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Item 1. Financial Statements

2023-10-02 compared with 2023-10-02 · 1621 added, 1948 removed, 604 unchanged (86% of the section changed)

Financial Statements

AGRIFY CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

CONSOLIDATED BALANCE SHEETS

thousands, except share and per share data)

(As Restated)

Current assets:

Cash and cash equivalents

Restricted cash and restricted marketable securities

Marketable securities

Accounts receivable, net of allowance for doubtful accounts of $ 2,740 and $ 1,415 at June 30, 2022 and December 31, 2021, respectively

Inventory, net of reserves of $ 1,871 and $ 942 at June 30, 2022 and December 31, 2021, respectively

Prepaid and refundable taxes

Prepaid expenses and other current assets

Total current assets

Loan receivable, net of allowance for doubtful accounts of $ 7,079 and $ 0 at June 30, 2022 and December 31, 2021, respectively

Property and equipment, net

Right-of-use assets, net

Intangible assets, net

Other non-current assets

Liabilities and Stockholders’ Equity

and cash equivalents

Accounts receivable, net of allowance for doubtful accounts of $ 1,415 and $ 1,415 at March 31, 2022 and December 31, 2021, respectively

Inventory, net of reserves of $ 942 and $ 942 at March 31, 2022 and December 31, 2021, respectively

and refundable taxes

expenses and other current assets

current assets

and equipment, net

non-current assets

and Stockholders’ Equity

expenses and other current liabilities

lease liabilities, current

debt, current

current liabilities

Accounts payable

Accrued expenses and other current liabilities

Operating lease liabilities, current

Long-term debt, current

Deferred revenue

Total current liabilities

Warrant liabilities

Other non-current liabilities

Operating lease liabilities, non-current

Long-term debt

Total liabilities

Commitments and contingencies (Note 18)

Stockholders’ equity:

Common Stock, $ 0.001 par value per share, 250,000 shares authorized, 132,957 and 111,035 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively (1)

non-current liabilities

lease liabilities, non-current

tax liabilities, net

and contingencies (Note 22)

Stockholders’

Common Stock, $ 0.001 par value per share, 250,000 shares authorized, 132,714 and 111,035 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively (1)

Preferred Stock, $ 0.001 par value per share, 2,895,000 shares authorized, no shares issued or outstanding

Preferred A Stock, $ 0.001 par value per share, 105,000 shares authorized, no shares issued or outstanding

Additional paid-in capital (1)

Accumulated deficit

Total stockholders’ equity attributable to Agrify

Non-controlling interests

Total liabilities and stockholders’ equity

paid-in capital (1)

stockholders’ equity attributable to Agrify

Non-controlling

liabilities and stockholders’ equity

(1) Periods presented have been adjusted to reflect the 1-for-10 reverse stock split on October 18, 2022 and the 1-for-20 reverse stock split on July 5, 2023.

Additional information regarding the reverse stock splits may be found in Note 1 – Overview, Basis of Presentation and Significant Accounting Policies , included elsewhere in the notes to the condensed consolidated financial statements.

The accompanying notes are an integral part of

these condensed consolidated financial statements.

AGRIFY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share and per share data)

Three Months ended

Six Months ended

(As Restated)

accompanying notes are an integral part of these condensed consolidated financial statements.

CONSOLIDATED STATEMENTS OF OPERATIONS

thousands, except share and per share data)

(As Restated)

3 unchanged sentences

General and administrative

Selling and marketing

Research and development

Change in contingent consideration

Impairment of goodwill and intangible assets

Selling and marketing

Total operating expenses

Loss from operations

Interest (expense) income, net

Other expenses

Change in fair value of warranty liabilities

Interest income (expense), net

Change in fair value of warrant liabilities

Gain on extinguishment of notes payable

Other income (expense), net

Net loss before income taxes

Other income, net

Net income (loss) before

Income tax benefit

Income attributable to non-controlling interests

Net loss attributable to Agrify Corporation

Net loss per share attributable to Common Stockholders – basic and diluted (1)

Weighted-average common shares outstanding – basic and diluted (1)

Net income (loss)

Income (loss) attributable to non-controlling

Net income (loss) attributable

to Agrify Corporation

Net income (loss) per share

attributable to Common Stockholders – basic (1)

Net income (loss) per share

attributable to Common Stockholders – diluted (1)

Weighted-average common shares

outstanding – basic (1)

Weighted-average common shares

outstanding – diluted (1)

(1) Periods presented have been adjusted to reflect the 1-for-10 reverse stock split on October 18, 2022 and the 1-for-20 reverse stock split on July 5, 2023.

The accompanying notes are an integral part of

these condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’

(In thousands, except share data)

accompanying notes are an integral part of these condensed consolidated financial statements.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

thousands, except share data)

Stockholders’

attributable to

Stockholders’

5 unchanged sentences

of Preferred A Stock

Exercise of options

Exercise of warrants

at March 31, 2021

at June 30, 2021

(1) Periods presented have been adjusted to reflect the 1-for-10 reverse stock split on October 18, 2022 and the 1-for-20 reverse stock split on July 5, 2023.

Additional information regarding the reverse stock splits may be found in Note 1 – Overview, Basis of Presentation and Significant Accounting Policies, included elsewhere in the notes to the condensed consolidated financial statements.

(As Restated)

Stockholders’

attributable to

Stockholders’

3 unchanged sentences

(As Restated)

at January 1, 2022

of Common Stock and warrants in private placement

of debt and warrants in private placement

of Lab Society

at March 31, 2022

at June 30, 2022, as restated

Exercise of options

Exercise of warrants

at March 31, 2022, as restated

(1) Periods presented have been adjusted to reflect the 1-for-10 reverse stock split on October 18, 2022 and the 1-for-20 reverse stock split on July 5, 2023.

The accompanying notes are an integral part of

these condensed consolidated financial statements.

AGRIFY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

Six Months ended

(As Restated)

accompanying notes are an integral part of these condensed consolidated financial statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months ended

Cash flows from operating activities

Net loss attributable to Agrify Corporation

Adjustments to reconcile net loss attributable to Agrify Corporation to net cash used in operating activities:

Net income (loss) attributable to Agrify Corporation

Adjustments to reconcile net income (loss) attributable to Agrify Corporation to net cash used in operating activities:

Depreciation and amortization

Impairment on goodwill and intangible assets

Amortization of premium on investment securities

2 unchanged sentences

Interest on investment securities

Early termination of lease

Provision for doubtful accounts

Provision for slow-moving inventory

Deferred income taxes

Prepaid and refundable taxes

Compensation in connection with the issuance of stock options

Non-cash interest (income) expense

Gain on extinguishment of notes payable, net

Loss from disposal of fixed assets

Change in fair value of contingent consideration

Change in fair value of warrant liabilities

Income attributable to non-controlling interests

Gain on extinguishment of notes payable, net

Early termination of lease

Income (loss) attributable to non-controlling interests

Changes in operating assets and liabilities, net of acquisitions:

4 unchanged sentences

Accrued expenses and other current liabilities

Deferred (expense) revenue, net

Deferred revenue, net

Net cash used in operating activities

3 unchanged sentences

Proceeds from the sale of securities

Issuance of loan receivables

Issuance of loan receivable

Cash paid for business combination, net of cash acquired

8 unchanged sentences

Payments on other financing loans

Payments on insurance financing loans

Payments on insurance financing loan

Payments of financing leases

Net cash provided by financing activities

Net increase in cash and cash equivalents

Cash and cash equivalents at the beginning of period

Cash and cash equivalents at the end of period

Cash, cash equivalents, and restricted cash and restricted marketable securities at end of period

Net increase in cash, cash equivalents, and restricted cash

Cash, cash equivalents, and restricted cash at the beginning of period

Cash, cash equivalents, and restricted cash at the end of period

Cash, cash equivalents, and restricted cash at end of period

Cash and cash equivalents

Restricted cash and restricted marketable securities

Total cash, cash equivalents, and restricted cash and restricted marketable securities at the end of period

Supplemental disclosures of non-cash investing activities

Equipment sold for loan receivable to customer

Restricted cash

Total cash, cash equivalents, and restricted cash at the end of period

Supplemental disclosures of cash flow information

Conversion of Convertible Note to Common Stock

Supplemental disclosures of non-cash flow information

1 unchanged sentence

Financing of prepaid insurance

The accompanying notes are an integral part of

these condensed consolidated financial statements.

AGRIFY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 — Overview, Basis of Presentation and Significant

Accounting Policies

Description of Business

Agrify Corporation (“Agrify” or the

“Company”) is one of the most innovative providers of advanced cultivation and extraction solutions for the cannabis industry,

bringing data, science, and technology to the forefront of the market.

The Company’s proprietary micro-environment-controlled Agrify

Vertical Farming Units (or “VFUs”) enable cultivators to produce the highest quality products with what it believes to be

an unmatched consistency, yield, and Return on Investment (“ROI”) at scale.

The Company’s comprehensive extraction product

line, which includes hydrocarbon, ethanol, solventless, post-processing, and lab equipment, empowers producers to maximize the quantity

and quality of extract required for premium concentrates.

The Company believes it’s the only company

with an automated and fully integrated grow solution in the industry.

The Company’s cultivation and extraction solutions seamlessly

combines its 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.

of its product offerings and service capabilities forms an unrivaled ecosystem in what has historically been a highly fragmented market.

As a result, the Company believes it’s well situated to create a dominant market position in the indoor agriculture sector.

The Company was formed in the State of Nevada

on June 6, 2016 as Agrinamics, Inc., and subsequently changed its name to Agrify Corporation.

The Company is sometimes referred to herein

by the words “we,” “us,” “our,” and similar terminology.

The Company has nine wholly-owned subsidiaries,

which are collectively referred to as the “Subsidiaries”:

Service Corp LLC (formerly AGM Service Corp Inc.);

Systems, LLC (“TriGrow”, which acted as the Company’s exclusive distributor and which was acquired in January 2020

as TriGrow Systems, Inc.

and converted to TriGrow Systems, LLC in May 2020);

Finance, LLC;

Mountain Holdings, LLC (“HMH”) (acquired in July 2020);

Sciences, LLC (“Cascade”) (which was acquired by the Company on October 1, 2021);

Extraction NewCo, LLC (“Precision”) (which was a newly formed subsidiary in connection with the October 1, 2021 acquisition

of Mass2Media, LLC, d/b/a PX2 Holdings, LLC, d/b/a Precision Extraction Solutions and Cascade);

● PurePressure,

LLC (“PurePressure”) (which was acquired by the Company on December 31, 2021);

Society NewCo, LLC (“Lab Society”) (which was a newly formed subsidiary in connection with the February 1, 2022 acquisition

of LS Holdings Corp).

The Company also has ownership interests in the

following companies:

Podoponics International LLC (“TPI”) (the Company has owned 50% of TPI since December 2018);

● Agrify-Valiant,

LLC (“Agrify-Valiant”) (the Company owns 60% of Agrify-Valiant, which was formed in December 2019);

Brands, LLC (“Agrify Brands”) (formerly TriGrow Brands, LLC) (the Company owns 75% of Agrify Brands, which ownership position

was created as part of the January 2020 acquisition of TriGrow).

Reverse Stock Split

On January 12, 2021, the Company effected a 1-for-1.581804

reverse stock split (“Reverse Stock Split”) of its Common Stock, $ 0.001 par value per share (“Common Stock”).

All share and per share information has been retroactively adjusted to give effect to the Reverse Stock Split for all periods presented

unless otherwise indicated.

On October 18, 2022, the Company effected a 1-for-10

reverse stock split of its Common Stock.

All share and per share information has been retroactively adjusted to give effect to the reverse

stock split for all periods presented unless otherwise indicated.

On July 5, 2023, the Company effected a 1-for-20

reverse stock split of its Common Stock, All share and per share information has been retroactively adjusted to give effect to the reverse

stock split for all periods presented unless otherwise indicated.

No fractional shares of Common Stock were issued

as a result of these reverse stock splits.

Any fractional shares in connection with these reverse stock splits were rounded up to the

nearest whole share and no stockholders received cash in lieu of fractional shares.

The reverse stock splits had no impact on the number

of shares of Common Stock that the Company is authorized to issue pursuant to its articles of incorporation or on the par value per share

of the Common Stock.

Proportional adjustments were made to the number of shares of Common Stock issuable upon exercise or conversion of

the Company’s outstanding stock options and warrants, the exercise price or conversion price (as applicable) of the Company’s

outstanding stock options and warrants, and the number of shares reserved for issuance under the Company’s equity incentive plan.

All share and per share information included in this Quarterly Report on Form 10-Q has been retroactively adjusted to reflect the impact

of these reverse stock splits.

Initial Public Offering and Secondary Public Offering

On February 1, 2021, the Company closed its initial

public offering, or (“IPO”), of 31,050 shares of its Common Stock (inclusive of 4,050 shares of Common Stock from the full

exercise of the over-allotment option of shares granted to the underwriters).

The offer and sale of all of the shares in the IPO were

registered under the Securities Act of 1933, as amended, pursuant to a registration statement on Form S-1 (File Nos.

333- 251616 and 333-252490),

which was declared effective by the SEC on January 27, 2021.

In the IPO, Maxim Group LLC and Roth Capital Partners acted as the underwriters.

accompanying notes are an integral part of these condensed consolidated financial statements.

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Nature of Business and Basis of Presentation

Corporation (“Agrify” or the “Company”) is a developer of proprietary precision hardware and software grow solutions

for the commercial indoor agriculture industry and provides equipment and solutions for cultivation, extraction, post-processing, and

testing for the cannabis and hemp industries.

The Company was formed in the State of Nevada on June 6, 2016 as Agrinamics, Inc., and

subsequently changed its name to Agrify Corporation.

The Company is sometimes referred to herein by the words “we,” “us,”

“our,” and similar terminology.

Company has nine wholly-owned subsidiaries, which are collectively referred to as the “Subsidiaries”:

AGM Service Corp LLC (formerly

AGM Service Corp Inc.);

TriGrow Systems, LLC (“TriGrow”, which

acted as the Company’s exclusive distributor and which was acquired in January 2020 as TriGrow Systems, Inc.

and converted

to TriGrow Systems, LLC in May 2020);

Ariafy Finance, LLC;

Harbor Mountain Holdings,

LLC (“HMH”) (acquired in July 2020);

Cascade Sciences, LLC (“Cascade”)

(which was acquired by the Company on October 1, 2021);

Precision Extraction NewCo, LLC (“Precision”)

(which was a newly formed subsidiary in connection with October 1, 2021 acquisition of Mass2Media, LLC, d/b/a PX2 Holdings, LLC,

d/b/a Precision Extraction Solutions and Cascade);

PurePressure, LLC (“PurePressure”)

(which was acquired by the Company on December 31, 2021);

Lab Society NewCo, LLC (“Lab Society”)

(which was a newly formed subsidiary in connection with February 1, 2022 acquisition of LS Holdings Corp).

Company also has ownership interests in the following companies:

Teejan Podoponics International

LLC (“TPI”) (the Company has owned 50% of TPI since December 2018);

Agrify-Valiant, LLC (“Agrify-Valiant”)

(the Company owns 60% of Agrify-Valiant, which was formed in December 2019);

Agrify Brands, LLC (“Agrify Brands”) (formerly

TriGrow Brands, LLC) (the Company owns 75% of Agrify Brands, which ownership position was created as part of the January 2020 acquisition

January 12, 2021, the Company effected a 1-for-1.581804 reverse stock split (“Reverse Stock Split”) of its Common Stock,

$0.001 par value per share (“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.

October 18, 2022, the Company effected a 1-for-10 reverse stock split of its Common Stock.

All share and per share information has been

retroactively adjusted to give effect to the reverse stock split for all periods presented unless otherwise indicated.

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.

fractional shares of Common Stock were issued as a result of these reverse stock splits.

Any fractional shares in connection with these

reverse stock splits were rounded up to the nearest whole share and no stockholders received cash in lieu of fractional shares.

stock splits had no impact on the number of shares of Common Stock that the Company is authorized to issue pursuant to its articles of

incorporation or on the par value per share of the Common Stock.

Proportional adjustments were

made to the number of shares of Common Stock issuable upon exercise or conversion of the Company’s outstanding

stock options and warrants, the exercise price or conversion price (as applicable) of the Company’s outstanding stock options and

warrants, and the number of shares reserved for issuance under the Company’s equity incentive plan.

All share and per share

information included in this Quarterly Report on Form 10-Q has been retroactively adjusted to reflect the impact of these reverse stock

Public Offering and Secondary Public Offering

February 1, 2021, the Company closed its initial public offering, or (“IPO”), of 31,050 shares of its Common Stock (inclusive

of 4,050 shares of Common Stock from the full exercise of the over-allotment option of shares granted to the underwriters).

and sale of all of the shares in the IPO were registered under the Securities Act of 1933, as amended, pursuant to a registration statement

on Form S-1 (File Nos.

333- 251616 and 333-252490), which was declared effective by the SEC on January 27, 2021.

In the IPO, Maxim Group

LLC and Roth Capital Partners acted as the underwriters.

The IPO price for shares of Common Stock was $ 2,000.00 per share.

The total gross proceeds from the IPO were $ 62.1 million.

After deducting underwriting discounts and commissions

of $ 4 million and offering expenses paid or payable by us of approximately $ 1 million, the net proceeds from the IPO were approximately

$ 57 million.

The Company used the net proceeds from the IPO for its current working capital needs, to support revenue growth, to increase

inventory to meet customer demand forecasts, and to support operational growth.

On February 19, 2021, the Company consummated

a secondary public offering (the “February Offering”) of 27,778 shares of its Common Stock for a price of $ 2,700.00 per share,

less certain underwriting discounts, and commissions.

On March 22, 2021, the Company closed on the sale of an additional 4,167 shares

of Common Stock on the same terms and conditions pursuant to the exercise of the underwriters’ over-allotment option.

of the over-allotment option brought the total number of shares of Common Stock sold by the Company in connection with the February Offering

to 31,944 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.

The Company used the net proceeds from the IPO for its current working capital

needs, to support revenue growth, to increase inventory, to meet customer demand forecasts, and to support operational growth.

Coronavirus (“COVID-19”) Pandemic Impact and Uncertainties

The COVID-19 pandemic has created significant

public health concerns as well as economic disruption, uncertainty, and volatility that may negatively affect its business operations

and financial results.

As a result, if the pandemic or its effects persist or worsen, its accounting estimates and assumptions could be

impacted in subsequent interim reports and upon final determination at year-end, and it is reasonably possible such changes could be significant

(although the potential effects cannot be estimated at this time).

The Company has experienced minimal business interruption as a result

of the COVID-19 pandemic.

The COVID-19 pandemic to date has resulted in supply chain delays of its inventory, higher operating costs and

increased shipping costs, among other impacts.

As events surrounding the COVID-19 pandemic can change rapidly, the Company cannot predict

how it may disrupt its operations or the full extent of the disruption.

The Paycheck Protection Program

In May 2020, the Company received an unsecured

Paycheck Protection Program Loan (“PPP Loan”) from the Bank of America pursuant to the Paycheck Protection Program (the “PPP”)

under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), administered by the U.S.

Small Business Administration

The Company received total loan proceeds of approximately $ 779 thousand from the PPP Loan.

The Company’s

application for the forgiveness of the outstanding balance of the PPP Loan was denied by the SBA.

On June 23, 2022, the Company 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.

PPP loan is payable in 34 equal combined monthly principal and interest payments of approximately $ 24 thousand commencing August 7, 2022.

Preparation of Condensed Consolidated Financial Statements

The condensed consolidated financial statements

included herein have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”),

and on the same basis as the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K

for the year ended December 31, 2021 and filed with the SEC (“Form 10-K”), except for the recently adopted accounting pronouncements

described below.

The condensed consolidated financial statements

included herein reflect all normal and recurring adjustments which, in the opinion of management, are necessary for a fair presentation

of the Company’s condensed consolidated statements of operations for the three and six months ended June 30, 2022 and 2021,

condensed consolidated statements of stockholders’ equity for the three and six months ended June 30, 2022 and 2021, and the

condensed consolidated cash flows for the six months ended June 30, 2022 and 2021.

The condensed consolidated balance sheet as of

December 31, 2021 is derived from the audited consolidated financial statements presented in the Company’s Annual Report on Form 10-K

for the year ended December 31, 2021.

Certain information and disclosures normally included in annual consolidated financial statements

have been omitted pursuant to the rules and regulations of the SEC.

Because the condensed consolidated interim financial statements do

not include all of the information and disclosures required by GAAP for a complete set of financial statements, they should be read in

conjunction with the audited consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for

the year ended December 31, 2021 filed with the SEC on March 31, 2022.

The results for interim periods are not necessarily indicative

of a full year’s results.

Basis of Presentation and Principles of Consolidation

Accounting for Wholly-Owned Subsidiaries

The accompanying condensed consolidated financial

statements have been prepared in accordance with GAAP and include the accounts of Agrify Corporation and its wholly-owned subsidiaries,

as described above in Note 1 – Overview, Basis of Presentation and Significant Accounting Policies, in accordance with the provisions

required by the Consolidation Topic 810 of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification

The Company includes results of operations of acquired companies from the date of acquisition.

All significant intercompany

transactions and balances are eliminated.

Accounting for Less Than Wholly-Owned Subsidiaries

For the Company’s less than wholly-owned

subsidiaries, which include TPI, Agrify-Valiant, and Agrify Brands, the Company first analyzes whether these entities are a variable interest

entity (a “VIE”) in accordance with ASC Topic 810 Consolidation (“ASC 810”), and if so, whether the Company

is the primary beneficiary requiring consolidation.

A VIE is an entity that has (i) insufficient equity to permit it to finance its

activities without additional subordinated financial support or (ii) equity holders that lack the characteristics of a controlling

financial interest.

The financial results of a VIE are consolidated by the primary beneficiary, which is the entity that has both the

power to direct the activities that most significantly impact the entity’s economic performance and the obligation to absorb losses

or the right to receive benefits from the entity that potentially could be significant to the entity.

Variable interests in a VIE are

contractual, ownership or other financial interests in a VIE that change with changes in the fair value of the VIE’s net assets.

The Company continuously re-assesses (i) whether the joint venture is a VIE, and (ii) if the Company is the primary beneficiary of the

If it is determined that the joint venture qualifies as a VIE and the Company is the primary beneficiary, the Company’s financial

interest in the VIE is consolidated.

Based on the Company’s analysis of these

entities, the Company has determined that Agrify-Valiant, LLC and Agrify Brands, LLC are each a VIE, and that the Company is the primary

While the Company owns 60 % of Agrify-Valiant, LLC’s equity interests and 75 % of Agrify Brands, LLC’s equity interests,

the remaining equity interests in Agrify-Valiant, LLC and Agrify Brands, LLC are owned by unrelated third parties, and the agreement with

these third parties provides the Company with greater voting rights.

Accordingly, the Company consolidates its interest in the financial

statements of Agrify-Valiant, LLC and Agrify Brands, LLC under the VIE rules, and reflects the third parties’ interests in the condensed

consolidated financial statements as a non-controlling interest.

The Company records this non-controlling interest at its initial fair

value, adjusting the basis prospectively for the third parties’ share of the respective consolidated investments’ net income

or loss or equity contributions and distributions.

These non-controlling interests are not redeemable by the equity holders and are presented

as part of permanent equity.

Income and losses are allocated to the non-controlling interest holders based on its economic ownership percentage.

The investment in 50 % of the shares of TPI is treated as an equity investment as the Company cannot exercise significant influence.

Going Concern

In accordance with the Financial Accounting Standards

Board (“FASB”) Accounting Standards Update (“ASU”) 2014-15, “Presentation of Financial Statements - Going

Concern”, the Company’s management evaluated whether there are conditions or events that raise substantial doubt about its

ability to continue as a going concern within one year after the financial statements’ issuance date.

The following matters raise

substantial doubt about the Company’s ability to continue as a going concern within one year after the date the financial statements

The Company has incurred

operating losses since its inception and has negative cash flows from operations.

The Company also has an accumulated deficit of $ 131.8

million as of June 30, 2022.

In addition, for the quarter ending June 30, 2022, the Company will recognize significant impairment charges

to the carrying value of its goodwill and intangible assets and will be in default of certain financial debt covenants associated with

its $ 65 million senior secured promissory note (the “SPA Note”).

As a result of its default, the Company is actively working

to restructure its existing SPA Note in order to avoid having the note called by the lender.

If the lender were to call the debt instrument

due to the default, the Company would not have sufficient cash on hand as of June 30, 2022 to pay off the existing debt and default penalty

Cash on hand is approximately $ 59.9 million, while the debt liability, including the potential default penalty, would be approximately

$ 75.0 million as of June 30, 2022.

Subsequent to the end of

the second quarter of 2022, the Company reached an agreement in principle with its institutional lender to amend its existing SPA Note

and to modify certain financial covenants which, once complete, should give the Company additional flexibility to operate and meet its

long-term strategic goals while also allowing it to responsibly adjust to the many challenges currently facing the cannabis industry.

These financial statements have been prepared

on a going concern basis, which implies the Company believes these conditions raise substantial doubt about its ability to continue

as a going concern within the next twelve-months from the date these financial statements are available to be issued.

The Company’s

continuation as a going concern is dependent upon its ability to obtain necessary debt or equity financing to continue operations until

the Company begins generating sufficient cash flows from operations to meet its obligations.

There is no assurance that the Company will ever

be profitable.

The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and

classification of assets or the amounts and classifications of liabilities that may result should the Company be unable to continue as

a going concern.

Use of Estimates

The preparation of the Company’s condensed

consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported

amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial

statements, and the reported amounts of expenses during the reporting period.

Significant estimates and assumptions reflected in these

condensed consolidated financial statements include, but are not limited to, the accrual of expenses.

The Company bases its estimates

on historical experience, known trends and other market-specific, other relevant factors that it believes to be reasonable under the circumstances

and management’s judgement.

On an ongoing basis, management evaluates its estimates when there are changes in circumstances, facts

and experience.

Changes in estimates are recorded in the period in which they become known.

Actual financial results could differ from

those estimates.

For the Company and its Subsidiaries, the fiscal

year ends on December 31, each year.

Emerging Growth Company

The Company qualifies as an “emerging growth

company” as defined in the Jumpstart Our Business Startups Act of 2012, which we refer to as the JOBS Act.

As a result, the Company

is permitted to, and intends to, rely on exemptions from certain disclosure requirements that are applicable to companies that are not

emerging growth companies.

In addition, the JOBS Act provides that an “emerging

growth company” can use the extended transition period for complying with new or revised accounting standards.

The Company will remain an “emerging growth

company” until the earliest to occur of:

$1.0 billion or more in annual gross revenues;

issuance, in a three-year period, of more than $1.0 billion in non-convertible debt;

end of the fiscal year in which the market value of Common Stock held by non-affiliates exceeds $700 million on the last business day

of our second fiscal quarter;

As of June 30, 2022, the market value of Common

Stock held by non-affiliates did not exceed $700 million.

Reclassifications

Certain amounts in the Company’s prior period

financial statements have been reclassified to conform to the presentation of the current period financial statements.

In this Form 10-Q,

the Company has reclassified selling, general and administrative expenses to two separate line items in the accompanying condensed consolidated

statement of operations as general and administrative expenses and selling and marketing expenses for the three and six months ended June

30, 2022 and 2021.

Cash, Cash Equivalents, and Restricted Cash and Restricted Marketable

Cash and cash equivalents

consist principally of cash and deposits with maturities of three months or less as of June 30, 2022 and December 31, 2021.

All cash equivalents

are carried at cost, which approximates fair value.

Restricted cash and restricted marketable securities represent cash required to be

held as collateral for the Company’s SPA Note.

Accordingly, these balances contain restrictions as to their availability and usage

and are classified as restricted cash and restricted marketable securities in the condensed consolidated balance sheets.

Additional information

relating to the Company’s SPA Note may be found in Note 10 – Debt, included elsewhere

in the notes to the condensed consolidated financial statements.

Cash deposits with financial

institutions, including restricted cash and restricted marketable securities, generally exceed federally insured limits.

believes minimal credit risk exists with respect to these financial institutions and the Company has not experienced any losses on such

Balances held in a brokerage account are disclosed on the balance sheet as restricted cash.

Marketable Securities

The Company’s marketable security investments

primarily include investments held in mutual funds, municipal bonds, and corporate bonds.

The mutual funds are recorded at fair value

in the accompanying condensed consolidated balance sheets as part of cash and cash equivalents.

The municipal and corporate bonds are

considered to be held-to-maturity securities and are recorded at amortized cost in the accompanying condensed consolidated balance sheets.

The fair value of these investments was estimated using recently executed transactions and market price quotations.

The Company considers

current assets to be those investments which will mature within the next 12 months, including interest receivable on the long-term bonds.

Accounts Receivable, Net

Accounts receivable, net, primarily consists of

amounts for goods and services that are billed and currently due from customers.

Accounts receivable balances are presented net of an

allowance for credit losses, which is an estimate of billed amounts that may not be collectible.

In determining the amount of the allowance

at each reporting date, management makes judgments about general economic conditions, historical write-off experience, and any specific

risks identified in customer collection matters, including the aging of unpaid accounts receivable and changes in customer financial conditions.

Accounts receivable balances are written off after all means of collection are exhausted and the potential for non-recovery is determined

to be probable.

Adjustments to the allowance for credit losses are recorded as general and administrative expenses in the condensed consolidated

statements of operations.

Concentration of Credit Risk and Significant Customer

Financial instruments that potentially subject

the Company to a concentration of credit risk primarily consist of cash, cash equivalents, restricted cash and restricted marketable securities,

and accounts receivable.

Cash equivalents primarily consist of money market funds with original

maturities of three months or less, which are invested primarily with U.S.

financial institutions.

Cash deposits with financial institutions,

including restricted cash and restricted marketable securities , generally exceed federally

insured limits.

Management believes minimal credit risk exists with respect to these financial institutions and the Company has not experienced

any losses on such amounts.

below show customers who account for 10 % or more of the Company’s total revenues and 10 % or more of the Company’s accounts

receivable for the periods presented:

For the three months ended June 30, 2022 and 2021,

the Company’s customers that accounted for 10 % or more of the total revenue were as follows:

Three Months ended

June 30, 2022

Three Months ended

June 30, 2021

(In thousands)

New England Innovation Academy (“NEIA”) – Related Party

Company Customer Number – 139

revenue, as a percentage of total revenue, was less than 10%

For the six months ended June 30, 2022 and 2021,

the Company’s customers that accounted for 10 % or more of the total revenue were as follows:

Six Months ended

June 30, 2022

Six Months ended

June 30, 2021

(In thousands)

New England Innovation Academy (“NEIA”) – Related Party

Company Customer Number – 139

Company Customer Number – 136

* Customer revenue, as a percentage of total revenue, was less than 10 %

Accounts Receivable, Net

As of June 30, 2022 and December 31, 2021, the

Company’s customers that accounted for 10 % or more of the total accounts receivable, net, were as follows:

June 30, 2022

December 31, 2021

(In thousands)

NEIA – Related Party

Company Customer Number – 126

Customer accounts receivable balance, as a percentage of total accounts receivable balance, was less than 10%

The Company values all of its inventories, which

consist primarily of significant raw material hardware components, at the lower of cost or net realizable value, with cost principally

determined by the weighted-average cost method on a First-In, First-Out basis.

Write-offs of potentially slow-moving or damaged inventory

are recorded through specific identification of obsolete or damaged material.

The company takes physical inventory at least once annually

at all inventory locations.

Property and Equipment

Property and equipment are stated at cost less

accumulated depreciation and amortization.

Depreciation and amortization expenses are recognized using the straight-line method over the

estimated useful life of each asset, as follows:

Estimated Useful

Computer and office equipment

Furniture and fixtures

Research and development of laboratory equipment

Machinery and equipment

Leased equipment at customer

Trade show assets

Leasehold improvements

Lower of estimated useful life or remaining lease term

The estimated useful lives of the Company’s

property and equipment are periodically assessed to determine if changes are appropriate.

The Company charges maintenance and repairs

to expenses as incurred.

When the Company retires or disposes of assets, the carrying cost of these assets and related accumulated depreciation

or amortization are eliminated from the condensed consolidated balance sheet and any resulting gain or loss are included in the condensed

consolidated statement of operations in the period of retirement or disposal.

Costs for capital assets not yet placed into service are

capitalized as construction-in-progress and depreciated once placed into service.

Goodwill is defined as the excess of cost over

the fair value of assets acquired and liabilities assumed in a business combination.

Goodwill is tested for impairment annually,

and more frequently if events and circumstances indicate that the asset might be impaired.

The Company has determined that it is a single

reporting unit for the purpose of conducting the goodwill impairment assessment.

A goodwill impairment charge is recorded if the amount

by which the Company’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill.

Factors that could

lead to a future impairment include material uncertainties such as a significant reduction in projected revenues, a deterioration of projected

financial performance, future acquisitions and/or mergers, and/or a decline in the Company’s market value as a result of a significant

decline in the Company’s stock price.

During the three-month period ended June 30, 2022,

the Company identified a potential impairment triggering event associated with both a sustained decline in the Company’s stock price

and associated market capitalization, as well as a second-quarter slowdown in the cannabis industry as a whole.

Due to these factors,

the Company deemed that there may be an impairment to the carrying value of its long-lived assets and accordingly performed interim testing

to determine the proper fair value of its long-lived assets as of June 30, 2022.

Based on its interim testing, the Company noted

that the carrying value of equity exceeded the calculated fair value by an amount greater than the aggregate value of our goodwill and

intangible assets.

Accordingly, the Company concluded that the entire carrying value of its goodwill and intangible assets should be impaired,

resulting in a second-quarter impairment charge of $69.9 million.

Additional information regarding the Company’s interim testing

on goodwill may be found in Note 8 – Intangible Assets, Net and Goodwill, included elsewhere in the notes to the condensed consolidated

financial statements.

Intangible Assets

The Company initially records intangible assets

at their estimated fair values and reviews these assets periodically for impairment.

Identifiable intangible assets, which consist principally

of acquired customer-related acquired assets, acquired and/or developed technology, non-compete agreements, and trade names, are reported

net of accumulated amortization, and are being amortized over their estimated useful lives at amortization rates that are proportional

to each asset’s estimated economic benefit.

The Company’s intangible assets are amortized on a straight-line basis over the

estimated useful lives of the assets.

The Company reviews the carrying value of these intangible assets annually, or more frequently if

indicators of impairment are present.

The finite-lived useful lives are as follows:

Acquired developed technology

Non-compete agreements

Customer relationships

Capitalized website costs

In performing the review of the recoverability

of intangible assets, the Company considers several factors, including whether there have been significant changes in legal factors or

the overall business climate that could affect the underlying value of an asset.

The Company also considers whether there is an expectation

that the asset will be sold or disposed of before the end of its remaining estimated useful life.

If, as the result of examining any of

these factors, the Company concludes that the carrying value of the intangible asset exceeds its estimated fair value, the Company recognizes

an impairment charge and reduces the carrying value of the asset to its estimated fair value.

During the three-month period

ended June 30, 2022, the Company identified a potential impairment triggering event associated with both a sustained decline in the Company’s

stock price and associated market capitalization, as well as a second-quarter slowdown in the cannabis industry as a whole.

factors, the Company deemed that there may be an impairment to the carrying value of its long-lived assets and accordingly performed interim

testing to determine the proper fair value of its long-lived assets as of June 30, 2022.

Based on its interim testing,

the Company noted that the carrying value of equity exceeded the calculated fair value by an amount greater than the aggregate value of

our goodwill and intangible assets.

Accordingly, the Company concluded that the entire carrying value of its goodwill and intangible assets

should be impaired, resulting in a second-quarter impairment charge of $ 69.9 million.

Additional information regarding the Company’s

interim testing on intangible assets may be found in Note 8 – Intangible Assets, Net and Goodwill, included elsewhere in the notes

to the condensed consolidated financial statements.

Convertible Notes Payable

The Company evaluates its convertible instruments

to determine if those contracts or embedded components of those contracts qualify as derivative financial instruments to be separately

accounted for in accordance with ASC Topic 815 Derivatives and Hedging (“ASC815”).

The accounting treatment of derivative

financial instruments requires that the Company identify and record certain embedded conversion options (“ECOs”), certain

variable-share settlement features, and any related freestanding instruments at their fair values as of the inception date of the agreement

and at fair value as of each subsequent balance sheet date.

Any change in fair value is recorded as non-operating, non-cash income or

expense for each reporting period at each balance sheet date.

The Company reassesses the classification of its derivative instruments

at each balance sheet date.

If the classification changes as a result of events during the period, the contract is reclassified as of

the date of the event that caused the reclassification.

Bifurcated embedded conversion options, variable-share settlement features and

any related freestanding instruments are recorded as a discount to the host instrument which is amortized to interest expense over the

life of the respective note using the effective interest method.

If the Company determines that an instrument is

not a derivative liability, it then evaluates whether there is a beneficial conversion feature (“BCF”), by comparing the commitment

date fair value to the effective current conversion price of the instrument.

The Company records a BCF as a debt discount which is amortized

to interest expense over the life of the respective note using the effective interest method.

BCFs that are contingent upon the occurrence

of a future event are recognized when the contingency is resolved.

Debt Issue Costs and Debt Discount

The Company may record debt issuance costs and/or

debt discounts in connection with issuing of debt.

The Company may cover these costs by paying cash or issuing equity (such as warrants).

These costs are amortized to interest expense over the expected life of the debt.

If a conversion of the underlying debt occurs, a proportionate

share of the unamortized amounts is immediately expensed.

Issue Discount

For certain convertible debt issued by the Company,

it may provide the debt holder with an original issue discount.

The Company would record the original issue discount to debt discount,

reducing the face amount of the note, and is then amortized to interest expense over the life of the debt.

Distinguishing Liabilities from Equity

The Company relies on the guidance provided by ASC Topic 480, Distinguishing

Liabilities from Equity and ASC 815-40, Derivatives and Hedging:

Contracts in Entity’s Own Equity (“ASC 815-40”),

to classify certain redeemable and/or convertible instruments.

The Company first determines whether a financial instrument should be classified

as a liability.

The Company will determine the liability classification if the financial instrument is mandatorily redeemable, or if the

financial instrument, other than outstanding shares, embodies a conditional obligation that the Company must or may settle by issuing

a variable number of its equity shares.

Once the Company determines that a financial instrument should not

be classified as a liability, the Company determines whether the financial instrument should be presented between the liability section

and the equity section of the balance sheet (“temporary equity”).

The Company will determine temporary equity classification

if the redemption of the financial instrument is outside the control of the Company (i.e.

at the option of the holder).

Otherwise, the

Company accounts for the financial instrument as permanent equity.

Initial Measurement

The Company records its financial instruments classified as liability,

temporary equity or permanent equity at issuance at the fair value, or cash received.

Subsequent Measurement – Financial instruments classified

as liabilities

The Company records the fair value of its financial instruments classified

as liabilities at each subsequent measurement date.

The changes in fair value of its financial instruments classified as liabilities are

recorded as other income, net.

The Company determines at the inception of a right-of-use

asset contract if such arrangement is or contains a lease.

A contract is or contains a lease if the contract conveys the right to control

the use of an identified asset for a period of time in exchange for consideration.

The Company classifies leases at the lease commencement

date as operating or finance leases and records a right-of-use asset and a lease liability on its condensed consolidated balance sheet

for all leases with an initial lease term of greater than 12 months.

A lease with an initial term of 12 months or less is not recorded

on the balance sheet, but related payments are recognized as an expense on a straight-line basis over the lease term.

The Company’s right-of-use asset contracts

may contain both lease and non-lease components.

Non-lease components may include maintenance, utilities, and other operating costs.

Company combines the lease and non-lease components of fixed costs in its lease arrangements as a single lease component.

Variable costs,

such as utilities or maintenance costs, are not included in the measurement of right-of-use assets and lease liabilities, but rather are

expensed when the event determining the amount of variable consideration to be paid occurs.

Lease liabilities and their corresponding right-of-use

assets are recorded based on the present value of future lease payments over the expected lease term.

The Company determines the present

value of future lease payments by using its estimated secured incremental borrowing rate for that lease term as the interest rate implicit

in the lease is not readily determinable.

The Company estimates its secured incremental borrowing rate for each lease based on the rate

of interest that the Company would have to pay to borrow an amount equal to the lease payments on a collateralized basis over a similar

Certain of the Company’s right-of-use asset

leases include options to extend or terminate the lease.

The amounts determined for the Company’s right-of-use assets and lease

liabilities generally do not assume that renewal options or early-termination provisions, if any, are exercised unless it is reasonably

certain that the Company will exercise such options.

Deferred Revenue

Deferred revenue includes amounts collected

or billed in excess of revenue that it can recognize.

The Company recognizes deferred revenue as revenue as the related performance

obligation is satisfied.

The Company records deferred revenue that will be recognized during the succeeding twelve-month period

as a current liability on the condensed consolidated balance sheet.

Fair Value of Financial Instruments

The Company’s financial instruments consist

of cash, accounts receivable, warrants, accounts payable and accrued expenses.

The estimated fair value of the accounts receivable and

accounts payable approximates their carrying value due to the short-term nature of these instruments.

Stock-Based Compensation

The Company measures all stock options and other

stock-based awards granted to employees and directors based on the fair value on the date of the grant and recognizes compensation expense

of those awards, net of estimated forfeitures, over the requisite service period, which is generally the vesting period of the respective

Historically, the Company has issued stock options to employees, directors and consultants with only service-based vesting conditions

and records the expense for these awards using the straight-line method.

The Company classifies stock-based compensation

expense in its condensed consolidated statements of operations in the same manner in which the award recipient’s payroll costs are

The Company estimates the fair value of each stock

option grant on the date of grant using the Black-Scholes option-pricing model.

Before the IPO, the Company was a private company and

therefore lacks company-specific historical and implied volatility information.

Therefore, it estimates its expected stock volatility

based on the historical volatility of similar publicly-traded companies and expects to continue to do so until such time as it has adequate

historical data regarding the volatility of its own traded stock price.

The expected term of the Company’s stock options has been

determined utilizing the “simplified” method for awards that qualify as “plain-vanilla” options.

The risk-free

interest rate is determined by reference to the U.S.

Treasury yield curve in effect at the time of grant of the award for time periods

approximately equal to the expected term of the award.

The expected dividend yield is based on the fact that the Company has never paid

cash dividends and does not expect to pay any cash dividends in the foreseeable future.

Business Combinations

The Company accounts for business acquisitions

using the purchase method of accounting, in accordance with which assets acquired and liabilities assumed are recorded at their respective

fair values at the acquisition date.

The fair value of the consideration paid, including contingent consideration, is assigned to the

assets acquired and liabilities assumed based on their respective fair values.

Goodwill represents excess of the purchase price over the

estimated fair values of the assets acquired and liabilities assumed.

The Company’s management exercises significant

judgments in determining the fair value of assets acquired and liabilities assumed, as well as intangibles and their estimated useful

Fair value and useful life determinations are based on, among other factors, estimates of future expected cash flows, royalty cost

savings and appropriate discount rates used in computing present values.

These judgments may materially impact the estimates used in allocating

acquisition date fair values to assets acquired and liabilities assumed, as well as the Company’s current and future operating results.

Actual results may vary from these estimates which may result in adjustments to goodwill and acquisition date fair values of assets and

liabilities during a measurement period or upon a final determination of asset and liability fair values, whichever occurs first.

Adjustments to the fair value of assets and liabilities made after the end of the measurement period are recorded within the Company’s

operating results.

For contingent consideration arrangements, the

Company recognizes a liability at fair value as of the acquisition date with subsequent fair value adjustments recorded in operations.

Additional information regarding the Company’s contingent consideration arrangements may be found in Note 5 – Fair Value Measures,

included elsewhere in the notes to the condensed consolidated financial statements.

Revenue Recognition

The Company generates revenue from the following

(1) equipment sales, (2) providing services and (3) construction contracts.

In accordance with ASC 606 “Revenue Recognition”,

the Company recognizes revenue from contracts with customers using a five-step model, which is described below:

the customer contract;

performance obligations that are distinct;

the transaction price;

the transaction price to the distinct performance obligations;

revenue as the performance obligations are satisfied.

Identify the customer contract

A customer contract is generally identified when

there is approval and commitment from both the Company and its customer, the rights have been identified, payment terms are identified,

the contract has commercial substance and collectability, and consideration is probable.

Specifically, the Company obtains written/electronic

signatures on contracts and a purchase order, if said purchase orders are issued in the normal course of business by the customer.

Identify performance obligations that are

A performance obligation is a promise by the Company

to provide a distinct good or service or a series of distinct goods or services.

A good or service that is promised to a customer is distinct

if the customer can benefit from the good or service either on its own or together with other resources that are readily available to

the customer, and a company’s promise to transfer the good or service to the customer is separately identifiable from other promises

in the contract.

Determine the transaction price

The transaction price is the amount of consideration

to which the Company expects to be entitled in exchange for transferring goods or services to a customer, excluding sales taxes that are

collected on behalf of government agencies.

Allocate the transaction price to distinct

performance obligations

The transaction price is allocated to each performance

obligation based on the relative standalone selling prices (“SSP”) of the goods or services being provided to the customer.

The Company’s contracts typically contain multiple performance obligations, for which the Company accounts for individual performance

obligations separately, if they are distinct.

The standalone selling price reflects the price the Company would charge for a specific

piece of equipment or service if it was sold separately in similar circumstances and to similar customers.

Recognize revenue as the performance obligations

are satisfied

Revenue is recognized when, or as, performance

obligations are satisfied by transferring control of a promised product or service to a customer.

Significant Judgments

The Company enters into contracts that may include

various combinations of equipment, services and construction, which are generally capable of being distinct and accounted for as separate

performance obligations.

Contracts with customers often include promises to transfer multiple products and services to a customer.

whether products and services are considered distinct performance obligations that should be accounted for separately versus together

may require significant judgment.

Once the Company determines the performance obligations, it determines the transaction price, which

includes estimating the amount of variable consideration to be included in the transaction price, if any.

The Company then allocates the

transaction price to each performance obligation in the contract based on the SSP.

The corresponding revenue is recognized as the related

performance obligations are satisfied.

Judgment is required to determine the SSP for

each distinct performance obligation.

The Company determines SSP based on the price at which the performance obligation is sold separately

and the methods of estimating SSP under the guidance of ASC 606-10-32-33.

If the SSP is not observable through past transactions, the

Company estimates the SSP, taking into account available information such as market conditions, expected margins, and internally approved

pricing guidelines related to the performance obligations.

The Company licenses its software as a SaaS type subscription license, whereby

the customer only has a right to access the software over a specified time period.

The full value of the contract is recognized ratably

over the contractual term of the SaaS subscription, adjusted monthly if tiered pricing is relevant.

The Company typically satisfies its

performance obligations for equipment sales when equipment is made available for shipment to the customer;

for services sales as services

are rendered to the customer and for construction contracts both as services are rendered and when contract is completed.

The Company utilizes the cost-plus margin method

to determine the SSP for equipment and build-out services.

This method is based on the cost of the services from third parties, plus a

reasonable markup that the Company believes is reflective of a market-based reseller margin.

The Company determines the SSP for services in

time and materials contracts by observable prices in standalone services arrangements.

The Company estimates variable consideration

in the form of royalties, revenue share, monthly fees, and service credits at contract inception and updated at the end of each reporting

period if additional information becomes available.

Variable consideration is typically not subject to constraint.

Changes to variable

consideration were not material for the periods presented.

If a contract has payment terms that differ from

the timing of revenue recognition, the Company will assess whether the transaction price for those contracts include a significant financing

The Company has elected the practical expedient that permits an entity to not adjust for the effects of a significant financing

component if the Company expects that at the contract inception, the period between when the entity transfers a promised good or service

to a customer and when the customer pays for that good or service, will be one year or less.

For those contracts in which the period exceeds

the one-year threshold, this assessment, as well as the quantitative estimate of the financing component and its relative significance,

requires judgment.

Accordingly, the Company imputes interest on such contracts at an agreed-upon interest rate and will present the financing

components separately as financial income.

For the three months and six months ended June 30, 2022 and 2021, the Company did not have

any such financial income.

Payment terms with customers typically require

payment 30 days from the invoice date.

The Company’s agreements with its customers do not provide for any refunds for services or

products and therefore no specific reserve for such is maintained.

In the infrequent instances where customers raise concern over

delivered products or services, the Company has endeavored to remedy the concern and all costs related to such matters have been

insignificant in all periods presented.

The Company has elected to treat shipping and

handling activities after the customer obtains control of the goods as a fulfillment cost and not as a promised good or service.

the Company will accrue all fulfillment costs related to the shipping and handling of consumer goods at the time of shipment.

has payment terms with its customers of one year or less and has elected the practical expedient applicable to such contracts not to consider

the time value of money.

Sales, value add, and other taxes the Company collects concurrent with revenue-producing activities are excluded

from revenue.

The Company receives payment from customers based

on specified terms that are generally less than 30 days from the satisfaction of performance obligations.

There are no contract assets

related to performance under the contract.

The difference in the opening and closing balances of the Company’s deferred revenue

primarily results from the timing difference between the Company’s performance and the customer’s payment.

The Company fulfills

obligations under a contract with a customer by transferring products and services in exchange for consideration from the customer.

receivables are recorded when the customer has been billed or the right to consideration is unconditional.

The Company recognizes deferred

revenue when consideration has been received or an amount of consideration is due from the customer, and the Company has a future obligation

to transfer certain proprietary products.

In accordance with ASC 606-10-50-13, the Company

is required to include disclosure on its remaining performance obligations as of the end of the current reporting period.

Due to the nature

of the Company’s contracts, these reporting requirements are not applicable.

The majority of the Company’s remaining contracts

meet certain exemptions as defined in ASC 606-10-50-14 through 606-10-50-14A, including (i) performance obligation is part of a contract

that has an original expected duration of one year or less and (ii) the right to invoice practical expedient.

The Company generally provides a one-year warranty

on its products for materials and workmanship but may provide multiple-year warranties as negotiated, and will pass on the warranties

from its vendors, if any, which generally covers this one-year period.

In accordance with ASC 450-20-25, the Company accrues for product

warranties when the loss is probable and can be reasonably estimated.

The reserve for warranty returns is included in accrued expenses

and other current liabilities in the Company’s condensed consolidated balance sheets.

Research and Development Costs

The Company expenses research and development

costs as incurred.

Research and development expenses include payroll, employee benefits and other expenses associated with product development.

The Company incurs research and development costs associated with the development and enhancement of both hardware and software products

associated with its cultivation and extraction equipment, as well as its SaaS-based software offering, Agrify Insights™ cultivation

Capitalization of Internal Software Development Costs

The Company capitalizes certain software engineering

efforts related to the continued development of Agrify Insights™ cultivation software under ASC 985-20.

Costs incurred during

the application development phase are only capitalized once technical feasibility has been established and the work performed

will result in new or additional functionality.

The types of costs capitalized during the application development phase include employee

compensation, as well as consulting fees for third-party software developers working on these projects.

Costs related to the research

and development are expensed as incurred until technical feasibility is established as well as post-implementation activities.

software is amortized on a straight-line basis over the estimated useful life of the asset, which ranges from two to five years.

Shipping and Handling Charges

The Company incurs costs related to shipping and

handling of its manufactured products.

These costs are expensed as incurred as a component of cost of goods sold.

Shipping and handling

charges related to the receipt of raw materials are also incurred, which are recorded as a cost of the related inventory.

Equity Method Investments

Investments in affiliates that are 50 % or

less owned by the Company for which the Company exercises significant influence but does not have control are accounted for using the

equity method.

The Company has investments in equity investments without readily determinable fair values, which represents investments

in entities where the Company does not have the ability to significantly influence the operations of the entities.

An assessment of whether or not the Company (as

a holder of 50 % of TPI) has the power to direct activities that most significantly impact TPI’s economic performance and to identify

the party that obtains the majority of the benefits of the investment was performed as of June 30, 2022 and December 31, 2021 and will

be performed as of each subsequent reporting date.

After each of these assessments, the Company concluded that the activities that most

significantly impact TPI’s economic performance are the growth, marketing, sale, and distribution of products using TPI’s

technology and IP, each of which are solely directed by TPI.

Based on the consideration of these assessments, the Company concluded that

the Company’s investment in TPI should be accounted for under the equity method.

The carrying value of the Company’s investment

in TPI was $ 0 as of June 30, 2022 and December 31, 2021.

The Company did not recognize revenue from TPI for the three and six months ended

June 30, 2022 and June 30, 2021.

The Company accounts for income taxes pursuant

to the provisions of ASC Topic 740, “Income Taxes,” which requires, among other things, an asset and liability approach to

calculating deferred income taxes.

The asset and liability approach requires the recognition of deferred tax assets and liabilities for

the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities.

A valuation allowance is provided to offset any net deferred tax assets for which management believes it is more likely than not that

the net deferred asset will not be realized.

The Company follows the provisions of ASC 740-10-25-5,

“Basic Recognition Threshold.” When tax returns are filed, it is highly certain that some positions taken would be sustained

upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount

of the position that would be ultimately sustained.

In accordance with the guidance of ASC 740-10-25-6, the benefit of a tax position

is recognized in the condensed consolidated financial statements in the period during which, based on all available evidence, management

believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation

processes, if any.

Tax positions taken are not offset or aggregated with other positions.

Tax positions that meet the more-likely-than-not

recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement

with the applicable taxing authority.

The portion of the benefits associated with tax positions taken that exceeds the amount measured

as described above should be reflected as a liability for unrecognized tax benefits in the accompanying balance sheets along with any

associated interest and penalties that would be payable to the taxing authorities upon examination.

The Company believes its tax positions

are all highly certain of being upheld upon examination.

As such, the Company has not recorded a liability for unrecognized tax benefits.

As of June 30, 2022, tax years 2016 through 2021 remain open for IRS audit.

The Company has received no notice of audit from the IRS for

any of the open tax years.

The Company recognizes the benefit of a tax position

when it is effectively settled.

ASC 740-10-25-10, “Basic Recognition Threshold” provides guidance on how an entity should

determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits.

ASC 740-10-25-10

clarifies that a tax position can be effectively settled upon the completion of an examination by a taxing authority.

For tax positions

considered effectively settled, the Company recognizes the full amount of the tax benefit.

Net Loss Per Share

The Company presents basic and diluted net loss

per share attributable to Common Stockholders in conformity with the two-class method required for participating securities.

basic loss per share by dividing net loss available to Common Stockholders by the weighted-average number of common shares outstanding.

Net loss available to Common Stockholders represents net loss attributable to Common Stockholders reduced by the allocation of earnings

to participating securities.

Diluted income per share adjusts basic income per share for the potentially dilutive impact of stock options

and warrants.

For periods during which the Company recorded a net loss, diluted net loss per share is equal to basic net loss per share

because the effect of dilutive securities outstanding is anti-dilutive.

Net loss per share calculations for all periods

have been adjusted to reflect the Reverse Stock Split effected on January 12, 2021.

Net loss per share was calculated based on the weighted-average

number of Common Stock outstanding.

Recently Adopted Accounting Pronouncements

In August 2020, the FASB issued Accounting

Standards Update (“ASU”) No.

2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and

Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments

and Contracts in an Entity’s Own Equity.

The amendments in ASU No.

2020-06 simplify the complexity associated with

applying U.S.

GAAP for certain financial instruments with characteristics of liabilities and equity.

More specifically, the amendments

focus on the guidance for convertible instruments and derivative scope exceptions for contracts in an entity’s own equity.

ASU 2020-06 is

effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years.

adoption of this new accounting guidance had no impact on the Company’s consolidated financial position.

Pending Accounting Pronouncements

In June 2016, the FASB issued ASU No.

2016-13, Financial

Instruments—Credit Losses (Topic 326), which introduces a new methodology for accounting for credit losses on financial instruments,

including available-for-sale debt securities and accounts receivable.

The guidance establishes a new “expected loss model”

that requires entities to estimate current expected credit losses on financial instruments by using all practical and relevant information.

Any expected credit losses are to be reflected as allowances rather than reductions in the amortized cost of available-for-sale debt securities.

ASU 2016-13 is

effective in the first quarter of fiscal 2024.

The Company is currently evaluating the potential impact of this adoption on its condensed

consolidated financial statements and related disclosures.

In October 2021, the FASB issued ASU No.

2021-08, Business

Combinations (Topic 606):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires that

an entity recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606 as

if it had originated the contracts.

Generally, this should result in an acquirer recognizing and measuring the acquired contract assets

and contract liabilities consistent with how they were recognized and measured in the acquiree’s financial statements, if the acquiree

prepared financial statements in accordance with U.S.

The amendment in this update is effective for fiscal years beginning after December

15, 2022, including interim periods within those fiscal years.

Early adoption is permitted, including adoption in an interim period.

The guidance should be applied prospectively to business combinations occurring on or after the effective date of the amendment in this

The Company is currently evaluating the potential impact of this adoption on its condensed consolidated financial statements and

related disclosures.

The Company does not believe that any other ASU

issued but not yet effective, if adopted, will have a material effect on the Company’s future financial statements.

Note 2 — Restatement of Current Period

The Company’s financial statements as of and for the three and

six-months ended June 30, 2022 have been restated due to the following errors:

PIPE Warrants/SPA Warrants Classification and Measurement

During the six months ended June 30, 2022 the

Company entered into several debt and equity financing transactions including i) the issuance of common stock and warrants in a private

placement on January 25, 2022 (the “PIPE Warrants”) and ii) the issuance of a note payable with associated warrants on March

14, 2022 (the “SPA Warrants”).

The Company determined that the PIPE Warrants

and the SPA Warrants were incorrectly classified as equity and must be reclassified to a liabilities measured at fair value upon issuance

and remeasured to fair value at each reporting date.

In addition, the Company used an incorrect volatility percentage when calculating

the value of the PIPE Warrants and the SPA Warrants upon issuance.

gross proceeds from the IPO were $ 62.1 million.

deducting underwriting discounts and commissions of $ 4 million and offering expenses paid or payable by us of approximately $ 1 million,

the net proceeds from the IPO were approximately $ 57 million.

The Company used the net proceeds from the IPO for its current working

capital needs, to support revenue growth, to increase inventory to meet customer demand forecasts, and to support operational growth.

February 19, 2021, the Company consummated a secondary public offering (the “February Offering”) of 27,778 shares of its

Common Stock for a price of $ 2,700.00 per share, less certain underwriting discounts and commissions.

On March 22, 2021, the Company

closed on the sale of an additional 4,167 shares of Common Stock on the same terms and conditions pursuant to the exercise of the underwriters’

over-allotment option.

The exercise of the over-allotment option brought the total number of shares of Common Stock sold by the Company

in connection with the February Offering to 31,944 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.

The Company used the net proceeds

from the IPO for its current working capital needs, to support revenue growth, to increase inventory, to meet customer demand forecasts,

and to support operational growth.

(“COVID-19”) Pandemic

spread of COVID-19 beginning in the first quarter of 2020 has caused significant volatility in U.S.

There is significant uncertainty

around the breadth and duration of business disruptions related to COVID-19, as well as its impact on the U.S.

there has not been a material impact on the Company’s business operations and financial performance.

The extent of the impact of COVID-19 on

the Company’s operational and financial performance, if any, will depend, in part, on the length and severity of these restrictions

and on the Company’s ability to conduct business in the ordinary course.

Protection Program

May 2020, the Company received an unsecured Paycheck Protection Program Loan (“PPP Loan”) from the Bank of America pursuant

to the Paycheck Protection Program (the “PPP”) under the Coronavirus Aid, Relief, and Economic Security Act (“CARES

Act”), administered by the U.S.

Small Business Administration (the “SBA”).

The Company received total loan proceeds

of approximately $ 779 thousand from the PPP Loan.

The Company’s application for the forgiveness of the outstanding balance of PPP

Loan is currently under review by the SBA.

— Restatement of Current Period

Company’s financial statements as of and for the three months ended March 31, 2022 have been restated due to the following errors:

Warrants and SPA Warrants Classification and Measurement

the three months ended March 31, 2022 the Company entered into several debt and equity financing transactions including i) the issuance

of common stock and warrants in a private placement on January 25, 2022 (the “PIPE Warrants”) and ii) the issuance of a note

payable with associated warrants on March 14, 2022 (the “SPA Warrants”).

Company determined that the PIPE Warrants and the SPA Warrants were incorrectly classified as equity and must be reclassified to liabilities

measured at fair value upon issuance and remeasured to fair value at each reporting date.

As a result of these errors:

paid-in capital was overstated by $ 24.2 million as of June 30, 2022 due to the incorrect classification of the SPA Warrants and the PIPE

Warrants as equity rather than liabilities;

liabilities was understated by the fair value of the PIPE Warrants and the SPA Warrants of $ 9.5 million as of June 30, 2022;

debt and Long-term debt, current was overstated by $ 9.2 million and $ 5.5 millions, respectively, as of June 30, 2022 due to the incorrect

allocation of the debt discount in connection with the issuance of debt and SPA Warrants, as a result of the improper classification

of the SPA Warrants as equity rather than liabilities;

● Accumulated

deficit as of June 30, 2022 was overstated by $ 29.5 million as a result of the net impact of the following errors in the condensed consolidated

statement of operations:

o The change in fair value of warrant liabilities was understated

by $ 20.2 million and $ 31.0 million for the three and six-months ended June 30, 2022, respectively, due to the fact that the Company did

not appropriately remeasure the fair value of the warrant liabilities through earnings;

o Interest expense, net was understated

by $ 1.4 million and $ 1.5 million for the three and six-months ended June 30, 2022 due to incorrect debt discount amortization in connection

with the issuance of debt and SPA Warrants, as a result of the improper classification of the SPA Warrants as equity rather than liabilities.

The impact of these/this adjustment(s) is/are shown below in the restated

and reclassified condensed consolidated balance sheet, condensed consolidated statement of operations, and condensed consolidated statement

of cash flows for the three and six-months ended June 30, 2022.

The following is a summary of the impact of the restatement and reclassifications

on the Company’s condensed consolidated balance sheet:

June 30, 2022

● Additional paid-in capital was overstated by $ 24.2 million as of March 31, 2022 due to the incorrect classification of the SPA Warrants and the PIPE Warrants as equity rather than liabilities;

● Warrant liabilities was understated by the fair value of the PIPE Warrants and the SPA Warrants of $ 29.7 million as of March 31, 2022;

● Long-term debt and Long-term debt, current was overstated by $ 15.5 million and $ 0.7 million, respectively as of March 31, 2022 due to the incorrect allocation of the debt discount in connection with the issuance of debt and SPA Warrants, as a result of the improper classification of the SPA Warrants as equity rather than liabilities;

● Accumulated deficit as of March 31, 2022 was overstated by $ 10.7 million as a result of the net impact of the following errors in the condensed consolidated statement of operations:

ο The change in fair value of warrant liabilities was understated by $ 10.8 million because the Company did not appropriately remeasure the fair value of the warrant liabilities as of March 31, 2022 through earnings;

ο Interest income, net was overstated by $ 123 thousand due to incorrect debt discount amortization in connection with the issuance of debt and SPA Warrants, as a result of the improper classification of the SPA Warrants as equity rather than liabilities.

Issuance Costs Classification

Company incorrectly classified debt issuance costs as an asset rather than as a direct deduction from the carrying value of the associated

debt liability as of March 31, 2022.

As a result of this error:

● Prepaid expenses and other current assets were understated by $ 0.8 million as of March 31, 2022;

● Other non-current assets were overstated by $ 0.8 million as of March 31, 2022;

of these adjustments are shown below in the restated and reclassified condensed consolidated balance sheet, condensed consolidated statement

of operations, condensed consolidated statement of cash flows, and condensed consolidated statement of stockholders’ equity as

of and for the three months ended March 31, 2022.

The following

is a summary of the impact of the restatement and reclassifications on the Company’s condensed consolidated balance sheet:

March 31, 2022

Current assets

Cash and cash equivalents

Restricted cash and restricted marketable securities

Restricted cash

Marketable securities

4 unchanged sentences

Total current assets

Loan receivable, net of allowance for doubtful accounts of $ 7,079

Non-Current Assets

Loan receivable

Property and equipment, net

10 unchanged sentences

Total current liabilities

Non-current liabilities

Warrant liabilities

1 unchanged sentence

Operating lease liabilities, non-current

Deferred tax liabilities, net

Long-term debt

7 unchanged sentences

Accumulated deficit

Total stockholders’ equity attributable to Agrify

stockholders’ equity attributable to Agrify

Non-controlling interests

Total liabilities and stockholders’ equity

The following is a summary of the impact of the restatement and reclassifications

on the Company’s condensed consolidated statement of operations:

Months ended June 30, 2022

Revenue including $ 1,140 and $2,411from related parties, respectively)

of goods sold

profit (loss)

and administrative

and marketing

and development

in contingent consideration

of goodwill and intangible assets

operating expenses

from operations

(expense) income, net

in fair value of warrant liabilities

on extinguishment of notes payable

(expense) income, net

loss before income taxes

(loss) attributable to non-controlling interest

loss attributable to Agrify Corporation

$ ( 102,283 )

Net loss per share attributable to Common Stockholders – basic and diluted

Weighted-average common shares outstanding – basic and diluted

The following

is a summary of the impact of the restatement and reclassifications on the Company’s condensed consolidated statement of operations:

Three Months ended March 31, 2022

Revenue (including $ 1,271 from related parties)

Cost of goods sold

General and administrative

Research and development

Selling and marketing

Total operating expenses

Loss from operations

Interest income, net

Change in fair value of warrant liabilities

Gain on extinguishment of notes payable

Other income, net

Net (loss) income before income taxes

Income tax benefit

Net (loss) income

Income attributable to non-controlling interest

Net (loss) income attributable to Agrify Corporation

Net (loss) income per share attributable to Common Stockholders – basic

Net (loss) income per share attributable to Common Stockholders -- diluted

Weighted-average common shares outstanding – basic

( 24,466,167 )

Weighted-average common shares outstanding – diluted

( 24,460,068 )

The following is a summary of the impact of the restatement and reclassifications

on the Company’s condensed consolidated statement of cash flows:

Six Months ended June 30, 2022

The following

is a summary of the impact of the restatement and reclassifications on the Company’s condensed consolidated statement of cash flows:

Three Months ended March 31, 2022

Cash flows from operating activities

Net loss attributable to Agrify Corporation

$ ( 102,283 )

Adjustments to reconcile net loss attributable to Agrify Corporation to net cash used in operating activities:

Net income (loss) attributable to Agrify Corporation

Adjustments to reconcile net loss (income) attributable to Agrify Corporation to net cash used in operating activities:

Depreciation and amortization

Impairment on goodwill and intangible assets

Amortization of premium on investment securities

2 unchanged sentences

Interest on investment securities

Early termination of lease

Provision for doubtful accounts

Provision for slow-moving inventory

Prepaid and refundable taxes

Debt issuance costs

1 unchanged sentence

Compensation in connection with the issuance of stock options

Non-cash interest (income) expense

Gain on extinguishment of notes payable, net

Loss from disposal of fixed assets

Change in fair value of contingent consideration

Non-cash interest (income)

Change in fair value of warrant liabilities

Income (loss) attributable to non-controlling interests

Gain on extinguishment of notes payable, net

Early termination of lease

Income attributable to non-controlling interests

Changes in operating assets and liabilities, net of acquisitions:

1 unchanged sentence

Prepaid expenses and other current assets

Prepaid and refundable taxes

Right of use assets, net

2 unchanged sentences

Accrued expenses and other current liabilities

Deferred (expense) revenue, net

Deferred (expense), net

Net cash used in operating activities

4 unchanged sentences

Issuance of loan receivable

Cash paid for business combination, net of cash acquired

Cash paid for business combinations, net of cash acquired

Net cash used in investing activities

Cash flows from financing activities

Proceeds from issuance of debt and warrants in private placement

Proceeds from issuance of Common Stock and warrants in private placement, net of fees

Proceeds from issuance of debt and warrants in private

placement, net

Proceeds from issuance of Common Stock and warrants in private

placement, net of fees

Proceeds from IPO, net of fees

2 unchanged sentences

Proceeds from exercise of warrants

Short-term loan payable

Repayments of debt

Payments on other finance loans

Payments on insurance financing loans

Payments on other financing loans

Payments on insurance financing loan

Payments of financing leases

Net cash provided by financing activities

Net increase in cash and cash equivalents

Cash and cash equivalents at the beginning of period

Cash and cash equivalents at the end of period

Cash, cash equivalents, and restricted cash and restricted marketable securities at end of period

Net increase in cash, cash equivalents, and restricted cash

Cash, cash equivalents, and restricted cash at the beginning of period

Cash, cash equivalents, and restricted cash at the end of period

Cash, cash equivalents, and restricted cash at end of period

Cash and cash equivalents

Restricted cash and restricted marketable securities

Total cash, cash equivalents, and restricted cash and restricted marketable securities at the end of period

Supplemental disclosures of non-cash investing activities

Restricted cash

Total cash, cash equivalents, and restricted cash at the end of period

Supplemental disclosures of non-cash flow information

Initial fair value of warrants

Financing prepaid insurance

The following is a summary of the impact of the restatement and reclassifications

on the Company’s condensed consolidated statement of stockholders’ equity as of June 30, 2022:

Financing of prepaid insurance

The following

is a summary of the impact of the restatement and reclassifications on the Company’s condensed consolidated statement of stockholders’

equity as of March 31, 2022:

(Previously Reported)

Stockholders’

(Previously Reported)

Stockholders’

Non-Controlling

(Previously Reported)

Non-Controlling

Stockholders’

(Previously Reported)

Stockholders’

Balance at January 1, 2022

Stock-based compensation

Issuance of Common Stock and warrants in private placement

Issuance of debt and warrants in private placement

Acquisition of Lab Society

Exercise of options

Exercise of warrants

Balance at March 31, 2022

Stock-based compensation

Exercise of options

Exercise of warrants

Balance at June 30, 2022

The related notes to the condensed consolidated financial statements

have also been restated to reflect the error corrections described above.

Note 3 — Revenue and Deferred Revenue

During the three and six months ended June 30,

2022 and 2021, the Company generated revenue from the following sources:

(1) equipment sales, (2) services sales and (3) construction

The Company sells its equipment and services to

customers under a combination of a contract and purchase order.

Equipment revenue includes sales from proprietary products designed and

engineered by the Company such as Agrify Vertical Farming Units (“VFUs”), container farms, integrated grow racks, and LED

grow lights, and non-proprietary products designed, engineered, and manufactured by third parties such as air cleaning systems and pesticide-free

surface protection.

Construction contracts normally provide for payment

upon completion of specified work or units of work as identified in the contract.

Although there is considerable variation in the terms

of these contracts, they are primarily structured as time-and-material contracts.

The Company enters into time-and-materials contracts

under which the Company is paid for labor and equipment at negotiated hourly billing rates and other expenses, including materials, as

incurred at rates agreed to in the contract.

The Company uses three main sub-contractors to execute the construction contracts.

The following table provides the Company’s

revenue disaggregated by the timing of revenue recognition:

Three Months ended

Six Months ended

(In thousands)

Transferred at a point in time

Transferred over time

Total revenue

In accordance with ASC 606-10-50-13, the Company

is required to include disclosure on its remaining performance obligations as of the end of the current reporting period.

Due to the nature

of the Company’s contracts, these reporting requirements are not applicable, because the majority of the Company’s remaining

contracts meet certain exemptions as defined in ASC 606-10-50-14 through 606-10-50-14A, including (i) performance obligation is part

of a contract that has an original expected duration of one year or less and (ii) the right to invoice practical expedient.

The Company generally provides a one-year warranty

on its products for materials and workmanship but may provide multiple year warranties as negotiated, and generally transfers to its customers

the warranties it receives from its vendors, if any, which generally cover this one-year period.

In accordance with ASC 450-20-25, the

Company accrues for product warranties when the loss is probable and can be reasonably estimated.

The Company maintains a reserve for

warranty returns of $ 579 thousand and $ 398 thousand for June 30, 2022 and December 31, 2021, respectively.

The Company’s reserve

for warranty returns is included in accrued expenses and other current liabilities in its condensed consolidated balance sheets.

information regarding the Company’s warranty reserve may be found in Note 4 – Supplemental

Condensed Consolidated Balance Sheet Information, included elsewhere in the notes to the condensed consolidated financial statements.

Deferred Revenue

Changes in the Company’s current deferred

revenue balance for the six months ended June 30, 2022 and the year ended December 31, 2021 were as follows:

(In thousands)

Deferred revenue – beginning of period

Interest income on deferred revenue

Deferred revenue – end of period

Deferred revenue balances primarily consist of

customer deposits on its cultivation and extraction solutions equipment.

As of June 30, 2022 and December 31, 2021, all of the Company’s

deferred revenue balances were reported as current liabilities in the accompanying condensed consolidated balance sheets.

Note 4 – Supplemental Condensed Consolidated Balance Sheet

at January 1, 2022

of Common Stock and warrants in private placement

of debt and warrants in private placement

of Lab Society

at March 31, 2022

notes to the condensed and consolidated financial statements have also been restated to reflect the error corrections described above.

Summary of Significant Accounting Policies

of Condensed Consolidated Financial Statements

condensed consolidated financial statements included herein have been prepared in accordance with accounting principles generally accepted

in the United States of America (“GAAP”), and on the same basis as the audited consolidated financial statements included

in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 and filed with the SEC (“Form 10-K”),

except for the recently adopted accounting pronouncements described below.

condensed consolidated financial statements included herein reflect all normal and recurring adjustments which, in the opinion of management,

are necessary for a fair presentation of the Company’s condensed consolidated statements of operations for the three months ended

March 31, 2022 and 2021, condensed consolidated statements of stockholders’ equity for the three months ended March 31,

2022 and 2021, and the condensed consolidated cash flows for the three months ended March 31, 2022 and 2021.

condensed consolidated balance sheet as of December 31, 2021 is derived from the audited consolidated financial statements presented

in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

Certain information and disclosures normally

included in annual consolidated financial statements have been omitted pursuant to the rules and regulations of the SEC.

condensed consolidated interim financial statements do not include all of the information and disclosures required by GAAP for a complete

set of financial statements, they should be read in conjunction with the audited consolidated financial statements and notes included

in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on March 31, 2022.

for interim periods are not necessarily indicative of a full year’s results.

of Presentation and Principles of Consolidation

for Wholly-Owned Subsidiaries

accompanying condensed consolidated financial statements have been prepared in accordance with GAAP and include the accounts of Agrify

Corporation and its wholly-owned subsidiaries, as described above in Note 1 – Nature of Business and Basis of Presentation, in

accordance with the provisions required by the Consolidation Topic 810 of the Financial Accounting Standards Board (“FASB”)

Accounting Standards Codification (“ASC”).

The Company includes results of operations of acquired companies from the date

of acquisition.

All significant intercompany transactions and balances are eliminated.

for Less Than Wholly-Owned Subsidiaries

the Company’s less than wholly-owned subsidiaries, which include TPI, Agrify-Valiant, and Agrify Brands, the Company first analyzes

whether these entities are a variable interest entity (a “VIE”) in accordance with ASC Topic 810 Consolidation (“ASC

810”), and if so, whether the Company is the primary beneficiary requiring consolidation.

A VIE is an entity that has (i) insufficient

equity to permit it to finance its activities without additional subordinated financial support or (ii) equity holders that lack

the characteristics of a controlling financial interest.

The financial results of a VIE are consolidated by the primary beneficiary,

which is the entity that has both the power to direct the activities that most significantly impact the entity’s economic performance

and the obligation to absorb losses or the right to receive benefits from the entity that potentially could be significant to the entity.

Variable interests in a VIE are contractual, ownership or other financial interests in a VIE that change with changes in the fair value

of the VIE’s net assets.

The Company continuously re-assesses (i) whether the joint venture is a VIE, and (ii) if the Company is

the primary beneficiary of the VIE.

If it is determined that the joint venture qualifies as a VIE and the Company is the primary beneficiary,

the Company’s financial interest in the VIE is consolidated.

on the Company’s analysis for these entities, the Company has determined that Agrify-Valiant, LLC and Agrify Brands, LLC are each

a VIE, and that the Company is the primary beneficiary.

While the Company owns 60 % of Agrify-Valiant, LLC’s equity interests and

75 % of Agrify Brands, LLC’s equity interests, the remaining equity interests in Agrify-Valiant, LLC and Agrify Brands, LLC are

owned by unrelated third parties, and the agreement with these third parties provides the Company with greater voting rights.

the Company consolidates its interest in the financial statements of Agrify-Valiant, LLC and Agrify Brands, LLC under the VIE rules,

and reflects the third parties’ interests in the condensed consolidated financial statements as a non-controlling interest.

Company records this non-controlling interest at its initial fair value, adjusting the basis prospectively for the third parties’

share of the respective consolidated investments’ net income or loss or equity contributions and distributions.

These non-controlling

interests are not redeemable by the equity holders and are presented as part of permanent equity.

Income and losses are allocated to

the non-controlling interest holders based on its economic ownership percentage.

The investment in 50 % of the shares of TPI is treated

as an equity investment as the Company cannot exercise significant influence.

preparation of the Company’s condensed consolidated financial statements in conformity with GAAP requires management to make estimates

and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the

date of the condensed consolidated financial statements, and the reported amounts of expenses during the reporting period.

estimates and assumptions reflected in these condensed consolidated financial statements include, but are not limited to, the accrual

The Company bases its estimates on historical experience, known trends and other market-specific, other relevant factors

that it believes to be reasonable under the circumstances and management’s judgement.

On an ongoing basis, management evaluates

its estimates when there are changes in circumstances, facts and experience.

Changes in estimates are recorded in the period in which

they become known.

Actual financial results could differ from those estimates.

Company, and its Subsidiaries, fiscal year ends on December 31, each year.

Growth Company

Company qualifies as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, which we

refer to as the JOBS Act.

As a result, the Company is permitted to, and intends to, rely on exemptions from certain disclosure requirements

that are applicable to companies that are not emerging growth companies.

addition, the JOBS Act provides that an “emerging growth company” can use the extended transition period for complying with

new or revised accounting standards.

Company will remain an “emerging growth company” until the earliest to occur of:

reporting $1.0 billion

or more in annual gross revenues;

the issuance, in a three-year

period, of more than $1.0 billion in non-convertible debt;

the end of the fiscal year

in which the market value of Common Stock held by non-affiliates exceeds $700 million on the last business day of our second fiscal

December 31, 2026.

Reclassifications

amounts in the Company’s prior period financial statements have been reclassified to conform to the presentation of the current

period financial statements.

In this Form 10-Q, the Company has reclassified selling, general and administrative expenses to two separate

line items in the accompanying condensed consolidated statement of operations as general and administrative expenses and selling and

marketing expenses for the three months ended March 31, 2022 and 2021.

Cash Equivalents, and Restricted Cash

and cash equivalents consist principally of cash and deposits with maturities of three months or less as of March 31, 2022 and December

All cash equivalents are carried at cost, which approximates fair value.

Restricted cash represents cash required to be held

as collateral for the Company’s senior secured promissory note (the “SPA Note”).

Accordingly, these balances contain

restrictions as to their availability and usage and are classified as restricted cash in the condensed consolidated balance sheets.

to Note 16 – Debt, included elsewhere in the notes to the condensed consolidated financial statements.

Cash deposits with financial

institutions, including restricted cash and restricted marketable securities, generally exceed federally insured limits.

believes minimal credit risk exists with respect to these financial institutions and the Company has not experienced any losses on such

Balances held in a brokerage account are disclosed on the balance sheet as restricted cash.

Company’s marketable security investments primarily include investments held in mutual funds, municipal bonds, and corporate bonds.

The mutual funds are recorded at fair value in the accompanying condensed consolidated balance sheets as part of cash and cash equivalents.

The municipal and corporate bonds are considered to be held-to-maturity securities and are recorded at amortized cost in the accompanying

condensed consolidated balance sheets.

The fair value of these investments were estimated using recently executed transactions and market

price quotations.

The Company considers current assets to be those investments which will mature within the next 12 months, including

interest receivable on the long-term bonds.

Receivable, Net

receivable, net, primarily consists of amounts for goods and services that are billed and currently due from customers.

Accounts receivable

Accounts receivable consisted of the following

as of June 30, 2022 and December 31, 2021:

(In thousands)

Accounts receivable, gross

Less allowance for doubtful accounts

Accounts receivable, net

NEIA, a related party, accounted for $ 2.4 million

and $ 3.5 million of the Company’s accounts receivable, net as of June 30, 2022 and December 31, 2021, respectively.

The changes in the allowance for doubtful accounts

consisted of the following:

(In thousands)

Six Months ended

Allowance for doubtful accounts – beginning of period

Provision for doubtful accounts

Other adjustments

Allowance for doubtful accounts – end of period

Bad debt expense was $ 1.6 million and $ 0 for the

three months ended June 30, 2022 and 2021, respectively, and $ 1.6 million and $ 0 for the six months ended June 30, 2022 and 2021, respectively.

Prepaid Expenses and Other Current Receivables

Prepaid expenses and other current receivables

consisted of the following as of June 30, 2022 and December 31, 2021:

balances are presented net of an allowance for credit losses, which is an estimate of billed amounts that may not be collectible.

determining the amount of the allowance at each reporting date, management makes judgments about general economic conditions, historical

write-off experience, and any specific risks identified in customer collection matters, including the aging of unpaid accounts receivable

and changes in customer financial conditions.

Accounts receivable balances are written off after all means of collection are exhausted

and the potential for non-recovery is determined to be probable.

Adjustments to the allowance for credit losses are recorded as general

and administrative expenses in the condensed consolidated statements of operations.

Concentration

of Credit Risk and Significant Customer

instruments that potentially subject the Company to a concentration of credit risk primarily consist of cash and accounts receivable.

The Company places its cash with financial institutions in the United States.

The cash balances are insured by the FDIC up to $ 250

thousand per depositor with unlimited insurance for funds in noninterest-bearing transaction accounts through March 31, 2022.

the amounts in these accounts may exceed the federally insured limits.

Company has certain customers from whom revenue individually represented 10 % or more of the Company’s total revenue, or whose accounts

receivable balances individually represent 10 % or more of the Company’s total accounts receivable.

to the following tables below.

the three months ended March 31, 2022 and 2021, the Company’s customers that accounted for 10 % or more of the total revenue were

Three Months ended

March 31, 2022

Three Months ended

March 31, 2021

(In thousands)

(As Restated)

Prepaid insurance

Prepaid materials

Prepaid software

Prepaid expenses, other

Deferred costs

Other note receivables (1)

Other receivables, other

Total prepaid expenses and other current assets

note receivables relate to the current portion of one of its loan receivable balances related to the total turn-key solution (“TTK

Solution”) program.

Property and Equipment, Net

Property and equipment, net consisted of the following

as of June 30, 2022 and December 31, 2021:

New England Innovation Academy (“NEIA”) – Related Party

revenue, as a percentage of total revenue was less than 10 %

Receivable, Net

of March 31, 2022 and December 31, 2021, the Company’s customers that accounted for 10 % or more of the total accounts receivable,

net, were as follows:

March 31, 2022

December 31, 2021

(In thousands)

NEIA – Related Party

* Customer accounts receivable balance, as a percentage of total accounts receivable balance, was less than 10 %

Company values all of its inventories, which consist primarily of significant raw material hardware components, at the lower of cost

or net realizable value, with cost principally determined by the weighted-average cost method on a First-In, First-Out basis.

of potentially slow moving or damaged inventory are recorded through specific identification of obsolete or damaged material.

takes physical inventory at least once annually at all inventory locations.

and Equipment

and equipment are stated at cost less accumulated depreciation and amortization.

Depreciation and amortization expenses are recognized

using the straight-line method over the estimated useful life of each asset, as follows:

Estimated Useful Life

Computer and office equipment

Furniture and fixtures

Leasehold improvements

Research and development laboratory equipment

Machinery and equipment

Research and development of laboratory equipment

Leased equipment at customer

Trade show assets

Total property and equipment, gross

Accumulated depreciation

Construction in progress

Total property and equipment, net

Depreciation expense for the three months ended

June 30, 2022 and 2021 was $ 438 thousand and $ 109 thousand, respectively, and $ 817 thousand and $ 199 thousand for the six months ended

June 30, 2022 and 2021, respectively.

Other Non-Current Assets

Other non-current assets consisted of the following

as of June 30, 2022 and December 31, 2021:

(In thousands)

(As Restated)

Long-term deferred commissions expense

Security deposits

Total other non-current assets

Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities

consisted of the following as of June 30, 2022 and December 31, 2021:

Leasehold improvements

Lower of estimated useful life or remaining lease term

estimated useful lives of the Company’s property and equipment are periodically assessed to determine if changes are

The Company charges maintenance and repairs to expense as incurred.

When the Company retires or disposes assets, the

carrying cost of these assets and related accumulated depreciation or amortization are eliminated from the condensed consolidated

balance sheet and any resulting gain or loss are included in the condensed consolidated statement of operations in the period of

retirement or disposal.

Costs for capital assets not yet placed into service are capitalized as construction-in-progress and

depreciated once placed into service.

is defined as the excess of cost over the fair value of assets acquired and liabilities assumed in a business combination.

tested for impairment annually, and more frequently if events and circumstances indicate that the asset might be impaired.

has determined that it is a single reporting unit for the purpose of conducting the goodwill impairment assessment.

A goodwill impairment

charge is recorded if the amount by which the Company’s carrying value exceeds its fair value, not to exceed the carrying amount

Factors that could lead to a future impairment include material uncertainties such as a significant reduction in projected

revenues, a deterioration of projected financial performance, future acquisitions and/or mergers, and/or a decline in the Company’s

market value as a result of a significant decline in the Company’s stock price.

Based upon the Company’s 2021 annual impairment

testing analyses, including the consideration of reasonably likely adverse changes in assumptions described above, the Company determined

that there are no goodwill impairments to date.

Company initially records intangible assets at their estimated fair values and reviews these assets periodically for impairment.

intangible assets, which consist principally of acquired customer related acquired assets, acquired and/or developed technology, non-compete

agreements, and trade names, are reported net of accumulated amortization, and are being amortized over their estimated useful lives

at amortization rates that are proportional to each asset’s estimated economic benefit.

The Company’s intangible assets are

amortized on a straight-line basis over the estimated useful lives of the assets.

The Company reviews the carrying value of these intangible

assets annually, or more frequently if indicators of impairment are present.

finite-lived useful lives are as follows:

Acquired developed technology

Non-compete agreements

Customer relationships

Capitalized website costs

performing the review of the recoverability of intangible assets, the Company considers several factors, including whether there have

been significant changes in legal factors or the overall business climate that could affect the underlying value of an asset.

also considers whether there is an expectation that the asset will be sold or disposed of before the end of its remaining estimated useful

If, as the result of examining any of these factors, the Company concludes that the carrying value of intangible asset exceeds

its estimated fair value, the Company recognizes an impairment charge and reduces the carrying value of the asset to its estimated fair

Notes Payable

Company evaluates its convertible instruments to determine if those contracts or embedded components of those contracts qualify as derivative

financial instruments to be separately accounted for in accordance with ASC Topic 815 Derivatives and Hedging (“ASC815”).

The accounting treatment of derivative financial instruments requires that the Company identify and record certain embedded conversion

options (“ECOs”), certain variable-share settlement features, and any related freestanding instruments at their fair values

as of the inception date of the agreement and at fair value as of each subsequent balance sheet date.

Any change in fair value is recorded

as non-operating, non-cash income or expense for each reporting period at each balance sheet date.

The Company reassesses the classification

of its derivative instruments at each balance sheet date.

If the classification changes as a result of events during the period, the

contract is reclassified as of the date of the event that caused the reclassification.

Bifurcated embedded conversion options, variable-share

settlement features and any related freestanding instruments are recorded as a discount to the host instrument which is amortized to

interest expense over the life of the respective note using the effective interest method.

the Company determines that an instrument is not a derivative liability, it then evaluates whether there is a beneficial conversion feature

(“BCF”), by comparing the commitment date fair value to the effective current conversion price of the instrument.

records a BCF as debt discount which is amortized to interest expense over the life of the respective note using the effective interest

BCFs that are contingent upon the occurrence of a future event are recognized when the contingency is resolved.

Costs and Debt Discount

Company may record debt issuance costs and/or debt discounts in connection with issuing of debt.

The Company may cover these costs by

paying cash or issuing or equity (such as warrants).

These costs are amortized to interest expense over the expected life of the debt.

If a conversion of the underlying debt occurs, a proportionate share of the unamortized amounts is immediately expensed.

Issue Discount

certain convertible debt issued by the Company, it may provide the debt holder with an original issue discount.

The Company would

record the original issue discount to debt discount, reducing the face amount of the note, and is then amortized to interest expense

over the life of the debt.

Distinguishing

Liabilities from Equity

relies on the guidance provided by ASC Topic 480, Distinguishing Liabilities from Equity and ASC 815-40, Derivatives and Hedging:

Contracts in Entity’s Own Equity (“ASC 815-40”), to classify certain redeemable and/or convertible instruments.

The Company first determines whether a financial instrument should be classified as a liability.

The Company will determine the liability

classification if the financial instrument is mandatorily redeemable, or if the financial instrument, other than outstanding shares,

embodies a conditional obligation that the Company must or may settle by issuing a variable number of its equity shares.

Company determines that a financial instrument should not be classified as a liability, the Company determines whether the financial

instrument should be presented between the liability section and the equity section of the balance sheet (“temporary equity”).

The Company will determine temporary equity classification if the redemption of the financial instrument is outside the control of the

Company (i.e.

at the option of the holder).

Otherwise, the Company accounts for the financial instrument as permanent equity.

records its financial instruments classified as liability, temporary equity or permanent equity at issuance at the fair value, or cash

Measurement – Financial instruments classified as liabilities

records the fair value of its financial instruments classified as liabilities at each subsequent measurement date.

The changes in fair

value of its financial instruments classified as liabilities are recorded as other income, net.

Company determines at the inception of a right-of-use asset contract if such arrangement is or contains a lease.

A contract is or contains

a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

The Company classifies leases at the lease commencement date as operating or finance leases and records a right-of-use asset and a lease

liability on its condensed consolidated balance sheet for all leases with an initial lease term of greater than 12 months.

an initial term of 12 months or less is not recorded on the balance sheet, but related payments are recognized as expense on a straight-line

basis over the lease term.

Company’s right-of-use asset contracts may contain both lease and non-lease components.

Non-lease components may include maintenance,

utilities, and other operating costs.

The Company combines the lease and non-lease components of fixed costs in its lease arrangements

as a single lease component.

Variable costs, such as utilities or maintenance costs, are not included in the measurement of right-of-use

assets and lease liabilities, but rather are expensed when the event determining the amount of variable consideration to be paid occurs.

liabilities and their corresponding right-of-use assets are recorded based on the present value of future lease payments over the expected

The Company determines the present value of future lease payments by using its estimated secured incremental borrowing rate

for that lease term as the interest rate implicit in the lease is not readily determinable.

The Company estimates its secured incremental

borrowing rate for each lease based on the rate of interest that the Company would have to pay to borrow an amount equal to the lease

payments on a collateralized basis over a similar term.

of the Company’s right-of-use asset leases include options to extend or terminate the lease.

The amounts determined for the Company’s

right-of-use assets and lease liabilities generally do not assume that renewal options or early-termination provisions, if any, are exercised,

unless it is reasonably certain that the Company will exercise such options.

revenue includes amounts collected or billed in excess of revenue that it can recognize.

The Company recognizes deferred revenue

as revenue as the related performance obligation is satisfied.

The Company records deferred revenue that will be recognized

during the succeeding twelve-month period as a current liability on the condensed consolidated balance sheet.

of Financial Instruments

Company’s financial instruments consist of cash, accounts receivable, warrants, accounts payable and accrued expenses.

The estimated

fair value of the accounts receivable and accounts payable approximates their carrying value due to the short-term nature of these instruments.

Company measures all stock options and other stock-based awards granted to employees and directors based on the fair value on the date

of the grant and recognizes compensation expense of those awards, net of estimated forfeitures, over the requisite service period, which

is generally the vesting period of the respective award.

Historically, the Company has issued stock options to employees, directors and

consultants with only service-based vesting conditions and records the expense for these awards using the straight-line method.

Company classifies stock-based compensation expense in its condensed consolidated statements of operations and comprehensive loss in

the same manner in which the award’s recipient’s payroll costs are classified.

Company estimates the fair value of each stock option grant on the date of grant using the Black-Scholes option-pricing model.

the IPO, the Company was a private company and therefore lacks company-specific historical and implied volatility information.

it estimates its expected stock volatility based on the historical volatility of similar publicly-traded companies and expects to continue

to do so until such time as it has adequate historical data regarding the volatility of its own traded stock price.

The expected term

of the Company’s stock options has been determined utilizing the “simplified” method for awards that qualify as “plain-vanilla”

The risk-free interest rate is determined by reference to the U.S.

Treasury yield curve in effect at the time of grant of the

award for time periods approximately equal to the expected term of the award.

The expected dividend yield is based on the fact that the

Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future.

Company accounts for business acquisitions using the purchase method of accounting, in accordance with which assets acquired and liabilities

assumed are recorded at their respective fair values at the acquisition date.

The fair value of the consideration paid, including contingent

consideration, is assigned to the assets acquired and liabilities assumed based on their respective fair values.

Goodwill represents

excess of the purchase price over the estimated fair values of the assets acquired and liabilities assumed.

Company’s management exercises significant judgments in determining the fair value of assets acquired and liabilities assumed,

as well as intangibles and their estimated useful lives.

Fair value and useful life determinations are based on, among other factors,

estimates of future expected cash flows, royalty cost savings and appropriate discount rates used in computing present values.

judgments may materially impact the estimates used in allocating acquisition date fair values to assets acquired and liabilities assumed,

as well as the Company’s current and future operating results.

Actual results may vary from these estimates which may result in

adjustments to goodwill and acquisition date fair values of assets and liabilities during a measurement period or upon a final determination

of asset and liability fair values, whichever occurs first.

Adjustments to the fair value of assets and liabilities made after the

end of the measurement period are recorded within the Company’s operating results.

contingent consideration arrangements, the Company recognizes a liability at fair value as of the acquisition date with subsequent fair

value adjustments recorded in operations.

Additional information regarding the Company’s contingent consideration arrangements

may be found in Note 6 – Fair Value Measures, included elsewhere in the notes to the condensed consolidated financial statements.

Company generates revenue from the following sources:

(1) equipment sales, (2) providing services and (3) construction

accordance with ASC 606 “Revenue Recognition”, the Company recognizes revenue from contracts with customers using a five-step

model, which is described below:

identify the customer contract;

identify performance obligations

that are distinct;

determine the transaction

allocate the transaction

price to the distinct performance obligations;

recognize revenue as the

performance obligations are satisfied.

the customer contract

customer contract is generally identified when there is approval and commitment from both the Company and its customer, the rights have

been identified, payment terms are identified, the contract has commercial substance and collectability, and consideration is probable.

Specifically, the Company obtains written/electronic signatures on contracts and a purchase order, if said purchase orders are issued

in the normal course of business by the customer.

performance obligations that are distinct

performance obligation is a promise by the Company to provide a distinct good or service or a series of distinct goods or services.

good or service that is promised to a customer is distinct if the customer can benefit from the good or service either on its own or

together with other resources that are readily available to the customer, and a company’s promise to transfer the good or service

to the customer is separately identifiable from other promises in the contract.

the transaction price

transaction price is the amount of consideration to which the Company expects to be entitled in exchange for transferring goods or services

to a customer, excluding sales taxes that are collected on behalf of government agencies.

the transaction price to distinct performance obligations

transaction price is allocated to each performance obligation based on the relative standalone selling prices (“SSP”) of

the goods or services being provided to the customer.

The Company’s contracts typically contain multiple performance obligations,

for which the Company accounts for individual performance obligations separately, if they are distinct.

The standalone selling price

reflects the price the Company would charge for a specific piece of equipment or service if it was sold separately in similar circumstances

and to similar customers.

revenue as the performance obligations are satisfied

is recognized when, or as, performance obligations are satisfied by transferring control of a promised product or service to a customer.

Company enters into contracts that may include various combinations of equipment, services and construction, which are generally capable

of being distinct and accounted for as separate performance obligations.

Contracts with customers often include promises to transfer

multiple products and services to a customer.

Determining whether products and services are considered distinct performance obligations

that should be accounted for separately versus together may require significant judgment.

Once the Company determines the performance

obligations, it determines the transaction price, which includes estimating the amount of variable consideration to be included in the

transaction price, if any.

The Company then allocates the transaction price to each performance obligation in the contract based on the

The corresponding revenue is recognized as the related performance obligations are satisfied.

is required to determine the SSP for each distinct performance obligation.

The Company determines SSP based on the price at which the

performance obligation is sold separately and the methods of estimating SSP under the guidance of ASC 606-10-32-33.

If the SSP is not

observable through past transactions, the Company estimates the SSP, taking into account available information such as market conditions,

expected margins, and internally approved pricing guidelines related to the performance obligations.

The Company licenses its software

as a SaaS type subscription license, whereby the customer only has a right to access the software over a specified time period.

value of the contract is recognized ratably over the contractual term of the SaaS subscription, adjusted monthly if tiered pricing is

The Company typically satisfies its performance obligations for equipment sales when equipment is made available for shipment

to the customer;

for services sales as services are rendered to the customer and for construction contracts both as services are rendered

and when contract is completed.

Company utilizes the cost-plus margin method to determine the SSP for equipment and build-out services.

This method is based on the cost

of the services from third parties, plus a reasonable markup that the Company believes is reflective of a market-based reseller margin.

Company determines the SSP for services in time and materials contracts by observable prices in standalone services arrangements.

Company estimates variable consideration in the form of royalties, revenue share, monthly fees, and service credits at contract inception

and updated at the end of each reporting period if additional information becomes available.

Variable consideration is typically not

subject to constraint.

Changes to variable consideration were not material for the periods presented.

a contract has payment terms that differ from the timing of revenue recognition, the Company will assess whether the transaction price

for those contracts include a significant financing component.

The Company has elected the practical expedient that permits an entity

to not adjust for the effects of a significant financing component if the Company expects that at the contract inception, the period

between when the entity transfers a promised good or service to a customer and when the customer pays for that good or service, will

be one year or less.

For those contracts in which the period exceeds the one-year threshold, this assessment, as well as the quantitative

estimate of the financing component and its relative significance, requires judgment.

Accordingly, the Company imputes interest on such

contracts at an agreed upon interest rate and will present the financing components separately as financial income.

For the three months

ended March 31, 2022 and 2021, the Company did not have any such financial income.

terms with customers typically require payment 30 days from the invoice date.

The Company’s agreements with its customers do not

provide for any refunds for services or products and therefore no specific reserve for such is maintained.

In the infrequent instances where

customers raise a concern over delivered products or services, the Company has endeavored to remedy the concern and all costs related

to such matters have been insignificant in all periods presented.

Company has elected to treat shipping and handling activities after the customer obtains control of the goods as a fulfillment cost and

not as a promised good or service.

Accordingly, the Company will accrue all fulfillment costs related to the shipping and handling of

consumer goods at the time of shipment.

The Company has payment terms with its customers of one year or less and has elected the practical

expedient applicable to such contracts not to consider the time value of money.

Sales, value add, and other taxes the Company collects

concurrent with revenue-producing activities are excluded from revenue.

Company receives payment from customers based on specified terms that are generally less than 30 days from the satisfaction of performance

There are no contract assets related to performance under the contract.

The difference in the opening and closing balances

of the Company’s deferred revenue primarily results from the timing difference between the Company’s performance and the

customer’s payment.

The Company fulfills obligations under a contract with a customer by transferring products and services in

exchange for consideration from the customer.

Accounts receivables are recorded when the customer has been billed or the right to consideration

is unconditional.

The Company recognizes deferred revenue when consideration has been received or an amount of consideration is due from

the customer, and the Company has a future obligation to transfer certain proprietary products.

accordance with ASC 606-10-50-13, the Company is required to include disclosure on its remaining performance obligations as of the end

of the current reporting period.

Due to the nature of the Company’s contracts, these reporting requirements are not applicable.

The majority of the Company’s remaining contracts meet certain exemptions as defined in ASC 606-10-50-14 through 606-10-50-14A,

including (i) performance obligation is part of a contract that has an original expected duration of one year or less and (ii) the

right to invoice practical expedient.

Company generally provides a one-year warranty on its products for materials and workmanship but may provide multiple-year warranties

as negotiated, and will pass on the warranties from its vendors, if any, which generally covers this one-year period.

In accordance with

ASC 450-20-25, the Company accrues for product warranties when the loss is probable and can be reasonably estimated.

The reserve for

warranty returns is included in accrued expenses and other current liabilities in the Company’s condensed consolidated balance

and Development Costs

Company expenses research and development costs as incurred.

Research and development expenses include payroll, employee benefits and

other expenses associated with product development.

The Company incurs research and development costs associated with the development

and enhancement of both hardware and software products associated with its cultivation and extraction equipment, as well as its SaaS-based

software offering, Agrify Insights software.

Capitalization

of Internal Software Development Costs

Company capitalizes certain software engineering efforts related to the continued development of Agrify Insights software under ASC

Costs incurred during the application development phase are only capitalized once technical feasibility has been established

and the work performed will result in new or additional functionality.

The types of costs capitalized during the application development

phase include employee compensation, as well as consulting fees for third-party software developers working on these projects.

related to the research and development are expensed as incurred until technical feasibility is established as well as post-implementation

Internal-use software is amortized on a straight-line basis over the estimated useful life of the asset, which ranges from

two to five years.

and Handling Charges

Company incurs costs related to shipping and handling of its manufactured products.

These costs are expensed as incurred as a component

of cost of goods sold.

Shipping and handling charges related to the receipt of raw materials are also incurred, which are recorded as

a cost of the related inventory.

Method Investments

in affiliates which are 50 % or less owned by the Company for which the Company exercises significant influence but does not have

control are accounted for using the equity method.

The Company has investments in equity investments without readily determinable fair

values, which represents investments in entities where the Company does not have the ability to significantly influence the operations

of the entities.

assessment of whether or not the Company (as a holder of 50 % of TPI) has the power to direct activities that most significantly impact

TPI’s economic performance and to identify the party that obtains the majority of the benefits of the investment was performed

as of March 31, 2022 and December 31, 2021 and will be performed as of each subsequent reporting date.

After each of these assessments,

the Company concluded that the activities that most significantly impact TPI’s economic performance are the growth, marketing,

sale, and distribution of products using TPI’s technology and IP, each of which are solely directed by TPI.

Based on our consideration

of these assessments, the Company concluded that the Company’s investment in TPI should be accounted for under the equity method.

carrying value of the Company’s investment in TPI was $ 0 as of March 31, 2022 and December 31, 2021.

The Company did not recognize

revenue from TPI for the three months ended March 31, 2022 and March 31, 2021.

Company accounts for income taxes pursuant to the provisions of ASC Topic 740, “Income Taxes,” which requires, among other

things, an asset and liability approach to calculating deferred income taxes.

The asset and liability approach requires the recognition

of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts

and the tax bases of assets and liabilities.

A valuation allowance is provided to offset any net deferred tax assets for which management

believes it is more likely than not that the net deferred asset will not be realized.

Company follows the provisions of ASC 740-10-25-5, “Basic Recognition Threshold.” When tax returns are filed, it is highly

certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty

about the merits of the position taken or the amount of the position that would be ultimately sustained.

In accordance with the guidance

of ASC 740-10-25-6, the benefit of a tax position is recognized in the condensed consolidated financial statements in the period during

which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination,

including the resolution of appeals or litigation processes, if any.

Tax positions taken are not offset or aggregated with other positions.

Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more

than 50 percent likely of being realized upon settlement with the applicable taxing authority.

The portion of the benefits associated

with tax positions taken that exceeds the amount measured as described above should be reflected as a liability for unrecognized tax

benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing authorities

upon examination.

The Company believes its tax positions are all highly certain of being upheld upon examination.

As such, the Company

has not recorded a liability for unrecognized tax benefits.

As of March 31, 2022, tax years 2016 through 2021 remain open for IRS audit.

The Company has received no notice of audit from the IRS for any of the open tax years.

Company recognizes the benefit of a tax position when it is effectively settled.

ASC 740-10-25-10, “Basic Recognition Threshold”

provides guidance on how an entity should determine whether a tax position is effectively settled for the purpose of recognizing previously

unrecognized tax benefits.

ASC 740-10-25-10 clarifies that a tax position can be effectively settled upon the completion of an examination

by a taxing authority.

For tax positions considered effectively settled, the Company recognizes the full amount of the tax benefit.

(Loss) Per Share

Company presents basic and diluted net income (loss) per share attributable to Common Stockholders in conformity with the two-class method

required for participating securities.

We compute basic income (loss) per share by dividing net income (loss) available to Common Stockholders

by the weighted-average number of common shares outstanding.

Net income (loss) available to Common Stockholders represents net income

(loss) attributable to Common Stockholders reduced by the allocation of earnings to participating securities.

Diluted income per share

adjusts basic income per share for the potentially dilutive impact of stock options and warrants.

For periods during which the Company

recorded a net loss, diluted net loss per share is equal to basic net loss per share because the effect of dilutive securities outstanding

is anti-dilutive.

income (loss) per share calculations for all periods have been adjusted to reflect the Reverse Stock Split effected on January 12, 2021.

Net income (loss) per share was calculated based on the weighted-average number of Common Stock outstanding.

Recent Accounting Pronouncements

Adopted Accounting Pronouncements

2020, the FASB issued Accounting Standards Update (“ASU”) No.

2020-06, Debt - Debt with Conversion

and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own

Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.

amendments in ASU No.

2020-06 simplify the complexity associated with applying U.S.

GAAP for certain financial

instruments with characteristics of liabilities and equity.

More specifically, the amendments focus on the guidance for convertible

instruments and derivative scope exceptions for contracts in an entity’s own equity.

ASU 2020-06 is effective for

fiscal years beginning after December 15, 2021, including interim periods within those fiscal years.

adoption of this new accounting guidance had no impact on the Company’s consolidated financial position.

Accounting Pronouncements

June 2016, the FASB issued ASU No.

2016-13, Financial Instruments—Credit Losses (Topic 326), which introduces a new methodology

for accounting for credit losses on financial instruments, including available-for-sale debt securities and accounts receivable.

guidance establishes a new “expected loss model” that requires entities to estimate current expected credit losses on financial

instruments by using all practical and relevant information.

Any expected credit losses are to be reflected as allowances rather than

reductions in the amortized cost of available-for-sale debt securities.

ASU 2016-13 is effective in the first quarter

of fiscal 2024.

The Company is currently evaluating the potential impact of this adoption on its condensed consolidated financial statements

and related disclosures.

2021, the FASB issued ASU No.

2021-08, Business Combinations (Topic 606):

Accounting for Contract Assets and

Contract Liabilities from Contracts with Customers, which requires that an entity recognize and measure contract assets and contract

liabilities acquired in a business combination in accordance with Topic 606 as if it had originated the contracts.

this should result in an acquirer recognizing and measuring the acquired contract assets and contract liabilities consistent with how

they were recognized and measured in the acquiree’s financial statements, if the acquiree prepared financial statements in accordance

The amendment in this update is effective for fiscal years beginning after December 15, 2022, including interim

periods within those fiscal years.

Early adoption is permitted, including adoption in an interim period.

The guidance should be applied

prospectively to business combinations occurring on or after the effective date of the amendment in this update.

The Company is currently

evaluating the potential impact of this adoption on its condensed consolidated financial statements and related disclosures.

Company does not believe that any other ASU issued but not yet effective, if adopted, will have a material effect on the Company’s

future financial statements.

Revenue and Deferred Revenue

the three months ended March 31, 2022 and 2021, the Company generated revenue from the following sources:

(1) equipment sales, (2) services

sales and (3) construction contracts.

Company sells its equipment and services to customers under a combination of a contract and purchase order.

Equipment revenue includes

sales from proprietary products designed and engineered by the Company such as Agrify Vertical Farming Units (“VFUs”), container

farms, integrated grow racks, and LED grow lights, and non-proprietary products designed, engineered, and manufactured by third parties

such as air cleaning systems and pesticide-free surface protection.

contracts normally provide for payment upon completion of specified work or units of work as identified in the contract.

Although there

is considerable variation in the terms of these contracts, they are primarily structured as time-and-material contracts.

enters into time-and-materials contracts under which the Company is paid for labor and equipment at negotiated hourly billing rates and

other expenses, including materials, as incurred at rates agreed to in the contract.

The Company uses three main sub-contractors to execute

the construction contracts.

Disaggregation

of Revenue — The following table provides the Company’s revenue disaggregated by timing of revenue recognition:

Three Months ended

(In thousands)

Accrued acquisition liability (1)

Sales tax payable (2)

Accrued construction costs

Compensation related fees

Accrued professional fees

Accrued warranty costs

Accrued consulting fees

Accrued inventory purchases

Financing lease liabilities

Accrued non-income taxes

Other current liabilities

Total accrued expenses and other current liabilities

acquisition liabilities include both the contingent consideration and the value of held back Common Stock associated with the 2022 acquisition

of Lab Society and the 2021 acquisitions of Precision, Cascade and PurePressure.

tax payable primarily represents identified sales and use tax liabilities arising from the acquisition of Precision and Cascade.

amounts are included as part of the initial purchase price allocations and are the subject matter of an indemnification claim under the

Precision and Cascade acquisition agreement.

Warranty Accrual

The following table summarizes the activity related

to the Company’s accrued liability for estimated future warranty costs:

Transferred at a point in time

Transferred over time

Total revenue

accordance with ASC 606-10-50-13, the Company is required to include disclosure on its remaining performance obligations as of the end

of the current reporting period.

Due to the nature of the Company’s contracts, these reporting requirements are not applicable,

because the majority of the Company’s remaining contracts meet certain exemptions as defined in ASC 606-10-50-14 through 606-10-50-14A,

including (i) performance obligation is part of a contract that has an original expected duration of one year or less and (ii) the

right to invoice practical expedient.

Company generally provides a one-year warranty on its products for materials and workmanship but may provide multiple year warranties

as negotiated, and generally transfers to its customers the warranties it receives from its vendors, if any, which generally cover this

one-year period.

In accordance with ASC 450-20-25, the Company accrues for product warranties when the loss is probable and can be reasonably

The Company maintains a reserve for warranty returns of $ 398 thousand for both March 31, 2022 and December 31, 2021.

The Company’s

reserve for warranty returns is included in accrued expenses and other current liabilities in its condensed consolidated balance sheets.

in the Company’s current deferred revenue balance for the three months ended March 31, 2022 and the year ended

December 31, 2021 were as follows:

(In thousands)

Six Months ended

Warranty accrual – beginning of period

Liabilities accrued for warranties issued during period

Warranty accrual – end of period

Note 5 — Fair Value Measures

Fair Values of Assets and Liabilities

In accordance with ASC Topic 820 “Fair Value

Measurement”, the Company measures fair value at the price that would be received to sell an asset or paid to transfer a liability

in an orderly transaction between market participants at the measurement date.

In determining fair value, the assumptions that market

participants would use in pricing an asset or liability (the inputs) are based on a tiered fair value hierarchy consisting of three levels,

Observable inputs such as quoted prices for identical assets or liabilities in active markets.

Other inputs that are observable directly or indirectly, such as quoted prices for similar instruments in active markets or for similar markets that are not active.

Unobservable inputs for which there is little or no market data which require the Company to develop its own assumptions about how market participants would price the asset or liability.

Valuation techniques for assets and liabilities

include methodologies such as the market approach, the income approach or the cost approach, and may use unobservable inputs such as projections,

estimates and management’s interpretation of current market data.

These unobservable inputs are only utilized to the extent

that observable inputs are not available or cost-effective to obtain.

At June 30, 2022 and December 31, 2021, the

Company’s assets and liabilities measured at fair value on a recurring basis were as follows:

June 30, 2022 (As Restated)

Deferred revenue – beginning of period

Interest income on deferred revenue

Deferred revenue – end of period

revenue balances primarily consist of customer deposits on our cultivation and extraction solutions equipment.

As of March 31, 2022 and

December 31, 2021, all of the Company’s deferred revenue balances were reported as current liabilities in our accompanying condensed

consolidated balance sheets.

Fair Value Measures

Values of Assets and Liabilities

accordance with ASC Topic 820 “Fair Value Measurement”, the Company measures fair value at the price that would be received

to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

determining fair value, the assumptions that market participants would use in pricing an asset or liability (the inputs) are based on

a tiered fair value hierarchy consisting of three levels, as follows:

Observable inputs such as quoted prices for identical

assets or liabilities in active markets.

Other inputs that are observable directly or indirectly,

such as quoted prices for similar instruments in active markets or for similar markets that are not active.

Unobservable inputs for which there is little or no

market data which require the Company to develop its own assumptions about how market participants would price the asset or liability.

techniques for assets and liabilities include methodologies such as the market approach, the income approach or the cost approach, and

may use unobservable inputs such as projections, estimates and management’s interpretation of current market data.

These unobservable

inputs are only utilized to the extent that observable inputs are not available or cost-effective to obtain.

March 31, 2022 and December 31, 2021, the Company’s assets and liabilities measured at fair value on a recurring basis were

March 31, 2022

December 31, 2021

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Fair value information for each of these instruments is as follows:

and cash equivalents, accounts receivable, accounts payable and deferred revenue liabilities fair values approximate their carrying

values, due to the expected duration of these instruments.

securities classified as current held-to-maturity securities are recorded at amortized cost, which at June 30, 2022, approximated

Company’s deferred consideration was recorded in connection with acquisitions during the first quarter of 2022 and fiscal 2021

Cash and cash equivalents, accounts receivable, accounts

payable and deferred revenue liabilities fair values approximate their carrying values, due to the expected duration of these instruments.

Marketable securities classified as current held-to-maturity

securities are recorded at amortized cost, which at March 31, 2022, approximated fair value.

The Company’s

deferred consideration was recorded in connection with acquisitions during the three months ended March 31, 2022 and fiscal 2021

using an estimated fair value discount at the time of the transaction.

As of June 30, 2022 and December 31, 2021, the carrying value

As of March 31, 2022 and December 31, 2021, the carrying value

of the deferred consideration approximated fair value, respectively.

liabilities were recorded in connection with the issuance of warrants to purchase the Company’s common stock during the first

quarter of 2022.

As of June 30, 2022 the warrant liabilities were recorded at fair value.

of June 30, 2022, the Company held investments in mutual funds, municipal bonds and corporate bonds.

Warrant liabilities were recorded in connection with

the issuance of warrants to purchase the Company’s common stock during the three months ended March 31, 2022.

As of March 31,

2022, the warrant liabilities were recorded at fair value.

of March 31, 2022, the Company held investments in mutual funds, municipal bonds and corporate bonds.

The Company records mutual funds

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Corporate bonds

amortized cost and estimated fair value of marketable securities as of June 30, 2022, are as follows:

amortized cost and estimated fair value of marketable securities as of March 31, 2022, are as follows:

(In thousands)

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Company has classified its net liability for contingent earn-out considerations to the sellers relating to one acquisition completed

during the first quarter of 2022 and two acquisitions completed during fiscal 2021.

The fair value for the contingent consideration associated

with these acquisitions is within Level 3 of the fair value hierarchy because the associated fair value is determined using significant

unobservable inputs, which included the key assumptions to model future revenue, costs of goods sold and operating expense projections.

A description of the Company’s acquisitions completed during the first quarter of 2022 and fiscal 2021 are included within Note

9 – Business Combinations, included elsewhere in the notes to the condensed consolidated financial statements.

during the three months ended March 31, 2022, and two acquisitions completed during fiscal 2021.

The fair value for the contingent consideration

associated with these acquisitions is within Level 3 of the fair value hierarchy because the associated fair value is determined

using significant unobservable inputs, which included the key assumptions to model future revenue, costs of goods sold and operating

expense projections.

A description of the Company’s acquisitions completed during the three months ended March 31, 2022 and fiscal

2021 are included within Note 15 – Business Combinations, included elsewhere in the notes to the condensed consolidated financial

contingent earn-out payments to the sellers for each acquisition are based on the achievement of certain revenue thresholds.

three months ended March 31, 2022, the Company accrued $ 1.4 million relating to the Lab Society acquisition for contingent consideration

recorded from the initial purchase price accounting.

(In thousands)

Six Months ended

Three Months ended

Contingent consideration – beginning of period

Accrued contingent consideration

Accretion of contingent consideration

Change in estimated fair value

Contingent consideration – end of period

Company included contingent consideration within accrued expenses and other current liabilities in its condensed consolidated balance

sheets as of June 30, 2022 and December 31, 2021, respectively.

below for additional information related to each acquisition’s contingent consideration.

Consideration – Lab Society

Company, in its review of actual revenue performance as compared to its originally projected revenue estimates, noted that Lab Society’s

revenue trend is materially below the originally estimated revenue trends incorporated into the Company’s original fair value estimates

at the time of the acquisition.

As a result, the Company has reduced its fair value estimate of achievement for Lab Society’s first

earn-out period.

During the second quarter ended June 30, 2022, the Company reduced the estimated fair value of the contingent consideration

liability associated with Lab Society’s first earn-out period by approximately $ 1.0 million.

As required by ASC 805, the change

in contingent consideration was recorded as a reduction in operating expenses during the second quarter of 2022.

Consideration – Precision and Cascade

earn-out period for the potential contingent consideration to be earned by the former members of Precision and Cascade concluded on December

The Company, during the second quarter of 2022, increased the amount of the contingent consideration earned by the former members

of Precision and Cascade by approximately $ 121 thousand, to reflect the final contingent consideration amount due.

This amount, as required

by ASC 805, was recorded as an increase in operating expenses during the second quarter of 2022.

The Company has not yet paid the $ 5.6

million in total contingent consideration to the members of Precision and Cascade as of June 30, 2022.

The Company expects to make payment

on the contingent consideration in August 2022.

Company included contingent consideration within accrued expense and other current liabilities in its condensed consolidated balance

sheets as of March 31, 2022 and December 31, 2021, respectively.

January 2022, the Company issued warrants to purchase up to an aggregate of 15,078 shares of Common Stock in connection with a private

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The warrants have an exercise price of $ 1,496.00 .

In March, 2022, the Company

issued warrants to purchase up to an aggregate of 34,406 shares of Common Stock in connection with the issuance of debt (the “SPA

Company determined that the PIPE Warrants and SPA Warrants did not meet the criteria for permanent equity accounting.

As a result, the

Company allocated a portion of the offering proceeds to warrant liabilities at its fair value.

The fair value was calculated using the

Black-Scholes option valuation model using significant inputs.

grant date fair value of the PIPE Warrants and the SPA Warrants issued during the six months ended June 30, 2022 was calculated used

March, 2022, the Company issued warrants to purchase up to an aggregate of 34,406 shares of Common Stock in connection with the issuance

of debt (the “SPA Warrants”).

The warrants have an exercise price of $ 1,350.00 .

grant date fair value of the PIPE Warrants and the SPA Warrants issued during the three months ended March 31, 2022 was calculated using

a Black-Scholes model and was determined to be $ 40.5 million using the following inputs:

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Discount rate -bond equivalent yield

fair value of the PIPE Warrants and the SPA Warrants was remeasured and was determined to be $ 9.5 million at June 30, 2022, using a Black-Scholes

fair value of the PIPE Warrants and the SPA Warrants were remeasured and determined to be $ 29.7 million at March 31, 2022, using a Black-Scholes

model using the following inputs:

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Discount rate -bond equivalent yield

following table sets forth a summary of the changes in the fair value of the Level 3 Warrant Liabilities for the six months ended June

The following

table sets forth a summary of the changes in the fair value of the Level 3 warrant liabilities for the three months ended March 31, 2022:

(In thousands)

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Loan Receivable

portion of the capital raised from the Company’s IPO has been allocated to launch the Company’s TTK Solution program.

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:

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.

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.

is a related party as of June 30, 2022 and December 31, 2021.

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.

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

portion of the capital raised from the Company’s IPO has been allocated to launch Agrify’s total turn-key solution (“TTK

Solution”) program.

The TTK Solution is industry’s first end-to-end solution that provides access to capital for construction

costs, equipment lease(s) to VFUs and other related operating equipment, subscription to the Company’s Agrify Insights software,

and business consultation services, which will enable the Company’s customers to go to market faster and better.

Company’s initial allowable investment in the TTK Solution engagements is currently capped at $ 50.0 million, as approved by the

Company’s Board of Directors.

As of March 31, 2022 and December 31, 2021, the Company has committed $ 32.9 million to the Agrify

TTK Solution for five customers under contract and $ 20.3 million to the Agrify TTK Solution for five customers under contract, respectively.

Of the five parties who have purchased the Agrify TTK Solution to date, Greenstone Holdings is a related party as of March 31, 2022 and

December 31, 2021.

loan agreements entered into with customers receiving the Agrify TTK Solution generally provide for loans ranging from approximately

$ 200 thousand up to $ 13.5 million 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.

breakdown of loans receivable by Company as of March 31, 2022 and December 31, 2021 is as follows:

(In thousands)

Company Customer Number 139 – TTK Solution

Greenstone – TTK Solution – Related Party

Company Customer Number 136 – TTK Solution

Company Customer Number 125 – TTK Solution

Company Customer Number 140 – TTK Solution

Company Customer Number 71 – Non-TTK Solution (1)

Company A – Agrify TTK Solution

Greenstone Holdings – TTK Solution – Related Party

Company C – Agrify TTK Solution

Company D – Agrify TTK Solution

Company E – Agrify TTK Solution

Company F – Non-TTK Solution (1)

Other – Non-TTK Solutions

Greenstone – TTK Solution – Related Party – Allowance for doubtful accounts (2)

Total loan receivable

(1) The current portion of loan receivable are included within Note 4 – Supplemental Condensed Consolidated Balance Sheet Information, included elsewhere in the notes to the condensed 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.

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.

portion of loan receivable are included within Note 10 – Prepaid Expenses and Other Current Receivables, included elsewhere in

the notes to the condensed consolidated financial statements.

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.

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.

7 — Inventory

Based on the Company’s analysis, the Company has determined that Greenstone Holdings is a

As of March 31, 2022, two of the Company’s employees own approximately 36.6 % of the equity of Greenstone Holdings, however,

since the Company is not the primary beneficiary and does not hold significant influence over Greenstone Holdings business decisions,

the Company is not required to consolidate Greenstone Holdings.

Accounts Receivable

receivable consisted of the following as of March 31, 2022 and December 31, 2021:

(In thousands)

Accounts receivable, gross

Less allowance for doubtful accounts

Accounts receivable, net

a related party, accounted for $ 1.3 million and $ 3.5 million of the Company’s accounts receivable, net as of March 31, 2022 and

December 31, 2021, respectively.

changes in the allowance for doubtful accounts consisted of the following:

(In thousands)

Three Months ended

Allowance for doubtful accounts - beginning of period

Provision for doubtful accounts

Other adjustments

Allowance for doubtful accounts - end of period

debt expense was nil for both the three months ended March 31, 2022 and March 31, 2021.

are stated at the lower of cost or net realizable value, with cost principally determined by the weighted-average cost method on a First-In,

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inventory is a short-term, non-interest-bearing asset that is applied to the purchase of products once they are delivered.

consisted of the following as of June 30, 2022 and December 31, 2021:

consisted of the following as of March 31, 2022 and December 31, 2021:

(In thousands)

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(In thousands)

Three Months ended

Inventory reserves – beginning of period

Increase in inventory reserves

Inventory write-offs

Inventory reserves – end of period

Prepaid Expenses and Other Current Assets

expenses and other current assets consisted of the following as of March 31, 2022 and December 31, 2021:

(In thousands)

Prepaid insurance

Prepaid software

Prepaid expenses, other

Deferred costs

Other note receivables (1)

Other receivables, other

Total prepaid expenses and other current assets

note receivables relate to the current portion of one of our TTK Solutions loan receivable balances.

Property and Equipment, Net

and equipment, net consisted of the following as of March 31, 2022 and December 31, 2021:

(In thousands)

Computer and office equipment

Furniture and fixtures

Leasehold improvements

Machinery and equipment

Research and development laboratory equipment

Leased equipment at customer

Trade show assets

Total property and equipment, gross

Accumulated depreciation

Construction in progress

Total property and equipment, net

expense for the three months ended March 31, 2022 and 2021 was $ 379 thousand and $ 90 thousand, respectively.

Intangible Assets, Net and Goodwill

assets are initially recorded at fair value and tested periodically for impairment.

Goodwill represents the excess of the purchase price

over the fair value of identifiable tangible and intangible assets acquired and liabilities assumed in a business combination and is

tested at least annually for impairment.

The Company performs its goodwill impairment testing annually during the fourth quarter, or

sooner if indicators or if circumstances were to occur that would more likely than not reduce the fair value of the Company’s reporting

unit below its carrying amount.

The Company would recognize an impairment charge for the amount by which the carrying amount exceeds

the reporting unit’s fair value, not to exceed the total amount of goodwill.

Company has concluded that there was an impairment triggering event during the three months ended June 30, 2022 that required the Company

to perform a detailed analysis of the current carrying value of its goodwill and intangible assets.

For intangible asset and goodwill

impairment testing purposes, the Company has one reporting unit.

the three-month period ended June 30, 2022, the Company’s market capitalization fell below total net assets.

In addition, financial

performance continued to weaken during the quarter, which is contrary to prior experience.

Management reassessed business performance

expectations, following persistent adverse developments in equity markets, deterioration in the environment in which the Company operates,

lower than expected sales, and an increase in operating expenses.

These indicators, in the aggregate, required impairment testing for

intangible assets and goodwill.

on the results of this testing, the Company determined that the carrying values of the aggregate value of its goodwill and intangible

assets were not recoverable.

The Company recorded impairment charges during the second quarter of 2022, representing a full impairment

of the carrying value of its goodwill and intangible assets.

The Company recorded an impairment charge of approximately $ 69.9 million,

representing the carrying values of intangible assets and goodwill, which totaled $ 15.2 million and $ 54.7 million, respectively.

consisted of the following:

– beginning of period

acquired during period

impairment loss

purchase accounting adjustment

– end of period

assets, net as of June 30, 2022 was as follows:

Company records intangible assets initially at fair value and tests these values periodically for impairment.

Goodwill represents the

excess of the purchase price over the fair value of identifiable tangible and intangible assets acquired and liabilities assumed in a

business combination and is tested at least annually for impairment.

The Company performs an impairment test of goodwill during the fourth

quarter of each year or sooner if indicators of potential impairment arise.

There were no such indicators in the three months ended March

assets, net as of March 31, 2022 was as follows:

Intangible Assets, Gross

Accumulated Amortization and Impairment

Accumulated Amortization

Intangible Assets, Net

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Acquired developed Technology

Non-compete agreements

Capitalized website costs

Total intangible assets, net

assets, net as of December 31, 2021 was as follows:

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Acquired developed Technology

Non-compete agreements

Capitalized website costs

Total intangible assets, net

expense recorded in general and administrative in the condensed consolidated statements of operations were $ 1.4 million and $ 57 thousand

for the three months ended June 30, 2022 and 2021, respectively, and $ 703 thousand and $ 115 thousand for the six months ended June 30,

2022 and 2021, respectively.

expense recorded in general and administrative in the condensed consolidated statements of operations were $ 673 thousand and $ 58 thousand

for the three months ended March 31, 2022 and 2021, respectively.

amortization expense for the remainder of 2022 and subsequent years for acquired intangible assets:

Years ending December 31 (In thousands),

Remaining 2022

2027 and thereafter

consisted of the following:

(In thousands)

Three Months ended

Goodwill - beginning of period

Goodwill acquired during period

Goodwill purchase accounting adjustment

Goodwill - end of period

Other Non-Current Assets

non-current assets consisted of the following as of March 31, 2022 and December 31, 2021:

(In thousands)

Long-term deferred commissions expense

Security deposits

Total other non-current assets

Accrued Expenses and Other Current Liabilities

expenses and other current liabilities consisted of the following as of March 31, 2022 and December 31, 2021:

(In thousands)

Accrued acquisition liability (1)

Sales tax payable (2)

Accrued construction costs

Compensation related fees

Accrued professional fees

Accrued warranty expenses

Accrued consulting fees

Accrued inventory purchases

Financing lease liabilities

Accrued non-income taxes

Total accrued expenses and other current liabilities

acquisition liabilities includes both the contingent consideration and the value of held back Common Stock associated with the 2022 acquisition

of Lab Society and the 2021 acquisitions of Precision, Cascade and PurePressure.

tax payable primarily represents identified sales and use tax liabilities arising from our acquisition of Precision and Cascade.

amounts are included as part of our initial purchase price allocations and are the subject matter of an indemnification claim under the

Precision and Cascade acquisition agreement.

Business Combination

of Lab Society

February 1, 2022, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Lab Society, a newly-formed

wholly-owned subsidiary of the Company (“Merger Sub”), Michael S.

Maibach Jr., as the Owner Representative thereunder, and

each of the shareholders of Lab Society (collectively, the “Owners”), pursuant to which the Company agreed to acquire Lab

Concurrently with the execution of the Merger Agreement, the Company consummated the merger of Lab Society with and into Merger

Sub, with Merger Sub surviving such merger as a wholly-owned subsidiary of the Company (the “Lab Society Acquisition”).

February 1, 2022, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Lab Society, Lab

Society NewCo, LLC, a newly-formed wholly-owned subsidiary of the Company (“Merger Sub”), Michael S.

Maibach Jr., as the

Owner Representative thereunder, and each of the shareholders of Lab Society (collectively, the “Owners”), pursuant to which

the Company agreed to acquire Lab Society.

Concurrently with the execution of the Merger Agreement, the Company consummated the merger

of Lab Society with and into Merger Sub, with Merger Sub surviving such merger as a wholly-owned subsidiary of the Company (the “Lab

Society Acquisition”).

aggregate consideration for the Lab Society Acquisition consisted of:

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the remaining 50% will be payable by issuing shares of Common Stock.

Additional information regarding the Company’s contingent

consideration arrangements may be found in Note 5 – Fair Value Measures, included elsewhere in the notes to the condensed consolidated

financial statements.

and related costs, consisting primarily of professional fees, directly related to the acquisition, totaled approximately $ 38 and $ 66

thousand for the three months and six months ended June 30, 2022, respectively.

All transaction and related costs were expensed as incurred

and are included in general and administrative expenses.

and related costs, consisting primarily of professional fees, directly related to the acquisition, totaled approximately $ 28 thousand

for the three months ended March 31, 2022.

All transaction and related costs were expensed as incurred and are included in general and

administrative expenses.

Company has prepared purchase price allocations for the business combination with Lab Society on a preliminary basis.

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allocations may occur as additional information becomes available during the respective measurement period (up to one year from the acquisition

Fair values still under review as of March 31, 2022 include values assigned to identifiable intangible assets and goodwill.

following table sets forth the components and the allocation of the purchase price for the business combination:

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Finance lease liabilities, current

Finance lease liabilities, non-current

Finance lease liabilities, noncurrent

Operating lease liabilities, current

Operating lease liabilities, non-current

Operating lease liabilities, noncurrent

Acquired intangible assets

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These valuation

methods require management to project revenues, operating expenses, working capital investment, capital spending, and cash flows for

the reporting unit over a multiyear period, as well as determine the weighted-average cost of capital to be used as a discount rate.

the three-month period ended June 30, 2022, the Company identified a potential impairment triggering event associated with both a sustained

decline in the Company’s stock price and associated market capitalization, as well as a second-quarter slowdown in the cannabis

industry as a whole.

Due to these factors, the Company deemed that there may be an impairment to the carrying value of its long-lived

assets and accordingly performed interim testing to determine the proper fair value of its long-lived assets as of June 30, 2022.

on its interim testing, the Company noted that the entire carrying value of its goodwill and intangible assets should be impaired.

information regarding the Company’s interim testing on goodwill and intangible assets may be found in Note 8 – Intangible

Assets, Net and Goodwill, included elsewhere in the notes to the condensed consolidated financial statements.

methods require management to project revenues, operating expenses, working capital investment, capital spending and cash flows for the

reporting unit over a multiyear period, as well as determine the weighted-average cost of capital to be used as a discount rate.

Company amortizes its intangible assets assuming no residual value over periods in which the economic benefit of these assets is consumed.

amount of revenue of Lab Society included in the condensed consolidated statement of operations from the acquisition date of February

1, 2022 to June 30, 2022 was $ 3.1 million.

1, 2022 to March 31, 2022 was $ 1.5 million.

of Precision and Cascade

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by an amendment dated as of October 1, 2021 (as amended, the “Purchase Agreement”), with Sinclair Scientific, LLC, a Delaware

limited liability company (“Sinclair”), Mass2Media, LLC, Precision, a Michigan limited liability company;

and each of the

equity holders of Sinclair named therein (collectively, the “Sinclair Members”).

On October 1, 2021, the Company consummated

the transactions contemplated by the Purchase Agreement.

limited liability company (“Sinclair”), Mass2Media, LLC, d/b/a PX2 Holdings, LLC, d/b/a Precision Extraction Solutions, a

Michigan limited liability company (“Precision”);

and each of the equity holders of Sinclair named therein (collectively,

the “Sinclair Members”).

On October 1, 2021, the Company consummated the transactions contemplated by the Purchase Agreement.

to the terms and conditions set forth in the Purchase Agreement, (1) Sinclair transferred, to the Company, and the Company purchased

(the “Interest Purchase”) from Sinclair, 100 % of the equity interests of Cascade, a Delaware limited liability company,

such that immediately after the consummation of such Interest Purchase, Cascade became a wholly-owned subsidiary of the Company, and

(2) Precision merged (the “Merger”) with and into a newly-formed wholly-owned subsidiary of the Company, Precision Extraction

(the “Interest Purchase”) from Sinclair, 100 % of the equity interests of Cascade Sciences, LLC, a Delaware limited liability

company (“Cascade”), such that immediately after the consummation of such Interest Purchase, Cascade became a wholly-owned

subsidiary of the Company, and (2) Precision merged (the “Merger”) with and into a newly-formed wholly-owned subsidiary of

the Company, Precision Extraction NewCo, LLC.

aggregate consideration for the Interest Purchase and the Merger consisted of:

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in favor of the Sinclair Members, exceed $ 65.0 million.

As of June 30, 2022, the fair value of the contingent earn-out consideration

totaled $ 5.6 million based on Sinclair Members achieving certain revenue targets.

Additional information regarding the Company’s

contingent consideration arrangements may be found in Note 5 – Fair Value Measures and Note 20 – Subsequent Events, included

elsewhere in the notes to the condensed consolidated financial statements.

During the fourth quarter of 2021,

the fair value of the contingent earn-out consideration totaled $ 5.4 million based on Sinclair Members achieving certain revenue targets.

and related costs, consisting primarily of professional fees, directly related to the acquisition, totaled approximately $ 38 thousand

and $63 thousand for the three and six months ended June 30, 2022, respectively.

All transaction and related costs were expensed as incurred

and are included in selling, general and administrative expenses.

The purchase price allocation for the business combination has been

prepared on a preliminary basis and changes to those allocations may occur as additional information becomes available during the measurement

period (up to one year from the acquisition date).

for the three months ended March 31, 2022.

All transaction and related costs were expensed as incurred and are included in selling, general

and administrative expenses.

The purchase price allocation for the business combination has been prepared on a preliminary basis and

changes to those allocations may occur as additional information becomes available during the measurement period (up to one year from

the acquisition date).

following table sets forth the components and the allocation of the purchase price for the business combination:

1 unchanged sentence

Purchase price consideration:

Cash paid to Sinclair Members at the close

Cash contributed to escrow accounts at the close

Cash paid to Sinclair Members at close

Cash contributed to escrow accounts at close

Cash paid for excess net working capital

Stock issued at the close

Stock issued at close

Fair value of contingent consideration to be achieved

12 unchanged sentences

Operating lease liabilities, current

Operating lease liabilities, non-current

Operating lease liabilities, noncurrent

Acquired intangible assets

14 unchanged sentences

over a multiyear period, as well as determine the weighted-average cost of capital to be used as a discount rate.

the three-month period ended June 30, 2022, the Company identified a potential impairment triggering event associated with both a sustained

decline in the Company’s stock price and associated market capitalization, as well as a second-quarter slowdown in the cannabis

industry as a whole.

Due to these factors, the Company deemed that there may be an impairment to the carrying value of its long-lived

assets and accordingly performed interim testing to determine the proper fair value of its long-lived assets as of June 30, 2022.

on its interim testing, the Company noted that the entire carrying value of its goodwill and intangible assets should be impaired.

information regarding the Company’s interim testing on goodwill and intangible assets may be found in Note 8 – Intangible

Assets, Net and Goodwill, included elsewhere in the notes to the condensed consolidated financial statements.

of PurePressure

December 31, 2021, the Company entered into a Membership Interest Purchase Agreement (the “Pure Purchase Agreement”) with

PurePressure, LLC, a Colorado Limited liability company (“PurePressure”), and the members of PurePressure (collectively,

the “Members”), Benjamin Britton as the Member Representative thereunder, and each of the Members.

Concurrently with the

execution of the Pure Purchase Agreement, the Company consummated the acquisition of all the outstanding equity interests of PurePressure,

such that immediately after the consummation of such purchase, PurePressure became a wholly-owned subsidiary of the Company (the “Acquisition”).

aggregate consideration for the Acquisition consisted of:

(a) $ 4.0 million in cash, subject to certain adjustments for working capital,

cash and indebtedness of PurePressure at closing;

Company amortizes its intangible assets assuming no residual value over periods in which the economic benefit of these assets is consumed.

Acquisition of PurePressure

On December 31, 2021, the Company entered into

a Membership Interest Purchase Agreement (the “Pure Purchase Agreement”) with PurePressure, LLC, a Colorado Limited liability

company (“PurePressure”) and the members of PurePressure (collectively, the “Members”), Benjamin Britton as the

Member Representative thereunder, and each of the Members.

Concurrently with the execution of the Pure Purchase Agreement, the Company

consummated the acquisition of all the outstanding equity interests of PurePressure, such that immediately after the consummation of such

purchase, PurePressure became a wholly-owned subsidiary of the Company (the “Acquisition”).

The aggregate consideration for the Acquisition

consisted of:

(a) $ 4.0 million in cash, subject to certain adjustments for working capital, cash and indebtedness of PurePressure at closing;

(b) 1,646 shares of Common Stock (the “Buyer Shares”);

and (c) the Earn-out

Consideration (as defined below), to the extent earned.

Company withheld 444 of the Buyer Shares issuable to certain Members (the “Holdback Buyer Shares”) for the purpose of securing

any post-closing adjustment owed to the Company and any claim for indemnification or payment of damages to which the Company may be entitled

under the Pure Purchase Agreement.

The Holdback Buyer Shares will be released following the twelve-month anniversary of the Closing Date

in accordance with and subject to the conditions of the Pure Purchase Agreement.

Pure Purchase Agreement includes customary post-closing adjustments, representations and warranties and covenants of the parties.

Members may become entitled to additional consideration with a value of up to $3.0 million based on the eligible net revenues achieved

by the PurePressure business during the fiscal years ending December 31, 2022 and December 31, 2023, of which 40% will be payable in

cash and the remaining 60% will be payable by issuing shares of Common Stock (collectively, the “Earn-out Consideration”).

Additional information regarding the Company’s contingent consideration arrangements may be found in Note 5 – Fair Value

Measures, included elsewhere in the notes to the condensed consolidated financial statements.

to certain customary limitations, (i) the Members will indemnify the Company and its affiliates, officers, directors and other agents

against certain losses related to, among other things, breaches of the Members’ and PurePressure’s representations and warranties,

indebtedness, transaction expenses, pre-closing taxes and the failure to perform covenants or obligations under the Pure Purchase Agreement,

and (ii) the Company will indemnify the Members and their respective affiliates, officers, directors and other agents against certain

losses related to, among other things, breaches of the Company’s representations and warranties and the failure to perform covenants

or obligations under the Pure Purchase Agreement.

and related costs, consisting primarily of professional fees, directly related to the acquisition, totaled approximately $ 1 thousand

and $ 563 thousand for the three and six months ended June 30, 2022, respectively.

All transaction and related costs were expensed as

incurred and are included in general and administrative expenses.

purchase price allocation for the business combination has been prepared on a preliminary basis and changes to those allocations may

occur as additional information becomes available during the respective measurement period (up to one year from the acquisition date).

following table sets forth the components and the allocation of the purchase price for the business combination:

and (c) the Earn-out Consideration (as defined below), to the extent

The Company withheld 444 of the Buyer Shares issuable

to certain Members (the “Holdback Buyer Shares”) for the purpose of securing any post-closing adjustment owed to the Company

and any claim for indemnification or payment of damages to which the Company may be entitled under the Pure Purchase Agreement.

Buyer Shares will be released following the twelve-month anniversary of the Closing Date in accordance with and subject to the conditions

of the Pure Purchase Agreement.

The Pure Purchase Agreement includes customary

post-closing adjustments, representations and warranties and covenants of the parties.

The Members may become entitled to additional consideration

with a value of up to $3.0 million based on the eligible net revenues achieved by the PurePressure business during the fiscal years ending

December 31, 2022 and December 31, 2023, of which 40% will be payable in cash and the remaining 60% will be payable by issuing shares

of Common Stock (collectively, the “Earn-out Consideration”).

Transaction and related costs, consisting primarily

of professional fees, directly related to the acquisition, totaled approximately $ 562 thousand for the three months ended March 31, 2022.

All transaction and related costs were expensed as incurred and are included in general and administrative expenses.

The purchase price allocation for the business

combination has been prepared on a preliminary basis and changes to those allocations may occur as additional information becomes available

during the respective measurement period (up to one year from the acquisition date).

Fair values still under review as of March 31, 2022

include values assigned to identifiable intangible assets and goodwill.

The following table sets forth the components

and the allocation of the purchase price for the business combination:

(In thousands)

19 unchanged sentences

Operating lease liabilities, current

Operating lease liabilities, non-current

Operating lease liabilities, noncurrent

Finance lease liabilities, current

Finance lease liabilities, non-current

Finance lease liabilities, noncurrent

Notes payable, current

Notes payable, non-current

Notes payable, noncurrent

Acquired intangible assets

Total purchase price

intangible assets consist of trade names, technology, and customer relationships.

The fair value of intangible assets and the determination

of their respective useful lives were made in accordance with ASC 805 and are outlined in the table below:

Identified intangible assets consist of trade

names, technology, and customer relationships.

The fair value of intangible assets and the determination of their respective useful lives

were made in accordance with ASC 805 and are outlined in the table below:

(In thousands)

3 unchanged sentences

Total identified intangible assets

the three-month period ended June 30, 2022, the Company identified a potential impairment triggering event associated with both a sustained

decline in the Company’s stock price and associated market capitalization, as well as a second-quarter slowdown in the cannabis

industry as a whole.

Due to these factors, the Company deemed that there may be an impairment to the carrying value of its long-lived

assets and accordingly performed interim testing to determine the proper fair value of its long-lived assets as of June 30, 2022.

on its interim testing, the Company noted that the entire carrying value of its goodwill and intangible assets should be impaired.

information regarding the Company’s interim testing on goodwill and intangible assets may be found in Note 8 – Intangible

Assets, Net and Goodwill, included elsewhere in the notes to the condensed consolidated financial statements.

Company’s debt consisted of:

Subject to certain customary limitations, (i)

the Members will indemnify the Company and its affiliates, officers, directors and other agents against certain losses related to, among

other things, breaches of the Members’ and PurePressure’s representations and warranties, indebtedness, transaction expenses,

pre-closing taxes and the failure to perform covenants or obligations under the Pure Purchase Agreement, and (ii) the Company will indemnify

the Members and their respective affiliates, officers, directors and other agents against certain losses related to, among other things,

breaches of the Company’s representations and warranties and the failure to perform covenants or obligations under the Pure Purchase

Note 16 – Debt

The Company’s debt consisted of:

Note payable – SPA Note

4 unchanged sentences

Long-term debt

(1) Other notes payable relate to a one-year insurance premium that was financed over nine months.

Purchase Agreement

March 14, 2022, the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with an accredited

investor (the “Investor”), pursuant to which the Company agreed to issue and sell to the Investor, in a private placement

transaction, in exchange for the payment by the Investor of $ 65 million, less applicable expenses, as set forth in the Securities Purchase

Agreement, (i) a SPA Note in an aggregate principal amount of $ 65 million, and (ii) a warrant (the “SPA Warrant”)

to purchase up to an aggregate of 34,406 shares of Common Stock.

SPA Note is a senior secured obligation of the Company and ranks senior to all indebtedness of the Company.

The Company will be required

to make amortization payments equal to 4.0 % of the original principal amount of the SPA Note on the first day of each calendar month

starting on February 1, 2023 and extending through the maturity date of March 1, 2026 (the “Maturity Date”), at which time

all remaining outstanding principal and accrued but unpaid interest will be due.

The SPA Note has a stated interest rate of 6.75% per

year, and the Company is required to pay interest on March 1, June 1, September 1, and December 1 of each calendar year through the Maturity

Following the one-year anniversary of the SPA Note’s issuance, the Company may, in lieu of paying interest in cash, pay such

interest in kind, in which case interest on the SPA Note will be calculated at the rate of 8.75 % per year and will be added to the principal

amount of the SPA Note.

any time following the one-year anniversary of the SPA Note’s issuance, the Company may prepay all (but not less than all) of the

SPA Note by redemption at a price equal to 106.75 % of the then-outstanding principal amount under the SPA Note, plus accrued but unpaid

The Investor will also have the option of requiring the Company to redeem the SPA Note if the Company undergoes a fundamental

change at a price equal to 107 % of the then-outstanding principal amount under the SPA Note, plus any accrued interest.

Securities Purchase Agreement provides for up to two additional closings subject to certain conditions set forth in the Securities Purchase

Agreement and on substantially the same terms as the initial closing.

Each subsequent closing would result in the issuance of a senior

secured note with an original principal amount of $ 35.0 million and warrants to purchase shares of Common Stock for up to 65 % of such

principal amount divided by the closing price of Common Stock on the trading day immediately prior to such subsequent closing.

SPA Note imposes certain customary affirmative and negative covenants upon the Company, as well as covenants that (i) restrict the

Company and its subsidiaries from incurring any additional indebtedness or suffering any liens, subject to specified exceptions, (ii) restrict

the ability of the Company and its subsidiaries from making certain investments, subject to specified exceptions, (iii) restrict

the declaration of any dividends or other distributions, subject to specified exceptions, (iv) require the Company to maintain specified

(1) Other notes payable relates

to one-year insurance premium that was financed over nine-months.

Securities Purchase Agreement

On March 14, 2022, the

Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with an accredited investor (the

“Investor”), pursuant to which the Company agreed to issue and sell to the Investor, in a private placement transaction, in

exchange for the payment by the Investor of $65 million, less applicable expenses, as set forth in the Securities Purchase Agreement,

(i) a SPA Note in an aggregate principal amount of $65 million, and (ii) a warrant (the “SPA Warrant”) to purchase

up to an aggregate of 34,406 shares of Common Stock.

The SPA Note is a senior

secured obligation of the Company and ranks senior to all indebtedness of the Company.

The Company will be required to make amortization

payments equal to 4.0 % of the original principal amount of the SPA Note on the first day of each calendar month starting on February 1,

2023 and extending through the maturity date of March 1, 2026 (the “Maturity Date”), at which time all remaining outstanding

principal and accrued but unpaid interest will be due.

The SPA Note has a stated interest rate of 6.75% per year, and the Company is required

to pay interest on March 1, June 1, September 1, and December 1 of each calendar year through the Maturity Date.

Following the one-year

anniversary of the SPA Note’s issuance, the Company may, in lieu of paying interest in cash, pay such interest in kind, in which

case interest on the SPA Note will be calculated at the rate of 8.75 % per year and will be added to the principal amount of the SPA Note.

At any time following

the one-year anniversary of the SPA Note’s issuance, the Company may prepay all (but not less than all) of the SPA Note by redemption

at a price equal to 106.75 % of the then-outstanding principal amount under the SPA Note, plus accrued but unpaid interest.

will also have the option of requiring the Company to redeem the SPA Note if the Company undergoes a fundamental change at a price equal

to 107 % of the then-outstanding principal amount under the SPA Note, plus any accrued interest.

The Securities Purchase

Agreement provides for up to two additional closings subject to certain conditions set forth in the Securities Purchase Agreement and

on substantially the same terms as the initial closing.

Each subsequent closing would result in the issuance of a senior secured note

with an original principal amount of $ 35.0 million and warrants to purchase shares of Common Stock for up to 65 % of such principal amount

divided by the closing price of Common Stock on the trading day immediately prior to such subsequent closing.

The SPA Note imposes

certain customary affirmative and negative covenants upon the Company, as well as covenants that (i) restrict the Company and its

subsidiaries from incurring any additional indebtedness or suffering any liens, subject to specified exceptions, (ii) restrict the

ability of the Company and its subsidiaries from making certain investments, subject to specified exceptions, (iii) restrict the

declaration of any dividends or other distributions, subject to specified exceptions, (iv) require the Company to maintain specified

earnings and adjusted EBITDA targets, and (v) require the Company to maintain minimum amounts of cash on hand.

3 unchanged sentences

which accrues at a rate per year equal to 15 % from the date of a default or event of default.

For the quarter ending

June 30, 2022, the Company is in default of certain of financial debt covenants associated with its SPA Note.

As a result of this default,

the lender would have the ability to call the balance of the note, along with a 115% penalty, amounting to a total repayment obligation

of approximately $75.0 million ($65.0 million in principal and $9.8 million of default penalty), plus increase the interest due on the

outstanding unpaid balance(s) from 6.75% to 15%.

All amounts due would immediately become a current liability in the event the lender

were to call the note.

If the lender were to call the debt instrument due to the default, the Company would not have sufficient cash on

hand as of June 30, 2022 to pay off the existing debt and default penalty amounts.

As of June 30, 2022, cash, restricted cash, cash equivalents,

and marketable securities were approximately $ 59.9 million, which would be insufficient to cover the combined amount of debt liability,

including the default penalty amount.

to the end of the second quarter of 2022, the Company reached an agreement in principle with its institutional lender to amend its existing

SPA Note and to modify certain financial covenants which, once complete, should give the Company additional flexibility to operate and

meet its long-term strategic goals while also allowing it to responsibly adjust to the many challenges currently facing the cannabis

the date the SPA Note is fully repaid, the Investor has, subject to certain exceptions, the right to participate for up to 30 % of any

debt, Preferred Stock, or equity-linked financing of the Company or its subsidiaries.

SPA Warrant issued in the initial closing has an exercise price of $ 1,350.00 per share, subject to adjustment for stock splits, reverse

stock splits, stock dividends and similar transactions, is immediately exercisable, and has a term of five and one-half years from the

date of issuance and is exercisable on a cash basis, unless there is not an effective registration statement covering the resale of the

shares issuable upon exercise of the SPA Warrant (the “SPA Warrant Shares”), in which case the SPA Warrant is also exercisable

on a cashless exercise basis at the Investor’s election.

The Securities Purchase Agreement requires the Company to file resale

registration statements with respect to the SPA Warrant Shares as soon as practicable and in any event within 45 days following the initial

closing and any subsequent closings.

SPA Warrant provides that in no event will the number of shares of Common Stock issued upon exercise of the SPA Warrant result in the

Investor’s beneficial ownership exceeding 4.99% of the Company’s shares outstanding at the time of exercise (which percentage

may be decreased or increased by the Investor, but to no greater than 9.99%, and provided that any increase above 4.99% will not be effective

until the sixty-first day after notice of such request by the Investor to increase its beneficial ownership limit has been delivered

to the Company).

Securities Purchase Agreement also contains customary representations and warranties of the Company and the Investor.

There is no material

relationship between the Company or its affiliates and the Investor other than in respect of the Securities Purchase Agreement, the SPA

Note and the SPA Warrant.

following table provides a breakdown of the SPA Note balances as of June 30, 2022:

Until the date the SPA

Note is fully repaid, the Investor has, subject to certain exceptions, the right to participate for up to 30 % of any debt, Preferred Stock

or equity-linked financing of the Company or its subsidiaries.

Each SPA Warrant issued

in the initial closing has an exercise price of $ 1,350.00 per share, subject to adjustment for stock splits, reverse stock splits, stock

dividends and similar transactions, is immediately exercisable, has a term of five and one-half years from the date of issuance and is

exercisable on a cash basis, unless there is not an effective registration statement covering the resale of the shares issuable upon exercise

of the SPA Warrant (the “SPA Warrant Shares”), in which case the SPA Warrant is also exercisable on a cashless exercise basis

at the Investor’s election.

The Securities Purchase Agreement requires the Company to file resale registration statements with respect

to the SPA Warrant Shares as soon as practicable and in any event within 45 days following the initial closing and any subsequent closings.

The SPA Warrant provides

that in no event will the number of shares of Common Stock issued upon exercise of the SPA Warrant result in the Investor’s beneficial

ownership exceeding 4.99% of the Company’s shares outstanding at the time of exercise (which percentage may be decreased or increased

by the Investor, but to no greater than 9.99%, and provided that any increase above 4.99% will not be effective until the sixty-first

day after notice of such request by the Investor to increase its beneficial ownership limit has been delivered to the Company).

The Securities Purchase

Agreement also contains customary representations and warranties of the Company and the Investor.

There is no material relationship between

the Company or its affiliates and the Investor other than in respect of the Securities Purchase Agreement, the SPA Note and the SPA Warrant.

The following table provides

a breakdown of the note payable balances as of March 31, 2022:

(In thousands)

2 unchanged sentences

Net carrying amount

following table summarizes the short-term and long-term portions of the SPA Note as of June 30, 2022:

The following table summarizes

short-term and long-term portion of the SPA Note as of March 31, 2022:

(In thousands)

1 unchanged sentence

Net carrying amount

of June 30, 2022, future minimum principal payments of the SPA Note were as follows:

As of March 31, 2022,

future minimum payments were as follows:

Years ending December 31 (In thousands),

Remaining 2022

2026 and thereafter

Total future payments

Protection Program Loan

Protection Program Loans under the Coronavirus Aid, Relief, and Economic Security Act

May 2020, the Company entered into a PPP Loan with Bank of America pursuant to the PPP under the CARES Act administered by the SBA.

Company received total proceeds of approximately $ 779 thousand from the unsecured PPP Loan, which was originally scheduled to mature

on May 7, 2022 .

The Company’s submission to have the remaining $ 779 thousand PPP Loan forgiven was denied by the SBA.

2022, the Company 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 thousand

commencing August 7, 2022.

breakdown of PPP Loan balances by current and non-current as of June 30, 2022 and December 31, 2021 were as follows:

(In thousands)

Balance Sheet

PPP Loan, current

Long-term debt, current

PPP Loan, non-current

Long-term debt

Total PPP Loan outstanding

part of the acquisition of PurePressure, $ 159 thousand of debt remained outstanding from a standard SBA loan as of December 31, 2021.

This debt has subsequently been paid as a part of the PurePressure acquisition.

determination if any arrangement contained a lease at its inception was done based on whether or not the Company has the right to control

the asset during the contract period.

The lease term was determined assuming the exercise of options that were reasonably certain to

Leases with a lease term of 12 months or less at inception were not reflected in the Company’s balance sheet and those lease

costs are expensed on a straight-line basis over the respective term.

Leases with a term greater than 12 months were reflected as non-current

right-of-use assets and current and non-current lease liabilities in the Company’s condensed consolidated balance sheets.

the implicit interest rate in its leases was generally not known, the Company’s used its incremental borrowing rate as the discount

rate for purposes of determining the present value of its lease liabilities.

At June 30, 2022 and December 31, 2021, the Company’s

weighted-average discount rate utilized for its leases was 7.35 % and 7.16 %, respectively.

a contract contained lease and non-lease elements, both were accounted as a single lease component.

Company had several non-cancelable finance leases for machinery and equipment.

The Company’s finance leases have remaining lease

terms of one year to five years.

Company had several non-cancelable operating leases for corporate offices, warehouses, showrooms, research and development facilities

and vehicles.

The Company’s leases have remaining lease terms of one year to five years, some of which

include options to extend.

Some leases include payment for common area maintenance associated with the property.

information on the Company’s operating and financing lease activity is as follows:

Three Months ended

Six Months ended

(In thousands)

Operating lease cost

Finance lease cost:

Amortization of right-of-use assets

Interest on lease liabilities

Total lease cost

(In thousands)

Balance Sheet

Right-of-use assets, net

Right-of-use, net

Finance lease assets

Property and equipment, net

Total lease assets

Operating lease liabilities, current

Accrued expenses and other current liabilities

Operating lease liabilities, non-current

Other non-current liabilities

Total lease liabilities

Weighted-average remaining lease term – operating leases

Weighted-average remaining lease term – finance leases

Weighted-average discount rate – operating leases

Weighted-average discount rate – finance leases

of operating and finance lease liabilities as of June 30, 2022 are as follows:

Years ending December 31 (In thousands),

Remaining 2022

Total minimum lease payments

Less imputed interest

Total lease liabilities

12 — Convertible Promissory Notes

January 11, 2021, the Company’s Board of Directors and shareholders approved the amendment to the conversion formula of the Convertible

Promissory Notes (the “Convertible Notes”) issued by the Company on dates between August 2020 and November 2020.

to the amendment, immediately prior to the consummation of a public transaction, the outstanding principal amount of the Convertible

Notes, together with all accrued and unpaid interest, shall convert into a number of fully paid and non-assessable shares of Common Stock,

at a conversion price of $ 1,544.00 .

the original conversion feature was bifurcated from the host instrument, the Company determined that the amended conversion feature would

not require bifurcation.

Since the accounting for the conversion feature changed because of the amendment, the Company applied extinguishment

accounting pursuant to its accounting policy.

the Company recognized a gain on extinguishment of $ 2.7 million in connection with the derecognition of the net carrying amount of the

extinguished debt of $ 19.6 million (inclusive of $ 13.1 million of principal, $ 7.1 million of derivative liabilities, less $ 587 thousand

of debt discount) and the recognition of the $ 16.9 million fair value of the new convertible notes (including the same principal amount

of $ 13.1 million plus the $ 3.8 million fair value of the beneficial conversion feature).

February 1, 2021, in conjunction with the closing of the Company’s IPO, the Convertible Notes in the aggregate principal amount

of $ 13.1 million were converted into 8,485 shares of Common Stock at the election of the Company at a conversion price of $ 1,544.00 per

13 — Stockholders’ Equity

January 9, 2020, the Company increased its authorized number of shares of Common Stock to 265,000 , consisting of:

250,000 shares of Common

Stock, and 3,000,000 shares of Preferred Stock.

Additional information regarding the Company’s amendment to the Articles of Incorporation

may be found in Note 20–- Subsequent Events, included elsewhere in the notes to the condensed consolidated financial statements.

On January 9, 2020, the Company designated 100,000 shares of the 3,000,000 authorized shares of Preferred Stock, as Series A Convertible

Paycheck Protection Program Loan

Paycheck Protection Program Loans under the Coronavirus Aid,

Relief, and Economic Security Act

In May 2020, the Company entered into a PPP Loan

with Bank of America pursuant to the PPP under the CARES Act administered by the SBA.

The Company received total proceeds of approximately

$ 779 thousand from the unsecured PPP Loan, which is scheduled to mature on May 7, 2022.

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.

The Company’s submission to have

the remaining $ 779 thousand PPP Loan forgiven is currently being reviewed by the SBA.

If the remaining principal amount from the $ 779

thousand PPP Loan is not forgiven in full, the Company would be obligated to repay any principal amount not forgiven and interest accrued

As of March 31, 2022 and December 31, 2021, all of our PPP Loan balances were reported as current portion of long-term debt in

the accompanying condensed consolidated balance sheets.

PurePressure SBA Debt

As part of the acquisition of PurePressure, $ 159

thousand of debt remained outstanding from a standard SBA loan as of December 31, 2021.

This debt has subsequently been paid as a part

of the PurePressure acquisition.

Note 17 — Convertible Promissory Notes

On January 11, 2021, the Company’s Board

of Directors and shareholders approved the amendment to the conversion formula of the Convertible Promissory Notes (the “Convertible

Notes”) issued by the Company on dates between August 2020 and November 2020.

Pursuant to the amendment, immediately prior to the

consummation of a public transaction, the outstanding principal amount of the Convertible Notes, together with all accrued and unpaid

interest, shall convert into a number of fully paid and non-assessable shares of Common Stock, at a conversion price of $ 1,544.00 .

While the original conversion feature was bifurcated

from the host instrument, the Company determined that the amended conversion feature would not require bifurcation.

Since the accounting

for the conversion feature changed because of the amendment, the Company applied extinguishment accounting pursuant to its accounting

Accordingly, the Company recognized a gain on

extinguishment of $ 2.7 million in connection with the derecognition of the net carrying amount of the extinguished debt of $ 19.6 million

(inclusive of $ 13.1 million of principal, $ 7.1 million of derivative liabilities, less $ 587 thousand of debt discount) and the recognition

of the $ 16.9 million fair value of the new convertible notes (including the same principal amount of $ 13.1 million plus the $ 3.8 million

fair value of the beneficial conversion feature).

On February 1, 2021, in conjunction with the closing

of the Company’s IPO, the Convertible Notes in the aggregate principal amount of $ 13.1 million were converted into 8,485 shares

of Common Stock at the election of the Company at a conversion price of $ 1,544.00 per share.

Note 18 — Capital Structure

On January 9, 2020, the Company increased its

authorized number of shares of Common Stock to 265,000 , consisting of:

250,000 shares of Common Stock, and 3,000,000 shares of Preferred

At that time, it also designated 100,000 shares of the 3,000,000 authorized shares of Preferred Stock, as Series A Convertible

Preferred Stock (“Series A Preferred Stock”).

A Convertible Preferred Stock

in the first quarter of 2020, the Company issued an aggregate of 60,000 shares of Series A Preferred Stock, for an aggregate purchase

price of $ 6.0 million.

In May 2020, the Company completed an offering of Series A Preferred Stock with the issuance of an additional

40,000 shares of Series A Preferred Stock for an aggregate purchase price of $ 4.0 million.

of Conversion Formulas

January 11, 2021, the Company’s Board of Directors approved the amendment to the conversion formula of the Series A Preferred Stock

and Convertible Notes.

Series A Convertible Preferred Stock

Beginning in the first quarter of 2020, the Company

issued an aggregate of 60,000 shares of Series A Preferred Stock, for an aggregate purchase price of $ 6.0 million.

In May 2020, the Company

completed an offering of Series A Preferred Stock with the issuance of an additional 40,000 shares of Series A Preferred Stock for an

aggregate purchase price of $ 4.0 million.

Amendment of Conversion Formulas

On January 11, 2021, the Company’s Board

of Directors approved the amendment to the conversion formula of the Series A Preferred Stock and Convertible Notes.

After the amendment:

the Series A Preferred Stock is convertible, at any time after the issuance or immediately prior to the closing of a public transaction, into Common Stock in an amount of shares equal to (i) the product of the Series A Preferred Stock original price plus accrued but unpaid dividends on the shares being converted, multiplied by the number of shares of Series A Preferred Stock being converted, divided by (ii) a conversion price of $7.72 per share (after the reverse split taking effect);

prior to the consummation of a public transaction, the outstanding principal amount of the Convertible Notes together with all accrued

and unpaid interest shall convert into a number of fully paid and non-assessable shares of Common Stock equal to the quotient of

(i) the outstanding principal amount of the Convertible Notes together with all accrued and unpaid interest thereunder immediately

prior to such public transaction divided by (ii) a conversion price of $7.72 (after the reverse split taking effect).

January 11, 2021, the Company’s shareholders approved the amendment to the Series A Preferred Stock.

Public Offering

February 1, 2021, the Company completed an IPO for the sale of 27,000 shares of Common Stock at a price of $ 2,000.00 per share.

also granted the underwriters:

(a) a 45-day option to purchase up to 4,050 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 810 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 $ 2,500.00 per share (which is equal

to 125 % of the IPO price).

Subsequently, the underwriters exercised the over-allotment option, and on February 4, 2021, the Company closed

on the sale of an additional 4,050 shares of Common Stock for a price of $ 2,000.00 per share and granted to the underwriters warrants

to purchase 121 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 $ 2,500.00 per share.

The exercise of the over-allotment option brought the total number of shares of

Common Stock sold by the Company in connection with the IPO to 31,050 shares and the total net proceeds received in connection with the

IPO to approximately $ 57.0 million, after deducting underwriting discounts and estimated offering expenses.

prior to the closing of the Company’s IPO, all outstanding shares of Series A Preferred Stock and Convertible Notes were converted

into 6,865 shares of Common Stock and 8,485 shares of Common Stock, respectively, at a conversion price of $1,544.00 per share.

Public Offering

February 19, 2021, the Company consummated a secondary public offering (the “February Offering”) for the sale of 27,778 shares

of Common Stock for a price of $ 2,700.00 per share.

the Series A Preferred Stock

is convertible, at any time after issuance or immediately prior to the closing of a public transaction, into Common Stock in an amount

of shares equal to (i) the product of the Series A Preferred Stock original price plus accrued but unpaid dividends on the shares being

converted, multiplied by the number of shares of Series A Preferred Stock being converted, divided by (ii) a conversion price of $7.72

per share (after the reverse split taking effect);

immediately prior to the consummation

of a public transaction, the outstanding principal amount of the Convertible Notes together with all accrued and unpaid interest shall

convert into a number of fully paid and non-assessable shares of Common Stock equal to the quotient of (i) the outstanding principal

amount of the Convertible Notes together with all accrued and unpaid interest thereunder immediately prior to such public transaction

divided by (ii) a conversion price of $7.72 (after the reverse split taking effect).

On January 11, 2021, the Company’s shareholders

approved the amendment to the Series A Preferred Stock.

Initial Public Offering

On February 1, 2021, the Company completed an

IPO for the sale of 27,000 shares of Common Stock at a price of $ 2,000.00 per share.

The Company also granted the underwriters:

(a) a 45-day option to purchase up to

4,167 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 833 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 $ 3,375.00 per share (which is equal to 125 % of the February Offering).

Subsequently, the underwriters exercised the over-allotment option, and on March 22, 2021, the Company closed on the sale of an additional

4,167 shares of Common Stock for a price of $ 2,700.00 per share and granted to the underwriters warrants to purchase 125 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 $ 3,375 per share.

The exercise of the over-allotment option brought the total number of shares of Common Stock sold by the Company

in connection with the February Offering to 31,944 shares and the total net proceeds received in connection with the February Offering

to approximately $ 80.0 million, after deducting underwriting discounts and estimated offering expenses.

January 25, 2022, the Company entered into a Securities Purchase Agreement (the “Securities Agreement”) with an institutional

investor and other accredited investors for the sale by the Company of (i) 12,252 shares (the “SA Shares”) of Common Stock,

(ii) pre-funded warrants (the “Pre-Funded Warrants”) to purchase up to an aggregate of 7,853 shares of Common Stock and (iii)

warrants to purchase up to an aggregate of 15,079 shares of Common Stock (the “Common Warrants” and, collectively with the Pre-Funded

Warrants, the “SA Warrants”), in a private placement offering.

The combined purchase price for one share of Common Stock

(or one Pre-Funded Warrant) and accompanying fraction of a Common Warrant was $1,360.

to certain ownership limitations, the SA Warrants are exercisable six months from issuance.

Each Pre-Funded Warrant was exercisable into one share

of Common Stock at a price per share of $0.00001 (as adjusted from time to time in accordance with the terms thereof).

Warrant is exercisable into one share of Common Stock at a price per share of $1,496 (as adjusted from time to time in accordance

with the terms thereof) and will expire on the fifth anniversary of the initial exercise date.

The institutional investor that received

the Pre-Funded Warrants fully exercised such warrants in March 2022.

Chang, Chairman and Chief Executive Officer of the Company, and Stuart Wilcox, who is currently our Chief Operating Officer, and at the

time was a member of the Company’s Board of Directors, participated in the private placement on essentially the same terms as other

investors, except for having a combined purchase price of $ 1,380.00 per share.

gross proceeds to the Company from the private placement were approximately $ 27.3 million, before deducting the placement agent’s

fees and other offering expenses, and excluding the proceeds, if any, from the exercise of the SA Warrants.

of Common Stock in Connection with Acquisitions

October 1, 2021, the Company issued an aggregate of 3,332 shares of its Common Stock to the Precision and Cascade shareholders in

connection with the Company’s acquisition of Precision and Cascade.

Refer to Note 9 – Business Combinations, included elsewhere

in the notes to the condensed consolidated financial statements.

December 31, 2021, the Company issued an aggregate of 1,202 shares of its Common Stock to the PurePressure shareholders in connection

with the Company’s acquisition of PurePressure.

Refer to Note 9 – Business Combinations, included elsewhere in the notes

to the condensed consolidated financial statements.

February 1, 2022, the Company issued an aggregate of 1,491 shares of its Common Stock to the Lab Society shareholders in connection

with the Company’s acquisition of Lab Society.

Refer to Note 9 – Business Combinations, included elsewhere in the notes to

the condensed consolidated financial statements.

14 — Stock-Based Compensation and Employee Benefit Plans

45-day option to purchase up to 4,050 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 810 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 $ 2,500.00 per share (which is equal to 125 % of the IPO price).

Subsequently,

the underwriters exercised the over-allotment option, and on February 4, 2021, the Company closed on the sale of an additional 4,050 shares

of Common Stock for a price of $ 2,000.00 per share and granted to the underwriters warrants to purchase 121 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 $ 2,500.00

The exercise of the over-allotment option brought the total number of shares of Common Stock sold by the Company in connection

with the IPO to 31,050 shares and the total net proceeds received in connection with the IPO to approximately $ 57.0 million, after deducting

underwriting discounts and estimated offering expenses.

Immediately prior to the closing of the Company’s

IPO, all outstanding shares of Series A Preferred Stock and Convertible Notes were converted into 6,865 shares of Common Stock and 8,485

shares of Common Stock, respectively, at a conversion price of $ 1,544.00 per share.

Subsequent Public Offering

On February 19, 2021, the Company consummated

a secondary public offering (the “February Offering”) for the sale of 27,778 shares of Common Stock for a price of $ 2,700.00

The Company also granted the underwriters:

(a) a 45-day option to purchase up to 4,167 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 833 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 $ 3,375.00 per share (which is equal to 125 % of the February Offering).

Subsequently, the underwriters exercised

the over-allotment option, and on March 22, 2021, the Company closed on the sale of an additional 4,167 shares of Common Stock for a price

of $ 2,700.00 per share and granted to the underwriters warrants to purchase 125 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 $ 3,375 per share.

of the over-allotment option brought the total number of shares of Common Stock sold by the Company in connection with the February Offering

to 31,944 shares and the total net proceeds received in connection with the February Offering to approximately $ 80.0 million, after deducting

underwriting discounts and estimated offering expenses.

Private Placement

On January 25, 2022, the Company entered

into a Securities Purchase Agreement (the “Securities Agreement”) with an institutional investor and other accredited investors

for the sale by the Company of (i) 12,252 shares (the “SA Shares”) of Common Stock, (ii) pre-funded warrants (the “Pre-Funded

Warrants”) to purchase up to an aggregate of 7,853 shares of Common Stock and (iii) warrants to purchase up to an aggregate of 15,079

shares of Common Stock (the “Common Warrants” and, collectively with the Pre-Funded Warrants, the “SA Warrants”),

in a private placement offering.

The combined purchase price for one share of Common Stock (or one Pre-Funded Warrant) and accompanying

fraction of a Common Warrant was $1,360.00.

Subject to certain ownership limitations, the

SA Warrants are exercisable six months from issuance.

Each Pre-Funded Warrant was exercisable into one share of Common Stock

at a price per share of $0.00001 (as adjusted from time to time in accordance with the terms thereof).

Each Common Warrant is exercisable

into one share of Common Stock at a price per share of $1,496.00 (as adjusted from time to time in accordance with the terms thereof)

and will expire on the fifth anniversary of the initial exercise date.

The institutional investor that received the Pre-Funded Warrants

fully exercised such warrants in March 2022.

Raymond Chang, Chairman and Chief Executive Officer

of the Company, and Stuart Wilcox, a member of the Company’s Board of Directors, participated in the private placement on essentially

the same terms as other investors, except for having a combined purchase price of $ 1,380.00 per share.

The gross proceeds to the Company from the private

placement were approximately $ 27.3 million, before deducting the placement agent’s fees and other offering expenses, and

excluding the proceeds, if any, from the exercise of the SA Warrants.

Issuance of Common Stock in

Connection with Acquisitions

On October 1, 2021, the Company issued an aggregate

of 3,332 shares of its Common Stock to the Precision and Cascade shareholders in connection with the Company’s acquisition

of Precision and Cascade.

Refer to Note 15 – Business Combinations, included elsewhere in

the notes to the condensed consolidated financial statements.

On December 31, 2021, the Company issued an aggregate

of 1,202 shares of its Common Stock to the PurePressure shareholders in connection with the Company’s acquisition of PurePressure.

Refer to Note 15 – Business Combinations, included elsewhere in the notes to the condensed

consolidated financial statements.

On February 1, 2022, the Company issued an aggregate

of 1,491 shares of its Common Stock to the Lab Society shareholders in connection with the Company’s acquisition of Lab Society.

Refer to Note 15 – Business Combinations, included elsewhere in the notes to the condensed

consolidated financial statements.

2020 Omnibus Equity Incentive Plan

April 29, 2022, the Company’s Board of Directors, and on June 8, 2022, the Company’s stockholders, adopted and approved the

2022 Omnibus Equity Incentive Plan (the “2022 Plan”), which replaced the 2020 Stock Option Plan (the “2020 Plan”).

The 2022 Plan provides for the grant of stock options, stock appreciation right awards, performance share awards, restricted stock awards,

restricted stock unit awards, other stock-based awards and cash-based awards.

The aggregate number of shares of Common Stock that may

be reserved and available for grant and issuance under the 2022 Plan is 26,483 shares, which includes the 10,000 shares authorized under

the 2022 Plan, plus the rollover of 16,483 issued and outstanding awards under the 2020 Plan.

Shares will be deemed to have been issued

under the 2022 Plan solely to the extent actually issued and delivered pursuant to an award.

If any award granted under the 2020 Plan

or the 2022 Plan expires, is canceled, or terminates unexercised or is forfeited, the number of shares subject thereto is again available

for grant under the 2022 Plan.

The 2022 Plan shall continue in effect, unless sooner terminated, until the tenth anniversary of the date

on which it is adopted by the Board of Directors.

Company’s stock option compensation expense was $ 940 thousand and $ 931 thousand for the three months ended June 30, 2022

and 2021, respectively, and $ 1.9 million and $ 3.1 million for the six months ended June 30, 2022 and 2021, respectively.

was $3.4 million of total unrecognized compensation cost related to unvested options granted under the Company’s options plans

as of June 30, 2022.

On December 18, 2020, the Company’s Board

of Directors, and on January 11, 2021, the Company’s stockholders, adopted and approved the 2020 Omnibus Equity Incentive Plan (the

“2020 Plan”), which replaced the 2019 Stock Option Plan (the “2019 Plan”).

The 2020 Plan provides for the grant

of stock options, SARs, performance share awards, performance unit awards, distribution equivalent right awards, restricted stock awards,

restricted stock unit awards and unrestricted stock awards to non-employee directors, officers, employees and non-employee consultants

of the Company or its affiliates.

The aggregate number of shares of Common Stock that may be reserved and available for grant and issuance

under the 2020 Plan is 22,669 shares.

Shares will be deemed to have been issued under the 2020 Plan solely to the extent actually issued

and delivered pursuant to an award.

If any award granted under the 2019 Plan or the 2020 Plan expires, is cancelled, or terminates unexercised

or is forfeited, the number of shares subject thereto is again available for grant under the 2020 Plan.

The 2020 Plan shall continue in

effect, unless sooner terminated, until the tenth anniversary of the date on which it is adopted by the Board of Directors.

Stock-based Compensation

The Company’s stock option compensation

expense was $ 953 thousand and $ 2.1 million for the three months ended March 31, 2022 and 2021, respectively, and there was $ 3.4 million

of total unrecognized compensation cost related to unvested options granted under the Company’s options plans as of March 31, 2022.

This stock option expense will be recognized through 2025.

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.

No stock options were granted during the six months

ended June 30, 2022.

following table summarizes the Company’s assumptions used in the valuation of options granted during the year ended December 31,

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.

No stock options were granted during the three months ended March 31, 2022.

The following table summarizes the Company’s

assumptions used in the valuation of options granted during the year ended December 31, 2021:

Risk-free interest rate

3 unchanged sentences

Forfeiture rate

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 the Company’s 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.

expected dividend yield is based upon the Company’s history of having never issued a dividend and management’s current expectation

of future action surrounding dividends.

The Company calculates the expected volatility of the stock price based on the corresponding

volatility of the Company’s 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.

arriving at stock-based compensation expense, the Company estimates the number of stock-based awards that will be forfeited due to employee

The Company’s forfeiture assumption is based primarily on its employee turnover 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 the Company’s 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 the Company’s financial statements.

The expense the Company recognizes in future periods

will be affected by changes in the estimated forfeiture rate and may differ significantly from amounts recognized in the current period.

Option Activity

of June 30, 2022, there were 10,029 shares of Common Stock available to be granted under the Company’s 2022 Plan.

following table presents option activity under the Company’s stock option plans for the six months ended June 30, 2022 and the

year ended December 31, 2021:

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 the Company’s

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 the Company’s

history of having never issued a dividend and management’s current expectation of future action surrounding dividends.

calculates the expected volatility of the stock price based on the corresponding volatility of the Company’s 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,

the Company estimates the number of stock-based awards that will be forfeited due to employee turnover.

The Company’s forfeiture

assumption is based primarily on its employee turnover 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 the Company’s 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 the Company’s

financial statements.

The expense the Company recognizes in future periods will be affected by changes in the estimated forfeiture rate

and may differ significantly from amounts recognized in the current period.

Stock Option Activity

As of March 31, 2022, there were 2,580 shares

of Common Stock available to be granted under the Company’s 2020 Plan.

The following table presents option activity under

the Company’s stock option plans for the three months ended March 31, 2022 and 2021:

(In thousands, except share and per share data)

Options outstanding at December 31, 2020

Options outstanding at December 31, 2021

Options outstanding at June 30, 2022

Options vested and exercisable as of June 30, 2022

Options vested and expected to vest as of June 30, 2022

Employee Stock Purchase Plan

April 29, 2022, the Company’s Board of Directors, and on June 8, 2022, the Company’s stockholders, adopted and approved the

2022 Employee Stock Purchase Plan (““ESPP””).

The Company has initially reserved 2,500 shares of Common

Stock for issuance under the ESPP.

On June 30, 2022, 2,500 shares were available for future issuance.

the ESPP, eligible employees are granted options to purchase shares of Common Stock at the lower of 85 % of the fair market value

of the stock at the time of grant or 85 % of the fair market value at the time of exercise.

Options to purchase shares are granted

twice yearly on or about August 1 and February 1 and are exercisable on or about the succeeding January 31 and July 31, respectively,

of each year.

No participant may purchase more than $ 25,000 worth of Common Stock annually.

No Common Stock was granted under the

2022 ESPP during the six months ended June 30, 2022.

Company maintains an employee’s savings and retirement plan under Section 401(k) of the Internal Revenue Code (the “401k

All full-time U.S.

employees become eligible to participate in the 401k Plan.

The Company’s contribution to the 401k

Plan is discretionary.

During the three and six months ended June 30, 2022 and 2021, the Company did not contribute to the 401k Plan.

15 — Stock Warrants

following table presents all warrant activity of the Company for the six months ended June 30, 2022 and the year ended December 31, 2021:

Weighted-Average

Options outstanding at January 1, 2021

Options outstanding at March 31, 2021

Options outstanding at January 1, 2022

Options outstanding at March 31, 2022

Options vested and exercisable as of March 31, 2022

Options vested and expected to vest as of March 31, 2022

The following table summarizes information about

options vested and exercisable at March 31, 2022:

Options Vested and Exercisable

Weighted-Average

Remaining Contractual

Weighted-Average

Exercise Price

1,536.00 -$ 2,898.00

The following table summarizes information about

options expected to vest after March 31, 2022:

Options Vested and Expected to Vest

Weighted-Average

Remaining Contractual

Weighted-Average

Exercise Price

1,536.00 -$ 2,898.00

As of March 31, 2022, warrants to purchase

50,780 shares of Common Stock were outstanding.

The following table presents the Company’s warrant activity for the three months

ended March 31, 2022 and 2021:

Weighted-Average

Exercise Price

Warrants outstanding at December 31, 2020

Warrants outstanding at March 31, 2021

Warrants outstanding at December 31, 2021

Warrants outstanding at June 30, 2022

Company received proceeds from the exercise of warrants of less than $ 1 thousand for both the three months ended June 30, 2022 and June

30, 2021, and $ 2 thousand and $ 5 thousand for the six months ended June 30, 2022 and 2021, respectively.

16 — Income Taxes

Company’s effective income tax rate was 0.1 % and 0.0 % for the three months ended June 30, 2022 and 2021, respectively.

The income tax benefit was $( 62 ) thousand and $ 0 for the three months ended June 30, 2022 and 2021, respectively.

The difference

between the Company’s effective tax rates for the 2022 and 2021 periods and the U.S.

statutory tax rate of 21 % was primarily due

to a valuation allowance recorded against certain deferred tax assets.

The change in income tax benefit for the three months ended June

30, 2022 compared to the three months ended June 30, 2021 was primarily due to a goodwill impairment charge recorded during the second

quarter of 2022 which resulted in a $(62) thousand benefit related to the reversal of the Company’s deferred tax liability on indefinite-lived

Company’s effective income tax rate was 0.3 % and 0.0 % for the six months ended June 30, 2022 and 2021, respectively.

The income tax benefit was $( 262 ) thousand and $ 0 for the six months ended June 30, 2022 and 2021, respectively.

The difference

between the Company’s effective tax rates for the 2022 and 2021 periods and the U.S.

statutory tax rate of 21 % was primarily due

to a valuation allowance recorded against certain deferred tax assets.

The change in the income tax benefit for the six months ended

June 30, 2022 compared to the six months ended June 30, 2021 was primarily due to a discrete income tax benefit of $(200) thousand recorded

during the first quarter of 2022, which is attributable to a non-recurring partial release of the Company’s U.S.

valuation allowance

as a result of the Lab Society acquisition.

Additionally, as a result of the goodwill impairment charge recorded during the second quarter

of 2022, the Company recognized a small benefit related to the reversal of its opening deferred tax liability on indefinite-lived assets.

17 — Net Loss Per Share

income (loss) per share calculations for all periods have been adjusted to reflect the Company’s Reverse Stock Split.

(loss) per share was calculated based on the weighted-average number of its Common Stock then outstanding.

net income (loss) per share is calculated using the weighted-average number of Common Stock outstanding during the periods.

(loss) per share, assuming dilution, is calculated using the weighted-average number of common shares outstanding and the dilutive effect

of all potentially dilutive securities, including Common Stock equivalents and convertible securities.

For periods during which the Company

recorded a net loss, diluted net income (loss) per share is equal to basic net income loss per share because the effect of dilutive securities

outstanding during the periods, including options and warrants computed using the treasury stock method, is anti-dilutive.

components of basic and diluted net income (loss) per share were as follows:

Warrants outstanding at March 31, 2022

The Company received proceeds from the exercise

of warrants of less than $ 1 thousand and $ 5 thousand during the three months ended March 31, 2022 and March 31, 2021, respectively.

Note 19 — Employee Benefit Plan

The Company maintains an employee’s savings

and retirement plan under Section 401(k) of the Internal Revenue Code (the “401k Plan”).

All full-time U.S.

become eligible to participate in the 401k Plan.

The Company’s contribution to the 401k Plan is discretionary.

During the three

months ended March 31, 2022 and 2021, the Company did not contribute to the 401k Plan.

Note 20 — Income Taxes

The Company’s effective income tax rate

was 2.0 % and 0.0 % for the three months ended March 31, 2022 and 2021, respectively.

The provision for (benefit from) income

taxes was approximately $( 200 ) thousand and $ 0 for the three months ended March 31, 2022 and 2021, respectively.

The difference between

the Company’s effective tax rates for the 2022 and 2021 periods and the U.S.

statutory tax rate of 21 % was primarily due a valuation

allowance recorded against certain deferred tax assets.

The change in the provision for (benefit from) income taxes for the three months

ended March 31, 2022 compared to the three months ended March 31, 2021 was primarily due to a discrete income tax benefit of approximately

$( 200 ) thousand recorded during the first quarter of 2022, which is attributable to a non-recurring partial release of the Company’s U.S.

valuation allowance as a result of the Lab Society acquisition.

Note 21 — Net Income (Loss) Per Share

Net income (loss) per share calculations for all

periods have been adjusted to reflect the Company’s Reverse Stock Split.

Net income (loss) per share was calculated based on the

weighted-average number of its Common Stock then outstanding.

Basic net income (loss) per share is calculated

using the weighted-average number of Common Stock outstanding during the periods.

Net income (loss) per share, assuming dilution, is calculated

using the weighted-average number of common shares outstanding and the dilutive effect of all potentially dilutive securities, including

Common Stock equivalents and convertible securities.

For periods during which the Company recorded a net income (loss), diluted net income

(loss) per share is equal to basic net income (loss) per share because the effect of dilutive securities outstanding during the periods,

including options and warrants computed using the treasury stock method, is anti-dilutive.

The components of basic and diluted net income

(loss) per share were as follows:

Three Months ended

Six Months ended

(In thousands, except share and per share data)

Net loss attributable to Agrify Corporation

Net income (loss) attributable to Agrify Corporation

Accrued dividend attributable to Preferred A Stockholders

Net loss available for Common Stockholders

Weighted-average common shares outstanding – basic and diluted

Net loss per share attributable to Common Stockholders – basic and diluted

Company’s potential dilutive securities, which include stock options and warrants, have been excluded from the computation of diluted

net loss per share as the effect would be to reduce the net loss per share.

Therefore, the weighted-average number of common shares outstanding

used to calculate both basic and diluted net loss per share attributable to common stockholders is the same.

The Company excluded

the following potential common shares equivalents presented based on amounts outstanding at each period end, from the computation of

diluted net loss per share attributable to common stockholders for the periods indicated because including them would have had an anti-dilutive

Net income (loss) available for common shareholders

Weighted-average common shares outstanding – basic (1)

Effect of dilutive securities

Options outstanding

Warrants outstanding

18 — Commitments and Contingencies

and Weinstein Matter

January 5, 2021, the Company received a demand letter from Nicholas Cooper and Richard Weinstein, (two of the Company’s former

employees), and one of Mr.

Cooper’s affiliated entities, asserting that Messrs.

Cooper and Weinstein were entitled to compensation

arising out of their employment by the Company, and their partial ownership of TriGrow Systems, LLC which had been acquired by the Company.

Weighted-average common shares outstanding – diluted (1)

Net income (loss) per share attributable to Common Stockholders – basic (1)

Net income (loss) per share attributable to Common Stockholders – diluted (1)

Periods presented have been adjusted to reflect the 1-for-10 reverse stock split on October 18, 2022 and the 1-for-20 reverse stock split on July 5, 2023.

As of March 31, 2021, the Company excluded the

following securities from net loss per share as the effect of including them would have been anti-dilutive.

The shares shown represent

the number of shares of Common Stock which would be issued upon conversion in the period shown below :

Options outstanding

Warrants outstanding

Note 22 — Commitments and Contingencies

The determination if any arrangement contained

a lease at its inception was done based on whether or not the Company has the right to control the asset during the contract period.

lease term was determined assuming the exercise of options that were reasonably certain to occur.

Leases with a lease term of 12 months

or less at inception were not reflected in the Company’s balance sheet and those lease costs are expensed on a straight-line basis

over the respective term.

Leases with a term greater than 12 months were reflected as non-current right-of-use assets and current and

non-current lease liabilities in the Company’s condensed consolidated balance sheets.

As the implicit interest rate in its leases was

generally not known, the Company’s used its incremental borrowing rate as the discount rate for purposes of determining the present

value of its lease liabilities.

At March 31, 2022, the Company’s weighted-average discount rate utilized for its leases was 7.32 %.

When a contract contained lease and non-lease

elements, both were accounted as a single lease component.

The Company had several non-cancellable finance

leases for machinery and equipment.

The Company’s finance leases have remaining lease terms of one year to five years.

The Company had several non-cancellable operating

leases for corporate offices, warehouses, showrooms, research and development facilities and vehicles.

The Company’s leases have

remaining lease terms of one year to five years, some of which include options to extend.

Some leases include

payment for common area maintenance associated with the property.

Additional information on the Company’s

lease activity, for the three months ended March 31, 2022 and 2021, is as follows:

Three Months ended

(In thousands)

Operating lease cost

Finance lease cost:

Amortization of right-of-use assets

Interest on lease liabilities

Short-term lease cost

Total lease cost

Weighted-average remaining lease term – operating leases

Weighted-average remaining lease term – finance leases

Weighted-average discount rate – operating leases

Weighted-average discount rate – finance leases

(In thousands)

Right-of-use assets, net

Operating lease liabilities, current

Operating lease liabilities, non-current

Total operating lease liabilities

Finance lease liabilities, current

Finance lease liabilities, non-current

Total finance lease liabilities

Maturities of operating and finance lease liabilities

as of March 31, 2022 are as follows:

Years ending December 31 (In thousands),

Remaining 2022

Total minimum lease payments

Less imputed interest

Total lease liabilities

Legal Proceedings

On January 5, 2021, the Company received a demand

letter from Nicholas Cooper and Richard Weinstein, (two of the Company’s former employees), and one of Mr.

Cooper’s affiliated

entities, asserting that Messrs.

Cooper and Weinstein were entitled to compensation arising out of their employment by the Company, and

their partial ownership of TriGrow Systems, LLC which had been acquired by the Company.

The demand letter asserts that Messrs.

Cooper and Weinstein are due certain sales commissions under their applicable bonus plan, equity

earn-outs based on certain sales targets, and various equity purchases through the Company’s employee stock ownership plan.

demand letter also asserts various employment claims, including but not limited to, statutory wage withholding violations, wrongful termination,

breach of contract, breach of the duty of good faith and fair dealing, fraud in the inducement, promissory estoppel, minority shareholder

oppression, breach of fiduciary duty, unjust enrichment, and violations of state and federal securities laws.

January 19, 2021, Messrs.

Cooper and Weinstein filed a lawsuit against the Company in the United States District Court for the Western

District of Washington, alleging the same claims made in their demand letter based on the facts disclosed above.

The plaintiffs are seeking

relief in the form of monetary damages in an amount to be determined.

Cooper and Weinstein are also seeking relief in the form

of reinstatement and Mr.

Weinstein is seeking rescission of his previously executed Release of Claims Agreement.

On March 10, 2021, the

Company moved to dismiss all Messrs.

Cooper and Weinstein’s claims, asserting that the claims failed to allege legal grounds for

On May 12, 2021, a Magistrate issued a preliminary Report and Recommendation, which recommended dismissal of certain of Messrs.

Cooper and Weinstein’s claims, and recommended others for additional factual discovery.

On July 27, 2021, a District Judge entered

an order partially adopting the Report and Recommendation, dismissing one claim with prejudice, dismissing a second claim with leave

to amend, and permitting the remaining claims to proceed.

Additionally,

on July 29, 2021, the Company filed a separate arbitration in Boston, Massachusetts against Messrs.

Cooper and Weinstein, in which the

Company alleges that Messrs.

Cooper and Weinstein were liable for certain conduct during the time they were TriGrow employees, including

breach of fiduciary duty, unjust enrichment, usurpation of corporate opportunity, conversion, fraudulent concealment, and false representation.

on July 29, 2021, the Company submitted a claim for indemnification to certain legacy TriGrow Systems, LLC.

and Weinstein are due certain sales commissions under their applicable bonus plan, equity earn-outs based on certain sales targets, and

various equity purchases through the Company’s employee stock ownership plan.

The demand letter also asserts various employment

claims, including but not limited to, statutory wage withholding violations, wrongful termination, breach of contract, breach of the duty

of good faith and fair dealing, fraud in the inducement, promissory estoppel, minority shareholder oppression, breach of fiduciary duty,

unjust enrichment, and violations of state and federal securities laws.

On January 19, 2021, Messrs.

Cooper and Weinstein

filed a lawsuit against the Company in the United States District Court for the Western District of Washington, alleging the same claims

made in their demand letter based on the facts disclosed above.

The plaintiffs are seeking relief in the form of monetary damages in an

amount to be determined.

Cooper and Weinstein are also seeking relief in the form of reinstatement and Mr.

Weinstein is seeking

rescission of his previously executed Release of Claims Agreement.

On March 10, 2021, the Company moved to dismiss all Messrs.

and Weinstein’s claims, asserting that the claims failed to allege legal grounds for relief.

On May 12, 2021, a Magistrate issued

a preliminary Report and Recommendation, which recommended dismissal of certain of Messrs.

Cooper and Weinstein’s claims, and recommended

others for additional factual discovery.

On July 27, 2021, a District Judge entered an order partially adopting the Report and Recommendation,

dismissing one claim with prejudice, dismissing a second claim with leave to amend, and permitting the remaining claims to proceed.

Additionally, on July 29, 2021, the Company filed

a separate arbitration in Boston, Massachusetts against Messrs.

Cooper and Weinstein, in which the Company alleges that Messrs.

and Weinstein were liable for certain conduct during the time they were TriGrow employees, including breach of fiduciary duty, unjust

enrichment, usurpation of corporate opportunity, conversion, fraudulent concealment, and false representation.

Also on July 29, 2021,

the Company submitted a claim for indemnification to certain legacy TriGrow Systems, LLC.

shareholders.

for indemnification relates to conduct by Messrs.

The claim for indemnification

relates to conduct by Messrs.

Cooper and Weinstein during the time they were TriGrow employees.

During the second

quarter of 2022, the Company and Messrs.

Cooper and Weinstein tentatively agreed to settle all claims and potential claims between themselves

and any affiliated entities by the Company to Messrs.

Cooper, Weinstein, and a related entity, subject to negotiation of a final settlement

agreement, for approximately $ 800 thousand, which has been accrued as a liability as of June 30, 2022.

States Customs Seizure Matter

June 28, 2022, the Company was notified by the United States Customs and Border Protection (“CBP”) that they seized 123 cartons

of horticulture grow lights appraised at approximately $ 623 thousand at the Port of Savannah, Georgia based on CBP’s interpretation

of certain importation laws which prohibit the importation of certain goods that are subject to health and safety legal restrictions,

including a prohibition on the importation of drug paraphernalia, in accordance with 21 U.S.C.

The Company will dispute

The Company does not believe these claims have any merit and intends to vigorously defend its position.

Agreement with Mack Molding Co.

December 2020, the Company entered into a five-year supply agreement with Mack Molding Co.

(“Mack”) pursuant to which Mack

will become a key supplier of VFUs.

In February 2021, the Company placed a purchase order with Mack amounting to approximately $ 5.2 million

towards the initial production of VFUs during 2021.

In September 2021, the Company increased the purchase order with Mack to approximately

$ 11.5 million towards production of VFUs during 2021 and 2022.

The Company believes the supply agreement with Mack will provide the Company

with increased scaling capabilities and the ability to meet the potential future demand of its customers more efficiently.

agreement contemplates that, following an introductory period, the Company will negotiate a minimum percentage of the VFU requirements

that the Company 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.

The Company believes 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.

Agreements with Related Party

September 7, 2019, the Company entered into a distribution agreement with Bluezone Products, Inc.

(“Bluezone”) for distribution

rights to the Bluezone products with certain exclusivity rights.

The agreement requires minimum purchases amounting to $ 480 thousand

and $ 600 thousand for the first and second contract anniversary years.

The agreement auto-renews for successive one-year periods unless

earlier terminated.

In March 2021, the Company notified Bluezone of the non-renewal of the agreement which means it ended on May 31,

The Company exceeded the minimum purchase amount for the first year and purchased approximately $ 309 thousand of the committed

$ 660 thousand second-year purchases through December 31, 2021.

Bluezone is a related party to the Company.

Purchase Agreement with Related Party – Greenstone

December 29, 2021, Greenstone purchased 239 VFUs from the Company of which 60 VFUs were already in Greenstone possession under a lease

Under the lease agreement, Greenstone owed the Company a production service fee of $ 300 per pound of flower produced and contained

an option to purchase the equipment within the lease agreement.

The term of this agreement was for ten years , but it was terminated upon

signing the purchase agreement for the 239 VFUs.

The Company does not believe these claims

have any merit and intends to vigorously defend its position.

Supply Agreement with Mack Molding Co.

In December 2020, the Company entered into a five-year

supply agreement with Mack Molding Co.

(“Mack”) pursuant to which Mack will become a key supplier of VFUs.

In February 2021,

the Company placed a purchase order with Mack amounting to approximately $ 5.2 million towards initial production of VFUs during 2021.

In September 2021, the Company increased the purchase order with Mack to approximately $ 11.5 million towards production of VFUs during

2021 and 2022.

The Company believes the supply agreement with Mack will provide the Company with increased scaling capabilities and the

ability to more efficiently meet the potential future demand of its customers.

The supply agreement contemplates that, following an introductory

period, the Company will negotiate a minimum percentage of the VFU requirements that the Company 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.

The Company believes

this approach will result in both parties making a more informed decision with respect to the pricing and other terms of the supply agreement

Distribution Agreements with Related Party

On September 7, 2019, the Company entered into

a distribution agreement with Bluezone Products, Inc.

(“Bluezone”) for distribution rights to the Bluezone products with certain

exclusivity rights.

The agreement requires minimum purchases amounting to $ 480 thousand and $ 600 thousand for the first and second contract

anniversary years.

The agreement auto renews for successive one-year periods unless earlier terminated.

In March 2021, the Company notified

Bluezone of non-renewal of the agreement which means it ended on May 31, 2021.

The Company exceeded the minimum purchase amount for the

first year and purchased approximately $ 309 thousand of the committed $ 660 thousand second year purchases through December 31, 2021.

is a related party to the Company.

Committed Purchase Agreement with Greenstone Holdings

On December 29, 2021, Greenstone Holdings purchased

239 VFUs from the Company of which 60 VFUs were already in Greenstone Holdings possession under a lease agreement.

Under the lease agreement,

Greenstone Holdings owed Agrify a production service fee of $ 300 per pound of flower produced and contained an option to purchase the

equipment within the lease agreement.

The term of this agreement was for ten years , but it was terminated upon signing the purchase agreement

for the 239 VFUs.

There is no remaining obligation under the lease agreement.

The remaining 179 VFUs were

shipped to Greenstone storage facility on December 30, 2021 and December 31, 2021.

Greenstone is a related party to the Company.

information regarding recent developments with Greenstone may be found in Note 6 – Loan Receivable, included elsewhere in the notes

to the condensed consolidated financial statements.

Purchase Agreement with Related Party – Ora Pharm

June 2022, the Company entered into an agreement with Ora Pharm (“Ora”) pursuant to which Ora will purchase approximately

$ 1.6 million in equipment from the Company, and Ora may purchase software services from the Company in the future.

Wilcox is the

Chairman of Ora.

Wilcox has not had an interest in any transaction since the beginning of the Company’s last fiscal year, or

any currently proposed transaction.

There are no family relationships among any of the Company’s directors or executive officers

Commitments and Contingencies

Company is potentially subject to claims related to various non-income taxes (such as sales, value-added, consumption, and similar taxes)

from various tax authorities, including in jurisdictions in which the Company already collects and remits such taxes.

If the relevant

taxing authorities successfully pursue these claims, the Company could be subject to additional tax liabilities.

to Note 10 – Debt, included elsewhere in the notes to the condensed consolidated financial statements for details of the Company’s

future minimum debt payments.

Refer to Note 11 – Leases, included elsewhere in the notes to the condensed consolidated financial

statements for details of the Company’s future minimum lease payments under operating and financing lease liabilities.

Note 16 – Income Taxes, included elsewhere in the notes to the condensed consolidated financial statements for information regarding

income tax contingencies.

19 — Related Parties

of the officers and directors of the Company are involved in other business activities and may, in the future, become involved in other

business opportunities that become available.

following table describes the net purchasing (sales) activity with entities identified as related parties to the Company:

The remaining 179 VFUs were shipped to Greenstone Holdings

storage facility on December 30, 2021 and December 31, 2021.

Note 23 — Related Parties

Some of the officers and directors of the Company

are involved in other business activities and may, in the future, become involved in other business opportunities that become available.

The following table describes the net purchasing

(sales) activity with entities identified as related parties to the Company:

Three Months ended

Six Months ended

(In thousands)

1 unchanged sentence

Topline Performance Group

Greenstone Holdings

Valiant Americas, LLC

Living Greens Farm

(1) Purchases from 4D Bios for the six months ended June 30, 2021 include $ 384 thousand for a down payment on inventory orders.

following table summarizes net related party receivable (payable) as of June 30, 2022 and December 31, 2021:

(1) Purchases from 4D Bios for the three months ended March 31, 2021 include $ 384 thousand for a down payment on inventory orders.

The following table summarizes net related party

(payable) receivable as of March 31, 2022 and December 31, 2021:

(In thousands)

Cannae Policy Group

Greenstone (net of allowance for doubtful accounts of $ 7,079 and $ 0 at June 30, 2022 and December 31, 2021, respectively) (1)

Greenstone Holdings

Living Greens Farm

Valiant Americas, LLC

Topline Performance Group

(1) The Greenstone allowance for doubtful accounts balance consisted of capital advances, accrued interest and VFUs sales.

Additional information regarding recent developments with Greenstone may be found in Note 6 – Loan Receivable, included elsewhere in the notes to the condensed consolidated financial statements.

(2) The balance was fully reserved at June 30, 2022 due to an ongoing dispute with the customer.

Note 24 — Subsequent Events

136 unchanged sentences

Issuance of Unsecured Promissory Note

On July 12, 2023, the Board of Directors of the Company approved the

issuance of an unsecured promissory note in favor of GIC Acquisition, LLC (the “Investor”), an entity that is owned and managed

by Raymond Chang, the Company’s Chairman and Chief Executive Officer.

Pursuant to the Note, the Investor will lend up to $ 500,000

to the Company.

The Note bears interest at a rate of 10 % per annum, will mature in full on August 6, 2023, and may be prepaid without

any fee or penalty.

On July 12, 2023, the Board of Directors of the

Company approved the issuance of an unsecured promissory note in favor of GIC Acquisition, LLC (the “Investor”), an entity

that is owned and managed by Raymond Chang, the Company’s Chairman and Chief Executive Officer.

Pursuant to the Note, the Investor

will lend up to $ 500,000 to the Company.

The Note bears interest at a rate of 10 % per annum, will mature in full on August 6, 2023, and

may be prepaid without any fee or penalty.

The Note ranks junior to all existing secured indebtedness of the Company.

1 unchanged sentence

Michigan 48084.

As of May 23, 2023, the Company

extended its lease by three years until July 31, 2026, for the premises located at 2625 S.

23, 2023, the Company extended its lease by three years until July 31, 2026, for the premises located at 2625 S.

Santa Fe Dr., Bldg.

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q/A

Item 1. Financial Statements