What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-10-02 compared with 2023-10-02 · 546 added, 619 removed, 544 unchanged (68% of the section changed)

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Our proprietary micro-environment-controlled Agrify Vertical Farming Units (or “VFUs”) enable cultivators to produce

the highest quality products with what we believe to be an unmatched consistency, yield, and Return on Investment at scale.

Our 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 highest quality products with what we believe to be an unmatched consistency, yield, and Return on Investment (“ROI”)

Our 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.

We believe we are the only company with an automated

and fully integrated grow solution in the industry.

Our cultivation and extraction solutions seamlessly combine our integrated hardware

and software offerings with a broad range of associated services including consulting, engineering, and construction and are designed

to deliver the most complete commercial indoor farming solution available from a single provider.

The totality of our product offerings

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

As a result, we believe

we are well situated to create a dominant market position in the indoor agriculture sector.

Our cultivation and extraction solutions seamlessly combines our 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 our product offerings and

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

As a result, we believe we

are well situated to create a dominant market position in the indoor agriculture sector.

Agrify Corporation was incorporated in the state

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amended its articles of incorporation to reflect a name change to Agrify Corporation.

Our corporate headquarters are located in Troy, Michigan.

Our corporate headquarters are located in Troy,

We also lease properties located within various geographic regions in which we conduct business, including Colorado, Georgia,

Massachusetts, and Michigan.

Massachusetts, Michigan, and Oregon.

Reverse Stock Split

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stock split for all periods presented, unless otherwise indicated.

On October 18, 2022, we effected a 1-for-10 reverse

stock split on our 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

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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.

Pre-Funded Warrant) and the accompanying fraction of a Common Warrant was $1,360.00.

Subject to certain ownership limitations, the

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Acquisition of Lab Society

On February 1, 2022, we entered into an Agreement

and Plan of Merger (the “Merger Agreement”) with LS Holdings Corp.

(“Lab Society”), Lab Society NewCo, LLC, a

newly-formed wholly-owned subsidiary of us (“Merger Sub”), Michael S.

as the Owner Representative thereunder,

and each of the shareholders of Lab Society (collectively, the “Owners”), pursuant to which we agreed to acquire Lab Society.

Concurrently with the execution of the Merger Agreement, we consummated the merger of Lab Society with and into Merger Sub, with Merger

Sub surviving such merger as a wholly-owned subsidiary of us (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

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

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

We 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 us and any claim

for indemnification or payment of damages to which we 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

On February 1, 2022,

we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with LS Holdings Corp.

(“Lab Society”),

Lab Society NewCo, LLC, a newly-formed wholly-owned subsidiary of the Company (“Merger Sub”), Michael S.

Owner Representative thereunder, and each of the shareholders of Lab Society (collectively, the “Owners”), pursuant to which

we agreed to acquire Lab Society.

Concurrently with the execution of the Merger Agreement, we 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:

(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”);

and (c) the Earn-out Consideration (as defined

below), to the extent earned.

We 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 us and any claim for indemnification or payment of damages to which we may be entitled under the Merger Agreement.

Lab Buyer Shares shall be released following the twelve-month anniversary of the Closing Date in accordance with and subject to the conditions

of the Merger Agreement.

Additional information regarding our contingent consideration arrangements may be found in Note 5 –

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

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.

The Merger Agreement

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Accordingly, we reversed the current accrued contingent consideration liability

associated with Lab Society’s first earn-out period as of September 30, 2022.

The reversal of this liability of approximately $1.0

million, as required by ASC Topic 805 Business Combination (“ASC805”), was recorded as a reduction in operating expenses during

the second quarter of 2022.

associated with Lab Society’s first earn-out period as of June 30, 2022.

The reversal of this liability of approximately $1.0 million,

as required by ASC 805, was recorded as a reduction in operating expenses during the second quarter of 2022.

The purchase price allocation for the business

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

we identified an impairment-triggering event associated with both a sustained decline in our stock price and associated market capitalization,

as well as a second-quarter slowdown in the cannabis industry as a whole.

Due to these factors, we 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,

we noted that the entire carrying value of its goodwill and intangible assets should be impaired.

Additional information regarding our

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

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

Due to these factors,

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

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

Based on its interim testing, the Company noted that

the 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– Intangible Assets, Net and Goodwill, included elsewhere

in the notes to the condensed consolidated financial statements.

Securities Purchase Agreement

14, 2022, we entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with an accredited investor

(the “Investor”), we 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 warrant (the “SPA Warrant”)

to purchase up to an aggregate of 34,406 shares of Common Stock.

Securities Exchange Agreement

On August 18, 2022, we

reached an agreement with its Investor to amend its existing SPA Note and entered into a Securities Exchange Agreement (the “Exchange

Pursuant to the Exchange Agreement, we partially paid $35.2 million under the SPA Note and exchanged the remaining

balance of the SPA Note for a new senior secured note (the “Exchange Note”) with an aggregate original principal amount of

$35.0 million and a new warrant to purchase 71,138 shares of Common Stock (the “Note Exchange Warrant”).

Additionally, we

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

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

Additional information regarding

our 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 us and ranks senior to all indebtedness of us.

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 us in connection with any equity financing, which will

reduce the outstanding principal amount under the Exchange Note.

At any time, we 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 us 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

we undergo 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 us, as well as covenants that restrict us and our subsidiaries from incurring

any additional indebtedness or suffering any liens, subject to specified exceptions, restrict the ability of us and our subsidiaries

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

to specified exceptions, requires us not to exceed maximum levels of allowable cash spend while the Exchange Note is outstanding,

and requires us 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, 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, we are in compliance with the financial debt covenants

associated with our 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 us or our subsidiaries.

The Modified Warrant

has 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, has 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”), in which case the Modified Warrant

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

The Note Exchange Warrant

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

transactions, was exercisable upon issuance, 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

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

in which case the Note Exchange Warrant will also be exercisable on a cashless exercise basis at the Investor’s election.

we complete 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 we issue securities for a lower purchase price.

The Note Exchange Warrant also prohibited us, 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 our shares of Common Stock 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 us).

Additionally,

the Warrant Liabilities could not 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 “Investor”), pursuant to which, among other things, we agreed to issue and sell to the Investor, in a private placement

transaction (the “Private Placement”), in exchange for the payment by the Investor of $65 million, less applicable expenses

as set forth in the Securities Purchase Agreement, (i) a senior secured promissory note in an aggregate principal amount of $65 million

(the “SPA Note”), and (ii) a warrant (the “SPA Warrant”) to purchase up to an aggregate of 34,406 shares

of Common Stock.

Note will be a senior secured obligation of us and ranks senior to all indebtedness of us.

We 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 we will be required to

pay interest on March 1, June 1, September 1, and December 1 of each calendar year through and including the Maturity Date.

the one-year anniversary of the SPA Note’s issuance, we 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

following the one-year anniversary of the SPA Note’s issuance, we may prepay all (but not less than all) of the SPA Note by redemption

at a price equal to 106.75% of the then-outstanding principal amount under the SPA Note plus accrued but unpaid interest.

will also have the option of requiring us to redeem the SPA Note if we undergo a fundamental change at a price equal to 107% of the

then-outstanding principal amount under the SPA Note plus any accrued interest thereon.

The Securities

Purchase Agreement provides for up to two additional closings subject to certain conditions set forth in the Securities Purchase Agreement

and on substantially the same terms as the initial closing.

Each subsequent closing would result in the issuance of a senior secured note

with an original principal amount of $35.0 million and warrants to purchase shares of Common Stock equal to 65% of such principal

amount divided by the closing price of Common Stock on the trading day immediately prior to such subsequent closing.

Note will impose certain customary affirmative and negative covenants upon us, as well as covenants that (i) restrict us and

its subsidiaries from incurring any additional indebtedness or suffering any liens, subject to specified exceptions, (ii) restrict

the ability of us 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 us to maintain specified earnings and adjusted

EBITDA targets, and (v) require us 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.

For the quarter ending June

30, 2022, we defaulted on certain of financial debt covenants associated with our 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, we 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 totaled

approximately $ 59.9 million, which would be

insufficient to cover the combined amount of debt liability, including the default penalty amount.

Subsequent to the end of

the second quarter of 2022, we reached an agreement in principle with our institutional lender to amend the existing SPA Note and to modify

certain financial covenants which, once complete, should give us additional flexibility to operate and meet our long-term strategic goals

while also allowing us to responsibly adjust to the many challenges currently facing the cannabis industry.

date the SPA Note is fully repaid, the Investor will, subject to certain exceptions, have the right to participate for up to 30%

of any debt, Preferred Stock or equity-linked financing of us or its subsidiaries.

Warrant to be issued in the initial closing will have an exercise price of $1,350.00 per share, subject to adjustment for stock splits,

reverse stock splits, stock dividends and similar transactions, will be immediately exercisable, has 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 “SPA Warrant Shares”), in which case the SPA Warrant shall

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

The Securities Purchase Agreement requires us 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.

Warrant will provide 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 our 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

The Securities

Purchase Agreement also contains customary representations and warranties of us and the Investor.

There is no material relationship between

us or its affiliates and the Investor other than in respect of the Securities Purchase Agreement, the SPA Note and the SPA Warrant.

Impact of coronavirus pandemic (“COVID-19”)

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linked to COVID-19 and we are actively managing our business to respond to its impact.

Nasdaq Deficiency Notice

4, 2022, we received a deficiency letter (the “Notice”) from the Listing Qualifications Department (the “Staff”)

of The Nasdaq Stock Market, LLC (“Nasdaq”) notifying us that, for the last 30 consecutive business days, the bid price for

our Common Stock had closed below $1.00 per share, which is the minimum closing price required to maintain continued listing on The Nasdaq

Capital Market under Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Requirement”).

In accordance with Nasdaq Listing Rule

5810(c)(3)(A), we had 180 calendar days to regain compliance with the Minimum Bid Requirement.

To regain compliance with the Minimum

Bid Requirement, the closing bid price of our Common Stock must be at least $1.00 per share for a minimum of 10 consecutive trading days

during this 180-day compliance period, unless the Staff exercises its discretion to extend the minimum trading day period pursuant

to Nasdaq Listing Rule 5810(c)(3)(G).

On October 28, 2022, the Staff notified us that the closing bid price of our Common Stock was more

than $1.00 for 10 consecutive trading days, and that we therefore regained compliance with the Minimum Bid Requirement.

Use of Estimates

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estimates include assumptions about collection of accounts and notes receivable, the valuation and recognition of stock-based compensation

expense, valuation allowance for deferred tax assets and the useful life of fixed assets and intangible assets.

expense, valuation allowance for deferred tax assets and useful life of fixed assets and intangible assets.

Financial Overview

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of our financial position and results of operations is based on our financial statements, which have been prepared in accordance with

accounting principles generally accepted in the United States of America (“GAAP”).

The preparation of financial statements

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

accompanying notes.

On an ongoing basis, we evaluate estimate, which include estimates related to accruals, stock-based compensation expense,

and reported amounts of revenues and expenses during the reported period.

accounting principles generally accepted in the United States of America, or GAAP.

The preparation of financial statements in conformity

with GAAP requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying

On an ongoing basis, we evaluate estimate, which include estimates related to accruals, stock-based compensation expense, and reported

amounts of revenues and expenses during the reported period.

We base our estimates on historical experience and other market-specific

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A customer contract is generally identified when

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

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

has commercial substance and collectability, and consideration is probable.

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If a contract has payment terms that differ from

the timing of revenue recognition, we will assess whether the transaction price for those contracts includes a significant financing component.

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

We have elected the practical expedient that permits an entity to not adjust for the effects of a significant financing component if we

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we impute interest on such contracts at an agreed-upon interest rate and will present the financing components separately as financial

For the three and nine months ended September 30, 2022 and 2021, we did not have any such financial income.

For the three and six months ended June 30, 2022 and 2021, we did not have any such financial income.

Payment terms with customers typically require

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The reserve for warranty returns is included in accrued expenses and other current

liabilities in our consolidated balance sheets.

liabilities in our condensed consolidated balance sheets.

Accounting for Business Combinations

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Amortization of acquired intangible assets is

the result of the acquisition of TriGrow Systems, LLC (“TriGrow”), which occurred in 2020, the acquisition of Precision Extraction

NewCo, LLC (“Precision”) and Cascade Sciences, LLC (“Cascade”) which occurred in 2021, the acquisition of PurePressure,

LLC (“PurePressure”), which also occurred in 2021, and the acquisition of Lab Society, which occurred in 2022.

of these transactions, customer relationships, acquired developed technology, non-compete agreements and trade names were identified as

intangible assets, and are amortized over their estimated useful lives.

the result of the acquisition of TriGrow, which occurred in 2020, the acquisition of Precision and Cascade which occurred in 2021, the

acquisition of PurePressure, which also occurred in 2021, and the acquisition of Lab Society, which occurred in 2022.

As a result of these

transactions, customer relationships, acquired developed technology, non-compete agreements and trade names were identified as intangible

assets, and are amortized over their estimated useful lives.

We recognize the excess of the purchase price

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

we identified an impairment-triggering event associated with both a sustained decline in our stock price and associated market capitalization,

as well as a second-quarter slowdown in the cannabis industry as a whole.

Due to these factors, we 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,

we noted that the entire carrying value of its goodwill and intangible assets should be impaired.

Additional information regarding our

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

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

Due to these factors,

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

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

Based on its interim testing, the Company noted that

the 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 – Intangible Assets, Net and Goodwill, included elsewhere

in the notes to the condensed consolidated financial statements.

Capitalization of Internal Software Development Costs

We capitalize on certain software engineering

We capitalize certain software engineering

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

Costs incurred during

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

will result in new or additional functionality.

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

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

Costs related to the research

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

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

Costs incurred

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

performed will result in new or additional functionality.

The types of costs capitalized during the application development

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

related to the research and development are expensed as incurred until technical feasibility is established as well as

post-implementation activities.

Internal-use software is amortized on a straight-line basis over the estimated useful life of the

asset, which ranges from two to five years.

We account for income taxes pursuant to the provisions

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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, if any.

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

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,

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.

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Accounting for Stock-Based Compensation

We follow the provisions of ASC Topic 718, “Compensation-Stock

Compensation.” ASC Topic 718 establishes standards surrounding the accounting for transactions in which an entity exchanges its

equity instruments for goods or services.

ASC Topic 718 focuses primarily on accounting for transactions in which an entity obtains employee

services in share-based payment transactions, such as options issued under our Stock Option Plans.

We follow the provisions of ASC Topic 718, “Compensation

— Stock Compensation.” ASC Topic 718 establishes standards surrounding the accounting for transactions in which an entity

exchanges its equity instruments for goods or services.

ASC Topic 718 focuses primarily on accounting for transactions in which an entity

obtains employee services in share-based payment transactions, such as options issued under our Stock Option Plans.

The fair value of each option is estimated on

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We expect to raise additional capital through, among other things, the sale of equity or debt

Comparison of the Three and Nine Months Ended September 30, 2022

Comparison of the Three and Six Months Ended June 30, 2022 and

The following table summarizes our results of

operations for the three and nine months ended September 30, 2022 and September 30, 2021:

Three Months ended

September 30,

Nine Months ended

September 30,

operations for the three and six months ended June 30, 2022 and June 30, 2021:

Three Months ended June 30,

Six Months ended June 30,

(As Restated)

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Net income (loss) attributable to Agrify Corporation

Net income (loss) per share

attributable to Common Stockholders – basic and diluted

$ (1,003.10 )

Weighted-average common shares

outstanding – basic and diluted

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

Weighted-average common shares outstanding – basic and diluted

Our goal is to provide our customers with a variety

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build-out services and extraction equipment.

We continue to monitor and address the COVID-19

pandemic impacts on our supply chain.

Although the availability of various products is dependent on our suppliers, their locations, and

the extent to which they are impacted by the COVID-19 pandemic, we are proactively working with manufacturers to meet the needs of our

customers during the pandemic.

Product shortages have generally led to increases in prices globally, with significant impacts to

sales and interim profits.

We continue to monitor and address COVID-19 pandemic

impacts on our supply chain.

Although the availability of various products is dependent on our suppliers, their locations, and the extent

to which they are impacted by the COVID-19 pandemic, we are proactively working with manufacturers to meet the needs of our customers

during the pandemic.

Product shortages have generally led to increases in prices globally, with significant impacts to sales and

interim profits.

We generate revenue from sales of cultivation

1 unchanged sentence

equipment and solutions.

We believe that our product mix forms an integrated ecosystem that allows us to be engaged with our potential

We believe that our product mix forms an integrated ecosystem which allows us to be engaged with our potential

customers from the early stages of the grow cycle — first during the facility build-out, to the choice of cultivation solutions,

1 unchanged sentence

services to transform harvest into a sellable product.

We believe that the delivery of each solution in the various stages of the process

We believe that the delivery of each solution in the various stages in the process

will generate sales of additional solutions and services.

The following table provides a breakdown of our

revenue for the three and nine months ended September 30, 2022 and 2021:

Three Months Ended September 30,

Nine Months Ended September 30,

revenue for the three and six months ended June 30, 2022 and 2021:

Three Months ended

Six Months ended

(In thousands)

4 unchanged sentences

Total revenue

Revenues decreased by $8.7 million, or 55.4% for

the three months ended September 30, 2022, as compared to the same period in 2021.

The comparative decrease in revenue was primarily related

to a reduction in facility build-outs of $11.7 million and a reduction in our cultivation solution sales of $2.8 million, partially offset

by the sale of extraction solutions equipment and services from our acquisition of Lab Society in 2022 and the acquisitions of Precision,

Cascade and PurePressure in 2021, which contributed $5.7 million in revenue for the three months ended September 30, 2022.

The $11.7 million

decrease in facility build-out revenue was the result of the completed build-out of two facilities under our TTK Solutions, the deferral

of $5.3 million of revenue for the Bud & Mary’s Cultivation, Inc.

(“Bud & Mary’s”) project due to pending

litigation and a decrease in cultivation products and service sales of $2.8 million primarily due to migrating to a VFU leasing model.

Additional information regarding Bud & Mary’s pending litigation may be found in Note 6 – Loan Receivable and Note 20

– Subsequent Events, included elsewhere in the notes to the consolidated financial statements.

Revenues increased by $17.8 million, or 51.4%

for the nine months ended September 30, 2022, as compared to the same period in 2021.

The comparative increase in revenue was generated

primarily from extraction solutions sales of equipment and services from our acquisition of Lab Society in 2022 and the acquisitions of

Precision, Cascade and PurePressure in 2021, which contributed $28.1 million in revenue for the nine months ended September 30, 2022.

This was partially offset by a reduction of $6.9 million in facility build-out revenue resulting from the completed build-out of two facilities

under our TTK Solutions which includes the deferral of $5.3 million of revenue resulting from Bud & Mary’s pending litigation

and a decrease in cultivation products and service sales of $3.4 million primarily due to migrating to a VFU leasing model.

Revenues increased by $7.5 million, or 64% for

the three months ended June 30, 2022, compared to the same period in 2021.

The comparative increase in revenue was generated primarily

from extraction solutions sales of equipment and services from our acquisition of Lab Society in 2022 and acquisitions of Precision, Cascade

and PurePressure in 2021, which contributed $10.0 million in revenue for the three months ended June 30 2022.

Sales related to cultivation

products decreased by $759 thousand during the three months ended June 30, 2022 primarily due to the variability in the sales cycle associated

with our VFU equipment.

In addition, comparative quarterly facility build-out revenue decreased by $1.7 million as a result of our legacy

facility build-out projects nearing completion.

Revenues increased by $26.5 million, or 141% for

the six months ended June 30, 2022, as compared to the same period in 2021.

The comparative increase in revenue was generated primarily

from extraction solutions sales of equipment and services from our acquisition of Lab Society in 2022 and acquisitions of Precision, Cascade

and PurePressure in 2021 which contributed $22.4 million in revenue for the six months ended June 30, 2022.

Additionally, facility build-out

revenues increased by $4.7 million due to the continued build-out of facilities under our TTK Solutions.

This was partially offset by

a decrease in cultivation product and service sales of $613 thousand.

Cost of Goods Sold

5 unchanged sentences

The following table provides a breakdown of our

cost of goods sold for the three and nine months ended September 30, 2022 and 2021:

cost of goods sold for the three and six months ended June 30, 2022 and 2021:

Three Months ended

September 30,

Nine Months Ended

September 30,

Six Months ended

(In thousands)

4 unchanged sentences

Total cost of goods sold

Cost of goods sold decreased by $5.0 million,

or 31%, for the three months ended September 30, 2022 as compared to the same period in 2021.

The comparative quarterly decrease in the

cost of goods sold is related to a decrease of $6.1 million related to costs for facility build-outs and a decrease of $3.0 million of

costs for cultivation product and service sales.

This was partially offset by an increase of $4.1 million in expenses associated with

the sales of our extraction-related equipment, for which there was no associated revenue or expense in the prior year quarterly period.

The cost of goods sold related to facility build-outs decreased disproportionately as compared to revenue in the period as we have included

$5.1 million of facility build-out expenses related to the Bud & Mary’s project for which revenue has been deferred in the period.

Cost of goods sold increased by $6.4 million,

or 45%, for the nine months ended September 30, 2022 compared to the same period in 2021.

The comparative quarterly increase in the cost

of goods sold is associated with the introduction of our extraction-related equipment sales in the year-to-date 2022 fiscal period.

associated with extraction equipment-related equipment sales accounted for $20.2 million of the comparative year-to-date fiscal 2022 increase

in the cost of goods sold.

This increase was partially offset by a decrease of $1.3 million in facility build-outs and a decrease of $3.1

million in cultivation product and service sales.

The cost of goods sold related to facility build-outs decreased disproportionately as

compared to revenue in the period as we have included $5.1 million of facility build-out expenses related to

the Bud & Mary’s project for which revenue has been deferred in the period.

Gross (Loss) Profit

Three Months Ended

September 30,

Nine Months Ended

September 30,

or 57%, for the three months ended June 30, 2022 compared to the same period in 2021.

The comparative quarterly increase in the cost of

goods sold is largely associated with the incremental expense associated with the sales of our extraction-related equipment, for which

there was no associated revenue or expense in the prior year quarterly period.

Costs associated with our extraction-related equipment

sales totaled $7.7 million in the three months ended June 30, 2022.

Additionally, our second quarter cost of goods sold amount for the

second quarter of 2022 includes $929 thousand of incremental expense associated with increases to our inventory reserves related to slow-moving

inventory, as well as $181 thousand of the incremental cost associated with increases to our warranty reserves.

Cost of goods sold increased by $20.7 million,

or 110%, for the six months ended June 30, 2022 compared to the same period in 2021.

The comparative quarterly increase in the cost of

goods sold is similarly associated with the introduction of our extraction-related equipment sales in the year-to-date 2022 fiscal period.

Costs associated with extraction equipment-related equipment sales accounted for $16.0 million of the comparative year-to-date fiscal

2022 increase in cost of goods sold.

Additionally, cost of goods sold related to facility build-outs increased by $4.8 million for the

six months ended June 30 2022, directly related to the comparative increase in subcontractor construction

costs associated with active design and build projects during the first half of the 2022 fiscal year.

Gross Profit (Loss)

Three Months ended June 30,

Six Months ended

(In thousands)

Gross (loss) profit

Gross loss totaled $(4.1) million, or (58.6) %

of total revenue during the three months ended September 30, 2022 compared to a gross loss of

$(380) thousand, or ( 2.4)% of total revenue

during the three months ended September 30, 2021.

During the three months ended September 30, 2022, we realized a gross profit

margin of 27% associated with our extraction solutions revenue.

The negative gross margin on the cultivation-related revenue is primarily

related to $5.1 million of facility build-out costs recognized for the Bud & Mary’s project for which $5.3 million of revenue

has been deferred due to pending litigation and $568 thousand of overhead expenses for cultivation

solutions expenses.

This was partially offset by $1.5 million of contribution related to extraction solutions equipment and service

sales from our acquisition of Lab Society in 2022 and the acquisitions of Precision, Cascade and PurePressure in 2021.

Gross profit (loss)

Gross profit totaled $1.6 million, or 8.3 %

of total revenue during the nine months ended September 30, 2022 compared to a gross loss of $(393) thousand, or (1.1)% of total

revenue during the nine months ended September 30, 2021.

The comparative $2.1 million year-over-year

improvement in gross profit, as well as the comparative improvement in gross profit margin, is primarily attributable

to the introduction of our extraction solutions revenue during the first nine months of 2022.

No extraction solutions-related revenues

were recognized during the first nine months of 2021.

Extraction solutions revenue contributes a higher gross profit and gross

profit margins than those realized on our cultivation-related revenue, which includes our TTK Solutions build-out revenue.

first nine months of 2022, we realized a gross profit margin of 28% associated with our extraction solutions revenue, while we realized

a gross loss of approximately (26)% on our cultivation-related revenues.

The negative gross margin on the cultivation-related revenue

is primarily related to $5.1 million of facility build-out costs recognized for the Bud & Mary’s project for which $5.3 million

of revenue has been deferred due to pending litigation.

Operating Expenses

Three Months Ended September 30,

Nine Months Ended September 30,

(In thousands)

of total revenue during the three months ended June 30, 2022 compared to a gross profit of

$527 thousand, or 4.5% of total revenue during

the three months ended June 30, 2021.

The comparative $1.1 million second-quarter year-over-year improvement in gross profit, as well

as the comparative improvement in gross profit margin, is primarily attributable to the introduction of our extraction solutions revenue

in 2022, which contributes to higher gross profit and gross profit margins than those realized on our cultivation-related revenue,

which includes our TTK Solutions build-out revenue.

During the second quarter of 2022, we realized a gross profit margin of 23% associated

with our extraction solutions revenue, while we realized a gross loss of approximately (7)% on our facility build-outs and cultivation-related

Our gross profit and gross profit margins for the three-month period ended June 30, 2022, were negatively impacted as a result

of increases in inventory reserves and warranty reserves, which totaled $929 thousand and $181 thousand, respectively.

Absent these periodic

charges, reported gross profit margins would have been approximately 14.1% during the second quarter of 2022.

Gross profit totaled $5.8 million, or 12.7 %

of total revenue during the six months ended June 30, 2022 compared to a gross loss of ($13) thousand, or (0.1)% of total revenue

during the six months ended June 30, 2021.

The comparative $5.8 million year-over-year improvement

in gross profit, as well as the comparative improvement in gross profit margin, is similarly attributable to the introduction of our extraction

solutions revenue during the first six months of 2022.

No extraction solutions-related revenues were recognized during the first six months

Extraction solutions revenue contributes a higher gross profit and gross profit margins than those realized on our cultivation-related

revenue, which includes our TTK Solutions build-out revenue.

During the first six months of 2022, we realized a gross profit margin of

28% associated with our extraction solutions revenue, while we realized a gross loss of approximately (2)% on our cultivation-related

As with our second quarter of 2022, our gross profit and gross profit margin for the six months ended June 30, 2022 is also

adversely impacted by the inventory and warranty reserves described above.

General and Administrative

Selling and marketing

Research and development

Change in contingent consideration

Impairment of goodwill and intangible assets

Total operating expenses

Three Months ended June 30,

Six Months ended

(In thousands)

General and administrative

5 unchanged sentences

G&A expense increased by $15.0 million, or

213%, for the three months ended September 30, 2022, compared to the same period in 2021.

The primary drivers of the increase in comparative

G&A expense in the third quarter of 2022 is largely the result of a $14.7 million increase in loan receivable allowances recorded

during the quarter, a $1.4 million increase in payroll and employee-related expenses, a $597 thousand increase in subscription, facilities

and other expenses, an increase of $151 thousand of investor related and compliance expenses and an additional $1.9 million of G&A

expenses related to our acquisition of Lab Society in 2022 and the acquisitions of Precision, Cascade and PurePressure in 2021.

expenses were partially offset by a decrease of $2.4 million in consulting expenses that were related to a one-time financing arrangement

cancellation fee in September 2021.

During the third quarter of 2022, we increased

our loans receivable reserve by approximately $14.7 million.

We deemed it necessary to fully reserve Bud & Mary’s loan receivable

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

the litigation is without merit and will continue to vigorously defend ourselves.

341%, for the three months ended June 30, 2022, compared to the same period in 2021.

The primary driver of the increase in comparative

general and administrative expense in the second quarter of 2022 is largely the result of an $8.6 million increase in trade and loan receivable

allowances recorded during the quarter.

During the second quarter of 2022, the Company increased its trade receivables reserve by approximately

$1.5 million and its loans receivable reserve by approximately $7.1 million, specifically related to Greenstone Holdings (“Greenstone”).

Both reserves were deemed necessary due to the current financial instability within the cannabis industry.

The Company specifically established

the loan reserve related to Greenstone based upon its review of Greenstone’s financial stability, which would impact collectability

and 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 loan receivable amounts.

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

Other year-over-year increases in the second quarter

of 2022 general and administrative expenses included $3.9 million of incremental G&A expenses related to our acquisition of Lab Society

in 2022 and acquisitions of Precision, Cascade and PurePressure in 2021, an increase in wage and benefits-related expenses of $1.1 million,

an increase in facility and other related expenses of $936 thousand, an $800 thousand legal settlement accrual, an increase in directors’

and officers’ insurance of $182 thousand, an increase in investor relations of $133 thousand and an increase in depreciation and

amortization of $34 thousand.

G&A expense increased by $20.3 million, or

222%, for the nine months ended September 30, 2022, compared to the same period in 2021.

The primary drivers of the year-over-year increase

in the comparative nine-month period of G&A expenses are largely attributable to an increase in trade and loan receivable allowances

of $23.7 million and $8.8 million of incremental G&A expenses related to our acquisition of Lab Society in 2022 and the acquisitions

of Precision, Cascade and PurePressure in 2021.

Other drivers of the comparative year-over-year increase in G&A expense included $1.3

million related to legal and accounting services associated with our acquisition of Lab Society in 2022 and acquisitions of Precision,

Cascade and PurePressure in 2021, $1.8 million in employee-related expenses, $1.1 million of severance expenses, $800 thousand legal settlement

and $389 thousand of other operating expenses.

second and third quarter of 2022, we increased our loan receivable reserve by approximately $7.1 million and $14.7 million, respectively.

The $7.1 million increase during the second quarter of 2022, is specifically related to Greenstone Holdings (“Greenstone”).

We specifically established the loan reserve related to Greenstone based on our review of Greenstone’s financial stability, which

would impact collectability and is primarily the result of unfavorable market conditions within the Colorado market.

We 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 we have made the decision to place a reserve against the loan receivable amounts.

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.

The $14.7 million increase during the third quarter of 2022, specifically

related to Bud & Mary’s.

We deemed it necessary to fully reserve Bud & Mary’s loan receivable balance due to the current

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

We believe the litigation is without

merit and will continue to vigorously defend ourselves.

229%, for the six months ended June 30, 2022, compared to the same period in 2021.

As described above, the primary drivers of the year-over-year

increase in the comparative six-month period G&A expenses are largely attributable to an increase in trade and loan receivable allowances

of $7.8 million and $6.9 million of incremental G&A expenses related to our acquisition of Lab Society in 2022 and acquisitions of

Precision, Cascade and PurePressure in 2021.

Other drivers of the comparative year-over-year increase in G&A expense include an increase

in payroll and related expenses increase of $2.4 million, an increase in acquisition-related expenses of $2.1 million, an increase in

facility and other related expenses of $1.2 million, an increase in investor relations of $339 thousand, an increase in directors’

and officers’ insurance of $310 thousand, and an increase in depreciation and amortization of $152 thousand.

These increases were

partially offset by a reduction in stock compensation expense of $892 thousand.

Selling and Marketing

Three Months ended

Six Months ended

(In thousands)

Selling and marketing

Selling and marketing expenses consist primarily

1 unchanged sentence

Selling and marketing expenses increased by $1.6

million, or 143%, for the three months ended September 30, 2022, compared to the same period in 2021.

The increase is attributable to

our acquisition of Lab Society in 2022 and the acquisitions of Precision, Cascade and PurePressure in 2021, which contributed $972 thousand,

an increase in payroll and employee-related expenses of $163 thousand and an increase in advertising and trade show expenses of $147 thousand.

Selling and marketing expenses increased by $4.3

million, or 188%, for the nine months ended September 30, 2022, compared to the same period in 2021.

The increase is primarily related

to our acquisition of Lab Society in 2022 and the acquisitions of Precision, Cascade, and PurePressure in 2021, which attributed $3.2

million, an increase in payroll, severance, and related expenses of $540 thousand and an increase in advertising, trade shows and other

million, or 198%, for the three months ended June 30, 2022, compared to the same period in 2021.

The increase is attributable to our acquisition

of Lab Society in 2022 and acquisitions of Precision, Cascade and PurePressure in 2021 of $802 thousand, an increase in travel and other

expenses of $321 thousand, an increase in payroll and related expenses of $278 thousand and an increase in advertising and trade show

expenses of $149 thousand.

Selling and marketing expenses increased by $3.0

million, or 216%, for the six months ended June 30, 2022, compared to the same period in 2021.

The increase is attributable to our acquisition

of Lab Society in 2022 and acquisitions of Precision, Cascade and PurePressure in 2021 of $2.2 million, an increase in payroll and related

expenses of $513 thousand, an increase in advertising and trade show expenses of $172 thousand and an increase in travel and other expenses

of $97 thousand.

Research and Development

Three Months ended

Six Months ended

(In thousands)

Research and development

Research and development (“R&D”)

expense consisted primarily of costs incurred for the development of our Agrify Insights™ cultivation software and next-generation

expenses consisted primarily of costs incurred for the development of our Agrify Insights™ cultivation software and next-generation

generation VFUs, which includes:

2 unchanged sentences

expenses related to our facilities, depreciation, and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, insurance and other supplies.

R&D expense increased by $920 thousand, or

111%, for the three months ended September 30, 2022, compared to the same period in 2021.

The increase is primarily related to an increase

in materials and other costs of $565 thousand and our acquisition of Lab Society in 2022 and the acquisitions of Precision, Cascade, and

PurePressure in 2021, which contributed $470 thousand.

These increases were partially offset by a decrease of $116 thousand in payroll

and employee-related expenses.

As a percentage of net revenue, R&D expenses were 24.9% of total revenue for the three months ended

September 30, 2022, compared to 5.3% for the three months ended September 30, 2021.

R&D expense increased by $1.7 million, or

152%, for the nine months ended September 30, 2022, compared to the same period in 2021.

The comparative periodic increase in R&D

expense is attributable to third-party consulting services of $1.4 million, $1.2 million of incremental R&D expense related to the

acquisition of Lab Society in 2022 and the acquisitions of Precision, Cascade and PurePressure in 2021, increases in wages and benefits-related

expenses of $684 thousand and an increase in materials, supplies and other expenses of $450 thousand.

As a percentage of net revenue,

R&D expenses were 12.0% of total revenue for the nine months ended September 30, 2022, compared to 7.1% for the nine months ended

September 30, 2021.

215%, for the three months ended June 30, 2022, compared to the same period in 2021.

The increase in comparative period R&D expenses

is attributable to increases in wage and benefits-related expenses of $574 thousand, third-party consulting services of $529 thousand,

$467 thousand of incremental R&D expense related to the acquisition of Lab Society in 2022 and acquisitions of Precision, Cascade

and PurePressure in 2021, and material and other costs of $94 thousand.

As a percentage of net revenue, R&D expenses were 12.6% of

total revenue for the three months ended June 30, 2022, compared to 6.6% for the three months ended June 30, 2021.

R&D expense increased by $2.9 million, or

173%, for the six months ended June 30, 2022, compared to the same period in 2021.

The comparative periodic increase in R&D expense

is attributable to third-party consulting services of $988 thousand, increases in wage and benefits-related expenses of $801 thousand,

$777 thousand of incremental R&D expense related to the acquisition of Lab Society in 2022 and acquisitions of Precision, Cascade

and PurePressure in 2021 and material and other costs of $302.

As a percentage of net revenue, R&D expenses were 10% of total revenue

for the six months ended June 30, 2022, compared to 8.8% for the six months ended June 30, 2021.

We expect to continue to invest in future developments

3 unchanged sentences

Change in contingent consideration

Change in contingent consideration resulted in

a gain of $602 thousand, or 100%, for the three months ended September 30, 2022, compared to the same periods in 2021.

The change in contingent

consideration, which was recognized by us during the third quarter of 2022, primarily relates to the reduction in the projected earn-out

achievement associated with PurePressure’s first twelve-month earn-out period, for which current revenue projections are trending

below our original earn-out achievement fair value estimates.

During the third quarter of 2022, we reduced the current fair value estimate

of contingent consideration to be earned by the former members of PurePressure by approximately $602 thousand.

As per the guidelines of

ASC805, we are required to record subsequent changes to our original fair value estimates related to contingent consideration as an operating

expense in the period of change and not as an increase to goodwill.

Change in contingent consideration resulted in

a gain of $1.5 million, or 100%, for the nine months ended September 30, 2022, compared to the same periods in 2021.

The change in contingent

consideration, which was recognized by us during the second and third quarter of 2022, primarily relates to the reduction in the projected

earn-out achievement associated with Lab Society’s and PurePressure’s first twelve-month earn-out period, for which current

revenue projections are trending below our original earn-out achievement fair value estimates.

During the second quarter of 2022, we reduced

the current fair value estimate of contingent consideration to be earned by the former members of Lab Society by approximately $1.0 million.

During the third quarter of 2022, we reduced the current fair value estimate of contingent consideration to be earned by the former members

of PurePressure by approximately $602 thousand.

This was partially offset by an increase of $121 thousand to the final contingent consideration

amount earned by the former members of Precision and Cascade.

As per the guidelines of ASC805, we are required to record subsequent changes

to our original fair value estimates related to contingent consideration as an operating expense in the period of change and not as an

increase to goodwill.

Three Months ended

Six Months ended

(In thousands)

Change in contingent consideration

Change in contingent consideration decreased by

$(907) thousand, or 100%, for the three months and six months ended June 30, 2022, compared to the same periods in 2021.

The change in

contingent consideration expense, which was recognized by us during the second quarter of 2022, primarily relates to the reduction in

the projected earn-out achievement associated with Lab Society’s first twelve-month earn-out period, for which current revenue projections

are trending below our original earn-out achievement fair value estimates.

During the second quarter of 2022, the Company reduced the

current fair value estimate of contingent consideration to be earned by the former members of Lab Society by approximately $(1.0) million.

This was partially offset by an increase of $121 thousand to the final contingent consideration amount earned by the former members of

Precision and Cascade.

As per the guidelines of ASC 805, we are required to record subsequent changes to our original fair value estimates

related to contingent consideration as an operating expense in the period of change and not as an increase to goodwill.

Impairment of Goodwill and intangible assets

Three Months ended

Six Months ended

(In thousands)

Impairment of Goodwill and intangible assets

During the three months period ended June 30,

2022, we identified an impairment-triggering event associated with both a sustained decline in our stock price and associated market capitalization,

as well as a second-quarter slowdown in the cannabis industry as a whole.

Due to these factors, we 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, we noted that the

current carrying value of equity significantly exceeded the calculated fair value equity, by an amount greater than the aggregate value

of our goodwill and intangible assets.

Accordingly, we 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 our interim testing

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

2022, the Company identified a potential impairment triggering event associated with both a sustained decline in our stock price and associated

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

Due to these factors, we deemed that

there was a need to perform a detailed analysis necessary to support the current carrying value of our long-lived assets, including our

goodwill and intangible assets, as of June 30, 2022.

Based on its interim testing, the Company noted

that the current carrying value of equity significantly exceeded the calculated fair value of equity, by an amount greater than the aggregate

value of our goodwill and intangible assets.

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

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

Additional information regarding the Company’s

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

condensed consolidated financial statements.

Other Income (Expense), Net

Three Months ended

September 30,

Nine Months Ended

September 30,

Six Months ended

(In thousands)

(As Restated)

Interest (expense) income, net

Other income (expense)

Change in fair value of warrant liability

(Loss) gain on extinguishment of notes payable

Other expenses

Change in fair value of warrant liabilities

Gain on extinguishment of notes payable

Total other (expense) income, net

Interest (expense) income, net

Interest expense increased by $4.7 million, or

10,442%, for the three months ended September 30, 2022 compared to the same period in 2021.

The increase in interest expense primarily

is attributable to an increase in interest expense, including the amortization of debt discount costs associated with the outstanding

principal balance of our existing debt facility, plus incremental pre-payment penalty interest incurred in connection with the modification

of our debt facility, of $4.7 million related to our SPA Note and Exchange Note.

This was partially offset by interest income of approximately

$100 thousand from our TTK Solutions.

Interest expense increased by $7.5 million, or

10,988%, for the nine months ended September 30, 2022 compared to the same period in 2021.

The increase in interest expense primarily

is attributable to an increase in interest expense, including the amortization of debt discount costs associated with the outstanding

principal balance of our existing debt facility, plus incremental pre-payment penalty interest incurred in connection with the modification

of our debt facility, of $8.8 million related to our SPA Note and Exchange Note.

This was partially offset by interest income of approximately

$1.2 million from our TTK Solutions.

Other income (expense)

Other income increased by $1.5 million, or 10,140%,

for the three months ended September 30, 2022 compared to the same period in 2021.

The increase in other income primarily is attributable

to the finalization and favorable true-up of previously estimated acquisition-related net working capital amounts related to the acquisition

of Lab Society in 2022 and the acquisitions of Precision, Cascade and PurePressure in 2021 of $1.5 million.

This partially was offset

by other expense-related items.

Other expenses increased by $1.6 million, or 2,031%,

for the nine months ended September 30, 2022 compared to the same period in 2021.

The increase in other income primarily is attributable

to the finalization and favorable true-up of previously estimated acquisition-related net working capital amounts related to the acquisition

of Lab Society in 2022 and the acquisitions of Precision, Cascade and PurePressure in 2021 of $1.5 million.

This partially was offset

by other expense-related related items.

Change in fair value of warrant liability

Change in fair value of warrant liability increased

by $16.3 million, or 100% for the three ended September 30, 2022, compared to $0 for the three months ended September 30, 2021.

the three months period ended September 30, 2022, we recorded a non-cash gain of $16.3 million related

to changes in the valuation of our liability-classified warrants issued through a private placement associated with Warrant Liabilities ,

which was primarily driven by movements in our stock price.

Additional information regarding the fair

value of our liability-classified warrants issued through a private placement using a Black - Scholes

option- pricing model that makes certain assumptions may be found in Note 5 –

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

Change in fair value of warrant liability increased

by $47.2 million, or 100% for the nine ended September 30, 2022, compared to $0 for the nine months ended September 30, 2021.

nine months period ended September 30, 2022, we recorded a non-cash gain of $47.2 million related

to changes in the valuation of our liability-classified warrants issued through a private placement associated with Warrant Liabilities ,

which was primarily driven by movements in our stock price.

Additional information regarding the fair

value of our liability-classified warrants issued through a private placement using a Black - Scholes

option- pricing model that makes certain assumptions may be found in Note 5 –

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

(Loss) gain on extinguishment of notes payable

Loss on extinguishment of notes payable increased

by $38.9 million, or 100%, for the three months ended September 30, 2022 compared to the same period in 2021.

The loss on extinguishment

of notes payable, which was recognized by us during the third quarter of 2022, relates to the extinguishment of the SPA Note dated March

We recognized a loss on extinguishment of $38.9 million (inclusive of $13.1 million of unamortized warrants, $5.0 million default

penalty on the principal amount, $2.3 million of unamortized issuance costs and $1.2 million of the incremental fair value of warrants

modified in exchange of debt).

Additional information relating to our SPA Note may be found in Note 10 – Debt, included elsewhere

in the notes to the consolidated financial statements.

Loss on extinguishment of notes payable increased

by $41.7 million, or 1,552%, for the nine months ended September 30, 2022 compared to the same period in 2021.

The loss on extinguishment

of notes payable, which was recognized by us during the third quarter of 2022, relates to the extinguishment of the SPA Note.

We recognized

a loss on extinguishment of $42.3 million (inclusive of $13.1 million of unamortized warrants, $5.0 million default penalty on the principal

amount, $2.3 million of unamortized issuance costs and $1.2 million of the incremental fair value of warrants modified in exchange of

This is compared to 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) in the nine months ended September 30, 2021.

Additional information relating to our gain on extinguishment

of notes payable may be found in Note 12 – Convertible Promissory Notes, included elsewhere in the notes to the consolidated financial

Interest (expense) income, net decreased by $(3.4)

million, or 6,120%, for the three months ended June 30, 2022 compared to the same period in 2021.

The decrease in interest (expense) income,

net primarily is attributable to an increase in interest expense, including the amortization of debt discount costs of $(2.7) million

related to our SPA Note.

This partially was offset by interest income of $654 thousand from our TTK Solutions.

Interest (expense) income, net decreased by $(2.8)

million, or 12,065%, for the six months ended June 30, 2022 compared to the same period in 2021.

The decrease in interest (expense) income,

net primarily is attributable to an increase in interest expense, including the amortization of debt discount costs, of $(2.9) million

related to our SPA Note.

This partially was offset by interest income of $1.1 million from our TTK Solutions.

Other expenses of $0 for the three and six months

ended June 30, 2022, compared to $(63) thousand for the three and six months ended June 30, 2021 are attributable to the amortization

of premiums related to the held to maturity securities.

The change in fair value of warrant liabilities

during the three and six months ended June 30, 2022 is related to the fair value remeasurement of warrants issued during the six months

Gain on extinguishment of notes payable decreased

by $(2.7) million, or 100%, for the six months ended June 30, 2022 compared to the same period in 2021.

We 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).

Additional information relating to the Company’s Gain on extinguishment of notes payable

may be found in Note 12 – Convertible Promissory Notes, included elsewhere in the notes to

the condensed consolidated financial statements.

Income Tax Benefit

Three Months ended

September 30,

Nine Months Ended

September 30,

Six Months ended

(In thousands)

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Effective tax rate

The 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 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 approximately $200 thousand recorded during the first quarter of 2022, which is attributable to a non-recurring partial release of

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, we recognized a small benefit of approximately $62 thousand related to the reversal of our opening

deferred tax liability on indefinite-lived assets.

The change in the 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 our deferred tax liability on

indefinite-lived 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 our U.S.

valuation allowance

as a result of the Lab Society acquisition.

Income (Loss) Attributable to Non-Controlling Interest

We consolidate the results of operations of two

less than wholly-owned entities into our consolidated statements of operations.

On December 8, 2019, we formed Agrify-Valiant, LLC (“Agrify-Valiant”),

a joint-venture limited liability company in which we are 60% majority owner and Valiant-America, LLC owns 40%.

Agrify-Valiant started

its operations during the second quarter of 2020.

On October 27, 2022, we provided notice to Valiant-America, LLC of our intention to

begin winding up of Agrify Valiant, LLC.

less than wholly-owned entities into our consolidated results of operations.

On December 8, 2019, we formed Agrify Valiant LLC, a joint-venture

limited liability company in which we are 60% majority owner and Valiant-America, LLC owns 40%.

Agrify Valiant LLC started its operations

during the second quarter of 2020.

On January 22, 2020, as part of the acquisition of TriGrow, we received TriGrow’s 75% interest

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income of the entity multiplied by the percentage of ownership held by the non-controlling interest.

Liquidity and Capital Resources

Operating Capital Requirements

Going Concern

We have incurred operating losses since our inception

and have negative cash flows from operations.

We have an accumulated deficit of $189.2 million as of September 30, 2022.

Our primary sources

of liquidity are cash and cash equivalents, with additional liquidity accessible, subject to market conditions and other factors, including

limitations that may apply to us under applicable Securities Exchange Commission (“SEC”) regulations, from the capital markets,

including under its (“ATM” or ATM Program”).

As of September 30, 2022, we had $12.5 million

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

Our restricted cash and restricted marketable securities of $10.0

million is associated with the Exchange Note as of September 30, 2022.

Current liabilities were $41.5 million as of September 30, 2022.

In October 2022, we entered into the ATM Program

with Canaccord Genuity LLC (the “Agent”) pursuant to which we may issue and sell, from time to time, shares of our 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 Program allows us to sell shares of Common Stock pursuant to specific parameters defined by us as well as those defined by the

SEC and the ATM Program agreement.

Subsequent to the quarter ended September 30, 2022, as of November 7, 2022, we sold 306,633 shares

of Common Stock, under the ATM at an average price of $50.80 per share, resulting in gross proceeds to us of $15.6 million, and net proceeds

of $15.1 million after commissions and fees to the Agent totaling $468 thousand.

$3.1 million of the proceeds under the ATM Program were

used to repay amounts due to the Investor under the Exchange Note.

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.

We have used, and intend to continue to use, the net proceeds generated from the ATM Program

for working capital and general corporate purposes, including repayment of indebtedness, funding its transformation initiatives and product

category expansion efforts and capital expenditures.

As of November 7, 2022, we had $34.4 million of remaining availability for future

issuances of Common Stock under the ATM Program.

We believe we have sufficient cash on hand to

continue operations for the next six months.

Our current working capital needs are to support revenue growth, fund construction and equipment

financing commitments associated with our TTK Solutions, manage inventory to meet demand forecasts and support operational growth.

long-term financial needs primarily include working capital requirements and capital expenditures.

We anticipate that we will allocate

a significant portion of our current balance of working capital to satisfy the financing requirements of our current and future TTK arrangements.

These arrangements require a significant amount of upfront capital necessary to fund construction, associated with facility build-outs,

and equipment.

We also have an accumulated deficit of $131.8 million as of June 30, 2022.

for the quarter ending June 30, 2022, we 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

As a result of its default, we are actively working to restructure our 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, we would not have sufficient cash on hand as

of June 30, 2022 to pay off the existing debt and default penalty amounts.

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, we reached an agreement in principle with our institutional lender to amend our existing SPA Note and to modify certain financial

covenants which, once complete, should give us additional flexibility to operate and meet our long-term strategic goals while also allowing

us 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 we believe these conditions raise substantial doubt about our ability to continue as a going

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

The Company’s continuation

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

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

There is no assurance that we will ever be profitable.

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

of assets or the amounts and classifications of liabilities that may result should we be unable to continue as a going concern.

Liquidity and Capital Resources

As of June 30, 2022, our principal sources of

liquidity were cash and cash equivalents and marketable securities totaling $29.9 million and $30 million in restricted cash and restricted

marketable securities.

Prior to consideration of any debt restructuring, we believe we have sufficient cash on hand to continue operations

for the next six to nine months.

We have, in each of the past two quarters, used a total of approximately $30.0 million to support our

activities in each quarter.

Our current working capital needs are to support revenue growth, fund construction and equipment financing

commitments associated with our TTK Solutions, manage inventory to meet demand forecasts and support operational growth.

Our long-term

financial needs primarily include working capital requirements and capital expenditures.

We anticipate that we will allocate a significant

portion of our current balance of working capital to satisfy the financing requirements of our current and future TTK arrangements.

arrangements require a significant amount of upfront capital necessary to fund construction, associated with facility build-outs, and

There are many factors that may negatively impact our available sources of funds in the future, including the ability to generate

cash from operations, raise debt capital and raise cash from the issuance of our securities.

The amount of cash generated from operations

is dependent upon factors such as the successful execution of our business strategy and general economic conditions.

We may opportunistically raise debt capital, subject

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condition may be adversely affected.

These financial statements have been prepared

on a going concern basis, which implies we believe these conditions raise substantial doubt about our ability to continue as a going

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

Our continuation as a going

concern is dependent upon its ability to obtain the necessary debt or equity financing to continue operations until we begin generating

sufficient cash flows from operations to meet its obligations.

There is no assurance that we will ever be profitable.

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

of assets or the amounts and classifications of liabilities that may result should we be unable to continue as a going concern.

We entered into one Loan Agreement and Promissory

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The PPP loan is payable in 34 equal combined monthly

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

principal and interest payments of approximately $24.0 thousand commencing August 7, 2022.

On March 14, 2022, we

1 unchanged sentence

The Purchase Agreement provides for the issuance of a senior

secured note (the “SPA Note”) in the aggregate amount of $65 million and a warrant (the “SPA Warrant”) to purchase

up to an aggregate of 34,406 shares of Common Stock, with the potential for two potential subsequent closings for notes with an original

principal amount of $35 million each.

On August 18, 2022, we

entered into a Securities Exchange Agreement.

Pursuant to the Exchange Agreement, we have paid $35.2 million under the SPA Note and exchanged

the remaining balance of the SPA Note for a new senior secured note (the “Exchange Note”) with an aggregate original principal

amount of $35 million and a new warrant to purchase 71,142 shares of Common Stock (the “Note Exchange Warrant”).

Additionally,

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

The Exchange Note is

a senior secured obligation of us and ranks senior to all indebtedness of us.

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 us in connection with any equity financing, which will

reduce the outstanding principal amount under the Exchange Note.

At any time, we 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 us 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

we undergo 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.

secured note (the “SPA Note”) in the aggregate amount of $65 million and a warrant exercisable 34,406 shares of Common Stock,

with the potential for two potential subsequent closings for notes with an original principal amount of $35 million each.

closing pursuant to this debt facility occurred on March 24, 2022.

The SPA Note is a senior secured obligation and ranks senior to all

other indebtedness.

We 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 an interest

rate of 6.75% per year, and we will be required to pay interest on March 1, June 1, September 1, and December 1 of each calendar year

through the Maturity Date.

Following the one-year anniversary of the SPA Note’s issuance, we may, in lieu of paying interest in

cash, pay such interest in kind, in which case interest on the SPA Note will be calculated at the rate of 8.75% per year and will be added

to the principal amount of the SPA Note.

At any time following

the one-year anniversary of the SPA Note’s issuance, we 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 any accrued but unpaid interest.

The noteholder

also has the option of requiring us to redeem the SPA Note if we undergo a fundamental change at a price equal to 107% of the then-outstanding

principal amount under the SPA Note plus any accrued interest.

For the quarter ending

June 30, 2022, we will be 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, we 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 totaled approximately $59.9 million, which would be insufficient to cover the combined amount of debt liability,

including the default penalty amount.

Subsequent to the end of the second quarter of

2022, we 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 us 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.

Summary Statement of Cash Flows

The following table presents the major components

of net cash flows from and used in operating, investing, and financing activities for the nine months ended September 30, 2022, and 2021:

of net cash flows from and used in operating, investing, and financing activities for the six months ended June 30, 2022, and 2021:

(In thousands)

September 30,

Net cash (used in) provided by:

4 unchanged sentences

Cash Flow from Operating Activities

used in operating activities consists of net income adjusted for non-cash benefits and expenses, and changes in operating assets and liabilities.

Our primary source of cash provided by operating activities is cash collections from our customers related to the sale of cultivation

and extraction solutions.

Our primary uses of cash from our operating activities include payments for employee-related expenditures, payments

for inventory due to increased demand forecasts, construction costs related to TTK Solutions, acquisition-related costs and the payment

of other operating expenses incurred in the ordinary course of business.

used in operating activities increased from the nine months ended September 30, 2022 to the nine months ended September 30, 2021 primarily

due to higher inventory purchases to meet demand, increased construction costs related to TTK Solutions, payments for employee-related

expenditures and other working capital needs.

For the six months ended June 30, 2022, we incurred

a net loss of $(72.8) million, which included a non-cash gain related to the remeasurement of warrant liabilities of $31.0 million, non-cash

expenses of impairment of goodwill and intangible assets of $69.9 million, a provision of $8.6 million to accounts receivable allowance

for doubtful accounts ($7.1 million for doubtful accounts related to Greenstone TTK Solution), amortization of issuance costs and amortization

of debt discount related to the SPA Note of $3.1 million, $2.2 million related to depreciation and amortization, $1.9 million in connection

with the issuance and acceleration of stock options, non-cash interest income of $1.0 million related to TTK Solutions, a provision of

slow-moving inventory of $929 thousand, a $(907) thousand change in fair value of contingent consideration associated with the acquisition

of Precision, Cascade and Lab Society and a gain attributed to non-controlling interest in the amount of $4 thousand.

Net cash was reduced

by a $20.2 million increase in inventory due to demand forecast, a $2.3 million decrease in accounts payable, a $4.3 million increase

in accounts receivable, a $4.0 million decrease in accrued expenses and other current liabilities, a $0.8 million decrease in prepaid

expenses and other current assets, and a $1.0 million decrease in deferred revenue.

six months ended June 30, 2021, we incurred a net loss of $(9.4) million, which included non-cash expenses of $313 thousand related to

depreciation and amortization, $3.1 million in connection with the issuance and acceleration of stock options, non-cash interest expenses

of $46 thousand related to leases, and gain attributed to non-controlling interest in the amount of $167 thousand.

Net cash was reduced

by an $11.1 million increase in accounts receivable, a $4.5 million increase in prepaid inventory due to demand forecast and a $2.7 million

increase in prepaid expenses, partially offset by a $12.8 million increase in accrued expenses ($11.1 million related to construction

Cash Flow from Investing Activities

Cash provided by investing activities consists

primarily of maturities and sales of investments in marketable securities.

Cash used in investing activities consists primarily of purchases

of marketable securities, cash paid associated with our 2022 acquisition of Lab Society, the issuance of loans receivable in connection

with our financing of construction and equipment under its TTK Solutions offering and purchases of property and equipment expenditures.

The capital expenditures support growth and investment in property and equipment, to expand research, development, and testing capabilities

and, to a lesser extent, the replacement of existing equipment.

Net cash used in investing activities decreased

from the nine months ended September 30, 2022 to the nine months ended September 30, 2021

primarily due to a net decrease in cash used for purchases, sales and maturities of marketable securities, partially offset by an increase

in purchases of property and equipment, issuance of TTK-related loans and cash paid

in connection with our 2022 acquisitions of Lab Society.

Net cash used in investing activities primarily

relates to net purchases of marketable securities, cash paid associated with our 2022 acquisition of Lab Society, the issuance of loans

receivable in connection with our financing of construction and equipment under its TTK Solutions offering, and purchases of property

and equipment, expenditures, and purchase of marketable securities.

The capital expenditures support growth and investment in property

and equipment, to expand research, development, and testing capabilities and, to a lesser extent, the replacement of existing equipment.

For the six months ended June 30, 2022, net cash

used in investing activities was $(29.6) million, which included cash outflows of $20.4 million

related to the issuance of TTK-related loans receivable, $9.1 million of expenditures for property and equipment, $3.5 million paid in

connection with our 2022 acquisitions of Lab Society and $3.4 million in net purchases of marketable securities.

six months ended June 30, 2021, net cash used in investing activities was $(51.9) million, which included cash outflows of $1.1 million

of leasehold improvements, purchasing computer equipment and small machinery, a $483 thousand issuance of loan receivable and $50.3 million

purchases of held to maturity securities.

Cash Flow from Financing Activities

Cash provided

by financing activities consists primarily of proceeds from the issuance of Common Stock, debt, and warrants in private placements and

proceeds from the initial and secondary public offerings.

Cash used in financing activities consists primarily of repayment of debt.

provided by financing activities decreased from the nine months ended September 30, 2022 to the nine months ended September 30, 2021 primarily

due to an increase in repayment of debt.

For the six months ended June 30, 2022, net cash

provided by financing activities was $86.7million.

Net cash provided by financing activities was

primarily driven by our two private placements during 2022.

We received $25.8 million in net proceeds from our issuance of Common Stock

and warrants in a private placement, and $62.4 million in net proceeds from our issuance of debt and warrants in a private placement.

Additionally, we received $21 thousand in proceeds from the exercise of stock options and warrants.

Each of the above inflows of cash

was offset by $1.5 million in payments relating to financing loans and financing leases.

six months ended June 30, 2021, net cash provided by financing activities was $137.4 million.

Net cash provided by financing activities

was attributable to $57.0 million proceeds from our initial IPO, $80.0 million from our secondary public offering, both net of fees, and

proceeds from the exercise of options and warrants of $726 thousand, offset by $94 thousand payments of financing leases.

Off-Balance Sheet Arrangements

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Part I, Item, 2, “Management’s Discussion

and Analysis of Financial Condition and Results of Operations” discusses our consolidated financial statements, which have been

prepared in accordance with GAAP.

The preparation of these consolidated financial statements requires management to make estimates

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

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

results may differ from these estimates under different assumptions or conditions.

and Analysis of Financial Condition and Results of Operations” discusses our condensed consolidated financial statements, which

have been prepared in accordance with GAAP.

The preparation of these condensed consolidated financial statements requires management

to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and

liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the

reporting period.

Actual results may differ from these estimates under different assumptions or conditions.

These estimates are based on our knowledge and

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The significant accounting policies and estimates

that have been adopted and followed in the preparation of our consolidated financial statements are detailed in Note 3 - Summary of Significant

Accounting Policies included in our 2021 Annual Report and Note 1 - Overview, Basis of Presentation and Significant Accounting Policies

to our consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

There have been no changes in these

policies and estimates that had a significant impact on the financial condition and results of operations for the periods covered in this

Quarterly Report.

that have been adopted and followed in the preparation of our condensed consolidated financial statements are detailed in Note 2 - Summary

of Significant Accounting Policies included in our 2021 Annual Report and Note 1 - Overview, Basis of Presentation and Significant Accounting

Policies to our condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

There have been no

changes in these policies and estimates that had a significant impact on the financial condition and results of operations for the periods

covered in this Quarterly Report.

Recently Issued Accounting Pronouncements Adopted

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on recently issued accounting pronouncements are included within Note 2 - Overview, Basis of Presentation

and Significant Accounting Policies, included elsewhere in the notes to consolidated financial statements covered under Part I,

Item 1 of this Quarterly Report on Form 10-Q.

and Significant Accounting Policies, included elsewhere in the notes to condensed consolidated financial statements covered under

Part I, Item 1 of this Quarterly Report on Form 10-Q.

New Accounting Pronouncements Not Yet Adopted

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on new accounting pronouncements not yet adopted are included within Note 2 - Overview, Basis of

Presentation and Significant Accounting Policies, included elsewhere in the notes to consolidated financial statements covered

under Part I, Item 1 of this Quarterly Report on Form 10-Q.

Presentation and Significant Accounting Policies, included elsewhere in the notes to condensed consolidated financial statements

covered under Part I, Item 1 of this Quarterly Report on Form 10-Q.

Quantitative and Qualitative Disclosures

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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 2. Management’s Discussion and Analysis