What changed in this filing

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Item 1. Financial Statements

2023-10-02 compared with 2023-10-02 · 1348 added, 1703 removed, 1204 unchanged (72% of the section changed)

Financial Statements

AGRIFY CORPORATION AND SUBSIDIARIES

AGRIFY CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

September 30,

(As Restated)

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Marketable securities

Accounts receivable, net of allowance for doubtful accounts of $ 3,125 and $ 1,415 at September 30, 2022 and December 31, 2021, respectively

Inventory, net of reserves of $ 1,909 and $ 942 at September 30, 2022 and December 31, 2021, respectively

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

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Total current assets

Loan receivable, net of allowance for doubtful accounts of $ 21,770 and $ 0 at September 30, 2022 and December 31, 2021, respectively

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

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Total current liabilities

Other non-current liabilities

Warrant liabilities

Other non-current liabilities

Operating lease liabilities, non-current

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Stockholders’ equity:

Common Stock, $ 0.001 par value per share, 5,000,000 and 2,500,000 shares authorized at September 30, 2022 and December 31, 2021, respectively, 134,550 and 111,035 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively (1)

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)

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

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Total liabilities and stockholders’ equity

presented have been adjusted to reflect the 1-for-1.581804 reverse stock split on January 12, 2021, 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 AND SUBSIDIARIES

Condensed Consolidated Statement of Operations

(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

September 30,

Nine Months Ended

September 30,

Six Months ended

(As Restated)

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Cost of goods sold

Gross (loss) profit

Gross profit (loss)

General and administrative

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Interest (expense) income, net

Other income (expense)

Change in fair value of warrant liabilities

(Loss) gain on extinguishment of notes payable

Other (expense) income, net

Other expenses

Change in fair value of warranty liabilities

Gain on extinguishment of notes payable

Other income (expense), net

Net loss before income taxes

Income tax benefit

Income (loss) attributable to non-controlling interests

Income attributable to non-controlling interests

Net loss attributable to Agrify Corporation

$ ( 130,235 )

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

$ ( 1,003.10 )

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

presented have been adjusted to reflect the 1-for-1.581804 reverse stock split on January 12, 2021, 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.

CORPORATION AND SUBSIDIARIES

(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)

Preferred A Stock

Stockholders’

attributable to

Stockholders’

Balance at January 1, 2021

Stock-based compensation

Beneficial conversion feature associated with amended Convertible Promissory Notes

Conversion of Convertible Notes

Issuance of Common Stock – Initial Public Offering (“IPO”), net of fees

Issuance of Common Stock – Secondary public offering, net of fees

Conversion of Preferred A Stock

Exercise of options

Exercise of warrants

Balance at June 30, 2021

Stock-based compensation

Issuance of common shares in connection with acquisition

Exercise of options

at January 1, 2021

conversion feature associated with amended Convertible Promissory Notes

of Convertible Notes

of Common Stock – Initial Public Offering (“IPO”), net of fees

of Common Stock – Secondary public offering, net of fees

of Preferred A Stock

Exercise of warrants

Balance at September 30, 2021

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.

(As Restated)

Preferred A Stock

(As Restated)

Stockholders’

attributable to

Stockholders’

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(As Restated)

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 June 30, 2022

$ ( 131,799 )

Stock-based compensation

Issuance of common shares in connection with acquisition

Reclass of warrant liability

Exercise of warrants

Issuance of restricted stock units

Balance at September 30, 2022

$ ( 189,212 )

(1) Periods presented have been adjusted to reflect the 1-for-1.581804 reverse stock split on January 12, 2021, the 1-for-10 reverse stock split on October 18, 2022, and the 1-for-20 reverse stock split on July 5, 2023.

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

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 AND SUBSIDIARIES

Condensed Consolidated Statement of Cash Flows

The accompanying notes are an integral part of

these condensed consolidated financial statements.

AGRIFY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

September 30,

Six Months ended

(As Restated)

Cash flows from operating activities

Net loss attributable

to Agrify Corporation

$ ( 130,235 )

Adjustments to reconcile net loss

attributable to Agrify Corporation to net cash used in operating activities:

Net loss attributable to Agrify Corporation

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

Depreciation and amortization

Impairment on goodwill and intangible

Loss (gain) on extinguishment

of notes payable, net

Change in fair value of warrant

Amortization of premium on investment

Impairment on goodwill and intangible assets

Amortization of premium on investment securities

Amortization of debt discount

Amortization of issuance costs

Interest on investment securities

Early termination of lease

Provision for doubtful accounts

Provision for slow-moving inventory

Amortization of issuance costs

Deferred income taxes

Prepaid and refundable taxes

Compensation in connection with

the issuance of stock options

Issuance of common shares in

connection with acquisition

Compensation in connection with the issuance of stock options

Non-cash interest (income) expense

Loss from disposal of fixed

Change in fair value of contingent

consideration

Income attributable to non-controlling

Changes in operating assets

and liabilities, net of acquisitions:

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

Changes in operating assets and liabilities, net of acquisitions:

Accounts receivable

Prepaid expenses and other current

Prepaid expenses and other current assets

Right-of-use assets, net

Other non-current assets

Accounts payable

Accrued expenses and other current

Net cash used in operating

Cash flows from

investing activities

Accrued expenses and other current liabilities

Deferred (expense) revenue, net

Net cash used in operating activities

Cash flows from investing activities

Purchases of property and equipment

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Issuance of loan receivables

paid for business combination, net of cash acquired

Net cash used in investing

Cash flows from

financing activities

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

Cash paid for business combination, 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, net

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

Proceeds from IPO, net of fees

Proceeds from Secondary public

offering, net of fees

Proceeds from Secondary public offering, net of fees

Proceeds from exercise of options

Proceeds from exercise of warrants

Repayment of debt in private

Repayments of notes payable,

Payments on insurance financing

Payments of other financing

Payments on other financing loans

Payments on insurance financing loans

Payments of financing leases

of reverse stock split

Net cash provided by financing

Net increase in cash and cash

cash equivalents at the beginning of period

Cash and cash

equivalents at the end of period

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

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

Cash and cash equivalents

Restricted cash and restricted

marketable securities

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

Supplemental disclosures of

non-cash information

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

Supplemental disclosures of non-cash flow information

Initial fair value of warrants

Financing of prepaid insurance

The accompanying notes are an integral part

of these condensed consolidated financial statements.

AGRIFY CORPORATION AND SUBSIDIARIES

The accompanying notes are an integral part of

these condensed consolidated financial statements.

AGRIFY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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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 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 is 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.

The totality of its

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

result, the Company believes it is 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.

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

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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.

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);

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 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);

Lab 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:

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

● Agrify-Valiant, LLC (“Agrify-Valiant”) (the Company is 60 % majority owner and Valiant-America, LLC owns 40 %, which was formed in December 2019.

Subsequent to September 30, 2022, On October 27, 2022, the Company provided notice to Valiant-America, LLC of our intention to begin winding up of Agrify-Valiant);

● 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 of TriGrow).

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 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.

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

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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.

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

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333- 251616 and 333-252490),

which was declared effective by the Securities Exchange Commission (“SEC”) on January 27, 2021.

In the IPO, Maxim Group LLC

and Roth Capital Partners acted as the underwriters.

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 per share.

The total gross

proceeds from the IPO were $ 62.1 million.

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

After deducting underwriting discounts and commissions

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$ 57 million.

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

inventory to meet customer demand forecasts, and 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,

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.

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

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

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

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 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”)

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.

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

The SBA denied the

Company’s application for the forgiveness of the outstanding balance of 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 that commenced on August

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

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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 nine months ended September 30, 2022 and

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

2021, and the condensed consolidated cash flows for the nine months ended September 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

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.

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Accounting for Wholly-Owned Subsidiaries

The accompanying 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 (“ASC”).

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.

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 (“ASC810”), 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

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.

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

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 and Agrify Brands are each a VIE, and that the Company is the primary beneficiary.

the Company owns 60 % of Agrify-Valiant’s equity interests and 75 % of Agrify Brand’s equity interests, the remaining equity

interests in Agrify-Valiant and Agrify Brands 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

and Agrify Brands under the VIE rules and reflects the third parties’ interests in the consolidated financial statements as a non-controlling

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.

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.

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 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 are issued.

The Company has incurred operating losses since

its inception and has negative cash flows from operations.

The Company also has an accumulated deficit of $ 189.2 million as of September

The Company’s primary sources of liquidity are its cash and cash equivalents and marketable securities, with additional liquidity

accessible, subject to market conditions and other factors, including limitations that may apply to the Company under applicable SEC regulations,

from the capital markets, including under its at-the-market continuous equity offering (“ATM” or ATM Program”).

As of September 30, 2022, the Company had $ 12.5

million of cash, cash equivalents, marketable securities, and restricted cash and restricted marketable securities.

The Company’s

restricted cash and restricted marketable securities is associated with its new senior secured note (the “Exchange Note”)

was $ 10.0 million as of September 30, 2022.

Current liabilities were $ 72.8 million as of September 30, 2022.

Additional information regarding

the Company’s Exchange Note may be found in Note 10 – Debt, included elsewhere in the notes to the consolidated financial

Subsequent to the end of the third quarter of 2022,

the Company entered into an agreement for the ATM Program with Canaccord Genuity LLC (the “Agent”), pursuant to which

the Company may issue and sell, from time to time, shares of its Common Stock having an aggregate offering price of up to $ 50 million,

depending on market demand, with the Agent acting as an agent for sales.

The ATM allows for quick and agile sales of Common Stock to interested

investors and provides an opportunity to raise additional capital for working capital requirements or to fund strategic opportunities

that may present themselves from time to time.

The Company has used, and intends to continue to use, the $ 15.1 million in net proceeds

generated from the ATM Program as of November 7, 2022 for working capital and general corporate purposes, including repayment of indebtedness,

funding the Company’s transformation initiatives and product category expansion efforts and capital expenditures.

As of November

7, 2022, the Company had $ 34.4 million of remaining availability for future issuances of Common Stock under the ATM Program.

Additional information regarding the Company’s

ATM Program and proceeds received subsequent to September 30, 2022, may be found in Note 20 – Subsequent Events, included elsewhere

in the notes to the consolidated financial statements.

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

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 the necessary debt or equity financing to continue operations

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

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 potential future effects on the recoverability and

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

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Use of Estimates

The preparation of the Company’s 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 consolidated financial statements, and

the reported amounts of expenses during the reporting period.

Significant estimates and assumptions reflected in these 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.

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

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The Company qualifies as an “emerging growth

company” as defined in the Jumpstart Our Business Startups Act of 2012, (“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

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

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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 quarter;

December 31, 2026.

$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

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In this Form 10-Q,

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

statements of operations as general and administrative expenses and selling and marketing expenses for the three and nine months ended

September 30, 2022 and 2021.

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.

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 September 30, 2022 and December 31, 2021.

equivalents are carried at cost, which approximates fair value.

Restricted cash and restricted marketable securities represents cash required

to be held as collateral for the Company’s Exchange Note.

Accordingly, these balances contain restrictions as to their availability

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

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 Exchange Note may be found in Note 10 – Debt, included elsewhere

in the notes to the consolidated financial statements.

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.

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.

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The mutual funds are recorded at fair value

in the accompanying 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 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 that will mature within the next 12 months, including interest receivable on long-term bonds.

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

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to be probable.

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

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,

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.

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receivable for the periods presented:

For the three months ended September 30, 2022 and

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

September 30, 2022

June 30, 2022

Three Months ended

September 30, 2021

June 30, 2021

(In thousands)

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

Greenstone Holdings (“Greenstone”) – Related Party

Company Customer Number – 139

Company Customer Number – 136

Company Customer Number – 139

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

For the nine months ended September 30, 2022 and

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:

Nine Months Ended

September 30, 2022

Nine Months Ended

September 30, 2021

Six Months ended

June 30, 2022

Six Months ended

June 30, 2021

(In thousands)

NEIA – Related Party

Company Customer Number – 71

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

Company Customer Number – 139

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Accounts Receivable, Net

As of September 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:

September 30, 2022

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

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Company Customer Number – 126

Company Customer Number - 15989

Company Customer Number - 16540

Company Customer Number - 185

Company Customer Number - 12237

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

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

The Company values all of its inventories, which

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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:

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

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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 consolidated balance sheet and any resulting gain or

loss are included in the consolidated statements 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 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

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

the Company identified an 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 was an impairment to the carrying value of its long-lived assets and accordingly performed interim testing as

of 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

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Additional information regarding the Company’s interim testing

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

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

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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.

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

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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 an 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 was an impairment to the carrying value of its long-lived assets and accordingly performed interim testing 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 – Goodwill and Intangible Assets, Net, included elsewhere in the notes to the consolidated

financial statements.

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

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

Warrant Liabilities

The Company does not use derivative instruments

to hedge exposures to cash flow, market, or foreign currency risks.

The Company evaluates all of its financial instruments, including

issued private placement stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as

embedded derivatives, pursuant to ASC Topic 480, Distinguishing Liabilities from Equity (“ASC480”) and ASC815.

accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific

terms and applicable authoritative guidance in ASC480 and ASC815.

Management’s assessment considers whether the warrants are freestanding

financial instruments pursuant to ASC480, whether they meet the definition of a liability pursuant to ASC480, and whether the warrants

meet all of the requirements for equity classification under ASC815, including whether the warrants are indexed to the Company’s

own Common Stock among other conditions for equity classification.

For issued or modified

warrants that meet all of the criteria for equity classification, they are recorded as a component of additional paid-in capital at the

time of issuance.

For issued or modified warrants that are precluded from equity classification, they are recorded as a liability at their

initial fair value on the date of issuance and subject to remeasurement on each balance sheet date with changes in the estimated fair

value of the warrants to be recognized as an unrealized gain or loss in the condensed consolidated statements of operations.

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 “PIPE Warrants”),

in a private placement offering.

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.

August 18, 2022, the Company reached an agreement with its institutional lender to amend its existing Securities Purchase Agreement and

entered into a Securities Exchange Agreement (the “Exchange Agreement”).

Pursuant to the Exchange Agreement, the Company issued

a new warrant to purchase 71,138 shares of Common Stock (the “Note Exchange Warrant”) and modified the existing SPA Warrant.

The Company exchanged the SPA Warrant for a new warrant for the same number of underlying shares but with a reduced exercise price (the

“Modified Warrants” and, collectively with the Note Exchange Warrant, the “Warrant Liabilities”).

As of September

30, 2022, the Company had outstanding liability-classified Warrant Liabilities that allows the accredited investor (the “Investor”)

to purchase the Company’s Common Stock.

Additional information regarding the Exchange Agreement and Warrant Liabilities may

be found in Note 5 – Fair Value Measures and Note 10 – Debt, included elsewhere in the notes to the condensed consolidated

financial statements.

Debt Issue Costs and Debt Discount

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debt discounts in connection with issuing of debt.

The Company may cover these costs by paying cash or issuing warrants.

are amortized to interest expense over the expected life of the 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

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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

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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 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.

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

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

as a current liability on the consolidated balance sheet.

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, 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.

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

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The Company classifies stock-based compensation

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

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 the 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.

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

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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 the excess of the purchase price over the

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.

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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 the consolidated statements

of 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 consolidated financial statements.

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

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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 price;

allocate the transaction price to the distinct performance obligations;

recognize revenue as the performance obligations are satisfied.

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

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are satisfied

Revenue is recognized when, or as, performance obligations

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

Revenue is recognized when, or as, performance

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

Significant Judgments

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performance obligations are satisfied.

Judgment is required to determine the SSP for each

distinct performance obligation.

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

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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

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.

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components separately as financial income.

For the three months and nine months ended September 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.

Accordingly, the

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

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

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The reserve for warranty returns is included in accrued expenses

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

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

Research and Development Costs

The Company expenses 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.

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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 on 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.

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 September 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 is solely directed by TPI.

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

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The carrying value of the Company’s investment

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

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

ended September 30, 2022 and September 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.

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.

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,

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

is recognized in the 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,

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.

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 September

30, 2022, tax years 2017 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.

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

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

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

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.

Losses are not allocated to participating securities as the holders of the participating securities do not

have a contractual obligation to share in any losses.

Diluted loss per share adjusts basic loss per share for the potentially dilutive

impact of stock options and warrants.

As the Company has reported losses for all periods presented, all potentially dilutive securities

including stock options and warrants, are anti-dilutive, and accordingly, basic net loss per share equals diluted net loss per share.

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 splits effected on January 12, 2021,October 18, 2022, and July 5, 2023.

Net loss per share

was calculated based on the weighted-average number of Common Stock outstanding.

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 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

2020-06 simplify the complexity associated with applying 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.

The adoption of this new accounting guidance had no impact

on the Company’s consolidated financial position.

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

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effective in the first quarter of fiscal 2024.

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

financial statements and related disclosures.

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.

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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 GAAP.

prepared financial statements in accordance with U.S.

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

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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 consolidated financial statements and related

accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants,

and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company’s

present or future financial statements.

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

nine months ended September 30, 2022 have been restated due to the following errors:

Pipe Warrants/Original SPA Warrants Classification and Measurement

During the nine months ended September 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”), ii) the issuance of a note payable (the “SPA Note”) with

associated warrants on March 14, 2022 (the “SPA Warrants”), iii) the prepayment of the SPA Note on August 18, 2022 and the

exchange of the remaining balance for a new note payable (the “Exchange Note”), the modification of the SPA Warrants (the

“Modified Warrants”), and the issuance of new warrants (the “New Warrants”).

In connection with the aforementioned transactions,

the 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.

In addition, the Company used an incorrect volatility

percentage when calculating the value of the PIPE Warrants, the SPA Warrants, and the New Warrants upon issuance.

As a result of these

● Additional paid-in capital was overstated by $ 24.0 million as of September

30, 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,

the Modified SPA Warrants, and New Warrants of $ 4.1 million as of September 30, 2022;

● Long-term debt and Long-term debt, current was understated by $ 29.9 million

and overstated by $ 31.3 million, respectively, as of September 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 September 30, 2022 was overstated by $ 18.3 million

as a result of the net impact of the following errors in the consolidated statement of operations:

ο The change in fair value of warrant liabilities was understated

by $ 10.6 million and $ 41.5 million during the three and nine months ended September 30, 2022, respectively due to the fact that the Company

did not appropriately remeasure the fair value of the warrant liabilities as of September 30, 2022 through earnings;

ο Interest expense, net was understated by $ 675 thousand and

$ 2.2 million during the three and nine months ended September 30, 2022, respectively due to incorrect debt discount amortization in connection

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.

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.

ο The gain on extinguishment of notes payable was understated

by $ 21.1 million during the three and nine months ended September 30, 2022

Long-term Debt Classification

The Company incorrectly classified the Exchange

Note as long-term debt.

However, as the Investor has the option of requiring the Company to redeem the Exchange Note on the one-year or

two-year anniversaries of issuance subject to certain conditions, the Exchange Note must be classified as a current liability.

of this error:

● Long-term debt, current was understated by $ 31.3 million as of September

● Long-term debt was overstated by $ 29.9 million as of September 30, 2022

Debt Issuance Costs Classification

The Company incorrectly classified debt issuance

costs as an asset rather than as a contra-liability as of September 30, 2022.

As a result of this error:

● Prepaid expenses and other current assets were understated by $ 308 thousand

as of September 30, 2022;

● Other non-current assets were overstated by $ 454 thousand as of September

Reverse Stock Split

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

split of its Common.

All owners of record as of October 18, 2022 received one issued and outstanding share of the Company’s Common

Stock in exchange for ten outstanding shares of the Company’s Common Stock.

Additionally, On October 18, 2022, the Company effected

a 1-for-20 reverse stock split of its Common Stock on July 5, 2023.

All owners of record as of July 5, 2023 received one issued and outstanding

share of the Company’s Common Stock in exchange for twenty outstanding shares of the Company’s Common Stock.

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 consolidated financial

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

and reclassified consolidated balance sheet, consolidated statement of operations, and consolidated statement of cash flows for the quarter-ended

September 30, 2022.

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:

September 30, 2022

Debt Classification

June 30, 2022

Current assets:

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Total current liabilities

Other non-current liabilities

Warrant liabilities

Other non-current liabilities

Operating lease liabilities, non-current

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on the Company’s condensed consolidated statement of operations:

Three Months ended September 30, 2022

Nine Months ended September 30, 2022

Months ended June 30, 2022

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

Cost of goods sold

Gross profit (loss)

General and administrative

Selling and marketing

Research and development

Change in contingent consideration

Impairment of goodwill and intangible assets

Total operating expenses

Loss from operations

Interest (expense) income, net

Other income (expense)

Change in fair value of warrant liabilities

Loss (gain) on extinguishment of notes payable

Other (expense) income, net

Net loss before income taxes

Income tax benefit

Income (loss) attributable to non-controlling interests

Net loss attributable to Agrify Corporation

$ ( 148,551 )

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

$ ( 1,003.10 )

Weighted-average common shares outstanding – basic and diluted

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

Nine Months ended September 30, 2022

Six Months ended June 30, 2022

Cash flows from operating activities

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$ ( 102,283 )

$ ( 130,235 )

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

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Impairment on goodwill and intangible assets

Loss (gain) on extinguishment of notes payable, net

Change in fair value of Warrant liabilities

Amortization of premium on investment securities

Amortization of debt discount

Amortization of issuance costs

Interest on investment securities

Early termination of lease

Provision for doubtful accounts

Provision for slow-moving inventory

Debt issuance costs paid

Amortization of issuance costs

Deferred income taxes

Prepaid and refundable taxes

Debt issuance costs

Deferred income taxes

Compensation in connection with the issuance of stock options

Issuance of common shares in connection with acquisition

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 (loss) attributable to non-controlling interests

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Cash flows from financing activities

Proceeds from issuance of debt and warrants in private placement, net

Proceeds from issuance of debt and warrants in private placement

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

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Short-term loan payable

Repayments of debt in private placement

Repayments of notes payable, other

Repayments of debt

Payments on other finance loans

Payments on insurance financing loans

Payments on other financing loans

Payments of financing leases

Impact from reverse stock split

Net cash provided by financing activities

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Cash and cash equivalents at the end of period

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

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

Cash and cash equivalents

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

Supplemental disclosures of non-cash information

Supplemental disclosures of non-cash investing activities

Initial fair value of warrants

Financing of prepaid insurance

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/deficit as of September 30, 2022:

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

Stockholders’

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Non-Controlling

Interests (Previously Reported)

Non-Controlling

Stockholders’

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Stock-based compensation

Issuance of Common Stock and

warrants in private placement

Issuance of debt and warrants

in private placement

Issuance of Common Stock and warrants in private placement

Issuance of debt and warrants in private placement

Acquisition of Lab Society

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Exercise of warrants

Balance at June 30, 2022

$ ( 161,258 )

$ ( 131,799 )

Balance at March 31, 2022

Stock-based compensation

Issuance of common shares in

connection with acquisition

Reclass of warrant liabilities

Exercise of options

Exercise of warrants

Issuance of restricted stock

Balance at September 30, 2022

$ ( 207,526 )

$ ( 189,212 )

The related notes to the condensed and consolidated financial statements

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 nine months ended September

During the three and six months ended June 30,

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

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Three Months ended

September 30,

Nine Months Ended

September 30,

Six Months ended

(In thousands)

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The Company maintains a reserve for

warranty returns of $ 540 thousand and $ 398 thousand for September 30, 2022 and December 31, 2021, respectively.

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 consolidated balance sheets.

Additional information

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

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

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 nine months ended September 30, 2022 and the year ended December 31, 2021 were as follows:

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

(In thousands)

Nine Months Ended

September 30,

Deferred revenue – beginning of period

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Deferred revenue – end of period

Deferred revenue balances primarily consist of customer

deposits on its cultivation and extraction solutions equipment.

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

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

Note 4 — Supplemental Consolidated Balance Sheet Information

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

Accounts Receivable

Accounts receivable consisted of the following as

of September 30, 2022 and December 31, 2021:

Accounts receivable consisted of the following

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

(In thousands)

September 30,

Accounts receivable, gross

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Accounts receivable, net

NEIA, a related party, accounted for $ 0 and $ 3.5

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

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

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(In thousands)

Nine Months Ended

September 30,

Six Months ended

Allowance for doubtful accounts – beginning of period

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Allowance for doubtful accounts – end of period

Bad debt expense was $ 385 thousand and $ 0 for the

three months ended September 30, 2022 and 2021, respectively, and $ 1.9 million and $ 0 for the nine months ended September 30, 2022 and

2021, respectively.

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 September 30, 2022 and December 31, 2021:

Prepaid expenses and other current receivables

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

(In thousands)

September 30,

Deferred costs

(As Restated)

Prepaid insurance

Other receivables, other

Other note receivables (1)

Prepaid expenses, other

Prepaid materials

Prepaid software

Prepaid expenses, other

Deferred costs

Other note receivables (1)

Other receivables, other

Total prepaid expenses and other current assets

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Property and equipment, net consisted of the following

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

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

(In thousands)

September 30,

Leasehold improvements

Machinery and equipment

Computer and office equipment

Leased equipment at customer

Furniture and fixtures

Leasehold improvements

Machinery and equipment

Research and development of laboratory equipment

Leased equipment at customer

Trade show assets

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Depreciation expense for the three months ended

September 30, 2022 and 2021 was $ 409 thousand and $ 139 thousand, respectively, and $ 1.2 million and $ 337 thousand for the nine months

ended September 30, 2022 and 2021, respectively.

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 September 30, 2022 and December 31, 2021:

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

(In thousands)

September 30,

(As Restated)

Long-term deferred commissions expense

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Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted

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

Accrued expenses and other current liabilities

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

(In thousands)

September 30,

Accrued acquisition liability (1)

Sales tax payable (2)

Accrued construction costs

Accrued acquisition liability (2)

Compensation related fees

Accrued warranty costs

Accrued professional fees

Accrued interest expense

Accrued warranty costs

Accrued consulting fees

Accrued inventory purchases

Financing lease liabilities

Accrued consulting fees

Accrued non-income taxes

1 unchanged sentence

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.

1 unchanged sentence

Precision and Cascade acquisition agreement.

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 acquisition of PurePressure.

Warranty Accrual

2 unchanged sentences

(In thousands)

September 30,

Six Months ended

Warranty accrual – beginning of period

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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 September 30, 2022 and December 31, 2021,

the Company’s assets and liabilities measured at fair value on a recurring basis were as follows:

September 30, 2022

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)

December 31, 2021

Fair Value Measurements Using Input

Fair Value Measurements Using Input Types

(In thousands)

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Total liabilities

Fair Value of Financial Instruments

The Company has certain financial instruments which

consist of cash and cash equivalents, marketable securities, warrant liabilities, and contingent consideration.

Fair value information

for each of these instruments is as follows:

Cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and deferred revenue liabilities approximate their fair values based on the short-term nature of these instruments.

Marketable securities classified as current held-to-maturity securities are recorded at amortized cost, which at September 30, 2022, approximated fair value.

The Company’s deferred consideration was recorded in connection with acquisitions during the first quarter of 2022 and fiscal 2021 using an estimated fair value discount at the time of the transaction.

As of September 30, 2022 and December 31, 2021, the carrying value of the deferred consideration approximated fair value, respectively.

The Company’s warrant liabilities are marked-to-market each reporting period with the changes in fair value of warrant liability are recorded to other income (expense), net in the accompanying consolidated statements of operations until the warrants are exercised.

The fair value of the warrant liability is estimated using a Black-Scholes option-pricing model.

Marketable Securities

As of September 30, 2022, the Company held investments

in mutual funds, municipal bonds and corporate bonds.

The Company records mutual funds at fair value in the accompanying consolidated

balance sheet as part of cash and cash equivalents.

The municipal and corporate bonds are considered held-to-maturity securities and are

recorded at amortized cost in the accompanying consolidated balance sheet.

The fair values of these investments were estimated using recently

executed transactions and market price quotations.

The Company considers current assets as those investments which will mature within

the next 12 months including, interest receivable on long-term bonds.

The composition of the Company’s marketable

securities are as follows:

Value of Financial Instruments

Company has certain financial instruments which consist of cash and cash equivalents, marketable securities, contingent consideration,

and warrant liabilities.

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

using an estimated fair value discount at the time of the transaction.

As of June 30, 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.

The Company records mutual funds

at fair value in the accompanying condensed consolidated balance sheet as part of cash and cash equivalents.

The municipal and corporate

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

The fair values of these investments were estimated using recently executed transactions and market price quotations.

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

composition of the Company’s marketable securities are as follows:

(In thousands)

September 30,

Current marketable securities

1 unchanged sentence

Corporate bonds

At September 30, 2022, marketable securities consisted

of the following:

amortized cost and estimated fair value of marketable securities as of June 30, 2022, are as follows:

(In thousands)

Current marketable securities

Corporate bonds

At December 31, 2021, marketable securities consisted

of the following:

(In thousands)

Current marketable securities (due within 1 year)

Municipal bonds

Corporate bonds

Contingent Consideration

The 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 consolidated financial statements.

Consideration

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.

(In thousands)

September 30,

Six Months ended

Contingent consideration – beginning of period

1 unchanged sentence

Accretion of contingent consideration

Payments made on contingent liabilities

Change in estimated fair value

Contingent consideration – end of period

The Company included contingent consideration within

accrued expenses and other current liabilities in its consolidated balance sheets as of September 30, 2022 and December 31, 2021, respectively.

See below for additional information related to

each acquisition’s contingent consideration.

Contingent Consideration – PurePressure

in its review of actual revenue performance as compared to its originally projected revenue estimates, noted that PurePressure’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 PurePressure’s first

earn-out period.

During the third quarter ended September 30, 2022, the Company reduced the estimated fair value of the contingent consideration

liability associated with PurePressure’s first earn-out period by approximately $ 602 thousand.

As required by ASC Topic 805 Business

Combination (“ASC805”), the change in contingent consideration was recorded as a reduction in operating expenses during the

third quarter of 2022.

Contingent Consideration – Lab Society

in its review of actual revenue performance as compared to its originally projected revenue estimates, noted that Lab Society’s

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

4 unchanged sentences

liability associated with Lab Society’s first earn-out period by approximately $ 1.0 million.

As required by ASC805, the change in

contingent consideration was recorded as a reduction in operating expenses during the second quarter of 2022.

Contingent Consideration

– Precision and Cascade

The 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

This amount, as required by ASC805, was recorded as an increase in operating expenses during the second quarter of 2022.

the three-month period ended September 30, 2022 , the Company made the final payment on the contingent

consideration of approximately $ 5.6 million to the members of Precision and Cascade.

Additional information regarding the Company’s

final payment to Precision and Cascade may be found in Note 9 – Business Combination, included elsewhere in the notes to the consolidated

financial statements.

Warrant liabilities

The estimated fair value of the warrant liabilities

on September 30, 2022 is determined using Level 3 inputs.

Inherent in a Black-Scholes option-pricing model are assumptions used in

calculating the estimated fair values represent the Company’s best estimate.

However, inherent uncertainties are involved.

or assumptions change, the estimated fair values could be materially different.

The fair value was remeasured and was determined to be $ 5,122 thousand

at September 30, 2022, using an option-pricing model based on the following inputs:

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.

January, 2022, the Company issued warrants to purchase up to an aggregate of 15,078 shares of Common Stock in connection with a private

placement transaction (the “PIPE Warrants”).

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

a Black-Scholes model and was determined to be $ 40.5 million using the following inputs:

Exercise price

3 unchanged sentences

Discount rate -bond equivalent yield

The following table sets forth a summary of the

changes in the fair value of the Level 3 Warrant Liabilities for the nine months ended September 30, 2022:

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

model using the following inputs:

Exercise price

Expected term (in years)

Annualized volatility

Annual rate of quarterly dividends

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

(In thousands)

September 30,

Warrant liabilities – beginning of period

1 unchanged sentence

Change in estimated fair value

Gain on extinguishment of debt

Warrant liabilities – end of period

Note 6 — Loan Receivable

A portion of the capital raised from the Company’s

IPO has been allocated to launch the Company’s TTK Solution program.

The TTK Solution is the industry’s first-of-its-kind

program in which the Company engages with qualified cannabis operators in the early phases of their business plans and provides

critical support, typically over a 10 -year period, which includes:

access to capital for construction costs, the design and build-out

of their cultivation and extraction facilities, state-of-the-art cultivation and extraction equipment, subscription to the Company’s

Agrify Insights™ cultivation software, process design, training, implementation, proven grow recipes, product formulations, data

analytics, and consumer branding, which will enable the Company’s customers to go to market faster and better.

The loan agreements entered into with customers

receiving the TTK Solution generally provide for loans with maturity dates of approximately two to three years after the completion of

the construction projects.

Typically, the TTK Solution construction loans have interest rates ranging from 12 % to 18 % per year.

During the quarter ended September 30, 2022, the

Company provided a notice of default under the term loan agreement between the Company and Bud & Mary’s (the “Bud &

Mary’s TTK Agreement”).

On October 5, 2022, Bud & Mary’s Cultivation, Inc.

(the “Bud & Mary’s”)

filed a complaint in the Superior Court of Massachusetts in Suffolk County naming the Company as defendant.

Bud & Mary’s is

seeking, among other relief, monetary damages in connection with alleged unfair or deceptive trade practices, breach of contract and conversion

arising from the Bud & Mary’s TTK Agreement.

In response, the Company established a reserve of $ 14.7 million specifically related

to Bud & Mary’s.

The Company deemed it necessary to fully reserve the $ 14.7 outstanding balance due to the current litigation

and the uncertainty of the customer’s ability to repay the outstanding balance.

In addition, $ 5.3 million of the notes receivable

balance for work performed during the third quarter of 2022 has been recorded as an unbilled note receivable and deferred the revenue

to a future period.

The Company has recognized the expenses associated with the work completed in the current period due to the uncertainty

of the Company’s ability to recover the funds owed by the customer and its obligations to the vendors that have performed this work.

The Company determined that it will only recognize unbilled notes receivable revenue if cash is collected from the customer in a future

The Company believes that Bud & Mary’s claims have no merit and intends to defend itself vigorously.

The Company is

taking all necessary steps to pursue repayment from Bud & Mary’s and is taking all actions necessary to protect its shareholders’ interests.

During the quarter ended June 30, 2022, the Company

established a reserve of approximately $ 7.1 million specifically related to Greenstone.

The Company established the reserve based upon

its review of Greenstone’s financial stability, which would impact collectability, which is primarily the result of unfavorable

market conditions within the Colorado market.

The Company will continue to monitor the operations of Greenstone in an effort to collect

all outstanding receivables but due to the uncertain nature of Greenstone’s business at this time the Company has made the decision

to place a reserve against the receivables.

Greenstone is a related party as of September 30, 2022 and December 31, 2021.

The breakdown of loans receivable by customer as

of September 30, 2022 and December 31, 2021 is as follows:

6 — 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:

(In thousands)

September 30,

Bud & Mary’s – TTK Solution

Company Customer Number 139 – TTK Solution

Greenstone – TTK Solution – Related Party

1 unchanged sentence

Company Customer Number 125 – TTK Solution

Company Customer Number 71 – Non-TTK Solution (1)

Company Customer Number 140 – TTK Solution

Company Customer Number 71 – Non-TTK Solution (1)

Other – Non-TTK Solutions

TTK Solution – Allowance for doubtful accounts (2)

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

(2) The Company established an allowance for doubtful accounts of approximately $ 14.7 million related to Bud & Mary’s ongoing litigation.

The remaining balance of approximately $ 7.1 million relates to Greenstone consisting of capital advances, accrued interest and VFUs sales.

At this time, the Company is not aware of, nor has

it identified any risk or potential performance failure associated with any of its other TTK Solution arrangements with the noted exception

of Bud & Mary’s TTK Solution and Greenstone TTK Solution, as described above.

The Company analyzed whether any of the above customers

are a VIE in accordance with ASC810 and if so, whether the Company is the primary beneficiary requiring consolidation.

Based on the Company’s

analysis, the Company has determined that Greenstone is a VIE.

As of September 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.

Note 7 — Inventory

Inventories 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, First-Out basis.

Such costs include

the acquisition cost for raw materials and operating supplies.

The Company’s standard payment terms with suppliers may require making

payments in advance of delivery of the Company’s products.

The Company’s prepaid inventory is a short-term, non-interest-bearing

asset that is applied to the purchase of products once they are delivered.

Inventory consisted of the following as of September

30, 2022 and December 31, 2021:

(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.

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

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,

First-Out basis.

Such costs include the acquisition cost for raw materials and operating supplies.

The Company’s standard payment

terms with suppliers may require making payments in advance of delivery of the Company’s products.

The Company’s prepaid

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:

(In thousands)

September 30,

Raw materials

4 unchanged sentences

Total inventory, net

Inventory Reserves

The Company establishes an inventory reserve for

obsolete, slow-moving, and defective inventory.

The Company calculates inventory reserves for obsolete, slow-moving, or defective items

as the difference between the cost of inventory and its estimated net realizable value.

The reserves are based upon management’s

expected method of disposition.

Changes in the Company’s inventory reserve

are as follows:

Company establishes an inventory reserve for obsolete, slow-moving, and defective inventory.

The Company calculates inventory reserves

for obsolete, slow-moving, or defective items as the difference between the cost of inventory and its estimated net realizable value.

The reserves are based upon management’s expected method of disposition.

in the Company’s inventory reserve are as follows:

(In thousands)

September 30,

Inventory reserves – beginning of period

1 unchanged sentence

Inventory reserves – end of period

Note 8 — Goodwill and Intangible Assets, Net

Intangible 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.

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.

The 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.

During 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.

Based 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

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.

Goodwill consisted of the following:

(In thousands)

September 30,

Goodwill - beginning of period

Goodwill acquired during period

Goodwill impairment loss

Goodwill purchase accounting adjustment

Goodwill - end of period

Intangible assets, net as of September 30, 2022

was as follows:

8 — 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:

Intangible Assets, Gross

2 unchanged sentences

(In thousands)

September 30,

Impairments, net

September 30,

Customer relationships

3 unchanged sentences

Total intangible assets, net

Intangible assets, net as of December 31, 2021

was as follows:

assets, net as of December 31, 2021 was as follows:

Intangible Assets, Gross

7 unchanged sentences

Total intangible assets, net

Amortization expense

recorded in general and administrative in the consolidated statements of operations were $ 0 and $ 57 thousand for the three months ended

September 30, 2022 and 2021, respectively, and $ 1.4 million and $ 172 thousand for the nine months ended September 30, 2022 and 2021, respectively.

Note 9 — Business Combination

Acquisition of Lab Society

On 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 Society.

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”).

The aggregate consideration

for the Lab Society Acquisition consisted of:

$ 4.0 million in cash, subject to certain adjustments for working capital, cash, and indebtedness

of Lab Society at closing;

2,128 shares of Common Stock (the “Buyer Shares”);

and the Earn-out Consideration (as defined below),

to the extent earned.

The Company withheld

638 of the Buyer Shares issuable to the Owners (the “Holdback Lab 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

Merger Agreement.

During the third quarter of 2022, 139 of the Holdback Lab Buyer Shares were forfeited after the finalization of the

net working capital settlement.

The remaining 499 Holdback Lab Buyer Shares will be released following the twelve-month anniversary of

the Closing Date in accordance with and subject to the conditions of the Merger Agreement.

The Merger Agreement

includes customary post-closing adjustments, representations and warranties, and covenants of the parties.

The Owners may become entitled

to additional consideration with a value of up to $ 3.5 million based on the eligible net revenues achieved by the Lab Society business

during the fiscal years ending December 31, 2022 and December 31, 2023, of which 50 % will be payable in cash and 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 consolidated financial statements.

Transaction and related costs, consisting primarily

of professional fees, related to the acquisition, totaled approximately $ 0 and $ 66 thousand for the three months and nine months ended

September 30, 2022, respectively.

All transaction and related costs were expensed as incurred and are included in general and administrative

The Company has prepared purchase price allocations

for the business combination with Lab Society on a preliminary basis.

Changes to those allocations may occur as additional information

becomes available during the respective measurement period (up to one year from the acquisition date).

The following table sets forth the components

and the allocation of the purchase price for the business combination:

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.

9 — 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”).

aggregate consideration for the Lab Society Acquisition consisted of:

(a) $4.0 million in cash, subject to certain adjustments for working

capital, cash, and indebtedness of Lab Society at closing;

(b) 2,128 shares of Common Stock (the “Buyer Shares”);

the Earn-out Consideration (as defined below), to the extent earned.

Company withheld 638 of the Buyer Shares issuable to the Owners (the “Holdback Lab 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 Merger Agreement.

The Holdback Lab Buyer Shares will be released following the twelve-month anniversary of the Closing Date

in accordance with and subject to the conditions of the Merger Agreement.

Merger Agreement includes customary post-closing adjustments, representations and warranties, and covenants of the parties.

may become entitled to additional consideration with a value of up to $3.5 million based on the eligible net revenues achieved by the

Lab Society business during the fiscal years ending December 31, 2022 and December 31, 2023, of which 50% will be payable in cash and

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.

Company has prepared purchase price allocations for the business combination with Lab Society on a preliminary basis.

Changes to those

allocations may occur as additional information becomes available during the respective measurement period (up to one year from the acquisition

following table sets forth the components and the allocation of the purchase price for the business combination:

(In thousands)

24 unchanged sentences

Total purchase price

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 ASC805 and are outlined in the table below:

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 Company’s initial fair value estimates

related to the various identified intangible assets of Lab Society were determined under various valuation approaches including the Income

Approach, Relief-from-Royalty Method, and Discounted Cash Flow Method.

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.

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

the Company identified an 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 was an impairment to the carrying value of its long-lived assets and accordingly performed interim testing as

of June 30, 2022.

Based on its interim testing, the Company noted that the entire carrying value of its goodwill and intangible assets

should be impaired.

Additional information regarding the Company’s interim testing on goodwill and intangible assets may be found

in Note 8 – Goodwill and Intangible Assets, Net, included elsewhere in the notes to the consolidated financial statements.

The amount of revenue of Lab Society included

in the consolidated statements of operations from the acquisition date of February 1, 2022 to September 30, 2022 was $ 4.0 million.

Acquisition of Precision and Cascade

On September 29, 2021 (the “Execution Date”),

the Company entered into a Plan of Merger and Equity Purchase Agreement, as amended by an amendment dated 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

On October 1, 2021, the Company consummated the transactions contemplated by the Purchase Agreement.

Subject 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 NewCo, LLC.

The aggregate consideration for the Interest Purchase

and the Merger consisted of:

(a) the sum of $30 million in cash, plus consideration payable to holders of outstanding Sinclair equity

awards, subject to certain adjustments for working capital, cash and indebtedness, payable in connection with the Interest Purchase;

the number of shares of Common Stock, subject to adjustment, equal to the quotient of (i) $20.0 million divided by (ii) the volume

weighted-average price per share of Common Stock on The Nasdaq Capital Market for the 30 consecutive trading days ending on the Execution

Date (the “VWAP Price”), issuable in connection with the Merger;

and (c) the True-Up Buyer Shares, if any (as defined below),

issuable in connection with the Merger.

The Purchase Agreement

includes customary post-closing adjustments, representations and warranties and covenants of the parties.

The Sinclair Members may become

entitled to additional shares of Common Stock (the “True-Up Buyer Shares”) and cash (together with the True-Up Buyer Shares,

the “Aggregate True-Up Payment) based on the eligible net revenues (as defined in the Purchase Agreement) achieved by the Cascade

and Precision businesses during the fiscal year ending December 31, 2021.

However, in no event shall the aggregate purchase price paid

by the Company pursuant to the terms of the Purchase Agreement, taking into account any Aggregate True-Up Payment in favor of the Sinclair

Members, exceed $ 65.0 million.

On August 10, 2022, the Company entered into a

post-closing adjustment settlement agreement (“Agreement”) with Sinclair.

The Agreement was entered into in connection with

the Purchase Agreement.

According to the Purchase Agreement, $ 2.5 million was held by the escrow agent as the Adjustment Escrow Amount,

$ 4.5 million was held by the escrow agent as the Indemnity Escrow Amount and 588 Buyer Shares were held by the Company as the Holdback

Buyer Shares.

During the three-month period ended September 30, 2022 , the Company made the final

Aggregate True-up Payment of approximately $ 5.6 million, of which, $ 3.3 million was paid in cash and 435 Holdback Buyer Shares

were released to the Sinclair Members and the Company received $ 1.4 million from the Adjustment Escrow Amount, and the remaining $ 1.1

million balance of the Adjustment Escrow Amount became part of the Indemnity Escrow Amount.

Transaction and related costs, consisting primarily

of professional fees, related to the acquisition, totaled approximately $ 0 and $ 63 thousand for the three and nine months ended September

30, 2022, respectively.

All transaction and related costs were expensed as incurred and are included in selling, general and administrative

The following table sets forth the components

and the allocation of the purchase price for the business combination:

Company’s initial fair value estimates related to the various identified intangible assets of Lab Society were determined under

various valuation approaches including the Income Approach, Relief-from-Royalty Method, and Discounted Cash Flow Method.

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.

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.

of Precision and Cascade

September 29, 2021 (the “Execution Date”), the Company entered into a Plan of Merger and Equity Purchase Agreement, as amended

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.

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

aggregate consideration for the Interest Purchase and the Merger consisted of:

(a) the sum of $ 30 million in cash, plus consideration

payable to holders of outstanding Sinclair equity awards, subject to certain adjustments for working capital, cash and indebtedness,

payable in connection with the Interest Purchase;

(b) the number of shares of Common Stock, subject to adjustment, equal to the quotient

of (i) $ 20.0 million divided by (ii) the volume weighted-average price per share of Common Stock on The Nasdaq Capital Market for

the 30 consecutive trading days ending on the Execution Date (the “VWAP Price”), issuable in connection with the Merger;

and (c) the True-Up Buyer Shares, if any (as defined below), issuable in connection with the Merger.

Purchase Agreement includes customary post-closing adjustments, representations and warranties and covenants of the parties.

Members may become entitled to additional shares of Common Stock (the “True-Up Buyer Shares”) and cash (together with the

True-Up Buyer Shares, the “Aggregate True-Up Payment) based on the eligible net revenues (as defined in the Purchase Agreement)

achieved by the Cascade and Precision businesses during the fiscal year ending December 31, 2021.

However, in no event shall the aggregate

purchase price paid by the Company pursuant to the terms of the Purchase Agreement, taking into account any Aggregate True-Up Payment

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.

and related costs, consisting primarily of professional fees, directly related to the acquisition, totaled approximately $25 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).

following table sets forth the components and the allocation of the purchase price for the business combination:

(In thousands)

21 unchanged sentences

Total purchase price

Identified intangible assets consist of trade

names, technology, non-compete agreements, and customer relationships.

The fair value of intangible assets and the determination of their

respective useful lives were made in accordance with ASC805 and are outlined in the table below:

intangible assets consist of trade names, technology, non-compete agreements, 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)

4 unchanged sentences

Total identified intangible assets

The Company’s initial fair value estimates

related to the various identified intangible assets were determined under various valuation approaches including the Income Approach,

Relief-from-Royalty Method, and Discounted Cash Flow Method.

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.

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

the Company identified an 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 was an impairment to the carrying value of its long-lived assets and accordingly performed interim testing as

of June 30, 2022.

Based on its interim testing, the Company noted that the entire carrying value of its goodwill and intangible assets

should be impaired.

Additional information regarding the Company’s interim testing on goodwill and intangible assets may be found

in Note 8 – Goodwill and Intangible Assets, Net, included elsewhere in the notes to the consolidated financial statements.

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;

Company’s initial fair value estimates related to the various identified intangible assets were determined under various valuation

approaches including the Income Approach, Relief-from-Royalty Method, and Discounted Cash Flow Method.

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.

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;

(b) 1,646 shares of Common Stock (the “Buyer Shares”);

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.

the third quarter of 2022, 72 of the Holdback Buyer Shares were forfeited after the finalization of the net working capital settlement.

The remaining 371 of 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.

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”).

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 consolidated financial

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

Transaction and related costs, consisting primarily

of professional fees, related to the acquisition, totaled approximately $ 0 and $ 563 thousand for the three and nine months ended September

30, 2022, respectively.

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).

The 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 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:

(In thousands)

26 unchanged sentences

Total purchase price

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 ASC805 and are outlined in the table below:

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

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

the Company identified an 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 was an impairment to the carrying value of its long-lived assets and accordingly performed interim testing as

of June 30, 2022.

Based on its interim testing, the Company noted that the entire carrying value of its goodwill and intangible assets

should be impaired.

Additional information regarding the Company’s interim testing on goodwill and intangible assets may be found

in Note 8 – Goodwill and Intangible Assets, Net, included elsewhere in the notes to the consolidated financial statements.

Note 10 – Debt

The Company’s debt consisted of:

(In thousands)

September 30,

Note payable – Exchange Note

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:

Note payable – SPA Note

Other notes payable (1)

3 unchanged sentences

Long-term debt

(1) Other notes payable relates to a 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 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, a

senior secured promissory note in an aggregate principal amount of $65 million (the “SPA Note”) , and a SPA

Warrant to purchase up to an aggregate of 34,405 shares of Common Stock.

Securities Exchange Agreement

On August 18, 2022, the

Company reached an agreement with its Investor to amend its existing senior SPA Note and entered into the Exchange Agreement.

to the Exchange Agreement, the Company partially paid $ 35.2 million under the SPA Note and exchanged the remaining balance of the SPA

Note for an Exchange Note with an aggregate original principal amount of $ 35.0 million and a new Note Exchange Warrant to purchase 71,138

shares of Common Stock and modified an existing SPA Warrants to purchase up to an aggregate of 34,405 shares of Common Stock.

exchanged the SPA Warrant for a new warrant for the same number of underlying shares but with a reduced exercise price (the “Modified

Warrants” and, collectively with the Note Exchange Warrant, the “Warrant Liabilities”).

As of September 30, 2022, the

Company had outstanding liability-classified Warrant Liabilities that allows the Investor to purchase shares 105,543 of the Company’s

Common Stock.

Additional information regarding the Company’s Warrant Liabilities may be found in Note

1 – Overview, Basis of Presentation and Significant Accounting Policies and Note 5 –

Fair Value Measures, included elsewhere in the notes to the condensed consolidated financial statements.

The Exchange Note is

a senior secured obligation of the Company and ranks senior to all indebtedness of the Company.

The Exchange Note will mature on the

three-year anniversary of its issuance (the “Maturity Date”) and contains a 9.0% annualized interest rate, with interest

to be paid monthly, in cash, beginning September 1, 2022.

The principal amount of the Exchange Note will be payable on the Maturity

Date, provided that the Investor will be entitled to a cash sweep of 20 % of the proceeds received by the Company in connection with any

equity financing, which will reduce the outstanding principal amount under the Exchange Note.

At any time, the Company

may prepay all of the Exchange Note by redemption at a price equal to 102.5 % of the then-outstanding principal amount under the Note plus

accrued but unpaid interest.

The Investor will also have the option of requiring the Company to redeem the Exchange Note on the one-year

or two-year anniversaries of issuance at a price equal to the then-outstanding principal amount under the Exchange Note plus accrued but

unpaid interest, or if the Company undergoes a fundamental change at a price equal to 102.5 % of the then-outstanding principal amount

under the Exchange Note plus accrued but unpaid interest.

The Exchange Note imposes

certain customary affirmative and negative covenants upon the Company, as well as covenants that restrict the Company and its subsidiaries

from incurring any additional indebtedness or suffering any liens, subject to specified exceptions, restrict the ability of the Company

and its subsidiaries from making certain investments, subject to specified exceptions, restrict the declaration of any dividends or other

distributions, subject to specified exceptions, require the Company not to exceed maximum levels of allowable cash spend while the

Exchange Note is outstanding, and require the Company to maintain minimum amounts of cash on hand.

If an event of default under the

Exchange Note occurs, the Investor can elect to redeem the Exchange Note for cash equal to 115 % of the then-outstanding principal amount

of the Note (or such lesser principal amount accelerated by the Investor), plus accrued and unpaid interest, including default interest,

(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

earnings and adjusted EBITDA targets, and (v) require the Company to maintain minimum amounts of cash on hand.

If an event of default

under the SPA Note occurs, the Investor can elect to redeem the SPA Note for cash equal to 115 % of the then-outstanding principal amount

of the SPA Note (or such lesser principal amount accelerated by the Investor), plus accrued and unpaid interest, including default interest,

which accrues at a rate per year equal to 15 % from the date of a default or event of default.

As of September 30, 2022, the Company is

in compliance with the financial debt covenants associated with its Exchange Note.

Until the date the Exchange

Note is fully repaid, the Investor has, subject to certain exceptions, the right to participate for up to 30 % of any offering of debt,

equity (other than an offering of solely Common Stock), or equity-linked securities, including without limitation any debt, preferred

stock or other instrument or security, of the Company or its subsidiaries.

The Modified Warrant

have an exercise price of $ 430.00 per share, subject to adjustment for stock splits, reverse stock splits, stock dividends and similar

transactions, will be exercisable on and after the six-month anniversary of issuance, have a term of five and one-half years from the

date of issuance and will be exercisable on a cash basis, unless there is not an effective registration statement covering the resale

of the shares issuable upon exercise of the Modified Warrant (the “Modified Warrant Shares”) or if shareholder approval for

the full exercise of the Modified Warrant is not received, in which case the Modified Warrant will also be exercisable on a cashless exercise

basis at the Investor’s election.

The Note Exchange Warrant

have an exercise price of $ 246.00 per share, subject to adjustment for stock splits, reverse stock splits, stock dividends and similar

transactions, were exercisable upon issuance, and have a term of five and one-half years from the date of issuance and will be exercisable

on a cash basis, unless there is not an effective registration statement covering the resale of the shares issuable upon exercise of the

Warrant (the “Note Exchange Warrant Shares” and, together with the Modified Warrant Shares, the “Exchange Warrant Shares”)

or if shareholder approval for the full exercise of the Note Exchange Warrant is not received, in which case the Note Exchange Warrant

will also be exercisable on a cashless exercise basis at the Investor’s election.

Until the Company completes a qualified equity

financing of at least $ 15.0 million, which requirement was satisfied with sales under the ATM Program, the Note Exchange Warrant’s

exercise price would have been reduced to the extent the Company issues securities, subject to certain exceptions, for a lower purchase

The Note Exchange Warrant also prohibited the Company, until following the completion of such qualified equity financing, from

issuing warrants with more favorable or preferential terms and/or provisions.

The Warrant Liabilities

will each provide that in no event will the number of shares of Common Stock issued upon exercise of such warrant result in the Investor’s

beneficial ownership exceeding 4.99% of the Company’s shares of Common Stock outstanding at the time of exercise (which percentage

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).

Additionally, the Warrant Liabilities could be exercised for more than an aggregate of 26,542 shares of Common Stock unless

and until shareholder approval is obtained, which approval was obtained on October 14, 2022.

The following table

provides a breakdown of the SPA Note balances as of September 30, 2022:

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:

(In thousands)

September 30,

Accrued interest expense

1 unchanged sentence

Net carrying amount

The following table summarizes

the short-term and long-term portions of the Exchange Note as of September 30, 2022:

following table summarizes the short-term and long-term portions of the SPA Note as of June 30, 2022:

(In thousands)

Direct issuance costs

Unamortized discount

Net carrying amount

As of September 30, 2022,

future minimum principal payments were as follows:

of June 30, 2022, future minimum principal payments of the SPA Note were as follows:

Years ending December 31 (In thousands),

2 unchanged sentences

Total future payments

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 was originally scheduled to mature on May 7, 2022 .

The SBA denied the Company’s

submission to have the remaining $ 779 thousand PPP Loan forgiven.

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.

The PPP loan is payable in 34 equal

combined monthly principal and interest payments of approximately $ 24 thousand that commenced on August 7, 2022.

The breakdown of PPP Loan balances by current

and non-current as of September 30, 2022 and December 31, 2021 were as follows:

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

September 30,

PPP Loan, current

Long-term debt,

Long-term debt, current

PPP Loan, non-current

1 unchanged sentence

Total PPP Loan outstanding

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 11 — Leases

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 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 September 30, 2022 and December 31, 2021, the Company’s weighted-average discount rate utilized

for its leases was 7.27 % and 7.16 %, respectively.

When a contract contained lease and non-lease

elements, both were accounted as a single lease component.

The 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.

The 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 communal area maintenance associated with the property.

Additional information on the Company’s

operating and financing lease activity is as follows:

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

September 30,

Nine Months Ended

September 30,

Six Months ended

(In thousands)

6 unchanged sentences

Balance Sheet

September 30,

Right-of-use assets, net

12 unchanged sentences

Weighted-average discount rate – finance leases

Maturities of operating and finance lease liabilities

as of September 30, 2022 are as follows:

of operating and finance lease liabilities as of June 30, 2022 are as follows:

Years ending December 31 (In thousands),

3 unchanged sentences

Total lease liabilities

Note 12 — 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 per

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 $ 77.20 per share.

Note 13 — Stockholders’ Equity

On July 11, 2022, the Company increased its authorized

number of shares of Common Stock to 5,150,000 consisting of:

5,000,000 shares of Common Stock, and 3,000,000 shares of Preferred Stock.

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

Preferred Stock (“Series A Preferred Stock”).

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.

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.

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);

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 $1,544.00 per share (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:

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

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 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.

Underwriter Termination

On September 14, 2021, the Company entered into

a letter agreement and waiver (the “Letter Agreement”), to amend the terms of its underwriting agreement with the representative

of the underwriters in the IPO.

Pursuant to the Letter Agreement, the representative agreed to waive the right of first refusal included

in the underwriting agreement in consideration of a cash payment to the representative of $ 2.4 million and the right to participate as

a co-manager with 10 % of the economics with respect to the Company’s next public offering of securities, payable in cash upon the

closing of such offering.

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 12,252 shares (the “SA Shares”) of Common Stock, pre-funded warrants (the “Pre-Funded

Warrants”) to purchase up to an aggregate of 7,853 shares of Common Stock and 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 the accompanying

fraction of a Common Warrant was $1,360.00 per share.

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 $0.001 (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, who is currently the 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.

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.

On August 17, 2022, the Company issued an additional 435 shares of its Common Stock to the Precision and

Cascade shareholders in connection with the finalization of the net working capital settlement.

to Note 9 – Business Combinations, included elsewhere in the notes to the 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 9 – Business Combinations, included elsewhere in the notes to the 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 9 – Business Combinations, included elsewhere in the notes to the consolidated

financial statements.

Note 14 — Stock-Based Compensation and Employee Benefit Plans

(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

Omnibus Equity Incentive Plan

On 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.

Stock-based Compensation

The Company’s

stock option compensation expense was $ 1.6 million and $ 941 thousand for the three months ended September 30, 2022 and 2021, respectively,

and $ 3.5 million and $ 4.0 million for the nine months ended September 30, 2022 and 2021, respectively.

There was $ 4.3 million

of total unrecognized compensation cost related to unvested options granted under the Company’s options plans as of September 30,

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.

This stock option expense will be recognized through 2025.

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 nine months ended September 30, 2022.

The following table summarizes the Company’s

assumptions used in the valuation of options granted during the year ended December 31, 2021:

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,

Risk-free interest rate

3 unchanged sentences

Forfeiture rate

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.

As of September 30, 2022, there were 3,234 shares

of Common Stock available to be granted under the Company’s 2022 Plan.

Stock Option Activity

The following table presents option activity under

the Company’s stock option plans for the nine months ended September 30, 2022 and the year ended December 31, 2021:

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:

(In thousands, except share and per share data)

1 unchanged sentence

Options outstanding at December 31, 2021

Options outstanding at September 30, 2022

Options vested and exercisable as of September 30, 2022

Options vested and expected to vest as of September 30, 2022

Restricted Stock Units

The following table presents restricted stock

unit activity under the 2022 Plan for the nine months ended September 30, 2022:

Unvested at December 31, 2021

Unvested at September 30, 2022

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

On 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 September 30, 2022, 2,500 shares

were available for future issuance.

Under 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 thousand worth of Common Stock annually.

No Common Stock was granted under the 2022 ESPP during the nine months ended September

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”).

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.

become eligible to participate in the 401k Plan.

The Company’s contribution to the 401k Plan is discretionary.

During the three

and nine months ended September 30, 2022 and 2021, the Company did not contribute to the 401k Plan.

Note 15 — Stock Warrants

The following table presents all warrant activity

of the Company for the nine months ended September 30, 2022 and the year ended December 31, 2021:

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:

Warrants outstanding at December 31, 2020

Warrants outstanding at December 31, 2021

Warrants outstanding at September 30, 2022

The Company received proceeds from the exercise

of warrants of less than $ 1 thousand and $ 4 thousand for the three months ended September 30, 2022 and September 30, 2021, respectively ,

and $ 2 thousand and $ 9 thousand for the nine months ended September 30, 2022 and 2021, respectively.

Note 16 — Income Taxes

The Company’s effective income tax rate

was 0.0 % for both the three months ended September 30, 2022 and 2021.

The income tax benefit was $ 0 for both the three months

ended September 30, 2022 and 2021.

The Company’s effective income tax rate

was 0.2 % and 0.0 % for the nine months ended September 30, 2022 and 2021, respectively.

The income tax benefit was $ 262 thousand and

$ 0 for the nine months ended September 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 the Company’s

deferred tax assets.

The change in the income tax benefit for the nine months ended September 30, 2022 compared to the nine months ended

September 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 of $ 62 thousand related to the reversal of its opening deferred tax liability on indefinite-lived assets.

Note 17 — Net Loss Per Share

Net loss per share calculations for all periods

have been adjusted to reflect the Company’s reverse stock splits.

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

number of its Common Stock then outstanding.

Basic net loss per share is calculated using the

weighted-average number of Common Stock outstanding during the periods.

Net 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.

Net loss per share, assuming dilution, is equal to basic net 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 loss per

share were as follows:

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:

Three Months ended

September 30,

Nine Months ended

September 30,

Six Months ended

(In thousands, except share and per share data)

Net income (loss) attributable to Agrify Corporation

$ ( 130,235 )

Net loss attributable to Agrify Corporation

Accrued dividend attributable to Preferred A Stockholders

Net income (loss) available for common shareholders

$ ( 130,235 )

Net loss available for Common Stockholders

Weighted-average common shares outstanding – basic and diluted

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

$ ( 1,003.10 )

Periods presented have been adjusted to reflect the 1-for-1.581804 reverse stock split on January 12, 2021, 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 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

September 30,

Shares subject to outstanding Common Stock options

Shares subject to unvested restricted stock units

Shares subject to outstanding warrants

Note 18 — Commitments and Contingencies

Legal Matters

Cooper and Weinstein Matter

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.

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

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.

The demand letter asserts that Messrs.

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.

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.

shareholders.

The claim for indemnification

relates to conduct by Messrs.

for indemnification relates to conduct by Messrs.

Cooper and Weinstein during the time they were TriGrow employees.

During the third quarter of 2022, the

Company and Messrs.

Cooper and Weinstein settled all claims and potential claims between themselves and any affiliated entities by the

Company to Messrs.

Cooper and Weinstein, and a related entity for approximately $ 800 thousand.

United States Customs Seizure Matter

On 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 is currently disputing the seizure.

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 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.

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 the 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.

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.

Committed Purchase Agreement with Related

Party – Greenstone

On December 29, 2021, Greenstone purchased 239

VFUs from the Company of which 60 VFUs were already in Greenstone’s possession under a lease agreement.

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.

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.

There is no remaining obligation under the lease agreement.

The remaining 179 VFUs were shipped to the Greenstone storage

facility on December 30, 2021 and December 31, 2021.

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.

Additional information regarding recent

developments with Greenstone may be found in Note 6 – Loan Receivable, included elsewhere

in the notes to the consolidated financial statements.

Committed Purchase Agreement with Related

Party – Ora Pharm

In 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 and Mr.

Other Commitments and Contingencies

The 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.

Refer to Note 10 – Debt, included elsewhere

in the notes to the 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 consolidated financial statements for details of the Company’s future minimum

lease payments under operating and financing lease liabilities.

Refer to Note 16 – Income Taxes, included elsewhere in the notes

to the consolidated financial statements for information regarding income tax contingencies.

Note 19 — 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:

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:

Three Months ended

September 30,

Nine Months Ended

September 30,

Six Months ended

(In thousands)

3 unchanged sentences

Living Greens Farm

(1) Purchases from 4D for the nine months ended September 30, 2021 include $ 384 thousand for a down payment on inventory orders.

The following table summarizes net related party

receivable (payable) as of September 30, 2022 and December 31, 2021:

(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:

(In thousands)

September 30,

Cannae Policy Group

Greenstone (net of allowance for doubtful accounts of $ 7,079 and $ 0 at September 30, 2022 and December 31, 2021, respectively) (1)

Greenstone (net of allowance for doubtful accounts of $ 7,079 and $ 0 at June 30, 2022 and December 31, 2021, respectively) (1)

Living Greens Farm (2)

2 unchanged sentences

(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 consolidated financial statements.

(2) The balance was fully reserved at September 30, 2022 due to an ongoing dispute with the customer.

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 20 — 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.

6 unchanged sentences

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