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Loan Receivable

6 Months Ended

Jun. 30, 2022

Note 5 — Loan Receivable

A portion of the capital raised from the Company’s IPO has been allocated to launch the Company’s TTK Solution program. The TTK Solution is the industry’s first-of-its-kind program in which the Company engages with qualified cannabis operators in the early phases of their business plans and provides critical support, typically over a 10-year period, which includes: access to capital for construction costs, the design and build-out of their cultivation and extraction facilities, state-of-the-art cultivation and extraction equipment, subscription to the Company’s Agrify Insights™ cultivation software, process design, training, implementation, proven grow recipes, product formulations, data analytics, and consumer branding, which will enable the Company’s customers to go to market faster and better.

During the quarter ended June 30, 2022, the Company established a reserve of approximately $7.1 million specifically related to Greenstone Holdings (“Greenstone”). The Company established the reserve based upon its review of Greenstone’s financial stability, which would impact collectability, which is primarily the result of unfavorable market conditions within the Colorado market. The Company will continue to monitor the operations of Greenstone in an effort to collect all outstanding receivables but due to the uncertain nature of Greenstone’s business at this time the Company has made the decision to place a reserve against the receivables. Greenstone is a related party as of June 30, 2022 and December 31, 2021.

The loan agreements entered into with customers receiving the TTK Solution generally provide for loans with maturity dates of approximately two to three years after the completion of the construction projects. Typically, the TTK Solution construction loans have interest rates ranging from 12% to 18% per year.

The breakdown of loans receivable by customer as of June 30, 2022 and December 31, 2021 is as follows:

(In thousands)	June 30, 2022			December 31, 2021
Company Customer Number 139 – TTK Solution	$	14,730		$	5,542
Greenstone – TTK Solution – Related Party		12,457			11,177
Company Customer Number 136 – TTK Solution		8,691			2,439
Company Customer Number 125 – TTK Solution		4,809			1,105
Company Customer Number 140 – TTK Solution		46			46
Company Customer Number 71 – Non-TTK Solution (1)		1,401			1,946
Other – Non-TTK Solutions		35			—
Greenstone – TTK Solution – Related Party – Allowance for doubtful accounts (2)		(7,079	)		—
Total loan receivable	$	35,090		$	22,255

(1)	The current portion of loan receivable are included within Note 3 – Supplemental Consolidated Balance Sheet Information, included elsewhere in the notes to the consolidated financial statements.

(2)	The Greenstone allowance for doubtful accounts balance consisted of capital advances, accrued interest and VFUs sales. See below for more detailed information about the Greenstone TTK Solution transaction and the current reserve balance.

At this time, the Company is not aware of, nor has it identified any risk or potential performance failure associated with any of its other TTK Solution arrangements with the noted exception of the Greenstone TTK Solution, as described above.

The Company analyzed whether any of the above customers are a VIE in accordance with ASC 810 and if so, whether the Company is the primary beneficiary requiring consolidation. Based on the Company’s analysis, the Company has determined that Greenstone is a VIE. As of June 30, 2022, two of the Company’s employees own approximately 36.6% of the equity of Greenstone, however, since the Company is not the primary beneficiary and does not hold significant influence over Greenstone business decisions, the Company is not required to consolidate Greenstone.