What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-03-21 compared with 2024-04-15 · 837 added, 831 removed, 39 unchanged (98% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

should read the following discussion and analysis of our financial condition and results of our operations together with our consolidated

financial statements and the notes thereto appearing elsewhere in this report.

This discussion contains forward-looking statements reflecting

our current expectations, whose actual outcomes involve risks and uncertainties.

Actual results and the timing of events may differ materially

from those stated in or implied by these forward-looking statements due to a number of factors, including those discussed in the sections

entitled “Risk Factors,” “Cautionary Statement regarding Forward-Looking Statements” and elsewhere in this report.

are one of the most innovative providers of advanced cultivation and extraction solutions for the cannabis industry, bringing data, science,

and technology to the forefront of the market.

Our proprietary micro-environment-controlled Agrify 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.

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

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

Corporation was incorporated in the state of Nevada on June 6, 2016, originally incorporated as Agrinamics, Inc.

(“Agrinamics”).

On September 16, 2019, Agrinamics amended its articles of incorporation to reflect a name change to Agrify Corporation.

corporate headquarters are located in Troy, Michigan.

We also lease properties located within various geographic regions in which we

conduct business, including Colorado, Georgia and Michigan.

October 18, 2022, we effected a 1-for-10 reverse stock split on our Common Stock.

July 5th, 2023, we effected a 1-for-20 reverse stock split on our Common Stock.

All share and per information has been retroactively

adjusted to give effect to the reverse stock splits for all periods presented, unless otherwise indicated.

Business Developments

the beginning of 2023, we announced a strategic plan to foster sustainable long-term growth through cost efficiencies and enhanced sales

and growth initiatives.

We have been focused on growing our cultivation business by helping our existing Agrify Total Turn-Key customers

to bring their facilities online and driving additional sales through our RDP.

As a result, we have successfully installed and commenced

our Las Vegas customer, Nevada Holistic Medicine, our Denver Colorado customer, Denver Greens, and signed several new customers such

as Golden Lake Business Park in California, and Harvest Works in New Jersey.

As a testimony to the Vertical Farming Unit’s (“VFU”)

ability to produce high quality flower, Nevada Holistic Medicine is already consistently harvesting 9 pounds of A-grade flower per VFU,

or roughly 64 grams per canopy square foot, and seeing 90%+ A-grade flower produced with exceptional color, trichome, and terpene levels.

since we have streamlined our expansive extraction portfolio of technologies, we have successfully supported the deployment of several

turnkey solvent-based and solventless extraction packages to customers in California, Michigan, and the East Coast.

In addition, we have

released several new technologies and products into the market based on customer feedback, including our first peer-reviewed Cannabeast

13 Distillation Unit, a Diamond Miner, Stitch-less Double Filtration Rosin Bags, and the revamped PX30 Hydrocarbon Extractor.

also made significant strides to receive UL Compliance for Precision Extractions’ EXP Explosion Proof Rooms in an effort to continue

our commitment to safety and quality within cannabis extraction facilities.

industry developments illustrate the continuous innovation, and commitment to safety within the cannabis sector as our company adapts

to evolving market demands.

More importantly, our growing partnership across the Country is a strong testimony to operators’ continued

trust in Agrify’s team and technologies in the most competitive markets.

Acquisition and Warrant Issuance

October 27, 2023, following the execution of the Modification Agreement (as defined below), CP Acquisitions LLC (the “New Lender”),

an entity affiliated with and controlled by Raymond Chang, our Chairman and Chief Executive Officer, and I-Tseng Jenny Chan, a member

of our Board of Directors, purchased from the Former Lender the Senior Secured Note issued by us to the Former Lender on August 19, 2022

(the “Exchange Note”) and the Senior Secured Convertible Note issued by us to the Former Lender on March 10, 2023 (the “Convertible

As a condition to the Note Purchase, we and the New Lender entered into an acknowledgment and release (the “Release

Agreement”) with the Former Lender, pursuant to which we and the New Lender released the Former Lender from any claims, demands,

actions, suits, obligations and causes of action arising on or before the date thereof.

October 27, 2023, as a condition precedent to the Note Purchase, we entered into a letter agreement (the “Letter Agreement”)

with the Former Lender.

Pursuant to the Letter Agreement, we agreed, immediately prior to the note purchase transaction, to exchange

$3.0 million in principal and approximately $1.1 million in accrued but unpaid interest outstanding under the Exchange Note for a warrant

(the “Exchange Warrant”) to purchase 2,809,669 shares of common stock.

Additionally, we agreed to exchange the 375,629 shares

of common stock held in abeyance for the Former Lender under the terms of the letter agreement between us and the Former Lender dated

as of April 26, 2023 for a warrant to purchase 375,629 shares of common stock (the “Abeyance Warrant”).

of the Exchange Warrant and the Abeyance Warrant has an exercise price of $0.001 per share, became exercisable upon issuance, has a term

of five years from the date of issuance and is exercisable on a cash basis or on a cashless exercise basis at the Former Lender’s

The Former Lender exercised the Exchange Warrant and Abeyance Warrant in full during January and February 2024.

Amendment and Secured Promissory Note

July 12, 2023, we issued an unsecured promissory note in favor of GIC Acquisition, LLC (“GIC”), an entity that is owned and

managed by Raymond Chang, our Chairman and Chief Executive Officer.

On October 27, 2023, we and GIC amended and restated the Note (the

Pursuant to the terms of the GIC Note, as restated, the maturity date was extended until December 31, 2023 and

we granted a junior security interest in our assets.

On January 25, 2024, we and GIC amended and restated the GIC Note to increase the

principal amount thereunder to $1.0 million, all of which is currently outstanding under the GIC Note, and to extend the maturity date

until June 30, 2024.

with the restatement of the GIC Note, we issued a junior secured promissory note (the “Junior Secured Note”) to the New Lender.

Pursuant to the Junior Secured Note, the New Lender loaned an aggregate of approximately $4.0 million to us.

The Junior Secured Note

bore interest at a rate of 10% per annum, had a maturity date of December 31, 2023, and could be prepaid without any fee or penalty.

The Junior Secured Note was a junior secured obligation.

Amendment, Consolidation and Conversion

January 25, 2024, following stockholder approval at an annual meeting of stockholders on January 8, 2024, we and the New Lender consolidated

the outstanding principal and interest due under the Junior Secured Note and the Exchange Note into the Convertible Note and amended

and restated the Convertible Note (as amended and restated, the “Restated Note”), with an outstanding principal amount of

approximately $18.9 million at the time of issuance of the Restated Note.

The Restated Note amended the terms of the Convertible Note

by, among other things, (i) reducing the conversion price to $1.46 per share of common stock, (ii) increasing the beneficial ownership

limitation to 49.99% with respect to any individual or group, provided that the New Lender may assign its right to receive shares upon

conversion to Mr.

Chang and/or Ms.

Chan or their affiliates, in which case the 49.99% beneficial ownership limitation will apply to each

of them individually, (iii) extending the maturity date to December 31, 2025, (iv) increasing the interest rate from 9% to 10% per annum,

(v) increasing the default interest from 15% to 18% per annum, and (vi) providing for the payment of interest every six months, or in

lieu of cash interest payments, we may issue shares as payments-in-kind at a conversion price equal to the higher of (i) $1.46 or (ii)

a 20% discount to our trailing seven-day volume weighted average price as of the date of interest payment.

Immediately following the

execution of the Restated Note, the New Lender immediately elected to convert approximately $3.9 million of outstanding principal into

an aggregate of 2,671,633 shares of common stock, and assigned its rights to receive such shares to entities affiliated with Mr.

Following the conversion, there was $15.0 million in principal amount outstanding under the Restated Note.

Molding Settlement and Warrant Issuance

prior to the note purchase described above on October 27, 2023, and with an effective date as of October 18, 2023, we entered into a

Modification and Settlement Agreement (the “Modification Agreement”) with Mack Molding Company (“Mack”).

to the Modification Agreement, we and Mack agreed to settle an outstanding dispute of approximately $8.24 million under a Supply Agreement

between the parties dated December 7, 2020 (the “Supply Agreement”) by reducing the aggregate amount due to Mack and extending

the timeline for payment.

The Modification Agreement requires us to make payments of $500,000 and $250,000 to Mack on or before November

1, 2023 and February 15, 2024, respectively.

Following the November 1, 2023 payment, we will be entitled to take possession of certain

Vertical Farming Units (“VFUs”) that were assembled under the Supply Agreement.

The Modification Agreement also requires

us to purchase from Mack a minimum of 25 VFUs per quarter for each quarter during 2024 and a minimum of 50 VFUs per quarter for the six

quarters beginning with the first quarter of 2025.

We are required to pay a storage fee of $25,000 per month for VFUs subject to the

Modification Agreement.

Additionally,

as part of the Modification Agreement, we agreed to issue to Mack a warrant (the “Mack Warrant”) to purchase 750,000 shares

Management’s Discussion and Analysis

of Financial Condition and Results of Operations.

You should read the following

discussion and analysis of our financial condition and results of our operations together with our consolidated financial statements and

the notes thereto appearing elsewhere in this report.

This discussion contains forward-looking statements reflecting our current expectations,

whose actual outcomes involve risks and uncertainties.

Actual results and the timing of events may differ materially from those stated

in or implied by these forward-looking statements due to a number of factors, including those discussed in the sections entitled “Risk

Factors,” “Cautionary Statement regarding Forward-Looking Statements” and elsewhere in this report.

Unless otherwise stated or the context otherwise

requires, references in this report to “Agrify”, the “Company,” “we,” “us,” “our,”

or similar references mean Agrify Corporation and its subsidiaries on a consolidated basis.

Agrify is a developer of branded innovative solutions for the cannabis

and hemp industries.

Our Señorita brand offers consumers hemp-derived tetrahydrocannabinol (“THC”) beverages that mirror

well-known cocktails like a margarita – in three flavors – classic Lime Jalapeño Margarita, Mango Margarita, and Paloma.

for its clean, fresh taste and commitment to high-quality, natural ingredients, Señorita offers a low-sugar, low-calorie alternative

to alcoholic beverages and is available at top retailers including Total Wine, ABC Fine Wine & Spirits, and Binny’s in nine

states and Canada, with plans for expansion and future availability in premier on-premises destinations.

In addition to beverages,

Agrify has also historically been a leading provider of innovative cultivation and extraction solutions for the cannabis industry.

comprehensive extraction product line, which includes hydrocarbon, alcohol, solventless, post-processing, and lab equipment, empowers

producers to maximize the quantity and quality of extract required for premium concentrates.

Additionally, prior to its sale on December

31, 2024, our proprietary micro-environment-controlled Agrify Vertical Farming Units (“VFUs”) enabled cultivators to produce

high quality products for the cannabis industry.

Agrify was incorporated

in the state of Nevada on June 6, 2016, originally incorporated as Agrinamics, Inc.

(or “Agrinamics”).

On September 16, 2019,

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

Reverse Stock Splits

On July 5, 2023, we effected a 1-for-20 reverse stock split of 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 8, 2024, we effected a 1-for-15 reverse stock split of our

common stock.

All share and per share information has been retroactively adjusted to give effect to the reverse stock splits for all periods

presented unless otherwise indicated.

No fractional shares of common stock were issued as a result of these

reverse stock splits.

Any fractional shares in connection with these reverse stock splits were rounded up to the nearest whole share and

no stockholders received cash in lieu of fractional shares.

The reverse stock splits had no impact on the number of shares of common stock

that we are authorized to issue pursuant to our articles of incorporation or on the par value per share of the common stock.

adjustments were made to the number of shares of Common Stock issuable upon exercise or conversion of our outstanding stock options and

warrants, the exercise price or conversion price (as applicable) of our outstanding stock options and warrants, and the number of shares

reserved for issuance under our equity incentive plan.

All share and per share information included in this Annual Report on Form 10-K

has been retroactively adjusted to reflect the impact of these reverse stock splits.

Recent Developments

February 2025 Changes in Directors

On February 5, 2025 the

Company announced that Peter Shapiro and Sanjay Tolia were appointed to our Board of Directors (the “Board”) effective January

The Company also announced Richard Drexler’s departure from the Board effective as of January 31, 2025.

Public Offering

On February 27, 2024, we

entered into a placement agency agreement with Alexander Capital, LP as placement agent, pursuant to which we agreed to issue and sell

an aggregate of 184,000 shares of Common Stock, and, in lieu of Common Stock to certain investors that so chose, Pre-Funded Warrants (“Pre-Funded

Warrants”) to purchase 264,245 shares of Common Stock.

The public offering price for each share of Common Stock was $5.70, and the

offering price for each Pre-Funded Warrant was $5.69, which equals the public offering price per share of the Common Stock, less the $0.001

per share exercise price of each Pre-Funded Warrant.

The Offering was made pursuant to a registration statement on Form S-1 that we filed

with the SEC on January 26, 2024 and was declared effective on February 14, 2024.

Raymond Chang, our former Chairman and Chief Executive

Officer, participated in the offering on the same terms as other investors.

The net proceeds from the public offering were approximately

$2.2 million, after deducting placement agent fees and commissions and expenses.

The public offering closed on February 28, 2024.

Debt Modification;

Warrant Amendments

On May 21, 2024, we and CP

entered into an amendment to the Convertible Note (the “Consolidated Note Amendment”), pursuant to which CP could elect, in

lieu of shares of Common Stock issuable upon conversion of the Convertible Note, to instead receive Pre-Funded Warrants.

The conversion

price applicable to the Pre-Funded Warrants remained unchanged at $21.90.

Immediately following the execution of the Consolidated Note

Amendment, CP elected to convert $11.5 million of outstanding principal into a Pre-Funded Warrant exercisable at issuance for up to 525,114

shares of Common Stock having a fair value of approximately $2.9 million (the “CP Warrant Conversion”).

On May 21, 2024, we and GIC

Acquisition, LLC (“GIC”), the holder of an unsecured promissory note (the “GIC Note”), amended and restated the

GIC Note (the “Restated GIC Note”) to increase the aggregate principal amount to approximately $2.29 million, extend the maturity

date to December 31, 2025, and provide that the Restated Junior Note may be converted into Common Stock of the Company or, at GIC’s

election, Pre-Funded Warrants, in each case at a conversion price of $4.65.

Immediately following the execution of the Restated GIC Note,

GIC elected to convert all of the outstanding principal under the Restated GIC Note into a Pre-Funded Warrant exercisable at issuance

for up to 492,204 shares of Common Stock having a fair value of approximately $2.7 million (the “GIC Warrant Conversion”,

and, collectively with the CP Warrant Conversion, the “Related Party Warrant Conversions”).

On June 30, 2024, we executed

an amendment to the Pre-Funded Warrants, pursuant to which we revised certain provisions of the Pre-Funded Warrants to (i) remove the

adjustment to the exercise price of the Pre-Funded Warrants when there is a bona fide equity financing with the primary purpose of raising

capital (the “Adjustment Provisions”) and (ii) increase the threshold for a change of control from 50% to greater than 50%.

On August 12, 2024, our stockholders approved a proposal to amend the Pre-Funded Warrants to add the Adjustment Provisions at a future

Pursuant to that approval, on August 28, 2024, we entered into amendments to the Pre-Funded Warrants to insert the Adjustment Provisions.

As a result of the warrant amendments and the subsequent issuance of 189,645 shares of Common Stock to Ionic Ventures, LLC (“Ionic”)

at an effective purchase price of approximately $2.109 per share of Common Stock, the number of shares of Common Stock underlying the

Pre-Funded Warrant held by CP was adjusted to 5,452,288 and the number of shares of Common Stock underlying the Pre-Funded Warrant held

by GIC was adjusted to 1,085,122.

On August 30, 2024, CP partially exercised its Pre-Funded Warrant and entities affiliated with Mr.

Chan received an aggregate of 383,127 shares of Common Stock upon the exercise.

On September 27, 2024, we further amended the

Pre-Funded Warrants to remove the Adjustment Provisions from each warrant and (ii) preventing the holders from any additional exercise

of either of the Pre-Funded Warrants at any time between September 27, 2024 and October 9, 2024.

Change in Accounting Firm

On June 20, 2024 after an

evaluation process, the Audit Committee of our Board (the “Audit Committee”) dismissed Marcum LLP as our independent registered

public accounting firm and appointed MATSUURA (“Matsuura”) as our independent registered public accounting firm for the fiscal

year ending December 31, 2024, in each case effective as of June 25, 2024.

On June 30, 2024, the audit practice of Matsuura was combined

in a transaction pursuant to which Matsuura merged its operations with GuzmanGray, a professional corporation (“GuzmanGray”).

On July 19, 2024, Matsuura resigned as our auditors and the Audit Committee appointed GuzmanGray as our independent registered public

accounting firm effective as of the Effective Date.

Equity Line of Credit Facility

On August 28, 2024, we entered

into the Purchase Agreement and a registration rights agreement with Ionic pursuant to which Ionic committed to purchase up to an aggregate

of $15.0 million of our Common Stock, subject to certain limitations, from time to time and at our sole discretion over the 36-month term

of the Purchase Agreement.

From and after the date the

registration statement relating to the resale of the shares sold to Ionic was declared effective, November 5, 2024, we may from time to

time on any business day, by written notice delivered by us to Ionic, direct Ionic to purchase between $250,000 and $750,000 of shares

of Common Stock on such business day, at a purchase price per share that will be equal to 93% (or 80% if the Common Stock is not then

trading on the Nasdaq Capital Market) of the lowest daily VWAP over a specified measurement period beginning after the delivery of the

purchase notice, as described further in the Purchase Agreement (each, a “Regular Purchase”).

The Purchase Agreement also

permitted us to deliver an exemption purchase notice for $400,000 on the date of signing, with the shares so purchased to be delivered

following the Commencement Date, and we delivered an exemption purchase notice for $400,000 for the purchase by Ionic of 189,645 shares

of Common Stock.

The Mack Warrant has an exercise price of $4.00 per share, was exercisable upon issuance, has a term of three years

from the date of issuance and is exercisable on a cash basis unless at the time of exercise there is no effective registration statement

for the resale of the underlying shares, in which case the Mack Warrant may be exercised on a cashless exercise basis at Mack’s

Notices and Hearing

April 18, 2023, we received a notice (the “April Nasdaq Notice”) from The Nasdaq Stock Market LLC (“Nasdaq”)

that we were noncompliance with Nasdaq Listing Rule 5250(c)(1) as a result of our failure to file our Annual Report on Form 10-K (the

“Form 10-K”) with the SEC by the required due date.

May 17, 2023, we received a second notice from Nasdaq (the “May Nasdaq Notice”) that we remained noncompliant with Nasdaq

Listing Rule 5250(c)(1) as a result of our failure to file our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023 (the

“First Quarter Form 10-Q”) with the SEC by the required due date.

August 16, 2023, we received a third notice from Nasdaq that we remain noncompliant with Nasdaq Listing Rule 5250(c)(1) as a result of

our failure to file our Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2023 (the “Second Quarter Form 10-Q”)

with the SEC by the required filing date (the “August Nasdaq Notice” and, together with the April Nasdaq Notice and the May

Nasdaq Notice, the “Nasdaq Notices”).

October 17, 2023, we received a Staff Delisting Determination (the “Staff Determination”) from the Listing Qualifications

Department of Nasdaq notifying us that we were not in compliance with Nasdaq’s continued listing requirements under the Listing

Rule as a result of our failure to file the First Quarter Form 10-Q, the Second Quarter Form 10-Q and the Form 10-K (collectively, the

“Delinquent Reports”) in a timely manner.

We filed each of the Delinquent Reports between November 28, 2023 and January 3,

December 1, 2023, we received a notice Nasdaq stating that because we reported stockholders’ equity of $(17.17) million in our

Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, we were no longer in compliance with Nasdaq Listing Rule 5550(b)(1),

which requires that listed companies maintain a minimum of $2.5 million in stockholders’ equity.

timely requested a hearing before the Nasdaq Hearings Panel (the “Panel”), which hearing was held on January 11, 2024.

the hearing, we presented a plan to regain compliance with Nasdaq Listing Rule 5550(b)(1).

On January 30, 2024, we received formal notice

that the Panel had granted our request for an exception through April 15, 2024 to evidence compliance with Rule 5550(b)(1), which represents

the full extent of the Panel’s discretion to grant continued listing.

As a result, there can be no assurance that we can regain

compliance by the end of the extension period.

Additionally,

on March 5, 2024, we received a deficiency letter from the Listing Qualifications Department of 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 Stock Market under Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Requirement”).

The Notice had no immediate effect on the listing of our common stock on Nasdaq.

In accordance with Nasdaq Listing Rule 5810(c)(3)(A),

we have 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 this period pursuant to Nasdaq Listing Rule 5810(c)(3)(H).

compliance period for us will expire on September 3, 2024.

will take all possible actions to restore our compliance with Nasdaq, but we can provide no assurances that the listing of our common

stock will be restored or that we otherwise will remain listed on Nasdaq.

If we fail to continue to satisfy the continued listing requirements

of Nasdaq, such as the corporate governance requirements or the minimum closing bid price requirement, Nasdaq will take steps to delist

our common stock.

Such a de-listing would likely have a negative effect on the price of our common stock and would impair stockholders’

ability to sell or purchase our common stock when they wish to do so, as well as adversely affect our ability to issue additional securities

and obtain additional financing in the future.

February 27, 2024, we entered into a placement agency agreement with Alexander Capital, LP as placement agent, pursuant to which we agreed

to issue and sell an aggregate of 2,760,000 shares of common stock, and, in lieu of common stock to certain investors that so chose,

pre-funded warrants to purchase 3,963,684 shares of common stock.

The public offering price for each share of common stock was $0.38,

and the offering price for each pre-funded warrant was $0.379, which equals the public offering price per share of the common stock,

less the $0.001 per share exercise price of each pre-funded warrant.

The Offering was made pursuant to a registration statement on Form

S-1 that we filed with the Securities and Exchange Commission on January 26, 2024 and was declared effective on February 14, 2024.

Chang, our Chairman and Chief Executive Officer, participated in the offering on the same terms as other investors.

The net proceeds

from the public offering were approximately $2.2 million, after deducting placement agent fees and commissions and expenses.

offering closed on February 28, 2024.

preparation of consolidated financial statements in accordance with accounting principles generally accepted in the U.S.

requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures 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.

On November 5, 2024, we issued 189,645 shares of Common Stock to Ionic.

We will control the timing and amount of any

sales of Common Stock to Ionic pursuant to the Purchase Agreement.

Ionic has no right to require us to sell any shares of Common Stock

to Ionic, but Ionic is obligated to make purchases as we direct, subject to certain conditions.

Sale of Cultivation Business

On December 31, 2024, we entered into and closed an Asset Purchase

Agreement (the “Cultivation Purchase Agreement”) with CP Acquisitions, LLC (“CP”), an entity affiliated with Raymond

Chang, our former Chairman and Chief Executive Officer.

Under the Cultivation Purchase Agreement, CP acquired assets from us relating

to our VFUs, including the related Agrify total-turnkey (“TTK”) solution assets and Agrify Insights TM software

solutions (collectively the “Cultivation Business”).

The aggregate consideration received by us for the sale of the Cultivation

Business consisted of the assumption by CP of (i) all of our obligations pursuant to secured indebtedness then due CP with an aggregate

amount of principal and accrued interest of approximately $7 million, and (ii) certain other liabilities relating to the Cultivation Business.

Señorita Acquisition

On December 12, 2024, we completed the acquisition of substantially

all of the assets of Double or Nothing, LLC (“Double or Nothing”) in connection with its Señorita brand of beverages

hemp-derived containing cannabinoids.

Under the Purchase Agreement, we acquired the Señorita brand of beverages and related assets

from Double or Nothing relating to the portions of its business operating in compliance with Canadian law and under the Agricultural Improvement

Act of 2018 (the “2018 Farm Bill”) and applicable state laws.

Private Placement

On November 20, 2024, we raised gross proceeds of approximately $25.9

million in a private placement following the closing of certain securities purchase agreements with institutional investors and other

accredited investors.

In connection with the private placement, we issued (i) 203,988 shares Common Stock and (ii) pre-funded warrants

to purchase up to an aggregate of 949,515 shares of Common Stock at a purchase price per share of Common Stock of $22.30 and a purchase

price per pre-funded warrant of $22.2999.

Convertible Note

On November 5, 2024, we

issued a Secured Convertible Note (the “Note”) to RSLGH, LLC (the “Investor”), a subsidiary of Green Thumb Industries

(“Green Thumb”).

The Note is a secured obligation and ranks senior to all of our indebtedness except for certain indebtedness

set forth in the Note.

The Note will mature on November 5, 2025 (the “Maturity Date”) and contains a 10.0% annualized interest

rate, with interest to be paid on the first calendar day of each September and March while the Note is outstanding, in cash, beginning

January 1, 2025.

The principal amount of the Note will be payable on the Maturity Date.

2024 Board and Management Changes

Also on November 5, 2024,

immediately following the issuance of the Note, Raymond Chang, our prior CEO and Chairman, resigned as a member of the Board and any subsidiaries

and as President and Chief Executive Officer of the Company, and I-Tseng Jenny Chan resigned as a member of the Board.

Benjamin Kovler,

Armon Vakili and Richard Drexler replaced Raymond Chang and I-Tseng Jenny Chan on the Board and Benjamin Kovler assumed the position of

Effective May 17, 2024, Leonard Sokolow resigned as a member of the

Board and its committees.

Effective December 3, 2024, Brian Towns resigned from his roles as the Company’s Executive Vice President

and General Manager of Extraction Division to pursue other opportunities.

On December 31, 2024, in connection with the Cultivation Purchase

Agreement, David Kessler ceased serving as the Company’s Chief Science Officer, Executive Vice President and General Manager of

Lines of Business

Hemp-Derived Beverages

The Company acquired the Señorita

brand of hemp-derived beverages in November 2024.

Señorita was designed and formulated by world-class winemakers Charles Bieler

and Joel Gott.

Recognizing a growing generational demand for adult beverage alternatives, Bieler and Gott gave the classic margarita a

modern twist—replacing alcohol with hemp-derived to create a delightful, hangover-free beverage alternative.

Through the use of

all-natural, premium ingredients like organic Mexican agave, fresh lime juice and sweet, tangy mango, Señorita quickly gained acclaim,

taking home the top spot in The High Times Cannabis Cup just one year after inception.

Gott and Bieler continue to collaborate on the

brand with Mr.

Kovler and the Agrify team.

Señorita currently

offers three award-winning flavors – classic Lime Jalapeño Margarita, Paloma, and Mango Margarita.

A fourth flavor, low-calorie

Ranch Water, is expected to debut in 2025.

Señorita’s hemp-derived beverages are currently available at top retailers including

Total Wine, ABC Fine Wine & Spirits, and Binny’s in nine U.S.

states and Canada.

Products are also available for direct-to-consumer

purchase where permissible under state law at senoritadrinks.com.

Extraction Solutions

Our extraction equipment and

business solutions can be used within indoor processing facilities by fully licensed cannabis and hemp cultivators and processors or in

some cases, by individual processors for individual use in compliance with applicable law.

We sell our proprietary extraction solutions

to independent, licensed cultivators and processing labs.

In light of our increased

focus on hemp-derived beverages following the Señorita acquisition, the Board is exploring a variety of alternatives for the extraction

business while focusing on optimizing shareholder value creation.

We strategically acquired

four of the top brands in the extraction space in late 2021 and early 2022 in Precision Extraction, PurePressure, Lab Society, and Cascade

These iconic brands encompass everything from hydrocarbon, alcohol, and solventless extraction to distillation and post-processing.

Combined, these four acquisitions provide what we believed to be one of the most comprehensive extraction solutions from a single provider.

Our extraction brands provide equipment and solutions for extraction, post-processing, and testing for the cannabis and hemp industries.

The extraction, post-processing and testing services are complementary and highly attractive areas of the supply chain.

Discontinued Operations

Cultivation Solutions

Prior to its sale on December

31, 2024, we sold proprietary cultivation solutions to independent licensed cultivators.

The two primary products we sold were the VFUs

and Agrify Insights™ software.

The proprietary VFU technology

offered a modular, compartmentalized micro-climate growing system for indoor vertical farming.

The VFU system was designed for craft farmers,

single-state operators, and multi-state operators who were looking to consistently produce higher-quality crops at scale.

The VFUs were

designed to line up horizontally in rows, and could be stacked vertically up to three units tall.

The VFUs were designed to

work in conjunction with the Agrify Insights™ software.

Each VFU sold included a license for Agrify Insights™ and a monthly

Software-as-a-Service (“SaaS”) subscription fee was charged per VFU.

The VFU could not operate successfully without Agrify

Insights™, and we typically charged between $1,500 to $2,400 per VFU sold annually.

Agrify Insights™ license agreements were

generally for a multi-year term, with an annual auto-renewal.

The Company’s TTK

Solution was the industry’s first-of-its-kind program in which the Company engaged with qualified cannabis operators in the

early phases of their business plans and provides critical support, typically over a 10-year period, which includes:

capital for construction costs, the design and build-out of their cultivation and extraction facilities, state-of-the-art

cultivation and extraction equipment, subscription to the Company’s Agrify Insights™, process design, training,

implementation, proven grow recipes, product formulations, data analytics, and consumer branding.

While we have not entered into any

new TTK Solutions since January 1, 2024 and will not in the future, we have previously deployed this program with certain key former

The data-driven TTK Solution for cultivation solutions enabled our customers to get to market faster by providing them

with seamlessly integrated hardware and software offerings as well as access to capital and a wide range of associated services from

experts including consulting, training, design, engineering, and construction.

Note Amendment, Consolidation and Conversion

On January 25, 2024, following

stockholder approval at an annual meeting of stockholders on January 8, 2024, we and CP consolidated the outstanding principal and interest

due under the junior secured promissory note (the “Junior Secured Note”) to CP and a promissory note with an original principal

amount of $35.0 million (the “Exchange Note”) to High Trail Special Situations LLC (the “Original Lender”) into

a convertible note (the “Convertible Note”) and amended and restated the Convertible Note (as amended and restated, the “Restated

Note”), with an outstanding principal amount of approximately $18.3 million at the time of issuance of the Restated Note.

Note amended the terms of the Convertible Note by, among other things, (i) reducing the conversion price to $1.46 per share of our “Common

Stock”), (ii) increasing the beneficial ownership limitation to 49.99% with respect to any individual or group, provided that CP

could assign its right to receive shares upon conversion to Raymond Chang, our former Chairman and Chief Executive Officer and/or I-Tseng

Jenny Chan, a former member of the Board, or their affiliates, in which case the 49.99% beneficial ownership limitation would have applied

to each of them individually, (iii) extending the maturity date to December 31, 2025, (iv) increasing the interest rate from 9% to 10%

per annum, (v) increasing the default interest from 15% to 18% per annum, and (vi) providing for the payment of interest every six months,

or in lieu of cash interest payments, we could issue shares of our Common Stock as payments-in-kind at a conversion price equal to the

higher of (i) $1.46 or (ii) a 20% discount to our trailing seven-day volume weighted average price as of the date of interest payment.

Immediately following the execution of the Restated Note, CP immediately elected to convert approximately $3.9 million of outstanding

principal into an aggregate of 178,108 shares of Common Stock, and assigned its rights to receive such shares to entities affiliated with

Chang and Ms.

Following the conversion, there was $15.0 million in principal amount outstanding under the Restated Note.

connection with the sale of the Cultivation Business on December 31, 2024, CP assumed all of our obligations under the Restated Note.

Issuance of Junior Note

On August 14, 2024, we issued

the 2024 CP Note to CP.

Pursuant to the 2024 CP Note, CP would lend up to $1,500,000 to the Company.

The 2024 CP Note bore interest at

a rate of 10% per annum, would mature in full on July 1, 2025, and could be prepaid without any fee or penalty.

The 2024 CP Note was secured

by our assets and ranked junior to existing secured indebtedness.

The 2024 CP Note could have been converted into Common Stock of the

Company or, at CP’s election, Pre-Funded Warrants with an exercise price of $0.001 per share, in each case at a conversion price

In connection with the sale of the Cultivation Business on December 31, 2024, CP assumed all of our obligations under the

2024 CP Note.

Mack Molding Modification Agreement

On October 27, 2023, and effective

as of October 18, 2023, we entered into a Modification and Settlement Agreement (the “Modification Agreement”) with Mack Molding

Company (“Mack”) with respect to a dispute with Mack under an existing supply agreement.

On February 29, 2024, we met our

contractual obligations under the terms of the Modification Agreement.

In settlement of the dispute, we made cash payments of $500,000

and $250,000 to Mack and issued to Mack a warrant to purchase 750,000 shares of Common Stock.

On August 30, 2024, we entered

into an amendment to the Modification Agreement with Mack, which modified the payment terms and VFU purchase requirements under the Modification

Pursuant to the amendment, we agreed to make payments of $1.0 million prior to October 31, 2024 and an additional $1.0 million

prior to December 31, 2024.

We also agreed to purchase at least 25 VFUs prior to October 31, 2024 and a further 25 VFUs between November

1, 2024 and December 31, 2024.

As a precursor to the sale of the Cultivation Business on December 31, 2024, this agreement was settled

on December 16, 2024 and the corresponding warrants issued to Mack were terminated.

Convertible Note Amendment

On October 18, 2024, we entered

into an amendment with CP to the 2024 CP Note, pursuant to which the maximum principal sum of the 2024 CP Note was increased from $1,500,000

to $3,000,000.

The conversion price applicable to the 2024 CP Note remained unchanged with an exercise price of $0.001 per share, in each

case at a conversion price of $3.9495 (as may be adjusted per the 2024 CP Note).

In connection with the sale of the Cultivation Business

on December 31, 2024, CP assumed all of our obligations under the 2024 CP Note.

Nasdaq Compliance

On January 19, 2023, we received a deficiency letter from the Listing

Qualifications Department (the “Staff”) of The Nasdaq Stock Market, LLC (“Nasdaq”) notifying us that, for the

previous 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 a continued listing on The Nasdaq Capital Market under 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 July 19, 2023, we received a notice from Nasdaq confirming our compliance with the minimum

bid price rule.

As disclosed in the Current Report on Form 8-K filed on April 17, 2023,

the audit committee of our Board (the “Audit Committee”) concluded that, as a result of inadvertent errors in the accounting

for warrants previously issued by us, it was appropriate to restate our previously issued unaudited consolidated interim financial statements

as of and for the quarterly periods ended March 31, 2022, June 30, 2022 and September 30, 2022 included in our Quarterly Reports on Form

10-Q for such periods in amended quarterly reports for the affected periods.

As a result of such restatements, we were unable to timely

file the Forms 10-K and 10-Q with respect to such periods without unreasonable effort or expense.

On April 18, 2023, we received a notice

from Nasdaq that we were noncompliant with Nasdaq Listing Rule 5250(c)(1) as a result of our failure to file our Annual Report on Form

10-K with the SEC by the required due date.

On May 17, 2023, we received

a second notice from Nasdaq that we remained noncompliant with Nasdaq Listing Rule 5250(c)(1) as a result of our failure to file our Quarterly

Report on Form 10-Q for the quarter ended March 31, 2023 with the SEC by the required due date.

On August 16, 2023, we received

a third notice from Nasdaq that we remained noncompliant with Nasdaq Listing Rule 5250(c)(1) as a result of our failure to file our Quarterly

Report on Form 10-Q for the fiscal quarter ended June 30, 2023 with the SEC by the required filing date.

Nasdaq granted us an exception

until October 16, 2023, to file the delinquent reports.

On October 17, 2023, we received

a Staff Delisting Determination (the “Staff Determination”) from the Listing Qualifications Department of Nasdaq notifying

us that we were not in compliance with Nasdaq’s continued listing requirements under Nasdaq Listing Rule 5250(c)(1) as a result

of its failure to file the delinquent reports in a timely manner.

On November 16, 2023, we received

a notice from Nasdaq that we remained noncompliant with Nasdaq Listing Rule 5250(c)(1) as a result of our failure to file our Quarterly

Report on Form 10-Q for the fiscal quarter ended September 30, 2023 with the SEC by the required filing date.

On December 1, 2023, we received

a notice from Nasdaq stating that because we reported stockholders’ equity of $(17.17) million in our Quarterly Report on Form 10-Q

for the quarter ended March 30, 2023, we were no longer in compliance with Nasdaq Listing Rule 5550(b)(1) (the “Primary Equity Listing

Rule”), which requires that listed companies maintain a minimum of $2.5 million in stockholders’ equity.

In response, we timely

requested a hearing before a Nasdaq Hearings Panel (the “Panel”), which stayed any further action by the Listing Qualifications

The hearing was held on January 11, 2024.

We arrived at the hearing having previously cured any additional grounds for delisting

as a result of delinquent periodic filings during 2023 that were filed prior to the hearing.

On January 30, 2024, we received

formal notice that the Panel had granted our request for an exception through April 15, 2024 to evidence compliance with the Primary Equity

Listing Rule, which was subsequently extended to May 22, 2024.

On May 21, 2024, we regained compliance with the Primary Equity Listing

Rule as a result of the amendment and subsequent conversion of certain outstanding indebtedness.

On March 5, 2024, we received

a deficiency letter from 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 Stock Market under the

Minimum Bid Requirement.

The compliance period for the Company expired on September 3, 2024.

On September 4, 2024, Nasdaq

notified us in writing that we were eligible for an additional 180-day compliance period, or until March 3, 2025, to regain compliance

with the Minimum Bid Requirement.

On October 8, 2024, we completed a 1-for-15 reverse stock split of our Common Stock, in which each fifteen

shares of Common Stock issued and outstanding were combined and converted into one share of Common Stock to regain compliance with the

Minimum Bid Requirement.

On October 22, 2024, Nasdaq notified us that we had regained compliance with the Minimum Bid Requirement.

Use of Estimates

The preparation of financial

statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and

liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of

revenues and expenses during the reporting period.

Actual results could differ from those estimates.

Significant 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, the valuation of inventory, and useful life of fixed assets and intangible assets.

Accounting Estimates

management’s discussion and analysis of our financial position and results of operations is based on our financial statements,

which have been prepared in accordance with GAAP.

The preparation of consolidated financial statements in conformity with GAAP requires

us to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes.

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

of revenues and expenses during the reported period, fair value of warrant liabilities, sales tax liabilities, and net realizable value

of inventory and collectibility of trade accounts and loans receivable.

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

or other relevant assumptions that we believe to be reasonable under the circumstances.

Actual results may differ materially from those

estimates or assumptions.

See below for detail on how certain accounting estimates are determined.

enter into contracts that may include various combinations of equipment, services and construction, which are generally capable of being

distinct and accounted for as separate performance obligations.

Contracts with customers often include promises to transfer multiple

products and services to a customer.

Determining whether products and services are considered distinct performance obligations that should

be accounted for separately versus together may require significant judgment.

Once we determine the performance obligations, it determines

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

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

The corresponding revenue is

recognized as the related performance obligations are satisfied.

is required to determine the SSP for each distinct performance obligation.

We determine SSP based on the price at which the performance

obligation is sold separately and the methods of estimating SSP under the guidance of ASC 606-10-32-33.

If the SSP is not observable

through past transactions, we estimate the SSP, considering available information such as market conditions, expected margins, and internally

approved pricing guidelines related to the performance obligations.

We license our software as a Software-as-a-Service (“SaaS”)

type subscription license, whereby the customer only has a right to access the software over a specified time period.

The full value

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

We typically satisfy our performance obligations for equipment sales when equipment is made available for shipment to the customer;

services sales as services are rendered to the customer and for construction contracts both as services are rendered and when contract

is completed.

utilize the cost-plus margin method to determine the SSP for equipment and build-out services.

This method is based on the cost of the

services from third parties, plus a reasonable markup that we believe is reflective of a market-based reseller margin.

determine the SSP for services in time and materials contracts by observable prices in standalone services arrangements.

estimate variable consideration in the form of royalties, revenue share, monthly fees, and service credits are estimated at contract

inception and updated at the end of each reporting period if additional information becomes available.

Variable consideration is typically

not subject to constraint.

Changes to variable consideration were not material for the periods presented.

a contract has payment terms that differ from the timing of revenue recognition, we will assess whether the transaction price for those

contracts includes 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 expect that at the contract inception, the period between when the entity transfers

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

For those contracts

in which the period exceeds the one-year threshold, this assessment, as well as the quantitative estimate of the financing component

and its relative significance, requires judgment.

Accordingly, we impute interest on such contracts at an agreed-upon interest rate and

will present the financing components separately as financial income.

For the years ended December 31, 2023 and 2022, we did not have

any such financial income.

terms with customers typically require payment 30 days from the invoice date.

Significant estimates include assumptions

about collection of accounts receivable, the valuation and recognition of stock-based compensation expense, valuation allowance for deferred

tax assets, goodwill, impairment of long-lived assets, provision for litigation, inventory reserve, fair value measurements and useful

life of fixed assets and intangible assets.

Financial Overview

Critical Accounting Policies and Significant

Judgments and Estimates

Our management’s discussion

and analysis 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, or U.S.

The preparation of financial statements in

conformity with U.S.

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 estimates, which include estimates related to accruals, stock-based compensation

expense, recoverability of goodwill and reported amounts of revenues and expenses during the reported period.

We base our estimates on

historical experience and other market-specific or other relevant assumptions that we believe to be reasonable under the circumstances.

Actual results may differ materially from those estimates or assumptions.

We account for warrants as

either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable

authoritative guidance in Accounting Standards Codification (“ASC”) Topic 480, Distinguishing Liabilities from Equity (“ASC

480”) and ASC Topic 815, Derivatives and Hedging (“ASC 815”).

Management’s assessment considers whether the warrants

are freestanding financial instruments pursuant to ASC 480, whether they meet the definition of a liability pursuant to ASC 480, and whether

the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to our own

Common Stock among other conditions for equity classification.

For issued or modified warrants

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

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

fair value on the date of issuance and marked-to-market each reporting period with the changes in fair value of warrant liabilities recorded

in other income (expense), net in the accompanying consolidated statements of operations until the warrants are exercised.

The fair value

of the warrant liabilities are estimated using a Black-Scholes option-pricing model.

The estimated fair value of

the warrant liabilities is determined using Level 3 inputs.

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

the estimated fair values that represent our best estimate.

The volatility rate is determined utilizing our own share price and the share

price of competitors over time.

Discontinued Operations

On December 31, 2024, we entered into a Purchase Agreement with CP.

Under the Purchase Agreement, CP acquired the Cultivation Business assets from us relating to our VFUs, including the related Agrify TTK

solution assets and Agrify Insights TM software solutions.

As the sale of the Cultivation Business represented a strategic shift

that will have a major effect on our operations and financial results, they have been presented in discontinued operations separate from

continuing operations for the years ended December 31, 2024 and 2023 in the Company’s consolidated statements of operations and

applicable footnotes in accordance with ASC 205, Presentation of Financial Statements.

Revenue Recognition

We generate revenue from equipment

sales and hemp-derived beverage sales.

In accordance with ASC 606,

Revenue Recognition (“ASC 606”), we recognize revenue from contracts with customers using a five-step model, which is described

● identify the customer contract;

● identify performance obligations that are distinct;

● determine the transaction price;

● allocate the transaction price to the distinct performance

● recognize revenue as the performance obligations are satisfied.

Revenue is recognized when, or as, performance

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

The Company satisfies its performance

obligation upon transferring goods or services to a customer and transfers control upon the customer taking possession.

We enter into contracts that

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

performance obligations.

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

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

may require significant judgment.

Once we determine the performance obligations, the transaction price is determined, which includes estimating

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

We then allocate the transaction price to each performance

obligation in the contract based on the Standalone Selling Price (“SSP”).

The corresponding revenue is recognized as the related

performance obligations are satisfied.

Judgment is required to determine

the SSP for each distinct performance obligation.

We determine SSP based on the price at which the performance obligation is sold separately

and the methods of estimating SSP under the guidance of ASC 606.

If the SSP is not observable through past transactions, we estimate the

SSP, taking into account available information such as market conditions, expected margins, and internally approved pricing guidelines

related to the performance obligations.

We typically satisfy our performance obligations for equipment sales when equipment is made available

for shipment to the customer;

for services sales as services are rendered to the customer.

We utilize the cost-plus margin

method to determine the SSP for equipment and services.

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

markup that we believe is reflective of a market-based reseller margin.

We determine the SSP for services

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

Payment terms with customers

typically require payment in advance or payment 30 days from invoice date.

Our agreements with customers do not provide for any refunds

for services or products and therefore no specific reserve for such is maintained.

In the infrequent instances where customers raise

a concern over delivered products or services, we have endeavored to remedy the concern and all costs related to such matters have been

In the infrequent instances where customers raise a

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

insignificant in all periods presented.

have elected to treat shipping and handling activities after the customer obtains control of the goods as a fulfillment cost and not

as a promised good or service.

Accordingly, we will accrue all fulfillment costs related to the shipping and handling of consumer goods

at the time of shipment.

We have payment terms with its customers of one year or less and has elected the practical expedient applicable

to such contracts not to consider the time value of money.

Sales, value add, and other taxes we collect concurrent with revenue-producing

activities are excluded from revenue.

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

There are no contract assets related to performance under the contract.

The difference in the opening and closing balances of our deferred

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

We fulfill obligations

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

Accounts receivables

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

We recognize deferred revenue when consideration

has been received or an amount of consideration is due from the customer, and we have a future obligation to transfer certain proprietary

accordance with ASC 606-10-50-13, we are required to include disclosure on its remaining performance obligations as of the end of the

current reporting period.

Due to the nature of our contracts, these reporting requirements are not applicable.

The majority of our remaining

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

of a contract that has an original

duration of one year or less and (ii) the right to invoice practical expedient.

generally provide a one-year warranty on our products for materials and workmanship but may provide multiple-year warranties as negotiated,

and will pass on the warranties from its vendors, if any, which generally covers this one-year period.

We have elected to treat shipping

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

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

We have payment terms

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

Sales, value add, and other taxes we collect concurrent with revenue-producing activities are excluded from revenue.

We receive payment from customers

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

There are no contract

assets related to performance under the contract.

The difference in the opening and closing balances of our contract liabilities primarily

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

We fulfill obligations under a contract with

a customer by transferring products and services in exchange for consideration from the customer.

Accounts receivables are recorded when

the customer has been billed or the right to consideration is unconditional.

We recognize contract liabilities when consideration has

been received or an amount of consideration is due from the customer, and we have a future obligation to transfer certain proprietary

In accordance with ASC 606,

we accrue for product warranties when the loss is probable and can be reasonably estimated.

The reserve for warranty returns is included

in accrued expenses and other current liabilities in our consolidated balance sheets.

fair value of each option is estimated on the date of grant using the Black-Scholes option-pricing model.

This model incorporates certain

assumptions for inputs including a risk-free market interest rate, expected dividend yield of the underlying Common Stock, expected option

life, and expected volatility in the market value of the underlying Common Stock.

The Black-Scholes option-pricing model was developed

for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable.

In addition, option

valuation models require the input of highly subjective assumptions including the expected stock price volatility.

Because our stock

options and warrants have characteristics different from those of our traded stock, and because changes in the subjective input assumptions

can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable

single measure of the fair value of such stock options.

The risk-free interest rate is based upon quoted market yields for United States

Treasury debt securities with a term similar to the expected term.

The expected dividend yield is based upon our history of having never

issued a dividend and management’s current expectation of future action surrounding dividends.

We calculate the expected volatility

of the stock price based on the corresponding volatility of our peer group stock price for a period consistent with the underlying instrument’s

expected term.

The expected lives for such grants were based on the simplified method for employees and directors.

arriving at stock-based compensation expense, we estimate the number of stock-based awards that will be forfeited due to employee turnover.

Our forfeiture assumption is based primarily on its turn-over historical experience.

If the actual forfeiture rate is higher than the

estimated forfeiture rate, then an adjustment will be made to increase the estimated forfeiture rate, which will result in a decrease

to the expense recognized in our consolidated financial statements.

If the actual forfeiture rate is lower than the estimated forfeiture

rate, then an adjustment will be made to lower the estimated forfeiture rate, which will result in an increase to expense recognized

in our consolidated financial statements.

The expense we recognize in future periods will be affected by changes in the estimated forfeiture

rate and may differ significantly from amounts recognized in the current period.

Realizable Value of Inventory

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

net realizable value, with cost principally determined by the weighted-average cost method on a first-in, first-out basis.

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

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

Value of Warrant Liabilities

estimated fair value of the warrant liabilities on December 31, 2023 and 2022 is determined using Level 3 inputs.

Inherent in a Black-Scholes

option-pricing model are assumptions used in calculating the estimated fair values that represent the Company’s best estimate.

The volatility rate is determined utilizing the Company’s own share price and the share price of competitors over time.

Collectibility

of Trade Accounts and Loans Receivable

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

Accounts receivable

and loan receivable balances are presented net of an allowance for credit losses, which is an estimate of billed or borrowed amounts

that may not be collectible.

In determining the amount of the allowance at each reporting date, management makes judgments about general

economic conditions, historical write-off experience, and any specific risks identified in customer or counterparty collection matters,

including the aging of unpaid accounts receivable and changes in customer financial conditions.

Accounts and loans receivable balances

are written off after all means of collection are exhausted and the potential for non-recovery is determined to be probable.

to the allowance for credit losses are recorded as general and administrative expenses in the consolidated statements of operations.

Tax Liabilities

to acquisition, Precision Extraction NewCo had an unrecorded liability for uncollected sales taxes for sales made in 18 states where

state sales tax filings were not submitted, leaving the entity with a potential sales tax liability.

To assess Precision Extraction NewCo’s

potential liability, the company analyzed invoice data encompassing customer details, their location, product/service taxability, and

sales prices.

Through this analysis, Precision NewCo determined its nexus across various states and estimated the corresponding sales

tax liabilities.

Of the 18 states identified with tax obligations, sales to tax-exempt customers were excluded from liability calculations.

In Q1 2022, Precision NewCo’s taxable revenue stood at approximately $4 million, with an associated sales tax liability of around

$190,000, equivalent to 4.7% of the taxable revenue for that period.

This ratio served as the basis for projecting the sales tax liability

for the remainder of 2022.

For the assessment of penalties and interest, the company adhered to the guidelines outlined by the State

As per Michigan’s Sales Tax Return Form 5080, penalties are capped at 25%, while interest is calculated based on the

prevailing rates provided on the official.gov website.

These penalties and interest charges were factored into the overall sales tax

liability in accordance with Michigan’s guidelines.

Starting from November 1, 2022, all Precision Extraction NewCo customers have

been transitioned to Agrify.

All sales from November 1, 2022, until today are accounted for under Agrify.

Sales tax is accrued and paid

under Agrify.

generate revenue from the following sources:

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

accordance with ASC 606 “Revenue Recognition”, we recognize revenue from contracts with customers using a five-step model,

which is described below:

the customer contract;

performance obligations that are distinct;

the transaction price;

the transaction price to the distinct performance obligations;

revenue as the performance obligations are satisfied.

the customer contract

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 has commercial substance and collectability, and consideration is probable.

Specifically,

we obtain written/electronic signatures on contracts and a purchase order, if said purchase orders are issued in the normal course of

business by the customer.

performance obligations that are distinct

performance obligation is a promise by us to provide a distinct good or service or a series of distinct goods or services.

service that is promised to a customer is distinct if the customer can benefit from the good or service either on its own or together

with other resources that are readily available to the customer, and our promise to transfer the good or service to the customer is separately

identifiable from other promises in the contract.

the transaction price

transaction price is the amount of consideration to which we expect to be entitled in exchange for transferring goods or services to

a customer, excluding sales taxes that are collected on behalf of government agencies.

the transaction price to distinct performance obligations

transaction price is allocated to each performance obligation based on the relative standalone selling prices (“SSP”) of

the goods or services being provided to the customer.

Our contracts typically contain multiple performance obligations, for which we

account for individual performance obligations separately, if they are distinct.

The standalone selling price reflects the price we would

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

revenue as the performance obligations are satisfied

is recognized when, or as, performance obligations are satisfied by transferring control of a promised product or service to a customer.

for Business Combinations

allocated the purchase price of acquired companies to the tangible and intangible assets acquired, including in-process research and

development assets, and liabilities assumed, based upon their estimated fair values at the acquisition date.

These fair values are typically

estimated with assistance from independent valuation specialists.

The purchase price allocation process requires us to make significant

estimates and assumptions, especially at the acquisition date with respect to intangible assets, contractual support obligations assumed,

contingent consideration arrangements, and pre-acquisition contingencies.

we believe the assumptions and estimates we have made in the past have been reasonable and appropriate, they are based in part on historical

experience and information obtained from the management of the acquired companies and are inherently uncertain.

of critical estimates in valuing certain of the intangible assets we have acquired or may acquire in the future include but are not limited

expected cash flows from software license sales, support agreements, consulting contracts,

other customer contracts, and acquired developed technologies;

costs to develop in-process research and development into commercially viable products and

estimated cash flows from the projects when completed;

acquired company’s brand and competitive position, as well as assumptions about the

period of time the acquired brand will continue to be used in the combined company’s

product portfolio;

of capital and discount rates;

the useful lives of acquired assets as well as the pattern or manner in which the assets

will amortize.

fair value estimates related to the various identified intangible assets were determined under various valuation approaches including

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

These valuation methods require management to project

revenues, operating expenses, working capital investment, capital spending and cash flows for the reporting unit over a multiyear period,

as well as determine the weighted average cost of capital to be used as a discount rate.

and Intangible Assets

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.

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.

recognize the excess of the purchase price over the fair value of identifiable net assets acquired as goodwill.

Goodwill is not amortized

but is tested for impairment at least annually in the fourth quarter of the year, or more frequently if events or changes in circumstances

indicate that the carrying amount of the goodwill may not be recoverable.

We have determined that we are a single reporting unit for

the purpose of conducting the goodwill impairment assessment.

we are required to include disclosure on our remaining performance obligations as of the end of the current reporting period.

nature of our contracts, these reporting requirements are not applicable.

The majority of our remaining contracts meet certain exemptions

as defined in ASC 606, including (i) performance obligation is part of a contract that has an original expected duration of one year or

less and (ii) the right to invoice practical expedient.

We generally provide a one-year

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

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

In accordance with ASC Topic 450, Accounting for Contingencies

(“ASC 450”) we accrue for product warranties when the loss is probable and can be reasonably estimated.

The reserve for warranty

returns is included in accrued expenses and other current liabilities in our consolidated balance sheets.

Business Combinations

We allocated the purchase price of acquired companies to the tangible

and intangible assets acquired according to ASC 805, Business Combinations, including in-process research and development assets, and

liabilities assumed, based upon their estimated fair values at the acquisition date.

These fair values are typically estimated with assistance

from independent valuation specialists.

The purchase price allocation process requires us to make significant estimates and assumptions,

especially at the acquisition date with respect to intangible assets, contractual support obligations assumed, contingent consideration

arrangements, and pre-acquisition contingencies.

Although we believe the assumptions

and estimates we have made in the past have been reasonable and appropriate, they are based in part on historical experience and information

obtained from the management of the acquired companies and are inherently uncertain.

Examples of critical estimates

in valuing certain of the intangible assets we have acquired or may acquire in the future include but are not limited to:

● future expected cash flows from software license sales, support agreements, consulting contracts, other

customer contracts, and acquired developed technologies;

● expected costs to develop in-process research and development into commercially viable products and estimated

cash flows from the projects when completed;

● the acquired company’s brand and competitive position, as well as assumptions about the period of

time the acquired brand will continue to be used in the combined company’s product portfolio;

● cost of capital and discount rates;

● estimating the useful lives of acquired assets as well as the pattern or manner in which the assets will

We recognize the excess of the purchase price over the fair value of

identifiable net assets acquired as goodwill.

Goodwill is not amortized but is tested for impairment at least annually in the fourth quarter

of the year, or more frequently if events or changes in circumstances indicate that the carrying amount of the goodwill may not be recoverable.

The Company applies the guidance in ASU 2011-08 Intangibles-Goodwill and Other-Testing Goodwill for Impairment , which provides

entities with an option to perform a qualitative assessment (commonly referred to as “Step Zero”) to determine whether further

quantitative analysis for impairment of goodwill is necessary.

A goodwill impairment charge is recorded if the amount by which our carrying

value exceeds its fair value, not to exceed the carrying amount of goodwill.

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

of projected financial performance, future acquisitions and/or mergers, and a decline in our market value as a result of a significant

decline in our stock price.

the three-month 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 our property and equipment and accordingly performed interim testing

as of June 30, 2022.

Based on our interim testing, we noted that the entire carrying value of our goodwill and intangible assets should

Additional information regarding our interim testing on goodwill and intangible assets may be found in Note 7 – Goodwill

and Intangible Assets, Net, included elsewhere in the notes to the consolidated financial statements.

Notes Payable

evaluate our convertible instruments to determine if those contracts or embedded components of those contracts qualify as derivative

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

The accounting treatment of derivative financial instruments requires that we identify and record certain embedded conversion options

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

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

Any change in fair value is recorded

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

We reassess the classification of

our derivative instruments at each balance sheet date.

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

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

Bifurcated embedded conversion options, variable-share

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

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

we determine that an instrument is not a derivative liability, we then evaluate whether there is a beneficial conversion feature (“BCF”),

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

We record a BCF as a debt discount

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

BCFs that are contingent

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

do not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks.

We evaluate all of our financial

instruments, including issued private placement stock purchase warrants, to determine if such instruments are derivatives or contain

features that qualify as embedded derivatives, pursuant to ASC Topic 480, Distinguishing Liabilities from Equity (“ASC 480”)

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

specific terms and applicable authoritative guidance in ASC 480 and ASC 815.

Our assessment considers whether the warrants are freestanding

financial instruments pursuant to ASC 480, whether they meet the definition of a liability pursuant to ASC 480, and whether the warrants

meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to our own Common Stock

among other conditions for equity classification.

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

capital at the time of issuance.

For issued or modified warrants that are precluded from equity classification, they are recorded as

a liability at their initial fair value on the date of issuance and subject to remeasurement on each balance sheet date with changes

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

Capitalization

of Internal Software Development Costs

capitalize on certain software engineering efforts related to the continued development of Agrify Insights™ cultivation software

(“Agrify Insights™”) 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.

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.

account for income taxes pursuant to the provisions of ASC Topic 740, “Income Taxes,” which requires, among other things,

an asset and liability approach to calculating deferred income taxes.

The asset and liability approach requires the recognition of deferred

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

bases of assets and liabilities.

A valuation allowance is provided to offset any net deferred tax assets for which management believes

it is more likely than not that the net deferred asset will not be realized.

follow the provisions of ASC 740-10-25-5, “Basic Recognition Threshold.” When tax returns are filed, it is highly certain

that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about

the merits of the position taken or the amount of the position that would be ultimately sustained.

In accordance with the guidance of

ASC 740-10-25-6, the benefit of a tax position is recognized in the 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.

Factors that could lead to a future impairment include material

uncertainties such as a significant reduction in projected revenues, a deterioration of projected financial performance, future acquisitions

and/or mergers, and a decline in our market value as a result of a significant sustained decline in our stock price.

We account for income taxes

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

approach to calculating deferred income taxes.

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

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

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

the net deferred asset will not be realized.

We follow the provisions of

ASC 740, “Basic Recognition Threshold.” When tax returns are filed, it is highly certain that some positions taken would be

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

the amount of the position that would be ultimately sustained.

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

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

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

processes, if any.

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

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

We believe our tax positions are all highly certain of being upheld upon examination.

As such, we have not recorded a liability

for unrecognized tax benefits.

recognize the benefit of a tax position when it is effectively settled.

ASC 740-10-25-10, “Basic Recognition Threshold” provides

guidance on how an entity should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized

tax benefits.

ASC 740-10- 25-10 clarifies that a tax position can be effectively settled upon the completion of an examination by a taxing

For tax positions considered effectively settled, we recognize the full amount of the tax benefit.

for Stock-Based Compensation

follow the provisions of ASC Topic 718, Compensation-Stock Compensation (“ASC 718”) which establishes standards surrounding

the accounting for transactions in which an entity exchanges our equity instruments for goods or services.

ASC 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.

Refer to the Critical Accounting Estimates section above for further detail on accounting for stock compensation.

is important that the discussion of our operating results that follows be read in conjunction with the critical accounting policies disclosed

of Operations

have incurred recurring losses to date.

Our consolidated financial statements have been prepared assuming that we will continue as a

going concern and, accordingly, do not include adjustments relating to the recoverability and realization of assets and classification

of liabilities that might be necessary should we be unable to continue in operation.

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

until we begin generating sufficient cash flows from operations to meet our obligations.

If we are unable raise additional funds, we

may be forced to cease operations.

of Years Ended December 31, 2023 and 2022

following table summarizes our results of operations for the years ended December 31, 2023 and 2022:

Ended December 31,

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.

We believe our tax positions are all

highly certain of being upheld upon examination.

As such, we have not recorded a liability for unrecognized tax benefits.

We recognize the benefit of

a tax position when it is effectively settled.

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

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

ASC 740 clarifies

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

For tax positions considered

effectively settled, we recognize the full amount of the tax benefit.

Accounting for Stock-Based Compensation

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

(“ASC 718”) establishes standards surrounding the accounting for transactions in which an entity exchanges its equity instruments

for goods or services.

ASC 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, as defined in Note 12 – Stockholder’s Equity.

The fair value of each option

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

This model incorporates certain assumptions for inputs

including a risk-free market interest rate, expected dividend yield of the underlying Common Stock, expected option life, and expected

volatility in the market value of the underlying Common Stock.

The Black-Scholes option-pricing

model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable.

In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility.

Because our stock options and warrants have characteristics different from those of our traded stock, and because changes in the subjective

input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily

provide a reliable single measure of the fair value of such stock options.

The risk-free interest rate is based upon quoted market yields

for United States Treasury debt securities with a term similar to the expected term.

The expected dividend yield is based upon our history

of having never issued a dividend and management’s current expectation of future action surrounding dividends.

We calculate the

expected volatility of the stock price based on the corresponding volatility of our peer group stock price for a period consistent with

the underlying instrument’s expected term.

The expected lives for such grants were based on the simplified method for employees

and directors.

As permitted under ASC 718,

the Company has made an accounting policy choice to account for forfeitures when they occur.

It is important that the discussion

of our operating results that follows be read in conjunction with the critical accounting policies disclosed above.

Results of Operations

We have incurred recurring

losses to date.

Our consolidated financial statements have been prepared assuming that we will continue as a going concern and, accordingly,

do not include adjustments relating to the recoverability and realization of assets and classification of liabilities that might be necessary

should we be unable to continue in operation.

Comparison of Years Ended December 31, 2024

The following table summarizes

our results of operations for the years ended December 31, 2024 and 2023:

Year Ended December 31,

(In thousands)

Revenue (including $0, and $2,417

from related parties, respectively)

Cost of goods sold

profit (loss)

General and administrative

Selling and marketing

Selling, general and administrative

Research and development

Change in contingent consideration

Gain on disposal on property and equipment

Impairment of property and equipment

Impairment of goodwill

and intangible assets

operating expenses

from operations

Gain on early termination of lease

Loss on disposal on property and equipment

Total operating expenses

Operating loss from continuing operations

Interest expense, net

2 unchanged sentences

Other income, net

other income, net

Net loss before income

Income tax expense

Income attributable to non-controlling

loss attributable to Agrify Corporation

goal is to provide our customers with a variety of products to address their entire indoor agriculture needs.

Our core product offering

includes our VFUs and Agrify Integrated Grow Racks with our Agrify Insights™, which are supplemented with environmental control

products, grow lights, facility build-out services, and extraction equipment.

generate revenue from sales of cultivation solutions, including ancillary products and services, Agrify Insights™, facility build-outs,

and extraction equipment and solutions.

We believe that our product mix forms an integrated ecosystem that 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,

running the grow business with our Agrify Insights™ and finally, our extraction, post-processing, and testing services to transform

harvest into a sellable product.

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

of additional solutions and services.

following table provides a breakdown of our revenue for the years ended December 31, 2023 and 2022:

Ended December 31,

Total other expense, net

Loss from continuing operations before income taxes

Income tax (expense) benefit

Loss from continuing operations, net of income taxes

Loss from discontinued operations

Loss on disposal of Cultivation business

Loss from discontinued operations, net of income taxes

Income attributable to non-controlling interest

Net loss attributable to Agrify Corporation

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

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

We generate revenue from sales

extraction equipment and solutions and hemp-derived beverages.

The following table provides

a breakdown of our revenue from continuing operations for the years ended December 31, 2024 and 2023:

Year Ended December 31,

(In thousands)

Cultivation solutions, including

Ancillary products and services

Agrify Insights software

Facility build-outs

Extraction solutions

decreased by $41.4 million, or 71%, for the year ended December 31, 2023, as compared to the same period in 2022.

The comparative decrease

in revenue was primarily driven by a $22.2 million reduction in facility build-outs due to winding down TTK solutions Facility build-outs

at the end of 2022.

Additionally, there was a $19.6 million reduction in Extraction solutions due to an overall down-turn in the cannabis

industry and the difficulty of integrating four acquired extraction companies, which was offset by $0.5 million increase in cultivation

solutions and Agrify Insights software combined.

of Goods Sold

of goods sold represents a combination of the following:

construction-related costs associated with our facility build-outs, internal

and outsourced labor and material costs associated with the assembly of both cultivation equipment (primarily VFUs), and extraction equipment,

Hemp-derived beverages

Sales discounts on extraction solutions

Total revenue

Revenues decreased by $5.5

million, or 142%, for the year ended December 31, 2024, as compared to the same period in 2023.

The comparative decrease in revenue was

primarily driven by increased discounting.

Cost of Goods Sold

Cost of goods sold represents

a combination of the following:

internal and outsourced labor and material costs associated with the assembly of extraction equipment,

as well as labor and parts costs associated with the sale or provision of other products and services.

following table provides a breakdown of our cost of goods sold for the years ended December 31, 2023 and 2022:

Ended December 31,

The following table provides

a breakdown of our cost of goods sold from continuing operations for the years ended December 31, 2024 and 2023:

Year Ended December 31,

(In thousands)

Cultivation solutions, including

Ancillary products and services

Facility build-outs

Extraction solutions

cost of goods sold

of goods sold decreased by $78 million, or 87%, for the year ended December 31, 2023, as compared to the same period in 2022.

The year-over-year

decrease in cost of goods sold is associated with the decreased amount of subcontractor construction costs related to our facility build-outs,

the decline in sales of Extraction solutions, internal and outsourced labor and materials costs for the extraction solutions sales, and

cultivation solutions, including ancillary products and services.

(Loss) Profit

Ended December 31,

Hemp-derived beverages

Total cost of goods sold

Cost of goods sold decreased by $2.1 million, or 19%, for the year

ended December 31, 2024, as compared to the same period in 2023.

The year-over-year decrease in cost of goods sold was primarily driven

by the decline in sales of Extraction solutions and internal and outsourced labor and materials costs for the extraction solutions sales.

Year Ended December 31,

(In thousands)

Gross profit (loss)

profit totaled $5.3 million, or 31%, of total revenue during the year ended December 31, 2023 compared to a gross loss of $32 million,

or 55% of total revenue during the year ended December 31, 2022.

The comparative $37.1 million year-over-year increase in gross profit,

as well as the comparative increase in gross profit margin, is primarily attributable to reduction in facility build-outs.

Although sales

of Extraction Solutions decreased, they have higher margins.

Additionally, there was a $114 thousand increase in revenue from Agrify

insight software which has 90% plus gross profit.

Ended December 31,

Gross profit totaled $0.7 million, or 7%, of total revenue during the

year ended December 31, 2024 compared to a gross profit of $4.0 million, or 27% of total revenue during the year ended December 31, 2023.

The comparative $3.4 million year-over-year decrease in gross profit was primarily driven by increased discounting of on hand inventory.

Selling, General and Administrative Expenses

Year Ended December 31,

(In thousands)

General and administrative

Selling and marketing

Selling, general and administrative

Selling, General and administrative expenses (“SG&A”) consist principally of salaries and related costs for personnel, including stock-based compensation

and travel expenses, associated with executive and other administrative functions.

Other SG&A expenses include, but are not limited

to, professional fees for legal, consulting, depreciation and amortization and accounting services, as well as facility-related costs.

SG&A expenses

decreased by $3.8 million, or 23%, for the year ended December 31, 2024, compared to the same period in 2023.

The primary drivers of

the year-over-year decrease of SG&A expenses were largely attributable to reductions in salaries and related costs of

approximately $2.1 million, a decrease in stock-based compensation, of approximately $1.7 million, a decrease in insurance expenses,

of approximately $1.5 million, and a decrease in consulting expenses of approximately $0.6 million.

These decreases were partially

offset by a $1.7 million increase in bad debt expense.

Research and Development

Change in contingent consideration

Impairment of property and equipment

Impairment of goodwill and intangible assets

Gain on disposal

operating expenses

and administrative

and administrative (“G&A”) expenses consist principally of salaries and related costs, including stock-based compensation

and travel expenses, for personnel associated with executive and other administrative functions.

Other G&A expenses include, but

are not limited to, professional fees for legal, consulting, depreciation and amortization, and accounting services, as well as facility-related

expenses decreased by $54.3 million, or 74%, for the year ended December 31, 2023, compared to the same period in 2022.

The primary drivers

of the year-over-year decrease of G&A expenses were largely attributable to a decrease in bad debt expenses, of approximately $36.8

million, a decrease in depreciation expense, of approximately $1 million, a decrease in stock based compensation, of approximately $1.6

million, a decrease in salaries and related costs for personnel, of approximately $3.4 million, a decrease in insurance expenses of approximately

$0.6 million.

and marketing

and marketing expenses consist primarily of salaries and related costs of personnel, travel expenses, trade shows, and advertising expenses.

and marketing expenses decreased by $5.2 million, or 56%, for the year ended December 31, 2023, compared to the same period in 2022.

The decrease was primarily attributable to a reduction in salaries and related costs of personnel, of approximately $3.4 million, and

a reduction in trade show and advertising costs, of approximately $1.8 million.

and development

and development (“R&D”) expenses consisted primarily of costs incurred for the development of our Agrify Insights™

and next-generation VFUs, which includes:

● employee-related

expenses, including salaries, benefits, and travel;

● subcontractor

expenses incurred under agreements to provide engineering work related to the development

of our next-generation VFUs;

related to our facilities, depreciation, and other expenses, which include direct and allocated

expenses for rent and maintenance of facilities, insurance, and other supplies

Year Ended December 31,

(In thousands)

Research and development

expenses decreased by $1.6 million, or 248%, for the year ended December 31, 2024, compared to the same period in 2023.

As a percentage

of net revenue, R&D expenses were 14% of total revenue for the year ended December 31, 2023, compared to 14% for same period in 2022.

expect to continue to invest in future developments for our VFUs, Agrify Insights™, and extraction products.

Although we continue

to invest in R&D activities, we expect R&D expenses to decrease as a percentage of revenue as our revenue grows.

in contingent consideration

consideration increased $0.8 million for the year ended December 31, 2023, compared to $2.2 million for the same period in 2022.

of property and equipment

from a 50% reserve on equipment to be leased to Hannah Industries due to uncertainty of the project.

of goodwill and intangible assets

the three months 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 our property and equipment and accordingly performed interim testing

as of June 30, 2022.

on our interim testing, we 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, we concluded that the entire carrying

value of our goodwill and intangible assets were impaired, resulting in a second-quarter impairment charge of $69.9 million.

information regarding our interim impairment testing may be found in Note 7 - Goodwill and Intangible Assets, Net, included in the notes

to the consolidated financial statements.

in Gain on Disposal

on disposal Increased $0.1 million for the year ended December 31, 2023, compared to $0 for the same period in 2022.

Ended December 31,

The decrease is

attributable to the reductions in personnel, consulting services and materials purchased.

Other Expense, Net

Year Ended December 31,

(In thousands)

2 unchanged sentences

Change in fair value of warrant liabilities

Loss on extinguishment

of notes payable

Loss on extinguishment of notes payable

Total other expense, net

Interest expense, net

Interest expense was approximately

$0.3 million for the year ended December 31, 2024 compared to interest expense of approximately $2.1 million for the same period in 2023.

The significant decrease in our interest expense was primarily driven by the reduction in notes payable due to conversion.

Other income, net

expense was approximately $1.9 million for the year ended December 31, 2023 compared to interest expense of approximately $8.8 million

for the same period in 2022.

The significant decrease in our interest expense was resulted from our continuous efforts to restructure,

modify and reduce our SPA Note and Exchange Note.

expense, net increased by $483 thousand, or 37%, for the year ended December 31, 2023, compared to the same period in 2022.

in fair value of warrant liability

in fair value of warrant liability decreased by $46.8 million, or (91)%, for the year ended December 31, 2023, compared to the same period

The decrease is related to the fair value of warrants discussed in Note 4.

on extinguishment of notes payable

in loss on extinguishment of notes payable decreased by $34.7 million, or (89)%, for the year ended December 31, 2023, compared to the

same period in 2022.

The decrease is related to related to the extinguishment of the SPA Note recorded in prior period discussed in Note

Loss on extinguishment of notes payable was $4.3 million for the year ended December 31, 2023, compared to a loss of $39.0 million

for the same period in 2022.

Ended December 31,

Other income, net decreased

by $1.3 million, or (99)%, for the year ended December 31, 2024, compared to the same period in 2023.

Change in fair value of warrant liability

Change in fair value of the warrant liability increased by $22.6 million,

or 481%, for the year ended December 31, 2024, compared to the same period in 2023.

The increase is related to the measurement of certain

warrants upon reclassification to equity.

Loss on extinguishment of notes payable

Change in loss on extinguishment

of notes payable decreased by $4.3 million, or 100%, for the year ended December 31, 2024, compared to the same period in 2023.

no loss on extinguishment of notes payable for the year ended December 31, 2024, compared to a loss of $4.3 million for the same period

Income Tax (Expense) Benefit

Year Ended December 31,

(In thousands)

Income tax expense

Income tax (expense) benefit

Effective tax rate

(Loss) Attributable to Non-Controlling Interest

consolidate the results of operations of two less than wholly-owned entities into our consolidated statements of operations.

8, 2019, we formed Agrify-Valiant, LLC (“Agrify-Valiant”), a joint-venture limited liability company in which we are the

60% majority owner and Valiant-America, LLC owns 40%.

Agrify-Valiant started its operations during the second quarter of 2020.

27, 2022, we provided notice to Valiant-America of our intention to begin the winding up of Agrify-Valiant.

On January 22, 2020, as part

of the acquisition of TriGrow, we received TriGrow’s 75% interest in Agrify Brands, LLC (formerly TriGrow Brands, LLC), a licensor

of an established portfolio of consumer brands that utilize our grow technology.

The license for these brands is ancillary to the sale

of our VFUs and provides a means to differentiate customers’ products in the marketplace.

It is not a material aspect of our business

and we have not realized any royalty income.

Accordingly, we are currently evaluating whether to continue this legacy business from an

operational standpoint, as well as from a legal and regulatory perspective.

(loss) attributable to non-controlling interest represents the portion of profit (or loss) that is attributable to the non-controlling

interest calculated as a product of the net income of the entity multiplied by the percentage of ownership held by the non-controlling

and Capital Resources

Capital Requirements

have incurred operating losses since our inception and have negative cash flows from operations.

We have an accumulated deficit of approximately

$265.8 million as of December 31, 2023.

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 SEC regulations, from the

capital markets.

As of December 31, 2023, we had $0.4 million of cash, cash equivalents,

and restricted cash.

We had no restricted cash and restricted marketable securities associated with the Exchange Note as of December 31,

Current liabilities were $41.2 million as of December 31, 2023.

October 18, 2022, we entered into the ATM Program with the Agent pursuant to which we could 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 allowed 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.

Beginning October 18, 2022 through December 31, 2022, we sold 306,628 shares of Common

Stock under the ATM at an average price of $50.85, resulting in gross proceeds of $15.6 million and net proceeds of $15.1 million after

commissions and fees to the Agent totaling $468 thousand.

Subsequent to December 31, 2022 through April 1, 2023, after which time the

ATM program was discontinued, we sold an additional 323,082 shares of Common Stock under the ATM at an average price of $4.93, resulting

in gross proceeds of $1.6 million and net proceeds of $1.6 million after commissions and fees to the Agent totaling $48 thousand.

the entire period from October 18, 2022 through April 1, 2023, we sold 629,710 shares of Common Stock under the ATM at an average price

of $27.29 per share, resulting in gross proceeds of $17.2 million, and net proceeds of $16.7 million after commissions and fees to the

Agent totaling $516 thousand.

$3.0 million of the proceeds under the ATM Program were used to repay amounts due to the Investor under

the Exchange Note.

We used 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.

to the late filing of this Annual Report on Form 10-K, we are no longer eligible to utilize the registration statement on Form S-3 relating

to the ATM Program, and do not anticipate any further sales under the ATM Program in the foreseeable future.

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.

Liquidity and Capital Resources

As of December 31, 2024,

our principal sources of liquidity are cash and cash equivalents totaling $31.2 million.

Our current working capital needs are to support

revenue growth and 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 possible future TTK arrangements.

These arrangements require

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

intend to enter into any new TTK Solutions for the foreseeable future, however, we have deployed this program with certain key customers.

may opportunistically raise debt capital, subject to market and other conditions.

Additionally, as part of our growth strategies, we

may also raise debt capital for strategic alternatives and general corporate purposes.

If additional financing is required from outside

sources, we may not be able to raise such capital on terms acceptable to us or at all.

If we are unable to raise additional capital when

desired, our business, operating results, and financial condition may be adversely affected.

consolidated financial statements have been prepared based on the assumption that we will continue as a going concern for the next twelve-months

from the date these consolidated financial statements are available to be issued.

However, we have incurred operating losses since our

inception and have negative cash flows from operations, and our significant operating losses raise substantial doubt about our ability

to continue as a going concern.

Our continuation as a going concern is dependent upon our ability to obtain the necessary debt or equity

financing to continue operations until we begin generating sufficient cash flows from operations to meet our obligations.

If we are unable

to raise additional funds, we may be forced to cease operations.

is no assurance that we will ever be profitable.

The consolidated 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.

entered into one Loan Agreement and Promissory Note with Bank of America pursuant to the Paycheck Protection Program (the “PPP”)

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

Small Business Administration.

We received total proceeds of approximately $779 thousand from the unsecured PPP Loan which was originally scheduled to mature in May

We applied for forgiveness on the $779 thousand of our PPP Loan however was denied by the SBA.

On June 23, 2022, we received a

letter from Bank of America agreeing to extend the maturity date to May 7, 2025 and bears interest at a rate of 1.00% per year.

loan is payable in 34 equal combined monthly principal and interest payments of approximately $24 thousand that commenced on August 7,

March 14, 2022, we entered into a Securities Purchase Agreement with an institutional investor.

The Purchase Agreement provides for the

issuance of the SPA Note in the aggregate amount of $65.0 million and a 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 $35.0 million each.

August 18, 2022, we entered into a Securities Exchange Agreement.

Pursuant to the August 2022 Exchange Agreement, we partially paid $35.2

million along with approximately $300 thousand in repayments for other fees under the SPA Note and exchanged the remaining balance of

the SPA Note for an Exchange Note with an aggregate original principal amount of $35.0 million and a Note Exchange Warrant to purchase

71,139 shares of Common Stock.

Additionally, we exchanged the SPA Warrant for a Modified Warrant for the same number of underlying shares

but with a reduced exercise price.

March 8, 2023, the Company entered into a new Securities Exchange Agreement.

Pursuant to the March 2023 Exchange Agreement, we prepaid

approximately $10.3 million in principal amount under the Exchange Note and exchanged $10.0 million in principal amount of the remaining

balance of the Exchange Note for a new senior secured convertible note (the “Convertible Note”).

Convertible Note is a senior secured obligation and will rank senior to all of our indebtedness.

The Convertible Note will mature on

August 19, 2025 (the “Maturity Date”) and has a 9.0% annualized interest rate, with interest to be paid monthly, in cash.

The principal amount of the Convertible Note will be payable on the maturity date, provided that the lender will be entitled to a cash

sweep of 30% of the proceeds of any at-the-market equity offering and 20% of the proceeds received by us in connection with any other

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

On October 27, 2023, CP Acquisitions LLC,

and entity affiliated with and controlled by Raymond Chang, acquired the Exchange Note and the Convertible Note.

As of October 30, 2023,

there was approximately $6.7 million outstanding under the Exchange Note and $8.8 million outstanding under the Convertible Note.

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 holder 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.

Statement of Cash Flows

following table presents the major components of net cash flows from and used in operating, investing, and financing activities for the

years ended December 31, 2023 and 2022:

working capital requirements.

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 to market and other conditions.

Additionally, as part of our growth strategies, we may also raise debt capital

for strategic alternatives and general corporate purposes.

If additional financing is required from outside sources, we may not be able

to raise such capital on terms acceptable to us or at all.

If we are unable to raise additional capital when desired, our business, operating

results and financial condition may be adversely affected.

CP Acquisitions Junior

On October 27, 2023, CP,

an entity affiliated with and controlled by our former Chief Executive Officer and former member of our Board of Directors, purchased

the Exchange Note and the Convertible Note from CP (the “Note Purchase”).

As part of the same transaction, we issued the Junior

Secured Note to CP.

Pursuant to the Junior Secured Note, CP would lend up to $3.0 million to us.

The Junior Secured Note bore interest

at a rate of 10% per annum, would mature in full on December 31, 2023, and could be prepaid without any fee or penalty.

On December 4,

2023, we and CP amended and restated the Junior Secured Note agreement.

Pursuant to the terms of the amendment, the maximum principal

amount that may be loaned by CP to us was increased to $4.0 million and extended the maturity date thereon to December 31, 2024.

30, 2023, CP agreed to forgive $1.0 million of the principal amount outstanding on the Convertible Note.

Consolidated CP Acquisitions

On January 25, 2024, we and CP consolidated the outstanding principal

and interest due under the Junior Secured Note and the Exchange Note as well as the interest due under the Convertible Note into the Convertible

Note (collectively, with the Junior Secured Note and the Exchange Note, the “Consolidated Notes”), and amended and restated

the Convertible Note with the Restated Note having a total outstanding principal of $18.3 million.

The Restated Note bore interest at

a rate of 10% per annum and would have matured in full on December 31, 2025.

We could redeem all or a portion not less than $5.0 million

of principal at any time at a price equal to 102.5% of the redeemed principal amount plus accrued but unpaid interest.

If CP elected to

convert the Restated Note, the conversion price per share would be $21.90, subject to customary adjustments for certain corporate events.

The conversion of the Restated Note would be subject to certain customary conditions.

The Restated Note could not have been converted

into shares of Common Stock if such conversion would result in CP and its affiliates owning an aggregate of in excess of 49.99% of the

then-outstanding shares of Common Stock.

Immediately following the execution of the Restated Note, CP elected to convert approximately

$3.9 million of outstanding principal into an aggregate of 178,109 shares of Common Stock.

On May 21, 2024, we and CP

entered into the Consolidated Note Amendment, pursuant to which CP could elect, in lieu of shares of Common Stock issuable upon conversion

of the Restated Note, to instead receive Pre-Funded Warrants.

The conversion price applicable to the Pre-Funded Warrants remained unchanged

Immediately following the execution of the Consolidated Note Amendment, CP elected to convert $11.5 million of outstanding

principal into the CP Warrant Conversion, exercisable at issuance for up to 525,114 shares of Common Stock having a fair value of approximately

$2.9 million.

In connection with the sale of the Cultivation Business on December 31, 2024, CP assumed all of our obligations under the

Restated Note.

GIC Acquisition Note

On July 12, 2023, our Board

approved the issuance of the GIC Note to GIC, an entity that is owned and managed by our former Chairman and Chief Executive Officer.

Pursuant to the GIC Note, GIC was obligated to lend us up to $0.5 million, $0.3 million of which was delivered at issuance and the remaining

$0.2 million delivered on July 31, 2023.

The GIC Note bore interest at a rate of 10% per annum, would mature in full on August 6, 2023,

and could be prepaid without any fee or penalty.

The GIC Note ranked junior to all existing secured indebtedness.

On October 27, 2023,

the maturity date of the GIC Note was subsequently amended to December 31, 2024, at which point principal and accrued interest will be

repaid in full.

On May 21, 2024, GIC and

the Company entered into the Restated GIC Note, (the Restated GIC Note collectively with the Consolidated Note Amendment, the “Related

Party Debt Amendments”) to increase the aggregate principal amount to approximately $2.29 million, extend the maturity date to December

31, 2025, and provide that the Restated Junior Note may be converted into Common Stock of the Company or, at GIC’s election, Pre-Funded

Warrants, in each case at a conversion price of $4.65.

Immediately following the execution of the Restated GIC Note, GIC elected to convert

all of the outstanding principal under the Restated GIC Note into a Pre-Funded Warrant exercisable at issuance for up to 492,203 shares

of Common Stock.

CP Promissory Note

On August 14, 2024, we issued

a junior secured promissory note (the “2024 CP Note”) to CP.

Pursuant to the 2024 CP Note, CP would lend us up to $1,500,000.

The 2024 CP Note bore interest at a rate of 10% per annum, would mature in full on July 1, 2025, and could be prepaid without any fee

The 2024 CP Note was secured by our assets and ranked junior to our existing secured indebtedness.

The 2024 CP Note could

be converted into Common Stock or, at CP’s election, Pre-Funded Warrants with an exercise price of $0.001 per share, in each case

at a conversion price of $3.9495.

In connection with the sale of the Cultivation Business on December 31, 2024, CP assumed all of our

obligations under the 2024 CP Note.

Investor Convertible

On November 5, 2024, we

issued the Note to the Investor.

The Note is a secured obligation and ranks senior to all indebtedness of the Company except for

indebtedness held by Mack, as described in Note 12 – Stockholder’s Equity (Deficit).

The Note will mature on November 5,

2025 and has a 10.0% annualized interest rate, with interest to be paid on the first calendar day of each September and March while

the Note is outstanding, in cash, beginning January 1, 2025.

The principal amount of the Note will be payable on its maturity date.

The Note provides for advances of up to $20.0 million in the aggregate, of which $10.0 million was advanced upon issuance.

Investor elects to convert the Note, the conversion price per share will be $3.158, subject to customary adjustments for certain

corporate events.

The conversion of the Note will be subject to certain customary conditions and the receipt of stockholder approval

to the extent necessary under Nasdaq listing rules.

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 years ended December 31,

2024 and 2023:

(In thousands)

Net cash (used in) provided by:

Investing activities

decrease in cash, cash equivalents, and restricted cash

Flows from Operating Activities

the year ended December 31, 2023, we incurred a net loss of $18.6 million primarily due to the $4.7 million related to the change in

fair value of warrant liabilities, $1.9 million of depreciation and amortization, $2.7 million of stock based compensation expense, and

$24 thousand of debt issuance costs.

Operating activities - continuing operations

Investing activities- continuing operations

Financing activities- continuing operations

Net increase (decrease) in cash and cash equivalents

Cash Flows from Operating Activities

For the year ended December

31, 2024, our operating cash flows included a net loss of $41.7 million, a $17.9 million change in the fair value of warrant liabilities,

$11.9 million related to loss on disposal of the Cultivation Business, $1.4 million of depreciation and amortization, $1.2 million of

stock based compensation expense, offset by a decrease of $5.9 million related to gain on settlement of contingent liability, $2.2 million

decrease related to accrued acquisition liabilities due to issuance of held-back-shares, change in provision for credit losses of $0.3

million, change in provision for inventory of $0.7, and a gain on early termination of lease of $0.1 million.

Net cash was increased by

changes in operating assets and liabilities of $7.0 million.

For the year ended December

31, 2023, we incurred a net loss of $18.6 million primarily due to $4.7 million related to the change in fair value of warrant liabilities,

$1.9 million of depreciation and amortization, $2.7 million of stock based compensation expense, and $24 thousand of debt issuance costs.

Net cash was increased by changes in operating assets and liabilities of $13.7 million.

the year ended December 31, 2022, cash 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.

Flows from Investing Activities

the year ended December 31, 2023, net cash provided by investing activities was approximately $25.2 million, which included cash inflows

of $10.5 million in proceeds from sale of securities and $15.1 million in proceeds from repayment of loan receivable, and cash outflows

of $0.6 million related to a certain loan issuance of loan and $0.3 million in purchases of property and equipment.

the year ended December 31, 2022, cash provided by investing activities of $2.3 million.

Cash used in investing activities consists primarily

of purchases of marketable securities of $294.7 million, proceeds of marketable securities of $329.0 million, payment of contingent contingent

liabilities of $3.3 million, cash paid associated with our 2022 acquisition of Lab Society and Sinclair of $2.2 million million, the

issuance of loans receivable if $23.0 million 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 of $8.1 million, to expand research, development, and testing capabilities and, to a lesser extent, the replacement of existing

Flows from Financing Activities

the year ended December 31, 2023, net cash used in financing activities was $4.2 million.

Net cash used in financing activities was primarily

driven by the repayment of certain of our debt instruments of $10.3 million, and payments on insurance financing loans of $1.3 million,

offset by proceeds generated from the sale of securities pursuant to our “at the market” program, net, of $1.5 million and

proceeds from issuance of a related party note of $4.4 million.

the year ended December 31, 2022, cash provided by financing activities was $72.8 million.

This consists primarily of proceeds from the

issuance of Common Stock of $25.8, and warrants in private placements of $61.8 million, and proceeds from the initial and secondary public

offerings of $23.2 million.

Cash used in financing activities consists primarily of repayment of debt of $38.0 million.

Quantitative and Qualitative Disclosures About Market Risk.

Cash Flows from Investing Activities

For the year ended December

31, 2024, net cash used in investing activities was approximately $0.1 million, which included cash inflows of $0.3 million from the proceeds

from repayment of loan receivable, and cash outflows of $0.4 million related to issuance of loans receivable.

For the year ended December

31, 2023, net cash provided by investing activities was approximately $25.2 million, which included cash inflows of $10.5 million in proceeds

from sale of marketable securities and $15.1 million in proceeds from repayment of loan receivable, and cash outflows of $0.6 million

related to a certain loan issuance and $0.3 million in purchases of property and equipment.

Cash Flows from Financing Activities

For the year ended

December 31, 2024, net cash provided by financing activities was $42.4 million.

Net cash provided by financing activities was

primarily driven by proceeds from the issuance Common Stock in connection with private placement of $25.8 million, proceeds from the

issuance of related party notes of $14.5 million, proceeds from the issuance of Common Stock pursuant to a registered offering with

Securities and Exchange Commission and pre-funded warrants offering of $2.1 million, proceeds from the issuance of Common

Stock through stock subscription of $0.3 million, offset by payments on insurance financing loans of $0.4 million.

For the year ended December

31, 2023, net cash used in financing activities was $4.2 million.

Net cash used in financing activities was primarily driven by the repayment

of certain of our debt instruments of $10.3 million, and payments on insurance financing loans of $1.3 million, offset by proceeds generated

from the sale of securities pursuant to our “at the market” program, net, of $1.5 million and proceeds from issuance of a

related party note of $4.4 million.

Quantitative and Qualitative Disclosures

About Market Risk.

Not applicable.

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-K

Item 7. Management’s Discussion and Analysis