
or
For the transition period from _________ to _________
Commission File Number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
(Address of principal executive offices, including zip code)
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
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.
☒ 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).
☒ 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 | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant
to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES ☐
NO
As of November 14, 2024, the registrant had
TABLE OF CONTENTS
i
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
AGRIFY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Assets | (Unaudited) | |||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Marketable securities | ||||||||
| Accounts receivable, net of allowance for credit losses of $ | ||||||||
| Inventory, net of reserves of $ | ||||||||
| Loans receivable, current | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Loans receivable, net of allowance for credit losses of $ | ||||||||
| Property and equipment, net | ||||||||
| Operating lease right-of-use assets | ||||||||
| Other non-current assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity (Deficit) | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses and other current liabilities | ||||||||
| Operating lease liabilities, current | ||||||||
| Long-term debt, current | ||||||||
| Related party debt, current | ||||||||
| Contract liabilities | ||||||||
| Total current liabilities | ||||||||
| Warrant liabilities | ||||||||
| Operating lease liabilities, net of current | ||||||||
| Related party debt, net of current | ||||||||
| Long-term debt, net of current | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 14) | ||||||||
| Stockholders’ equity (deficit): | ||||||||
| Common Stock, $ | ||||||||
| Preferred Stock, $ | ||||||||
| Preferred A Stock, $ | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity (deficit) attributable to Agrify | ( | ) | ||||||
| Non-controlling interests | ||||||||
| Total stockholders’ equity (deficit) | ( | ) | ||||||
| Total liabilities and stockholders’ equity (deficit) | $ | $ | ||||||
| (1) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
1
AGRIFY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
(Unaudited)
Three months ended September 30, | Nine
months ended | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Revenue (including $ | $ | $ | $ | $ | ||||||||||||
| Cost of goods sold | ||||||||||||||||
| Gross profit | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Selling and marketing | ||||||||||||||||
| Research and development | ||||||||||||||||
| Gain on settlement of contingent liabilities | ( | ) | ||||||||||||||
| Gain on early termination of lease | ( | ) | ||||||||||||||
| (Gain) loss on disposal of property and equipment | ( | ) | ( | ) | ||||||||||||
| Change in contingent consideration | ( | ) | ( | ) | ||||||||||||
| Total operating expenses | ||||||||||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Change in fair value of warrant liabilities | ( | ) | ( | ) | ||||||||||||
| Loss on extinguishment of long-term debt, net | ( | ) | ||||||||||||||
| Other income | ||||||||||||||||
| Total other income (expense), net | ( | ) | ( | ) | ( | ) | ||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss attributable to non-controlling interest | ||||||||||||||||
| Net loss attributable to Agrify Corporation | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss per share attributable to Common Stockholders – basic and diluted (1) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average common shares outstanding - basic and diluted | ||||||||||||||||
| (1) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
AGRIFY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(In thousands)
(Unaudited)
| Common Stock | Preferred Stock | Preferred A Stock | Additional Paid-In- | Accumulated | Total Stockholders’ Equity (Deficit) attributable to | Non-Controlling | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Agrify | Interests | (Deficit) | ||||||||||||||||||||||||||||||||||
| Balance at January 1, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Issuance of Common Stock through an at the market offering, net of fees | ||||||||||||||||||||||||||||||||||||||||||||
| Issuance of Common Stock to Pure Pressure | ||||||||||||||||||||||||||||||||||||||||||||
| Vesting of restricted stock units | ||||||||||||||||||||||||||||||||||||||||||||
| Proceeds from Employee Stock Purchase Plan Shares | ||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||
| Balance March 31, 2023 | — | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Issuance of held-back shares to Lab Society | ||||||||||||||||||||||||||||||||||||||||||||
| Exercise of Pre-Funded Warrants in private placement | ||||||||||||||||||||||||||||||||||||||||||||
| Conversion of Exchange Note | ||||||||||||||||||||||||||||||||||||||||||||
| Conversion of Convertible Note | ||||||||||||||||||||||||||||||||||||||||||||
| Net loss (income) | — | — | — | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||
| Balance June 30, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Reverse stock split fractional share settlement | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||
| Balance September 30, 2023 | $ | — | $ | — | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||||||||||||
3
AGRIFY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(In thousands)
(Unaudited)
| Common Stock | Preferred Stock | Preferred A Stock | Additional Paid-In- | Accumulated | Total Stockholders’ Equity (Deficit) attributable to | Non-Controlling | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Agrify | Interests | (Deficit) | ||||||||||||||||||||||||||||||||||
| Balance at January 1, 2024 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Issuance of Common Stock and Pre-Funded Warrants through public offering | ||||||||||||||||||||||||||||||||||||||||||||
| Issuance of held-back shares from Sinclair acquisition | ||||||||||||||||||||||||||||||||||||||||||||
| Cashless exercise of High Trail Warrants | — | |||||||||||||||||||||||||||||||||||||||||||
| Exercise of Pre-Funded Warrants issued through public offering | — | |||||||||||||||||||||||||||||||||||||||||||
| Conversion of Convertible Note | — | |||||||||||||||||||||||||||||||||||||||||||
| Contribution from troubled debt restructuring with related party | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Stock split share adjustment | — | ( | ) | |||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Balance March 31, 2024 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Exercise of Pre-Funded Warrants issued through public offering | — | |||||||||||||||||||||||||||||||||||||||||||
| Excess of related party debt and Pre-Funded Warrants conversion | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Issuance of equity classified Pre-Funded Warrants | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Issuance of vested RSUs, net of shares held back to offset tax | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||
| Balance June 30, 2024 | $ | $ | $ | $ | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Exercise of Pre-Funded Warrants | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Conversion of related party debt into Pre-Funded Warrants | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Issuance of vested RSUs, net of shares held back to offset tax | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||
| Balance September 30, 2024 | $ | — | $ | — | $ | $ | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
AGRIFY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| For
the nine months ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income (loss) attributable to Agrify Corporation | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net income (loss) attributable to Agrify Corporation to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Amortization of debt discount (premium) | ( | ) | ( | ) | ||||
| Amortization of issuance costs | ||||||||
| Amortization of right of use assets | ||||||||
| Stock based compensation expense | ||||||||
| Change in fair value of warrant liabilities | ( | ) | ||||||
| Loss on extinguishment of long-term debt, net | ||||||||
| Change in provision for credit losses, net | ( | ) | ||||||
| Change in inventory reserves | ( | ) | ( | ) | ||||
| Loss on abandonment of CIP projects | ||||||||
| (Gain) loss on disposal of property and equipment | ( | ) | ||||||
| Gain on early termination of lease | ( | ) | ||||||
| Gain on settlement of contingent liabilities | ( | ) | ||||||
| Change in accrued acquisition liabilities due to issuance of held-back shares | ( | ) | ||||||
| Loss attributable to non-controlling interests | ( | ) | ||||||
| Changes in operating assets and liabilities, net of acquisitions: | ||||||||
| Accounts receivable | ||||||||
| Inventory | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Other non-current assets | ||||||||
| Accounts payable | ( | ) | ||||||
| Accrued expenses and other current liabilities | ( | ) | ( | ) | ||||
| Operating lease liabilities | ( | ) | ||||||
| Contract liabilities | ( | ) | ||||||
| Net cash and cash equivalents used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchases of property and equipment | ( | ) | ||||||
| Proceeds from disposal of property and equipment | ||||||||
| Proceeds from sale of marketable securities | ||||||||
| Issuance of loans receivable | ( | ) | ||||||
| Proceeds from repayment of loans receivable | ||||||||
| Net cash and cash equivalents provided by investing activities | ||||||||
| Cash flows from financing activities: | ||||||||
| Proceeds from Issuance of Common Stock through an S-1 and Pre-Funded Warrants offering | ||||||||
| Proceeds from issuance of Common Stock through an “at the market” offering, net of fees | ||||||||
| Proceeds from Employee Stock Purchase Plan Shares | ||||||||
| Proceeds from exercise of Pre-Funded Warrants | ||||||||
| Proceeds from issuance of related party notes | ||||||||
| Repayments of notes payable, other | ( | ) | ||||||
| Repayment of debt in private placement | ( | ) | ||||||
| Payments on other financing loans | ( | ) | ( | ) | ||||
| Payments on insurance financing loans | ( | ) | ( | ) | ||||
| Payments of financing leases | ( | ) | ||||||
| Net cash and cash equivalents provided by (used in) financing activities | ( | ) | ||||||
| Net decrease in cash and cash equivalents | ( | ) | ( | ) | ||||
| Cash and cash equivalents at the beginning of period | ||||||||
| Cash and cash equivalents at the end of period | $ | $ | ||||||
| Supplemental disclosures | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Supplemental disclosures of non-cash flow information | ||||||||
| Cashless exercise of High-Trail warrants | $ | $ | ||||||
| Financing of prepaid insurance | $ | $ | ||||||
| Transfer of loans receivable from noncurrent to current | $ | $ | ||||||
| Transfer of property and equipment to inventory | $ | $ | ||||||
| Reclassification of liability classified Pre-Funded Warrants to equity | $ | $ | ||||||
| Conversion of related party debt into warrants | $ | $ | ||||||
| Accrued interest consolidated into related party debt | $ | $ | ||||||
| Contribution from troubled debt restructuring with related party | $ | $ | ||||||
| Consolidation of related party debt principal | $ | $ | ||||||
| Conversion of convertible notes into equity | $ | $ | ||||||
| Non-cash amounts of lease liabilities arising from obtaining right-of-use assets | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
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 $(
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 $
6
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 (“ASC 810”) of the Financial Accounting Standards Board (“FASB”). 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 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
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.
7
The Company has incurred
operating losses since its inception and has negative cash flows from operations and a working capital deficit of $
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 $
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 (“ASC 310-10”), accounts receivable and loan receivable balances are presented net of an allowance for credit losses, which are an estimate of billed or borrowed amounts that may not be collectible. In determining the amount of the allowance at each reporting date, management makes judgments about general economic conditions, historical write-off experience, and any specific risks identified in customer or borrower collection matters, including the aging of unpaid accounts receivable and changes in customer or borrower financial conditions. Accounts and loans receivable balances are written off after all means of collection are exhausted and the potential for non-recovery is determined to be probable. Adjustments to the allowance for credit losses are recorded as general and administrative expenses in the unaudited condensed consolidated statements of operations.
8
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.
| Three months ended September 30, 2024 | Three months ended September 30, 2023 | Nine months ended September 30, 2024 | Nine months ended September 30, 2023 | |||||||||||||||||||||||||||||
| (In thousands) | Amount | % of Total Revenue | Amount | % of Total Revenue | Amount | % of Total Revenue | Amount | % of Total Revenue | ||||||||||||||||||||||||
| Customer A | $ | % | ||||||||||||||||||||||||||||||
| Customer B | $ | % | $ | % | ||||||||||||||||||||||||||||
| * |
| As of September 30, 2024 | As of December 31, 2023 | |||||||||||||||
| (In thousands) | Amount | % of Total Accounts Receivable | Amount | % of Total Accounts Receivable | ||||||||||||
| Company Customer Number – 24375 | $ | % | ||||||||||||||
| Company Customer Number – 125 | $ | % | ||||||||||||||
| Company Customer Number – 9142 | $ | % | ||||||||||||||
| Company Customer Number – 15095 | $ | % | ||||||||||||||
| Company Customer Number – 10888 | $ | % | ||||||||||||||
| * |
| As of September 30, 2024 | As of December 31, 2023 | |||||||||||||||
| (In thousands) | Amount | % of Total Loans Receivable | Amount | % of Total Loans Receivable | ||||||||||||
| Borrower - 01 | $ | % | $ | % | ||||||||||||
| Borrower - 02 | $ | % | $ | % | ||||||||||||
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.
9
Property and Equipment
Property and equipment are
stated at cost less accumulated depreciation and amortization.
| Estimated Useful Life (Years) | ||||
| Computer and office equipment | ||||
| Furniture and fixtures | ||||
| Software | ||||
| Vehicles | ||||
| Research and development of laboratory equipment | ||||
| Machinery and equipment | ||||
| Leased equipment | ||||
| Trade show assets | ||||
| Leasehold improvements | ||||
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 (“ASC 480”) and ASC Topic 815, Derivatives and Hedging (“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 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.
10
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 (“ASC 606”), the Company recognizes revenue from contracts with customers using a five-step model, which is described below:
| ● | identify the customer contract; |
| ● | identify performance obligations that are distinct; |
| ● | determine the transaction price; |
| ● | allocate the transaction price to the distinct performance obligations; and |
| ● | recognize revenue as the performance obligations are satisfied. |
Identify the customer contract
A customer contract is generally identified when there is approval and commitment from both the Company and its customer, the rights have been identified, payment terms are identified, the contract has commercial substance and collectability is probable. Specifically, the Company obtains written/electronic signatures on contracts and purchase orders, if said purchase orders are issued in the normal course of business by the customer.
Identify performance obligations that are distinct
A performance obligation is a promise by the Company to provide a distinct good or service or a series of distinct goods or services. A good or service that is promised to a customer is distinct if the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer, and a company’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract.
Determine the transaction price
The transaction price is the amount of consideration to which the Company expects to be entitled in exchange for transferring goods or services to a customer, excluding sales taxes that are collected on behalf of government agencies 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.
11
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.
12
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, (“ASC 450”) under ASC 450-20-25, the Company accrues for product
warranties when the loss is probable and can be reasonably estimated. The Company maintained a reserve for warranty returns of $
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, a final standard on improvements to income tax disclosures. The standard requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as information on income taxes paid. The standard applies to all entities subject to income taxes and is intended to benefit investors by providing more detailed income tax disclosures that would be useful in making capital allocation decisions. For public business entities (PBEs), the new requirements will be effective for annual periods beginning after December 15, 2024. The guidance will be applied on a prospective basis with the option to apply the standard retrospectively. The Company is currently in the process of evaluating the effect of this guidance on its financial statements.
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.
13
Note 2 — Revenue and Contract Liabilities
Revenue
The Company sells its equipment and services to customers under a combination of a contract and purchase order. Equipment revenue includes sales from proprietary products designed and engineered by the Company such 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-materials contracts. The Company enters into time-and-materials contracts under which the Company is paid for labor and equipment at negotiated hourly billing rates and other expenses, including materials, as incurred at rates agreed to in the contract. The Company uses three main sub-contractors to execute the construction contracts.
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
| (In thousands) | 2024 | 2023 | 2024 | 2023 | ||||||||||||
| Transferred at a point in time | $ | $ | $ | $ | ||||||||||||
| Transferred over time | ||||||||||||||||
| Total revenue | $ | $ | $ | $ | ||||||||||||
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.
Contract Liabilities
| (In thousands) | Nine months ended September 30, 2024 | Year ended December 31, 2023 | ||||||
| Contract liabilities – beginning of period | $ | $ | ||||||
| Additions | ||||||||
| Recognized | ( | ) | ( | ) | ||||
| Contract liabilities – end of period | $ | $ | ||||||
Contract liabilities balances primarily consist of customer deposits on the Company’s cultivation and extraction solutions equipment. As of September 30, 2024 and December 31, 2023, all of the Company’s contract liabilities balances were reported as current liabilities in the accompanying condensed consolidated balance sheets.
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Note 3 — Supplemental Condensed Consolidated Balance Sheet Information
Accounts Receivable, Net
| (In thousands) | September 30, 2024 | December 31, 2023 | ||||||
| Accounts receivable, gross | $ | $ | ||||||
| Less allowance for credit losses | ( | ) | ( | ) | ||||
| Accounts receivable, net | $ | $ | ||||||
| (In thousands) | Nine months ended September 30, 2024 | Year ended December 31, 2023 | ||||||
| Allowance for credit losses - beginning of period | $ | $ | ||||||
| (Recovery of) allowance for credit losses | ( | ) | ||||||
| Accounts receivable written-off | ( | ) | ( | ) | ||||
| Allowance for credit losses - end of period | $ | $ | ||||||
Prepaid Expenses and Other Current Assets
| (In thousands) | September 30, 2024 | December 31, 2023 | ||||||
| Receivable from legal settlement | $ | $ | ||||||
| Prepaid insurance | ||||||||
| Prepaid expenses, other | ||||||||
| Other receivables | ||||||||
| Prepaid software | ||||||||
| Prepaid materials | ||||||||
| Prepaid settlement asset | ||||||||
| Total prepaid expenses and other current assets | $ | $ | ||||||
The Company recorded in the
fourth quarter of the year ended December 31, 2023 a prepaid settlement asset in connection with the Modification and Settlement Agreement
entered into with Mack Molding Co. as described in detail within Note 14 — Commitments and Contingencies. This amount represents
the value of warrants to be issued to Mack Molding Co. upon satisfaction of the terms of the settlement agreement and one $
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Property and Equipment, Net
| (In thousands) | September 30, 2024 | December 31, 2023 | ||||||
| Leased equipment | $ | $ | ||||||
| Machinery and equipment | ||||||||
| Software | ||||||||
| Computer and office equipment | ||||||||
| Leasehold improvements | ||||||||
| Research and development laboratory equipment | ||||||||
| Furniture and fixtures | ||||||||
| Trade show assets | ||||||||
| Vehicles | ||||||||
| Total property and equipment, gross | ||||||||
| Accumulated depreciation | ( | ) | ( | ) | ||||
| Construction in progress | ||||||||
| Total property and equipment, net | $ | $ | ||||||
Depreciation expense for
the three months ended September 30, 2024 and 2023 was $
Construction in Progress (“CIP”) includes all direct and indirect costs related to the construction, development, or acquisition of tangible property and equipment that is not yet ready for use. All costs incurred during the construction phase are accumulated in the CIP account. Costs remain in the CIP account until the asset is substantially complete and ready for its intended use. Once the asset is ready for use, the total accumulated costs are transferred from the CIP account to the appropriate property and equipment account. The asset is then depreciated over its estimated useful life from the date it is placed into service. CIP is reviewed regularly to ensure that all costs are accurate and that the project is progressing as planned. Any indication of impairment is assessed, and if the carrying amount exceeds the recoverable amount, an impairment loss is recognized.
During the nine months ended
September 30, 2024, the Company sold property and equipment with a cost basis of $
During the year ended December
31, 2023, the Company sold property and equipment in exchange for proceeds of $
16
Other Non-Current Assets
Other non-current assets consists only of security deposits as of September 30, 2024 and December 31, 2023.
Accrued Expenses and Other Current Liabilities
| (In thousands) | September 30, 2024 | December 31, 2023 | ||||||
| Sales tax payable | $ | $ | ||||||
| Accrued construction costs | ||||||||
| Accrued professional fees | ||||||||
| Compensation related fees | ||||||||
| Stock subscription payable | ||||||||
| Accrued warranty expenses | ||||||||
| Accrued interest expense | ||||||||
| Accrued consulting fees | ||||||||
| Accrued inventory purchases | ||||||||
| Accrued acquisition liabilities | ||||||||
| Total accrued expenses and other current liabilities | $ | $ | ||||||
Sales tax payable
Sales tax payable primarily represents identified sales and use tax liabilities arising from our 2021 acquisitions of Precision Extraction Newco, LLC (“Precision”) and Cascade Sciences, LLC (“Cascade”) from Sinclair Scientific, LLC (“Sinclair”). 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 acquisition liabilities
Resulting from the 2021 acquisitions of Precision and Cascade from Sinclair, the Company withheld from the transaction shares issuable to Precision and Cascade 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 purchase agreement. The accrued acquisition liabilities as of December 31, 2023 represent the value of this held back Common Stock at the price per share at the time of the transaction.
On June 15, 2023, the Company and its wholly-owned subsidiary, Precision, filed an Amended Verified Complaint in the Court of Chancery of the State of Delaware against 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. Pursuant to a Settlement and Release Agreement, dated December 14, 2023, the Company and Sinclair dismissed all legal claims and entered into a settlement for an undisclosed amount. As a result of this settlement, the Company derecognized the accrued acquisition liability and issued the held back Common Stock in the first quarter of 2024 at Agrify’s price per share at the time of issuance. The difference between the value of the shares at issuance and the derecognized liabilities was recorded as a gain within change in contingent consideration within the Company’s condensed and consolidated statement of operations for the nine months ended September 30, 2024.
17
Note 4 — 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.
| September 30, 2024 | December 31, 2023 | |||||||||||||||||||||||||||||||
| 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 | ||||||||||||||||||||||||
| Assets: | ||||||||||||||||||||||||||||||||
| Money market funds | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Total assets | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Liabilities: | ||||||||||||||||||||||||||||||||
| Warrant liabilities - January 2022 warrants | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Warrant liabilities - March 2022 warrants | ||||||||||||||||||||||||||||||||
| Warrant liabilities - August 2022 warrants | ||||||||||||||||||||||||||||||||
| Warrant liabilities - December 2022 warrants | ||||||||||||||||||||||||||||||||
| Total liabilities | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
Fair Value of Financial Instruments
The Company has certain financial instruments which 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. Fair value information for each of these instruments as well as other balances of the Company are as follows:
| ● | Cash and cash equivalents, accounts payable, and accrued expenses approximate their fair value based on the short-term nature of these instruments. |
| ● | Marketable securities classified as current held-to-maturity securities are recorded at amortized cost, which at September 30, 2024 and December 31, 2023, approximated fair value. |
| ● | Accounts receivable and loans receivable are presented net of an allowance for estimated credit losses, which approximates fair value. |
| ● | The Company’s contingent consideration was recorded in connection with acquisitions during the years ended December 31, 2021 and 2022 using an estimated fair value discount at the time of the transactions. As of December 31, 2023, the carrying value of the deferred consideration approximated fair value. |
18
| ● | The carrying value of lease liabilities approximates fair value due to the implicit discount rates used in the determination of the lease liabilities being consistent with the Company’s incremental borrowing rates at the time of lease inception and accounting for the duration of the leases. |
| ● | Long-term debt and related party debt, including the debt that has undergone troubled debt restructuring, is carried at amortized cost, dictated by the prevailing market interest rates at the time of each transaction in accordance with ASC Topic 470, Debt (“ASC 470”). |
| ● | The Company’s warrant liabilities are marked-to-market each reporting period with the changes in fair value of warrant liabilities recorded in other income (expense), net in the accompanying unaudited condensed consolidated statements of operations until the warrants are exercised. The fair value of the warrant liabilities are estimated using a Black-Scholes option-pricing model. |
| ● | As detailed in Note 9 - Stockholders’ Equity (Deficit), during the three months ended September 30, 2024, the Company amended Pre-Funded Warrants that had been issued to a related party such that they again became liability classified. These warrants were marked to fair value upon the execution of this amendment in August 2024. Through an additional amendment executed as of September 30, 2024, the warrants again met the requirements for equity classification and were marked to fair value as of that date. The warrants will not be marked to fair value on a recurring basis. |
Marketable Securities
As of September 30, 2024 and December 31, 2023, the Company held investments in money market funds. They are valued using quoted market prices in active markets and are classified under Level 1 within the fair value hierarchy.
The fair value of the Company’s money market
funds as of September 30, 2024 and December 31, 2023 amounted to $
Warrant Liabilities
The estimated fair value of the warrant liabilities on September 30, 2024 and December 31, 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 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 | March 2022 Warrants | August 2022 Warrants | December 2022 Warrants | January 2022 Warrants | March 2022 Warrants | August 2022 Warrants | December 2022 Warrants | |||||||||||||||||||||||||
| September 30, 2024 | December 31, 2023 | |||||||||||||||||||||||||||||||
| Stock price | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Exercise price | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Expected term (in Years) | ||||||||||||||||||||||||||||||||
| Volatility | % | % | % | % | % | % | % | % | ||||||||||||||||||||||||
| Discount rate - treasury yield | % | % | % | % | % | % | % | % | ||||||||||||||||||||||||
19
| (In thousands) | Nine months ended September 30, 2024 | For the year ended December 31, 2023 | ||||||
| Warrant liabilities – beginning of period | $ | $ | ||||||
| Initial fair value of issued warrant liabilities | ||||||||
| Exercise of warrants | ( | ) | ||||||
| Reclassification of warrant liabilities to equity | ( | ) | ||||||
| Change in estimated fair value | ( | ) | ||||||
| Warrant liabilities –end of period | $ | $ | ||||||
Note 5 — Loans Receivable
A portion of the capital
raised from the Company’s Initial Public Offering was allocated to launch the Company’s total turn-key solution program (“TTK
Solution”). The TTK Solution is the industry’s 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
| (In thousands) | September 30, 2024 | December 31, 2023 | ||||||
| Customer 139 | $ | $ | ||||||
| Customer 125 | ||||||||
| Customer 24096 | ||||||||
| Allowance for credit losses | ( | ) | ( | ) | ||||
| Total loan receivable, net of allowance for credit losses | ||||||||
| Less: current portion | ( | ) | ||||||
| Total loan receivable, net of current | $ | $ | ||||||
20
Bud & Mary’s Cultivation, Inc. (“Bud & Mary’s”) - Customer 139
On May 12, 2021 the company
executed an agreement with our customer, Bud & Mary’s, under the TTK solution program to provide financing and project management
for the build out and development of their cultivation facility. The initial payment date on the loan receivable from our customer Bud
& Mary’s is the first business day of the first full month following the commencement of commercial products sales and the maturity
date is 24 months from the initial payment date. The interest rate is
In the third quarter of 2022,
the Company became aware that Bud & Mary’s was not in compliance with all debt covenants as defined in the governing loan agreement
dated May 12, 2021, which resulted in the Company issuing a loan acceleration letter to Bud & Mary’s on September 15, 2022,
demanding full repayment of the loan. Consequently, the Company established a reserve of $
Hannah Industries (“Hannah”) - Customer 125
On May 10, 2021 the company
executed an agreement with our customer, Hannah, under the TTK solution program to provide financing and project management for the build
out and development of their cultivation facility. As of December 31, 2022, the Company was unable to provide additional financing. As
a result, the Company concluded that the existing receivable due from Hannah was impaired as of this date. Given the uncertainty around
Hannah’s ability to repay the outstanding balance of the loan as well as the absence of value attributed to any collateral from
Hannah, an allowance for credit losses was recognized for
Once the project is completed, the customer will begin making monthly payments based on its cannabis harvest.
Nevada Holistics (“Treehouse”) - Customer 24096
On December 21, 2021 the
company executed an agreement with our customer, Nevada Holistics, under the TTK solution program to provide financing and project management
for the build out and development of their cultivation facility. As of September 30, 2024, Nevada Holistics has a current balance of $
Note 6 — 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 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 applied to the purchase of products once they are delivered.
21
| (In thousands) | September 30, 2024 | December 31, 2023 | ||||||
| Finished goods | $ | $ | ||||||
| Inventory for resale | ||||||||
| Prepaid inventory | ||||||||
| Raw materials | ||||||||
| Inventory, gross | ||||||||
| Inventory reserves | ( | ) | ( | ) | ||||
| Total inventory, net | $ | $ | ||||||
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.
Note 7 – Debt
| (In thousands) | September 30, 2024 | December 31, 2023 | ||||||
| Related party debt: | ||||||||
| Consolidated CP Acquisitions Note | $ | $ | ||||||
| 2024 CP Acquisitions Notes | ||||||||
| CP Acquisitions Junior Secured Note | ||||||||
| GIC Acquisition Note | ||||||||
| Total related party debt | ||||||||
| Less: current portion | ( | ) | ( | ) | ||||
| Related party debt, net of current | $ | $ | ||||||
| Long-term debt: | ||||||||
| PPP Loan | $ | $ | ||||||
| Other notes payable (1) | ||||||||
| Exchange Note | ||||||||
| Convertible Note | ||||||||
| Unamortized debt premium | ||||||||
| Total long-term debt | ||||||||
| Less: current portion | ( | ) | ( | ) | ||||
| Long-term debt, net of current | $ | $ | ||||||
| (1) |
22
Exchange Note
On August 18, 2022, the Company
issued a promissory note with an original principal amount of $
On March 8, 2023, the Company
entered into a Securities Exchange Agreement (the “Exchange Agreement”) with the Original Lender. Pursuant to the Exchange
Agreement, at closing the Company prepaid approximately $
Convertible Note
In connection with the Exchange
Agreement the Company issued the Convertible Note, which bore a
At any time, the Company may
prepay all of the Convertible Note by redemption at a price equal to
The Convertible Note imposed
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
Original Lender can elect to redeem the Convertible Note for cash equal to (A)
Until the date the Convertible
Note was fully repaid, the Original Lender had, subject to certain exceptions, the right to participate for up to
23
If the Original Lender elected
to convert the Convertible Note, the conversion price per share would be $
The Company evaluated the embedded features in accordance with ASC 815-15-25 and determined that the embedded features are not required to be bifurcated and separately measured at fair value.
On April 26, 2023, the Original
Lender elected to convert $
On May 1, 2023, the Company
entered into a letter agreement with the Original Lender, pursuant to which the Company and the Original Lender agreed to exchange or
redeem $
CP Acquisitions Junior Secured Note
On October 27, 2023, CP Acquisitions LLC (“CP Acquisitions”),
an entity affiliated with and controlled by the Company’s former Chief Executive Officer and a former member of the Company’s
Board of Directors, purchased the Exchange Note and the Convertible Note from the Original Lender (the “Note Purchase”). In
connection with the Note Purchase, CP Acquisitions has agreed to waive any events of default under the acquired notes through December
31, 2023. As part of the same transaction, the Company issued a junior secured promissory note (the “Junior Secured Note”)
to CP Acquisitions. Pursuant to the Junior Secured Note, CP Acquisitions will lend up to $
Convertible Note Forgiveness
On November 30, 2023, CP Acquisitions
agreed to forgive $
Consolidated CP Acquisitions Note
On January 25, 2024, the
Company and CP Acquisitions consolidated the outstanding principal and interest due under the Junior Secured Note and the Exchange Note
as well as the interest due under the Convertible Note into the Convertible Note (collectively, with the Junior Secured Note and the Exchange
Note, the “Consolidated Notes”), and amended and restated the Convertible Note under a Senior Secured Amended, Restated, and
Consolidated Convertible Note agreement (the “Restated Note”) having a total outstanding principal of $
24
The Restated Note imposes 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 Restricted Note occurs, then the then outstanding principal and all accrued and unpaid interest on the Restated Note will immediately become due and payable.
If CP Acquisitions elects
to convert the Restated Note, the conversion price per share will be $
Immediately following the
execution of the Restated Note, CP Acquisitions elected to convert approximately $
The CP Debt Restructuring
was accounted for as a troubled debt restructuring under ASC 470, as 1) the Company was determined to be experiencing financial difficulties
as defined by the ASC, and 2) the CP Debt Restructuring was deemed to result in a concession by CP Acquisitions. The Company performed
a comparison of the undiscounted cash flows associated with the Restated Note subsequent to the CP Debt Restructuring to the carrying
value of the Consolidated Notes as of the CP Debt Restructuring date. The net carrying value of the Consolidated Notes was determined
to exceed the undiscounted future cash flows of the Restated Note after consideration of the January Conversion by approximately $
Aggregate interest expense
related to the CP Acquisitions Note described above was $
GIC Acquisition Note
On July 12, 2023, the Board of Directors of the Company approved the
issuance of an unsecured promissory note (the “GIC Note”, and, collectively with the Consolidated Note, the “Related
Party Notes”) to GIC Acquisition, LLC (“GIC”), an entity that is owned and managed by the Company’s former Chairman
and Chief Executive Officer. Pursuant to the GIC Note, GIC is obligated to lend up to $
Amendment of Related Party Notes
On May 21, 2024, the Company
and CP Acquisitions entered into an amendment to the Restated Note (the “Consolidated Note Amendment”), pursuant to which
CP Acquisitions may elect, in lieu of shares of Common Stock issuable upon conversion of the Restated Note, to instead receive Pre-Funded
Warrants (“Pre-Funded Warrants”). The conversion price applicable to the Pre-Funded Warrants will remain unchanged at $
Immediately following the
execution of the Consolidated Note Amendment, CP Acquisitions elected to convert $
25
On May 21, 2024, GIC and the
Company amended and restated the GIC Note (the “Restated GIC Note”, and, collectively with the Consolidated Note Amendment,
the “Related Party Debt Amendments”) to increase the aggregate principal amount to approximately $
Immediately following the
execution of the Restated GIC Note, GIC elected to convert all of the outstanding principal under the Restated GIC Note into a Pre-Funded
Warrant exercisable at issuance for up to
As the Related Party Warrant Conversions were exercised in connection with the Related Party Debt Amendments by CP Acquisitions and GIC, related party lenders under common control (the “Related Party Lenders”), the transactions combined were considered a modification of the total debt outstanding with the related parties (the “Related Party Debt Restructuring”).
The Related Party Debt Restructuring
was accounted for as a troubled debt restructuring under ASC 470, as 1) the Company was determined to be experiencing financial difficulties
as defined by the ASC, and 2) the Related Party Debt Restructuring was deemed to result in a concession by the Related Party Lenders.
The Company performed a comparison of the aggregated undiscounted cash flows associated with the Related Party Notes subsequent to the
Related Party Debt Restructuring to the aggregate carrying value of the Related Party Notes as of the Related Party Debt Restructuring
date. The net carrying value of the Related Party Notes was determined to exceed the undiscounted future cash flows of the Related Party
Notes as modified by the Related Party Debt Restructuring by approximately $
The carrying value of the
Consolidated CP Acquisitions Note as a result of the Related Party Debt Restructuring was approximately $
CP Acquisitions Promissory Note
On August 14, 2024, the Company
issued a junior secured promissory note (the “2024 CP Note”) to CP Acquisitions. Pursuant to the 2024 CP Note, CP Acquisitions
would lend up to $
| Years ending December 31 (In thousands), | ||||
| Remaining 2024 | $ | |||
| 2025 | ||||
| 2026 | ||||
| Total future payments | $ | |||
Note 8 — 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 an original lease term of 12 months or less at inception were not reflected in the Company’s condensed consolidated 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 condensed consolidated balance sheets.
26
As the implicit interest
rate in its leases was generally not known, the Company used its incremental borrowing rate as the discount rate for purposes of determining
the present value of its lease liabilities. The Company’s incremental borrowing rate was determined using the interest rate on a long
term debt position entered into at approximately the same time and for the same duration as the lease. At September 30, 2024 and December
31, 2023 the Company’s weighted-average discount rate utilized for its leases was
The Company had several non-cancelable finance leases for machinery and equipment, all of which ended or were terminated during 2023. As of September 30, 2024, the Company had no active finance leases.
The Company has 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 four years, some of which include options to extend. Some leases include payment for communal
area maintenance associated with the property. Cash paid for operating leases during the nine months ended September 30, 2024 and 2023
were $
During the nine months ended
September 30, 2024, one of the Company’s leased assets was sold by the lessor to another counterparty, effectively cancelling the remainder
of the lease with the Company. There were no penalties arising from the cancellation. The Company recognized a gain on early termination
in the amount of $
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
| (In thousands) | 2024 | 2023 | 2024 | 2023 | ||||||||||||
| Operating lease cost | $ | $ | $ | $ | ||||||||||||
| Finance lease cost: | ||||||||||||||||
| Amortization of right-of-use assets | ||||||||||||||||
| Interest on lease liabilities | ||||||||||||||||
| Total lease cost | $ | $ | $ | $ | ||||||||||||
| September 30, 2024 | December 31, 2023 | |||||||
| Weighted-average remaining lease term – operating leases | ||||||||
| Weighted-average remaining lease term – finance leases | ||||||||
| Weighted-average discount rate – operating leases | % | % | ||||||
| Weighted-average discount rate – finance leases | % | % | ||||||
| (In thousands) | Balance Sheet Location | September 30, 2024 | December 31, 2023 | |||||||
| Assets | ||||||||||
| Right-of-use assets, net | $ | $ | ||||||||
| Total lease assets | $ | $ | ||||||||
| Liabilities | ||||||||||
| Operating lease liabilities, current | $ | $ | ||||||||
| Operating lease liabilities, non-current | ||||||||||
| Total operating lease liabilities | $ | $ | ||||||||
| Years ending December 31 (In thousands), | Operating lease | |||
| Remaining 2024 | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Total minimum lease payments | ||||
| Less discount | ( | ) | ||
| Total lease liabilities | $ | |||
27
Note 9 — Stockholders’ Equity (Deficit)
Public Offerings
On February 27, 2024, the
Company entered into a placement agency agreement (the “Agency Agreement”) with Alexander Capital as placement agent (the
“Placement Agent”), pursuant to which the Company agreed to issue and sell an aggregate of
The Company issued
The measurement of fair value
of the Placement Agents Warrants were determined utilizing a Black-Scholes model considering all relevant assumptions current at the date
of issuance (i.e., share price of $
Equity Line of Credit Facility
On August 28, 2024, we entered
into a purchase agreement (the “Purchase Agreement”) and a registration rights agreement with Ionic Ventures, LLC (“Ionic”),
pursuant to which Ionic committed to purchase up to an aggregate of $
From and after the date the
registration statement relating to the resale of the shares sold to Ionic was declared effective, November 5, 2024, we may from time to
time on any business day, by written notice delivered by us to Ionic, direct Ionic to purchase between $
Related Party Warrant Issuance
On May 21, 2024, in connection
with the Consolidated Note Amendment, the Company issued
28
On June 30, 2024, the Company
executed an amendment to the Related Party Pre-Funded Warrants, pursuant to which the Company revised certain provisions of the Related
Party Pre-Funded Warrants to (i) remove the adjustment to the exercise price of the Related Party Pre-Funded Warrants when there is a
bona fide equity financing with the primary purpose of raising capital (the “Adjustment Provisions”) and (ii) increase the
threshold for a change of control from
On August 12, 2024, the stockholders
of the Company approved a proposal to amend the Related Party Pre-Funded Warrants to add the Adjustment Provisions at a future date. Pursuant
to that approval, on August 28, 2024, the Company entered into amendments to the Related Party Pre-Funded Warrants to insert the Adjustment
Provisions. This resulted in a reassessment of the Related Party Pre-Funded Warrants such that they no longer met the requirements for
equity classification and became classified as liabilities. They were remeasured to their fair value upon modification, resulting in a
reduction in value of approximately $
On September 27, 2024, the
Company executed an amendment to the Related Party Pre-Funded Warrants to remove the Adjustment Provisions. Accordingly, the Related Party
Pre-Funded Warrants met the requirements for equity classification. The amendment also included a provision preventing the holders from
any additional exercise of either of the Related Party Pre-Funded Warrants at any time between September 27, 2024 and October 9, 2024.
They were remeasured to their fair value upon modification resulting in an increase to the fair value of $
Note 10 — Stock-Based Compensation and Employee Benefit Plans
2022 Omnibus Equity Incentive 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 Omnibus Equity Incentive Plan
(the “2022 Plan”), which provides for the grant of stock options, stock appreciation right awards, performance share awards,
restricted stock awards, restricted stock unit awards, other stock-based awards and cash-based awards. The aggregate number of shares
of Common Stock that may be reserved and available for grant and issuance under the 2022 Plan is
The Company’s stock
compensation expense was $
29
Stock Options
For the nine months ended
September 30, 2024, there were no options granted or exercised under the Company’s stock option plans. For the same period, there
were 36 options expired with a weighted average exercise price of $
As of September 30, 2024,
total unrecognized compensation expense related to unvested options was $
| Options Vested and Exercisable | ||||||||||||||
| Price ($) | Number of Options | Weighted-Average Remaining Contractual Life (Years) | Weighted-Average Exercise Price | |||||||||||
| $ | 6,840.00 | $ | ||||||||||||
| $ | 14,580.00 | $ | ||||||||||||
| $ | 41,520.00 | $ | ||||||||||||
| $ | 43,470.00 | $ | ||||||||||||
| Options Vested and Expected to Vest | ||||||||||||||
| Price ($) | Number of Options | Weighted-Average Remaining Contractual Life (Years) | Weighted-Average Exercise Price | |||||||||||
| $ | 6,840.00 | $ | ||||||||||||
| $ | 14,580.00 | $ | ||||||||||||
| $ | 23,040.00 | $ | ||||||||||||
| $ | 41,520.00 | $ | ||||||||||||
| $ | 43,470.00 | $ | ||||||||||||
Restricted Stock Units
| Number of Shares | Weighted-Average Grant Date Fair | |||||||
| Unvested at December 31, 2023 | $ | |||||||
| Granted | $ | |||||||
| Vested | ( | ) | $ | |||||
| Forfeited | ( | ) | $ | |||||
| Unvested at September 30, 2024 | $ | |||||||
As of September 30, 2024,
total unrecognized compensation expense related to unvested restricted stock units was $
30
Note 11 — Stock Warrants
| Number of Warrants | Weighted-Average Exercise Price | |||||||
| Warrants outstanding at December 31, 2023 | $ | |||||||
| Granted | $ | |||||||
| Exercised | ( | ) | $ | |||||
| Forfeited | ( | ) | $ | |||||
| Warrants outstanding at September 30, 2024 | $ | |||||||
The Company received proceeds from the exercise
of Pre-Funded Warrants of $
Note 12 — Income Taxes
The Company’s effective
income tax rates were both
Note 13 — Net Loss Per Share
Net (loss) income per share calculations for all periods have been adjusted to reflect the Company’s reverse stock splits. Net (loss) income per share was calculated based on the weighted-average number of the Company’s Common Stock outstanding.
Basic net (loss) income 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 convertible notes, outstanding stock options, stock related to unvested restricted stock units, and outstanding warrants to the extent dilutive. Net loss per share, assuming dilution, is equal to basic net loss per share for the three months ended September 30, 2024 and 2023 and nine months ended September 30, 2024 and 2023 because the effect of dilutive securities outstanding during the periods, including convertible notes, options, restricted stock units and warrants computed using the treasury stock method, is anti-dilutive.
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
| (In thousands, except share and per share data) | 2024 | 2023 | 2024 | 2023 | ||||||||||||
| Numerator: | ||||||||||||||||
| Net loss available for common stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Denominator: | ||||||||||||||||
| Weighted-average Common Stock outstanding | ||||||||||||||||
| Net income (loss) per share attributable to common stockholders – basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
As of September 30, 2024, the
Company had an outstanding principal balance under the Restated Note and Consolidated Notes of approximately $
31
For
each of the periods presented, the Company’s potential dilutive securities, which include stock options, restricted stock units,
and warrants, have been excluded from the computation of basic and diluted net (loss) income per share with the exception of the Pre-Funded
Warrants, or penny warrants, which are included in the computation, as detailed above. 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.
| Nine months ended September 30, 2024 | Nine months ended September 30, 2023 | |||||||
| Shares subject to outstanding stock options | ||||||||
| Shares subject to unvested restricted stock units | ||||||||
| Shares subject to outstanding warrants | ||||||||
Note 14 — Commitments and Contingencies
Legal Matters
From time to time, the Company may become involved in material legal proceedings or be subject to claims arising in the ordinary course of our business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business.
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 TTK Solution agreement between the Company and Bud & Mary
(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 (the “Bud & Mary Complaint”). 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 TTK 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
$
Bowdoin Construction Corp. Litigation
On February 22, 2023, Bowdoin
Construction Corp. (“Bowdoin”) filed a complaint in the Superior Court of Massachusetts in Norfolk County, Massachusetts,
naming the Company (the “Bowdoin Complaint”), Bud & Mary’s and certain related parties as defendants, captioned
Bowdoin Construction Corp. v. Agrify Corporation, Bud & Mary’s Cultivation, Inc. and BMLC2, LLC, case no. 2382CV00173. The Bowdoin
Complaint relates to a 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
$
32
Mack Molding Co.
In December 2020, the Company
entered into a five-year supply agreement with Mack Molding Co. (“Mack”) pursuant to which Mack became a key supplier of VFUs.
In February 2021, the Company placed a purchase order with Mack amounting to approximately $
On February 29, 2024, the
Company met its contractual obligations under the terms of the Modification Agreement. In settlement of the dispute, the Company made
cash payments of $
On August 30, 2024, the Company
and Mack entered into an amendment to the Modification Agreement, which modified the payment terms and VFU purchase requirements under
the Modification Agreement. Pursuant to the amendment, the Company agreed to make payments of $
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 asser