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What changed in RYTHM, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of RYTHM, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+774 added−446 removedSource: 10-K (2024-04-15) vs 10-K (2023-11-28)

Top changes in RYTHM, Inc.'s 2023 10-K

774 paragraphs added · 446 removed · 161 edited across 5 sections

Item 1. Business

Business — how the company describes what it does

5 edited+546 added−155 removed0 unchanged
Biggest changeWe also believe that our data-driven TTK Solution for cultivation solutions is unlike any other customer solution being offered and enables our customers to get to market faster by providing them with our seamlessly integrated hardware and software offerings as well as access to capital and a wide range of associated services from experts including consulting, training, design, engineering, and construction to form what we believe is the most complete solution available from a single provider.
Biggest changeThe Company’s cultivation and extraction solutions seamlessly combine its 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.
Our comprehensive extraction product line, which includes hydrocarbon, alcohol, solventless, post-processing, and lab equipment, empowers producers to maximize the quantity and quality of extract required for premium concentrates.
The Company’s comprehensive extraction product line, which includes hydrocarbon, alcohol, solventless, post-processing, and lab equipment, empowers producers to maximize the quantity and quality of extract required for premium concentrates. The Company believes it is the only company with an automated and fully integrated grow solution in the industry.
Business Overview We are a leading provider of innovative cultivation and extraction solutions for the cannabis industry, bringing data, science, and technology to the forefront of the market. Our proprietary micro-environment-controlled Agrify Vertical Farming Units (or “VFUs”) enable cultivators to produce high quality products with what we believe to be unmatched consistency, yield, and return investment at scale.
The Company’s proprietary micro-environment-controlled Agrify Vertical Farming Units (or “VFUs”) enable cultivators to produce the highest quality products with what we believe to be unmatched consistency, yield, and return investment at scale.
Agrify Corporation was incorporated in the state of Nevada on June 6, 2016, originally incorporated as Agrinamics, Inc. (or Agrinamics). On September 16, 2019, Agrinamics amended its articles of incorporation to reflect a name change to Agrify Corporation.
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.
As a result, we believe we are well-positioned to capture market share and create a dominant market position in the indoor cannabis sector. We currently have two primary areas of business focus: ● Cultivation Solutions; and ● Extraction Solutions.
The totality of its product offerings and service capabilities forms an unrivaled ecosystem in what has historically been a highly fragmented market. As a result, the Company believes it is well-positioned to capture market share and create a dominant market position in the indoor cannabis sector.
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Item 1. Business. Unless otherwise stated or the context otherwise requires, references in this report to “Agrify”, the “Company,” “we,” “us,” “our,” or similar references mean Agrify Corporation and its subsidiaries on a consolidated basis.
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Financial Statements AGRIFY CORPORATION CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share data) As of December 31, 2023 2022 Assets Current assets: Cash and cash equivalents $ 430 $ 10,457 Restricted cash — 10,000 Marketable securities 4 460 Accounts receivable, net of allowance for credit losses of $1,887 and $4,605 at December 31, 2023 and 2022, respectively 1,149 1,070 Inventory, net of reserves of $17,599 and $32,422 at December 31, 2023 and 2022, respectively 19,094 21,396 Prepaid expenses and other current assets 3,332 1,510 Total current assets 24,009 44,893 Loan receivable, net of allowance for credit losses of $19,215 and $33,050 at December 31, 2023 and 2022, respectively 11,583 12,214 Property and equipment, net 7,734 10,044 Operating lease right-of-use assets 1,803 2,210 Other non-current assets 141 326 Total assets $ 45,270 $ 69,687 Liabilities and Stockholders’ Deficit Current liabilities: Accounts payable $ 20,766 $ 20,543 Accrued expenses and other current liabilities 10,655 16,380 Operating lease liabilities, current 599 734 Long-term debt, current 766 28,833 Related party debt, current 4,444 — Deferred revenue 4,019 4,112 Total current liabilities 41,249 70,602 Warrant liabilities 1,290 5,985 Other non-current liabilities — 147 Operating lease liabilities, net of current 1,394 1,587 Long-term debt, net of current 16,047 407 Total liabilities 59,980 78,728 Commitments and contingencies (Note 16) Stockholders’ deficit: Common Stock, $0.001 par value per share, 10,000,000 and 5,000,000 shares authorized at December 31, 2023 and 2022, respectively, 1,701,243 and 1,038,298 shares issued and outstanding at December 31, 2023 and 2022, respectively (1) 2 1 Preferred Stock, $0.001 par value per share, 2,895,000 shares authorized, no shares issued or outstanding — — Preferred A Stock, $0.001 par value per share, 105,000 shares authorized, no shares issued or outstanding — — Additional paid-in capital 250,855 237,875 Accumulated deficit (265,797 ) (247,148 ) Total stockholders’ deficit attributable to Agrify (14,940 ) (9,272 ) Non-controlling interests 230 231 Total liabilities and stockholders’ deficit $ 45,270 $ 69,687 (1) Periods presented have been adjusted to reflect the 1-for-20 reverse stock split on July 5, 2023.
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Since our inception, we have gone from primarily developing, selling, and supporting our VFUs along with our fully integrated Agrify Insights™ cultivation software (“Agrify Insights™”) to being able to offer customers a far more complete set of solutions, products, and services across both cultivation and extraction .
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Additional information regarding the reverse stock splits may be found in Note 1 – Overview, Basis of Presentation, and Significant Accounting Policies, included in the notes to the consolidated financial statements The accompanying notes are an integral part of these consolidated financial statements.
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This has been a function of both our natural evolution and through a set of strategic mergers and acquisitions. Since 2020, we have integrated six new brands into Agrify ’s broader organization . Our first acquisition, TriGrow Systems, Inc., was completed in January 2020 . TriGrow Systems, Inc. was formerly the exclusive distributor of Agrify’s VFUs.
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F-3 AGRIFY CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except share and per share data) Year Ended December 31, 2023 2022 Revenue (including $0, and $2,417 from related parties, respectively) $ 16,868 $ 58,259 Cost of goods sold 11,590 90,054 Gross profit (loss) 5,278 (31,795 ) General and administrative 19,005 73,354 Selling and marketing 4,134 9,338 Research and development 2,295 8,179 Change in contingent consideration (1,322 ) (2,156 ) Gain on disposal on property and equipment 144 — Impairment of property and equipment — 2,912 Impairment of goodwill and intangible assets — 69,904 Total operating expenses 24,256 161,531 Loss from operations (18,978 ) (193,326 ) Interest expense, net (1,853 ) (8,750 ) Change in fair value of warrant liabilities 4,695 51,461 Loss on extinguishment of long-term debt, net (4,311 ) (38,985 ) Other income, net 1,799 1,316 Total other income, net 330 5,042 Net loss before income taxes (18,648 ) (188,284 ) Income tax expense (2 ) (23 ) Net loss (18,650 ) (188,307 ) Income attributable to non-controlling interest 1 134 Net loss attributable to Agrify Corporation $ (18,649 ) $ (188,173 ) Net loss per share attributable to Common Stockholders – basic and diluted (1) $ (12.51 ) $ (902.19 ) Weighted average common shares outstanding - basic and diluted (1) 1,490,871 208,573 (1) Periods presented have been adjusted to reflect the 1-for-20 reverse stock split on July 5, 2023.
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We added Harbor Mountain Holdings, LLC to our portfolio on July 21, 2020, to help scale up our manufacturing strategy with engineering, prototyping, manufacturing, testing, warehousing, and installation services. Since October 2021, we have been strategically focused on establishing ourselves as a global leader in the cannabis and hemp extraction equipment industry, complementing our cutting-edge cannabis and hemp cultivation solutions.
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Additional information regarding reverse stock splits may be found in Note 1 – Overview, Basis of Presentation, and Significant Accounting Policies, included elsewhere in the notes to the consolidated financial statements The accompanying notes are an integral part of these consolidated financial statements.
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Over five months, we acquired four of the top brand names in the industry. On October 1, 2021, we acquired Precision Extraction Solutions, a market leader in developing and producing high-quality hydrocarbon and alcohol extraction solutions, and Cascade Sciences, LLC, a market leader in developing and producing high-quality vacuum purge ovens and decarboxylation ovens.
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F-4 AGRIFY CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT (In thousands) 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, 2022 111,035 $ — — $ — — $ — $ 196,034 $ (58,975 ) $ 137,059 $ 365 $ 137,424 Stock-based compensation — — — — — — 4,319 — 4,319 — 4,319 Issuance of Common Stock, warrants, and prefunded warrants in private placement 20,105 — — — — — 14,824 — 14,824 — 14,824 Confidentially marketed public offering 594,232 1 — — — — 3,269 — 3,270 — 3,270 Issuance of Common Stock through an “at the market” offering, net of fees 306,628 — — — — — 15,042 — 15,042 — 15,042 Common Stock issued for contingent liabilities 435 — — — — — 2,220 — 2,220 — 2,220 Acquisition of Lab Society 2,128 — — — — — 1,904 — 1,904 — 1,904 Exercise of options 43 — — — — — 20 — 20 — 20 Exercise of warrants 2,443 — — — — — 243 — 243 — 243 Vesting of restricted stock units 1,249 — — — — — — — — — — Net Loss — — — — — — — (188,173 ) (188,173 ) (134 ) (188,307 ) Balance at December 31, 2022 1,038,298 $ 1 — $ — — $ — $ 237,875 $ (247,148 ) $ (9,272 ) $ 231 $ (9,041 ) Common Stock Preferred Stock Preferred A Stock Additional Paid-in- Accumulated Total Stockholders’ Deficit attributable to Non- Controlling Total Stockholders’ Shares Amount Shares Amount Shares Amount Capital Deficit Agrify Interests Deficit Balance at January 1, 2023 1,038,298 $ 1 — $ — — $ — $ 237,875 $ (247,148 ) $ (9,272 ) $ 231 $ (9,041 ) Stock-based compensation — — — — — — 2,662 — 2,662 — 2,662 Issuance of Common Stock through an “at the market” offering, net of fees 323,082 — — — — — 1,545 — 1,545 — 1,545 Issuance of held-back shares to Lab Society 499 — — — — — — — — — — Issuance of Common Stock to Pure Pressure 366 — — — — — — — — — — Vesting of restricted stock units 17 — — — — — — — — — — Exercise of prefunded warrants in private placement 84,962 — — — — — — — — — — Issuance of equity classified warrants — — — — — — 1,554 — 1,554 — 1,554 Exchange of private placement debt into equity classified warrants — — — — — — 3,877 — 3,877 — 3,877 Conversion of Exchange Note 69,567 — — — — — 2,146 — 2,146 — 2,146 Conversion of Convertible Note 153,617 1 — — — — 1,171 — 1,172 — 1,172 Proceeds from Employee Stock Purchase Plan Shares 2,500 — — — — — 25 — 25 — 25 Reverse stock split fractional share settlement 28,335 — — — — — — — — — — Net loss — — — — — — — (18,649 ) (18,649 ) (1 ) (18,650 ) Balance December 31, 2023 1,701,243 $ 2 — $ — — $ — $ 250,855 $ (265,797 ) $ (14,940 ) $ 230 $ (14,710 ) The accompanying notes are an integral part of these consolidated financial statements.
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On December 31, 2021, we acquired PurePressure, LLC, a market leader in developing and producing high-quality solventless extraction solutions and advanced ice-water hash processing equipment in the cannabis and hemp industry.
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F-5 AGRIFY CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Year Ended December 31, 2023 2022 Cash flows from operating activities: Net loss attributable to Agrify Corporation $ (18,649 ) $ (188,173 ) Adjustments to reconcile net loss attributable to Agrify Corporation to net cash used in operating activities: Depreciation and amortization 1,896 3,047 Amortization of debt (premium) discount (109 ) 4,459 Interest on investment securities — (232 ) Amortization of issuance costs 24 420 Deferred income taxes — 23 Stock based compensation expense 2,663 4,319 Change in fair value of warrant liabilities (4,695 ) (51,461 ) Loss on extinguishment of long-term debt, net 4,311 38,985 Impairment of goodwill and intangible assets — 69,904 (Recovery of) provision for credit losses (15,261 ) 36,694 (Recovery of) provision for slow-moving inventory (14,823 ) 31,480 (Gain) loss on disposal of property and equipment (63 ) 33 Impairment of property and equipment — 2,912 Change in fair value of contingent consideration — (2,156 ) Income attributable to non-controlling interests (1 ) (134 ) Changes in operating assets and liabilities, net of acquisitions: Accounts receivable 1,347 1,540 Inventory 17,158 (30,248 ) Prepaid expenses and other current assets (566 ) 3,222 Right of use assets, net 299 (731 ) Other non-current assets 170 1,138 Accounts payable (108 ) 11,236 Accrued expenses and other current liabilities (4,473 ) (8,555 ) Operating lease liabilities (217 ) 803 Other non-current liabilities — 79 Deferred revenue (93 ) (625 ) Net cash and cash equivalents used in operating activities (30,974 ) (72,021 ) Cash flows from investing activities: Purchases of property and equipment (59 ) (8,134 ) Proceeds from disposal of property and equipment 311 — Purchase of marketable securities — (294,687 ) Proceeds from sale of marketable securities 10,456 329,009 Issuance of loans receivable (591 ) (23,009 ) Proceeds from repayment of loan receivable 15,057 — Payments on contingent liabilities — (3,330 ) Cash received from escrow account related to Sinclair acquisition — 1,351 Cash paid for business combination, net of cash acquired — (3,517 ) Net cash and cash equivalents provided by (used in) investing activities 25,174 (2,317 ) Cash flows from financing activities: Proceeds from issuance of debt and warrants in private placement, net of fees — 61,817 Proceeds from issuance of Common Stock and warrants in private placement, net of fees — 25,796 Proceeds from issuance of Common Stock through an “at the market” offering, net of fees 1,545 15,042 Proceeds from Employee Stock Purchase Plan Shares 25 — Proceeds from exercise of options — 20 Proceeds from confidentially marketed public offering — 8,193 Proceeds from issuance of warrants in settlement agreement 1,554 — Proceeds from issuance of related party notes 4,444 — Repayments of notes payable, other (71 ) (187 ) Repayment of debt in private placement (10,307 ) (35,497 ) Payments on other financing loans (5 ) (254 ) Payments on insurance financing loans (1,332 ) (1,928 ) Payments of financing leases (80 ) (221 ) Net cash and cash equivalents (used in) provided by financing activities (4,227 ) 72,781 Net decrease in cash and cash equivalents (10,027 ) (1,557 ) Cash and cash equivalents at the beginning of period 10,457 12,014 Cash and cash equivalents at the end of period $ 430 $ 10,457 Cash, cash equivalents, and restricted cash at end of period Cash and cash equivalents $ 430 $ 10,457 Restricted cash — 10,000 Total cash, cash equivalents, and restricted cash at the end of period $ 430 $ 20,457 Supplemental disclosures Cash paid for interest 76 4,969 Supplemental disclosures of non-cash flow information Initial fair value of warrants $ 5,432 $ 55,627 Financing of prepaid insurance $ 1,694 $ 1,928 Transfer of property and equipment to inventory $ 33 $ — Conversion of convertible notes $ 3,306 $ — The accompanying notes are an integral part of these consolidated financial statements.
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Lastly, on February 1, 2022, we completed our acquisition of LS Holdings Corp., a market leader in developing and producing high-quality distillation and solvent separation solutions for the cannabis and hemp industry. We now offer our customers an extensive ecosystem of solutions, products, training, and service capabilities in what has historically been a highly fragmented market.
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F-6 AGRIFY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 — Overview, Basis of Presentation and Significant Accounting Policies Description of Business Agrify Corporation (“Agrify” or the “Company”) is a leading provider of innovative cultivation and extraction solutions for the cannabis industry, bringing data, science, and technology to the forefront of the market.
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Our offerings, which are described in more detail below, are compelling on their own. However, we believe what sets us apart is our ability to bring to the market the most comprehensive set of cultivation and extraction solutions from a single provider.
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The Company has nine wholly-owned subsidiaries, which are collectively referred to as the “Subsidiaries” and the Company also has ownership interests in certain companies. Reverse Stock Splits On October 18, 2022, the Company effected a 1-for-10 reverse stock split of its Common Stock.
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Cultivation Solutions While we do not cultivate, come in contact with, distribute, or dispense cannabis or any cannabis derivatives that are currently prohibited under U.S. federal law, our equipment and business solutions can be used within indoor grow facilities by fully licensed cannabis cultivators. We sell our proprietary cultivation solutions to independent licensed cultivators.
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All share and per share information has been retroactively adjusted to give effect to the reverse stock split for all periods presented unless otherwise indicated. On July 5, 2023, the Company effected a 1-for-20 reverse stock split of its Common Stock.
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The two primary products we sell are the VFUs and Agrify Insights™. We believe we are one of a limited number of companies offering a fully integrated cultivation solution optimized for precision growing with robust automation capabilities in the industry. Agrify Vertical Farming Unit Our proprietary VFU technology offers a modular, compartmentalized micro-climate growing system for indoor vertical farming.
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All share and per share information has been retroactively adjusted to give effect to the reverse stock split for all periods presented unless otherwise indicated. No fractional shares of Common Stock were issued as a result of these reverse stock splits.
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Our VFU system is designed for craft farmers, single-state operators, and multi-state operators who are looking to consistently produce higher-quality crops at scale. The VFUs are designed to line up horizontally in rows, and can be stacked vertically up to three units tall, taking advantage of unused indoor vertical space with the below benefits: ● Superior Floor Space Utilization .
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Any fractional shares in connection with these reverse stock splits were rounded up to the nearest whole share and no stockholders received cash in lieu of fractional shares.
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Each VFU provides two tiers of growing canopy. Our units introduce an open-room facility design approach to maximize available cultivation floor space while offering superior risk mitigation via individual compartmentalized cultivation chambers which aim to contain potential biological threats to cultivation facilities. ● Precise Environmental Controls .
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The reverse stock splits had no impact on the number of shares of Common Stock that the Company is authorized to issue pursuant to its articles of incorporation or on the par value per share of the Common Stock.
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Each VFU has an Environmental Control Unit that is integrated with our proprietary cultivation software, Agrify Insights™. This integration allows for precise control and automation over light photoperiod and intensity, temperature, humidity, vapor pressure deficit (“VPD”), carbon dioxide, fertigation, and irrigation throughout the lifecycle of the plants. 1 ● Modular Scalability .
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Proportional adjustments were made to the number of shares of Common Stock issuable upon exercise or conversion of the Company’s outstanding stock options and warrants, the exercise price or conversion price (as applicable) of the Company’s outstanding stock options and warrants, and the number of shares reserved for issuance under the Company’s equity incentive plan.
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The VFU is designed to stack up to three units tall, sextupling production volume over the same traditional footprint. Each unit is designed to easily integrate with a mezzanine catwalk system providing unparalleled access to all levels of cultivation. ● Worker Safety & Efficiency .
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All share and per share information included in this Annual Report on Form 10-K has been retroactively adjusted to reflect the impact of these reverse stock splits.
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The VFU’s design was thoughtful and intentional; from the ergonomic dimensions that facilitate safe, easy access to plants for scouting and plant husbandry, to the integrated catwalks that allow cultivators to work from a safe sitting or standing position without the need for scissor lifts, ladders or removable platforms. ● Biosecurity and Risk Mitigation .
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Confidentially Marketed Public Offering On December 16, 2022, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with Canaccord Genuity LLC as the underwriter, pursuant to which the Company agreed to issue and sell an aggregate of 594,232 shares of its Common Stock, and, in lieu of Common Stock to certain investors that so chose, pre-funded warrants (the “Pre-Funded 2022 Warrants”) to purchase 75,000 shares of our Common Stock, and accompanying warrants (the “December 2022 Warrants”) to purchase 1,338,462 shares of the Company’s Common Stock (the “Offering”).
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The VFU has a motorized curtain on both sides of the unit that encloses the grow area to prevent light pollution and the spread of disease that would typically lead to facility-wide crop failure. Contamination can be controlled and limited to the affected units, which are designed with sanitation in mind.
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The shares of Common Stock (or Pre-Funded 2022 Warrants) and the accompanying December 2022 Warrants will be issued separately but can only be purchased together in this Offering.
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From the aluminum frame to the selection of antimicrobial plastics and down to the IP65 electronics and polycarbonate-lensed LED lights, the entire VFU can be easily sanitized, especially with the VFU’s High Heat mode, which helps sanitize all internal VFU surfaces effortlessly. Agrify Insights™ The VFUs are designed to work in conjunction with our Agrify Insights™ software.
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Additional information regarding the Company’s December 2022 Warrants may be found in Note 4 – Fair Value Measures and Note 11 – Stockholders’ Equity, included elsewhere in the notes to the consolidated financial statements.
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Each VFU sold includes a license for Agrify Insights™ and a monthly Software-as-a-Service (“SaaS”) subscription fee is charged per VFU. The VFU cannot operate successfully without Agrify Insights™, and we typically charge between $1,500 to $2,400 per VFU sold annually. Agrify Insights™ license agreements are generally for a multi-year term, with an annual auto-renewal.
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The aggregate gross proceeds to the Company from the Offering were approximately $8.7 million including offering costs of approximately $0.5 million for broker fees and legal expenses, for net proceeds of $8.2 million.
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Agrify Insights™ is a SaaS-based solution that interfaces with our proprietary hardware to provide customers with real-time control and monitoring of facilities, growing conditions and insights into both production and profit optimization.
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The Company has used the net proceeds from the Offering, together with its existing cash resources, for working capital and general corporate purposes, which may include capital expenditures and repayment of debt.
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The combination of precise environmental control and automation with data collection and actionable insights empowers our customers to be more efficient, more productive, and more intelligent about how they run their businesses.
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F-7 AGRIFY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Nasdaq Deficiency Notice On October 4, 2022, the Company received a deficiency letter from the Listing Qualifications Department (the “Staff”) of The Nasdaq Stock Market, LLC (“Nasdaq”) notifying the Company that, for the last 30 consecutive business days, the bid price for the Company’s Common Stock had closed below $1.00 per share, which is the minimum closing price required to maintain a continued listing on The Nasdaq Capital Market under Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Requirement”).
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We believe that the robust data analytics capabilities from our Agrify Insights™ platform, coupled with our VFU system, is enabling our customers to transform their businesses and quality of the product they are cultivating.
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In accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company had 180 calendar days to regain compliance with the Minimum Bid Requirement.
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Agrify Insights™ is focused on optimizing four key components: ● Optimization at the plant level; ● Optimization at the VFU unit level; ● Optimization at the facility level; and ● Optimization at the business level. When these key components are combined, they encompass the cultivation operations of an Agrify customer.
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To regain compliance with the Minimum Bid Requirement, the closing bid price of the Company’s Common Stock must be at least $1.00 per share for a minimum of 10 consecutive trading days during this 180-day compliance period, unless the Staff exercised its discretion to extend the minimum trading day period pursuant to Nasdaq Listing Rule 5810(c)(3)(G).
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By reducing human error and providing insights through data collection and analysis, Agrify Insights™ minimizes risk and increases operational efficiencies. Ultimately, our customers seek to produce end products with the highest level of consistency no matter where they are located. Plant-Level Optimization Central to our solution is granular control of the cultivation environment.
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On October 28, 2022, the Staff notified the Company that the closing bid price for its Common Stock was more than $1.00 for 10 consecutive trading days, and that the Company therefore regained compliance with the Minimum Bid Requirement.
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A crop’s end-product is determined by the plant’s genetics and the environment in which the plants are grown. Control over the growing environment is accomplished through the integration of Agrify Insights™. Agrify Insights collects data from multiple sensors on a per plant basis between 4 and 60 times an hour.
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On January 19, 2023, the Company received a new deficiency letter from the Staff of Nasdaq notifying the Company that, for the previous 30 consecutive business days, the bid price for its Common Stock had closed below $1.00 per share, which is the minimum closing price required to maintain a continued listing on The Nasdaq Capital Market under the Minimum Bid Requirement.
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This can result in between 100 thousand and 151 million data points annually, depending on the number of plants and fluctuations in the VFU microclimate. By recording data points and reproducing specific environments based on the data, cultivators can effectively minimize the variation in their crops and dial-in the maximum quality.
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In accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company had 180 calendar days to regain compliance with the Minimum Bid Requirement.
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Individual plant varietals can be optimized by tailoring the grow plan (recipe for cultivation) to enhance genetic traits; increasing the temperature can speed chemical processes and growth rates and adjusting the length of different phases of a plant’s lifecycle can maximize the crop’s yield.
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To regain compliance with the Minimum Bid Requirement, the closing bid price of the Company’s Common Stock must be at least $1.00 per share for a minimum of 10 consecutive trading days during this 180-day compliance period, unless the Staff exercises its discretion to extend the minimum trading day period pursuant to Nasdaq Listing Rule 5810(c)(3)(G).
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Additionally, when new varieties of plants are cultivated, having multiple controlled, compartmentalized, growth chambers allow for iterative experiments which offer real insight into how new varieties are best cultivated which is beneficial for research and development purposes. Our “Grow Plans” are the templates or recipes that define the parameters for each lifecycle.
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On July 19, 2023, the Company received a notice from Nasdaq confirming its compliance with the minimum bid price rule.
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Grow Plans define the environmental settings (light - photoperiod and intensity, temperature, humidity, VPD, CO2, irrigation, fertigation) for each crop variety and cultivator as well as the schedule for completing, as applicable, “plant touching” tasks such as bottoming, pruning, and harvesting.
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As disclosed in the Current Report on Form 8-K filed on April 17, 2023, the Company’s audit committee concluded that, as a result of inadvertent errors in the accounting for warrants previously issued by the Company, it was appropriate to restate the Company’s previously issued unaudited consolidated interim financial statements as of and for the quarterly periods ended March 31, 2022, June 30, 2022 and September 30, 2022 included in the Company’s Quarterly Reports on Form 10-Q for such periods in amended quarterly reports for the affected periods.
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Agrify Insights™ ships to the customer with many pre-developed Grow Plans and customers can create their own Grow Plans, electing to share them with other customers or not. 2 Individual VFU Level Optimization Our VFU hardware provides cultivation environmental control within the grow chamber.
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As a result of such restatements, the Company was unable to timely file the 2022 Form 10-K, the First Quarter 2023 Form 10-Q and the Second Quarter 2023 Form 10-Q without unreasonable effort or expense.
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This hardware and its component valves, motors and sensors are directed and controlled by Agrify Insights™. ● Monitor and Control Agrify Hardware . Agrify Insights™ can either automatically or manually control our hardware. For example, the water-chilled fan coil can keep the temperature in a range accurate to 1.5 degrees Fahrenheit. ● Cultivation Environmental Control .
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On April 18, 2023, the Company received a notice from Nasdaq (the “April Nasdaq Notice”) that it was noncompliant with Nasdaq Listing Rule 5250(c)(1) as a result of its failure to file its Annual Report on Form 10-K (the “Form 10-K”) with the SEC by the required due date.
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Using Agrify Insights™, users can view environmental charts that plot temperature, humidity, and carbon dioxide over time. It also shows when plant irrigation occurs and whether the unit is in cooling, circulating, or dehumidifying mode. We sample these values every minute and report them back to the cloud every 15 minutes or more often if significant changes occur.
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On May 17, 2023, the Company received a second notice from Nasdaq (the “May Nasdaq Notice”) that it remained noncompliant with Nasdaq Listing Rule 5250(c)(1) as a result of its failure to file its Quarterly Report on Form 10-Q for the quarter ended March 31, 2023 (the “First Quarter Form 10-Q”) with the SEC by the required due date.
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Each growing chamber reports millions of data points annually, enabling our clients to perform an in-depth analysis of their grow performance. The manual control screen visualizes the current state of the grow chamber and allows our technicians to take direct control for troubleshooting, if necessary. The device log shows us what decisions were made by Agrify Insights™ and why.
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On August 16, 2023, the Company received a third notice from Nasdaq that it remain noncompliant with Nasdaq Listing Rule 5250(c)(1) as a result of its failure to file its Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2023 (the “Second Quarter Form 10-Q”) with the SEC by the required filing date (the “August Nasdaq Notice” and, together with the April Nasdaq Notice and the May Nasdaq Notice, the “Nasdaq Notices”).
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Facility Level Optimization Our modular VFUs are deployed in scale at a customer’s facility with the smallest commercial operation deployment being 60 VFUs to date. Agrify Insights™ is designed to operate these individual VFUs as a combined facility. Agrify Insights™ features at the facility level include: ● Production Planning .
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The Nasdaq granted the Company an exception until October 16, 2023, to file its 2022 Form 10-K and First and Second Quarter 2023 Forms 10-Q. The Nasdaq Notice had no immediate effect on the listing of the Company’s Common Stock on The Nasdaq Stock Market LLC.
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The production planning feature is designed to maximize a facility’s utilization by executing a “best-fit” scheduling algorithm to selected Grow Plans across VFUs that have been deployed at a customer facility.
Added
On October 17, 2023, the Company received a Staff Delisting Determination (the “Staff Determination”) from the Listing Qualifications Department of Nasdaq notifying the Company that it was not in compliance with Nasdaq’s continued listing requirements under the Listing Rule as a result of its failure to file the First Quarter Form 10-Q, the Second Quarter Form 10-Q and the Form 10-K (collectively, the “Delinquent Reports”) in a timely manner.
Removed
Since grow plans typically have a different number of growing days that start on staggered schedules, this module is a critical component for optimizing the planting and moving schedules, significantly increasing plant production, and reducing the cost per pound of harvest. ● Workforce Management . Agrify Insights™ includes a workforce planning feature to assign tasks to staff.
Added
F-8 AGRIFY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS On November 16, 2023, the Company received a notice from Nasdaq that the Company remains noncompliant with the Listing Rule as a result of its failure to file its Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2023 with the SEC by the required filing date (the “November Nasdaq Notice” and, together with the April Nasdaq Notice, the May Nasdaq Notice, and the August Nasdaq Notice, the “Nasdaq Notices”).
Removed
These tasks can be automatically assigned based on the user role or their knowledge, skills, and abilities. The calendar displays the estimated time required to complete plant-touching tasks on any given day. ● Automatic Notification System . Users can select to subscribe to anomalous events, and users are notified in the order in which they are listed.
Added
On December 1, 2023, the Company received a notice from The Nasdaq Stock Market LLC (“Nasdaq”) stating that because the Company reported stockholders’ equity of $(17.17) million in its Form 10-Q for the quarter ended March 30, 2023, the Company was no longer in compliance with Nasdaq Listing Rule 5550(b)(1) (the “Primary Equity Listing Rule”), which requires that listed companies maintain a minimum of $2.5 million in stockholders’ equity.
Removed
If a user does not acknowledge the notification within the specified time frame, the next user in the list is notified, providing the business with 24/7 monitoring and notifications. ● Preventative Maintenance . Our equipment and facility preventative maintenance schedules and related tasks are contained, tracked, and monitored within Agrify Insights™. ● Facility Infrastructure Controls .
Added
In response, the Company timely requested a hearing before a Nasdaq Hearings Panel (the “Panel”), which stayed any further action by the Listing Qualifications Staff. The hearing was held on January 11, 2024.
Removed
Agrify Insights™ controls the irrigation on a facility level and connects with the water chilled HVAC system and ambient lighting system, providing our customers with a central piece of software for facility management. Optimization at the Business Level Agrify Insights™ analysis features enable customers to understand how cultivation decisions impact their overall business.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeBanking regulations could limit access to banking services Since the use of marijuana is illegal under federal law, there is a compelling argument that banks cannot lawfully accept for deposit funds from businesses involved with marijuana. Consequently, businesses involved in the cannabis industry often have trouble finding a bank willing to accept their business.
Biggest changeThere can be no assurance that our existing clients will be able to retain their licenses going forward, or that new licenses will be granted to existing and new market entrants. 22 Banking regulations could limit access to banking services Since the use of marijuana is illegal under federal law, there is a compelling argument that banks cannot lawfully accept for deposit funds from businesses involved with marijuana.
However, an inventorship or ownership dispute could arise that may permit one or more third parties to practice or enforce our intellectual property rights, including possible efforts to enforce rights against us; ● we may elect not to maintain or pursue intellectual property rights that, at some point in time, may be considered relevant to or enforceable against a competitor; ● we may not develop additional proprietary products and technologies that are patentable, or we may develop additional proprietary products and technologies that are not patentable; ● the patents or other intellectual property rights of others may have an adverse effect on our business; and ● we apply for patents relating to our products and technologies and uses thereof, as we deem appropriate.
However, an inventorship or ownership dispute could arise that may permit one or more third parties to practice or enforce our intellectual property rights, including possible efforts to enforce rights against us; ● we may elect not to maintain or pursue intellectual property rights that, at some point in time, may be considered relevant to or enforceable against a competitor; 25 ● we may not develop additional proprietary products and technologies that are patentable, or we may develop additional proprietary products and technologies that are not patentable; ● the patents or other intellectual property rights of others may have an adverse effect on our business; and ● we apply for patents relating to our products and technologies and uses thereof, as we deem appropriate.
The elements of our remediation plan can only be accomplished over time, and we can offer no assurance that these initiatives will ultimately have the intended effects. 33 Any failure to maintain such internal control could adversely impact our ability to report our financial position and results from operations on a timely and accurate basis.
The elements of our remediation plan can only be accomplished over time, and we can offer no assurance that these initiatives will ultimately have the intended effects. Any failure to maintain such internal control could adversely impact our ability to report our financial position and results from operations on a timely and accurate basis.
If the Appropriations Rider is no longer in effect, the risk of federal enforcement and override of state marijuana laws would increase. Further legislative development beneficial to our operations is not guaranteed One aspect of our business involves selling goods and services to state-licensed cannabis cultivators.
If the Appropriations Rider is no longer in effect, the risk of federal enforcement and override of state marijuana laws would increase. 21 Further legislative development beneficial to our operations is not guaranteed One aspect of our business involves selling goods and services to state-licensed cannabis cultivators.
These sales also could cause our stock price to fall and make it more difficult for you to sell shares of our Common Stock. 26 Our failure to meet the continued listing requirements of Nasdaq could result in a de-listing of our Common Stock.
These sales also could cause our stock price to fall and make it more difficult for you to sell shares of our Common Stock. Our failure to meet the continued listing requirements of Nasdaq could result in a de-listing of our Common Stock.
We believe that there is a potential risk of loss associated with our ability to receive anticipated future payments that are in line with our projected financial unit metrics due to a host of variables including, but not limited to the following: ● as we are in the early stages of our TTK Solution offerings, the TTK Solution is currently an unproven business model; ● the TTK Solution offering requires a significant amount of capital and our collection of advanced amounts is subject to customer credit risk; ● our anticipated downstream production fee revenue assumes that our VFUs will successfully produce 35 pounds of product per VFU per year; and ● our anticipated returns are reliant upon our customers’ ability to market and sell the products.
We believe that there is a potential risk of loss associated with our ability to receive anticipated future payments that are in line with our projected financial unit metrics due to a host of variables including, but not limited to the following: ● as we are in the early stages of our TTK Solution offerings, the TTK Solution is an unproven business model; ● the TTK Solution offering requires a significant amount of capital and our collection of advanced amounts is subject to customer credit risk and operational performance; ● our anticipated downstream production fee revenue assumes that our VFUs will successfully produce 35 pounds of product per VFU per year; and ● our anticipated returns are reliant upon our customers’ ability to market and sell the products.
To regain compliance with the Minimum Bid Requirement, the closing bid price of our Common Stock must be at least $1.00 per share for a minimum of 10 consecutive trading days during this 180-day compliance period, unless the Staff exercises its discretion to extend the minimum trading day period pursuant to Nasdaq Listing Rule 5810(c)(3)(G).
To regain compliance with the Minimum Bid Requirement, the closing bid price of our common stock must be at least $1.00 per share for a minimum of 10 consecutive trading days during this 180-day compliance period, unless the Staff exercises its discretion to extend this period pursuant to Nasdaq Listing Rule 5810(c)(3)(H).
In the event our backlog and qualified pipeline do not translate into bookings as projected, it could materially and adversely affect our business and financial performance. 21 We rely on third parties for certain services made available to our customers, which could limit our control over the quality of the user experience and our cost of providing services .
In the event our backlog and qualified pipeline do not translate into bookings as projected, it could materially and adversely affect our business and financial performance. 23 We rely on third parties for certain services made available to our customers, which could limit our control over the quality of the user experience and our cost of providing services .
If we do not manage these risks successfully, our business and financial performance will be adversely affected. 13 Potential risk of loss associated with our TTK Solution Offerings During 2021, we introduced our TTK Solution, which among other things, includes financing arrangements related to both facility design and build services and equipment.
If we do not manage these risks successfully, our business and financial performance will be adversely affected. 15 Potential risk of loss associated with our TTK Solution Offerings During 2021, we introduced our TTK Solution, which among other things, includes financing arrangements related to both facility design and build services and equipment.
In general, under Section 382, a corporation that undergoes an “ownership change” (as defined under Section 382 of the Code and applicable Treasury Regulations) is subject to limitations on its ability to utilize its pre-change NOLs to offset its future taxable income. As of December 31, 2022, we have not conducted an analysis of an ownership change under Section 382.
In general, under Section 382, a corporation that undergoes an “ownership change” (as defined under Section 382 of the Code and applicable Treasury Regulations) is subject to limitations on its ability to utilize its pre-change NOLs to offset its future taxable income. As of December 31, 2023, we have not conducted an analysis of an ownership change under Section 382.
Small Business Administration (the “SBA”). We received total proceeds of approximately $779 thousand from the unsecured PPP loan which was originally scheduled to mature in May 2022. We applied for forgiveness on the $779 thousand of our PPP loan, but forgiveness was denied by the SBA.
Small Business Administration (the “SBA”). We received total proceeds of approximately $779,000 from the unsecured PPP loan which was originally scheduled to mature in May 2022. We applied for forgiveness on the $779,000 of our PPP loan, but forgiveness was denied by the SBA.
On March 8, 2023, we entered into a second Securities Exchange Agreement with the Investor (the “March 2023 Exchange Agreement” and together with the August 2022 Exchange Agreement, the “Exchange Agreements”), pursuant to which we paid approximately $10.3 million in principal under the Exchange Note and exchanged $10.0 million in principal amount under the Exchange Note for a new senior convertible note (the “Convertible Note” and, together with the Exchange Note, the “Notes”) with an original principal amount of $10.0 million.
On March 8, 2023, we entered into a second Securities Exchange Agreement with the Former Lender (the “March 2023 Exchange Agreement” and together with the August 2022 Exchange Agreement, the “Exchange Agreements”), pursuant to which we paid approximately $10.3 million in principal under the Exchange Note and exchanged $10.0 million in principal amount under the Exchange Note for a new senior convertible note (the “Convertible Note” and, together with the Exchange Note, the “Notes”) with an original principal amount of $10.0 million.
In addition, increased competition may lead to reduced prices and/or margins for products we sell. 22 Protecting and defending against intellectual property claims may have a material adverse effect on our business .
In addition, increased competition may lead to reduced prices and/or margins for products we sell. 24 Protecting and defending against intellectual property claims may have a material adverse effect on our business .
As described elsewhere in this Report, we have identified the following material weaknesses: ● inability to close timely; ● lack of technical expertise; and ● accounting for complex financial instruments. As a result of these material weaknesses, our management concluded that our internal control over financial reporting was not effective as of December 31, 2022.
As described elsewhere in this Report, we have identified the following material weaknesses: ● inability to close timely; ● lack of technical expertise; and ● accounting for complex financial instruments. 33 As a result of these material weaknesses, our management concluded that our internal control over financial reporting was not effective as of December 31, 2023.
As of December 31, 2022, we had net operating loss (“NOL”) carryforwards for federal and state income tax purposes which may be available to offset taxable income in future years.
As of December 31, 2023, we had net operating loss (“NOL”) carryforwards for federal and state income tax purposes which may be available to offset taxable income in future years.
Pursuant to the August 2022 Exchange Agreement, we partially paid $35.2 million along with approximately $300 thousand in repayments for other fees under the SPA Note and exchanged the remaining balance of the SPA Note for a new senior secured note with an aggregate original principal amount of $35.0 million and a new warrant to purchase 71,139 shares of Common Stock (the “Note Exchange Warrant”).
Pursuant to the August 2022 Exchange Agreement, we partially paid $35.2 million along with approximately $300,000 in repayments for other fees under the SPA Note and exchanged the remaining balance of the SPA Note for the Exchange Note with an aggregate original principal amount of $35.0 million and a new warrant to purchase 71,139 shares of Common Stock (the “Note Exchange Warrant”).
The PPP loan is payable in 34 equal combined monthly principal and interest payments of approximately $24 thousand that commenced on August 7, 2022. 25 Risks Related to Ownership of our Common Stock Concentration of ownership among our existing executive officers, directors and their affiliates may prevent new investors from influencing significant corporate decisions .
The PPP loan is payable in 34 equal combined monthly principal and interest payments of approximately $24,000 that commenced on August 7, 2022. 27 Risks Related to Ownership of our Common Stock Concentration of ownership among our existing executive officers, directors and their affiliates may prevent new investors from influencing significant corporate decisions .
If we are unable to maintain supplier arrangements and relationships, if we are unable to contract with suppliers at the quantity and quality levels needed for our business, if any of our key suppliers becomes insolvent or experiences other financial distress or if any of our key suppliers is negatively impacted by COVID-19, including with respect to staffing and shipping of products, we could experience disruptions in our supply chain, which could have a material adverse effect on our financial condition, results of operations, and cash flows. 17 Many of our suppliers are experiencing operational difficulties as a result of COVID-19, which in turn may have an adverse effect on our ability to provide products to our customers.
If we are unable to maintain supplier arrangements and relationships, if we are unable to contract with suppliers at the quantity and quality levels needed for our business, if any of our key suppliers becomes insolvent or experiences other financial distress or if any of our key suppliers is negatively impacted with respect to staffing and shipping of products, we could experience disruptions in our supply chain, which could have a material adverse effect on our financial condition, results of operations, and cash flows. 20 Many of our suppliers are experiencing operational difficulties, which in turn may have an adverse effect on our ability to provide products to our customers.
On August 18, 2022, we reached an agreement with the Investor to amend the existing SPA Note and entered into a Securities Exchange Agreement (the “August 2022 Exchange Agreement”).
On August 18, 2022, we reached an agreement with the Former Lender to amend the existing SPA Note and entered into a Securities Exchange Agreement (the “August 2022 Exchange Agreement”).
Our consolidated financial statements have been prepared assuming we will continue as a going concern. Since inception, we have experienced recurring net losses which losses caused an accumulated deficit of approximately $247.1 million as of December 31, 2022. These factors, among others, raise substantial doubt about our ability to continue as a going concern.
Our consolidated financial statements have been prepared assuming we will continue as a going concern. Since inception, we have experienced recurring net losses which losses caused an accumulated deficit of approximately $265.8 million as of December 31, 2023. These factors, among others, raise substantial doubt about our ability to continue as a going concern.
During the year ended December 31, 2022, we established a reserve of approximately $12.5 million specifically related to Greenstone Holdings (“Greenstone”) TTK Solution. Greenstone is a related party because one of our former Agrify Brands employees and our VP of Engineering had a minority ownership.
During 2022, we established a reserve of approximately $12.5 million specifically related to Greenstone Holdings (“Greenstone”) TTK Solution. Greenstone is a related party because one of our former Agrify Brands employees and our VP of Engineering had a minority ownership.
If we are unable to do so, we may be unable to develop or commercialize the affected products, which could materially harm our business and the third parties owning such intellectual property rights could seek either an injunction prohibiting our sales, or, with respect to our sales, an obligation on our part to pay royalties and/or other forms of compensation. 24 Others may assert intellectual property infringement claims against us .
If we are unable to do so, we may be unable to develop or commercialize the affected products, which could materially harm our business and the third parties owning such intellectual property rights could seek either an injunction prohibiting our sales, or, with respect to our sales, an obligation on our part to pay royalties and/or other forms of compensation.
These acquisitions may involve a number of financial, accounting, managerial, operational, legal, compliance, and other risks and challenges, including the following, any of which could adversely affect our results of operations: ● any acquired business could under-perform relative to our expectations and the price that we paid for it, or not perform in accordance with its anticipated timetable; ● we may incur or assume significant debt in connection with our acquisitions; ● acquisitions could cause our results of operations to differ from our own or the investment community’s expectations in any given period, or over the long term; and ● acquisitions could create demands on our management that they may be unable to effectively address, or for which we may incur additional costs.
These acquisitions may involve a number of financial, accounting, managerial, operational, legal, compliance, and other risks and challenges, including the following, any of which could adversely affect our results of operations: ● any acquired business could under-perform relative to our expectations and the price that we paid for it, or not perform in accordance with its anticipated timetable; ● we may incur or assume significant debt in connection with our acquisitions ● acquisitions could cause our results of operations to differ from our own or the investment community’s expectations in any given period, or over the long term; and ● acquisitions could create demands on our management that they may be unable to effectively address, or for which we may incur additional costs. 17 Additionally, following any business acquisition, we could experience difficulty in integrating personnel, operations, financial and other systems, and in retaining key employees and customers.
On March 14, 2022, we entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with an accredited investor (the “Investor”), pursuant to which we agreed to issue and sell to the Investor the SPA Note, in a private placement transaction, in exchange for the payment by the Investor of $65 million, less applicable expenses as set forth in the Securities Purchase Agreement, and a warrant (the “SPA Warrant”) to purchase up to an aggregate of 34,406 shares of Common Stock.
On March 14, 2022, we entered into a Securities Purchase Agreement with the Former Lender (the “Securities Purchase Agreement”), pursuant to which we agreed to issue and sell to the Former Lender a senior secured promissory note (the “SPA Note”), in a private placement transaction, in exchange for the payment by the Former Lender of $65 million, less applicable expenses as set forth in the Securities Purchase Agreement, and a warrant (the “SPA Warrant”) to purchase up to an aggregate of 34,406 shares of Common Stock.
As of April 1, 2023, after which time the ATM program was discontinued, we sold 629,710 shares of Common Stock, under the ATM at an average price of $27.29 per share, resulting in gross proceeds to us of $17.2 million, and net proceeds of $16.7 million after commissions and fees to the Agent totaling $516 thousand. $3.0 million of the proceeds under the ATM Program were used to repay amounts due to the investor (the “Investor”) under the Exchange Note.
As of April 1, 2023, after which time the ATM program was discontinued, we sold 629,710 shares of Common Stock, under the ATM at an average price of $27.29 per share, resulting in gross proceeds to us of $17.2 million, and net proceeds of $16.7 million after commissions and fees to the Agent totaling $516,000. $3.0 million of the proceeds under the ATM Program were used to repay amounts due to High Trail Special Situations LLC (the “Former Lender”) under the Exchange Note.
Companies in the software and technology industries can own patents, copyrights, trademarks, and trade secrets, and frequently enter into litigation based on allegations of infringement, misappropriation, or other violations of intellectual property or other rights.
Others may assert intellectual property infringement claims against us . Companies in the software and technology industries can own patents, copyrights, trademarks, and trade secrets, and frequently enter into litigation based on allegations of infringement, misappropriation, or other violations of intellectual property or other rights.
On May 17, 2023, we received a second notice from Nasdaq (the “May Nasdaq Notice”) that we remained noncompliant with Nasdaq Listing Rule 5250(c)(1) as a result of our failure to file our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023 (the “First Quarter Form 10-Q”) with the SEC by the required due date.
On April 18, 2023, we received a notice from Nasdaq (the “April Nasdaq Notice”) that we were noncompliance with Nasdaq Listing Rule 5250(c)(1) as a result of our failure to file our Annual Report on Form 10-K (the “Form 10-K”) with the SEC by the required due date. 28 On May 17, 2023, we received a second notice from Nasdaq (the “May Nasdaq Notice”) that we remained noncompliant with Nasdaq Listing Rule 5250(c)(1) as a result of our failure to file our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023 (the “First Quarter Form 10-Q”) with the SEC by the required due date.
If we were to dissolve, the holders of our securities may lose all or substantial amounts of their investments . If we were to dissolve as a corporation, as part of ceasing to do business or otherwise, we may be required to pay all amounts owed to any creditors before distributing any assets to the investors.
If we were to dissolve as a corporation, as part of ceasing to do business or otherwise, we may be required to pay all amounts owed to any creditors before distributing any assets to the investors.
On January 19, 2023, we received a new deficiency letter from the Staff of Nasdaq notifying us that, for the last 30 consecutive business days, the bid price for our Common Stock had closed below $1.00 per share, which is the minimum closing price required to maintain continued listing on The Nasdaq Capital Market under Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Requirement”) .
Additionally, on March 5, 2024, we received a deficiency letter from the Listing Qualifications Department of Nasdaq notifying us that, for the last 30 consecutive business days, the bid price for our 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 inability to open bank accounts may make it difficult for some of our clients to operate and their reliance on cash can result in a heightened risk of theft, which could harm their businesses and, in turn, harm our business.
Consequently, businesses involved in the cannabis industry often have trouble finding a bank willing to accept their business. The inability to open bank accounts may make it difficult for some of our clients to operate and their reliance on cash can result in a heightened risk of theft, which could harm their businesses and, in turn, harm our business.
We expect that the cannabis market and our business will evolve in ways that are difficult to predict. Our long-term success may depend on our ability to successfully adjust our strategy to meet the changing market dynamics.
We expect that the cannabis market and our business will evolve in ways that are difficult to predict. Our long-term success may depend on our ability to successfully adjust our strategy to meet the changing market dynamics. If we are unable to successfully adapt to changes in the cannabis industry, our operations could be adversely affected.
While we believe we are currently in compliance with applicable laws and regulations, many of these laws and regulations are subject to change and uncertain interpretation, and could result in investigations, claims, changes to our business practices, increased cost of operations, and declines in user growth, retention, or engagement, any of which could seriously harm our business. 34 If our shares of Common Stock become subject to the penny stock rules, it would become more difficult to trade our shares .
While we believe we are currently in compliance with applicable laws and regulations, many of these laws and regulations are subject to change and uncertain interpretation, and could result in investigations, claims, changes to our business practices, increased cost of operations, and declines in user growth, retention, or engagement, any of which could seriously harm our business.
At December 31, 2022, we had $20.5 million of cash, cash equivalents, and restricted cash. Our restricted cash of $10 million is associated with a senior secured promissory note in an aggregate principal amount of $65 million (the “SPA Note”) which was exchanged for a new senior secured note (the “Exchange Note”) as of December 31, 2022.
Our restricted cash of $10 million as of December 31, 2022 was associated with a senior secured promissory note in an aggregate principal amount of $65 million (the “SPA Note”) which was exchanged for a new senior secured note (the “Exchange Note”) as of December 31, 2022. There was no restricted cash as of December 31, 2023.
If we are unsuccessful in obtaining such extension, or entering into such repayment, refinance, or restructure prior to maturity, or any other default existed under the Notes, the New Lender could accelerate the indebtedness under the Notes, foreclose against its collateral, or seek other remedies, which would jeopardize our ability to continue our current operations. 16 We may be required to record impairment charges against the carrying value of our goodwill and other intangible assets in the future.
If we are unsuccessful in obtaining such extension, or entering into such repayment, refinance, or restructure prior to maturity, or any other default existed under the Notes, the New Lender could accelerate the indebtedness under the Notes, foreclose against its collateral, or seek other remedies, which would jeopardize our ability to continue our current operations.
As a result, these stockholders will be able to exercise a significant level of control over all matters requiring stockholder approval, including the election of directors, amendment of our articles of incorporation and approval of significant corporate transactions.
Chang and Ms. Chan, which is subject to a 49.99% beneficial ownership limitation. As a result, these stockholders will be able to exercise a significant level of control over all matters requiring stockholder approval, including the election of directors, amendment of our articles of incorporation and approval of significant corporate transactions.
Additional information regarding the interim testing on goodwill may be found in Note 7 – Goodwill and Intangible Assets, Net, included in the notes to the consolidated financial statements. During the year ended December 31, 2022, two customers accounted for approximately $16.8 million, or 28.8%, of our total revenue.
Additional information regarding the interim testing on goodwill may be found in Note 7 - Goodwill and Intangible Assets, Net, included in the notes to the consolidated financial statements. During the year ended December 31, 2023, our top four customers accounted for 17.4% of our total revenue.
We have been in existence since June 2016 and much of our revenue growth has occurred during 2021 and 2022.
We have been in existence since June 2016 and much of our revenue growth occurred during 2021 and 2022, with a decrease of revenues noted in 2023.
They could also deter potential acquirers of our company, thereby reducing the likelihood that you could receive a premium for your Common Stock in an acquisition. 28 We are an “emerging growth company,” as defined in the JOBS Act, and a “smaller reporting company” within the meaning of the Securities Act, and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies or smaller reporting companies will make our Common Stock less attractive to investors.
We are an “emerging growth company,” as defined in the JOBS Act, and a “smaller reporting company” within the meaning of the Securities Act, and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies or smaller reporting companies will make our Common Stock less attractive to investors.
If that should occur, our capital raising or debt restructuring measures may be unsuccessful or inadequate to meet our scheduled debt service obligations, which could cause us to default on our obligations and further impair our liquidity.
If that should occur, our capital raising or debt restructuring measures may be unsuccessful or inadequate to meet our scheduled debt service obligations, which could cause us to default on our obligations and further impair our liquidity. 19 Our ability to make scheduled payments on our debt and other financial obligations and comply with financial covenants depends on our financial and operating performance.
We also cannot provide any assurances that third-party patents do not exist that might be enforced against our current or future products in the absence of such a license or acquisition. We may fail to obtain any of these licenses or intellectual property rights on commercially reasonable terms.
We may need or may choose to obtain licenses and/or acquire intellectual property rights from third parties to advance our research or commercialization of our current or future products. We also cannot provide any assurances that third-party patents do not exist that might be enforced against our current or future products in the absence of such a license or acquisition.
The inclusion of the projections in this report should not be regarded as an indication that we or our management or representatives considered or consider the projections to be a reliable prediction of future events, and the projections should not be relied upon as such.
The inclusion of the projections in this report should not be regarded as an indication that we or our management or representatives considered or consider the projections to be a reliable prediction of future events, and the projections should not be relied upon as such. 35 If we were to dissolve, the holders of our securities may lose all or substantial amounts of their investments .
The Convertible Note will mature on August 19, 2025. On October 27, 2023, CP Acquisitions LLC (the “New Lender”), an entity affiliated with and controlled by Raymond Chang, our Chief Executive Officer, acquired the Notes from the Investor.
The Convertible Note will mature on August 19, 2025. 18 On October 27, 2023, CP Acquisitions LLC (the “New Lender”), an entity affiliated with and controlled by Raymond Chang, our Chief Executive Officer, and I-Tseng Jenny Chan, who subsequently joined our Board of Directors, acquired the Notes from the Former Lender.
Pursuant to the terms of the Notes, we are subject to various covenants, including negative covenants that restrict our ability to engage in certain transactions, which may limit our ability to respond to changing business and economic conditions.
Following the conversion, there was $15.0 million in principal amount outstanding under the Restated Note. Pursuant to the terms of the Notes, we are subject to various covenants, including negative covenants that restrict our ability to engage in certain transactions, which may limit our ability to respond to changing business and economic conditions.
In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we had 180 calendar days to regain compliance with the Minimum Bid Requirement.
The Notice had no immediate effect on the listing of our common stock on Nasdaq. In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we have 180 calendar days to regain compliance with the Minimum Bid Requirement.
Changes in our credit profile may affect the way our suppliers view our ability to make payments and may induce them to shorten the payment terms of their invoices.
Changes in our credit profile may affect our relationship with our suppliers, which could have a material adverse effect on our liquidity. Changes in our credit profile may affect the way our suppliers view our ability to make payments and may induce them to shorten the payment terms of their invoices.
In addition, in the past, following periods of volatility in the overall market and the market price of a particular company’s securities, securities class action litigation has often been instituted against these companies.
In addition, in the past, following periods of volatility in the overall market and the market price of a particular company’s securities, securities class action litigation has often been instituted against these companies. This litigation, if instituted against us, could result in substantial costs and a diversion of our management’s attention and resources.
Further, we rely on the ability to attract and retain employees on a cost-effective basis. The availability of employees in the markets in which we operate has declined in recent years and competition for such personnel has increased, especially under the economic crises experienced throughout the COVID-19 pandemic.
Further, we rely on the ability to attract and retain employees on a cost-effective basis. The availability of employees in the markets in which we operate has declined in recent years and competition for such personnel has increased and has provided the obstacle of our ability to attract and retain a sufficient workforce on a cost-effective basis.
This litigation, if instituted against us, could result in substantial costs and a diversion of our management’s attention and resources. 32 We incur increased costs and demands upon management as a result of complying with the laws and regulations affecting public companies, which could adversely affect our operating results .
We incur increased costs and demands upon management as a result of complying with the laws and regulations affecting public companies, which could adversely affect our operating results .
If our information technology systems are damaged or cease to function properly for an extended period of time, whether as a result of a significant cyber incident or otherwise, our ability to communicate internally as well as with our customers could be significantly impaired, which may adversely impact our business.
If our information technology systems are damaged or cease to function properly for an extended period of time, whether as a result of a significant cyber incident or otherwise, our ability to communicate internally as well as with our customers could be significantly impaired, which may adversely impact our business. 34 Additionally, in the normal course of our business, we collect, store and transmit proprietary and confidential information regarding our customers, employees, suppliers and others, including personally identifiable information.
In the event of increased costs of attracting and retaining a workforce, our business and operating results could be adversely affected. 31 Litigation may adversely affect our business, financial condition and results of operations .
We may not be able to attract and retain a sufficient workforce on a cost-effective basis in the future. In the event of increased costs of attracting and retaining a workforce, our business and operating results could be adversely affected. Litigation may adversely affect our business, financial condition and results of operations .
The increased costs associated with operating as a public company will decrease our net income or increase our net loss and may require us to reduce costs in other areas of our business or increase the prices of our products or services.
We expect complying with these rules and regulations will substantially increase our legal and financial compliance costs and to make some activities more time-consuming and costly. 32 The increased costs associated with operating as a public company will decrease our net income or increase our net loss and may require us to reduce costs in other areas of our business or increase the prices of our products or services.
A total of 1,495,011 warrants were issued and outstanding as of October 1, 2023. Additionally, 9,354 shares of Common Stock were reserved for issuance of currently outstanding equity-based awards to employees, directors and certain other individuals under the Company’s 2022 Omnibus Equity Incentive Plan.
A total of 3,765,932 warrants were issued and outstanding as of March 31, 2024. Additionally, 14,865 shares of Common Stock were reserved for issuance of currently outstanding equity-based awards to employees, directors and certain other individuals under our 2022 Omnibus Equity Incentive Plan.
We cannot predict the nature of any future laws, regulations, interpretations, or applications, nor can we determine what effect additional governmental regulations or administrative policies and procedures, when and if promulgated, could have on our operations. 19 Our business depends in part on client licensing Our business is partly dependent on certain of our customers obtaining various licenses from various municipalities and state licensing agencies.
We cannot predict the nature of any future laws, regulations, interpretations, or applications, nor can we determine what effect additional governmental regulations or administrative policies and procedures, when and if promulgated, could have on our operations.
This would make it more difficult for our clients and potential clients to access the U.S. banking systems and conduct financial transactions, which would adversely affect our operations.
At any time, however, the Department of the Treasury, Financial Crimes Enforcement Network, could elect to rescind the FinCEN Memo. This would make it more difficult for our clients and potential clients to access the U.S. banking systems and conduct financial transactions, which would adversely affect our operations.
However, there can be no assurance that we will be able to regain compliance by the end of any additional extension period.
As a result, there can be no assurance that we can regain compliance by the end of the extension period.
These arrangements require a significant upfront investment of working capital over a one- to two-year period, before we start to receive repayment on the upfront construction advances and on our recurring monthly SaaS fees and production fees.
These arrangements require a significant upfront investment over multiple years, before we start to receive repayment on the upfront construction advances and on our recurring monthly SaaS fees and production fees. During 2022, a significant amount of working capital was invested in funding our TTK Solution’s construction and equipment commitments.
Under previous administrations, the DOJ indicated that those users and suppliers of medical marijuana who complied with state laws, which required compliance with certain criteria, would not be prosecuted.
Under previous administrations, the DOJ indicated that those users and suppliers of medical marijuana who complied with state laws, which required compliance with certain criteria, would not be prosecuted. As a result, it is now unclear if the DOJ will seek to enforce the Controlled Substances Act against those users and suppliers who comply with state marijuana laws.
The existence of the forgoing provisions and anti-takeover measures could limit the price that investors might be willing to pay in the future for shares of our Common Stock.
The existence of the forgoing provisions and anti-takeover measures could limit the price that investors might be willing to pay in the future for shares of our Common Stock. They could also deter potential acquirers of our company, thereby reducing the likelihood that you could receive a premium for your Common Stock in an acquisition.
Moreover, even if the trademark applications are approved, third parties may seek to oppose or otherwise challenge these registrations. A failure to obtain registrations for our trademarks could limit and impede our marketing efforts.
Moreover, even if the trademark applications are approved, third parties may seek to oppose or otherwise challenge these registrations.
To the extent our intellectual property offers inadequate protection, or is found to be invalid or unenforceable, we would be exposed to a greater risk of direct or indirect competition.
To the extent our intellectual property offers inadequate protection, or is found to be invalid or unenforceable, we would be exposed to a greater risk of direct or indirect competition. If our intellectual property does not provide adequate coverage over our competitors’ products, our competitive position could be adversely affected, as could our business.
A claim brought against us that is uninsured or underinsured could result in unanticipated costs, thereby adversely affecting our results of operations and resulting in a reduction in the trading price of our stock.
A claim brought against us that is uninsured or underinsured could result in unanticipated costs, thereby adversely affecting our results of operations and resulting in a reduction in the trading price of our stock. 31 An active, liquid, and orderly trading market for our Common Stock may not develop, the price of our stock may be volatile, and you could lose all or part of your investment .
If we are not able to realize the value of these assets, we may be required to incur charges relating to the impairment of these assets, which could materially impact our results of operations. 15 We have substantial debt and other financial obligations, and we may incur even more debt.
We may record goodwill and other intangible assets on our consolidated balance sheet in connection with our acquisitions. If we are not able to realize the value of these assets, we may be required to incur charges relating to the impairment of these assets, which could materially impact our results of operations.
If we are unable to realize revenue from our TTK Solution offerings on a timely basis, or at all, or if we incur additional losses as a result of the Bud & Mary’s claim, our business and financial performance will be adversely affected. 14 We may require additional financing to achieve our goals, and a failure to obtain this necessary capital when needed on acceptable terms, or at all, may force us to delay, limit, reduce, or terminate our product manufacturing and development, and other operations.
If we are unable to realize revenue from our TTK Solution offerings on a timely basis, or at all, or if we incur additional losses as a result of the Bud & Mary’s claim, our business and financial performance will be adversely affected.
Failure within any applicable grace or cure periods to make such payments, comply with the financial covenants, or any other non-financial or restrictive covenant, would create a default under the Notes.
Our financial and operating performance will continue to be subject to prevailing economic conditions and to financial, business, and other factors, some of which are beyond our control. Failure within any applicable grace or cure periods to make such payments, comply with the financial covenants, or any other non-financial or restrictive covenant, would create a default under the Notes.
As a result, it is now unclear if the DOJ will seek to enforce the Controlled Substances Act against those users and suppliers who comply with state marijuana laws. 18 Despite former Attorney General Sessions’ rescission of the Cole Memorandum, the Department of the Treasury, Financial Crimes Enforcement Network, has not rescinded the “FinCEN Memo” dated February 14, 2014, which de-prioritizes enforcement of the Bank Secrecy Act against financial institutions and marijuana-related businesses which utilize them.
Despite former Attorney General Sessions’ rescission of the Cole Memorandum, the Department of the Treasury, Financial Crimes Enforcement Network, has not rescinded the “FinCEN Memo” dated February 14, 2014, which de-prioritizes enforcement of the Bank Secrecy Act against financial institutions and marijuana-related businesses which utilize them. This memo appears to be a standalone document and is presumptively still in effect.
If we are unable to successfully adapt to changes in the cannabis industry, our operations could be adversely affected. 20 The inability of our customers to meet their financial or contractual obligations to us may result in disruption to our results of operations and could result in financial losses.
The inability of our customers to meet their financial or contractual obligations to us may result in disruption to our results of operations and could result in financial losses. We have exposure to several customers and certain of these customers are experiencing financial difficulties.
Our executive officers, directors and their affiliates beneficially own, in the aggregate, approximately 10.54% of our outstanding shares of Common Stock. In particular, Raymond Chang, our Chairman of the Board and Chief Executive Officer, beneficially owns approximately 9.99% of our outstanding shares of Common Stock.
Our executive officers, directors and their affiliates beneficially own, in the aggregate, approximately 52.57% of our outstanding shares of Common Stock.
Approximately $675 thousand of federal NOLs will expire if not utilized by 2037 and approximately $96.0 million of federal NOLs carryforward indefinitely but are only available to offset 80% of taxable income per year. The $71.6 million state NOLs will expire depending upon the various rules in the states in which we operate.
Approximately $675,000 of federal NOLs will expire if not utilized by 2036 and approximately $143.5 million of federal NOLs carryforward indefinitely but are only available to offset 80% of taxable income per year. The $82.3 million state NOLs will begin to expire by 2039.
Provisions in our articles of incorporation, our by-laws and Nevada law might discourage, delay or prevent a change in control of our company or changes in our management and, therefore, depress the trading price of our Common Stock .
Investors may experience dilution in the value of their investment upon the exercise of the warrants and any equity awards that may be granted or issued pursuant to the 2022 Omnibus Equity Incentive Plan. 29 Provisions in our articles of incorporation, our by-laws and Nevada law might discourage, delay or prevent a change in control of our company or changes in our management and, therefore, depress the trading price of our Common Stock .
We have exposure to several customers and certain of these customers are experiencing financial difficulties. We have in the past, and may in the future, need to take allowances against and need to write off receivables due to the creditworthiness of these customers.
We have in the past, and may in the future, need to take allowances against and need to write off receivables due to the creditworthiness of these customers. Further, the inability of these customers to purchase our products could materially adversely affect our results of operations.
The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks.
If our shares of Common Stock become subject to the penny stock rules, it would become more difficult to trade our shares . The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks.
There can be no assurance that any or all licenses necessary for our clients to operate their businesses will be obtained, retained, or renewed.
Our business depends in part on client licensing Our business is partly dependent on certain of our customers obtaining various licenses from various municipalities and state licensing agencies. There can be no assurance that any or all licenses necessary for our clients to operate their businesses will be obtained, retained, or renewed.
We may need to enter into intellectual property license agreements in the future, and if we are unable to obtain these licenses, our business could be harmed . We may need or may choose to obtain licenses and/or acquire intellectual property rights from third parties to advance our research or commercialization of our current or future products.
A failure to obtain registrations for our trademarks could limit and impede our marketing efforts. 26 We may need to enter into intellectual property license agreements in the future, and if we are unable to obtain these licenses, our business could be harmed .
Even if we are able to obtain a license, it may be non-exclusive, thereby giving our competitors access to the same technologies licensed to us. In that event, we may be required to expend significant time and resources to develop or license replacement technology.
We may fail to obtain any of these licenses or intellectual property rights on commercially reasonable terms. Even if we are able to obtain a license, it may be non-exclusive, thereby giving our competitors access to the same technologies licensed to us.
As a result of such restatements, we were unable to timely file the Form 10-K, the First Quarter Form 10-Q and the Second Quarter Form 10-Q without unreasonable effort or expense. 27 We will take all possible actions to restore our compliance with Nasdaq, but we can provide no assurances that the listing of our Common Stock will be restored or that we otherwise will remain listed on Nasdaq.
The compliance period for us will expire on September 3, 2024. We will take all possible actions to restore our compliance with Nasdaq, but we can provide no assurances that the listing of our common stock will be restored or that we otherwise will remain listed on Nasdaq.
Although we continue to devote significant resources to support our brands, unfavorable economic conditions may negatively affect demand for our products. 30 Increases in costs, disruption of supply or shortage of raw materials could harm our business . We may experience increases in the cost or a sustained interruption in the supply or shortage of raw materials.
Investors seeking cash dividends should not purchase our Common Stock. 30 General Risk Factors Increases in costs, disruption of supply or shortage of raw materials could harm our business . We may experience increases in the cost or a sustained interruption in the supply or shortage of raw materials.
If our intellectual property does not provide adequate coverage over our competitors’ products, our competitive position could be adversely affected, as could our business. 23 Our success depends in part upon our ability to protect our core technology and intellectual property . Our success depends in part upon our ability to protect our core technology and intellectual property.
Our success depends in part upon our ability to protect our core technology and intellectual property . Our success depends in part upon our ability to protect our core technology and intellectual property.
Removed
As of December 31, 2022, a significant amount of our working capital has been invested in funding our TTK Solution construction and equipment commitments.
Added
In 2023, a limited amount was invested in funding the remaining TTK Solution construction and equipment commitments, but we do not intend to enter into any new TTK Solutions in the foreseeable future.
Removed
Additionally, following any business acquisition, we could experience difficulty in integrating personnel, operations, financial and other systems, and in retaining key employees and customers. We may record goodwill and other intangible assets on our consolidated balance sheet in connection with our acquisitions.

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Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeFor information related to significant legal proceedings in which we are involved, see the discussion under the caption Legal Matters in Note 17 – Commitments and Contingencies and Note 19 – Subsequent Events to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10K, which information is incorporated by reference into this Item 3.
Biggest changeFor information related to significant legal proceedings in which we are involved, see the discussion under the caption Legal Matters in Note 16 - Commitments and Contingencies and Note 18 - Subsequent Events to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10K, which information is incorporated by reference into this Item 3.
Item 4. Mine Safety Disclosures. Not applicable. 35 PART II
Item 4. Mine Safety Disclosures. Not applicable. 39 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeRecent Sales of Unregistered Securities The following summarizes all issuances of our unregistered securities during the year ended December 31, 2022 that were not previously disclosed in a Current Report on Form 8-K or Quarterly Report on Form 10-Q.
Biggest changeRecent Sales of Unregistered Securities There were no sales of unregistered securities during the year ended December 31, 2023 that were not previously disclosed in a Current Report on Form 8-k or Quarterly Report on Form 10-Q.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market Information Our Common Stock is traded on the Nasdaq Capital Market under the symbol “AGFY.” Holders of Record As of October 1, 2023, there were 58 holders of record of our Common Stock.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities . Market Information Our Common Stock is traded on the Nasdaq Capital Market under the symbol “AGFY.” Holders of Record As of March 24, 2024, there were 62 holders of record of our Common Stock.
Removed
The securities in the below-referenced transactions were (i) issued without registration and (ii) were subject to restrictions under the Securities Act and the securities laws of certain states, in reliance on the private offering exemptions contained in Sections 4(2), 4(6) and/or 3(b) of the Securities Act and on Regulation D promulgated there under, and in reliance on similar exemptions under applicable state laws as transactions not involving a public offering.
Removed
No placement or underwriting fees were paid in connection with these transactions. On August 17, 2022, we issued 435 shares of Common Stock for contingent liabilities to the former holders of Precision and Cascade in connection with the acquisition of Precision and Cascade. 36 Item 6. [Reserved]. Not applicable.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeIf we are unable raise additional funds, we may be forced to cease operations. 50 Comparison of Years Ended December 31, 2022 and 2021 The following table summarizes our results of operations for the years ended December 31, 2022 and 2021: Year Ended December 31, (In thousands) 2022 2021 Revenue (including $2,417 and $31,439 from related parties, respectively) $ 58,259 $ 59,859 Cost of goods sold 90,054 54,625 Gross (loss) profit (31,795 ) 5,234 General and administrative 73,354 30,807 Selling and marketing 9,338 4,163 Research and development 8,179 3,925 Change in contingent consideration (2,156 ) 1,412 Impairment of property and equipment 2,912 — Impairment of goodwill and intangible assets 69,904 — Total operating expenses 161,531 40,307 Loss from operations (193,326 ) (35,073 ) Interest (expense) income, net (8,750 ) 74 Other expense, net 1,316 (31 ) Change in fair value of warrant liability 51,461 — Gain on forgiveness of PPP Loan — 45 (Loss) gain on extinguishment of notes payable (38,985 ) 2,685 Other income, net 5,042 2,773 Net loss before income taxes (188,284 ) (32,300 ) Income tax expense (23 ) (25 ) Net loss (188,307 ) (32,325 ) (Income) loss attributable to non-controlling interests 134 (140 ) Net loss attributable to Agrify Corporation $ (188,173 ) $ (32,465 ) 51 Revenues Our goal is to provide our customers with a variety of products to address their entire indoor agriculture needs.
Biggest changeComparison of Years Ended December 31, 2023 and 2022 The following table summarizes our results of operations for the years ended December 31, 2023 and 2022: Year Ended December 31, (In thousands) 2023 2022 Revenue (including $0, and $2,417 from related parties, respectively) $ 16,868 $ 58,259 Cost of goods sold 11,590 90,054 Gross profit (loss) 5,278 (31,795 ) General and administrative 19,005 73,354 Selling and marketing 4,134 9,338 Research and development 2,295 8,179 Change in contingent consideration (1,322 ) (2,156 ) Gain on disposal on property and equipment 144 — Impairment of property and equipment — 2,912 Impairment of goodwill and intangible assets — 69,904 Total operating expenses 24,256 161,531 Loss from operations (18,978 ) (193,326 ) Interest expense, net (1,853 ) (8,750 ) Change in fair value of warrant liabilities 4,695 51,461 Loss on extinguishment of long-term debt, net (4,311 ) (38,985 ) Other income, net 1,799 1,316 Total other income, net 330 5,042 Net loss before income taxes (18,648 ) (188,284 ) Income tax expense (2 ) (23 ) Net loss (18,650 ) (188,307 ) Income attributable to non-controlling interest 1 134 Net loss attributable to Agrify Corporation $ (18,649 ) $ (188,173 ) 52 Revenues Our goal is to provide our customers with a variety of products to address their entire indoor agriculture needs.
We recognize deferred revenue when consideration has been received or an amount of consideration is due from the customer, and we have a future obligation to transfer certain proprietary products. 46 In accordance with ASC 606-10-50-13, we are required to include disclosure on its remaining performance obligations as of the end of the current reporting period.
We recognize deferred revenue when consideration has been received or an amount of consideration is due from the customer, and we have a future obligation to transfer certain proprietary products. In accordance with ASC 606-10-50-13, we are required to include disclosure on its remaining performance obligations as of the end of the current reporting period.
The warrant has an exercise price of $4.00 per share, was exercisable upon issuance, has a term of three years from the date of issuance, and is exercisable on a cash basis unless at the time of exercise there is no effective registration statement for the resale of the underlying shares, in which case the warrant may be exercised on a cashless exercise basis at Mack’s election.
The Mack Warrant has an exercise price of $4.00 per share, was exercisable upon issuance, has a term of three years from the date of issuance and is exercisable on a cash basis unless at the time of exercise there is no effective registration statement for the resale of the underlying shares, in which case the Mack Warrant may be exercised on a cashless exercise basis at Mack’s election.
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 condensed consolidated statements of operations.
For issued or modified warrants that are precluded from equity classification, they are recorded as a liability at their initial fair value on the date of issuance and subject to remeasurement on each balance sheet date with changes in the estimated fair value of the warrants to be recognized as an unrealized gain or loss in the consolidated statements of operations.
(or “Agrinamics”). On September 16, 2019, Agrinamics amended its articles of incorporation to reflect a name change to Agrify Corporation. Our corporate headquarters are located in Troy, Michigan. We also lease properties located within various geographic regions in which we conduct business, including Colorado, Georgia and Michigan.
(“Agrinamics”). On September 16, 2019, Agrinamics amended its articles of incorporation to reflect a name change to Agrify Corporation. Our corporate headquarters are located in Troy, Michigan. We also lease properties located within various geographic regions in which we conduct business, including Colorado, Georgia and Michigan.
For tax positions considered effectively settled, we recognize the full amount of the tax benefit. Accounting for Stock-Based Compensation We follow the provisions of ASC Topic 718, Compensation-Stock Compensation (“ASC 718”) which establishes standards surrounding the accounting for transactions in which an entity exchanges our equity instruments for goods or services.
For tax positions considered effectively settled, we recognize the full amount of the tax benefit. 51 Accounting for Stock-Based Compensation We follow the provisions of ASC Topic 718, Compensation-Stock Compensation (“ASC 718”) which establishes standards surrounding the accounting for transactions in which an entity exchanges our equity instruments for goods or services.
This method is based on the cost of the services from third parties, plus a reasonable markup that we believe is reflective of a market-based reseller margin. We determine the SSP for services in time and materials contracts by observable prices in standalone services arrangements.
This method is based on the cost of the services from third parties, plus a reasonable markup that we believe is reflective of a market-based reseller margin. 45 We determine the SSP for services in time and materials contracts by observable prices in standalone services arrangements.
We then allocate the transaction price to each performance obligation in the contract based on the SSP. The corresponding revenue is recognized as the related performance obligations are satisfied. 45 Judgment is required to determine the SSP for each distinct performance obligation.
We then allocate the transaction price to each performance obligation in the contract based on the SSP. The corresponding revenue is recognized as the related performance obligations are satisfied. Judgment is required to determine the SSP for each distinct performance obligation.
To regain compliance with the Minimum Bid Requirement, the closing bid price of our Common Stock must be at least $1.00 per share for a minimum of 10 consecutive trading days during this 180-day compliance period, unless the Staff exercises its discretion to extend the minimum trading day period pursuant to Nasdaq Listing Rule 5810(c)(3)(G).
To regain compliance with the Minimum Bid Requirement, the closing bid price of our common stock must be at least $1.00 per share for a minimum of 10 consecutive trading days during this 180-day compliance period, unless the Staff exercises its discretion to extend this period pursuant to Nasdaq Listing Rule 5810(c)(3)(H).
For the years ended December 31, 2022 and 2021, we did not have any such financial income. Payment terms with customers typically require payment 30 days from the invoice date. Our agreements with customers do not provide for any refunds for services or products and therefore no specific reserve for such is maintained.
For the years ended December 31, 2023 and 2022, we did not have any such financial income. Payment terms with customers typically require payment 30 days from the invoice date. Our agreements with customers do not provide for any refunds for services or products and therefore no specific reserve for such is maintained.
Goodwill is not amortized but is tested for impairment at least annually in the fourth quarter of the year, or more frequently if events or changes in circumstances indicate that the carrying amount of the goodwill may not be recoverable. We have determined that were a single reporting unit for the purpose of conducting the goodwill impairment assessment.
Goodwill is not amortized but is tested for impairment at least annually in the fourth quarter of the year, or more frequently if events or changes in circumstances indicate that the carrying amount of the goodwill may not be recoverable. We have determined that we are a single reporting unit for the purpose of conducting the goodwill impairment assessment.
Additionally, we agreed to exchange the 375,629 shares of common stock held in abeyance for the lender under the terms of a letter agreement between us and the Investor dated April 26, 2023 for a warrant to purchase 375,629 shares of common stock (the “Abeyance Warrant”).
Additionally, we agreed to exchange the 375,629 shares of common stock held in abeyance for the Former Lender under the terms of the letter agreement between us and the Former Lender dated as of April 26, 2023 for a warrant to purchase 375,629 shares of common stock (the “Abeyance Warrant”).
Additionally, as part of the Modification Agreement, we agreed to issue to Mack a warrant to purchase 750,000 shares of common stock.
Additionally, as part of the Modification Agreement, we agreed to issue to Mack a warrant (the “Mack Warrant”) to purchase 750,000 shares of common stock.
As a percentage of net revenue, R&D expenses were 14.0% of total revenue for the year ended December 31, 2022, compared to 6.6% for same period in 2021. We expect to continue to invest in future developments for our VFUs, Agrify Insights™, and extraction products.
As a percentage of net revenue, R&D expenses were 14% of total revenue for the year ended December 31, 2023, compared to 14% for same period in 2022. We expect to continue to invest in future developments for our VFUs, Agrify Insights™, and extraction products.
Significant Judgments We enter into contracts that may include various combinations of equipment, services and construction, which are generally capable of being distinct and accounted for as separate performance obligations. Contracts with customers often include promises to transfer multiple products and services to a customer.
Revenue Recognition We enter into contracts that may include various combinations of equipment, services and construction, which are generally capable of being distinct and accounted for as separate performance obligations. Contracts with customers often include promises to transfer multiple products and services to a customer.
Financial Overview Critical Accounting Policies and Significant Judgments and Estimates Our management’s discussion and analysis of our financial position and results of operations is based on our financial statements, which have been prepared in accordance with GAAP.
Financial Overview Critical Accounting Estimates Our management’s discussion and analysis of our financial position and results of operations is based on our financial statements, which have been prepared in accordance with GAAP.
Our primary sources of liquidity are cash and cash equivalents, with additional liquidity accessible, subject to market conditions and other factors, including limitations that may apply to us under applicable SEC regulations, from the capital markets. As of December 31, 2022, we had $20.5 million of cash, cash equivalents, and restricted cash.
Our primary sources of liquidity are cash and cash equivalents, with additional liquidity accessible, subject to market conditions and other factors, including limitations that may apply to us under applicable SEC regulations, from the capital markets. As of December 31, 2023, we had $0.4 million of cash, cash equivalents, and restricted cash.
Results of Operations We have incurred recurring losses to date. Our consolidated financial statements have been prepared assuming that we will continue as a going concern and, accordingly, do not include adjustments relating to the recoverability and realization of assets and classification of liabilities that might be necessary should we be unable to continue in operation.
Our consolidated financial statements have been prepared assuming that we will continue as a going concern and, accordingly, do not include adjustments relating to the recoverability and realization of assets and classification of liabilities that might be necessary should we be unable to continue in operation.
On April 18, 2023, we received a notice from Nasdaq (the “April Nasdaq Notice”) that we were noncompliance with Nasdaq Listing Rule 5250(c)(1) as a result of our failure to file this Annual Report on Form 10-K (the “Form 10-K”) with the SEC by the required due date.
Nasdaq Notices and Hearing On April 18, 2023, we received a notice (the “April Nasdaq Notice”) from The Nasdaq Stock Market LLC (“Nasdaq”) that we were noncompliance with Nasdaq Listing Rule 5250(c)(1) as a result of our failure to file our Annual Report on Form 10-K (the “Form 10-K”) with the SEC by the required due date.
Liquidity and Capital Resources Operating Capital Requirements We have incurred operating losses since our inception and have negative cash flows from operations. We have an accumulated deficit of approximately $247.1 million as of December 31, 2022.
Liquidity and Capital Resources Operating Capital Requirements We have incurred operating losses since our inception and have negative cash flows from operations. We have an accumulated deficit of approximately $265.8 million as of December 31, 2023.
On October 27, 2023, we and GIC amended and restated the Note (the “Restated Note”). Pursuant to the terms of the Restated Note, the Maturity Date was extended until December 31, 2023 and we granted a security interest in our assets that ranks junior to the Exchange Note and the Convertible Note.
On October 27, 2023, we and GIC amended and restated the Note (the “GIC Note”). Pursuant to the terms of the GIC Note, as restated, the maturity date was extended until December 31, 2023 and we granted a junior security interest in our assets.
Each warrant has an exercise price of $0.001 per share, was exercisable upon issuance, has a term of five years from the date of issuance and is exercisable on a cash basis or on a cashless exercise basis at the holder’s election.
Each of the Exchange Warrant and the Abeyance Warrant has an exercise price of $0.001 per share, became exercisable upon issuance, has a term of five years from the date of issuance and is exercisable on a cash basis or on a cashless exercise basis at the Former Lender’s election.
Examples of critical estimates in valuing certain of the intangible assets we have acquired or may acquire in the future include but are not limited to: ● future expected cash flows from software license sales, support agreements, consulting contracts, other customer contracts, and acquired developed technologies; ● expected costs to develop in-process research and development into commercially viable products and estimated cash flows from the projects when completed; ● the acquired company’s brand and competitive position, as well as assumptions about the period of time the acquired brand will continue to be used in the combined company’s product portfolio; ● cost of capital and discount rates; and ● estimating the useful lives of acquired assets as well as the pattern or manner in which the assets will amortize.
Examples of critical estimates in valuing certain of the intangible assets we have acquired or may acquire in the future include but are not limited to: ● future expected cash flows from software license sales, support agreements, consulting contracts, other customer contracts, and acquired developed technologies; ● expected costs to develop in-process research and development into commercially viable products and estimated cash flows from the projects when completed; ● the acquired company’s brand and competitive position, as well as assumptions about the period of time the acquired brand will continue to be used in the combined company’s product portfolio; ● cost of capital and discount rates; and ● estimating the useful lives of acquired assets as well as the pattern or manner in which the assets will amortize. 49 The fair value estimates related to the various identified intangible assets were determined under various valuation approaches including the Income Approach, Relief-from-Royalty Method, and Discounted Cash Flow Method.
Nasdaq Deficiency Notices On October 4, 2022, we received a deficiency letter from the Listing Qualifications Department (the “Staff”) of The Nasdaq Stock Market, LLC (“Nasdaq”) notifying us that, for the last 30 consecutive business days, the bid price for our Common Stock had closed below $1.00 per share, which is the minimum closing price required to maintain continued listing on The Nasdaq Capital Market under Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Requirement”).
Additionally, on March 5, 2024, we received a deficiency letter from the Listing Qualifications Department of Nasdaq notifying us that, for the last 30 consecutive business days, the bid price for our 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”).
Other G&A expenses include, but are not limited to, professional fees for legal, consulting, depreciation and amortization, and accounting services, as well as facility-related costs. G&A expenses increased by $42.5 million, or 138%, for the year ended December 31, 2022, compared to the same period in 2021.
Other G&A expenses include, but are not limited to, professional fees for legal, consulting, depreciation and amortization, and accounting services, as well as facility-related costs. G&A expenses decreased by $54.3 million, or 74%, for the year ended December 31, 2023, compared to the same period in 2022.
The Purchase Agreement provides for the issuance of the SPA Note in the aggregate amount of $65.0 million and a SPA Warrant to purchase up to an aggregate of 34,406 shares of Common Stock, with the potential for two potential subsequent closings for notes with an original principal amount of $35.0 million each.
The Purchase Agreement provides for the issuance of the SPA Note in the aggregate amount of $65.0 million and a SPA Warrant to purchase up to an aggregate of 34,406 shares of Common Stock, with the potential for two potential subsequent closings for notes with an original principal amount of $35.0 million each. 58 On August 18, 2022, we entered into a Securities Exchange Agreement.
Although we continue to invest in R&D activities, we expect R&D expenses to decrease as a percentage of revenue as our revenue grows. Change in contingent consideration Contingent consideration decreased $2.2 million for the year ended December 31, 2022, compared to an increase of $1.4 million for the same period in 2021.
Although we continue to invest in R&D activities, we expect R&D expenses to decrease as a percentage of revenue as our revenue grows. Change in contingent consideration Contingent consideration increased $0.8 million for the year ended December 31, 2023, compared to $2.2 million for the same period in 2022.
Our continuation as a going concern is dependent upon our ability to obtain the necessary debt or equity financing to continue operations until we begin generating sufficient cash flows from operations to meet our obligations.
Our continuation as a going concern is dependent upon our ability to obtain the necessary debt or equity financing to continue operations until we begin generating sufficient cash flows from operations to meet our obligations. If we are unable raise additional funds, we may be forced to cease operations.
These fair values are typically estimated with assistance from independent valuation specialists. The purchase price allocation process requires us to make significant estimates and assumptions, especially at the acquisition date with respect to intangible assets, contractual support obligations assumed, contingent consideration arrangements, and pre-acquisition contingencies.
The purchase price allocation process requires us to make significant estimates and assumptions, especially at the acquisition date with respect to intangible assets, contractual support obligations assumed, contingent consideration arrangements, and pre-acquisition contingencies.
Warrant Issuance On October 27, 2023, we entered into a letter agreement with the Investor. Pursuant to the agreement, we agreed to exchange $3.0 million in principal and approximately $1.1 million in accrued but unpaid interest outstanding under the Exchange Note to purchase 2,809,669 shares of common stock (the “Exchange Warrant”).
Pursuant to the Letter Agreement, we agreed, immediately prior to the note purchase transaction, to exchange $3.0 million in principal and approximately $1.1 million in accrued but unpaid interest outstanding under the Exchange Note for a warrant (the “Exchange Warrant”) to purchase 2,809,669 shares of common stock.
Our 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 our own Common Stock among other conditions for equity classification. 48 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.
Our 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 our own Common Stock among other conditions for equity classification.
In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we had 180 calendar days to regain compliance with the Minimum Bid Requirement.
The Notice had no immediate effect on the listing of our common stock on Nasdaq. In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we have 180 calendar days to regain compliance with the Minimum Bid Requirement.
On August 16, 2023, we received a third notice from Nasdaq that we remain noncompliant with Nasdaq Listing Rule 5250(c)(1) as a result of our failure to file our Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2023 (the “Second Quarter Form 10-Q”) with the SEC by the required filing date (the “August Nasdaq Notice” and, together with the April Nasdaq Notice and the May Nasdaq Notice, the “Nasdaq Notices”). 42 On October 17, 2023, we received a Staff Delisting Determination (the “Staff Determination”) from the Listing Qualifications Department of Nasdaq notifying us that we were not in compliance with Nasdaq’s continued listing requirements under the Listing Rule as a result of our failure to file the First Quarter Form 10-Q, the Second Quarter Form 10-Q and the Form 10-K (collectively, the “Delinquent Reports”) in a timely manner.
On August 16, 2023, we received a third notice from Nasdaq that we remain noncompliant with Nasdaq Listing Rule 5250(c)(1) as a result of our failure to file our Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2023 (the “Second Quarter Form 10-Q”) with the SEC by the required filing date (the “August Nasdaq Notice” and, together with the April Nasdaq Notice and the May Nasdaq Notice, the “Nasdaq Notices”).
Actual results and the timing of events may differ materially from those stated in or implied by these forward-looking statements due to a number of factors, including those discussed in the sections entitled “Risk Factors,” “Cautionary Statement regarding Forward-Looking Statements” and elsewhere in this report.
Actual results and the timing of events may differ materially from those stated in or implied by these forward-looking statements due to a number of factors, including those discussed in the sections entitled “Risk Factors,” “Cautionary Statement regarding Forward-Looking Statements” and elsewhere in this report. 40 Overview We are one of the most innovative providers of advanced cultivation and extraction solutions for the cannabis industry, bringing data, science, and technology to the forefront of the market.
We record a BCF as a debt discount which is amortized to interest expense over the life of the respective note using the effective interest method. BCFs that are contingent upon the occurrence of a future event are recognized when the contingency is resolved.
We record a BCF as a debt discount which is amortized to interest expense over the life of the respective note using the effective interest method.
However, there can be no assurance that we will be able to regain compliance by the end of any additional extension period.
As a result, there can be no assurance that we can regain compliance by the end of the extension period.
On October 27, 2023, CP Acquisitions LLC, and entity affiliated with and controlled by Raymond Chang, acquired the Exchange Note and the Convertible Note.
On October 27, 2023, CP Acquisitions LLC, and entity affiliated with and controlled by Raymond Chang, acquired the Exchange Note and the Convertible Note. As of October 30, 2023, there was approximately $6.7 million outstanding under the Exchange Note and $8.8 million outstanding under the Convertible Note.
Note Amendment and Secured Promissory Note On July 12, 2023, we issued an unsecured promissory note (the “Note”) in favor of GIC Acquisition, LLC (“GIC”), an entity that is managed by Raymond Chang, our Chairman and Chief Executive Officer, with an original principal amount of up to $500,000.
The Former Lender exercised the Exchange Warrant and Abeyance Warrant in full during January and February 2024. Note Amendment and Secured Promissory Note On July 12, 2023, we issued an unsecured promissory note in favor of GIC Acquisition, LLC (“GIC”), an entity that is owned and managed by Raymond Chang, our Chairman and Chief Executive Officer.
This was partially offset by revenue generated by our extraction solutions sales of equipment and services from our acquisition of Lab Society in 2022 and Precision, Cascade, and PurePressure in 2021, which contributed $22.0 million. 52 Cost of Goods Sold Cost of goods sold represents a combination of the following: construction-related costs associated with our facility build-outs, internal and outsourced labor and material costs associated with the assembly of both cultivation equipment (primarily VFUs), and extraction equipment, as well as labor and parts costs associated with the sale or provision of other products and services.
Cost of Goods Sold Cost of goods sold represents a combination of the following: construction-related costs associated with our facility build-outs, internal and outsourced labor and material costs associated with the assembly of both cultivation equipment (primarily VFUs), and extraction equipment, as well as labor and parts costs associated with the sale or provision of other products and services.
The reserve for warranty returns is included in accrued expenses and other current liabilities in our consolidated balance sheets. Accounting for Business Combinations We allocated the purchase price of acquired companies to the tangible and intangible assets acquired, including in-process research and development assets, and liabilities assumed, based upon their estimated fair values at the acquisition date.
Accounting for Business Combinations We allocated the purchase price of acquired companies to the tangible and intangible assets acquired, including in-process research and development assets, and liabilities assumed, based upon their estimated fair values at the acquisition date. These fair values are typically estimated with assistance from independent valuation specialists.
Additional information relating to our gain on extinguishment of notes payable may be found in Note 11 – Convertible Promissory Notes, included in the notes to the consolidated financial statements. 56 Income Tax Expense Year Ended December 31, (In thousands) 2022 2021 Change % Change Income tax expense $ (23 ) $ (25 ) $ 2 (0.1 )% Effective tax rate 0.0 % 0.0 % Income (Loss) Attributable to Non-Controlling Interest We consolidate the results of operations of two less than wholly-owned entities into our consolidated statements of operations.
Loss on extinguishment of notes payable was $4.3 million for the year ended December 31, 2023, compared to a loss of $39.0 million for the same period in 2022. 56 Income Tax Expense Year Ended December 31, (In thousands) 2023 2022 Change % Change Income tax expense $ (2 ) $ (23 ) $ 21 (91 )% Effective tax rate — % — % Income (Loss) Attributable to Non-Controlling Interest We consolidate the results of operations of two less than wholly-owned entities into our consolidated statements of operations.
Following the November 1, 2023 payment, we will be entitled to take possession of certain Vertical Farming Units (“VFUs”) that were assembled under the Supply Agreement.
The Modification Agreement requires us to make payments of $500,000 and $250,000 to Mack on or before November 1, 2023 and February 15, 2024, respectively. Following the November 1, 2023 payment, we will be entitled to take possession of certain Vertical Farming Units (“VFUs”) that were assembled under the Supply Agreement.
A good or service that is promised to a customer is distinct if the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer, and our promise to transfer the good or service to the customer is separately identifiable from other promises in the contract.
A good or service that is promised to a customer is distinct if the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer, and our promise to transfer the good or service to the customer is separately identifiable from other promises in the contract. 48 Determine the transaction price The transaction price is the amount of consideration to which we expect to be entitled in exchange for transferring goods or services to a customer, excluding sales taxes that are collected on behalf of government agencies.
Cash used in investing activities consists primarily of purchases of marketable securities, cash paid associated with our 2022 and 2021 acquisitions, the issuance of loans receivable in connection with our financing of construction and equipment under our TTK Solutions offering, and purchases of property and equipment.
Cash used in investing activities consists primarily of purchases of marketable securities of $294.7 million, proceeds of marketable securities of $329.0 million, payment of contingent contingent liabilities of $3.3 million, cash paid associated with our 2022 acquisition of Lab Society and Sinclair of $2.2 million million, the issuance of loans receivable if $23.0 million in connection with our financing of construction and equipment under its TTK Solutions offering and purchases of property and equipment expenditures.
Our restricted cash and restricted marketable securities of $10.0 million is associated with the Exchange Note as of December 31, 2022. Current liabilities were $70.6 million as of December 31, 2022.
We had no restricted cash and restricted marketable securities associated with the Exchange Note as of December 31, 2023. Current liabilities were $41.2 million as of December 31, 2023.
All share and per information has been retroactively adjusted to give effect to the reverse stock splits for all periods presented, unless otherwise indicated.
Reverse Stock Splits On October 18, 2022, we effected a 1-for-10 reverse stock split on our Common Stock. On July 5th, 2023, we effected a 1-for-20 reverse stock split on our Common Stock. All share and per information has been retroactively adjusted to give effect to the reverse stock splits for all periods presented, unless otherwise indicated.
The expense we recognize in future periods will be affected by changes in the estimated forfeiture rate and may differ significantly from amounts recognized in the current period. It is important that the discussion of our operating results that follows be read in conjunction with the critical accounting policies disclosed above.
The expense we recognize in future periods will be affected by changes in the estimated forfeiture rate and may differ significantly from amounts recognized in the current period.
Additional information regarding our interim testing on goodwill and intangible assets may be found in Note 7 – Goodwill and Intangible Assets, Net, included in the notes to the consolidated financial statements.
Additional information regarding our interim impairment testing may be found in Note 7 - Goodwill and Intangible Assets, Net, included in the notes to the consolidated financial statements. 55 Change in Gain on Disposal Gain on disposal Increased $0.1 million for the year ended December 31, 2023, compared to $0 for the same period in 2022.
The preparation of consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. On an ongoing basis, we evaluate estimates, which include estimates related to accruals, stock-based compensation expense, and reported amounts of revenues and expenses during the reported period.
The preparation of consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes.
The Junior Secured Note bears interest at a rate of 10% per annum, will mature in full on December 31, 2023, and may be prepaid without any fee or penalty. The Junior Secured Note is a secured obligation that ranks junior to the Exchange Note and the Convertible Note.
The Junior Secured Note bore interest at a rate of 10% per annum, had a maturity date of December 31, 2023, and could be prepaid without any fee or penalty. The Junior Secured Note was a junior secured obligation.
Selling and marketing expenses increased by $5.2 million, or 124%, for the year ended December 31, 2022, compared to the same period in 2021.
Selling and marketing Selling and marketing expenses consist primarily of salaries and related costs of personnel, travel expenses, trade shows, and advertising expenses. Selling and marketing expenses decreased by $5.2 million, or 56%, for the year ended December 31, 2023, compared to the same period in 2022.
The following table provides a breakdown of our cost of goods sold for the years ended December 31, 2022 and 2021: Year Ended December 31, (In thousands) 2022 2021 Change % Change Cultivation solutions, including ancillary products, and services $ 27,513 $ 10,855 $ 16,658 153 % Agrify Insights™ — — — — % Facility build-outs 31,588 35,012 (3,424 ) (10 )% Extraction solutions 30,953 8,758 22,195 253 % Total cost of goods sold $ 90,054 $ 54,625 $ 35,429 65 % Cost of goods sold increased $35.4 million, or 65%, for the year ended December 31, 2022, as compared to the same period in 2021.
The following table provides a breakdown of our cost of goods sold for the years ended December 31, 2023 and 2022: Year Ended December 31, (In thousands) 2023 2022 Change % Change Cultivation solutions, including ancillary products and services $ 1,747 $ 27,513 $ (25,766 ) (94 )% Facility build-outs 971 31,588 (30,617 ) (97 )% Extraction solutions 8,872 30,953 (22,081 ) (71 )% Total cost of goods sold $ 11,590 $ 90,054 $ (78,464 ) (87 )% Cost of goods sold decreased by $78 million, or 87%, for the year ended December 31, 2023, as compared to the same period in 2022.
ASC 718 focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions, such as options issued under our Stock Option Plans. 49 The fair value of each option is estimated on the date of grant using the Black-Scholes option-pricing model.
ASC 718 focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions, such as options issued under our Stock Option Plans. Refer to the Critical Accounting Estimates section above for further detail on accounting for stock compensation.
The following table provides a breakdown of our revenue for the years ended December 31, 2022 and 2021: Year Ended December 31, (In thousands) 2022 2021 Change % Change Cultivation solutions, including ancillary products and services $ 711 $ 11,354 $ (10,643 ) (94 )% Agrify Insights™ 74 8 66 825 % Facility build-outs 23,129 36,193 (13,064 ) (36 )% Extraction solutions 34,345 12,304 22,041 179 % Total revenue $ 58,259 $ 59,859 $ (1,600 ) (3 )% Revenues decreased by $1.6 million, or 3%, for the year ended December 31, 2022, as compared to the same period in 2021.
The following table provides a breakdown of our revenue for the years ended December 31, 2023 and 2022: Year Ended December 31, (In thousands) 2023 2022 Change % Change Cultivation solutions, including ancillary products and services $ 1,100 $ 711 $ 389 55 % Agrify Insights software 188 74 114 154 % Facility build-outs 882 23,129 (22,247 ) (96 )% Extraction solutions 14,698 34,345 (19,647 ) (57 )% Total revenue $ 16,868 $ 58,259 $ (41,391 ) (71 )% Revenues decreased by $41.4 million, or 71%, for the year ended December 31, 2023, as compared to the same period in 2022.
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. 44 Revenue Recognition Overview We generate revenue from the following sources: (1) equipment sales, (2) providing services and (3) construction contracts.
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. See below for detail on how certain accounting estimates are determined.
Mack Molding Modification Agreement On October 27, 2023, and with an effective date as of October 18, 2023, we entered into a Modification and Settlement Agreement (the “Modification Agreement”) with Mack Molding Company (“Mack”).
Following the conversion, there was $15.0 million in principal amount outstanding under the Restated Note. 42 Mack Molding Settlement and Warrant Issuance Immediately prior to the note purchase described above on October 27, 2023, and with an effective date as of October 18, 2023, we entered into a Modification and Settlement Agreement (the “Modification Agreement”) with Mack Molding Company (“Mack”).
The comparative period increase was primarily related to our acquisition of Lab Society in 2022 and the acquisitions of Precision, Cascade, and PurePressure in 2021, which contributed $3.7 million of increased selling and marketing expenses, an increase in payroll, severance, and related expenses of $957 thousand, and an increase in advertising, trade shows, and other expenses of $558 thousand. 54 Research and development Research and development (“R&D”) expenses consisted primarily of costs incurred for the development of our Agrify Insights™ and next-generation VFUs, which includes: ● employee-related expenses, including salaries, benefits, and travel; ● subcontractor expenses incurred under agreements to provide engineering work related to the development of our next-generation VFUs; and ● expenses related to our facilities, depreciation, and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, insurance, and other supplies.
The decrease was primarily attributable to a reduction in salaries and related costs of personnel, of approximately $3.4 million, and a reduction in trade show and advertising costs, of approximately $1.8 million. 54 Research and development Research and development (“R&D”) expenses consisted primarily of costs incurred for the development of our Agrify Insights™ and next-generation VFUs, which includes: ● employee-related expenses, including salaries, benefits, and travel; ● subcontractor expenses incurred under agreements to provide engineering work related to the development of our next-generation VFUs; and ● expenses related to our facilities, depreciation, and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, insurance, and other supplies R&D expenses decreased by $5.9 million, or 72%, for the year ended December 31, 2023, compared to the same period in 2022.
Our 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.
Our proprietary micro-environment-controlled Agrify VFUs enable cultivators to produce the highest quality products with what we believe to be an unmatched consistency, yield, and Return on Investment at scale. Our 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.
Concurrently with the Restated Note, we issued a junior secured promissory note (the “Junior Secured Note”) to the New Lender. Pursuant to the Junior Secured Note, the New Lender will lend up to $3,000,000 to us.
Concurrently with the restatement of the GIC Note, we issued a junior secured promissory note (the “Junior Secured Note”) to the New Lender. Pursuant to the Junior Secured Note, the New Lender loaned an aggregate of approximately $4.0 million to us.
Warrant Liabilities We do not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks.
BCFs that are contingent upon the occurrence of a future event are recognized when the contingency is resolved. 50 Warrant Liabilities We do not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks.
The gross profit decline was partially offset by increased Extraction solutions revenue in 2022 . 53 Operating Expenses Year Ended December 31, (In thousands) 2022 2021 Change % Change General and administrative $ 73,354 $ 30,807 $ 42,547 138 % Selling and marketing 9,338 4,163 5,175 124 % Research and development 8,179 3,925 4,254 108 % Change in contingent consideration (2,156 ) 1,412 (3,568 ) (253 )% Impairment of property and equipment 2,912 — 2,912 NA Impairment of goodwill and intangible assets 69,904 — 69,904 NA Total operating expenses $ 161,531 $ 40,307 $ 121,224 301 % General and administrative General and administrative (“G&A”) expenses consist principally of salaries and related costs, including stock-based compensation and travel expenses, for personnel associated with executive and other administrative functions.
Operating Expenses Year Ended December 31, (In thousands) 2023 2022 Change % Change General and administrative $ 19,005 $ 73,354 $ (54,349 ) (74 )% Selling and marketing 4,134 9,338 (5,204 ) (56 )% Research and development 2,295 8,179 (5,884 ) (72 )% Change in contingent consideration (1,322 ) (2,156 ) 834 (39 )% Impairment of property and equipment — 2,912 (2,912 ) (100 )% Impairment of goodwill and intangible assets — 69,904 (69,904 ) (100 )% Gain on disposal 144 — 144 100 % Total operating expenses $ 24,256 $ 161,531 $ (137,275 ) (340 )% General and administrative General and administrative (“G&A”) expenses consist principally of salaries and related costs, including stock-based compensation and travel expenses, for personnel associated with executive and other administrative functions.
The combined public offering price for each share of Common Stock and accompanying two warrants was $13.00 per share, and the combined offering price for each Pre-Funded Warrant and accompanying two warrants was $12.98 per share.
The public offering price for each share of common stock was $0.38, and the offering price for each pre-funded warrant was $0.379, which equals the public offering price per share of the common stock, less the $0.001 per share exercise price of each pre-funded warrant.
These valuation methods require management to project revenues, operating expenses, working capital investment, capital spending and cash flows for the reporting unit over a multiyear period, as well as determine the weighted average cost of capital to be used as a discount rate. 47 Goodwill and Intangible Assets Amortization of acquired intangible assets is the result of the acquisition of TriGrow Systems, LLC (“TriGrow”), which occurred in 2020, the acquisition of Precision Extraction NewCo, LLC (“Precision”) and Cascade Sciences, LLC (“Cascade”) which occurred in 2021, the acquisition of PurePressure, LLC (“PurePressure”), which also occurred in 2021, and the acquisition of Lab Society, which occurred in 2022.
Goodwill and Intangible Assets Amortization of acquired intangible assets is the result of the acquisition of TriGrow Systems, LLC (“TriGrow”), which occurred in 2020, the acquisition of Precision Extraction NewCo, LLC (“Precision”) and Cascade Sciences, LLC (“Cascade”) which occurred in 2021, the acquisition of PurePressure, LLC (“PurePressure”), which also occurred in 2021, and the acquisition of Lab Society, which occurred in 2022.
Cash Flows from Financing Activities Cash provided by financing activities consists primarily of proceeds from the issuance of Common Stock, debt, and warrants in private placements and proceeds from public offerings. Cash used in financing activities consists primarily of repayment of our debt.
For the year ended December 31, 2022, cash provided by financing activities was $72.8 million. This consists primarily of proceeds from the issuance of Common Stock of $25.8, and warrants in private placements of $61.8 million, and proceeds from the initial and secondary public offerings of $23.2 million.
(Loss) gain on extinguishment of notes payable Loss on extinguishment of notes payable was $39.0 million for the year ended December 31, 2022, compared to a gain of $2.7 million for the same period in 2021.
Loss on extinguishment of notes payable Change in loss on extinguishment of notes payable decreased by $34.7 million, or (89)%, for the year ended December 31, 2023, compared to the same period in 2022. The decrease is related to related to the extinguishment of the SPA Note recorded in prior period discussed in Note 9.
The interest expense in 2022 is primarily attributable to modification of our debt facilities related to our SPA Note and Exchange Note. Other expense, net Other expense, net increased by $1.3 million, or 4,345%, for the year ended December 31, 2022, compared to the same period in 2021.
The significant decrease in our interest expense was resulted from our continuous efforts to restructure, modify and reduce our SPA Note and Exchange Note. Other income, net Other expense, net increased by $483 thousand, or 37%, for the year ended December 31, 2023, compared to the same period in 2022.
Net cash provided by financing activities decreased for the year ended December 31, 2022, compared to the year ended December 31, 2021, largely due to the repayment of debt. 59
For the year ended December 31, 2022, cash provided by investing activities of $2.3 million.
Pursuant to the Modification Agreement, we agreed to settle an outstanding dispute with Mack under the Supply Agreement between the parties dated December 7, 2020 (the “Supply Agreement”). The Modification Agreement requires us to make payments of $500,000 and $250,000 to Mack on or before November 1, 2023 and February 15, 2024, respectively.
Pursuant to the Modification Agreement, we and Mack agreed to settle an outstanding dispute of approximately $8.24 million under a Supply Agreement between the parties dated December 7, 2020 (the “Supply Agreement”) by reducing the aggregate amount due to Mack and extending the timeline for payment.
Use of Estimates The preparation of consolidated financial statements in accordance with accounting principles generally accepted in the U.S.
The net proceeds from the public offering were approximately $2.2 million, after deducting placement agent fees and commissions and expenses. The public offering closed on February 28, 2024. 44 Use of Estimates The preparation of consolidated financial statements in accordance with accounting principles generally accepted in the U.S.
Summary Statement of Cash Flows The following table presents the major components of net cash flows from and used in operating, investing, and financing activities for the years ended December 31, 2022 and 2021: (In thousands) December 31, 2022 December 31, 2021 Net cash (used in) provided by: Operating activities $ (72,021 ) $ (30,149 ) Investing activities (2,317 ) (104,740 ) Financing activities 72,781 138,792 Net increase in cash and cash equivalents $ (1,557 ) $ 3,903 Cash Flows from Operating Activities Cash used in operating activities consists of net loss adjusted for non-cash benefits and expenses, and changes in operating assets and liabilities.
Summary Statement of Cash Flows The following table presents the major components of net cash flows from and used in operating, investing, and financing activities for the years ended December 31, 2023 and 2022: (In thousands) December 31, 2023 December 31, 2022 Net cash (used in) provided by: Operating activities $ (30,974 ) $ (72,021 ) Investing activities 25,174 (2,317 ) Financing activities (4,227 ) 72,781 Net decrease in cash, cash equivalents, and restricted cash $ (10,027 ) $ (1,557 ) 59 Cash Flows from Operating Activities For the year ended December 31, 2023, we incurred a net loss of $18.6 million primarily due to the $4.7 million related to the change in fair value of warrant liabilities, $1.9 million of depreciation and amortization, $2.7 million of stock based compensation expense, and $24 thousand of debt issuance costs.
The primary drivers of the year-over-year increase of G&A expenses were largely attributable to an increase in trade and loan receivable allowances of $33.1 million, primarily related to our TTK projects, and an increase of $6.3 million in employee related expenses and severance expense.
The primary drivers of the year-over-year decrease of G&A expenses were largely attributable to a decrease in bad debt expenses, of approximately $36.8 million, a decrease in depreciation expense, of approximately $1 million, a decrease in stock based compensation, of approximately $1.6 million, a decrease in salaries and related costs for personnel, of approximately $3.4 million, a decrease in insurance expenses of approximately $0.6 million.
Net cash used in operating activities increased for the year ended December 31, 2022, compared to the year ended December 31, 2021, primarily due to higher inventory purchases to meet demand, increased construction costs related to TTK Solutions, payments for employee-related expenditures, and other working capital needs.
Our primary uses of cash from our operating activities include payments for employee-related expenditures, payments for inventory due to increased demand forecasts, construction costs related to TTK Solutions, acquisition-related costs and the payment of other operating expenses incurred in the ordinary course of business.
R&D expenses increased by $4.3 million, or 108%, for the year ended December 31, 2022, compared to the same period in 2021.
Change in fair value of warrant liability Change in fair value of warrant liability decreased by $46.8 million, or (91)%, for the year ended December 31, 2023, compared to the same period in 2022. The decrease is related to the fair value of warrants discussed in Note 4.
Additional information regarding our interim impairment testing may be found in Note 7 – Goodwill and Intangible Assets, Net, included in the notes to the consolidated financial statements. 55 Other Income, Net Year Ended December 31, (In thousands) 2022 2021 Change % Change Interest (expense) income, net $ (8,750 ) $ 74 $ (8,824 ) (11,924 )% Other expense, net 1,316 (31 ) 1,347 (4,345 )% Change in fair value of warrant liability 51,461 — 51,461 NA Gain on forgiveness of PPP loan — 45 (45 ) (100 )% (Loss) gain on extinguishment of notes payable (38,985 ) 2,685 (41,670 ) (1,552 )% $ 5,042 $ 2,773 $ 2,269 82 % Interest (expense) income, net Interest expense was approximately $8.8 million for the year ended December 31, 2022 compared to interest income of approximately $74 thousand for the same period in 2021.
Other Income, Net Year Ended December 31, (In thousands) 2023 2022 Change % Change Interest expense, net $ (1,853 ) $ (8,750 ) $ 6,897 (79 )% Other income, net 1,799 1,316 483 37 % Change in fair value of warrant liabilities 4,695 51,461 (46,766 ) (91 )% Loss on extinguishment of notes payable (4,311 ) (38,985 ) 34,674 (89 )% Total other income, net $ 330 $ 5,042 $ (4,712 ) (93 )% Interest income, net Interest expense was approximately $1.9 million for the year ended December 31, 2023 compared to interest expense of approximately $8.8 million for the same period in 2022.
The comparative decrease in revenue was primarily driven by a $13.1 million reduction in facility build-outs due to completion of one construction project and $7.0 million of revenue for Bud & Mary’s that was deferred due to pending litigation. Additionally, there was a $10.6 million decrease in cultivation solutions due to the migration to a VFU leasing model.
The comparative decrease in revenue was primarily driven by a $22.2 million reduction in facility build-outs due to winding down TTK solutions Facility build-outs at the end of 2022.
Removed
Overview We are one of the most innovative providers of advanced cultivation and extraction solutions for the cannabis industry, bringing data, science, and technology to the forefront of the market.
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Recent Business Developments At the beginning of 2023, we announced a strategic plan to foster sustainable long-term growth through cost efficiencies and enhanced sales and growth initiatives. We have been focused on growing our cultivation business by helping our existing Agrify Total Turn-Key customers to bring their facilities online and driving additional sales through our RDP.
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Our proprietary micro-environment-controlled Agrify Vertical Farming Units (or “VFUs”) enable cultivators to produce the highest quality products with what we believe to be an unmatched consistency, yield, and Return on Investment at scale.
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As a result, we have successfully installed and commenced our Las Vegas customer, Nevada Holistic Medicine, our Denver Colorado customer, Denver Greens, and signed several new customers such as Golden Lake Business Park in California, and Harvest Works in New Jersey.
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Reverse Stock Splits On January 12, 2021, we effected a 1-for-1.581804 reverse stock split on our Common Stock. On October 18, 2022, we effected a 1-for-10 reverse stock split on our Common Stock. On July 5 th , 2023, we effected a 1-for-20 reverse stock split on our Common Stock.

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