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OFFON

AGRIFY CORPORATION

(AGFY)
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AGRIFY : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

08/13/2021 | 06:10am EDT
The information contained in this Form 10-Q is intended to update the
information contained in our Annual Report on Form 10-K for the year ended
December 31, 2020 filed with the Securities and Exchange Commission on April 2,
2021 (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 Form 10-Q.



The following discussion contains certain statements that may be deemed
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements appear in a number of places in
this Report, including, without limitation, "Management's Discussion and
Analysis of Financial Condition and Results of Operations." These statements are
not guarantees of future performance and involve risks, uncertainties and
requirements that are difficult to predict or are beyond our control.
Forward-looking statements speak only as of the date of this quarterly report.
You should not put undue reliance on any forward-looking statements. We strongly
encourage investors to carefully read the factors described in our Form 10-K in
the section entitled "Risk Factors" for a description of certain risks that
could, among other things, cause actual results to differ from these
forward-looking statements. We assume no responsibility to update the
forward-looking statements contained in this quarterly report on Form 10-Q. The
following should also be read in conjunction with the unaudited financial
statements and notes thereto that appear elsewhere in this report.



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.

As described elsewhere in this report, all share and per share amounts set forth
below have been presented on a retroactive basis to reflect a 1-for-1.581804
reverse stock split of our outstanding common stock implemented on January
12,
2021.



Overview



We are a developer of highly advanced and proprietary precision hardware and
software grow solutions for the indoor agriculture marketplace. We believe we
are the only company with an automated and fully integrated grow solution in the
industry. We believe our Agrify "Precision Elevated™" cultivation solution is
vastly differentiated from anything else on the market in that it combines our
seamlessly integrated hardware and software offerings with a wide range of
associated services such as consulting, engineering, and construction to form
what we believe is the most complete solution available from a single provider.
The totality of our product mix and service capabilities form an unrivaled
ecosystem in what has historically been an extremely fragmented market. As a
result, we believe we are well situated to create a dominant market position in
the indoor agriculture sector.



We have five wholly-owned subsidiaries, AGM Service Corp LLC (formerly AGM
Service Corp Inc.), TriGrow Systems, LLC ("TriGrow", which acted as our
exclusive distributor and which was acquired in January 2020 as TriGrow Systems,
Inc. and converted to TriGrow Systems, LLC in May 2020), Harbor Mountain
Holdings, LLC ("HMH", which assembled and produced many of our products and
which was acquired in July 2020), Ariafy Finance, LLC and Agxion, LLC. We also
own 50% of Teejan Podponics International LLC ("TPI") since December 2018; 60%
of Agrify-Valiant, LLC, formed in December 2019; and 75% of Agrify Brands, LLC
(formerly TriGrow Brands, LLC, which was acquired as part of the January 2020
acquisition of TriGrow). For further details about the January 2020 and July
2020 acquisitions please refer to our Annual Report on Form 10-K for the year
ended December 31, 2020 filed with the U.S. Securities and Exchange Commission
("SEC") on April 2, 2021.



Public Offerings



Initial Public Offering



On February 1, 2021, we completed an initial public offering ("IPO") for the
sale of 5,400,000 shares of our common stock at a price of $10.00 per share. We
also granted the underwriters: (a) a 45-day option to purchase up to 810,000
additional shares of common stock on the same terms and conditions for the
purpose of covering any over-allotments in connection with the IPO, and (b)
warrants to purchase 162,000 shares of common stock (equal to 3% of the
aggregate number of shares of common stock issued in the IPO) at an exercise
price of $12.50 per share (which is equal to 125% of the IPO price).
Subsequently, the underwriters exercised the over-allotment option, and on
February 4, 2021, we closed on the sale of an additional 810,000 shares of
common stock for a price of $10.00 per share and granted to the underwriters
warrants to purchase 24,300 additional shares of common stock (equal to 3% of
the amount of shares issued as part of the exercise of the over-allotment
option) at an exercise price of $12.50 per share. The exercise of the
over-allotment option brought the total number of shares of common stock sold by
us in connection with the IPO to 6,210,000 shares and the total net proceeds
received in connection with the IPO to approximately $57 million, after
deducting underwriting discounts and estimated offering expenses.



                                       19





Subsequent Public Offering



On February 19, 2021, we consummated a secondary public offering (the "February
Offering") for the sale of 5,555,555 shares of our common stock for a price of
$13.50 per share. We also granted the underwriters: (a) a 45-day option to
purchase up to 833,333 additional shares of common stock on the same terms and
conditions for the purpose of covering any over-allotments in connection with
the February Offering, and (b) warrants to purchase 166,667 shares of common
stock (equal to 3% of the aggregate number of shares of common stock issued in
the February Offering) at an exercise price of $16.875 per share (which is equal
to 125% of the February Offering). Subsequently, the underwriters exercised the
over-allotment option, and on March 22, 2021, we closed on the sale of an
additional 833,333 shares of common stock for a price of $13.50 per share and
granted to the underwriters warrants to purchase 25,000 additional shares of
common stock (equal to 3% of the amount of shares issued as part of the
exercised of the over-allotment option) at an exercise price of $16.875 per
share. The exercise of the over-allotment option brought the total number of
shares of common stock sold by us in connection with the February Offering to
6,388,888 shares and the total net proceeds received in connection with the
February Offering to approximately $80 million, after deducting underwriting
discounts and estimated offering expenses.



Series A Convertible Preferred Stock




Beginning in the first quarter of 2020, we issued an aggregate of 60,000 shares
of our Series A Convertible Preferred Stock, or Series A Preferred Stock, for an
aggregate purchase price of $6,000,000. In May 2020, we completed our offering
of Series A Preferred with the issuance of an additional 40,000 shares of Series
A Preferred for an aggregate purchase price of $4,000,000. All outstanding
shares of Series A Preferred Stock automatically converted immediately prior to
the closing of our IPO into 1,373,038 shares of common stock at a conversion
price of $7.72 per share.


Impact of Coronavirus ("COVID-19") Pandemic




The coronavirus ("COVID-19") was first identified in people in late 2019.
COVID-19 spread rapidly throughout the world and, in March 2020, the World
Health Organization characterized COVID-19 as a pandemic. COVID-19 is a pandemic
of respiratory disease spreading from person-to-person that poses a serious
public health risk. It has significantly disrupted supply chains and businesses
around the world. The extent and duration of the COVID-19 impact, on our
operations and financial position and on the global economy, is uncertain.
Uncertainty remains regarding the length of time it will take for the COVID-19
pandemic to subside, including the time it will take for vaccines to be broadly
distributed and accepted in the United States and the rest of the world, and the
effectiveness of such vaccines in slowing or stopping the spread of COVID-19 and
mitigating the economic effects of the pandemic. We continue to service our
customers amid uncertainty and disruption linked to COVID-19 and are actively
managing our business to respond to the impact.



Use of Estimates



The preparation of financial statements in accordance with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Significant
estimates include assumptions about collection of accounts and notes receivable,
the valuation and recognition of stock- based compensation expense, valuation
allowance for deferred tax assets and useful life of fixed assets and intangible
assets.



                                       20





Financial Overview


Critical Accounting Policies and Significant Judgments and Estimates




Our management's discussion and analysis of our financial position and results
of operations is based on our financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America, or GAAP. The preparation of financial statements in conformity with
GAAP requires us to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. On an ongoing
basis, we evaluate estimate, which include estimates related to accruals,
stock-based compensation expense, and reported amounts of revenues and expenses
during the reported period. We base our estimates on historical experience and
other market-specific or other relevant assumptions that we believe to be
reasonable under the circumstances. Actual results may differ materially from
those estimates or assumptions.



Revenue Recognition


In accordance with Topic 606, we account for a customer contract when both
parties have approved the contract and are committed to perform their respective
obligations, each party's rights can be identified, payment terms can be
identified, the contract has commercial substance, and it is probable that we
will collect substantially all of the consideration to which we are entitled.
Revenue is recognized when, or as, performance obligations are satisfied by
transferring control of a promised product or service to a customer.



We generate revenue from the following sources: (1) equipment sales, (2) services sales and (3) construction contracts.




We sell our 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 us such as vertical farming units, container
farms, integrated grow racks, and LED grow lights, and non-proprietary products
designed, engineered, and manufactured by third parties such as air cleaning
systems and pesticide-free surface protection.



Construction contracts normally provide for payment upon completion of specified
work or units of work as identified in the contract. Although there is
considerable variation in the terms of these contracts, they are primarily
structured as fixed-price contracts, under which the Company agrees to do the
entire project for a fixed amount. The Company also enters time-and-materials
contracts under which the Company is paid for labor and equipment at negotiated
hourly billing rates and for other expenses, including materials, as incurred at
rates agreed to in the contract. The Company uses two main sub-contractors to
execute the construction contracts.



We generally provide 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, we accrue for product
warranties when the loss is probable and can be reasonably estimated. At June
30, 2021, we had no product warranty accrual our de minimis historical financial
warranty experience.


Accounting for Stock-Based Compensation




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.



The fair value of each option is estimated on the date of grant using the
Black-Scholes option-pricing model. This model incorporates certain assumptions
for inputs including a risk-free market interest rate, expected dividend yield
of the underlying common stock, expected option life and expected volatility in
the market value of the underlying common stock.



The Black-Scholes option-pricing model was developed for use in estimating the
fair value of traded options, which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
our stock options and warrants have characteristics different from those of its
traded stock, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the existing
models do not necessarily provide a reliable single measure of the fair value of
such stock options. The risk-free interest rate is based upon quoted market
yields for United States Treasury debt securities with a term similar to the
expected term. The expected dividend yield is based upon our history of having
never issued a dividend and management's current expectation of future action
surrounding dividends. We calculate the expected volatility of the stock price
based on the corresponding volatility of our peer group stock price for a period
consistent with the underlying instrument's expected term. The expected lives
for such grants were based on the simplified method for employees and directors.



In arriving at stock-based compensation expense, we estimate the number of
stock-based awards that will be forfeited due to employee turnover. Our
forfeiture assumption is based primarily on its turn-over historical experience.
If the actual forfeiture rate is higher than the estimated forfeiture rate, then
an adjustment will be made to increase the estimated forfeiture rate, which will
result in a decrease to the expense recognized in our financial statements. If
the actual forfeiture rate is lower than the estimated forfeiture rate, then an
adjustment will be made to lower the estimated forfeiture rate, which will
result in an increase to expense recognized in our financial statements. The
expense we recognize in future periods will be affected by changes in the
estimated forfeiture rate and may differ significantly from amounts recognized
in the current period.


It is important that the discussion of our operating results that follows be read in conjunction with the critical accounting policies disclosed above.



                                       21



Fair Value of Common Stock



Historically, for all periods prior to our IPO, the fair values of the shares of
common stock underlying our share-based awards were determined on each grant
date by our board of directors. Given the absence of a public trading market for
our common stock, our board of directors exercised reasonable judgment and
considered a number of objective and subjective factors to determine the best
estimate of the fair value of our common stock, including our stage of
development; the rights, preferences and privileges of our convertible preferred
stock relative to those of our common stock; our financial condition and
operating results, including our levels of available capital resources; equity
market conditions affecting comparable public companies; general U.S. market
conditions; and the lack of marketability of our common stock. Valuations of our
common stock were prepared by an unrelated third-party valuation firm in
accordance with the guidance provided by the American Institute of Certified
Public Accountants Practice Guide, Valuation of Privately-Held-Company Equity
Securities Issued as Compensation.



For our valuation performed on March 20, 2020 and September 14, 2020, we used
the income and market methods to estimate our enterprise value under various
financing scenarios based on the discounted cash flow approach and a market
approach of comparable peer public companies. The estimated enterprise value
under each method was then allocated to the common stock, discount for lack of
marketability was applied, and the resulting value of common stock was
probability-weighted across the various financing scenarios to determine the
fair value of common stock.


The assumptions underlying these valuations represented management's best estimate, which involved inherent uncertainties and the application of management's judgment. As a result, if we had used different assumptions or estimates, the fair value of our common stock and our stock-based compensation expense could have been materially different.



Results of Operations


Comparison of the Three and Six Months Ended June 30, 2021 and 2020

The following table summarizes our results of operations for the three and six
months ended June 30, 2021 as compared to the three and six months ended June
30, 2020:



                                                Three months ended                  Six months ended
                                                     June 30,                           June 30,
                                               2021             2020             2021              2020
Revenue, net                               $ 11,825,000     $  3,908,000     $  18,833,000     $  4,921,000

Cost of goods sold                           11,298,000        2,890,000        18,846,000        3,862,000

Gross (loss) profit                             527,000        1,018,000           (13,000 )      1,059,000

OPERATING EXPENSES
Research and development                        774,000          743,000         1,656,000        1,943,000
Selling, general and administrative
expenses                                      5,181,000        2,713,000        10,255,000        5,003,000
Total operating expenses                      5,955,000        3,456,000   

11,911,000 6,946,000

Operating loss                               (5,428,000 )     (2,438,000 )     (11,924,000 )     (5,887,000 )
OTHER (EXPENSE) INCOME, NET
Interest expense (income), net                   55,000          (41,000 )          23,000          (36,000 )
Other expenses                                  (63,000 )              -           (63,000 )              -
Gain on extinguishment of notes payable               -                -         2,685,000                -
Other (expense) income, net                      (8,000 )        (41,000 )       2,645,000          (36,000 )
Net loss before non-controlling interest     (5,436,000 )     (2,479,000 )      (9,279,000 )     (5,923,000 )
Gain (loss) attributable to
non-controlling interest                        200,000          (35,000 )         167,000          (66,000 )
Net loss attributable to Agrify
Corporation.                               $ (5,636,000 )   $ (2,444,000 )   $  (9,446,000 )   $ (5,857,000 )
Net loss per share attributable to
common stockholders - basic and diluted    $      (0.28 )   $      (0.60 )   $       (0.57 )   $      (1.46 )
Weighted average common shares
outstanding - basic and diluted              20,344,278        4,211,677   
    16,661,948        4,139,691




                                       22





Revenues


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 AVFUs) and Agrify Integrated Grow Racks with our
Agrify Insights™ software, which in 2020 and 2021 are supplemented with
environmental control products, grow lights, and facility build-out services.



During the first quarter of 2020 and in parallel with the outbreak of the
COVID-19 virus, we experienced a disruption in the supply chain that delay the
delivery of several components necessary to the manufacturing of our AVFUs and,
as a result, delivery of several AVFUs was delayed to April 2020.



We generate revenue from sales of cultivation solutions, including ancillary
products and services, Agrify Insights™ software and facility build-outs. We
believe that our product mix form an integrated ecosystem which allows us to be
engaged with our potential customers from early stages of the grow cycle - first
during the facility build-out, to the choice of cultivation solutions and then
running the grow business with our Agrify Insights software. We believe that
delivery of each solution in the grow cycle will generate sales of additional
solutions and services.


The following table provides a breakdown of our revenue for the three and six months ended June 30, 2021 and 2020:



                                                Three months ended                Six months ended
                                                     June 30,                         June 30,
                                               2021            2020             2021            2020
Cultivation solutions, including
ancillary products and services            $  1,037,000     $ 3,486,000    
$  1,266,000     $ 4,495,000
Agrify Insights software                              -               -            8,000               -
Facility build-outs                          10,701,000         422,000       17,472,000         422,000
Services                                         87,000               -           87,000           4,000
                                           $ 11,825,000     $ 3,908,000     $ 18,833,000     $ 4,921,000




Revenue for the three months ended June 30, 2021 and 2020 was generated mainly
from facility build outs and cultivation solutions, respectively. For the three
months ended June 30, 2021 and 2020, we sold 18 and 129 AVFUs, respectively.



Revenue for the six months ended June 30, 2021 and 2020 was generated mainly
from facility build outs and cultivation solutions, respectively. For the six
months ended June 30, 2021 and 2020, we sold 22 and 179 AVFUs, respectively.



We believe that the addition of the facility build-outs to our products and
services offering will enhance our customer relationship and will increase the
productivity of our AVFUs which will benefit our customers. We expect that
during the second half of 2021 the majority of our revenue will continue to be
generated from facility build-outs.



                                       23





Cost of Revenues


Cost of goods sold include direct cost of parts and outsourced assembly and installation services that are necessary for delivery of our products.

The following table provides a breakdown of our cost of revenue for the three and six months ended June 30, 2021 and 2020:



                                                Three months ended                Six months ended
                                                     June 30,                         June 30,
                                               2021            2020             2021            2020
Cultivation solutions, including
ancillary products and services            $  1,117,000     $ 2,468,000    
$  1,886,000     $ 3,440,000
Facility build-outs                          10,181,000         422,000       16,960,000         422,000
                                           $ 11,298,000     $ 2,890,000     $ 18,846,000     $ 3,862,000



During the first six months of 2020, we outsourced the manufacturing of our
AVFUs to HMH, which we acquired in July 2020. Although the primary reason we
acquired HMH was to expand our research, development and testing capabilities,
the acquisition will also provide us with internal capabilities to manufacture
small quantities of AVFUs and to reduce our cost of manufacturing. In addition,
in December 2020, we entered into a five year supply agreement with Mack Molding
Co. ("Mack") pursuant to which Mack will become a key supplier of our AVFUs. In
February 2021, we placed a purchase order with Mack amounting to approximately
$5,200,000 towards initial production of AVFUs during 2021. In June 2021, the
Company increased the purchase order with Mack to approximately $11,500,000
towards production of AVFUs during 2021 and 2022. We believe the supply
agreement with Mack will provide us with increased scaling capabilities and the
ability to meet the potential future demand of our customers more efficiently.
The supply agreement contemplates that, following an introductory period, we
will negotiate a minimum percentage of our AVFU requirements that we will
purchase from Mack each year based on the agreed upon pricing formula. The
introductory period is not time-based but rather refers to the production of an
initial number of units after which the parties have rights to adjust pricing
and negotiate a certain minimum requirements percentage. We believe this
approach will result in both parties making a more informed decision with
respect to the pricing and other terms of the supply agreement with Mack.



Gross Profit



Our gross profit (loss) represents total revenue less the cost of goods sold,
and gross margin percentage is gross profit (loss) expressed as a percentage of
total revenue. For the three months ended June 30, 2021, our gross profit was
$527,000 compared to a gross profit of $1,018,000 for the three months ended
June 30, 2020. For the six months ended June 30, 2021, our gross loss was
$13,000 compared to a gross profit of $1,059,000 for the six months ended June
30, 2020.



Our gross profit (loss) margin percentage decreased to 4.5% for the three months
ended June 30, 2021 compared to 26.0% in the same period in 2020. The decrease
in gross profit was primarily related to (i) employee-related expenses,
including salaries, benefits, and stock-based compensation of $300,000 related
to production and assembling operation in HMH which was acquired in the third
quarter of 2020, and (ii) revenue mix that included higher revenue from facility
build-outs, which contributes lower gross profit margin compared to sale of
our
AVFUs.



Our gross profit (loss) margin percentage decreased to less than (1%) for the
six months ended June 30, 2021 compared to 21.5% in the same period in 2020. The
decrease (increase) in gross profit (loss) was primarily related to (i)
inventory obsolescence reserve during the six months ended June 30, 2021 in the
amount of $113,000 due to change in design as we transition to our more advanced
AVFUs model, (ii) employee-related expenses, including salaries, benefits, and
stock-based compensation of $644,000 related to production and assembling
operation in HMH which was acquired in the third quarter of 2020, and (ii)
revenue mix that included higher revenue from facility build-outs, which
contributes lower gross profit margin compared to sale of our AVFUs.



Research and Development Expenses

Research and development expenses consisted primarily of costs incurred for the
development of our Agrify Insights software and next generation AVFUs, which
includes:



  ? employee-related expenses, including salaries, benefits, and travel;



? expenses incurred by subcontractor under agreements to provide engineering

    work related to the development of our next generation AVFUs;



? expenses related to our facilities, depreciation, and other expenses, which

include direct and allocated expenses for rent and maintenance of facilities,

    insurance and other supplies.




                                       24




For the three months ended June 30, 2021 and 2020, research and development
expenses were $774,000 and $743,000, respectively. The increase of $31,000 is
primarily attributable to increase in employee-related expenses, including
salaries, benefits, and stock-based compensation of $151,000, and increase in
other costs amounting to $143,000. The increase in expenses was offset by
decrease in consulting fees of $111,000 and a decrease in expenses attributable
to halted development of hardware solution for deployment of rapid grow solution
of $151,000 in the second quarter of fiscal 2020.



For the six months ended June 30, 2021 and 2020, research and development
expenses were $1,656,000 and $1,943,000, respectively. The decrease of $287,000
is primarily attributable to halted development of hardware solution for
deployment of rapid grow solution of $813,000 in the first quarter of fiscal
2020 and decrease in consulting fees of $245,000. The decrease in expenses was
offset by an increase in payroll and related expenses in the amount of
approximately $374,000, increase in other costs amounting to $197,000 and an
increase in stock-based compensation in the amount of $201,000, including a
non-recurring expense of $176,000 related to vesting acceleration of options
upon the consummation of our IPO.



As a percentage of net revenue, research and development expenses were 6.5% and
19%, respectively, from total revenue for the three months ended June 30, 2021
and 2020 (or 6.5% and 15% when excluding the one-time halted cost). As a
percentage of net revenue, research and development expenses were 8.8% and 39%,
respectively, from total revenue for the six months ended June 30, 2021 and 2020
(or 8.8% and 23% when excluding the one-time halted cost). We expect to continue
to invest in future developments of our AVFUs and Agrify Insights™ software. In
the coming years, we believe that research and development expenses measured as
percentage of revenue will decrease due to an increase in our total revenue.



Selling, General and Administrative Expenses

Selling, general and administrative expenses consist principally of salaries and related costs for personnel, including stock-based compensation and travel expenses, in selling, executive and other administrative functions. Other general and administrative expenses include professional fees for legal, consulting and accounting services as well as facility related costs.




For the three months ended June 30, 2021 and 2020, general and administrative
expenses were $5,181,000 and $2,713,000, respectively. The increase is
attributable mainly to payroll and related expenses of approximately $884,000,
stock-based compensation in the amount of $411,000, insurance expenses of
approximately $663,000 and depreciation and amortization expenses of
approximately $115,000. The increase in expenses was offset by a decrease of
$232,000 in professional fees.



For the six months ended June 30, 2021 and 2020, general and administrative
expenses were $10,255,000 and $5,003,000, respectively. The increase is
attributable mainly to payroll and related expenses of approximately $1,244,000,
stock-based compensation in the amount of $2,143,000, insurance expenses of
approximately $1,108,000, legal expenses of approximately $133,000 and
depreciation and amortization expenses of approximately $244,000. To support our
long-term growth plan and our initial public offering, we have granted stock
options to officers, directors and employees with several vesting conditions,
including an event-based vesting acceleration (defined as a change in control,
including an initial public offering). As a result of the consummation of our
IPO, our selling, general and administrative expenses included a non-recurring
expense of $1,248,000.



Other (Income) Expense, Net




Interest income was $55,000 for the three months ended June 30, 2021, compared
to interest expense of $41,000 for the three months ended June 30, 2020,
reflecting a change of $96,000. Interest income was $23,000 for the six months
ended June 30, 2021, compared to interest expense of $36,000 for the six months
ended June 30, 2020, reflecting a change of $59,000. The increase in interest
income is attributable mainly to interest from held to maturity securities.

Other expenses of $63,000 for the three and six months ended June 30, 2021, compared to null for the three and six months ended June 30, 2020 are attributable to amortization of premiums related to the held to maturity securities.




Gain on extinguishment of notes payable was null and $2,685,000 for the three
and six months ended June 30, 2021, respectively, compared to null for the three
and six months ended June 30, 2020.



                                       25




Loss Attributable to Non-Controlling Interest




We consolidate the results of operations of two less than wholly-owned entities
into our consolidated results of operations. On December 8, 2019, we formed
Agrify-Valiant, LLC, a joint-venture limited liability company in which we are
60% majority owner and Valiant-America, LLC owns 40%. Agrify-Valiant, LLC
started its operations during the second quarter of 2020. On January 22, 2020,
as part of the acquisition of TriGrow, we received TriGrow's 75% interest in
Agrify Brands, LLC (formerly TriGrow Brands, LLC), a licensor of an established
portfolio of consumer brands that utilize our grow technology. The license of
these brands is ancillary to the sale of our AVFUs and provides a means to
differentiate customers' products in the marketplace. It is not a material
aspect of our business and we have not realized any royalty income. Accordingly,
we are currently evaluating whether to continue this legacy business from an
operational standpoint, as well as from a legal and regulatory perspective.

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.

Liquidity and Capital Resources




Upon the closing of the February Offering, we had approximately $139 million in
cash and cash equivalents. We believe such amount, together with cash flows from
operations, will be sufficient to support our planned operations for at least
the next 12 months. Our current working capital needs are to support accounts
receivable growth, manage inventory to meet demand forecasts and support
operational growth. Our long-term financial needs primarily include working
capital requirements and capital expenditures. 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.



We may opportunistically raise debt capital, subject to market and other
conditions. Additionally, as part of our growth strategies, we may also raise
debt capital for strategic alternatives and general corporate purposes. If
additional financing is required from outside sources, we may not be able to
raise such capital on terms acceptable to us or at all. If we are unable to
raise additional capital when desired, our business, operating results and
financial condition may be adversely affected.



Indebtedness


We entered into two Loan Agreements and Promissory Notes (collectively the "PPP
Loan") 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 $823,410 from the unsecured PPP Loans which are scheduled to mature
during 2022 and 2025. Subject to certain conditions, the PPP Loan may be
forgiven in whole or in part by applying for forgiveness pursuant to the CARES
Act and the PPP. We have not yet applied for forgiveness of the PPP Loan and
although we believe that we will be eligible for full forgiveness under the PPP,
there is no assurance that the full PPP Loan amount will be forgiven and we
cannot anticipate the timing of any such forgiveness. If the principal amount is
not forgiven in full, we would be obligated to repay any principal amount not
forgiven and interest accrued thereon.



Cash Flows



The following table presents the major components of net cash flows (used in)
and provided by operating, investing and financing activities for the three and
six months ended June 30, 2021, and 2020:



                                                 Three months ended                  Six months ended
                                                      June 30,                           June 30,
                                               2021              2020             2021              2020
Cash (used in) provided by:
Operating Activities                       $  (6,558,000 )   $ (3,978,000 )   $ (13,837,000 )   $ (7,898,000 )
Investing Activities                       $ (51,723,000 )   $    (18,000 )   $ (51,865,000 )   $ (1,173,000 )
Financing Activities                       $     235,000     $  4,779,000  
  $ 137,432,000     $ 10,859,000




                                       26




Cash Flow from Operating Activities




For the three months ended June 30, 2021, we incurred a net loss of $5,636,000,
which included non-cash expenses of $166,000 related to depreciation and
amortization, $931,000 in connection with the issuance and acceleration of stock
options, non-cash interest expenses of $13,000 related to leases, and gain
attributed to non-controlling interest in the amount of $200,000. Net cash was
reduced by a $5,904,000 increase in accounts receivable, a $1,147,000 increase
in prepaid inventory due to demand forecast and a $568,000 increase in prepaid
expenses, partially offset by a $5,481,000 increase in accrued expenses
($5,024,000 related to construction costs).



For the six months ended June 30, 2021, we incurred a net loss of $9,446,000,
which included non-cash expenses of $313,000 related to depreciation and
amortization, $3,066,000 in connection with the issuance and acceleration of
stock options, non-cash interest expenses of $46,000 related to leases, and gain
attributed to non-controlling interest in the amount of $167,000. Net cash was
reduced by a $11,122,000 increase in accounts receivable, a $4,477,000 increase
in prepaid inventory due to demand forecast and a $2,723,000 increase in prepaid
expenses, partially offset by a $12,841,000 increase in accrued expenses
($11,104,000 related to construction costs).



For the three months ended June 30, 2020, we reported a net loss of $2,444,000,
which included non-cash expenses of $81,000 related to depreciation and
amortization, loss from disposal of fixed assets of $111,000 and $542,000 in
connection with issuance of stock options. Net cash was reduced by a $130,000
increase in accounts receivable and a $3,036,000 decrease in deferred revenue,
partially offset by a $597,000 increase in accrued expenses, a $254,000 increase
in accounts payable and a $159,000 decrease in prepaid and other expenses.



For the six months ended June 30, 2020, we reported a net loss of $5,857,000,
which included non-cash expenses of $147,000 related to depreciation and
amortization, loss from disposal of fixed assets of $113,000 and $603,000 in
connection with issuance of stock options. Net cash was reduced by a $1,328,000
increase in inventory due to demand forecast and a $2,145,000 decrease in
deferred revenue, partially offset by a $505,000 increase in accrued expenses, a
$61,000 increase in accounts payable and a $79,000 decrease in prepaid and
other
expenses.



For the three months ended June 30, 2021 and 2020, depreciation and amortization
expense was $166,000 and $81,000, respectively. For the six months ended June
30, 2021 and 2020, depreciation and amortization expense was $313,000 and
$147,000, respectively. The increase in depreciation and amortization expenses
mainly related to assets acquired from HMH. We anticipate that our depreciation
and amortization expense will increase in fiscal 2021 due to investment in
capital expenditures in fiscal 2021 on property and equipment to expand
research, development and testing capabilities.



For the three months ended June 30, 2021 and 2020, compensation expenses in
connection with issuance of stock options were $931,000 and $542,000,
respectively. For the six months ended June 30, 2021 and 2020, compensation
expenses in connection with issuance of stock options were $3,066,000 (of which
$1,502,000 related to the acceleration of stock option vesting due to our IPO)
and $603,000, respectively. As of June 30, 2021, there were $10,125,000 of total
unrecognized compensation expenses related to unvested options granted under our
options plans, which will be recognized periodically through fiscal 2025.



Cash Flow from Investing Activities




Net cash used in investing activities relates to capital expenditures and
purchase of held to maturity securities. The capital expenditures support growth
and investment in property and equipment, to expand research, development and
testing capabilities and, to a lesser extent, the replacement of existing
equipment.



For the three months ended June 30, 2021, net cash used in investing activities
was $960,000 for leased equipment, leasehold improvements, purchasing computer
equipment and small machinery, a $483,000 issuance of loan receivable and
$50,280,000 purchases of held to maturity securities. For the six months ended
June 30, 2021, net cash used in investing activities was $1,102,000 for
leasehold improvements, purchasing computer equipment and small machinery, a
$483,000 issuance of loan receivable and $50,280,000 purchases of held to
maturity securities.



For the three months ended June 30, 2020, net cash used in investing activities
was $18,000, mainly related to purchasing of computer equipment and small
machinery. For the six months ended June 30, 2020, net cash used in investing
activities was $1,173,000, which included $1,096,000 paid in connection with the
acquisition of TriGrow and a $77,000 cash outflow for purchasing computer
equipment and small machinery.



Cash Flow from Financing Activities




For the three months ended June 30, 2021, net cash provided by financing
activities was $282,000 related to proceeds from the exercise of options, which
were offset by payments of financing leases in the amount of $47,000. For the
six months ended June 30, 2021, net cash provided by financing activities was
$137,432,000, attributable to $57,000,000 proceeds from our initial IPO,
$80,000,000 from our secondary public offering, both net of fees, and proceeds
from the exercise of options and warrants of $726,000, offset by $94,000
payments of financing leases.



For the three months ended June 30, 2020, net cash provided by financing
activities was $4,779,000, consisting of $4,000,000 proceeds from the issuance
of our series A Preferred Stock and $779,000 from proceeds from a PPP loan. For
the six months ended June 30, 2020, net cash provided by financing activities
was $10,859,000, consisting mainly $10,000,000 proceeds from the issuance of our
series A Preferred Stock and $779,000 from proceeds from a PPP loan.



                                       27

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Sales 2021 58,0 M - -
Net income 2021 -22,0 M - -
Net Debt 2021 - - -
P/E ratio 2021 -15,6x
Yield 2021 -
Capitalization 373 M 373 M -
Capi. / Sales 2021 6,43x
Capi. / Sales 2022 2,90x
Nbr of Employees 66
Free-Float 88,2%
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Managers and Directors
Raymond N. Chang Chairman, President & Chief Executive Officer
Niv Krikov Chief Financial Officer
David Kessler Chief Science Officer
Robert Harrison Chief Operating Officer
Thomas L. Massie Independent Director
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