UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For
the quarterly period ended
or
For the transition period from _________ to _________
Commission
File Number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
(Address of principal executive offices, including zip code)
(Registrant’s phone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES ☐ ☒
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
YES ☐ ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
If an emerging
growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any
new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES ☐ NO
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
| Class | Outstanding as of May 12, 2022 | |
| Common Stock, $0.001 par value |
EXPLANATORY NOTE
References throughout this Amendment No. 1 to the Quarterly Report on Form 10-Q to “we,” “us,” the “Company” or “our company” are to Agrify Corporation.
This Amendment No. 1 (“Amendment No. 1”) to the Quarterly Report on Form 10-Q/A amends the Quarterly Report on Form 10-Q of Agrify Corporation for the quarter ended March 31, 2022, as filed with the Securities and Exchange Commission (“SEC”) on May 16, 2022 (the “Original Filing”).
On April 12, 2023, the Audit Committee of the Board of Directors (the “Audit Committee”) of Agrify Corporation (the “Company”), in consultation with management of the Company and the Company’s independent registered public accounting firm, Marcum LLP (“Marcum”), concluded that the Company’s previously issued unaudited condensed consolidated interim financial statements as of and for the fiscal periods ended March 31, 2022, June 30, 2022 and September 30, 2022 included in the Company’s Quarterly Reports on Form 10-Q for such periods, should no longer be relied upon. Similarly, earnings releases, and investor communications describing the financial statements for the periods described above should no longer be relied upon. The Company identified errors in the accounting for warrants previously issued by the Company.
Specifically, the Audit Committee concluded 15,081 warrants issued in a private placement on January 28, 2022 and 34,406 warrants issued in a private placement on March 23, 2022 (collectively, the “Warrants”) should have been classified as a liability measured at fair value, with changes in fair value each period reported in earnings, rather than as a component of equity. The change in fair value of the Warrants is a non-cash charge and will be reflected in the Company’s statement of operations. Additionally, debt issuance costs were classified as an asset rather than a liability. The change will be reflected in the Company’s balance sheet.
As such, the Company is restating in this Form 10-Q/A the unaudited condensed consolidated interim financial statements for the three-month period ended March 31, 2022.
We are filing this Amendment No. 1 to amend and restate the Original Filing with modification as necessary to reflect the restatement. The following items have been amended to reflect the restatement:
Part I, Item 1, Financial Information
Part I, Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations
Part I, Item 4, Controls and Procedures
Part II, Item 1A, Risk Factors
Except as described above and set forth in this Amendment No. 1, this Amendment No. 1 does not amend or update any other information contained in the Original Filing. This Amendment No. 1 does not purport to reflect any information or events subsequent to the Original Filing, except as expressly described herein. Accordingly, this Amendment No. 1 should be read in conjunction with the Original Filing and with our filings with the SEC subsequent to the Original Filing.
TABLE OF CONTENTS
i
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
AGRIFY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
March 31, (As Restated) | December 31, 2021 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Marketable securities | ||||||||
| Accounts receivable, net of allowance for doubtful accounts of $ | ||||||||
| Inventory, net of reserves of $ | ||||||||
| Prepaid and refundable taxes | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Loan receivable | ||||||||
| Property and equipment, net | ||||||||
| Right-of-use assets, net | ||||||||
| Goodwill | ||||||||
| Intangible assets, net | ||||||||
| Other non-current assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses and other current liabilities | ||||||||
| Operating lease liabilities, current | ||||||||
| Long-term debt, current | ||||||||
| Deferred revenue | ||||||||
| Total current liabilities | ||||||||
| Warrant liabilities | — | |||||||
| Other non-current liabilities | ||||||||
| Operating lease liabilities, non-current | ||||||||
| Deferred tax liabilities, net | ||||||||
| Long-term debt | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 22) | ||||||||
| Stockholders’ equity: | ||||||||
| Common Stock, $ | ||||||||
| Preferred Stock, $ | ||||||||
| Preferred A Stock, $ | ||||||||
| Additional paid-in capital (1) | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity attributable to Agrify | ||||||||
| Non-controlling interests | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
| (1) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
1
AGRIFY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
(Unaudited)
Three Months ended March 31, | ||||||||
2022 (As Restated) | 2021 | |||||||
| Revenue (including $ | $ | $ | ||||||
| Cost of goods sold | ||||||||
| Gross profit (loss) | ( | ) | ||||||
| General and administrative | ||||||||
| Research and development | ||||||||
| Selling and marketing | ||||||||
| Total operating expenses | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Interest income (expense), net | ( | ) | ||||||
| Change in fair value of warrant liabilities | ||||||||
| Gain on extinguishment of notes payable | ||||||||
| Other income, net | ||||||||
| Net income (loss) before income taxes | ( | ) | ||||||
| Income tax benefit | ( | ) | ||||||
| Net income (loss) | ( | ) | ||||||
| Income (loss) attributable to non-controlling interest | ( | ) | ||||||
| Net income (loss) attributable to Agrify Corporation | $ | $ | ( | ) | ||||
| Net income (loss) per share attributable to Common Stockholders – basic (1) | $ | $ | ( | ) | ||||
| Net income (loss) per share attributable to Common Stockholders – diluted (1) | $ | $ | ( | ) | ||||
| Weighted-average common shares outstanding – basic (1) | ||||||||
| Weighted-average common shares outstanding – diluted (1) | ||||||||
| (1) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
AGRIFY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except share data)
(Unaudited)
| Common Stock | Preferred
A Stock | Additional
Paid-In | Accumulated | Total Stockholders’ Equity attributable | Non- Controlling | Total Stockholders’ | ||||||||||||||||||||||||||||||
| Shares(1) | Amount(1) | Shares | Amount | Capital(1) | Deficit | to Agrify | Interests | Equity | ||||||||||||||||||||||||||||
| Balance at January 1, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||||||||||||||||||
| Beneficial conversion feature associated with amended Convertible Promissory Notes | — | |||||||||||||||||||||||||||||||||||
| Conversion of Convertible Notes | ||||||||||||||||||||||||||||||||||||
| Issuance of Common Stock – Initial Public Offering (“IPO”), net of fees | ||||||||||||||||||||||||||||||||||||
| Issuance of Common Stock – Secondary public offering, net of fees | ||||||||||||||||||||||||||||||||||||
| Conversion of Preferred A Stock | ( | ) | ||||||||||||||||||||||||||||||||||
| Exercise of options | ||||||||||||||||||||||||||||||||||||
| Exercise of warrants | — | |||||||||||||||||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Balance at March 31, 2021 | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||||||
Common Stock (As Restated) | Preferred A Stock (As Restated) |
Additional Capital (1) | Accumulated
Deficit | Total Stockholders’ Equity attributable to Agrify | Non- | Total
| ||||||||||||||||||||||||||||||
| Shares(1) | Amount(1) | Shares | Amount | (As Restated) | (As Restated) | (As Restated) | (As Restated) | (As Restated) | ||||||||||||||||||||||||||||
| Balance at January 1, 2022 | $ | — | $ | $ | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||||||||||||||||||
| Issuance of Common Stock and warrants in private placement | — | |||||||||||||||||||||||||||||||||||
| Acquisition of Lab Society | — | |||||||||||||||||||||||||||||||||||
| Exercise of options | — | |||||||||||||||||||||||||||||||||||
| Exercise of warrants | — | |||||||||||||||||||||||||||||||||||
| Net income | — | |||||||||||||||||||||||||||||||||||
| Balance at March 31, 2022, as restated | $ | — | $ | $ | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||||||||
| (1) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
AGRIFY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| Three Months ended March 31, | ||||||||
2022 (Restated) | 2021 | |||||||
| Cash flows from operating activities | ||||||||
| Net income (loss) attributable to Agrify Corporation | $ | $ | ( | ) | ||||
| Adjustments to reconcile net income (loss) attributable to Agrify Corporation to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Amortization of premium on investment securities | ||||||||
| Amortization of debt discount | ||||||||
| Amortization of issuance costs | — | |||||||
| Interest on investment securities | ( | ) | ||||||
| Deferred income taxes | ( | ) | ||||||
| Compensation in connection with the issuance of stock options | ||||||||
| Non-cash interest (income) expense | ( | ) | ||||||
| Change in fair value of warrant liabilities | ( | ) | ||||||
| Gain on extinguishment of notes payable, net | ( | ) | ||||||
| Early termination of lease | ||||||||
| Income (loss) attributable to non-controlling interests | ( | ) | ||||||
| Changes in operating assets and liabilities, net of acquisitions: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Inventory | ( | ) | ( | ) | ||||
| Prepaid expenses and other current assets | ( | ) | ( | ) | ||||
| Right of use assets, net | ( | ) | ||||||
| Accounts payable | ( | ) | ||||||
| Accrued expenses and other current liabilities | ( | ) | ||||||
| Deferred revenue, net | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities | ||||||||
| Purchases of property and equipment | ( | ) | ( | ) | ||||
| Purchase of securities | ( | ) | ||||||
| Proceeds from the sale of securities | ||||||||
| Issuance of loan receivable | ( | ) | ||||||
| Cash paid for business combination, net of cash acquired | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities | ||||||||
| Proceeds from issuance of debt and warrants in private placement, net | ||||||||
| Proceeds from issuance of Common Stock and warrants in private placement, net of fees | ||||||||
| Proceeds from IPO, net of fees | ||||||||
| Proceeds from Secondary public offering, net of fees | ||||||||
| Proceeds from exercise of options | ||||||||
| Proceeds from exercise of warrants | ||||||||
| Payments on other financing loans | ( | ) | ||||||
| Payments on insurance financing loan | ( | ) | ||||||
| Payments of financing leases | ( | ) | ( | ) | ||||
| Net cash provided by financing activities | ||||||||
| Net increase in cash, cash equivalents, and restricted cash | ||||||||
| Cash, cash equivalents, and restricted cash at the beginning of period | ||||||||
| Cash, cash equivalents, and restricted cash at the end of period | $ | $ | ||||||
| Cash, cash equivalents, and restricted cash at end of period | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Total cash, cash equivalents, and restricted cash at the end of period | $ | $ | ||||||
| Supplemental disclosures of cash flow information | ||||||||
| Conversion of Convertible Note to Common Stock | $ | |||||||
| Supplemental disclosures of non-cash flow information | ||||||||
| Initial fair value of warrants | $ | |||||||
| Financing of prepaid insurance | $ | |||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
AGRIFY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 — Nature of Business and Basis of Presentation
Description of Business
Agrify Corporation (“Agrify” or the “Company”) is a developer of proprietary precision hardware and software grow solutions for the commercial indoor agriculture industry and provides equipment and solutions for cultivation, extraction, post-processing, and testing for the cannabis and hemp industries. The Company was formed in the State of Nevada on June 6, 2016 as Agrinamics, Inc., and subsequently changed its name to Agrify Corporation. The Company is sometimes referred to herein by the words “we,” “us,” “our,” and similar terminology.
The Company has nine wholly-owned subsidiaries, which are collectively referred to as the “Subsidiaries”:
| ● | AGM Service Corp LLC (formerly AGM Service Corp Inc.); |
| ● | TriGrow Systems, LLC (“TriGrow”, which acted as the Company’s exclusive distributor and which was acquired in January 2020 as TriGrow Systems, Inc. and converted to TriGrow Systems, LLC in May 2020); |
| ● | Ariafy Finance, LLC; |
| ● | Agxiom, LLC; |
| ● | Harbor Mountain Holdings, LLC (“HMH”) (acquired in July 2020); |
| ● | Cascade Sciences, LLC (“Cascade”) (which was acquired by the Company on October 1, 2021); |
| ● | Precision Extraction NewCo, LLC (“Precision”) (which was a newly formed subsidiary in connection with October 1, 2021 acquisition of Mass2Media, LLC, d/b/a PX2 Holdings, LLC, d/b/a Precision Extraction Solutions and Cascade); and |
| ● | PurePressure, LLC (“PurePressure”) (which was acquired by the Company on December 31, 2021); and |
| ● | Lab Society NewCo, LLC (“Lab Society”) (which was a newly formed subsidiary in connection with February 1, 2022 acquisition of LS Holdings Corp). |
The Company also has ownership interests in the following companies:
| ● | Teejan Podoponics International LLC (“TPI”) (the Company has owned 50% of TPI since December 2018); |
| ● | Agrify-Valiant, LLC (“Agrify-Valiant”) (the Company owns 60% of Agrify-Valiant, which was formed in December 2019); and |
| ● | Agrify Brands, LLC (“Agrify Brands”) (formerly TriGrow Brands, LLC) (the Company owns 75% of Agrify Brands, which ownership position was created as part of the January 2020 acquisition of TriGrow). |
5
Reverse Stock Split
On
January 12, 2021,
On October 18, 2022, the Company effected a 1-for-10 reverse stock split of its Common Stock. All share and per share information has been retroactively adjusted to give effect to the reverse stock split for all periods presented unless otherwise indicated.
On July 5, 2023, the Company effected a 1-for-20 reverse stock split of its Common Stock, All share and per share information has been retroactively adjusted to give effect to the reverse stock split for all periods presented unless otherwise indicated.
No fractional shares of Common Stock were issued as a result of these reverse stock splits. Any fractional shares in connection with these reverse stock splits were rounded up to the nearest whole share and no stockholders received cash in lieu of fractional shares. The reverse stock splits had no impact on the number of shares of Common Stock that the Company is authorized to issue pursuant to its articles of incorporation or on the par value per share of the Common Stock. Proportional adjustments were made to the number of shares of Common Stock issuable upon exercise or conversion of the Company’s outstanding stock options and warrants, the exercise price or conversion price (as applicable) of the Company’s outstanding stock options and warrants, and the number of shares reserved for issuance under the Company’s equity incentive plan. All share and per share information included in this Quarterly Report on Form 10-Q has been retroactively adjusted to reflect the impact of these reverse stock splits.
Initial Public Offering and Secondary Public Offering
On
February 1, 2021, the Company closed its initial public offering, or (“IPO”), of
After
deducting underwriting discounts and commissions of $
Coronavirus (“COVID-19”) Pandemic
The spread of COVID-19 beginning in the first quarter of 2020 has caused significant volatility in U.S. markets. There is significant uncertainty around the breadth and duration of business disruptions related to COVID-19, as well as its impact on the U.S. economy. To date, there has not been a material impact on the Company’s business operations and financial performance. The extent of the impact of COVID-19 on the Company’s operational and financial performance, if any, will depend, in part, on the length and severity of these restrictions and on the Company’s ability to conduct business in the ordinary course.
6
The Paycheck Protection Program
In
May 2020, the Company received an unsecured Paycheck Protection Program Loan (“PPP Loan”) from the Bank of America pursuant
to the Paycheck Protection Program (the “PPP”) under the Coronavirus Aid, Relief, and Economic Security Act (“CARES
Act”), administered by the U.S. Small Business Administration (the “SBA”). The Company received total loan proceeds
of approximately $
Note 2 — Restatement of Current Period
The Company’s financial statements as of and for the three months ended March 31, 2022 have been restated due to the following errors:
Pipe Warrants and SPA Warrants Classification and Measurement
During the three months ended March 31, 2022 the Company entered into several debt and equity financing transactions including i) the issuance of common stock and warrants in a private placement on January 25, 2022 (the “PIPE Warrants”) and ii) the issuance of a note payable with associated warrants on March 14, 2022 (the “SPA Warrants”).
The Company determined that the PIPE Warrants and the SPA Warrants were incorrectly classified as equity and must be reclassified to liabilities measured at fair value upon issuance and remeasured to fair value at each reporting date. As a result of these errors:
| ● | Additional paid-in capital was overstated by $ |
| ● | Warrant liabilities was understated by the fair value of the PIPE Warrants and the SPA Warrants of $ |
| ● | Long-term debt and Long-term debt, current was overstated by $ |
| ● | Accumulated deficit as of March 31, 2022 was overstated by $ |
| ο | The change in fair value of warrant liabilities was understated by $ | |
| ο | Interest income, net was overstated by $ |
Debt Issuance Costs Classification
The Company incorrectly classified debt issuance costs as an asset rather than as a direct deduction from the carrying value of the associated debt liability as of March 31, 2022. As a result of this error:
| ● | Prepaid expenses and other current assets were understated by $ | |
| ● | Other non-current assets were overstated by $ |
The impact of these adjustments are shown below in the restated and reclassified condensed consolidated balance sheet, condensed consolidated statement of operations, condensed consolidated statement of cash flows, and condensed consolidated statement of stockholders’ equity as of and for the three months ended March 31, 2022.
7
| March 31, 2022 | ||||||||||||||||||||
| Adjustments | ||||||||||||||||||||
| Previously Reported | Warrants | Reverse Stock Split | Debt Issuance Costs | Restated | ||||||||||||||||
| Assets | ||||||||||||||||||||
| Current assets | ||||||||||||||||||||
| Cash and cash equivalents | $ | $ | ||||||||||||||||||
| Restricted cash | ||||||||||||||||||||
| Marketable securities | ||||||||||||||||||||
| Accounts receivable, net of allowance for doubtful accounts of $ | ||||||||||||||||||||
| Inventory, net of reserves of $ | ||||||||||||||||||||
| Prepaid and refundable taxes | ||||||||||||||||||||
| Prepaid expenses and other current assets | ||||||||||||||||||||
| Total current assets | ||||||||||||||||||||
| Non-Current Assets | ||||||||||||||||||||
| Loan receivable | ||||||||||||||||||||
| Property and equipment, net | ||||||||||||||||||||
| Right-of-use assets, net | ||||||||||||||||||||
| Goodwill | ||||||||||||||||||||
| Intangible assets, net | ||||||||||||||||||||
| Other non-current assets | ( | ) | ||||||||||||||||||
| Total Assets | $ | $ | ||||||||||||||||||
| Liabilities and stockholders’ equity | ||||||||||||||||||||
| Current liabilities | ||||||||||||||||||||
| Accounts payable | $ | $ | ||||||||||||||||||
| Accrued expenses and other current liabilities | ||||||||||||||||||||
| Operating lease liabilities, current | ||||||||||||||||||||
| Long-term debt, current | ( | ) | ||||||||||||||||||
| Deferred revenue | ||||||||||||||||||||
| Total current liabilities | ||||||||||||||||||||
| Non-current liabilities | ||||||||||||||||||||
| Warrant liabilities | ||||||||||||||||||||
| Other non-current liabilities | ||||||||||||||||||||
| Operating lease liabilities, non-current | ||||||||||||||||||||
| Deferred tax liabilities, net | ||||||||||||||||||||
| Long-term debt | ( | ) | ||||||||||||||||||
| Total liabilities | ||||||||||||||||||||
| Commitments and contingencies (Note 22) | ||||||||||||||||||||
| Stockholders’ equity | ||||||||||||||||||||
| Common Stock, $ | ( | ) | ||||||||||||||||||
| Preferred Stock, $ | ||||||||||||||||||||
| Preferred A Stock, $ | ||||||||||||||||||||
| Additional paid-in capital | ( | ) | ||||||||||||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||||||||||||||
| Total stockholders’ equity attributable to Agrify | ||||||||||||||||||||
| Non-controlling interests | ||||||||||||||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||||||||||||||
8
| Three Months ended March 31, 2022 | ||||||||||||||||
| Adjustment | ||||||||||||||||
| Previously Reported | Warrants | Reverse Stock Split | Restated | |||||||||||||
| Revenue (including $ | $ | $ | ||||||||||||||
| Cost of goods sold | ||||||||||||||||
| Gross profit | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Research and development | ||||||||||||||||
| Selling and marketing | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ||||||||||||
| Interest income, net | ( | ) | ||||||||||||||
| Change in fair value of warrant liabilities | ||||||||||||||||
| Gain on extinguishment of notes payable | ||||||||||||||||
| Other income, net | ||||||||||||||||
| Net (loss) income before income taxes | ( | ) | ||||||||||||||
| Income tax benefit | ( | ) | ( | ) | ||||||||||||
| Net (loss) income | ( | ) | ||||||||||||||
| Income attributable to non-controlling interest | ||||||||||||||||
| Net (loss) income attributable to Agrify Corporation | $ | ( | ) | $ | $ | |||||||||||
| Net (loss) income per share attributable to Common Stockholders – basic | $ | ( | ) | $ | $ | $ | ||||||||||
| Net (loss) income per share attributable to Common Stockholders -- diluted | $ | ( | ) | $ | $ | $ | ||||||||||
| Weighted-average common shares outstanding – basic | — | ( | ) | |||||||||||||
| Weighted-average common shares outstanding – diluted | — | ( | ) | |||||||||||||
9
| Three Months ended March 31, 2022 | ||||||||||||
| Previously | Adjustment | |||||||||||
| Cash flows from operating activities | Reported | Warrants | Restated | |||||||||
| Net income (loss) attributable to Agrify Corporation | $ | ( | ) | $ | ||||||||
| Adjustments to reconcile net loss (income) attributable to Agrify Corporation to net cash used in operating activities: | ||||||||||||
| Depreciation and amortization | ||||||||||||
| Amortization of premium on investment securities | ||||||||||||
| Amortization of debt discount | ||||||||||||
| Amortization of issuance costs | ||||||||||||
| Interest on investment securities | ( | ) | ( | ) | ||||||||
| Debt issuance costs | ( | ) | ||||||||||
| Deferred income taxes | ( | ) | ( | ) | ||||||||
| Compensation in connection with the issuance of stock options | ||||||||||||
| Non-cash interest (income) | ( | ) | ( | ) | ||||||||
| Change in fair value of warrant liabilities | ( | ) | ( | ) | ||||||||
| Gain on extinguishment of notes payable, net | ||||||||||||
| Early termination of lease | ||||||||||||
| Income attributable to non-controlling interests | ||||||||||||
| Changes in operating assets and liabilities, net of acquisitions: | ||||||||||||
| Accounts receivable | ( | ) | ( | ) | ||||||||
| Inventory | ( | ) | ( | ) | ||||||||
| Prepaid expenses and other current assets | ( | ) | ( | ) | ||||||||
| Right of use assets, net | ( | ) | ( | ) | ||||||||
| Other non-current assets | ( | ) | ||||||||||
| Accounts payable | ( | ) | ( | ) | ( | ) | ||||||
| Accrued expenses and other current liabilities | ( | ) | ( | ) | ||||||||
| Deferred (expense), net | ( | ) | ( | ) | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||||||
| Cash flows from investing activities | ||||||||||||
| Purchases of property and equipment | ( | ) | ( | ) | ||||||||
| Purchase of securities | ( | ) | ( | ) | ||||||||
| Proceeds from the sale of securities | ||||||||||||
| Issuance of loan receivable | ( | ) | ( | ) | ||||||||
| Cash paid for business combinations, net of cash acquired | ( | ) | ( | ) | ||||||||
| Net cash used in investing activities | ( | ) | — | ( | ) | |||||||
| Cash flows from financing activities | ||||||||||||
| Proceeds from issuance of debt and warrants in private placement, net | ( | ) | ||||||||||
| Proceeds from issuance of Common Stock and warrants in private placement, net of fees | — | |||||||||||
| Proceeds from IPO, net of fees | ||||||||||||
| Proceeds from Secondary public offering, net of fees | ||||||||||||
| Proceeds from exercise of options | ||||||||||||
| Proceeds from exercise of warrants | ||||||||||||
| Payments on other financing loans | ( | ) | ( | ) | ||||||||
| Payments on insurance financing loan | ( | ) | ( | ) | ||||||||
| Payments of financing leases | ( | ) | ( | ) | ||||||||
| Net cash provided by financing activities | ( | ) | ||||||||||
| Net increase in cash, cash equivalents, and restricted cash | ||||||||||||
| Cash, cash equivalents, and restricted cash at the beginning of period | ||||||||||||
| Cash, cash equivalents, and restricted cash at the end of period | $ | $ | ||||||||||
| Cash, cash equivalents, and restricted cash at end of period | ||||||||||||
| Cash and cash equivalents | $ | $ | ||||||||||
| Restricted cash | ||||||||||||
| Total cash, cash equivalents, and restricted cash at the end of period | $ | $ | ||||||||||
| Supplemental disclosures of non-cash flow information | ||||||||||||
| Initial fair value of warrants | $ | |||||||||||
| Financing of prepaid insurance | $ | |||||||||||
10
| Common
Stock (Previously Reported) | Common
Stock (Restated) | Additional Paid-In Capital (Previously Reported) | Additional Paid-In Capital (Restated) | Accumulated Deficit (Previously Reported) | Accumulated Deficit (Restated) | Total Stockholders’ Equity attributable to Agrify (Previously Reported) | Total Stockholders’ Equity attributable to Agrify (Restated) | Non-Controlling Interests (Previously Reported) | Non-Controlling Interests (Restated) | Total Stockholders’ Equity (Previously Reported) | Total Stockholders’ Equity (Restated) | |||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at January 1, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of Common Stock and warrants in private placement | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of debt and warrants in private placement | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Acquisition of Lab Society | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Exercise of options | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Exercise of warrants | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||
The related notes to the condensed and consolidated financial statements have also been restated to reflect the error corrections described above.
11
Note 3 — Summary of Significant Accounting Policies
Preparation of Condensed Consolidated Financial Statements
The condensed consolidated financial statements included herein have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), and on the same basis as the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 and filed with the SEC (“Form 10-K”), except for the recently adopted accounting pronouncements described below.
The condensed consolidated financial statements included herein reflect all normal and recurring adjustments which, in the opinion of management, are necessary for a fair presentation of the Company’s condensed consolidated statements of operations for the three months ended March 31, 2022 and 2021, condensed consolidated statements of stockholders’ equity for the three months ended March 31, 2022 and 2021, and the condensed consolidated cash flows for the three months ended March 31, 2022 and 2021.
The condensed consolidated balance sheet as of December 31, 2021 is derived from the audited consolidated financial statements presented in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. Certain information and disclosures normally included in annual consolidated financial statements have been omitted pursuant to the rules and regulations of the SEC. Because the condensed consolidated interim financial statements do not include all of the information and disclosures required by GAAP for a complete set of financial statements, they should be read in conjunction with the audited consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on March 31, 2022. The results for interim periods are not necessarily indicative of a full year’s results.
Basis of Presentation and Principles of Consolidation
Accounting for Wholly-Owned Subsidiaries
The accompanying condensed consolidated financial statements have been prepared in accordance with GAAP and include the accounts of Agrify Corporation and its wholly-owned subsidiaries, as described above in Note 1 – Nature of Business and Basis of Presentation, in accordance with the provisions required by the Consolidation Topic 810 of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”). The Company includes results of operations of acquired companies from the date of acquisition. All significant intercompany transactions and balances are eliminated.
Accounting for Less Than Wholly-Owned Subsidiaries
For the Company’s less than wholly-owned subsidiaries, which include TPI, Agrify-Valiant, and Agrify Brands, the Company first analyzes whether these entities are a variable interest entity (a “VIE”) in accordance with ASC Topic 810 Consolidation (“ASC 810”), and if so, whether the Company is the primary beneficiary requiring consolidation. A VIE is an entity that has (i) insufficient equity to permit it to finance its activities without additional subordinated financial support or (ii) equity holders that lack the characteristics of a controlling financial interest. The financial results of a VIE are consolidated by the primary beneficiary, which is the entity that has both the power to direct the activities that most significantly impact the entity’s economic performance and the obligation to absorb losses or the right to receive benefits from the entity that potentially could be significant to the entity. Variable interests in a VIE are contractual, ownership or other financial interests in a VIE that change with changes in the fair value of the VIE’s net assets. The Company continuously re-assesses (i) whether the joint venture is a VIE, and (ii) if the Company is the primary beneficiary of the VIE. If it is determined that the joint venture qualifies as a VIE and the Company is the primary beneficiary, the Company’s financial interest in the VIE is consolidated.
Based
on the Company’s analysis for these entities, the Company has determined that Agrify-Valiant, LLC and Agrify Brands, LLC are each
a VIE, and that the Company is the primary beneficiary. While the Company owns
12
Use of Estimates
The preparation of the Company’s condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of expenses during the reporting period. Significant estimates and assumptions reflected in these condensed consolidated financial statements include, but are not limited to, the accrual of expenses. The Company bases its estimates on historical experience, known trends and other market-specific, other relevant factors that it believes to be reasonable under the circumstances and management’s judgement. On an ongoing basis, management evaluates its estimates when there are changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual financial results could differ from those estimates.
Fiscal Year
The Company, and its Subsidiaries, fiscal year ends on December 31, each year.
Emerging Growth Company
The Company qualifies as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, which we refer to as the JOBS Act. As a result, the Company is permitted to, and intends to, rely on exemptions from certain disclosure requirements that are applicable to companies that are not emerging growth companies.
In addition, the JOBS Act provides that an “emerging growth company” can use the extended transition period for complying with new or revised accounting standards.
The Company will remain an “emerging growth company” until the earliest to occur of:
| ● | reporting $1.0 billion or more in annual gross revenues; |
| ● | the issuance, in a three-year period, of more than $1.0 billion in non-convertible debt; |
| ● | the end of the fiscal year in which the market value of Common Stock held by non-affiliates exceeds $700 million on the last business day of our second fiscal quarter; or |
| ● | December 31, 2026. |
Reclassifications
Certain amounts in the Company’s prior period financial statements have been reclassified to conform to the presentation of the current period financial statements. In this Form 10-Q, the Company has reclassified selling, general and administrative expenses to two separate line items in the accompanying condensed consolidated statement of operations as general and administrative expenses and selling and marketing expenses for the three months ended March 31, 2022 and 2021.
13
Cash, Cash Equivalents, and Restricted Cash
Cash and cash equivalents consist principally of cash and deposits with maturities of three months or less as of March 31, 2022 and December 31, 2021. All cash equivalents are carried at cost, which approximates fair value. Restricted cash represents cash required to be held as collateral for the Company’s senior secured promissory note (the “SPA Note”). Accordingly, these balances contain restrictions as to their availability and usage and are classified as restricted cash in the condensed consolidated balance sheets. Refer to Note 16 – Debt, included elsewhere in the notes to the condensed consolidated financial statements.
Cash deposits with financial institutions, including restricted cash and restricted marketable securities, generally exceed federally insured limits. Management believes minimal credit risk exists with respect to these financial institutions and the Company has not experienced any losses on such amounts. Balances held in a brokerage account are disclosed on the balance sheet as restricted cash.
Marketable Securities
The Company’s marketable security investments primarily include investments held in mutual funds, municipal bonds, and corporate bonds. The mutual funds are recorded at fair value in the accompanying condensed consolidated balance sheets as part of cash and cash equivalents. The municipal and corporate bonds are considered to be held-to-maturity securities and are recorded at amortized cost in the accompanying condensed consolidated balance sheets. The fair value of these investments were estimated using recently executed transactions and market price quotations. The Company considers current assets to be those investments which will mature within the next 12 months, including interest receivable on the long-term bonds.
Accounts Receivable, Net
Accounts receivable, net, primarily consists of amounts for goods and services that are billed and currently due from customers. Accounts receivable balances are presented net of an allowance for credit losses, which is an estimate of billed amounts that may not be collectible. In determining the amount of the allowance at each reporting date, management makes judgments about general economic conditions, historical write-off experience, and any specific risks identified in customer collection matters, including the aging of unpaid accounts receivable and changes in customer financial conditions. Accounts receivable balances are written off after all means of collection are exhausted and the potential for non-recovery is determined to be probable. Adjustments to the allowance for credit losses are recorded as general and administrative expenses in the condensed consolidated statements of operations.
Concentration of Credit Risk and Significant Customer
Financial
instruments that potentially subject the Company to a concentration of credit risk primarily consist of cash and accounts receivable.
The Company places its cash with financial institutions in the United States. The cash balances are insured by the FDIC up to $
The
Company has certain customers from whom revenue individually represented
14
Refer to the following tables below.
Revenue
| Three Months ended March 31, 2022 | Three Months ended March 31, 2021 | |||||||||||||||
| (In thousands) | Amount | % of Total Revenue | Amount | % of Total Revenue | ||||||||||||
| New England Innovation Academy (“NEIA”) – Related Party | $ | % | ||||||||||||||
| Customer C | $ | % | ||||||||||||||
| Customer D | $ | % | ||||||||||||||
| * |
Accounts Receivable, Net
| As of March 31, 2022 | As of December 31, 2021 | |||||||||||||||
| (In thousands) | Amount | % of Total Accounts Receivable | Amount | % of Total Accounts Receivable | ||||||||||||
| NEIA – Related Party | $ | % | $ | % | ||||||||||||
| Customer B | $ | % | $ | % | ||||||||||||
| Customer E | $ | % | ||||||||||||||
| * |
Inventories
The Company values all of its inventories, which consist primarily of significant raw material hardware components, at the lower of cost or net realizable value, with cost principally determined by the weighted-average cost method on a First-In, First-Out basis. Write-offs of potentially slow moving or damaged inventory are recorded through specific identification of obsolete or damaged material. The company takes physical inventory at least once annually at all inventory locations.
15
Property and Equipment
| Estimated Useful Life (Years) | ||||
| Computer and office equipment | ||||
| Furniture and fixtures | ||||
| Software | ||||
| Vehicles | ||||
| Research and development laboratory equipment | ||||
| Machinery and equipment | ||||
| Leased equipment at customer | ||||
| Trade show assets | ||||
| Leasehold improvements | ||||
The estimated useful lives of the Company’s property and equipment are periodically assessed to determine if changes are appropriate. The Company charges maintenance and repairs to expense as incurred. When the Company retires or disposes assets, the carrying cost of these assets and related accumulated depreciation or amortization are eliminated from the condensed consolidated balance sheet and any resulting gain or loss are included in the condensed consolidated statement of operations in the period of retirement or disposal. Costs for capital assets not yet placed into service are capitalized as construction-in-progress and depreciated once placed into service.
Goodwill
Goodwill is defined as the excess of cost over the fair value of assets acquired and liabilities assumed in a business combination. Goodwill is tested for impairment annually, and more frequently if events and circumstances indicate that the asset might be impaired. The Company has determined that it is a single reporting unit for the purpose of conducting the goodwill impairment assessment. A goodwill impairment charge is recorded if the amount by which the Company’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. Factors that could lead to a future impairment include material uncertainties such as a significant reduction in projected revenues, a deterioration of projected financial performance, future acquisitions and/or mergers, and/or a decline in the Company’s market value as a result of a significant decline in the Company’s stock price. Based upon the Company’s 2021 annual impairment testing analyses, including the consideration of reasonably likely adverse changes in assumptions described above, the Company determined that there are no goodwill impairments to date.
Intangible Assets
The Company initially records intangible assets at their estimated fair values and reviews these assets periodically for impairment. Identifiable intangible assets, which consist principally of acquired customer related acquired assets, acquired and/or developed technology, non-compete agreements, and trade names, are reported net of accumulated amortization, and are being amortized over their estimated useful lives at amortization rates that are proportional to each asset’s estimated economic benefit. The Company’s intangible assets are amortized on a straight-line basis over the estimated useful lives of the assets. The Company reviews the carrying value of these intangible assets annually, or more frequently if indicators of impairment are present.
16
| Trade names | ||
| Acquired developed technology | ||
| Non-compete agreements | ||
| Customer relationships | ||
| Capitalized website costs |
In performing the review of the recoverability of intangible assets, the Company considers several factors, including whether there have been significant changes in legal factors or the overall business climate that could affect the underlying value of an asset. The Company also considers whether there is an expectation that the asset will be sold or disposed of before the end of its remaining estimated useful life. If, as the result of examining any of these factors, the Company concludes that the carrying value of intangible asset exceeds its estimated fair value, the Company recognizes an impairment charge and reduces the carrying value of the asset to its estimated fair value.
Convertible Notes Payable
The Company evaluates its convertible instruments to determine if those contracts or embedded components of those contracts qualify as derivative financial instruments to be separately accounted for in accordance with ASC Topic 815 Derivatives and Hedging (“ASC815”). The accounting treatment of derivative financial instruments requires that the Company identify and record certain embedded conversion options (“ECOs”), certain variable-share settlement features, and any related freestanding instruments at their fair values as of the inception date of the agreement and at fair value as of each subsequent balance sheet date. Any change in fair value is recorded as non-operating, non-cash income or expense for each reporting period at each balance sheet date. The Company reassesses the classification of its derivative instruments at each balance sheet date. If the classification changes as a result of events during the period, the contract is reclassified as of the date of the event that caused the reclassification. Bifurcated embedded conversion options, variable-share settlement features and any related freestanding instruments are recorded as a discount to the host instrument which is amortized to interest expense over the life of the respective note using the effective interest method.
If the Company determines that an instrument is not a derivative liability, it then evaluates whether there is a beneficial conversion feature (“BCF”), by comparing the commitment date fair value to the effective current conversion price of the instrument. The Company records a BCF as 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.
Debt Issue Costs and Debt Discount
The Company may record debt issuance costs and/or debt discounts in connection with issuing of debt. The Company may cover these costs by paying cash or issuing or equity (such as warrants). These costs are amortized to interest expense over the expected life of the debt. If a conversion of the underlying debt occurs, a proportionate share of the unamortized amounts is immediately expensed.
Original Issue Discount
For certain convertible debt issued by the Company, it may provide the debt holder with an original issue discount. The Company would record the original issue discount to debt discount, reducing the face amount of the note, and is then amortized to interest expense over the life of the debt.
17
Distinguishing Liabilities from Equity
The Company relies on the guidance provided by ASC Topic 480, Distinguishing Liabilities from Equity and ASC 815-40, Derivatives and Hedging: Contracts in Entity’s Own Equity (“ASC 815-40”), to classify certain redeemable and/or convertible instruments. The Company first determines whether a financial instrument should be classified as a liability. The Company will determine the liability classification if the financial instrument is mandatorily redeemable, or if the financial instrument, other than outstanding shares, embodies a conditional obligation that the Company must or may settle by issuing a variable number of its equity shares.
Once the Company determines that a financial instrument should not be classified as a liability, the Company determines whether the financial instrument should be presented between the liability section and the equity section of the balance sheet (“temporary equity”). The Company will determine temporary equity classification if the redemption of the financial instrument is outside the control of the Company (i.e. at the option of the holder). Otherwise, the Company accounts for the financial instrument as permanent equity.
Initial Measurement
The Company records its financial instruments classified as liability, temporary equity or permanent equity at issuance at the fair value, or cash received.
Subsequent Measurement – Financial instruments classified as liabilities
The Company records the fair value of its financial instruments classified as liabilities at each subsequent measurement date. The changes in fair value of its financial instruments classified as liabilities are recorded as other income, net.
Leases
The Company determines at the inception of a right-of-use asset contract if such arrangement is or contains a lease. A contract is or contains a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The Company classifies leases at the lease commencement date as operating or finance leases and records a right-of-use asset and a lease liability on its condensed consolidated balance sheet for all leases with an initial lease term of greater than 12 months. A lease with an initial term of 12 months or less is not recorded on the balance sheet, but related payments are recognized as expense on a straight-line basis over the lease term.
The Company’s right-of-use asset contracts may contain both lease and non-lease components. Non-lease components may include maintenance, utilities, and other operating costs. The Company combines the lease and non-lease components of fixed costs in its lease arrangements as a single lease component. Variable costs, such as utilities or maintenance costs, are not included in the measurement of right-of-use assets and lease liabilities, but rather are expensed when the event determining the amount of variable consideration to be paid occurs.
Lease liabilities and their corresponding right-of-use assets are recorded based on the present value of future lease payments over the expected lease term. The Company determines the present value of future lease payments by using its estimated secured incremental borrowing rate for that lease term as the interest rate implicit in the lease is not readily determinable. The Company estimates its secured incremental borrowing rate for each lease based on the rate of interest that the Company would have to pay to borrow an amount equal to the lease payments on a collateralized basis over a similar term.
Certain of the Company’s right-of-use asset leases include options to extend or terminate the lease. The amounts determined for the Company’s right-of-use assets and lease liabilities generally do not assume that renewal options or early-termination provisions, if any, are exercised, unless it is reasonably certain that the Company will exercise such options.
18
Deferred Revenue
Deferred revenue includes amounts collected or billed in excess of revenue that it can recognize. The Company recognizes deferred revenue as revenue as the related performance obligation is satisfied. The Company records deferred revenue that will be recognized during the succeeding twelve-month period as a current liability on the condensed consolidated balance sheet.
Fair Value of Financial Instruments
The Company’s financial instruments consist of cash, accounts receivable, warrants, accounts payable and accrued expenses. The estimated fair value of the accounts receivable and accounts payable approximates their carrying value due to the short-term nature of these instruments.
Stock-Based Compensation
The Company measures all stock options and other stock-based awards granted to employees and directors based on the fair value on the date of the grant and recognizes compensation expense of those awards, net of estimated forfeitures, over the requisite service period, which is generally the vesting period of the respective award. Historically, the Company has issued stock options to employees, directors and consultants with only service-based vesting conditions and records the expense for these awards using the straight-line method.
The Company classifies stock-based compensation expense in its condensed consolidated statements of operations and comprehensive loss in the same manner in which the award’s recipient’s payroll costs are classified.
The Company estimates the fair value of each stock option grant on the date of grant using the Black-Scholes option-pricing model. Before the IPO, the Company was a private company and therefore lacks company-specific historical and implied volatility information. Therefore, it estimates its expected stock volatility based on the historical volatility of similar publicly-traded companies and expects to continue to do so until such time as it has adequate historical data regarding the volatility of its own traded stock price. The expected term of the Company’s stock options has been determined utilizing the “simplified” method for awards that qualify as “plain-vanilla” options. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. The expected dividend yield is based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future.
Business Combinations
The Company accounts for business acquisitions using the purchase method of accounting, in accordance with which assets acquired and liabilities assumed are recorded at their respective fair values at the acquisition date. The fair value of the consideration paid, including contingent consideration, is assigned to the assets acquired and liabilities assumed based on their respective fair values. Goodwill represents excess of the purchase price over the estimated fair values of the assets acquired and liabilities assumed.
The Company’s management exercises significant judgments in determining the fair value of assets acquired and liabilities assumed, as well as intangibles and their estimated useful lives. Fair value and useful life determinations are based on, among other factors, estimates of future expected cash flows, royalty cost savings and appropriate discount rates used in computing present values. These judgments may materially impact the estimates used in allocating acquisition date fair values to assets acquired and liabilities assumed, as well as the Company’s current and future operating results. Actual results may vary from these estimates which may result in adjustments to goodwill and acquisition date fair values of assets and liabilities during a measurement period or upon a final determination of asset and liability fair values, whichever occurs first. Adjustments to the fair value of assets and liabilities made after the end of the measurement period are recorded within the Company’s operating results.
For contingent consideration arrangements, the Company recognizes a liability at fair value as of the acquisition date with subsequent fair value adjustments recorded in operations. Additional information regarding the Company’s contingent consideration arrangements may be found in Note 6 – Fair Value Measures, included elsewhere in the notes to the condensed consolidated financial statements.
19
Revenue Recognition
Overview
The Company generates revenue from the following sources: (1) equipment sales, (2) providing services and (3) construction contracts.
In accordance with ASC 606 “Revenue Recognition”, the Company recognizes revenue from contracts with customers using a five-step model, which is described below:
| ● | identify the customer contract; |
| ● | identify performance obligations that are distinct; |
| ● | determine the transaction price; |
| ● | allocate the transaction price to the distinct performance obligations; and |
| ● | recognize revenue as the performance obligations are satisfied. |
Identify the customer contract
A customer contract is generally identified when there is approval and commitment from both the Company and its customer, the rights have been identified, payment terms are identified, the contract has commercial substance and collectability, and consideration is probable. Specifically, the Company obtains written/electronic signatures on contracts and a purchase order, if said purchase orders are issued in the normal course of business by the customer.
Identify performance obligations that are distinct
A performance obligation is a promise by the Company to provide a distinct good or service or a series of distinct goods or services. A good or service that is promised to a customer is distinct if the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer, and a company’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract.
Determine the transaction price
The transaction price is the amount of consideration to which the Company expects to be entitled in exchange for transferring goods or services to a customer, excluding sales taxes that are collected on behalf of government agencies.
Allocate the transaction price to distinct performance obligations
The transaction price is allocated to each performance obligation based on the relative standalone selling prices (“SSP”) of the goods or services being provided to the customer. The Company’s contracts typically contain multiple performance obligations, for which the Company accounts for individual performance obligations separately, if they are distinct. The standalone selling price reflects the price the Company would charge for a specific piece of equipment or service if it was sold separately in similar circumstances and to similar customers.
Recognize revenue as the performance obligations are satisfied
Revenue is recognized when, or as, performance obligations are satisfied by transferring control of a promised product or service to a customer.
20
Significant Judgments
The Company enters into contracts that may include various combinations of equipment, services and construction, which are generally capable of being distinct and accounted for as separate performance obligations. Contracts with customers often include promises to transfer multiple products and services to a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. Once the Company determines the performance obligations, it determines the transaction price, which includes estimating the amount of variable consideration to be included in the transaction price, if any. The Company then allocates the transaction price to each performance obligation in the contract based on the SSP. The corresponding revenue is recognized as the related performance obligations are satisfied.
Judgment is required to determine the SSP for each distinct performance obligation. The Company determines SSP based on the price at which the performance obligation is sold separately and the methods of estimating SSP under the guidance of ASC 606-10-32-33. If the SSP is not observable through past transactions, the Company estimates the SSP, taking into account available information such as market conditions, expected margins, and internally approved pricing guidelines related to the performance obligations. The Company licenses its software as a SaaS type subscription license, whereby the customer only has a right to access the software over a specified time period. The full value of the contract is recognized ratably over the contractual term of the SaaS subscription, adjusted monthly if tiered pricing is relevant. The Company typically satisfies its performance obligations for equipment sales when equipment is made available for shipment to the customer; for services sales as services are rendered to the customer and for construction contracts both as services are rendered and when contract is completed.
The Company utilizes the cost-plus margin method to determine the SSP for equipment and build-out services. This method is based on the cost of the services from third parties, plus a reasonable markup that the Company believes is reflective of a market-based reseller margin.
The Company determines the SSP for services in time and materials contracts by observable prices in standalone services arrangements.
The Company estimates variable consideration in the form of royalties, revenue share, monthly fees, and service credits at contract inception and updated at the end of each reporting period if additional information becomes available. Variable consideration is typically not subject to constraint. Changes to variable consideration were not material for the periods presented.
If a contract has payment terms that differ from the timing of revenue recognition, the Company will assess whether the transaction price for those contracts include a significant financing component. The Company has elected the practical expedient that permits an entity to not adjust for the effects of a significant financing component if the Company expects that at the contract inception, the period between when the entity transfers a promised good or service to a customer and when the customer pays for that good or service, will be one year or less. For those contracts in which the period exceeds the one-year threshold, this assessment, as well as the quantitative estimate of the financing component and its relative significance, requires judgment. Accordingly, the Company imputes interest on such contracts at an agreed upon interest rate and will present the financing components separately as financial income. For the three months ended March 31, 2022 and 2021, the Company did not have any such financial income.
Payment terms with customers typically require payment 30 days from the invoice date. The Company’s agreements with its customers do not provide for any refunds for services or products and therefore no specific reserve for such is maintained. In the infrequent instances where customers raise a concern over delivered products or services, the Company has endeavored to remedy the concern and all costs related to such matters have been insignificant in all periods presented.
21
The Company has elected to treat shipping and handling activities after the customer obtains control of the goods as a fulfillment cost and not as a promised good or service. Accordingly, the Company will accrue all fulfillment costs related to the shipping and handling of consumer goods at the time of shipment. The Company has payment terms with its customers of one year or less and has elected the practical expedient applicable to such contracts not to consider the time value of money. Sales, value add, and other taxes the Company collects concurrent with revenue-producing activities are excluded from revenue.
The Company receives payment from customers based on specified terms that are generally less than 30 days from the satisfaction of performance obligations. There are no contract assets related to performance under the contract. The difference in the opening and closing balances of the Company’s deferred revenue primarily results from the timing difference between the Company’s performance and the customer’s payment. The Company fulfills obligations under a contract with a customer by transferring products and services in exchange for consideration from the customer. Accounts receivables are recorded when the customer has been billed or the right to consideration is unconditional. The Company recognizes deferred revenue when consideration has been received or an amount of consideration is due from the customer, and the Company has a future obligation to transfer certain proprietary products.
In accordance with ASC 606-10-50-13, the Company is required to include disclosure on its remaining performance obligations as of the end of the current reporting period. Due to the nature of the Company’s contracts, these reporting requirements are not applicable. The majority of the Company’s remaining contracts meet certain exemptions as defined in ASC 606-10-50-14 through 606-10-50-14A, including (i) performance obligation is part of a contract that has an original expected duration of one year or less and (ii) the right to invoice practical expedient.
The Company generally provides a one-year warranty on its products for materials and workmanship but may provide multiple-year warranties as negotiated, and will pass on the warranties from its vendors, if any, which generally covers this one-year period. In accordance with ASC 450-20-25, the Company accrues for product warranties when the loss is probable and can be reasonably estimated. The reserve for warranty returns is included in accrued expenses and other current liabilities in the Company’s condensed consolidated balance sheets.
Research and Development Costs
The Company expenses research and development costs as incurred. Research and development expenses include payroll, employee benefits and other expenses associated with product development. The Company incurs research and development costs associated with the development and enhancement of both hardware and software products associated with its cultivation and extraction equipment, as well as its SaaS-based software offering, Agrify Insights software.
Capitalization of Internal Software Development Costs
The Company capitalizes certain software engineering efforts related to the continued development of Agrify Insights software under ASC 985-20. Costs incurred during the application development phase are only capitalized once technical feasibility has been established and the work performed will result in new or additional functionality. The types of costs capitalized during the application development phase include employee compensation, as well as consulting fees for third-party software developers working on these projects. Costs related to the research and development are expensed as incurred until technical feasibility is established as well as post-implementation activities. Internal-use software is amortized on a straight-line basis over the estimated useful life of the asset, which ranges from two to five years.
Shipping and Handling Charges
The Company incurs costs related to shipping and handling of its manufactured products. These costs are expensed as incurred as a component of cost of goods sold. Shipping and handling charges related to the receipt of raw materials are also incurred, which are recorded as a cost of the related inventory.
Equity Method Investments
Investments
in affiliates which are
22
An
assessment of whether or not the Company (as a holder of
The
carrying value of the Company’s investment in TPI was $
Income Taxes
The Company accounts for income taxes pursuant to the provisions of ASC Topic 740, “Income Taxes,” which requires, among other things, an asset and liability approach to calculating deferred income taxes. The asset and liability approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. A valuation allowance is provided to offset any net deferred tax assets for which management believes it is more likely than not that the net deferred asset will not be realized.
The Company follows the provisions of ASC 740-10-25-5, “Basic Recognition Threshold.” When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. In accordance with the guidance of ASC 740-10-25-6, the benefit of a tax position is recognized in the condensed consolidated financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above should be reflected as a liability for unrecognized tax benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. The Company believes its tax positions are all highly certain of being upheld upon examination. As such, the Company has not recorded a liability for unrecognized tax benefits. As of March 31, 2022, tax years 2016 through 2021 remain open for IRS audit. The Company has received no notice of audit from the IRS for any of the open tax years.
The Company recognizes the benefit of a tax position when it is effectively settled. ASC 740-10-25-10, “Basic Recognition Threshold” provides guidance on how an entity should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits. ASC 740-10-25-10 clarifies that a tax position can be effectively settled upon the completion of an examination by a taxing authority. For tax positions considered effectively settled, the Company recognizes the full amount of the tax benefit.
Net Income (Loss) Per Share
The Company presents basic and diluted net income (loss) per share attributable to Common Stockholders in conformity with the two-class method required for participating securities. We compute basic income (loss) per share by dividing net income (loss) available to Common Stockholders by the weighted-average number of common shares outstanding. Net income (loss) available to Common Stockholders represents net income (loss) attributable to Common Stockholders reduced by the allocation of earnings to participating securities. Diluted income per share adjusts basic income per share for the potentially dilutive impact of stock options and warrants. For periods during which the Company recorded a net loss, diluted net loss per share is equal to basic net loss per share because the effect of dilutive securities outstanding is anti-dilutive.
Net income (loss) per share calculations for all periods have been adjusted to reflect the Reverse Stock Split effected on January 12, 2021. Net income (loss) per share was calculated based on the weighted-average number of Common Stock outstanding.
23
Note 4 — Recent Accounting Pronouncements
Recently Adopted Accounting Pronouncements
In August 2020, the FASB issued Accounting Standards Update (“ASU”) No. 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The amendments in ASU No. 2020-06 simplify the complexity associated with applying U.S. GAAP for certain financial instruments with characteristics of liabilities and equity. More specifically, the amendments focus on the guidance for convertible instruments and derivative scope exceptions for contracts in an entity’s own equity. ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. The adoption of this new accounting guidance had no impact on the Company’s consolidated financial position.
Pending Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326), which introduces a new methodology for accounting for credit losses on financial instruments, including available-for-sale debt securities and accounts receivable. The guidance establishes a new “expected loss model” that requires entities to estimate current expected credit losses on financial instruments by using all practical and relevant information. Any expected credit losses are to be reflected as allowances rather than reductions in the amortized cost of available-for-sale debt securities. ASU 2016-13 is effective in the first quarter of fiscal 2024. The Company is currently evaluating the potential impact of this adoption on its condensed consolidated financial statements and related disclosures.
In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 606): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires that an entity recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606 as if it had originated the contracts. Generally, this should result in an acquirer recognizing and measuring the acquired contract assets and contract liabilities consistent with how they were recognized and measured in the acquiree’s financial statements, if the acquiree prepared financial statements in accordance with U.S. GAAP. The amendment in this update is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The guidance should be applied prospectively to business combinations occurring on or after the effective date of the amendment in this update. The Company is currently evaluating the potential impact of this adoption on its condensed consolidated financial statements and related disclosures.
The Company does not believe that any other ASU issued but not yet effective, if adopted, will have a material effect on the Company’s future financial statements.
Note 5 — Revenue and Deferred Revenue
Revenue
During the three months ended March 31, 2022 and 2021, the Company generated revenue from the following sources: (1) equipment sales, (2) services sales and (3) construction contracts.
The Company sells its equipment and services to customers under a combination of a contract and purchase order. Equipment revenue includes sales from proprietary products designed and engineered by the Company such as Agrify Vertical Farming Units (“VFUs”), container farms, integrated grow racks, and LED grow lights, and non-proprietary products designed, engineered, and manufactured by third parties such as air cleaning systems and pesticide-free surface protection.
24
Construction contracts normally provide for payment upon completion of specified work or units of work as identified in the contract. Although there is considerable variation in the terms of these contracts, they are primarily structured as time-and-material contracts. The Company enters into time-and-materials contracts under which the Company is paid for labor and equipment at negotiated hourly billing rates and other expenses, including materials, as incurred at rates agreed to in the contract. The Company uses three main sub-contractors to execute the construction contracts.
Disaggregation
of Revenue —
| Three Months ended March 31, | ||||||||
| (In thousands) | 2022 | 2021 | ||||||
| Transferred at a point in time | $ | $ | ||||||
| Transferred over time | ||||||||
| Total revenue | $ | $ | ||||||
In accordance with ASC 606-10-50-13, the Company is required to include disclosure on its remaining performance obligations as of the end of the current reporting period. Due to the nature of the Company’s contracts, these reporting requirements are not applicable, because the majority of the Company’s remaining contracts meet certain exemptions as defined in ASC 606-10-50-14 through 606-10-50-14A, including (i) performance obligation is part of a contract that has an original expected duration of one year or less and (ii) the right to invoice practical expedient.
The
Company generally provides a one-year warranty on its products for materials and workmanship but may provide multiple year warranties
as negotiated, and generally transfers to its customers the warranties it receives from its vendors, if any, which generally cover this
one-year period. In accordance with ASC 450-20-25, the Company accrues for product warranties when the loss is probable and can be reasonably
estimated. The Company maintains a reserve for warranty returns of $
Deferred Revenue
| (In thousands) | Three Months ended March 31, 2022 | Year ended December 31, 2021 | ||||||
| Deferred revenue – beginning of period | $ | $ | ||||||
| Additions | ||||||||
| Interest income on deferred revenue | ||||||||
| Recognized | ( | ) | ( | ) | ||||
| Deferred revenue – end of period | $ | $ | ||||||
Deferred revenue balances primarily consist of customer deposits on our cultivation and extraction solutions equipment. As of March 31, 2022 and December 31, 2021, all of the Company’s deferred revenue balances were reported as current liabilities in our accompanying condensed consolidated balance sheets.
25
Note 6 — Fair Value Measures
Fair Values of Assets and Liabilities
In accordance with ASC Topic 820 “Fair Value Measurement”, the Company measures fair value at the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining fair value, the assumptions that market participants would use in pricing an asset or liability (the inputs) are based on a tiered fair value hierarchy consisting of three levels, as follows:
| Level 1: | Observable inputs such as quoted prices for identical assets or liabilities in active markets. | |
| Level 2: | Other inputs that are observable directly or indirectly, such as quoted prices for similar instruments in active markets or for similar markets that are not active. | |
| Level 3: | Unobservable inputs for which there is little or no market data which require the Company to develop its own assumptions about how market participants would price the asset or liability. |
Valuation techniques for assets and liabilities include methodologies such as the market approach, the income approach or the cost approach, and may use unobservable inputs such as projections, estimates and management’s interpretation of current market data. These unobservable inputs are only utilized to the extent that observable inputs are not available or cost-effective to obtain.
| March 31, 2022 | December 31, 2021 | |||||||||||||||||||||||||||||||
| Fair Value Measurements Using Input Types | Fair Value Measurements Using Input Types | |||||||||||||||||||||||||||||||
| (In thousands) | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||||
| Assets: | ||||||||||||||||||||||||||||||||
| Mutual funds (included in cash and cash equivalents) | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Municipal bonds | ||||||||||||||||||||||||||||||||
| Corporate bonds | ||||||||||||||||||||||||||||||||
| Total assets | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Liabilities: | ||||||||||||||||||||||||||||||||
| Contingent consideration | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Warrant liabilities | ||||||||||||||||||||||||||||||||
| Total liabilities | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
26
Fair Value of Financial Instruments
The Company has certain financial instruments which consist of cash and cash equivalents, marketable securities, contingent consideration, and warrant liabilities. Fair value information for each of these instruments is as follows:
| ● | Cash and cash equivalents, accounts receivable, accounts payable and deferred revenue liabilities fair values approximate their carrying values, due to the expected duration of these instruments. |
| ● | Marketable securities classified as current held-to-maturity securities are recorded at amortized cost, which at March 31, 2022, approximated fair value. |
| ● | The Company’s deferred consideration was recorded in connection with acquisitions during the three months ended March 31, 2022 and fiscal 2021 using an estimated fair value discount at the time of the transaction. As of March 31, 2022 and December 31, 2021, the carrying value of the deferred consideration approximated fair value, respectively.
| |
| ● | Warrant liabilities were recorded in connection with the issuance of warrants to purchase the Company’s common stock during the three months ended March 31, 2022. As of March 31, 2022, the warrant liabilities were recorded at fair value. |
Marketable Securities
As of March 31, 2022, the Company held investments in mutual funds, municipal bonds and corporate bonds. The Company records mutual funds at fair value in the accompanying condensed consolidated balance sheet as part of cash and cash equivalents. The municipal and corporate bonds are considered held-to-maturity securities and are recorded at amortized cost in the accompanying condensed consolidated balance sheet. The fair values of these investments were estimated using recently executed transactions and market price quotations. The Company considers current assets those investments which will mature within the next 12 months including, interest receivable on the long-term bonds.
| (In thousands) | March 31, 2022 | December 31, 2021 | ||||||
| Current marketable securities: | ||||||||
| Municipal bonds | $ | $ | ||||||
| Corporate bonds | ||||||||
| $ | $ | |||||||
| (In thousands) | Amortized cost | Unrealized loss | Estimated fair value | |||||||||
| Current marketable securities: | ||||||||||||
| Municipal bonds | $ | $ | ( | ) | $ | |||||||
| Corporate bonds | ( | ) | ||||||||||
| $ | $ | ( | ) | $ | ||||||||
27
Contingent Consideration
The Company has classified its net liability for contingent earn-out considerations to the sellers relating to one acquisition completed during the three months ended March 31, 2022, and two acquisitions completed during fiscal 2021. The fair value for the contingent consideration associated with these acquisitions is within Level 3 of the fair value hierarchy because the associated fair value is determined using significant unobservable inputs, which included the key assumptions to model future revenue, costs of goods sold and operating expense projections. A description of the Company’s acquisitions completed during the three months ended March 31, 2022 and fiscal 2021 are included within Note 15 – Business Combinations, included elsewhere in the notes to the condensed consolidated financial statements.
The
contingent earn-out payments to the sellers for each acquisition are based on the achievement of certain revenue thresholds.
| (In thousands) | Three Months ended March 31, 2022 | Year ended December 31, 2021 | ||||||
| Contingent consideration – beginning of period | $ | $ | ||||||
| Accrued contingent consideration | ||||||||
| Change in estimated fair value | ||||||||
| Contingent consideration – end of period | $ | $ | ||||||
The Company included contingent consideration within accrued expense and other current liabilities in its condensed consolidated balance sheets as of March 31, 2022 and December 31, 2021, respectively.
Warrant Liabilities
In
January 2022, the Company issued warrants to purchase up to an aggregate of
In
March, 2022, the Company issued warrants to purchase up to an aggregate of
| PIPE | SPA | |||||||
| Warrants | Warrants | |||||||
| Stock price | $ | $ | ||||||
| Exercise price | $ | $ | ||||||
| Expected term (in years) | ||||||||
| Annualized volatility | % | % | ||||||
| Annual rate of quarterly dividends | % | % | ||||||
| Discount rate -bond equivalent yield | % | % | ||||||
28
The
fair value of the PIPE Warrants and the SPA Warrants were remeasured and determined to be $
| PIPE | SPA | |||||||
| Warrants | Warrants | |||||||
| Stock price | $ | $ | ||||||
| Exercise price | $ | $ | ||||||
| Expected term (in years) | ||||||||
| Annualized volatility | % | % | ||||||
| Annual rate of quarterly dividends | % | % | ||||||
| Discount rate -bond equivalent yield | % | % | ||||||
The following table sets forth a summary of the changes in the fair value of the Level 3 warrant liabilities for the three months ended March 31, 2022:
| (In thousands) | Three Months ended March 31, 2022 | |||
| Warrant liabilities – beginning of period | $ | |||
| Initial fair value of warrant liabilities | ||||
| Change in estimated fair value | ( | ) | ||
| Warrant liabilities – end of period | $ | |||
Note 7 — Loan Receivable
A portion of the capital raised from the Company’s IPO has been allocated to launch Agrify’s total turn-key solution (“TTK Solution”) program. The TTK Solution is industry’s first end-to-end solution that provides access to capital for construction costs, equipment lease(s) to VFUs and other related operating equipment, subscription to the Company’s Agrify Insights software, and business consultation services, which will enable the Company’s customers to go to market faster and better.
The
Company’s initial allowable investment in the TTK Solution engagements is currently capped at $
The
loan agreements entered into with customers receiving the Agrify TTK Solution generally provide for loans ranging from approximately
$
29
| (In thousands) | March 31, 2022 | December 31, 2021 | ||||||
| Company A – Agrify TTK Solution | $ | $ | ||||||
| Greenstone Holdings – TTK Solution – Related Party | ||||||||
| Company C – Agrify TTK Solution | ||||||||
| Company D – Agrify TTK Solution | ||||||||
| Company E – Agrify TTK Solution | ||||||||
| Company F – Non-TTK Solution (1) | ||||||||
| Other – Non-TTK Solutions | ||||||||
| Total loan receivable | $ | $ | ||||||
| (1) |
The
Company analyzed whether any of the above customers are a VIE in accordance with ASC 810 and if so, whether the Company is the primary
beneficiary requiring consolidation. Based on the Company’s analysis, the Company has determined that Greenstone Holdings is a
VIE. As of March 31, 2022, two of the Company’s employees own approximately
Note 8 — Accounts Receivable
| (In thousands) | March 31, 2022 | December 31, 2021 | ||||||
| Accounts receivable, gross | $ | $ | ||||||
| Less allowance for doubtful accounts | ( | ) | ( | ) | ||||
| Accounts receivable, net | $ | $ | ||||||
NEIA,
a related party, accounted for $
| (In thousands) | Three Months ended March 31, 2022 | Year ended December 31, 2021 | ||||||
| Allowance for doubtful accounts - beginning of period | $ | $ | ||||||
| Provision for doubtful accounts | ||||||||
| Other adjustments | ||||||||
| Allowance for doubtful accounts - end of period | $ | $ | ||||||
Bad debt expense was for both the three months ended March 31, 2022 and March 31, 2021.
30
Note 9 — Inventory
Inventories are stated at the lower of cost or net realizable value, with cost principally determined by the weighted-average cost method on a First-In, First-Out basis. Such costs include the acquisition cost for raw materials and operating supplies. The Company’s standard payment terms with suppliers may require making payments in advance of delivery of the Company’s products. The Company’s prepaid inventory is a short-term, non-interest-bearing asset that is applied to the purchase of products once they are delivered.
| (In thousands) | March 31, 2022 | December 31, 2021 | ||||||
| Raw materials | $ | $ | ||||||
| Prepaid inventory | ||||||||
| Finished goods | ||||||||
| Inventory, gross | ||||||||
| Inventory reserves | ( | ) | ( | ) | ||||
| Total inventory, net | $ | $ | ||||||
Inventory Reserves
The Company establishes an inventory reserve for obsolete, slow moving, and defective inventory. The Company calculates inventory reserves for obsolete, slow moving, or defective items as the difference between the cost of inventory and its estimated net realizable value. The reserves are based upon management’s expected method of disposition.
| (In thousands) | Three Months ended March 31, 2022 | Year ended December 31, 2021 | ||||||
| Inventory reserves – beginning of period | $ | $ | ||||||
| Increase in inventory reserves | ||||||||
| Inventory write-offs | ||||||||
| Inventory reserves – end of period | $ | $ | ||||||
31
Note 10 — Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following as of March 31, 2022 and December 31, 2021:
| March 31, | December 31, | |||||||
| (In thousands) | 2022 | 2021 | ||||||
| Prepaid insurance | $ | $ | ||||||
| Prepaid software | ||||||||
| Prepaid expenses, other | ||||||||
| Deferred costs | ||||||||
| Other note receivables (1) | ||||||||
| Other receivables, other | ||||||||
| Total prepaid expenses and other current assets | $ | $ | ||||||
| (1) |
Note 11 — Property and Equipment, Net
| (In thousands) | March 31, 2022 | December 31, 2021 | ||||||
| Computer and office equipment | $ | $ | ||||||
| Furniture and fixtures | ||||||||
| Leasehold improvements | ||||||||
| Machinery and equipment | ||||||||
| Software | ||||||||
| Vehicles | ||||||||
| Research and development laboratory equipment | ||||||||
| Leased equipment at customer | ||||||||
| Trade show assets | ||||||||
| Total property and equipment, gross | ||||||||
| Accumulated depreciation | ( | ) | ( | ) | ||||
| Construction in progress | ||||||||
| Total property and equipment, net | $ | $ | ||||||
Depreciation
expense for the three months ended March 31, 2022 and 2021 was $
32
Note 12 — Intangible Assets, Net and Goodwill
The Company records intangible assets initially at fair value and tests these values periodically for impairment. Goodwill represents the excess of the purchase price over the fair value of identifiable tangible and intangible assets acquired and liabilities assumed in a business combination and is tested at least annually for impairment. The Company performs an impairment test of goodwill during the fourth quarter of each year or sooner if indicators of potential impairment arise. There were no such indicators in the three months ended March 31, 2022.
| Intangible Assets, Gross | Accumulated Amortization | Intangible Assets, Net | ||||||||||||||||||||||||||||||
| (In thousands) | January 1, 2022 | Additions and Retirements, net | March 31, 2022 | January 1, 2022 | Expense and Retirements, net | March 31, 2022 | January 1, 2022 | March 31, 2022 | ||||||||||||||||||||||||
| Trade names | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||||||||||||
| Customer Relationships | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Acquired developed Technology | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Non-compete | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Capitalized website costs | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||||||||||||
Intangible assets, net as of December 31, 2021 was as follows:
| Intangible Assets, Gross | Accumulated Amortization | Intangible Assets, Net | ||||||||||||||||||||||||||||||
| (In thousands) | January 1, 2021 | Additions and Retirements, net | December 31, 2021 | January 1, 2021 | Expense and Retirements, net | December 31, 2021 | January 1, 2021 | December 31, 2021 | ||||||||||||||||||||||||
| Trade names | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||||||||||||
| Customer Relationships | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Acquired developed Technology | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Non-compete | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Capitalized website costs | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||||||||||||
Amortization
expense recorded in general and administrative in the condensed consolidated statements of operations were $
33
| Years ending December 31 (In thousands), | Amount | |||
| Remaining 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 and thereafter | ||||
| Total | $ | |||
| (In thousands) | Three Months ended March 31, 2022 | Year ended December 31, 2021 | ||||||
| Goodwill - beginning of period | $ | $ | ||||||
| Goodwill acquired during period | ||||||||
| Goodwill purchase accounting adjustment | ||||||||
| Goodwill - end of period | $ | $ | ||||||
Note 13 — Other Non-Current Assets
| March 31, | December 31, | |||||||
| (In thousands) | 2022 | 2021 | ||||||
| Long-term deferred commissions expense | $ | $ | ||||||
| Security deposits | ||||||||
| Total other non-current assets | $ | $ | ||||||
Note 14 — Accrued Expenses and Other Current Liabilities
| (In thousands) | March 31, 2022 | December 31, 2021 | ||||||
| Accrued acquisition liability (1) | $ | $ | ||||||
| Sales tax payable (2) | ||||||||
| Accrued construction costs | ||||||||
| Compensation related fees | ||||||||
| Accrued professional fees | ||||||||
| Accrued warranty expenses | ||||||||
| Accrued consulting fees | ||||||||
| Accrued inventory purchases | ||||||||
| Financing lease liabilities | ||||||||
| Accrued non-income taxes | ||||||||
| Total accrued expenses and other current liabilities | $ | $ | ||||||
| (1) |
| (2) |
34
Note 15 — Business Combination
Acquisition of Lab Society
On February 1, 2022, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Lab Society, Lab Society NewCo, LLC, a newly-formed wholly-owned subsidiary of the Company (“Merger Sub”), Michael S. Maibach Jr., as the Owner Representative thereunder, and each of the shareholders of Lab Society (collectively, the “Owners”), pursuant to which the Company agreed to acquire Lab Society. Concurrently with the execution of the Merger Agreement, the Company consummated the merger of Lab Society with and into Merger Sub, with Merger Sub surviving such merger as a wholly-owned subsidiary of the Company (the “Lab Society Acquisition”).
The
Company withheld
The
Merger Agreement includes customary post-closing adjustments, representations and warranties and covenants of the parties.
Transaction
and related costs, consisting primarily of professional fees, directly related to the acquisition, totaled approximately $
The Company has prepared purchase price allocations for the business combination with Lab Society on a preliminary basis. Changes to those allocations may occur as additional information becomes available during the respective measurement period (up to one year from the acquisition date). Fair values still under review as of March 31, 2022 include values assigned to identifiable intangible assets and goodwill.
35
| (In thousands) | ||||
| Purchase price consideration: | ||||
| Estimated closing proceeds | $ | |||
| Transaction expenses | ||||
| Closing buyer shares | ||||
| Holdback buyer shares | ||||
| Earn-out consideration | ||||
| Estimated working capital adjustment | ( | ) | ||
| Fair value of total consideration transferred | ||||
| Total purchase price, net of cash acquired | $ | |||
| Fair value allocation of purchase price: | ||||
| Cash and cash equivalents | $ | |||
| Accounts receivable | ||||
| Inventory | ||||
| Prepaid expenses and other current receivables | ||||
| Right of use assets, net | ||||
| Property and equipment, net | ||||
| Prepaid and refundable taxes | ||||
| Accounts payable, accrued expenses, and other current liabilities | ( | ) | ||
| Deferred revenue | ( | ) | ||
| Deferred tax liability | ( | ) | ||
| Finance lease liabilities, current | ( | ) | ||
| Finance lease liabilities, noncurrent | ( | ) | ||
| Operating lease liabilities, current | ( | ) | ||
| Operating lease liabilities, noncurrent | ( | |||