What changed in this filing

/stocks — the workspaceLOADING

Item 5. Market for Registrant’s Common Equity

2022-03-31 compared with 2021-04-02 · 53 added, 873 removed, 14 unchanged (99% of the section changed)

Market for Registrant’s

Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market for Registrant’s Common

Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market Information

Our common stock has traded on the NASDAQ Capital

Market under the symbol “AGFY”

since January 28, 2021, the first trading day following the effective date of our IPO.

of March 29, 2021, the last reported sales price reported on the NASDAQ Capital Market for our common stock was $11.87 per share.

Market under the symbol “AGFY.”

Holders of Record

1 unchanged sentence

record of our common stock.

Such numbers do not include beneficial owners holding shares of our common stock in nominee or “street”

name through various brokerage firms.

We have never paid cash dividends

on any of our capital stock and currently intend to retain our future earnings, if any, to fund the development and growth of our business.

Securities Authorized for Issuance under Equity

Compensation Plans

The following table provides

information as of December 31, 2020 about our equity compensation plans and arrangements.

securities to

be issued upon

available for

compensation plans

column (a))(1)

Equity compensation plans approved by security holders

Equity compensation plans not approved by security holder

Consists of shares of common

stock available for future issuance under our equity incentive plans.

We have never paid cash dividends on any of our

capital stock and currently intend to retain our future earnings, if any, to fund the development and growth of our business.

Securities Authorized for Issuance under Equity Compensation Plans

The information concerning our equity compensation

plan is incorporated by reference from the information in our Proxy Statement for our 2022 Annual Meeting of Stockholders, which we will

file with the SEC within 120 days of the end of the fiscal year to which this Annual Report on Form 10-K relates.

Equity Repurchases

Recent Sales of Unregistered Securities

The information below lists

all of the securities sold by us during the past three years which were not registered under the Securities Act:

In June 2019, the Company

issued 1,289,667 shares of its common stock to 4D NXT Capital, LLC in consideration for services rendered to the Company, which

shares were subsequently distributed from 4D NXT Capital, LLC to its members or related parties of its members.

In January 2020, the Company

issued an aggregate of 595,552 shares of its common stock to the TriGrow shareholders in connection with the merger with TriGrow.

The Company issued an aggregate

of 100,000 shares of the Company’s Series A Convertible Preferred Stock (“Series A Preferred Shares”) for an aggregate

purchase price of $10,000,000, which shares shall convert into common stock upon the closing of this offering, on the following dates:

● January 10,

40,000 Series A Preferred Shares were issued by the Company to three investors.

● January 13,

5,000 Series A Preferred Shares were issued by the Company to one investor.

● January 21,

10,000 Series A Preferred Shares were issued by the Company to one investor.

5,000 Series A Preferred Shares were issued by the Company to one investor.

● May 7, 2020:

40,000 Series A Preferred Shares were issued by the Company to one investor.

In December 2019, the

Company issued stock options to its officers, directors and employees to purchase an aggregate of 493,102 shares of its common stock.

In May 2020, the Company cancelled all the options that were granted in December 2019 in consideration of services provided

to the Company.

In May 2020, the Company

issued stock options to purchase an aggregate of 1,622,719 shares of its common stock to its officers, directors and employees in

consideration for services provided, or to be provided, to the Company.

In July 2020, the Company

issued stock options to purchase an aggregate of 211,113 shares of its common stock to its officers, directors and employees in

consideration for services provided, or to be provided, to the Company.

In August 2020, the Company

issued stock options to purchase an aggregate of 15,362 shares of its common stock to its officers, directors and employees in consideration

for services provided, or to be provided, to the Company.

In October 2020, the Company

issued stock options to purchase an aggregate of 1,540,544 shares of its common stock to its officers, directors and employees in

consideration for services provided, or to be provided, to the Company.

In December 2020, the

Company issued stock options to purchase an aggregate of 44,254 shares of its common stock to its directors in consideration for

services provided, or to be provided, to the Company.

In January 2021, the Company

issued stock options to purchase an aggregate of 144,360 shares of its common stock to its directors in consideration for services

provided, or to be provided, to the Company.

The Company issued convertible

promissory notes in the aggregate principal amount of $13,100,000 and associated five year warrants to purchase an aggregate of 828,173 shares

of common stock with an exercise price of $0.02 per share, on the following dates:

Amount of Notes Issued

For each of the transactions

referred to above, we relied upon an exemption from registration afforded by Section 4(a)(2) of the Securities Act of 1933, as amended,

and Rule 506 of Regulation D promulgated thereunder, which exempt transactions by an issuer not involving any public offering.

Use of Proceeds from Initial Public Offering of Common Stock

The following summarizes all issuances of our

unregistered securities during the year ended December 31, 2021.The securities in the below-referenced transactions were (i) issued without

registration and (ii) were subject to restrictions under the Securities Act and the securities laws of certain states, in reliance on

the private offering exemptions contained in Sections 4(2), 4(6) and/or 3(b) of the Securities Act and on Regulation D promulgated there

under, and in reliance on similar exemptions under applicable state laws as transactions not involving a public offering.

stated otherwise, no placement or underwriting fees were paid in connection with these transactions.

In September 2021, the Company issued stock options

to purchase an aggregate of 8,000 shares of its common stock to an employee in consideration of achieving certain milestones from the

acquisition of Harbor Mountain Holdings, LLC.

In October 2021, the Company issued an aggregate

of 666,403 shares of its common stock to the Precision and Cascade shareholders in connection with the merger with Precision and

In addition to the shares issued at the closing of the acquisition, the Company has also held back an additional 117,600 shares

of the Company’s common stock due to the former stockholders of Precision and Cascade, which are scheduled to be issued six (6)

months after the close, subject to the satisfaction of certain covenants.

In December 2021, the Company issued an aggregate

of 240,301 shares of its common stock to the PurePressure shareholders in connection with the merger PurePressure.

Additionally,

as per the purchase agreement, the Company held back 88,878 shares of the Company’s common stock, representing 15% of the value

of the closing consideration amount.

The shares will be held back by the Company for a period of twelve (12) months for purposes of satisfying

any post-closing adjustments.

Use of Proceeds from Initial Public Offering of Common Stock and

Secondary Public Offering

On February 1, 2021, we closed our initial public

offering, or IPO, of 6,210,000 shares of common stock (inclusive of 810,000 shares of common stock from the full exercise of the over-allotment

option of shares granted to the underwriters).

The offer and sale of all of the shares in the IPO were registered under the Securities

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

333- 251616 and 333-252490), which was declared

effective by the SEC on January 27, 2021.

offering, or (“IPO”), of 6,210,000 shares of common stock (inclusive of 810,000 shares of common stock from the full exercise

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

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

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

333- 251616 and 333-252490),

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

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

The public offering price

of the shares sold in the offering was $10.00 per share.

public offering price of the shares sold in the offering was $10.00 per share.

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

1 unchanged sentence

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

There has been no material change in the planned

use of proceeds from our IPO as described in our final IPO prospectus filed with the SEC on January 29, 2021 pursuant to rule 424(b)

of the Securities Act.

We invested the funds received in short-term and long-term, interest-bearing securities and government securities.

Selected Financial

Not applicable.

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.

As described elsewhere in

this report, all share and per share amounts set forth below have been presented on a retroactive basis to reflect a 1-for-1.580814 reverse

stock split of our outstanding common stock implemented on January 12, 2021.

We are a developer of highly

advanced and proprietary precision hardware and software grow solutions for the indoor agriculture marketplace.

We believe we are the

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

We believe our Agrify “Precision Elevated™”

cultivation solution is vastly differentiated from anything else on the market in that it combines our seamlessly integrated hardware

and software offerings with a wide range of associated services such as consulting, engineering, and construction to form what we believe

is the most complete solution available from a single provider.

The totality of our product mix and service capabilities form an unrivaled

ecosystem in what has historically been an extremely fragmented market.

As a result, we believe we are well situated to create a dominant

market position in the indoor agriculture sector.

We had limited revenues from operations in each

of the last two fiscal years.

Through 2019, we concentrated our business with TriGrow Systems, Inc.

(“TriGrow”), acting as

our exclusive distributor.

During January 2020, we acquired TriGrow.

and began selling our products directly to end customers.

2020, we acquired HMH, a company that has been producing and assembling many of our products.

Recent Events

Public Offerings

Initial Public Offering

On January 27, 2021, we entered

into an underwriting agreement with Maxim Group LLC, as representative of the underwriters named therein, in connection with our initial

public offering (the “IPO”).

On January 27, 2021, we announced the pricing of our IPO of 5,400,000 shares of common stock

for a price of $10.00 per share, less certain underwriting discounts and commissions.

We also granted the underwriters a 45-day option

to purchase up to 810,000 additional shares of our common stock on the same terms and conditions for the purpose of covering any over-allotments

in connection with the IPO.

The IPO closed on February

Subsequently, the underwriters exercised the over-allotment option, and on February 4, 2021, we closed on the sale of an additional

810,000 shares of common stock for a price of $10.00 per share, less a 7% underwriting commission.

During the fiscal year ended December 31, 2021, we used the net proceeds from the IPO for our current working capital needs

to support accounts receivable growth, manage inventory to meet demand forecasts, and support operational growth.

On February 19, 2021, we consummated a secondary

public offering (the “February Offering”) of 5,555,555 shares of common stock for a price of $13.50 per share, less certain

underwriting discounts and commissions.

On March 22, 2021, we closed on the sale of an additional 833,333 shares of common stock on the

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

The exercise of the over-allotment

option brings the total number of shares of common stock sold by us in connection with our IPO to 6,210,000 shares and the total net

proceeds received in connection with the IPO to approximately $57 million, after deducting underwriting discounts and estimated offering

Subsequent Public Offering

On February 16, 2021, we entered

into an underwriting agreement with Maxim Group LLC, as representative of the underwriters named therein, in connection with an underwritten

public offering (the “February Offering”).

On February 16, 2021, we announced the pricing of the February Offering of 5,555,555

shares of common stock for a price of $13.50 per share, less certain underwriting discounts and commissions.

We also granted the underwriters

a 45-day option to purchase up to 833,333 additional shares of our common stock on the same terms and conditions for the purpose of covering

any over-allotments in connection with the February Offering.

The February Offering closed on February 19, 2021.

Subsequently, the underwriters

exercised the over-allotment option, and on March 22, 2021, we closed on the sale of an additional 833,333 shares of common stock for

a price of $13.50 per share, less a 7% underwriting commission.

The exercise of the over-allotment option brings the total number of

shares of common stock sold by us in connection with our February Offering to 6,388,888 shares and the total net proceeds received in

connection with the February Offering to approximately $80 million, after deducting underwriting discounts and estimated offering expenses.

Series A Convertible Preferred Stock

Beginning in the first quarter

of 2020, we issued an aggregate of 60,000 shares of our Series A Convertible Preferred Stock, or Series A Preferred Stock, for an aggregate

purchase price of $6,000,000.

In May 2020, we completed our offering of Series A Preferred with the issuance of an additional 40,000

shares of Series A Preferred for an aggregate purchase price of $4,000,000.

All outstanding shares of Series A Preferred Stock automatically

converted immediately prior to the closing of our IPO into 1,373,038 shares of common stock at a conversion price of $7.72 per share.

Acquisition of TriGrow

On January 22, 2020 we completed

the acquisition of all outstanding shares of TriGrow.

TriGrow is an integrator and exclusive distributor of our premium indoor grow solutions

for the indoor controlled agriculture marketplace.

As part of the acquisition, 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.

of these brands is ancillary to the sale of our AVFUs 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.

In consideration

of TriGrow’s shares, we issued to TriGrow’s shareholders 595,552 shares of common stock.

In addition, the closing conditions

included the assumption of TriGrow’s outstanding obligation to invest $1,140,000 (the “Funding Amount”) in a form of

a so called “Profit Interest”

investment in CCI Finance, LLC (“CCI”).

We included this investment as part of

the consideration for the acquisition.

We satisfied this obligation and made payment of the Funding Amount on January 24, 2020 pursuant

to a Profits Interest Agreement with CCI.

Under the Profits Interest Agreement, in return for our investment of the Funding Amount, CCI

is obligated to share with us 28.5% of the net revenue generated from its equipment lease agreement with its customer, payable at least

annually by CCI to us.

The revenue sharing percentage is reduced from 28.5% to 20% once we have received payments equaling an 18% Internal

Rate of Return on the Funding Amount (the “Preferred Return”) prior to the fifth anniversary of the agreement.

sharing terminates upon the later of five years, or our attainment of the Preferred Return.

To date, no revenue has been generated and

shared with us under this agreement.

Assuming a five-year payback, the annual payments required to reach the Preferred Return would be

Assuming a seven-year payback, the annual payments required to reach the Preferred Return would be $299,000.

As part of the acquisition

of TriGrow, we made available 121,539 shares of our common stock for issuance to certain executives of TriGrow upon TriGrow’s and/or

our receipt of $10,000,000 of accumulative purchase orders for TriGrow and/or our equipment, products, and services, for the period from

November 21, 2019 through June 30, 2020 as a result of the efforts of the TriGrow executives.

Such shares of common stock are to be distributed

by us in our sole discretion to certain executives responsible for achievement of such milestone.

We concluded that the earn-out, if

materialized, will be considered as post combination services.

Additionally, we concluded that the value associated with the earn-out

to be de minimis.

No earn-out was earned through June 30, 2020.

The purchase price for TriGrow

was allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values on the acquisition

dates, with the remaining unallocated purchase prices recorded as goodwill.

The fair value assigned to identifiable intangible assets

acquired was determined primarily by using the income approach, which discounts expected future cash flows to present value using estimates

and assumptions determined by our management.

Transaction and related costs,

consisting primarily of professional fees, directly related to the acquisition, totaled $45,000 for the year ended December 31, 2020.

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

The purchase price allocation

for the business combination has been prepared on a preliminary basis and changes to those allocations may occur as additional information

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

Fair value still under review

include values assigned to identifiable intangible assets and goodwill.

The following table sets forth

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

Components of Purchase Prices:

to invest cash in profit interest

stock consideration

Noncontrolling

purchase price

of Purchase Price:

tangible assets

intangible assets:

relationships

identifiable intangible assets

purchase price allocation

Brand rights and Customer relationships

were assigned estimated useful lives of ten years and nine years, respectively, the weighted average of which is approximately 9.5 years.

The amount of revenue of TriGrow included in

our consolidated statement of operations from the acquisition date of January 22, 2020 to December 31, 2020 was $4,000,000.

Acquisition of Harbor Mountain Holdings, LLC

In July 2020, we acquired all

the outstanding shares of Harbor Mountain Holdings, LLC (“HMH”), located in the Atlanta, GA area, that has been producing

and assembling many of our products.

As part of the acquisition we waived net receivable owed amounting to $214,000 and assumed lease

liabilities for existing equipment and premises.

As part of the acquisition of HMH, we may issue stock options or shares of common stock

(at our discretion), at a value of up to $100,000, to an executive of HMH upon achievement of certain milestones from the acquisition

date through March 31, 2021, as a result of the efforts of the HMH executive.

We concluded the earn-out, if materialized, will be considered

as post business combination services.

Additionally, we concluded that the value associated with the earn-out to be de minimis .

No earn-out was earned through December 31, 2020.

The purchase price for this

business combination was allocated by us to the tangible and intangible assets acquired and liabilities assumed based on its book value

which estimated the fair values on the acquisition date, with the remaining unallocated purchase price recorded as goodwill.

Transaction and related costs,

consisting primarily of professional fees, directly related to the acquisition, totaled $35,000 for the year ended December 31, 2020.

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

The following table sets forth

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

of Purchase Price:

of net receivable owed to Agrify

purchase price

of Purchase Price:

tangible assets (liabilities):

and Equipment

lease liabilities

tangible (liabilities):

purchase price allocation

The amount of revenue of HMH included in our

consolidated statement of operations from the acquisition date of July 22, 2020 to December 31, 2020 was $0.

The following pro forma financial

information summarizes the combined results of operations for us, TriGrow and HMH, as though the acquisition of TriGrow and HMH occurred

on January 1, 2019.

The unaudited pro forma financial

information was as follows:

(In thousands)

Net loss before non-controlling interest

Loss attributable to non-controlling interest

The pro forma financial information

for all periods presented above has been calculated after adjusting the results of TriGrow and HMH to reflect the business combination

accounting effects resulting from these acquisitions, including acquisition costs and the amortization expense from acquired intangible

assets as though the acquisition occurred on January 1, 2019.

The historical consolidated financial statements have been adjusted in

the pro forma combined financial statements to give effect to pro forma events that are directly attributable to the business combination.

The pro forma financial information

is for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition

had taken place on January 1, 2019.

Impact of coronavirus pandemic (“COVID-19”)

In March 2020, the World Health

Organization declared the outbreak of the COVID-19 virus a global pandemic.

This outbreak is causing major disruptions to businesses

and markets worldwide as the virus continues to spread.

A number of countries as well as certain states and cities within the United

States have enacted temporary closures of businesses, issued quarantine or shelter-in-place orders and taken other restrictive measures

in response to COVID-19.

To date, although all of our

operations are operating, COVID-19 has caused some disruptions to our business, such as some temporary delays in the delivery of our

inventory, although recently we are no longer experiencing such delays.

Although the ability of our suppliers to timely ship their goods

has affected some of our deliveries, currently the difficulties experienced by our suppliers have not yet materially impacted our ability

to deliver products to our customers and we do not significantly depend on any one supplier.

However, if this continues, it may negatively

affect any inventory we may have and more significantly delay the delivery of merchandise to our customers, which in turn will adversely

affect our revenues and results of operations.

The extent to which COVID-19

and the related global economic crisis, affect our business, results of operations and financial condition, will depend on future developments

that are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and any recovery period, future actions

taken by governmental authorities, central banks and other third parties (including new financial regulation and other regulatory reform)

in response to the pandemic, and the effects on our produce, clients, vendors and employees.

We continue to service our customers amid

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

Paycheck Protection Program Loan under the

Coronavirus Aid, Relief, and Economic Security Act

On May 7, 2020, we entered

into a Loan Agreement and Promissory Note (collectively, the “PPP Loan”) with Bank of America pursuant to the Paycheck Protection

Program (the “PPP”) under the recently enacted Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”)

administered by the U.S.

Small Business Administration (the “SBA”).

We received total proceeds of $779,000 from the unsecured

The PPP Loan is scheduled to mature on May 7, 2022 and has an interest rate of 1.00% per annum and is subject to the terms

and conditions applicable to loans administered by the SBA under the CARES Act.

The PPP Loan may be prepaid at any time prior to its

maturity with no prepayment penalties.

The PPP Loan contains customary

events of default relating to, among other things, payment defaults and breaches of representations and warranties.

Subject to certain

conditions, the PPP Loan may be forgiven in whole or in part by applying for forgiveness pursuant to the CARES Act and the PPP.

of loan proceeds eligible for forgiveness is based on a formula based on a number of factors, including the amount of loan proceeds used

by us for certain eligible expenses, including payroll costs, rent payments on certain leases and certain qualified utility payments,

provided that, among other things, at least 60% of the loan amount is used for eligible payroll costs, the employer maintaining or rehiring

employees and maintaining salaries at certain level.

In accordance with the requirements of the CARES Act and the PPP, we have used all

of the proceeds from the PPP Loan primarily for payroll costs.

We have not yet applied for forgiveness of this loan.

We believe that

we will be eligible for full forgiveness under the program, but there is no assurance that the full loan amount will be forgiven and

we cannot anticipate the timing of any such forgiveness.

If the principal amount is not forgiven in full, we would be obligated by May

7, 2022 to repay any principal amount not forgiven and interest accrued from May 7, 2020.

On July 27, 2020, Agrify Brands,

LLC received a PPP Loan from Bank of America for total proceeds of $44,410.

The PPP Loan is scheduled to mature on July 27, 2025, has

an interest rate of 1.00% per annum and is subject to the terms and conditions mentioned above.

Convertible Promissory Notes and Warrants

On August 14, 2020, our board

of directors approved the issuance of (i) convertible promissory notes (the “Notes”) in the aggregate principal amount of

$5,000,000 with an initial maturity date of one year following issuance, subject to a one-year extension and (ii) five year warrants

to purchase a number of shares of common stock equal to 10% of the principal amount of Notes purchased by the purchasers at an exercise

price per share equal $0.01.

The Notes provided for conversion at our option or the holder of the Notes upon an initial public offering

or public listing into a number of fully paid and non-assessable shares of common stock equal to the quotient of (i) the outstanding

principal amount of the Notes together with all accrued and unpaid interest hereunder immediately prior to such Public Transaction divided

by (ii) a conversion price of $7.72.

On September 30, 2020, our

board of directors approved an increase to the maximum aggregate offering amount of the Notes to $10,000,000.

On November 23, 2020, our

board of directors approved a further increase to the maximum aggregate offering amount of the Notes to $13,500,000.

As of December 31, 2020, a

total of $13,100,000 of Notes and warrants to purchase 828,173 shares of common stock were subscribed.

Through December 31, 2020, the

aggregate relative fair value of the warrants of $2,427,000 was recorded as debt discount at issuance and is being amortized over the

term of the respective Notes.

During the year ended December

31, 2020, we determined that the Notes contained variable-share settlement features that represented derivative liabilities and contingent

The aggregate issuance date fair value of the variable-share settlement features was $2,769,000, which was recorded at issuance

as a debt discount and is being amortized over the terms of the respective Notes.

See the paragraph below —

Derivative Liabilities

for additional details.

During the year ended December 31, 2020, the contingently adjustable non-bifurcated, beneficial conversion

features associated with the Notes were not resolved.

Upon resolving such contingency we will estimate the intrinsic value of the beneficial

conversion features based upon the difference between the fair value of the underlying common stock at the commitment date of the Note

transaction and the adjusted conversion price embedded in the Notes.

On November 30, 2020, we modified

the conversion terms of the then outstanding notes which resulted in a change in fair value of the new conversion features as compared

to the conversion features immediately prior to the modification that exceeded 10% of the carrying amount of the debt, and as a result,

the note modifications were accounted for as extinguishments.

Accordingly, we recognized an aggregate loss on extinguishment of $5,618,000

for the difference between the net carrying amount of the extinguished debt of $10,038,000 (inclusive of $11,800,000 of principal, $4,170,000

of debt discount and $2,408,000 of derivative liabilities) and the reacquisition price of the debt in the same aggregate principal amount

of $11,800,000, plus the fair value of the new notes’

conversion features of an aggregate of $3,856,000.

All of the outstanding Notes

converted into an aggregate of 1,697,075 shares of our common stock on February 1, 2021, the closing date of our IPO.

Derivative Liabilities

During the year ended December

31, 2020, we recorded Level 3 derivative liabilities that were measured at fair value at issuance in the aggregate amount of $2,769,000

related to the variable-share settlement features of certain convertible notes payable.

During the year ended December 31, 2020, we modified

the conversion terms of certain notes which resulted in the recognition of an additional $1,448,000 of Level 3 derivative liabilities,

with a corresponding debit to loss on extinguishment.

See previous paragraph–

Convertible Promissory Notes for additional details.

On December 31, 2020, we recomputed the fair value of the variable-share settlement features recorded as derivative liabilities to be

The loss of $2,924,000 on the change in fair value between the issuance date and December 31, 2020 was recorded to interest

expense for the year ended December 31, 2020.

Upon conversion of our outstanding Notes on February 1, 2021, the closing date of our IPO,

all of the outstanding derivative liabilities were cancelled.

Use of Estimates

The preparation of financial

statements in accordance with accounting principles generally accepted in the United States 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 and useful life of fixed assets and intangible

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 GAAP.

The preparation of financial statements in conformity

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

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

reported amounts of revenues and expenses during the reported period.

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

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

Actual results may differ materially from those

estimates or assumptions.

Revenue Recognition

In accordance with Topic 606,

we account for a customer contract when both parties have approved the contract and are committed to perform their respective obligations,

each party’s rights can be identified, payment terms can be identified, the contract has commercial substance, and it is probable

that we will collect substantially all of the consideration to which we are entitled.

Revenue is recognized when, or as, performance

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

We generate revenue from the

following sources:

(1) equipment sales and (2) services sales.

We sell our equipment and services to customers under a combination of

a contract and purchase order.

Equipment revenue includes

sales from proprietary products designed and engineered by us such as vertical farming units, integrated grow racks, and LED grow lights,

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

surface protection.

For proprietary products, the transaction price is generally in the form of a fixed fee at contract inception and

variable consideration in the form of royalties based on contractual percentage of the net selling price of any proprietary product sold

by our customers.

For non-proprietary products, the transaction price is generally in the form of a fixed fee at contract inception and

variable consideration in the form of revenue share based on a contractual percentage of gross margin of any non-proprietary product

sold by our customers.

We do not offer a right of return for sales of equipment.

Service revenue includes sales

from cloud-based solutions that allow customers to use hosted software over the contract period without taking possession of the software

and are provided on a subscription basis with technical support.

The transaction price is variable consideration in the form of a monthly

fee determined at contract inception based on the total number of active software users.

We offer service credits in those instances

where software uptime does not meet predetermined performance thresholds.

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.

to variable consideration were not material for the periods presented.

We typically satisfy our performance

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

We typically satisfy our performance obligations

for services sales as services are rendered to the customer.

We enter contracts that can

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

We allocate total contract

consideration to each distinct performance obligation in an arrangement on a relative standalone selling price basis.

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.

Other Policies and Judgments

We have elected to treat shipping and handling activities after the customer obtains control of the goods as a fulfilment

cost and not as a promised good or service.

Accordingly, we will accrue all fulfilment costs related to the shipping and handling of

consumer goods at the time of shipment.

We have payment terms with our 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.

Contract Balances —

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

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

The difference in the opening and closing balances

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

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

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

We recognize deferred

revenue when we have received consideration or an amount of consideration is due from the customer and we have a future obligation to

transfer certain proprietary products.

We generally provide a one-year warranty on its products

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

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

In accordance with ASC 450-20-25, we accrue for product warranties when the loss

is probable and can be reasonably estimated.

At December 31, 2020, we had no product warranty accrual our de minimis historical financial

warranty experience.

Accounting for Business Combinations

We allocated the purchase price

of acquired company 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 assigned to identifiable intangible assets acquired during the year ended December 31, 2020, was determined primarily by using

the income approach, which discounts expected future cash flows to present value using estimates and assumptions determined by our management.

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.

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”

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 Topic 718 establishes standards surrounding

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

ASC Topic 718 focuses primarily

on accounting for transactions in which an entity obtains employee services in share-based payment transactions, such as options issued

under our Stock Option Plans.

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.

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 its traded stock, and because

changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing

models do not necessarily provide a reliable single measure of the fair value of such stock options.

The risk-free interest rate is based

upon quoted market yields for United States Treasury debt securities with a term similar to the expected term.

The expected dividend

yield is based upon our history of having never issued a dividend and management’s current expectation of future action surrounding

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 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 financial

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.

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

value of common stock

Historically,

for all periods prior to our IPO, the fair values of the shares of common stock underlying our share-based awards were determined on

each grant date by our board of directors.

Given the absence of a public trading market for our common stock, our board of directors

exercised reasonable judgment and considered a number of objective and subjective factors to determine the best estimate of the fair

value of our common stock, including our stage of development;

the rights, preferences and privileges of our convertible preferred stock

relative to those of our common stock;

our financial condition and operating results, including our levels of available capital resources;

equity market conditions affecting comparable public companies;

market conditions;

and the lack of marketability of our

common stock.

Valuations of our common stock were prepared by an unrelated third-party valuation firm in accordance with the guidance

provided by the American Institute of Certified Public Accountants Practice Guide, Valuation of Privately-Held-Company Equity Securities

Issued as Compensation.

our valuation performed on September 30, 2019, March 20, 2020 and September 14, 2020, we used the income and market methods to estimate

our enterprise value under various financing scenarios based on the discounted cash flow approach and a market approach of comparable

peer public companies.

The estimated enterprise value under each method was then allocated to the common stock, discount for lack of

marketability was applied, and the resulting value of common stock was probability-weighted across the various financing scenarios to

determine the fair value of common stock.

assumptions underlying these valuations represented management’s best estimate, which involved inherent uncertainties and the application

of management’s judgment.

As a result, if we had used different assumptions or estimates, the fair value of our common stock and

our stock-based compensation expense could have been materially different.

of Operations

of Years Ended December 31, 2020 and 2019

The following table summarizes our results of

operations for the years ended December 31, 2020 and 2019:

of goods sold

profit (loss)

and development

general and administrative expenses

operating expenses

from operations

(12,616,000 )

(EXPENSE) INCOME, NET

(expense) income, net

on extinguishment of notes payable

in fair value of derivative liabilities

(expense) Income, net

loss before non-controlling interest

(21,639,000 )

attributable to non-controlling interest

loss attributable to Agrify Corporation.

$ (21,617,000 )

$ (3,042,000 )

loss per share attributable to common stockholders – basic and diluted

average common shares outstanding – basic and diluted

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

Our core product offering includes our Agrify

Vertical Farming Units and Agrify Integrated Grow Racks with our Agrify Insights™

software, which in 2020 are supplemented with

environmental control products, grow lights, and facility build-out services.

the first quarter of 2020 and in parallel with the outbreak of the COVID-19 virus, we experienced a disruption in the supply chain that

delay the delivery of several components necessary to the manufacturing of our Agrify Vertical Farming Units (or AVFUs) and as a result,

delivery of several AVFUs was delayed to April 2020.

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

facility build-outs.

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

from early stages of the grow cycle —

first during the facility build-out, to the choice of cultivation solutions and then

running the grow business with our Agrify Insight software.

We believe that delivery of each solution in the grow cycle will generate

sales of additional solutions and services.

The following table provides a breakdown of our

revenue for the years ended December 31, 2020 and 2019:

Cultivation solutions, including ancillary products

Agrify Insights software

Facility build-outs

Revenue from cultivation solutions and ancillary products

for the years ended December 31, 2020 and 2019 were generated mainly from the delivery of 179 AVFUs to a customer in Washington state

and 135 AVFUs to customers in Colorado and Nevada states, respectively.

Revenue from delivery of cultivation solutions is one-time in

nature and the number of AVFUs we delivered to each customer is ordered by the customer and designed to maximize its grow space.

the formation of our joint venture with Valiant-America in December 2019 through Agrify-Valiant, we added the facility build-outs to

our products and services offering.

We generated revenue from facility build-out services starting in the second quarter of 2020.

believe that combining facility build-out services with our other products will enhance the productivity of our AVFUs and benefit our

of goods sold include direct cost of parts and outsourced assembly and installation services that are necessary for delivery of our products.

The following table provides a breakdown of our

cost of revenue for the years ended December 31, 2020 and 2019:

Cultivation solutions, including ancillary products

Facility build-outs

the first six months of 2020, we outsourced the manufacturing of our AVFUs to HMH, which we acquired in July 2020.

Although the primary

reason we acquired HMH was to expand our research, development and testing capabilities, the acquisition will also provide us with internal

capabilities to manufacture small quantities of AVFUs and to reduce our cost of manufacturing.

In addition, in December 2020, we entered

into a five year supply agreement with Mack Molding Co.

(“Mack”) pursuant to which Mack will become a key supplier of our

We believe the supply agreement with Mack will provide us with increased scaling capabilities and the ability to more efficiently

meet the potential future demand of our customers.

The supply agreement contemplates that, following an introductory period, we will

negotiate a minimum percentage of our AVFU requirements that we will purchase from Mack each year based on the agreed upon pricing formula.

The introductory period is not time-based but rather refers to the production of an initial number of units after which the parties have

rights to adjust pricing and negotiate a certain minimum requirements percentage.

We believe this approach will result in both parties

making a more informed decision with respect to the pricing and other terms of the supply agreement with Mack.

gross profit represents total revenue less the cost of goods sold, and gross margin is gross profit expressed as a percentage of total

For the year ended December 31, 2020, our gross profit was $570,000 compared to a loss of $245,000 for the year ended December

increase in gross profit was primarily related to (i) the aforementioned increase in net sales and (ii) a significant increase in our

gross profit margin percentage (gross profit as a percentage of net sales).

Our gross profit margin percentage increased to 4.7% for

the year ended December 31, 2020 compared to a loss of 6.0% in the same period in 2019.

The higher gross profit margin percentage is

primarily due to higher negotiated prices on our products and a more favorable sales mix of proprietary and exclusive branded products.

The acquisition of TriGrow in January 2020 allows us to sell our products directly to end customers and to generate higher gross profits.

We expect that our marketing efforts aimed at driving demand and expanding our customer base, combined with our cost reduction initiatives,

will result in higher gross margins in the future.

and Development Expenses

and development expenses consisted primarily of costs incurred for the development of Agrify Insight and next generation VFUs, which

● employee-related

expenses, including salaries, benefits, and travel;

incurred by subcontractor 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.

did not have any significant research and development operation during the year ended December 31, 2019.

For the year ended December

31, 2020 compared to the year ended December 31, 2019, research and development expenses were $3,354,000 and $109,000, respectively.

The increase of $3,245,000 is primarily attributable to payroll and related expenses of approximately $1,284,000, consulting fees of

$468,000, and to halted development of hardware solution for deployment of rapid grow solution of $824,000, discarded research and development

center in Colorado of $107,000, expenses related to grant of stock options in the amount of $291,000 and increase in hired employees

and consultants for research and development activities.

a percentage of net revenue, research and development expenses represented were 27.7% from total revenue for the year ended December

31, 2020, compared to 2.6% for the year ended December 31, 2019.

We expect to continue to invest in future developments of our AVFUs

and Agrify Insights™.

In the coming years, we believe that research and development expenses measured as percentage of revenue

will decrease due to an increase in our total revenue.

General and Administrative Expenses

general and administrative expenses consist principally of salaries and related costs for personnel, including stock-based compensation

and travel expenses, in selling, executive and other administrative functions.

Other general and administrative expenses also include

professional fees for legal, consulting and accounting services as well as facility related costs.

the year ended December 31, 2020 compared to the year ended December 31, 2019, general and

administrative expenses were $9,832,000 and $2,737,000, respectively.

The increase is attributable

mainly to payroll and related expenses of approximately $2,878,000, grant of stock options

in the amount of $1,429,000, expenses of $856,000 related to our efforts to become publicly

listed, professional service fees of approximately $443,000, depreciation and amortization

expenses of approximately $389,000, rent and utilities expenses of approximately $234,000,

insurance expenses of approximately $97,000, travel and entertainment expenses of approximately

$67,000, allowance for doubtful accounts of approximately $54,000, legal expenses of approximately

$214,000 and legal costs related to our merger and acquisition activity of $80,000.

The remaining

increase is attributable to other administration expenses.

To support our long-term growth

plan and our initial public offering, we undertook several initiatives in the second half

of 2019 and early 2020 which resulted in higher compensation costs, consulting fees and audit/legal

fees, including, but not limited to, the hiring of executives such as our new Chief Executive

Officer, Chief Financial Officer, Chief Operating Officer and General Counsel, and engaging

new professionals such as an auditor, law firm and several accounting and audit-related consultants.

have granted stock options to officers, directors and employees which have several vesting conditions, including an event-based vesting

acceleration (defined as a change in control, including an initial public offering).

A change in control, including the consummation

of a public offering, would trigger a significant event-based stock compensation charge in the quarter during which that offering is

Other (income) expense, net

expense was $481,000 for the year ended December 31, 2020 compared to $49,000 interest income for the year ended December 31, 2019, reflecting

an increase of $530,000.

The increase in interest expense is attributable mainly to the amortization of debt discount related to the

issuance of convertible promissory notes in the amount of $419,000 and interest-bearing accounts in the amount of $62,000.

on extinguishment of notes payable was $5,618,000 for the year ended December 31, 2020 compared to null for the year ended December 31,

In November 2020, the conversion terms of the outstanding convertible notes were modified which resulted in an aggregated loss

on extinguishment of $5,618,000.

in fair value of derivative liabilities was $2,924,000 for the year ended December 31, 2020 compared to null for the year ended December

The fair value of the variable-share settlement features was computed to be $7,141,000, which resulted with a loss of $2,924,000

for the year ended December 31, 2020.

attributable to non-controlling interest

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

8, 2019, we formed Agrify Valiant LLC, a joint-venture limited liability company in which we are 60% majority owner and Valiant-America,

LLC owns 40%.

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

On January 22, 2020, as part of the acquisition

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

portfolio of consumer brands that utilize our grow technology.

The license of these brands is ancillary to the sale of our AVFUs 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.

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

and Capital Resources

Our ability to continue as a going concern is

dependent on our ability to raise additional capital and implement our business plan until we generate sufficient cash from operating

activities to support our investment and financing needs.

Prior to our IPO, we were funded by revenues from operations and investments

in our company.

Upon the closing of the February Offering, we had approximately $139 million in cash and cash equivalents.

such amount, together with cash flows from operations, will be sufficient to support our planned operations for at least the next 12

Our current working capital needs are to support accounts receivable growth, manage inventory to meet demand forecasts and support

operational growth.

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

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.

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.

received two PPP Loans with Bank of America pursuant to the PPP under the CARES Act administered by the SBA.

We received total proceeds

of $823,410 from the unsecured PPP Loans which are scheduled to mature during 2022 and 2025.

Subject to certain conditions, the PPP Loan

may be forgiven in whole or in part by applying for forgiveness pursuant to the CARES Act and the PPP.

We have not yet applied for forgiveness

of the PPP Loan and although we believe that we will be eligible for full forgiveness under the PPP, there is no assurance that the full

PPP Loan amount will be forgiven and we cannot anticipate the timing of any such forgiveness.

If the principal amount is not forgiven

in full, we would be obligated to repay any principal amount not forgiven and interest accrued thereon.

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, 2020, and 2019:

Cash (used in) provided by:

Operating Activities

$ (14,782,000 )

$ (3,441,000 )

Investing Activities

$ (1,228,000 )

Financing Activities

from Operating Activities

For the year ended December 31, 2020, we incurred

a net loss of $21,617,000, which includes non-cash expenses of $5,618,000 related to extinguishment of notes payable, $2,924,000 due

to change in fair value of derivative liabilities, $407,000 related to depreciation and amortization, $1,921,000 in connection with the

issuance of stock options, non-cash interest expenses of $447,000 related to the issuance of notes payable, provision of $54,000 for

doubtful accounts and $120,000 from the disposal of fixed assets, partially offset by loss attributed to non-controlling interest in

the amount of $22,000.

Net cash was reduced by a $3,709,000 increase in accounts receivable, a $2,941,000 increase in prepaid inventory

due to demand forecast, a $2,249,000 decrease in deferred revenue, partially offset by $4,780,000 increase in accrued expenses, a $12,000

decrease in prepaid expenses, and a $527,000 decrease in accounts payable.

For the year ended December 31, 2019, we incurred

a net loss of $3,042,000, which includes non-cash expenses of $10,000 related to depreciation and amortization, and $109,000 in connection

with issuance of stock options.

Net cash was reduced by a $369,000 increase in inventory due to demand forecast, a $366,000 increase

in prepaid expenses and other receivables, and an $833,000 decrease in accounts payable, partially offset by a $355,000 increase in accrued

expenses, and a $695,000 increase in deferred revenue.

For the years ended December 31, 2020 and 2019,

depreciation and amortization expense was $407,000, and $10,000, respectively.

The increase in Depreciation and amortization expenses

is related to assets acquired from HMH.

We anticipate that our depreciation and amortization expense will increase in fiscal 2021 due

to expected capital expenditures in fiscal 2021 on property and equipment to expand research, development and testing capabilities.

For the years ended December 31, 2020 and 2019,

compensation in connection with issuance of stock options was $1,921,000 and $109,000, respectively.

As of December 31, 2020, there was

$3,914,000 of total unrecognized compensation cost related to unvested options granted under our options plans, which will be expensed

through fiscal 2024.

support our long-term growth plan and our proposed initial public offering, during fiscal years 2019 and 2020, we hired employees and

executives, invested in research and development and sales and marketing activities, and increased our inventory.

While these activities

will increase our expenses, create a net loss and negative cash flow from operations, these activities laid the foundation that resulted

in our current sales backlog and qualified pipeline.

from Investing Activities

cash used in investing activities relates to capital expenditures to support growth and investment in property and equipment, to expand

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

the year ended December 31, 2020, net cash used in investing activities was $1,228,000, which includes $1,092,000 paid in connection

with the acquisition of TriGrow and $136,000 cash outflow for purchasing computer equipment and small machinery.

the year ended December 31, 2019, net cash used in investing activities was $184,000 and consisted of a $143,000 investment in our website

domain and trademark, and a $41,000 cash outflow for purchasing computer equipment and small machinery.

from Financing Activities

the year ended December 31, 2020, net cash provided by financing activities was $23,915,000, primarily attributable to the $10,000,000

proceeds from the issuance of our Series A Preferred Stock, $13,100,000 proceeds from the issuance of notes payable and the $823,000

PPP Loan under the CARES Act.

the year ended December 31, 2019, net cash provided by financing activities was $3,746,000, consisting of $3,879,000 in capital contributions

resulting from the issuance of our common stock to an investor, partially offset by a $133,000 repayment of a loan from a related party.

December 31, 2020, our contractual obligations were as follows:

Notes Payable,

derivative liability and long-term debt

Short term lease obligations

Finance lease obligations

contractual obligations

purchase obligations are associated with agreements for purchases of goods or services generally including agreements that are enforceable

and legally binding and that specify all significant terms, including fixed or minimum quantities to be purchased;

fixed, minimum, or

variable price provisions;

and the approximate timing of the transactions.

Agreements to purchase goods or services that have cancellation

provisions with no penalties are excluded from these purchase obligations.

Upon the closing of our IPO, the notes payable were converted

into shares of our common stock.

Quantitative and Qualitative Disclosures About Market Risk.

Financial Statements and Supplementary Data.

information required by Item 8 appears after the signature page to this report as a separate section beginning on page F-1.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosures.

option brought the total number of shares of common stock sold by us in connection with the February Offering to 6,388,888 shares and

the total net proceeds received in connection with the February Offering to approximately $80 million, after deducting underwriting discounts

and estimated offering expenses.

During the fiscal year ended December 31, 2021, we used the net proceeds from the IPO for our current

working capital needs to support accounts receivable growth, manage inventory to meet demand forecasts, and support operational growth.

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 5. Market for Registrant’s Common Equity