Agrify Corp
For the period ended Sep 30, 2024. Filed Nov 14, 2024.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Sep 30, 2024 · Filed Nov 14, 2024
RYM$15.84-2.5%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-06-30; filed 2024-08-14.
0001213900-24-069081
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSCurrent report: 10-Q
Period ended 2024-09-30; filed 2024-11-14.
0001213900-24-098443
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 133 previous paragraphs and 155 current paragraphs.
76 unchanged; 43 reworded; 36 added; 14 removed; 0 previous and 0 current paragraphs rearranged.
Tables are not compared: 13 previous and 16 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (36)
Current report
Business Developments
Current report
Nasdaq Compliance
Current report
Debt Modification; Warrant Amendments
Current report
On May 21, 2024, we and CP Acquisitions entered into an amendment to the Convertible Note (the “Consolidated Note Amendment”), pursuant to which CP Acquisitions may elect, in lieu of shares of Common Stock issuable upon conversion of the Convertible Note, to instead receive Pre-Funded Warrants. The conversion price applicable to the Pre-Funded Warrants will remain unchanged at $21.90. Immediately following the execution of the Consolidated Note Amendment, CP Acquisitions elected to convert $11.5 million of outstanding principal into a Pre-Funded Warrant exercisable at issuance for up to 525,114shares of Common Stock having a fair value of approximately $2.9 million (the “CP Warrant Conversion”).
Current report
On May 21, 2024, we and GIC Acquisition, LLC (“GIC”), the holder of an unsecured promissory note (the “GIC Note”), amended and restated the GIC Note (the “Restated GIC Note”) to increase the aggregate principal amount to approximately $2.29 million, extend the maturity date to December 31, 2025, and provide that the Restated Junior Note may be converted into Common Stock of the Company or, at GIC’s election, Pre-Funded Warrants, in each case at a conversion price of $4.65. Immediately following the execution of the Restated GIC Note, GIC elected to convert all of the outstanding principal under the Restated GIC Note into a Pre-Funded Warrant exercisable at issuance for up to 492,204 shares of Common Stock having a fair value of approximately $2.7 million (the “GIC Warrant Conversion”, and, collectively with the CP Warrant Conversion, the “Related Party Warrant Conversions”).
Current report
On June 30, 2024, we executed an amendment to the Pre-Funded Warrants, pursuant to which we revised certain provisions of the Pre-Funded Warrants to (i) remove the adjustment to the exercise price of the Pre-Funded Warrants when there is a bona fide equity financing with the primary purpose of raising capital (the “Adjustment Provisions”) and (ii) increase the threshold for a change of control from 50% to greater than 50%. On August 12, 2024, our stockholders approved a proposal to amend the Pre-Funded Warrants to add the Adjustment Provisions at a future date. Pursuant to that approval, on August 28, 2024, we entered into amendments to the Pre-Funded Warrants to insert the Adjustment Provisions. As a result of the warrant amendments and the subsequent issuance of 189,645 shares of Common Stock to Ionic Ventures, LLC (“Ionic”) at an effective purchase price of approximately $2.109 per share of Common Stock, the number of shares of Common Stock underlying the Pre-Funded Warrant held by CP Acquisitions was adjusted to 5,452,288 and the number of shares of Common Stock underlying the Pre-Funded Warrant held by GIC was adjusted to 1,085,122. On August 30, 2024, CP Acquisitions partially exercised its Pre-Funded Warrant and entities affiliated with Mr. Chang and Ms. Chan received an aggregate of 383,127 shares of Common Stock upon the exercise. On September 27, 2024, we further amended the Pre-Funded Warrants to remove the Adjustment Provisions from each warrant and (ii) preventing the holders from any additional exercise of either of the Pre-Funded Warrants at any time between September 27, 2024 and October 9, 2024.
Current report
Change in Accounting Firm
Current report
On June 20, 2024 after an evaluation process, the audit committee of our Board (the “Audit Committee”) dismissed Marcum LLP as our independent registered public accounting firm and appointed MATSUURA (“Matsuura”) as our independent registered public accounting firm for the fiscal year ending December 31, 2024, in each case effective as of June 25, 2024. On June 30, 2024, the audit practice of Matsuura was combined in a transaction pursuant to which Matsuura merged its operations with GuzmanGray, a professional corporation (“GuzmanGray”). On July 19, 2024, Matsuura resigned as our auditors and the Audit Committee appointed GuzmanGray as our independent registered public accounting firm effective as of the Effective Date.
Current report
Equity Line of Credit Facility
Current report
On August 28, 2024, we entered into the Purchase Agreement and a registration rights agreement with Ionic pursuant to which Ionic committed to purchase up to an aggregate of $15.0 million of our Common Stock, subject to certain limitations, from time to time and at our sole discretion over the 36-month term of the Purchase Agreement.
Current report
From and after the date the registration statement relating to the resale of the shares sold to Ionic is declared effective, we may from time to time on any business day, by written notice delivered by us to Ionic, direct Ionic to purchase between $250,000 and $750,000 of shares of Common Stock on such business day, at a purchase price per share that will be equal to 93% (or 80% if the Common Stock is not then trading on the Nasdaq Capital Market) of the lowest daily VWAP over a specified measurement period beginning after the delivery of the purchase notice, as described further in the Purchase Agreement (each, a “Regular Purchase”). The Purchase Agreement also permitted us to deliver an exemption purchase notice for $400,000 on the date of signing, with the shares so purchased to be delivered following the Commencement Date, and we delivered an exemption purchase notice for $400,000 for the purchase by Ionic of 189,645 shares of Common Stock. We will control the timing and amount of any sales of Common Stock to Ionic pursuant to the Purchase Agreement. Ionic has no right to require us to sell any shares of Common Stock to Ionic, but Ionic is obligated to make purchases as we direct, subject to certain conditions.
Current report
Issuance of Junior Note
Current report
On August 14, 2024, we issued the 2024 CP Note to CP Acquisitions. Pursuant to the 2024 CP Note, CP Acquisitions would lend up to $1,500,000 to the Company. The 2024 CP Note bears interest at a rate of 10% per annum, will mature in full on July 1, 2025, and may be prepaid without any fee or penalty. The 2024 CP Note is secured by our assets and ranks junior to existing secured indebtedness. The 2024 CP Note may be converted into Common Stock of the Company or, at CP Acquisitions’ election, Pre-Funded Warrants with an exercise price of $0.001 per share, in each case at a conversion price of $3.9495.
Current report
Mack Molding Modification Agreement
Current report
On October 27, 2023, and effective as of October 18, 2023, we entered into a Modification and Settlement Agreement (the “Modification Agreement”) with Mack Molding Company (“Mack”) with respect to a dispute with Mack under an existing supply agreement. On February 29, 2024, we met our contractual obligations under the terms of the Modification Agreement. In settlement of the dispute, we made cash payments of $500,000 and $250,000 to Mack and issued to Mack a warrant to purchase 750,000 shares of Common Stock.
Current report
On August 30, 2024, we entered into an amendment to the Modification Agreement with Mack, which modified the payment terms and VFU purchase requirements under the Modification Agreement. Pursuant to the amendment, we agreed to make payments of $1.0 million prior to October 31, 2024 and an additional $1.0 million prior to December 31, 2024. We also agreed to purchase at least 25 VFUs prior to October 31, 2024 and a further 25 VFUs between November 1, 2024 and December 31, 2024. Upon payment in accordance with the terms of the amendment, we will be entitled to certain residual inventory in the possession of Mack, and the warrant issued to Mack will be terminated.
Current report
Convertible Note Amendment
Current report
On October 18, 2024, we entered into an amendment with CP Acquisitions to the 2024 CP Note, pursuant to which the maximum principal sum of the 2024 CP Note was increased from $1,500,000 to $3,000,000. The conversion price applicable to the 2024 CP Note will remain unchanged with an exercise price of $0.001 per share, in each case at a conversion price of $3.9495 (as may be adjusted per the 2024 CP Note).
Current report
Issuance of Convertible Note; Board and Management Changes
Current report
On November 5, 2024, we issued a Secured Convertible Note (the “Green Thumb Note”) to RSLGH, LLC (the “Investor”), a subsidiary of Green Thumb Industries Inc. (“Green Thumb”). The Green Thumb Note is a secured obligation and ranks senior to all indebtedness of the Company except for indebtedness held by CP Acquisitions and Mack. The Green Thumb Note will mature on November 5, 2025 and has a 10.0% annualized interest rate, with interest to be paid on the first calendar day of each September and March while the Green Thumb Note is outstanding, in cash, beginning January 1, 2025. The principal amount of the Green Thumb Note will be payable on the maturity date. The Green Thumb Note provides for advances of up to $20.0 million in the aggregate, of which $10.0 million was advanced upon issuance. If the Investor elects to convert the Green Thumb Note, the conversion price per share will be $3.158, subject to customary adjustments for certain corporate events. The conversion of the Green Thumb Note will be subject to certain customary conditions and the receipt of stockholder approval to the extent necessary under Nasdaq listing rules.
Current report
Immediately prior to the issuance of the Green Thumb Note, Raymond Chang, I-Tseng Jenny Chan and entities affiliated with each of them sold shares of Common Stock and Pre-Funded Warrants to the Investor. Immediately following the issuance of the Green Thumb Note, Mr. Chang resigned as our Chairman and Chief Executive Officer, and Ms. Chan resigned as a member of our Board of Directors. The Board of Directors appointed Benjamin Kovler as our Chairman and Interim Chief Executive Officer and Armon Vakili and Richard Drexler as members of the Board of Directors to fill the vacancies resulting from Mr. Chang’s and Ms. Chan’s resignations.
Current report
Plans to Acquire the Señorita Brand of THC Beverages
Current report
On November 12, 2024, we announced that we signed a non-binding letter of intent to acquire certain assets from Double or Nothing LLC, the owner and creator of the Señorita brand of hemp-derived legal THC (“HDLT”) drinks, in exchange for 530,000 shares of Agrify common stock or common stock equivalents (the “Transaction”). The Transaction would involve the acquisition of assets involved in the operation of Señorita’s HDLT business. There can be no assurances that we will reach a binding agreement and if we do, the terms could differ from those stated above.
Current report
CP Acquisitions Junior Secured Note
Current report
On October 27, 2023, CP Acquisitions, an entity affiliated with and controlled by our former Chief Executive Officer and former member of our Board of Directors, purchased the Exchange Note and the Convertible Note from CP Acquisitions (the “Note Purchase”). As part of the same transaction, we issued the Junior Secured Note to CP Acquisitions. Pursuant to the Junior Secured Note, CP Acquisitions would lend up to $3.0 million to us. The Junior Secured Note bears interest at a rate of 10% per annum, would mature in full on December 31, 2023, and may be prepaid without any fee or penalty. On December 4, 2023, CP Acquisitions and the Company amended and restated the Junior Secured Note agreement. Pursuant to the terms of the amendment, the maximum principal amount that may be loaned by CP Acquisitions to us was increased to $4.0 million and extended the maturity date thereon to December 31, 2024. On November 30, 2023, CP Acquisitions agreed to forgive $1.0 million of the principal amount outstanding on the Convertible Note.
Current report
Consolidated CP Acquisitions Note
Current report
On January 25, 2024, we and CP Acquisitions consolidated the outstanding principal and interest due under the Junior Secured Note and the Exchange Note as well as the interest due under the Convertible Note into the Convertible Note (collectively, with the Junior Secured Note and the Exchange Note, the “Consolidated Notes”), and amended and restated the Convertible Note with the Restated Note having a total outstanding principal of $18,308,021. The Restated Note bears interest at a rate of 10% per annum and will mature in full on December 31, 2025. We may redeem all or a portion not less than $5.0 million of principal at any time at a price equal to 102.5% of the redeemed principal amount plus accrued but unpaid interest. If CP Acquisitions elects to convert the Restated Note, the conversion price per share will be $21.90, subject to customary adjustments for certain corporate events. The conversion of the Restated Note will be subject to certain customary conditions. The Restated Note may not be converted into shares of Common Stock if such conversion would result in CP Acquisitions and its affiliates owning an aggregate of in excess of 49.99% of the then-outstanding shares of Common Stock. Immediately following the execution of the Restated Note, CP Acquisitions elected to convert approximately $3.9 million of outstanding principal into an aggregate of 178,109 shares of Common Stock.
Current report
On May 21, 2024, we and CP Acquisitions entered into the Consolidated Note Amendment, pursuant to which CP Acquisitions may elect, in lieu of shares of Common Stock issuable upon conversion of the Restated Note, to instead receive Pre-Funded Warrants. The conversion price applicable to the Pre-Funded Warrants will remain unchanged at $21.90. Immediately following the execution of the Consolidated Note Amendment, CP Acquisitions elected to convert $11.5 million of outstanding principal into the CP Warrant Conversion, exercisable at issuance for up to 525,114 shares of Common Stock having a fair value of approximately $2.9 million.
Current report
GIC Acquisition Note
Current report
On July 12, 2023, our Board of Directors approved the issuance of the GIC Note to GIC, an entity that is owned and managed by our former Chairman and Chief Executive Officer. Pursuant to the GIC Note, GIC was obligated to lend us up to $0.5 million, $0.3 million of which was delivered at issuance and the remaining $0.2 million delivered on July 31, 2023. The GIC Note bore interest at a rate of 10% per annum, would mature in full on August 6, 2023, and could be prepaid without any fee or penalty. The GIC Note ranked junior to all existing secured indebtedness. On October 27, 2023, the maturity date of the GIC Note was subsequently amended to December 31, 2024, at which point principal and accrued interest will be repaid in full.
Current report
On May 21, 2024, GIC and the Company entered into the Restated GIC Note, (the Restated GIC Note collectively with the Consolidated Note Amendment, the “Related Party Debt Amendments”) to increase the aggregate principal amount to approximately $2.29 million, extend the maturity date to December 31, 2025, and provide that the Restated Junior Note may be converted into Common Stock of the Company or, at GIC’s election, Pre-Funded Warrants, in each case at a conversion price of $4.65. Immediately following the execution of the Restated GIC Note, GIC elected to convert all of the outstanding principal under the Restated GIC Note into a Pre-Funded Warrant exercisable at issuance for up to 492,203 shares of Common Stock.
Current report
CP Acquisitions Promissory Note
Current report
On August 14, 2024, we issued a junior secured promissory note (the “2024 CP Note”) to CP Acquisitions. Pursuant to the 2024 CP Note, CP Acquisitions would lend us up to $1,500,000. The 2024 CP Note bears interest at a rate of 10% per annum, will mature in full on July 1, 2025, and may be prepaid without any fee or penalty. The 2024 CP Note is secured by the Company’s assets and ranks junior to existing secured indebtedness of the Company. The 2024 CP Note may be converted into Common Stock or, at CP Acquisition’s election, Pre-Funded Warrants with an exercise price of $0.001 per share, in each case at a conversion price of $3.9495.
Current report
Green Thumb Convertible Note
Current report
On November 5, 2024, we issued the Green Thumb Note to the Investor. The Green Thumb Note is a secured obligation and ranks senior to all indebtedness of the Company except for indebtedness held by CP Acquisitions and Mack. The Green Thumb Note will mature on November 5, 2025 and has a 10.0% annualized interest rate, with interest to be paid on the first calendar day of each September and March while the Green Thumb Note is outstanding, in cash, beginning January 1, 2025. The principal amount of the Green Thumb Note will be payable on its maturity date. The Green Thumb Note provides for advances of up to $20.0 million in the aggregate, of which $10.0 million was advanced upon issuance. If the Investor elects to convert the Green Thumb Note, the conversion price per share will be $3.158, subject to customary adjustments for certain corporate events. The conversion of the Green Thumb Note will be subject to certain customary conditions and the receipt of stockholder approval to the extent necessary under Nasdaq listing rules.
Current report
For the nine months ended September 30, 2023, our operating cash flows included a net loss of $19.2 million, a change in the provision for credit losses of $14.8 million, a $4.6 million loss on extinguishment of notes payable, and $1.4 million of depreciation and amortization expense, $2.1 million in stock based compensation expense, a $2.9 million decrease to inventory reserves, and a $3.6 million credit related to the change in fair value of warrant liabilities. Net cash increased by changes in operating assets and liabilities of $6.2 million.
Removed paragraphs (14)
Previous report
Recent Business Developments
Previous report
Nasdaq Notices and Hearing
Previous report
On October 17, 2023, we received a Staff Delisting Determination (the “Staff Determination”) from the Listing Qualifications Department of Nasdaq notifying us that we were not in compliance with Nasdaq’s continued listing requirements under the Listing Rule as a result of our failure to file the First Quarter Form 10-Q, the Second Quarter Form 10-Q and the Form 10-K (collectively, the “Delinquent Reports”) in a timely manner. We filed each of the Delinquent Reports between November 28, 2023 and January 3, 2024.
Previous report
On December 1, 2023, we received a notice Nasdaq stating that because we reported stockholders’ equity of $(17.17) million in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, we were no longer in compliance with Nasdaq Listing Rule 5550(b)(1), which requires that listed companies maintain a minimum of $2.5 million in stockholders’ equity.
Previous report
We timely requested a hearing before the Nasdaq Hearings Panel (the “Panel”), which hearing was held on January 11, 2024. At the hearing, we presented a plan to regain compliance with Nasdaq Listing Rule 5550(b)(1). On January 30, 2024, we received formal notice that the Panel had granted our request for an exception through April 15, 2024 to evidence compliance with Rule 5550(b)(1), which was subsequently extended to May 15, 2024. As a result, there can be no assurance that we can regain compliance by the end of the extension period.
Previous report
On a forward-looking basis, with the full year benefit of anticipated margin contribution associated with the extraction-related revenue contributions, the Company anticipates that gross margin performance, aided by our extraction-related equipment sales, will be in a mid-teens range. We anticipate that we will be able to improve upon that expected gross profit margin performance once we are able to generate meaningful software and production fee revenues from our TTK Solutions, which we currently expect to begin in the late third or early fourth quarter of 2024.
Previous report
We expect to continue to invest in future developments of our VFUs, Agrify Insights software and our extraction products. As a percentage of net revenue, R&D expenses were 15% of total revenue for the six months ended June 30, 2024, compared to 27% for the six months ended June 30, 2023.
Previous report
We entered into one Loan Agreement and Promissory Note with Bank of America pursuant to the Paycheck Protection Program (the “PPP”) under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) administered by the U.S. Small Business Administration. We received total proceeds of approximately $779,000 from the unsecured PPP Loan which was originally scheduled to mature in May 2022. We applied for forgiveness on the $779,000 of our PPP Loan however was denied by the SBA. On June 23, 2022, we received a letter from Bank of America agreeing to extend the maturity date to May 7, 2025 and bears interest at a rate of 1.00% per year. The PPP loan is payable in 34 equal combined monthly principal and interest payments of approximately $24,000 that commenced on August 7, 2022.
Previous report
On March 14, 2022, we entered into a Securities Purchase Agreement with the Former Lender. The Purchase Agreement provides for the issuance of the SPA Note in the aggregate amount of $65.0 million and a SPA Warrant to purchase up to an aggregate of 34,406 shares of Common Stock, with the potential for two potential subsequent closings for notes with an original principal amount of $35.0 million each.
Previous report
On August 18, 2022, we entered into a Securities Exchange Agreement. Pursuant to the August 2022 Exchange Agreement, we partially paid $35.2 million along with approximately $300,000 in repayments for other fees under the SPA Note and exchanged the remaining balance of the SPA Note for an Exchange Note with an aggregate original principal amount of $35.0 million and a Note Exchange Warrant to purchase 71,139 shares of Common Stock. Additionally, we exchanged the SPA Warrant for a Modified Warrant for the same number of underlying shares but with a reduced exercise price.
Previous report
On March 8, 2023, we entered into a new Securities Exchange Agreement. Pursuant to the March 2023 Exchange Agreement, we prepaid approximately $10.3 million in principal amount under the Exchange Note and exchanged $10.0 million in principal amount of the remaining balance of the Exchange Note for a new senior secured convertible note (the “Convertible Note”).
Previous report
The Convertible Note is a senior secured obligation and will rank senior to all of our indebtedness. The Convertible Note will mature on August 19, 2025 (the “Maturity Date”) and has a 9.0% annualized interest rate, with interest to be paid monthly, in cash. The principal amount of the Convertible Note will be payable on the maturity date, provided that the lender will be entitled to a cash sweep of 30% of the proceeds of any at-the-market equity offering and 20% of the proceeds received by us in connection with any other equity financing, which will reduce the outstanding principal amount under the Exchange Note. On October 27, 2023, CP Acquisitions LLC, and entity affiliated with and controlled by Raymond Chang, acquired the Exchange Note and the Convertible Note. As of October 30, 2023, there was approximately $6.7 million outstanding under the Exchange Note and $8.8 million outstanding under the Convertible Note.
Previous report
At any time, we may prepay all of the Exchange Note by redemption at a price equal to 102.5% of the then-outstanding principal amount under the Note plus accrued but unpaid interest. The holder will also have the option of requiring us to redeem the Exchange Note on the one-year or two-year anniversaries of issuance at a price equal to the then-outstanding principal amount under the Exchange Note plus accrued but unpaid interest, or if we undergo a fundamental change at a price equal to 102.5% of the then-outstanding principal amount under the Exchange Note plus accrued but unpaid interest.
Previous report
For the six months ended June 30, 2023, we incurred a net loss of $17.1 million, which included $12.9 million loss from operations, a $4.6 million loss on extinguishment of notes payable, and $1.2 million of interest expense, partially offset by a $1.6 million credit related to the change in fair value of warrant liabilities. Net cash used in operating activities for six months ended June 30, 2023 was 11.6 million.
Reworded paragraphs (43)
Previous wording
The information contained in this Quarterly Report on Form 10-Q is intended to update the information contained in our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the Securities and Exchange Commission on April 15, 2024, as amended on April 29, 2024 (the “Form 10-K”) and presumes that readers have access to, and will have read, the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other information contained in such Form 10-K. The following discussion and analysis also should be read together with our financial statements and the notes to the financial statements included elsewhere in this Quarterly Report on Form 10-Q.
Current wording
The information contained in this Quarterly Report on Form 10-Q is intended to update the information contained in our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the Securities And Exchange Commission (the “SEC”) on April 15, 2024, as amended on April 29, 2024 (the “Form 10-K”) and presumes that readers have access to, and will have read, the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other information contained in such Form 10-K. The following discussion and analysis also should be read together with our financial statements and the notes to the financial statements included elsewhere in this Quarterly Report on Form 10-Q.
Previous wording
Except as otherwise indicated herein or as the context otherwise requires, references in this quarterly report to “we,” “us,” “our,” “Company,” and “Agrify” refer to Agrify Corporation, a Nevada corporation.
Current wording
Except as otherwise indicated herein or as the context otherwise requires, references in this quarterly report to “we,” “us,” “our,” “Company,” and “Agrify” refer to Agrify Corporation, a Nevada corporation and its consolidated subsidiaries.
Previous wording
We are a developer of proprietary precision hardware and software grow solutions for the indoor commercial agriculture industry and provides equipment and solutions for cultivation, extraction, post-processing, and testing for the cannabis and hemp industries. We believe we are the only company with an automated and fully integrated grow solution in the industry. Our Agrify “Precision Elevated™” cultivation solution seamlessly combines our integrated hardware and software offerings with a broad range of associated services including consulting, engineering, and construction and is designed to deliver the most complete commercial indoor farming solution available from a single provider. The totality of our product offerings and service capabilities forms an unrivaled ecosystem in what has historically been a highly fragmented market. As a result, we believe we are well situated to create a dominant market position in the indoor agriculture sector.
Current wording
We are a developer of proprietary precision hardware and software grow solutions for the indoor commercial agriculture industry and provide equipment and solutions for cultivation, extraction, post-processing, and testing for the cannabis and hemp industries. We believe we are the only company with an automated and fully integrated grow solution in the industry. Our Agrify “Precision Elevated™” cultivation solution seamlessly combines our integrated hardware and software offerings with a broad range of associated services including consulting, engineering, and construction and is designed to deliver the most complete commercial indoor farming solution available from a single provider. The totality of our product offerings and service capabilities forms an unrivaled ecosystem in what has historically been a highly fragmented market.
Previous wording
Our corporate headquarters are located in Billerica, Massachusetts. We also lease properties located within various geographic regions in which we conduct business, including Colorado, Georgia, Massachusetts, Michigan, and Oregon.
Current wording
Our corporate headquarters are located in Troy, Michigan. We also lease properties located within various geographic regions in which we conduct business, including Colorado, Georgia, and Michigan.
Previous wording
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.
Current wording
On July 5, 2023, we effected a 1-for-20 reverse stock split of our Common Stock. On October 8, 2024, we effected a 1-for-15 reverse stock split of our Common Stock. All share and per share information has been retroactively adjusted to give effect to the reverse stock splits for all periods presented unless otherwise indicated.
Previous wording
At the beginning of 2023, we announced a strategic plan to foster sustainable long-term growth through cost efficiencies and enhanced sales and growth initiatives. We have been focused on growing our cultivation business by helping our existing Agrify Total Turn-Key customers to bring their facilities online and driving additional sales through our RDP. As a result, we have successfully installed and commenced our Las Vegas customer, Nevada Holistic Medicine, our Denver Colorado customer, Denver Greens, and signed several new customers such as Golden Lake Business Park in California, and Harvest Works in New Jersey. As a testimony to the Vertical Farming Unit’s (“VFU”) ability to produce high quality flower, Nevada Holistic Medicine is already consistently harvesting 9 pounds of A-grade flower per VFU, or roughly 64 grams per canopy square foot, and seeing 90%+ A-grade flower produced with exceptional color, trichome, and terpene levels.
Current wording
At the beginning of 2023, we announced a strategic plan to foster sustainable long-term growth through cost efficiencies and enhanced sales and growth initiatives. We have been focused on growing our cultivation business by helping our existing Agrify Total Turn-Key customers to bring their facilities online and driving additional sales through our rapid deployment pack program. As a result, we have successfully installed Agrify total turn-key solution program (“TTK Solution”) equipment for and commenced our Las Vegas customer, Nevada Holistic Medicine, our Denver Colorado customer, Denver Greens, and signed several new customers such as Golden Lake Business Park in California, and Harvest Works in New Jersey. As a testimony to the Agrify Vertical Farming Unit’s (“VFU”) ability to produce high quality flower, Nevada Holistic Medicine is already consistently harvesting 9 pounds of A-grade flower per VFU, or roughly 64 grams per canopy square foot, and seeing 90%+ A-grade flower produced with exceptional color, trichome, and terpene levels.
Previous wording
Similarly, since we have streamlined our expansive extraction portfolio of technologies, we have successfully supported the deployment of several turnkey solvent-based and solventless extraction packages to customers in California, Michigan, and the East Coast. In addition, we have released several new technologies and products into the market based on customer feedback, including our first peer-reviewed Cannabeast 13 Distillation Unit, a Diamond Miner, Stitch-less Double Filtration Rosin Bags, and the revamped PX30 Hydrocarbon Extractor. We have also made significant strides to receive UL Compliance for Precision Extractions’ EXP Explosion Proof Rooms in an effort to continue our commitment to safety and quality within cannabis extraction facilities.
Current wording
Similarly, because we have streamlined our expansive extraction portfolio of technologies, we have successfully supported the deployment of several turnkey solvent-based and solventless extraction packages to customers in California, Michigan, and the East Coast. In addition, we have released several new technologies and products into the market based on customer feedback, including our first peer-reviewed Cannabeast 13 Distillation Unit, a Diamond Miner, Stitch-less Double Filtration Rosin Bags, and the revamped PX30 Hydrocarbon Extractor. We have also made significant strides to receive Underwriters Laboratories Compliance for Precision Extractions’ EXP Explosion Proof Rooms in an effort to continue our commitment to safety and quality within cannabis extraction facilities.
Previous wording
These industry developments illustrate the continuous innovation, and commitment to safety within the cannabis sector as our company adapts to evolving market demands. More importantly, our growing partnership across the Country is a strong testimony to operators’ continued trust in Agrify’s team and technologies in the most competitive markets.
Current wording
These developments illustrate our continuous innovation, and commitment to safety within the cannabis sector as we adapt to evolving market demands. More importantly, we believe our growing partnership across the Country is a strong testimony to operators’ continued trust in Agrify’s team and technologies in the most competitive markets.
Previous wording
On January 25, 2024, following stockholder approval at an annual meeting of stockholders on January 8, 2024, we and the New Lender consolidated the outstanding principal and interest due under the Junior Secured Note and the Exchange Note into the Convertible Note and amended and restated the Convertible Note (as amended and restated, the “Restated Note”), with an outstanding principal amount of approximately $18.9 million at the time of issuance of the Restated Note. The Restated Note amended the terms of the Convertible Note by, among other things, (i) reducing the conversion price to $1.46 per share of common stock, (ii) increasing the beneficial ownership limitation to 49.99% with respect to any individual or group, provided that the New Lender may assign its right to receive shares upon conversion to Mr. Chang and/or Ms. Chan or their affiliates, in which case the 49.99% beneficial ownership limitation will apply to each of them individually, (iii) extending the maturity date to December 31, 2025, (iv) increasing the interest rate from 9% to 10% per annum, (v) increasing the default interest from 15% to 18% per annum, and (vi) providing for the payment of interest every six months, or in lieu of cash interest payments, we may issue shares as payments-in-kind at a conversion price equal to the higher of (i) $1.46 or (ii) a 20% discount to our trailing seven-day volume weighted average price as of the date of interest payment. Immediately following the execution of the Restated Note, the New Lender immediately elected to convert approximately $3.9 million of outstanding principal into an aggregate of 2,671,633 shares of common stock, and assigned its rights to receive such shares to entities affiliated with Mr. Chang and Ms. Chan. Following the conversion, there was $15.0 million in principal amount outstanding under the Restated Note.
Current wording
On January 25, 2024, following stockholder approval at an annual meeting of stockholders on January 8, 2024, we and CP Acquisitions LLC (“CP Acquisitions”) consolidated the outstanding principal and interest due under the junior secured promissory note (the “Junior Secured Note”) to CP Acquisitions and a promissory note with an original principal amount of $35.0 million (the “Exchange Note”) to High Trail Special Situations LLC (the “Original Lender”) into a convertible note (the “Convertible Note”) and amended and restated the Convertible Note (as amended and restated, the “Restated Note”), with an outstanding principal amount of approximately $18.3 million at the time of issuance of the Restated Note. The Restated Note amended the terms of the Convertible Note by, among other things, (i) reducing the conversion price to $1.46 per share of Common Stock, (ii) increasing the beneficial ownership limitation to 49.99% with respect to any individual or group, provided that CP Acquisitions may assign its right to receive shares upon conversion to Raymond Chang, the former Chairman and Chief Executive Officer of the Company and/or I-Tseng Jenny Chan, a former member of the board of directors of the Company (the “Board”) or their affiliates, in which case the 49.99% beneficial ownership limitation will apply to each of them individually, (iii) extending the maturity date to December 31, 2025, (iv) increasing the interest rate from 9% to 10% per annum, (v) increasing the default interest from 15% to 18% per annum, and (vi) providing for the payment of interest every six months, or in lieu of cash interest payments, we may issue shares as payments-in-kind at a conversion price equal to the higher of (i) $1.46 or (ii) a 20% discount to our trailing seven-day volume weighted average price as of the date of interest payment. Immediately following the execution of the Restated Note, CP Acquisitions immediately elected to convert approximately $3.9 million of outstanding principal into an aggregate of 2,671,633 shares of Common Stock, and assigned its rights to receive such shares to entities affiliated with Mr. Chang and Ms. Chan. Following the conversion, there was $15.0 million in principal amount outstanding under the Restated Note.
Previous wording
Additionally, on March 5, 2024, we received a deficiency letter from the Listing Qualifications Department of Nasdaq notifying us that, for the last 30 consecutive business days, the bid price for our common stock had closed below $1.00 per share, which is the minimum closing price required to maintain continued listing on the Nasdaq Stock Market under Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Requirement”). The Notice had no immediate effect on the listing of our common stock on Nasdaq. In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we have 180 calendar days to regain compliance with the Minimum Bid Requirement. To regain compliance with the Minimum Bid Requirement, the closing bid price of our common stock must be at least $1.00 per share for a minimum of 10 consecutive trading days during this 180-day compliance period, unless the Staff exercises its discretion to extend this period pursuant to Nasdaq Listing Rule 5810(c)(3)(H). The compliance period for us will expire on September 3, 2024.
Current wording
On March 5, 2024, we received a deficiency letter from the staff (“Staff”) of the Nasdaq Stock Market LLC (“Nasdaq”) notifying us that, for the last 30 consecutive business days, the bid price for our Common Stock had closed below $1.00 per share, which is the minimum closing price required to maintain continued listing on the Nasdaq Stock Market under Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Requirement”). In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we had 180 calendar days to regain compliance with the Minimum Bid Requirement. The compliance period would have expired on September 3, 2024. On September 4, 2024, the Staff notified us in writing that we were eligible for an additional 180-day compliance period, or until March 3, 2025, to regain compliance with the Minimum Bid Requirement. On October 8, 2024, we completed a 1-for-15 reverse stock split of our Common Stock, in which each fifteen shares of Common Stock issued and outstanding was combined and converted into one share of Common Stock to regain compliance with the Minimum Bid Requirement. On October 22, 2024, the Staff notified us that we had regained compliance with the Minimum Bid Requirement.
Previous wording
We can provide no assurances that the listing of our common stock will be restored or that we otherwise will remain listed on Nasdaq. If we fail to continue to satisfy the continued listing requirements of Nasdaq, such as the corporate governance requirements or the minimum closing bid price requirement, Nasdaq will take steps to delist our common stock. Such a de-listing would likely have a negative effect on the price of our common stock and would impair stockholders’ ability to sell or purchase our common stock when they wish to do so, as well as adversely affect our ability to issue additional securities and obtain additional financing in the future.
Current wording
We can provide no assurances that we will continue to meet Nasdaq listing requirements and otherwise remain listed on Nasdaq. If we fail to continue to satisfy the continued listing requirements of Nasdaq, such as the corporate governance requirements or the Minimum Bid Requirement, Nasdaq will take steps to delist our Common Stock. Such a de-listing would likely have a negative effect on the price of our Common Stock and would impair stockholders’ ability to sell or purchase our Common Stock when they wish to do so, as well as adversely affect our ability to issue additional securities and obtain additional financing in the future.
Previous wording
On February 27, 2024, we entered into a placement agency agreement with Alexander Capital, LP as placement agent, pursuant to which we agreed to issue and sell an aggregate of 2,760,000 shares of common stock, and, in lieu of common stock to certain investors that so chose, pre-funded warrants to purchase 3,963,684 shares of common stock. The public offering price for each share of common stock was $0.38, and the offering price for each pre-funded warrant was $0.379, which equals the public offering price per share of the common stock, less the $0.001 per share exercise price of each pre-funded warrant. The Offering was made pursuant to a registration statement on Form S-1 that we filed with the Securities and Exchange Commission on January 26, 2024 and was declared effective on February 14, 2024. Raymond Chang, our Chairman and Chief Executive Officer, participated in the offering on the same terms as other investors. The net proceeds from the public offering were approximately $2.2 million, after deducting placement agent fees and commissions and expenses. The public offering closed on February 28, 2024.
Current wording
On February 27, 2024, we entered into a placement agency agreement with Alexander Capital, LP as placement agent, pursuant to which we agreed to issue and sell an aggregate of 2,760,000 shares of Common Stock, and, in lieu of Common Stock to certain investors that so chose, Pre-Funded Warrants (“Pre-Funded Warrants”) to purchase 3,963,684 shares of Common Stock. The public offering price for each share of Common Stock was $0.38, and the offering price for each Pre-Funded Warrant was $0.379, which equals the public offering price per share of the Common Stock, less the $0.001 per share exercise price of each Pre-Funded Warrant. The Offering was made pursuant to a registration statement on Form S-1 that we filed with the SEC on January 26, 2024 and was declared effective on February 14, 2024. Raymond Chang, our former Chairman and Chief Executive Officer, participated in the offering on the same terms as other investors. The net proceeds from the public offering were approximately $2.2 million, after deducting placement agent fees and commissions and expenses. The public offering closed on February 28, 2024.
Previous wording
The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in ASC 480 and ASC 815. Management’s assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, whether they meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own Common Stock among other conditions for equity classification.
Current wording
The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in Accounting Standards Codification (“ASC”) Topic 480,Distinguishing Liabilities from Equity (“ASC 480”) and ASC Topic 815,Derivatives and Hedging (“ASC 815”). Management’s assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, whether they meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own Common Stock among other conditions for equity classification.
Previous wording
In accordance with ASC 606 “Revenue Recognition”, we recognize revenue from contracts with customers using a five-step model, which is described below:
Current wording
In accordance with ASC Topic 606,Revenue Recognition (“ASC 606”), we recognize revenue from contracts with customers using a five-step model, which is described below:
Previous wording
We enter into contracts that may include various combinations of equipment, services and construction, which are generally capable of being distinct and accounted for as separate performance obligations. Contracts with customers often include promises to transfer multiple products and services to a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. Once we determine the performance obligations, it determines the transaction price, which includes estimating the amount of variable consideration to be included in the transaction price, if any. We then allocate the transaction price to each performance obligation in the contract based on the SSP. The corresponding revenue is recognized as the related performance obligations are satisfied.
Current wording
We enter into contracts that may include various combinations of equipment, services and construction, which are generally capable of being distinct and accounted for as separate performance obligations. Contracts with customers often include promises to transfer multiple products and services to a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. Once we determine the performance obligations, the transaction price is determined, which includes estimating the amount of variable consideration to be included in the transaction price, if any. We then allocate the transaction price to each performance obligation in the contract based on the SSP. The corresponding revenue is recognized as the related performance obligations are satisfied.
Previous wording
Judgment is required to determine the SSP for each distinct performance obligation. We determine SSP based on the price at which the performance obligation is sold separately and the methods of estimating SSP under the guidance of Accounting Standards Codification (“ASC”) 606-10-32-33. If the SSP is not observable through past transactions, we estimate the SSP, taking into account available information such as market conditions, expected margins, and internally approved pricing guidelines related to the performance obligations. We license our software as a SaaS type subscription license, whereby the customer only has a right to access the software over a specified time period. The full value of the contract is recognized ratably over the contractual term of the SaaS subscription, adjusted monthly if tiered pricing is relevant. We typically satisfy our performance obligations for equipment sales when equipment is made available for shipment to the customer; for services sales as services are rendered to the customer and for construction contracts both as services are rendered and when contract is completed.
Current wording
Judgment is required to determine the SSP for each distinct performance obligation. We determine SSP based on the price at which the performance obligation is sold separately and the methods of estimating SSP under the guidance of ASC 606-10-32-33. If the SSP is not observable through past transactions, we estimate the SSP, taking into account available information such as market conditions, expected margins, and internally approved pricing guidelines related to the performance obligations. We license our software as a SaaS type subscription license, whereby the customer only has a right to access the software over a specified time period. The full value of the contract is recognized ratably over the contractual term of the SaaS subscription, adjusted monthly if tiered pricing is relevant. We typically satisfy our performance obligations for equipment sales when equipment is made available for shipment to the customer; for services sales as services are rendered to the customer and for construction contracts both as services are rendered and when contract is completed.
Previous wording
If a contract has payment terms that differ from the timing of revenue recognition, we will assess whether the transaction price for those contracts include a significant financing component. We have elected the practical expedient that permits an entity to not adjust for the effects of a significant financing component if we expect that at the contract inception, the period between when the entity transfers a promised good or service to a customer and when the customer pays for that good or service, will be one year or less. For those contracts in which the period exceeds the one-year threshold, this assessment, as well as the quantitative estimate of the financing component and its relative significance, requires judgment. Accordingly, we impute interest on such contracts at an agreed upon interest rate and will present the financing components separately as financial income. For the six months ended June 30, 2024 and 2023, we did not have any such financial income.
Current wording
If a contract has payment terms that differ from the timing of revenue recognition, we will assess whether the transaction price for those contracts include a significant financing component. We have elected the practical expedient that permits an entity to not adjust for the effects of a significant financing component if we expect that at the contract inception, the period between when the entity transfers a promised good or service to a customer and when the customer pays for that good or service, will be one year or less. For those contracts in which the period exceeds the one-year threshold, this assessment, as well as the quantitative estimate of the financing component and its relative significance, requires judgment. Accordingly, we impute interest on such contracts at an agreed upon interest rate and will present the financing components separately as financial income. For the nine months ended September 30, 2024 and 2023, we did not have any such financial income.
Previous wording
Payment terms with customers typically require payment 30 days from invoice date. Our agreements with customers do not provide for any refunds for services or products and therefore no specific reserve for such is maintained. In the infrequent instances where customers raise a concern over delivered products or services, we have endeavored to remedy the concern and all costs related to such matters have been insignificant in all periods presented.
Current wording
Payment terms with customers typically require payment in advance or payment 30 days from invoice date. Our agreements with customers do not provide for any refunds for services or products and therefore no specific reserve for such is maintained. In the infrequent instances where customers raise a concern over delivered products or services, we have endeavored to remedy the concern and all costs related to such matters have been insignificant in all periods presented.
Previous wording
In accordance with ASC 606-10-50-13, we are required to include disclosure on its remaining performance obligations as of the end of the current reporting period. Due to the nature of our contracts, these reporting requirements are not applicable. The majority of our remaining contracts meet certain exemptions as defined in ASC 606-10-50-14 through 606-10-50-14A, including (i) performance obligation is part of a contract that has an original expected duration of one year or less and (ii) the right to invoice practical expedient.
Current wording
In accordance with ASC 606-10-50-13, we are required to include disclosure on our remaining performance obligations as of the end of the current reporting period. Due to the nature of our contracts, these reporting requirements are not applicable. The majority of our remaining contracts meet certain exemptions as defined in ASC 606-10-50-14 through 606-10-50-14A, including (i) performance obligation is part of a contract that has an original expected duration of one year or less and (ii) the right to invoice practical expedient.
Previous wording
We account for income taxes pursuant to the provisions of ASC Topic 740, “Income Taxes,” which requires, among other things, an asset and liability approach to calculating deferred income taxes. The asset and liability approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. A valuation allowance is provided to offset any net deferred tax assets for which management believes it is more likely than not that the net deferred asset will not be realized.
Current wording
We account for income taxes pursuant to the provisions of ASC Topic 740,Income Taxes, (“ASC 740”) 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.
Previous wording
We follow the provisions of ASC Topic 718, “Compensation — Stock Compensation.” ASC Topic 718 establishes standards surrounding the accounting for transactions in which an entity exchanges its equity instruments for goods or services. ASC Topic 718 focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions, such as options issued under our Stock Option Plans.
Current wording
We follow the provisions of ASC Topic 718,Compensation — Stock Compensation ,(“ASC 718”) establishes standards surrounding the accounting for transactions in which an entity exchanges its equity instruments for goods or services. ASC Topic 718 focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions, such as options issued under our Stock Option Plans.
Previous wording
Comparison of the Three and Six Months Ended June 30, 2024 and 2023
Current wording
Comparison of the Three and Nine Months Ended September 30, 2024 and 2023
Previous wording
The following table summarizes our results of operations for the three and six months ended June 30, 2024 and 2023:
Current wording
The following table summarizes our results of operations for the three and nine months ended September 30, 2024 and 2023:
Previous wording
Our goal is to provide our customers with a variety of products to address their entire indoor agriculture needs. Our core product offering includes our Agrify Vertical Farming Units (or “VFUs”) and Agrify Integrated Grow Racks with our Agrify Insights software, which are supplemented with environmental control products, grow lights, facility build-out services and extraction equipment.
Current wording
Our goal is to provide our customers with a variety of products to address their entire indoor agriculture needs. Our core product offering includes our VFUs and Agrify Integrated Grow Racks with our Agrify Insights™software, which are supplemented with environmental control products, grow lights, facility build-out services and extraction equipment.
Previous wording
The following table provides a breakdown of our revenue for the three and six months ended June 30, 2024 and 2023:
Current wording
The following table provides a breakdown of our revenue for the three and nine months ended September 30, 2024 and 2023:
Previous wording
Revenues decreased by $2.1 million, or 41%, for the three months ended June 30, 2024 compared to the same period in 2023. Revenues decreased by $5.3 million, or 49%, for the six months ended June 30, 2024 compared to the same period in 2023. The comparative decrease in revenue was generated primarily from decreases in revenue from facility build-outs and extraction solutions. Extraction division revenues decreased by $1.3 million and $3.9 million for the three and six months ended June 30, 2024, respectively, primarily due to changes in contract terms with customers which expedited cash flows but reduced overall demand. Additionally, design and build revenues decreased by $0.3 million and $0.9 million for the three and six months ended June 30, 2024, respectively due to the discontinued build-out of facilities under our TTK Solutions.
Current wording
Revenues decreased by $1.2 million, or 38%, for the three months ended September 30, 2024 compared to the same period in 2023. Revenues decreased by $6.4 million, or 46%, for the nine months ended September 30, 2024 compared to the same period in 2023. The comparative decrease in revenue was generated primarily from decreases in revenue from facility build-outs and extraction solutions. Extraction division revenues decreased by $1.2 million and $5.8 million for the three and nine months ended September 30, 2024, respectively, primarily due to changes in contract terms with customers which expedited cash flows but reduced overall demand. Additionally, design and build revenues decreased by $0 and $0.9 million for the three and nine months ended September 30, 2024, respectively due to the discontinued build-out of facilities under our TTK Solutions.
Previous wording
The following table provides a breakdown of our cost of goods sold for the three and six months ended June 30, 2024 and 2023:
Current wording
The following table provides a breakdown of our cost of goods sold for the three and nine months ended September 30, 2024 and 2023:
Previous wording
Cost of goods sold decreased by $2.6 million, or 58%, for the three months ended June 30, 2024 compared to the same period in 2023. Cost of goods sold decreased by $5.0 million, or 54%, for the six months ended June 30, 2024 compared to the same period in 2023. The comparative quarterly decrease in cost of goods sold is associated with decreases in cost of goods sold related to facility build-outs and extraction solutions which aligns with the reduction in revenue over the same period for each of these revenue streams.
Current wording
Cost of goods sold decreased by $0.5 million, or 21%, for the three months ended September 30, 2024 compared to the same period in 2023. Cost of goods sold decreased by $5.4 million, or 48%, for the nine months ended September 30, 2024 compared to the same period in 2023. The comparative quarterly decrease in cost of goods sold is associated with decreases in cost of goods sold related to facility build-outs and extraction solutions which aligns with the reduction in revenue over the same period for each of these revenue streams.
Previous wording
Gross profit totaled $1.1 million, or 37.6%, of total revenue during the three months ended June 30, 2024 compared to $0.6 million, or 11.8%, of total revenue during the three months ended June 30, 2023. Gross profit totaled $1.3 million, or 23.1% of total revenue during the six months ended June 30, 2024 compared to a gross profit of $1.6 million, or 14.6% of total revenue during the six months ended June 30, 2023. The comparative $0.3 million second-quarter year over year increase in gross profit, as well as the comparative increase in gross profit margin, is primarily attributable to a bigger decrease in costs of goods sold relative to the decrease in revenue for the period. During the second quarter of 2024, we realized a gross profit margin of 65% associated with our extraction solutions revenue, while we realized a gross profit margin of approximately (44)% on our cultivation-related revenues.
Current wording
Gross profit totaled $0.2 million, or 11.6%, of total revenue during the three months ended September 30, 2024 compared to $1.0 million, or 31.0%, of total revenue during the three months ended September 30, 2023. Gross profit totaled $1.5 million, or 20.2% of total revenue during the nine months ended September 30, 2024 compared to a gross profit of $2.6 million, or 18.3% of total revenue during the nine months ended September 30, 2023. The comparative $0.8 million third-quarter year over year decrease in gross profit, as well as the comparative decrease in gross profit margin, is primarily attributable to a smaller decrease in costs of goods sold relative to the decrease in revenue for the period. During the third quarter of 2024, we realized a gross profit margin of 32% associated with our extraction solutions revenue, while we realized a gross profit margin of 45% on our extraction solution revenues for the third quarter of 2023.
Previous wording
G&A expense decreased by $2.6 million, or 53%, for the three months ended June 30, 2024, compared to the same period in 2023. G&A expense decreased by $5.4 million, or 46%, for the six months ended June 30, 2024, compared to the same period in 2023. The decrease for the six months ended is primarily attributable to a decrease in stock based compensation of 1.0 million, a decrease in payroll expense of 1.8 million, a decrease in insurance and other employee benefits of 1.3 million, and a decrease in sales tax expense of 0.5 million.
Current wording
G&A expense decreased by $1.0 million, or 22%, for the three months ended September 30, 2024, compared to the same period in 2023. G&A expense decreased by $6.3 million, or 39%, for the nine months ended September 30, 2024, compared to the same period in 2023. The decrease for the nine months ended September 30, 2024 is primarily attributable to a decrease in payroll expense of $2.9 million, a decrease in insurance of $1.5 million, a decrease in stock based compensation of $1.3 million, and a decrease in sales tax expense of $0.5 million.
Previous wording
R&D expense decreased by $0.5 million, or 71% for the three months ended June 30, 2024, compared to the same period in 2023. R&D expense decreased by $0.9 million, or 67%, for the six months ended June 30, 2024, compared to the same period in 2023. The decrease is attributable to the reduction in personnel, outsourced consulting and materials purchased.
Current wording
R&D expense decreased by $0.3 million, or 65% for the three months ended September 30, 2024, compared to the same period in 2023. R&D expense decreased by $1.2 million, or 66%, for the nine months ended September 30, 2024, compared to the same period in 2023. The decrease is attributable to the reduction in personnel, outsourced consulting and materials purchased.
Previous wording
Selling and marketing expenses decreased by $0.7 million, or 65%, for the three months ended June 30, 2024, compared to the same period in 2023. Selling and marketing expenses decreased by $1.9 million, or 68%, for the six months ended June 30, 2024, compared to the same period in 2023. The decrease is attributable to a decrease in payroll, advertising, and trade show expenses.
Current wording
Selling and marketing expenses decreased by $0.5 million, or 57%, for the three months ended September 30, 2024, compared to the same period in 2023. Selling and marketing expenses decreased by $2.3 million, or 66%, for the nine months ended September 30, 2024, compared to the same period in 2023. The decrease is attributable to a decrease in payroll, consulting services, and travel expenses.
Previous wording
Gain on settlement of contingent liabilities relates to the legal settlement effected with Mack Molding Co. as described in Note 14 - Commitments and Contingencies within the unaudited condensed consolidated financial statements for the period ended June 30, 2024. On February 29, 2024, the Company met its performance obligations in terms of the Modification Agreement with Mack Molding Co. In the second quarter of 2024, management derecognized the previously recognized contingent liability, resulting in a credit of approximately $5.9 million, increasing the total gain for the six months ended June 30, 2024 to approximately $5.9 million. The gain was recorded within gain on settlement of contingent liabilities, on the unaudited condensed consolidated statement of operations.
Current wording
Gain on settlement of contingent liabilities relates to the legal settlement effected with Mack as described in Note 14 - Commitments and Contingencies within the unaudited condensed consolidated financial statements for the period ended September 30, 2024. On February 29, 2024, we met our performance obligations in terms of the Modification Agreement with Mack. In the second quarter of 2024, management derecognized the previously recognized contingent liability, resulting in a credit of approximately $5.9 million, increasing the total gain for the nine months ended September 30, 2024 to approximately $5.9 million. The gain was recorded within gain on settlement of contingent liabilities, on the unaudited condensed consolidated statement of operations.
Previous wording
Interest expense decreased by $0.4 million, or 93%, for the three months ended June 30, 2024, compared to the same period in 2023. Interest expense decreased by $1.1 million, or 89%, for the six months ended June 30, 2024, compared to the same period in 2023. The decrease in interest expense is attributable mainly to the decrease in principal balance on outstanding loans.
Current wording
Interest expense decreased by $0.3 million, or 90%, for the three months ended September 30, 2024, compared to the same period in 2023. Interest expense decreased by $1.4 million, or 89%, for the nine months ended September 30, 2024, compared to the same period in 2023. The decrease in interest expense is attributable mainly to the decrease in principal balance on outstanding loans.
Previous wording
The change in fair value of warrant liabilities decreased by $0.2 million, or 22% during the three months ended June 30, 2024, compared to the same period in 2023. The change in fair value of warrant liabilities decreased by $2.0 million, or 125%, during the six months ended June 30, 2024, compared to the same period in 2023. The decrease is related to the fair value remeasurement of warrants issued during March, August, and December, 2022.
Current wording
The change in fair value of warrant liabilities decreased by $17.1 million, or 864% during the three months ended September 30, 2024, compared to the same period in 2023. The change in fair value of warrant liabilities decreased by $19.1 million, or 531%, during the nine months ended September 30, 2024, compared to the same period in 2023. The decrease is primarily related to the fair value remeasurement of warrants as a result of amendments to warrant agreements during the third quarter of 2024.
Previous wording
Loss attributable to non-controlling interest represents the portion of profit (or loss) that are attributable to non-controlling interest calculated as a product of the net income of the entity multiplied by the percentage of ownership held by the non-controlling interest.
Current wording
Income (Loss) attributable to non-controlling interest represents the portion of profit (or loss) that are attributable to non-controlling interest calculated as a product of the net income of the entity multiplied by the percentage of ownership held by the non-controlling interest. In 2023 and 2024 the profit (or loss) attributable to non-controlling interest is immaterial. See the Condensed Consolidated Statements of Operations for the impact on results.
Previous wording
As of June 30, 2024, our principal sources of liquidity were cash and cash equivalents and marketable securities totaling $57 thousand. Our current working capital needs are to support revenue growth, to fund construction and equipment financing commitments associated with our TTK Solutions, manage inventory to meet demand forecasts and support operational growth. Our long-term financial needs primarily include working capital requirements and capital expenditures. We anticipate that we will allocate a significant portion of our current balance of working capital to satisfy the financing requirements of our current and future TTK arrangements. These arrangements require a significant amount of upfront capital necessary to fund construction, associated with facility build-outs, and equipment. There are many factors that may negatively impact our available sources of funds in the future, including the ability to generate cash from operations, raise debt capital and raise cash from the issuance of our securities. The amount of cash generated from operations is dependent upon factors such as the successful execution of our business strategy and general economic conditions.
Current wording
As of September 30, 2024, our principal sources of liquidity were cash and cash equivalents and marketable securities totaling $267 thousand. Our current working capital needs are to support revenue growth, to fund construction and equipment financing commitments associated with our TTK Solutions, manage inventory to meet demand forecasts and support operational growth. Our long-term financial needs primarily include working capital requirements and capital expenditures. We anticipate that we will allocate a significant portion of our current balance of working capital to satisfy the financing requirements of our current and future TTK arrangements. These arrangements require a significant amount of upfront capital necessary to fund construction, associated with facility build-outs, and equipment. There are many factors that may negatively impact our available sources of funds in the future, including the ability to generate cash from operations, raise debt capital and raise cash from the issuance of our securities. The amount of cash generated from operations is dependent upon factors such as the successful execution of our business strategy and general economic conditions.
Previous wording
The following table presents the major components of net cash flows from and used in operating, investing, and financing activities for the six months ended June 30, 2024, and 2023:
Current wording
The following table presents the major components of net cash flows from and used in operating, investing, and financing activities for the nine months ended September 30, 2024, and 2023:
Previous wording
For the six months ended June 30, 2024, we incurred a net loss of $1.3 million, which included a 2.8 million decrease related to accounts payable, 2.2 million decrease related to accrued acquisition liabilities due to issuance of held-back-shares, $1.1 million decrease related to recovery of provision for slow-moving inventory, 5.9 gain on a supply agreement $0.8 million related to depreciation and amortization, $0.6 million of stock based compensation expense, and $0.4 million increase related to the change in fair value of warrant liabilities. Net cash was reduced by changes in operating assets and liabilities of $0.8 million.
Current wording
For the nine months ended September 30, 2024, our operating cash flows included a net loss of $17.4 million, a $15.5 million change in the fair value of warrant liabilities, $2.2 million decrease related to accrued acquisition liabilities due to issuance of held-back-shares, $1.8 million decrease related to recovery of provision for slow-moving inventory, $7.1 gain on a supply agreement $1.1 million related to depreciation and amortization, and $0.9 million of stock based compensation expense. Net cash was increased by changes in operating assets and liabilities of $3.3 million.
Previous wording
For the six months ended June 30, 2024, net cash provided in investing activities was $0.3 million, which resulted from cash inflows of $0.3 million in proceeds from the repayment of a loan receivable, partially offset by cash outflows of $4,000 for purchases of property and equipment.
Current wording
For the nine months ended September 30, 2024, net cash provided in investing activities was $0.3 million, which primarily resulted from cash inflows of $0.3 million in proceeds from the repayment of a loan receivable.
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