Basis of Presentation and Summary of Significant Accounting Policies

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and in accordance with the rules and regulations of the Securities and Exchange Commission. These financial statements include all adjustments that are necessary for a fair presentation of the Company's condensed consolidated results of operations, financial condition and cash flows for the periods shown, including normal, recurring accruals and other items. The condensed consolidated results of operations for the interim periods presented are not necessarily indicative of results for the full year.

Adoption of Highly Inflationary Accounting in Argentina

GAAP requires the use of highly inflationary accounting for countries whose cumulative three-year inflation rate exceeds 100 percent. The Company has been closely monitoring the inflation data and currency volatility in Argentina, where there are multiple data sources for measuring and reporting inflation. In the second quarter of 2018, the Argentine peso rapidly devalued relative to the U.S. dollar, which along with increased inflation, indicated that the three-year cumulative inflation rate in that country exceeded 100 percent as of June 30, 2018. As a result, the Company has elected to adopt highly inflationary accounting as of July 1, 2018 for subsidiaries in Argentina. Under highly inflationary accounting, the functional currency of subsidiaries in Argentina became the U.S. dollar, and their income statement and balance sheet will be measured in U.S. dollars using both current and historical rates of exchange. The effect of changes in exchange rates on Argentine peso-denominated monetary assets and liabilities will be reflected in earnings. As of September 30, 2018, the Company’s subsidiaries in Argentina had a net asset position of $23.3 million. Net sales attributable to Argentina were approximately 5 percent of the Company’s consolidated net sales for each of the nine months ended September 30, 2018 and 2017.

Revenue Recognition

On January 1, 2018, the Company began to account for revenue in accordance with Accounting Standards Codification ("ASC") 606, which requires revenue recognized to represent the transfer of promised goods or services to customers at an amount that reflects the consideration which is expected to be received in exchange for those goods or services. The Company utilized the modified retrospective method of adoption to all contracts that were not completed as of January 1, 2018. Prior period results were not adjusted and continue to be reported under the accounting standards in effect for the prior period. The Company has not made any significant changes to judgments in applying ASC 606 during the nine months ended September 30, 2018.

Performance Obligations

The Company derives revenue from the sale of products created with proprietary technology to regulate the ripening of produce and through performing post application technical services for its customers. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account in ASC 606. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The majority of the Company’s contracts have multiple performance obligations primarily related to product application and post application services, which the Company provides. For contracts with multiple performance obligations, the Company allocates the contract’s transaction price to each performance obligation using the best estimate of the standalone selling price of each distinct good or service in the contract. The method used to estimate standalone selling price is the expected cost plus a margin approach, under which the Company calculates the costs of satisfying a performance obligation and factors in an appropriate margin for that distinct good or service.

The transaction price is primarily fixed, as prices are governed by the terms and conditions of the Company's contracts with customers, and payment is typically made under standard terms. The Company has certain transactions that provide for variable consideration through rebate and customer loyalty programs. Depending on the program, the customer may elect to receive either a credit against its account or a cash payment. The Company recognizes an accrued provision for estimated rebates and customer loyalty program payouts at the time services are provided. The primary factors considered when estimating the provision for rebates and customer loyalty programs are the average historical experience of aggregate credits issued, the historical relationship of rebates as a percentage of total gross product sales, and the contract terms and conditions of the various rebate programs in effect at the time services are performed. The Company provides standard warranty provisions.

Performance obligations related to product application are typically satisfied at a point in time when the customer obtains control upon application. Performance obligations related to post-application services are satisfied over time and revenue is recognized using the output method, as control of the service transfers to the customer over time during and after storage of the produce. The Company believes that this method provides a faithful depiction of the transfer of value over the term of the performance obligation because the level of effort in providing these services is consistent during the service period. Performance obligations related to Tecnidex sales-type leases are satisfied at the point in time that equipment is installed at the customer site.

Disaggregation of Revenue

The Company disaggregates revenue from contracts with customers into geographic region, product and timing of transfer of goods and services. The Company determined that disaggregating revenue into these categories achieves the disclosure objective of depicting how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.



Revenues for the three months ended September 30, 2018 (in thousands)
Region	North America		EMEA		Latin America		Asia Pacific		Total Revenue
Product
1-MCP based	$	26,029	$	34,284	$	779	$	2,387	$	63,479
Fungicides, waxes, coatings, biocides	270		4,047		—		—		4,317
Other*	614		134		154		—		902
	$	26,913	$	38,465	$	933	$	2,387	$	68,698

Pattern of Revenue Recognition
Products transferred at a point in time	$	26,774	$	38,342	$	907	$	2,176	$	68,199
Services transferred over time	139		123		26		211		499
	$	26,913	$	38,465	$	933	$	2,387	$	68,698



Revenues for the nine months ended September 30, 2018 (in thousands)
Region	North America		EMEA		Latin America		Asia Pacific		Total Revenue
Product
1-MCP based	$	28,378	$	43,508	$	26,185	$	12,228	$	110,299
Fungicides, waxes, coatings, biocides	270		12,981		—		—		13,251
Other*	1,236		349		335				1,920
	$	29,884	$	56,838	$	26,520	$	12,228	$	125,470

Pattern of Revenue Recognition
Products transferred at a point in time	$	29,701	$	56,658	$	26,448	$	11,784	$	124,591
Services transferred over time	183		180		72		444		879
	$	29,884	$	56,838	$	26,520	$	12,228	$	125,470

*Other includes RipeLock, AdvanStore, LandSpring, Verigo (as defined in Note 3), technical services and sales-type leases related to Tecnidex

Contract Assets and Liabilities

ASC 606 requires an entity to present a revenue contract as a contract asset when the entity performs its obligations under the contract by transferring goods or services to a customer before the customer pays consideration or before payment is due. ASC 606 also requires an entity to present a revenue contract as a contract liability in instances when a customer pays consideration, or an entity has a right to an amount of consideration that is unconditional (e.g. receivable), before the entity transfers a good or service to the customer. The following table presents changes in the Company’s contract assets and liabilities during the nine months ended September 30, 2018:



	Balance at January 1, 2018		Additions		Deductions			Balance at September 30, 2018
(in thousands)
Contract assets:
Unbilled revenue	$	739	$	5,736	$	(1,613	)	$	4,862
Contract liabilities:
Deferred revenue	$	100	$	3,717	$	(890	)	$	2,927

The Company recognizes contract assets in the form of unbilled revenue in instances where services are performed by the Company but not billed by period end. The Company recognizes contract liabilities in the form of deferred revenue in instances where a customer pays in advance for future services to be performed by the Company. The Company generally receives payments from its customers based on standard terms and conditions. No significant changes or impairment losses occurred to contract balances during the nine months ended September 30, 2018. Amounts reclassified from unbilled revenue to accounts receivable for the nine months ended September 30, 2018 were $1.6 million. Amounts reclassified from deferred revenue to revenue were $0.9 million for the nine months ended September 30, 2018.

Practical Expedients Elected

The Company has elected the following practical expedients in applying ASC 606 across all reportable segments:

Unsatisfied Performance Obligations. Because all of its performance obligations relate to contracts with a duration of less than one year, the Company has elected to apply the optional exemption provided in ASC 606 and, therefore, is not required to disclose the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period.

Contract Costs. All incremental customer contract acquisition costs are expensed as they are incurred as the amortization period of the asset that the Company otherwise would have recognized is one year or less in duration.

Significant Financing Component. The Company does not adjust the promised amount of consideration for the effects of a significant financing component as the Company expects, at contract inception, that 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.

Sales Tax Exclusion from the Transaction Price. The Company excludes from the measurement of the transaction price all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by the Company from the customer.

Shipping and Handling Activities. The Company accounts for shipping and handling activities it performs after a customer obtains control of the good as activities to fulfill the promise to transfer the good, which are recognized in cost of goods sold.

Modified Retrospective Method. The Company adopted ASC 606 on January 1, 2018 utilizing the modified retrospective method, which meant the Company did not retrospectively adjust prior periods. The Company applied the modified retrospective method only to contracts that were not completed at January 1, 2018 and accounted for the aggregate effect of any contract modifications upon adoption. No cumulative adjustment to retained earnings was recorded upon adoption. The following table summarizes the amounts by which the consolidated financial statements are affected in the current reporting period by ASC 606 as compared with the guidance that was in effect before the change.



Balance at September 30, 2018 (in thousands)	As reported			ASC 606 Adjustments			Balances without adoption of ASC 606
Consolidated Balance Sheet
Liabilities
Accrued expenses and other current liabilities	$	62,200		$	(1,209	)	$	60,991

Equity
Accumulated deficit	$	(136,611	)	$	1,209		$	(135,402	)



Three months ended September 30, 2018 (in thousands)	As reported		ASC 606 Adjustments		Balances without adoption of ASC 606
Consolidated Statements of Operations
Revenue
Net sales	$	68,698	$	166	$	68,864

Net income attributable to AgroFresh Solutions, Inc	$	3,470	$	129	$	3,599



Nine months ended September 30, 2018 (in thousands)	As reported			ASC 606 Adjustments		Balances without adoption of ASC 606
Consolidated Statements of Operations
Revenue
Net sales	$	125,470		$	1,209	$	126,679

Net loss attributable to AgroFresh Solutions, Inc	(27,882		)	$	943	$	(26,939	)

For additional information, these condensed consolidated financial statements should be read in conjunction with the consolidated and combined financial statements and notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2017.

Recently Issued Accounting Standards and Pronouncements

In August 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2017-12 Targeted Improvements to Accounting for Hedging Activities. This update makes more financial and nonfinancial hedging strategies eligible for hedge accounting. It also amends the presentation and disclosure requirements and changes how companies assess effectiveness. This update will be effective for the Company for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted upon its issuance. The Company is currently assessing the impact of the future adoption of this standard on its financial statements.

In May 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation, Scope of Modification Accounting. ASU 2017-09 addresses the changes to the terms and conditions of share-based awards. ASU 2017-09 is effective for periods beginning after December 15, 2017 and interim periods therein on a modified retrospective basis. The Company adopted the new ASU as of January 1, 2018, and it did not have a material impact on the financial statements.

In January 2017, the FASB issued ASU 2017-01, Business Combinations, Clarifying the Definition of a Business. The new accounting guidance clarifies the definition of a business and provides additional guidance to assist entities with evaluating whether transactions should be accounted for as asset acquisitions (or asset disposals) or business combinations (or disposals of a business). Under the new guidance, an entity first determines whether substantially all of the fair value of the assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If this criterion is met, the transaction should be accounted for as an asset acquisition as opposed to a business combination. This distinction is important because the accounting for an asset acquisition significantly differs from the accounting for a business combination. The new guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2017, with early adoption permitted. During the second quarter of 2018, the Company adopted this standard in connection with the acquisition of Verigo (refer to Note 3).

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other, which simplifies the test for goodwill impairment. The guidance is effective for the Company beginning in the first quarter of fiscal year 2020. Early adoption is permitted for interim or annual goodwill impairments tests after January 1, 2017. This standard will impact future financial statements when adopted.

In February 2016, the FASB issued ASU 2016-02, Leases. The main objective of this update is to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company will adopt ASU 2016-02 on a modified retrospective basis, applying the transition requirements as of January 1, 2019.

The Company is currently in the process of reviewing lease contracts, establishing new processes and internal controls and evaluating the impact of certain accounting policy elections. Until this effort is completed, the Company cannot fully determine the impact of adopting ASU 2016-02; however, the Company expects ASU 2016-02 to have a material impact on the Company’s consolidated financial position but not have a material impact on the Company’s consolidated results of operations or cash flows. The Company expects to complete its assessment of the full financial impact shortly after December 31, 2018, and will include all required presentation and disclosures under ASU 2016-02 in its Form 10-Q for the three months ending March 31, 2019.