What changed in this filing

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Item 9A. Controls and Procedures

2022-03-31 compared with 2021-04-02 · 2121 added, 2173 removed, 227 unchanged (95% of the section changed)

1 unchanged sentence

of Disclosure Controls and Procedures

We maintain disclosure controls and procedures

(as defined in paragraph (e) of Rules 13a-15 and 15d-15 under the Exchange Act) designed to ensure that the information we are required

to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time

periods specified under the rules and forms of the SEC.

Disclosure controls and procedures include, without limitation, controls and

procedures designed to ensure that such information is accumulated and communicated to our management, including our Chief Executive

Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.

As required by paragraph

(b) of Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer and our Chief Financial Officer carried out an evaluation

of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2020.

Based on this evaluation,

our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were not effective

at the reasonable assurance level as of December 31, 2020.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining

adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f).

Internal control

over financial reporting refers to the process designed by, or under the supervision of, our principal executive officer and principal

financial officer, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding

the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally

accepted accounting principles.

Internal control over financial reporting cannot provide absolute assurance of achieving their objectives.

Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgement

and breakdowns resulting from human failures.

Due to their inherent limitations, there is a risk that material misstatements may not

be prevented or detected on a timely basis by internal control over financial reporting.

It is possible to design safeguards to reduce,

but not eliminate, this risk.

Management is responsible for establishing and maintaining adequate internal control over financial reporting

for our company.

Management has used the framework set forth in the report entitled Internal Control—Integrated Framework published

by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), known as COSO, to evaluate the effectiveness

of our internal control over financial reporting.

As a private company, we had not been required to document and test our internal controls

over financial reporting nor had management been required to certify the effectiveness of our internal controls and our auditors had

not been required to opine on the effectiveness of our internal control over financial reporting.

Similarly, we had not been subject

to the SEC’s internal control reporting requirements.

Following the Initial Public Offering, we became subject to these requirements.

In the course of preparing the financial statements that were included in certain filings with the SEC, we have identified material weaknesses

in internal control over financial reporting, which relate to insufficient technical accounting resources and lack of segregation of

A material weakness is a deficiency or combination of deficiencies in internal control over financial reporting such that there

is a reasonable possibility that a material misstatement of its financial statements would not be prevented or detected on a timely basis.

These deficiencies could result in misstatements to our financial statements that would be material and would not be prevented or detected

on a timely basis.

Our management has concluded that these material weaknesses in our internal control over financial reporting are due

to the fact that, prior to this Annual Report on Form 10-K, we were a private company with limited resources.

We did not have the necessary

business processes and related internal controls, or the appropriate resources or level of experience and technical expertise, that would

be required to oversee financial reporting processes or to address the accounting and financial reporting requirements.

Management, with the participation of our Chief

Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31,

The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means

controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports

that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in

the SEC’s rules and forms.

Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure

that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and

communicated to our management, including our principal executive and principal financial officers, as appropriate to allow timely decisions

regarding required disclosure.

Management recognizes that any controls and procedures, no matter how well designed and operated, can provide

only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit

relationship of possible controls and procedures.

Our Chief Executive Officer and Chief Financial Officer concluded that our disclosure

controls and procedures were not effective at the reasonable assurance level as of December 31, 2021.

Report on Internal Control over Financial Reporting

Management is responsible for establishing and

maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act.

the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted

an evaluation of the effectiveness of our internal control over financial reporting based on criteria established in the framework in

Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

on the results of this evaluation, management has concluded that the Company’s internal control over financial reporting was not

effective at the reasonable assurance level as of December 31, 2021.

During the year ended December 31, 2021, management

identified material weaknesses related to inadequate design of the controls over the preparation of the consolidated financial statements

due to the lack of a timeline and process in place to timely close the Company’s annual books and records.

of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of

any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in

conditions, or that the degree of compliance with the policies or procedures may deteriorate.

This Annual Report on Form 10-K does not include

an attestation report of our independent registered public accounting firm because we are an “emerging growth company,” and

may take advantage of certain exemptions from various reporting requirements that are applicable to public companies that are not “emerging

growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section

404 of the Sarbanes-Oxley Act.

of Material Weakness in Internal Control over Financial Reporting

In the course of preparing the financial statements

that were included in certain filings with the SEC during the years ended December 31, 2021 and 2020, we identified material weaknesses

in internal control over financial reporting.

These material weaknesses related to inadequate design of the controls over the preparation

of the consolidated financial statements due to the lack of a timeline and process in place to timely close the Company’s annual

books and records, which was identified during the fiscal year ended December 31, 2021, and insufficient technical accounting resources

and lack of segregation of duties, which were identified during the fiscal year ended December 31, 2020.

A material weakness is a deficiency

or combination of deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material

misstatement of its financial statements would not be prevented or detected on a timely basis.

These deficiencies could result in misstatements

to our financial statements that could be material and may not be prevented or detected on a timely basis.

As of December 31, 2021, we were in varying stages

of remediating the current and previously reported material weaknesses in our internal control over financial reporting.

fiscal year ended December 31, 2021, we have increased the number of accounting resources employed by the Company.

We have added

technically qualified personnel and are in the process of improving the Company’s technical accounting resources and capabilities.

Additionally, the expansion in accounting department resources has enabled the Company to create necessary and proper segregation of duties

between transactional, reconciliation and review and approval functions.

During the fourth quarter of 2021, we took steps

to address our material weakness related to control over the timeliness of our financial statement close process.

While these actions,

which include adding public company-experienced resources to our accounting department staff, have already served to introduce improved

financial statement close-related policies and procedures, we will need to continue to devote specific attention to this aspect of our

internal control environment to ensure that this material weakness is fully remediated in the fiscal year ending December 31, 2022.

The material weakness related to the timeliness

of our financial control process will not be considered fully remediated until these additional controls and procedures have operated

effectively for a sufficient period of time and management has concluded, through testing, that these controls are effective.

Our management

has prepared a remediation plan that involves hiring additional qualified personnel, further documentation and implementation of control

procedures and the implementation of control monitoring.

The material weaknesses will not be considered fully remediated until these

additional controls and procedures have operated effectively for a sufficient period of time and management has concluded, through testing,

that these controls are effective.

Our management will monitor the effectiveness of our remediation plans and will make changes management

determines to be appropriate.

If not remediated, these material weaknesses could result in further material misstatements to our annual

or interim financial statements that would not be prevented or detected on a timely basis, or in delayed filing of required periodic

If we are unable to assert that our internal control over financial reporting is effective, or when required in the future,

if our independent registered public accounting firm is unable to express an unqualified opinion as to the effectiveness of the internal

control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports, the market

price of our Common Stock could be adversely affected and we could become subject to litigation or investigations by the NASDAQ Capital

Market, the SEC or other regulatory authorities, which could require additional financial and management resources.

Because of its inherent

limitations, internal control over financial reporting may not prevent or detect all misstatements or fraud.

Any control system, no matter

how well designed and operated, is based upon certain assumptions and can provide only reasonable, not absolute, assurance that its objectives

This Annual Report on Form 10-K does not include an attestation report of our registered public accounting firm regarding

internal control over financial reporting.

Management’s report was not subject to attestation by our registered public accounting

firm pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, which permits us to provide only management’s report

in this Annual Report on Form 10-K.

Changes in Internal Control Over Financial Reporting

As discussed above, we are implementing certain measures

to remediate the material weaknesses identified in the design and operation of our internal control over financial reporting.

those measures, there have been no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f)

and 15d-15(f) under the Exchange Act) during the quarter ended December 31, 2020 that have materially affected, or are reasonably likely

to materially affect, our internal control over financial reporting.

will monitor the effectiveness of our remediation plans and will make changes management determines to be appropriate.

If not remediated,

this material weakness could result in material misstatements to our annual or interim financial statements that may not be prevented

or detected on a timely basis or result in a delayed filing of required periodic reports.

If we are unable to assert that our internal

control over financial reporting is effective, or when required in the future, if our independent registered public accounting firm is

unable to express an unqualified opinion as to the effectiveness of the internal control over financial reporting, investors may lose

confidence in the accuracy and completeness of our financial reports, the market price of our Common Stock could be adversely affected

and we could become subject to litigation or investigations by the Nasdaq Capital Market, the SEC or other regulatory authorities, which

could require additional financial and management resources.

in Internal Control Over Financial Reporting

than the changes to remediate the material weakness noted above, there was no change in our internal control over financial reporting

(as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter ended December 31, 2021 that has materially

affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Other Information.

On February 17, 2021, the compensation committee

of our board of directors approved annual salary increases and cash bonuses to certain of our executive officers effective as of February

The annual base salary of our chief financial officer, Niv Krikov, increased to $250,000 and he received a cash bonus of $150,000.

The annual base salary of our chief operating officer, Robert Harrison, increased to $200,000 and he received a cash bonus of $100,000.

Disclosure Regarding Foreign Jurisdictions that Prevent

Not applicable.

Directors, Executive Officers and Corporate Governance.

following table sets forth certain information about our executive officers, key employees and directors as of the date of this report.

Raymond Chang

Chief Executive

Chairman of the Board of Directors

Chief Financial

Robert Harrison

Chief Operating

Thomas Massie

Independent Director

Krishnan Varier

Independent Director

Timothy Mahoney

Independent Director

Timothy Oakes

Independent Director

Stuart Wilcox

Independent Director

Chang has served as our president, chief executive officer and chairman of our board of directors since June 15, 2019.

From September 2015 through May 2019, Mr.

Chang was a lecturer in the Practice of Management at the Yale School of Management and an

Adjunct Professor at Babson College as well as a managing director at NXT Ventures.

Chang founded GigaMedia, the first broadband

company in Asia.

In 2000, this company went public on NASDAQ (NASDAQ:

GIGM) and raised $280 million, one of the largest IPOs for an internet

company prior to 2000.

Chang founded Luckypai, a leading TV shopping company in China and raised venture financing from

Lightspeed Venture Partners, DT Capital, Intel, Lehman Brothers, and Goldman Sachs.

Luckypai was sold to Lotte Group, which is one of

the largest Asian conglomerates based in Korea, for $160 million in 2010.

From 2012 to 2013, Mr.

Chang served as the chief executive

officer of New Focus Auto, the largest automobile aftersales service company listed on the Hong Kong Stock Exchange (HKSE:

Chang completed the sale of New Focus Auto to CDH Investments, which is one of the largest private equity firms based in

Asia, and raised over $150 million for the company.

Chang was selected by Fortune as one of the twenty-five “Next

Generation Global Leaders Under 40”

and by Business Week Asia as one of Asia’s 20 most influential new economy leaders in

the 21st century.

He was also featured in 2005 as a panel speaker at the World Economic Forum in Zurich, Switzerland.

Chang was the

former treasurer/elected board member of Shanghai American School and a member of the Young Presidents Organization —

Chang received his BA from New York University, MBA from Yale School of Management, and MPA from Harvard JFK School of Government.

We believe that Mr.

Chang’s successful serial entrepreneurial and management track records make him a qualified member of our board.

Krikov has served as our chief financial officer since January 20, 2020.

From March 2018 to January 2020, Mr.

served as the chief financial officer of Desalitech, Inc., a water purification company based in Newton, MA.

From January 2016 to November

Krikov served as the chief financial officer of PeerApp, a technology company for development and license of high-performance

cache solutions for telecommunication networks based in Austin, TX.

From November 2014 to December 2015, Mr.

Krikov served as the chief

financial officer of Proftect, Inc., a technology company for development and license of high-performance cache solutions for telecommunication

networks based in the Boston area.

From March 2007 to November 2014, Mr.

Krikov served as the chief financial officer of NTS, Inc., a

publicly traded international telecommunication company listed on the NYSE (NYSE:

NTS) and TASE Prior to that, Mr.

Krikov served as corporate

controller with Nur Macroprinters Ltd.

NURM) prior to it being acquired in 2007 by Hewlett Packard Company and as controller

and credit and revenue manager with Alvarion Ltd.

Krikov received his BA from Tel Aviv University and his LLM from Bar-Ilan University.

Harrison has served as our chief operating officer since July 21, 2020.

Harrison joined us on April 15, 2020

as our director, project management.

From January 2014 to October 2019, Mr.

Harrison served as the region head LED lamps of LEDVANCE

/ Osram Sylvania, a worldwide leader in innovative lighting products as well as intelligent and connected lighting solutions under the

Sylvania and Osram brands.

At LEDVANCE / Osram Sylvania, Mr.

Harrison ran the business unit for LED lighting in North America and South

From November 2009 to January 2014, Mr.

Harrison served as the director of engineering responsible for Osram Sylvania’s

solid-state lighting and power electronics activities as well as the head of the project management office.

Prior to LEDVANCE / Osram

Sylvania, Mr.

Harrison held roles in the automotive metrology, industrial automation and biomedical areas.

Harrison is PMP certified

with the Project Management Institute and holds 16 patents.

Harrison received his BS and MS degrees in Mechanical Engineering from

Worcester Polytechnic Institute and his MBA from Babson College.

Hua has served as a member of our board of directors since June 15, 2019.

Hua is a renowned expert in the global

power electronics arena.

He brings over 25 years of experience in the lighting industry and has extensive knowledge in running successful

Hua founded Inventronics Inc., which is currently one of the largest companies in the world engaged in the design

and manufacture of high efficiency, high reliability and long-life LED drivers, and served as the founder and chief executive officer

from 2007 to 2019, and has served as the executive chairman since 2019.

In 2016, Inventronics became a public company in China (300582.SZ).

In December 2017, Mr.

Hua founded 4D Bios Inc., which is focused on the design, manufacture, and marketing and sales of LED vertical

farm systems.

4D Bios aims to become a global leader in this high-tech new agriculture industry.

Hua is a co-founder and former vice

president of engineering of VPT Inc., which is now one of the largest military/aerospace power companies in the world.

from the Center for Power Electronic System (CPES) at Virginia Tech in 1994, and served as research associate and scientist

in CPES for 5 years.

Hua has obtained more than 20 U.S.

patents and published more than 70 theses, enjoying a strong reputation in

the switch power industry.

We believe that Mr.

Hua’s exemplary career building thriving global hardware companies along with his

design, engineering and manufacturing expertise makes him a qualified member of our board.

Massie has served as a member of our board of directors since June 24, 2020.

Since 2016, Mr.

Massie has been a partner

with WAVE Equity Partners, a Boston based private equity firm that accelerates market validated companies solving some of the world’s

greatest challenges in essential markets for energy, food, water, and waste.

In addition, since 2016, Mr.

Massie has served as the chief

executive officer of Topline Performance Solutions, Inc., a management consulting firm based in Woburn, MA.

From 1987 to 2016, Mr.

was the founder and chief executive officer of three technology related companies, Mass Micro Systems, Focus Enhancements and Bridgeline

Digital, each of which subsequently went public on NASDAQ.

From 2002 to 2007, Mr.

Massie was a board member and chairman of the corporate

governance committee for MapInfo Corp., which was acquired by Pitney Bowes in 2007.

Massie is a guest lecturer at the University

of Massachusetts, Robert J.

Manning School of Business and attended Wayne State University.

Massie was a non-commissioned officer

in the United States Army and is currently the chairman of the board for Warriors A Team, a nonprofit dedicated to assisting struggling

veterans to successfully re-acclimate in civilian life.

We believe that Mr.

Massie’s demonstrated sales leadership, private equity

experience and track record of taking companies public makes him a qualified member of our board.

Varier has served as a member of our board of directors since June 24, 2020.

Varier joined Arcadian Capital Management

in 2018 to help lead its principal investing activities, including deal sourcing, due diligence and negotiations, bringing more than

15 years of financial services and Wall Street deal-making experience and knowledge.

For much of his career, Mr.

Varier served as a healthcare

investment banker in relationship coverage roles with Cowen (2014-2016), BofA-Merrill Lynch (2011-2013) and Morgan Keegan and has completed

more than $6 billion in closed capital raising and merger and acquisition transactions.

Varier began independently working with companies

in the cannabis industry in 2016 in varying capacities as a private investor, mentor, advisor and consultant as part of Varier Venture

Consulting LLC.

Varier completed his undergraduate studies in 2001 at the University of Texas at Austin, where he earned a B.A.

Economics with a focus in Business Administration.

He initially gained experience as a wealth manager for AXA Advisors, and later with

the Austin-based brokerage firm Eltekon Financial.

He then joined Bank of America’s Global Corporate Bank in Charlotte, NC, as

part of its Treasury Solutions Group inside sales team covering large-cap industrial corporate clients.

Varier also holds an MBA

from the University of North Carolina at Chapel Hill, Kenan-Flagler Business School, with a double-focus in Finance and Investment Management.

We believe that Mr.

Varier’s role as an investor with a deep focus on our industry combined with his lengthy history in investment

banking makes him a qualified member of our board.

Timothy Mahoney .

Mahoney has served

as a member of our board of directors since December 17, 2020.

Mahoney served as a U.S.

Representative for Florida’s 16th congressional

district from January 2007 to January 2009.

Mahoney is the owner of Caribou LLC, a strategic advisory firm he found in 2009 that

consults with CEOs and their boards on managing systemic risk and maximizing shareholder value through the identification and capture

of strategic opportunities.

In March 2013, Mr.

Mahoney also founded Cannae Policy Group, a Washington D.C.

based public policy company,

where he serves as a chief political strategist advising companies, associations, and governments on complex public policy issues.

becoming a Congressman, from 1998 to 2007, Mr.

Mahoney was a co-founder of vFinance, Inc., which subsequently acquired National Holdings

National has grown to become one of America’s leading middle-market brokerage firms, managing more than $5 billion

of client assets with over 50 offices worldwide.

Mahoney has also been involved with companies in the cannabis industry in varying

capacities as a private investor, advisor and consultant.

Mahoney holds a BA degree in Computer Science and Business from West Virginia

University and an MBA from George Washington University.

We believe Mr.

Mahoney’s knowledge and experience with the legislative

process of Congress and his diverse experience and knowledge in corporate governance make him qualified to be a member of our board.

Oakes has served as a member of our board of directors since December 17, 2020.

Since September 2019, Mr.

served as the chief accounting officer of Endurance International Group Holdings, Inc., a publicly listed company (NASDAQ:

is a global provider of cloud-based platform solutions designed to help small and medium-sized businesses succeed online.

2018 to September 2019, Mr.

Oakes worked as an independent business consultant, providing financial and operational advice.

2004 to April 2018, Mr.

Oakes served in various finance and accounting roles at Edgewater Technology, Inc., a then publicly traded information

technology consulting services company.

Oakes joined Edgewater in 2004 as a Director of Finance and was subsequently promoted to

Vice President of Finance in 2007, Chief Accounting Officer in 2008 and Chief Financial Officer in 2009.

Oakes holds a Bachelor of

Science degree in Business Administration from Stonehill College.

He began his career in accountancy at the Boston office of KPMG LLP.

We believe Mr.

executive positions at various publicly traded companies and extensive background in business, public accounting,

mergers and acquisitions and corporate governance matters make him qualified to be a member of our board.

Wilcox has served as a member of our board of directors since February 17, 2021.

Since September 2020, Mr.

has served as Chairman of the Board of Ora Pharm, an international cannabis company based in New Zealand.

He is also a member of the

Advisory Board for Revelation Microelectronics, an Atlanta-based horticulture lighting and controls company, and a Managing Partner of

NuRevelation, a North Carolina-based biotech company.

From August 2017 to August 2020, Mr.

Wilcox was the Chief Operating Officer of

Curaleaf Holdings, Inc.

CURA) (OTCQX:

CURLF), during which time the company grew into one of the industry’s largest cannabis

From September 2015 to October 2017, Mr.

Wilcox was the Chief Operating Officer at Hostess Brands, Inc.

(NASDAQ:TWNK).

Wilcox has been a strong advocate for cannabis legislation to require product safety certifications for cannabis operators, standardized

product testing, and standard operating procedures.

He received an undergraduate degree in Engineering from the University of Toledo

(Ohio) and a graduate degree from Central Michigan University.

We believe that Mr.

Wilcox’s highly accomplished career as an executive

combined with his deep knowledge and experience in the cannabis industry makes him qualified to be a member of our board.

board of directors has reviewed the independence of our directors based on the listing standards of the NASDAQ.

Based on this review,

the board of directors has determined that each of Thomas Massie, Krishnan Varier, Timothy Mahoney, Timothy Oakes and Stuart Wilcox are

independent within the meaning of the NASDAQ rules.

In making this determination, our board of directors considered the relationships

that each of these non-employee directors has with us and all other facts and circumstances our board of directors deemed relevant in

determining their independence.

As required under applicable NASDAQ rules, we anticipate that our independent directors will meet in

regularly scheduled executive sessions at which only independent directors are present.

Board has established the following three standing committees:

audit committee;

compensation committee;

and nominating and governance

committee, or nominating committee.

Our board of directors has adopted written charters for each of these committees.

Copies of the charters

will be available on our website.

Our board of directors may establish other committees as it deems necessary or appropriate from time

audit committee is responsible for, among other matters:

● appointing,

compensating, retaining, evaluating, terminating, and overseeing our independent registered

public accounting firm;

with our independent registered public accounting firm the independence of its members from

its management;

with our independent registered public accounting firm the scope and results of their audit;

all audit and permissible non-audit services to be performed by our independent registered

public accounting firm;

the financial reporting process and discussing with management and our independent registered

public accounting firm the interim and annual financial statements that we file with the

and monitoring our accounting principles, accounting policies, financial and accounting controls,

and compliance with legal and regulatory requirements;

● coordinating

the oversight by our board of directors of our code of business conduct and our disclosure

controls and procedures;

● establishing

procedures for the confidential and/or anonymous submission of concerns regarding accounting,

internal controls or auditing matters;

and approving related-person transactions.

audit committee consists of Krishnan Varier, Timothy Mahoney and Timothy Oakes, with Mr.

Oakes serving as the chairman.

directors has affirmatively determined that Krishnan Varier, Timothy Mahoney and Timothy Oakes meet the definition of “independent

director”

for purposes of serving on an audit committee under Rule 10A-3 and NASDAQ rules.

Our board of directors has determined

Oakes qualifies as an “audit committee financial expert,”

as such term is defined in Item 407(d)(5) of Regulation

compensation committee is responsible for, among other matters:

key employee compensation goals, policies, plans and programs;

and approving the compensation of our directors and executive officers;

and approving employment agreements and other similar arrangements between us and our executive

and overseeing any compensation consultants or advisors.

compensation committee consists of Thomas Massie, Timothy Mahoney and Timothy Oakes, with Mr.

Mahoney serving as the chairman.

purpose of the nominating committee is to assist the board in identifying qualified individuals to become board members, in determining

the composition of the board and in monitoring the process to assess board effectiveness.

Our nominating committee consists of Thomas

Massie, Krishnan Varier and Timothy Mahoney, with Mr.

Massie serving as the chairman.

Leadership Structure

Raymond Chang is our principal executive officer and our chairman of the board.

board of directors will oversee a company-wide approach to risk management.

Our board of directors will determine the appropriate risk

level for us generally, assess the specific risks faced by us and review the steps taken by management to manage those risks.

board of directors will have ultimate oversight responsibility for the risk management process, its committees will oversee risk in certain

specified areas.

Specifically,

our compensation committee is responsible for overseeing the management of risks relating to our executive compensation plans and arrangements,

and the incentives created by the compensation awards it administers.

Our audit committee oversees management of enterprise risks and

financial risks, as well as potential conflicts of interests.

Our board of directors is responsible for overseeing the management of

risks associated with the independence of our board of directors.

of Business Conduct and Ethics

board of directors adopted a Code of Business Conduct and Ethics that applies to our directors, officers and employees.

A copy of this

code will be available on our website.

We intend to disclose on our website any amendments to the Code of Business Conduct and Ethics

and any waivers of the Code of Business Conduct and Ethics that apply to our principal executive officer, principal financial officer,

principal accounting officer, controller, or persons performing similar functions.

and Officer Indemnification Agreements

have entered, and intend to continue to enter, into separate indemnification agreements with our directors and executive officers, in

addition to the indemnification provided for in our amended and restated bylaws.

These agreements, among other things, require us to

indemnify our directors and executive officers for certain expenses, including attorneys’

fees, judgments, penalties, fines and

settlement amounts incurred by a director or executive officer in any action or proceeding arising out of their services as one of our

directors or executive officers or as a director or executive officer of any other company or enterprise to which the person provides

services at our request.

The information required by this Item 10

will be included in our Definitive Proxy Statement to be filed with the SEC with respect to our 2022 Annual Meeting of Stockholders

and is incorporated herein by reference.

Executive Compensation.

Compensation Table

following table provides information regarding the compensation paid during the years ended December 31, 2020 and 2019 to each of the

executive officers named below, who are collectively referred to as “named executive officers”

elsewhere in this report.

Name and Principal Position

Incentive Plan

Non-qualified

Raymond Chang,

Chief Executive Officer and Chairman of the Board

Matthew Liotta,

Chief Technology Officer (3)

Chief Financial Officer

Robert Harrison,

Chief Operating Officer

the aggregate grant date fair value of stock options granted during the relevant fiscal year

calculated in accordance with FASB ASC Topic 718.

For a discussion of valuation assumptions,

see Note 9 to our audited consolidated financial statements included in this report.

payment of health plan premiums as per our policy.

August 5, 2020, Mr.

Liotta resigned from his position as chief technology officer and is

no longer an employee of our company.

On December 17, 2020, Mr.

Liotta resigned from our

board of directors and in consideration of such resignation, we agreed on the acceleration

of vesting of certain options to purchase shares of our common stock held by Mr.

his spouse upon the consummation of our IPO on February 1, 2021.

payment of health plan premiums as per our policy.

our payment of health plan premiums as per our policy in the total amount of $13,848 and

consulting fees of $126,666 as per consulting agreement between TriGrow and Argand Group,

LLC, a company controlled by Matthew Liotta.

entered into an employment agreement with Raymond Chang to serve as our Chief Executive Officer effective as of December 31, 2020.

agreed to pay Mr.

Chang an annual base salary of $300,000.

Chang will be eligible to receive a discretionary performance-based bonus

of up to $300,000 that will be determined and paid at the sole discretion of the Company and may be based on a variety of factors, including

his individual performance and the overall performance of the Company.

The agreement is for an initial term of three years, to be automatically

extended for successive three-year periods, subject to earlier termination as provided in the agreement.

the event that Mr.

Chang’s employment is terminated by us without cause or in connection with a change of control or by Mr.

for good reason, he will be entitled to receive certain severance benefits, including severance pay equal to the greater of (a) 300%

of his annual base salary and (b) $1,000,000.

We can terminate Mr.

Chang’s employment for cause only if we receive the unanimous

agreement of our board of directors.

In addition, if we terminate his employment without cause, or if Mr.

Chang resigns for good reason,

or upon the occurrence of a change of control, all of his issued but unvested options will immediately vest.

In addition to the terms

of our standard invention assignment, restrictive covenants, and confidentiality agreement, Mr.

Chang’s employment agreement contains

confidentiality, non-solicitation and non-competition provisions, whereby Mr.

Chang is subject to non-solicitation restrictions for a

period of at least one year and to non-competition restrictions for a period of at least six months following his employment period.

On January 20, 2020, we and Mr.

Krikov entered

into an employment agreement pursuant to which Mr.

Krikov agreed to be our chief financial officer, effective as of February 1, 2020.

Pursuant to this agreement, Mr.

Krikov is paid an annual base salary of $175,000.

Effective February 1, 2021, Mr.

Krikov’s annual

base salary increased to $250,000.

Krikov’s employment is on an “at will”

basis and the agreement may be terminated

by either party at any time and for any reason.

Robert Harrison

Effective February 1, 2021, we agreed to pay

Harrison an annual base salary of $200,000.

Harrison will be eligible to receive a discretionary performance-based bonus of up

Harrison’s employment is on an “at will”

basis and may be terminated by either party at any time and

for any reason.

Chief Technology Officer

On June 4, 2019, we and Matthew Liotta entered into an employment

agreement pursuant to which Mr.

Liotta agreed to be our chief technology officer, effective as of June 4, 2019.

Pursuant to this agreement,

Liotta was paid an annual gross salary of $170,000 and agreed to a one-year non-competition restriction as well as a one-year non-solicitation

On August 5, 2020, Mr.

Liotta resigned as chief technology officer to pursue other opportunities.

In consideration for his

service to our company, Mr.

Liotta entered into a separation agreement pursuant to which he will receive severance in an amount equal

to six months of his base salary payable over such period.

On December 17, 2020, Mr.

Liotta resigned from our board of directors and

in consideration of such resignation, we agreed on the acceleration of vesting of certain options to purchase shares of our common stock

Liotta and his spouse upon the consummation of our IPO on February 1, 2021.

Payments Upon Termination or Change in Control

Chang’s employment agreement as more fully described above, he is entitled to receive potential payments upon a termination

of employment without cause or resignation for good reason or termination of employment without cause or resignation for good reason

following a change in control.

Equity Awards at Fiscal Year-End;

Option Exercises and Stock Vested

following table sets forth certain information concerning option awards and stock awards held by our named executive officers as of December

Option awards that were granted in 2019 were subsequently revoked and in May 2020, we issued replacement options for the same

number of shares but with a lower exercise price.

Unexercisable

July 20, 2030

October 19, 2030

July 20, 2030

October 19, 2030

July 20, 2030

October 19, 2030

December 27, 2019, Mr.

Chang was granted options to purchase 150,103 shares of our common

stock under our 2019 Stock Option Plan (the “2019 Plan”), which options vest

in equal monthly installments over a period of 48 months, exercisable at $3.10 per share

and expiring 10 years from the date of grant.

These options were subsequently cancelled in

On May 6, 2020 Mr.

Chang was granted options to purchase 337,715 shares of common

stock at an exercise price per share of $2.28 and expiring 10 years from the date of grant.

90,719 of the stock options were fully vested on the grant date and the remaining stock options

vest monthly over 24 to 48 months, and 153,223 shares are subject to accelerated vesting

in the event of a change of control transaction or initial public offering.

On July 20, 2020,

Chang was granted options to purchase 14,267 shares of common stock at an exercise price

per share of $2.28 and expiring 10 years from the date of grant.

25% of the options vest

12 months following issuance and the balance vests in 36 equal monthly installments thereafter.

On October 19, 2020, Mr.

Chang was granted stock options to purchase 264,823 shares of common

stock under the 2019 Plan at an exercise price per share of $4.86 and expiring 10 years from

the date of grant.

25% of the options vest 12 months following issuance and the balance vests

in 36 equal monthly installments thereafter.

Each of the July 20, 2020 and October 19, 2020

stock option grants provides for accelerated vesting in the event of a change of control

transaction or an initial public offering under which 50% of such options (assuming none

have previously vested) will vest immediately prior to such event.

May 6, 2020, Mr.

Krikov was granted stock options to purchase 147,410 shares of common stock

under the 2019 Plan at an exercise price per share of $2.28 and expiring 10 years from the

date of grant.

25% of the options vest 12 months following issuance and the balance vests

in 36 equal monthly installments thereafter.

On July 20, 2020, Mr.

Krikov was granted stock

options to purchase 23,282 shares of common stock under the 2019 Plan at an exercise price

per share of $2.28 and expiring 10 years from the date of grant.

25% of the options vest

12 months following issuance and the balance vests in 36 equal monthly installments thereafter.

On October 19, 2020, Mr.

Krikov was granted stock options to purchase 137,711 shares of common

stock under the 2019 Plan at an exercise price per share of $4.86 and expiring 10 years from

the date of grant.

25% of the options vest 12 months following issuance and the balance vests

in 36 equal monthly installments thereafter.

Each of these stock option grants provide for

accelerated vesting in the event of a change of control transaction or an initial public

offering under which 50% of such options (assuming none have previously vested) will vest

immediately prior to such event.

May 6, 2020, Mr.

Harrison was granted stock options to purchase 13,401 shares of common stock

under the 2019 Plan at an exercise price per share of $2.28.

25% of the options vest 12 months

following issuance and the balance vests in 36 equal monthly installments thereafter.

July 20, 2020, Mr.

Harrison was granted stock options to purchase 71,944 shares of common

stock under the 2019 Plan at an exercise price per share of $2.28.

25% of the options vest

12 months following issuance and the balance vests in 36 equal monthly installments thereafter.

On October 19, 2020, Mr.

Harrison was granted stock options to purchase 68,856 shares of

common stock under the 2019 Plan at an exercise price per share of $4.86 and expiring 10

years from the date of grant.

25% of the options vest 12 months following issuance and the

balance vests in 36 equal monthly installments thereafter.

Each of these stock option grants

provide for accelerated vesting in the event of a change of control transaction or an initial

public offering under which 50% of such options (assuming none have previously vested) will

vest immediately prior to such event.

December 26, 2019, Mr.

Liotta was granted options to purchase 75,054 shares of our common

stock under the 2019 Plan, which options vested in equal monthly installments over a period

of 48 months, exercisable at $3.42 per share and expiring 5 years from the date of grant.

These options were subsequently cancelled in May 2020.

On May 6, 2020, Mr.

Liotta was granted

stock options to purchase 195,662 shares of common stock under the 2019 Plan at an exercise

price per share of $2.51 and expiring 5 years from the date of grant.

45,346 of the stock

options were fully vested on the grant date and the remaining stock options vest monthly

over 24 to 48 months.

On August 5, 2020, Mr.

Liotta resigned from his position as chief technology

officer and is no longer an employee of our company.

On December 17, 2020, Mr.

Liotta resigned

from our board of directors and in consideration of such resignation, we agreed on the acceleration

of vesting of certain options to purchase shares of our common stock held by Mr.

his spouse upon the consummation of our IPO on February 1, 2021.

On February 2, 2021, Mr.

Liotta exercised options to purchase 135,358 shares of common stock.

As of the date of this

Liotta does not hold any stock options.

Non-Executive

Director Compensation

Except as set forth below, the non-executive members of our

board of directors did not receive any compensation during the year ended December 31, 2020.

On February 17, 2021, the compensation committee

of our board of directors adopted guidelines for compensation for non-executive members of our board, including (i) an annual board retainer

of $24,000, (ii) board committee fees equal to $5,000 annually for each committee chair and $1,000 annually for each of the other committee

members, (iii) 50,000 options to purchase shares of common stock upon his or her election to the board, which options shall vest in 36

equal monthly installments, beginning on the one month anniversary of the grant date;

(iv) eligibility for performance awards upon the

Company achieving certain pre-determined milestones;

and (v) reimbursement for all travel and other expenses reasonably incurred in connection

with attending board and committee meetings.

May 6, 2020, Mr.

Massie was granted options to purchase 18,358 shares of common stock at an exercise price per share of $2.28 and expiring

10 years from the date of grant.

8,913 of the stock options were fully vested on grant date and the remaining stock options are vested

monthly over 24 to 48 months.

This stock option grant provides that 1,674 shares are subject to accelerated for vesting in the event

of a change of control transaction or an initial public offering.

On August 10, 2020, Mr.

Massie was granted options to purchase 13,276

shares of common stock at an exercise price per share of $2.28 and expiring 10 years from the date of grant.

25% of the options vest

12 months following issuance and the balance vests in 36 equal monthly installments thereafter.

On October 19, 2020, Mr.

Massie was granted

stock options to purchase 36,900 shares of common stock under the 2019 Plan at an exercise price per share of $4.86 and expiring 10 years

from the date of grant.

25% of the options vest 12 months following issuance and the balance vests in 36 equal monthly installments thereafter.

This stock option grant provides for accelerated vesting in the event of a change of control transaction or an initial public offering

under which 50% of such options (assuming none have previously vested) will vest immediately prior to such event.

On December 21, 2020,

Massie was granted stock options to purchase 22,127 shares of common stock under the 2019 Plan at an exercise price per share of

$4.86 and expiring 10 years from the date of grant.

25% of the options vest 12 months following issuance and the balance vests in 36

equal monthly installments thereafter.

This stock option grant provides for accelerated vesting in the event of a change of control transaction

or an initial public offering under which 50% of such options (assuming none have previously vested) will vest immediately prior to such

July 20, 2020, Mr.

Varier was granted options to purchase 3,161 shares of common stock at an exercise price per share of $2.28 and expiring

10 years from the date of grant.

25% of the options vest 12 months following issuance and the balance vests in 36 equal monthly installments

This stock option grant provides that 50% of shares are subject to accelerated for vesting in the event of a change of control

transaction or an initial public offering.

On August 10, 2020, Mr.

Varier was granted options to purchase 2,086 shares of common stock

at an exercise price per share of $2.28 and expiring 10 years from the date of grant.

25% of the options vest 12 months following issuance

and the balance vests in 36 equal monthly installments thereafter.

On October 19, 2020, Mr.

Varier was granted stock options to purchase

35,873 shares of common stock under the 2019 Plan at an exercise price per share of $4.86 and expiring 10 years from the date of grant.

25% of the options vest 12 months following issuance and the balance vests in 36 equal monthly installments thereafter.

This stock option

grant provides for accelerated vesting in the event of a change of control transaction or an initial public offering under which 50%

of such options (assuming none have previously vested) will vest immediately prior to such event.

October 19, 2020, Mr.

Hua was granted stock options to purchase 41,120 shares of common stock under the 2019 Plan at an exercise price

per share of $4.86 and expiring 10 years from the date of grant.

25% of the options vest 12 months following issuance and the balance

vests in 36 equal monthly installments thereafter.

This stock option grant provides for accelerated vesting in the event of a change

of control transaction or an initial public offering under which 50% of such options (assuming none have previously vested) will vest

immediately prior to such event.

October 19, 2020, Mr.

Mahoney was granted stock options to purchase 41,120 shares of common stock under the 2019 Plan at an exercise

price per share of $4.86 and expiring 10 years from the date of grant.

25% of the options vest 12 months following issuance and the balance

vests in 36 equal monthly installments thereafter.

This stock option grant provides for accelerated vesting in the event of a change

of control transaction or an initial public offering under which 50% of such options (assuming none have previously vested) will vest

immediately prior to such event.

October 19, 2020, Mr.

Oakes was granted stock options to purchase 41,120 shares of common stock under the 2019 Plan at an exercise price

per share of $4.86 and expiring 10 years from the date of grant.

25% of the options vest 12 months following issuance and the balance

vests in 36 equal monthly installments thereafter.

This stock option grant provides for accelerated vesting in the event of a change

of control transaction or an initial public offering under which 50% of such options (assuming none have previously vested) will vest

immediately prior to such event.

December 21, 2020, Mr.

Kressy was granted stock options to purchase 22,127 shares of common stock under the 2019 Plan at an exercise

price per share of $4.86 and expiring 10 years from the date of grant.

25% of the options vest 12 months following issuance and the balance

vests in 36 equal monthly installments thereafter.

This stock option grant provides for accelerated vesting in the event of a change

of control transaction or an initial public offering under which 50% of such options (assuming none have previously vested) will vest

immediately prior to such event.

Committee Interlocks and Insider Participation

of our officers currently serves, or has served during the last completed fiscal year, on the compensation committee or board of directors

of any other entity that has one or more officers serving as a member of our board of directors.

information required by this Item 10 will be included in our Definitive Proxy Statement to be filed with the SEC with respect to our

2022 Annual Meeting of Stockholders and is incorporated herein by reference.

Security Ownership of Certain Beneficial Owners, Management and Related Stockholder Matters.

following table sets forth certain information regarding beneficial ownership of our common stock, as of March 29, 2021, by

person, or group of affiliated persons, known to us to own beneficially more than 5% of our

common stock;

of our current directors;

of our named executive officers;

of our current directors and executive officers as a group.

information in the following table has been presented in accordance with the rules of the SEC.

Under such rules, beneficial ownership

of a class of capital stock includes any shares of such class as to which a person, directly or indirectly, has or shares voting power

or investment power and also any shares as to which a person has the right to acquire such voting or investment power within 60 days

through the exercise of any stock option, warrant or other right.

If two or more persons share voting power or investment power with

respect to specific securities, each such person is deemed to be the beneficial owner of such securities.

Except as we otherwise indicate

below and under applicable community property laws, we believe that the beneficial owners of the common stock listed below, based on

information they have furnished to us, have sole voting and investment power with respect to the shares shown.

Except as otherwise indicated,

each stockholder named in the table is assumed to have sole voting and investment power with respect to the number of shares listed opposite

the stockholder’s name.

The calculations are based on 20,295,134 shares of common stock outstanding on March 29, 2021.

and Address of Beneficial Owner (1)

Officers and Directors:

Raymond Chang

2,035,107 (2)

Thomas Massie

Robert Harrison

Krishnan Varier

Timothy Oakes

Timothy Mahoney

All directors and executive officers as a group (9 persons)

5% stockholders:

1,052,207 (7)

otherwise indicated, the address of such individual is c/o Agrify Corporation, 101 Middlesex

Turnpike, Suite 6, PMB 326, Burlington, MA 01803.

(i) options to purchase 1,266,804 shares of common stock, (ii) 534,946 shares of common stock

held by RTC3 2020 Irrevocable Family Trust (including 63,219 shares of common stock issued

upon the exercise of warrants associated with our 2020 convertible promissory notes), of

Chang retains the authority to remove the independent trustee, (iii) 129,548 shares

of common stock held by NXT3J Capital, LLC, an entity controlled by Mr.

Chang, (iv) warrants

to purchase 63,219 shares of common stock associated with our 2020 convertible promissory

notes held by RTC3 2020 Irrevocable Family Trust, and (v) options to purchase 40,590 shares

of common stock held by Mr.

Chang’s son.

(i) 116,913 shares of common stock, (ii) 542,636 shares of common stock held by Inventronics,

Hua shares voting and dispositive control, and (iii) options to purchase 91,120

shares of common stock.

(4) Includes (i) 20,593 shares of common stock and (ii) options to purchase

358,403 shares of common stock.

(i) 20,593 shares of common stock held by an immediate family member of Mr.

Massie and (ii)

options to purchase 140,661 shares of common stock.

(6) Represents

shares of common stock underlying options.

(i) 818,383 shares of common stock and (ii) 233,824 shares of common stock held by R&T

Trust, of which Li Chen is the trustee and holds voting and dispositive power over such shares.

The address of R&T Trust is 18 Walker Drive, Princeton, NJ.

information required by this Item 10 will be included in our Definitive Proxy Statement to be filed with the SEC with respect to our

2022 Annual Meeting of Stockholders and is incorporated herein by reference.

Certain Relationships and Related Transactions, and Director Independence.

with 4D Bios Inc.

We purchased various equipment from 4D Bios Inc.

(“4D”), which totaled $1,128,000 and $893,000 in 2020 and 2019, respectively.

Guichao Hua, a member of our board of directors,

and Raymond Chang, our Chairman of the Board and Chief Executive Officer, each had ownership interests and were board members of 4D as

of December 31, 2019.

On June 30, 2020, Mr.

Chang sold his interest in 4D and resigned as a member of 4D’s board.

On July 28, 2020,

we entered into a purchase agreement with 4D to secure purchases of horticultural equipment.

The agreement requires minimum purchases

of between $577,000 and $607,000 of 4D products until December 31, 2020.

We committed purchases exceeding the minimum purchase requirement

and amounting to $1,904,000 from 4D for the year ended December 31, 2020.We settled $672,000 and accrued $154,000 of such commitment,

leaving $1,078,000 open committed purchases as of December 31, 2020.

Agreement with Bluezone Products, Inc.

On June 7, 2019, we entered

into a Distribution Agreement with Bluezone Products, Inc.

(“Bluezone”) relating to our distribution rights for the Bluezone

products, such rights exclusive as to certain customers.

We are obligated to order $480,000 of Bluezone products in the first contract

year and $600,000 of Bluezone products in the second contract year.

The distribution agreement is for an initial term through May 31,

2021 and is automatically renewed for successive one year periods unless earlier terminated.

We exceeded the minimum purchase amount

for the first year and purchased approximately $514,000 of the committed $660,000 second year purchases until December 31, 2020.

Hua, a member of our board of directors, and Raymond Chang, our Chairman of the Board and Chief Executive Officer, each had ownership

interests and were board members of Bluezone as of December 31, 2019.

On July 10, 2020, Guichao Hua sold his interest in Bluezone and

resigned as a member of Bluezone’s board.

Agreement with Enozo

March 9, 2020, we entered into a distribution agreement with Enozo Technologies Inc.

(“Enozo”), for an initial term of five

years with auto renewal for successive one year periods unless earlier terminated.

The agreement requires us to make the following minimum

purchases to retain exclusive distributor status for one of the products:

$375,000 for the period from the contract date until December

$750,000 for the year ended December 31, 2022;

$1,125,000 for the year ended December 31, 2023, subject to increases by 3%

for subsequent years.

Guichao Hua, a member of our board of directors, and Raymond Chang, our Chairman of the Board and Chief Executive

Officer, each have ownership interests and are board members of Enozo.

We purchased $38,000 of one specific Enozo product and $85,000

of other Enozo products and services during the year ended December 31, 2020.

Agreement between TriGrow and Argand Group, LLC

November 25, 2018, TriGrow entered into a consulting agreement with Argand Group, LLC (“Argand”) under which Argand provided

services to TriGrow in connection with managing its business operations.

Argand is an entity controlled by Matthew Liotta, a former employee

and director of our company.

Under this consulting agreement, Argand was paid a fixed fee of $13,333 per month.

This consulting agreement

was terminated in March 2019 and no fees remain outstanding to Argand.

Purchase Agreement with 4D NXT Capital, LLC

June 4, 2019, we entered into an agreement with 4D NXT Capital, LLC (“NXT”) pursuant to which NXT purchased 1,289,667 shares

of our common stock in exchange for $4,000,000.

Guichao Hua, a member of our board of directors, and Raymond Chang, our Chairman of the

Board and Chief Executive Officer, each have ownership interests and are managers of NXT.

The shares purchased by NXT pursuant to this

agreement have since been distributed from NXT to its members or related parties of its members and the shares owned by Messrs.

and Hua as set forth under “Security Ownership of Certain Beneficial Owners and Management”

reflect the effect of such distribution.

Purchase Agreement with Argand Group, LLC, Dennis Liotta, and 4D NXT Capital, LLC

May 15, 2020, we entered into a share purchase agreement pursuant to which NXT purchased 806,042 outstanding shares of our common stock

from each of Argand Group, LLC and Dennis Liotta in exchange for $2,500,000.

Matthew Liotta, a former employee and director of our company,

is the manager of Argand Group, LLC.

The shares purchased by NXT pursuant to this agreement have since been distributed from NXT to its

members or related parties of its members and the shares owned by Messrs.

Chang and Hua as set forth under “Security Ownership

of Certain Beneficial Owners and Management”

reflect the effect of such distribution.

and Warrant Purchase Agreement with NXT3J Capital, LLC

On August 19, 2020, as part of our 2020 convertible

promissory note financing, we entered into a note and warrant purchase agreement with NXT3J Capital, LLC pursuant to which we issued

and sold a convertible promissory note in the principal amount of $1,000,000 and a five year warrant to purchase 63,219 shares of our

common stock at an exercise price of $0.02 per share (which warrant was subsequently transferred from NXT3J Capital, LLC to RTC3 2020

Irrevocable Family Trust).

Upon the closing of our IPO on February 1, 2021, the convertible promissory note held by NXT3J Capital was

converted into 129,548 shares of our common stock.

The warrant has a term of five years.

Raymond Chang, our Chairman of the Board and

Chief Executive Officer, is the managing director of NXT3J Capital, LLC.

Note and Warrant Purchase Agreement with RTC3 2020 Irrevocable

On September 18, 2020, as part of our 2020 convertible

promissory note financing, we entered into a note and warrant purchase agreement with RTC3 2020 Irrevocable Family Trust pursuant to

which we issued and sold a convertible promissory note in the principal amount of $1,000,000 and a five year warrant to purchase 63,219

shares of our common stock at an exercise price of $0.02 per share.

Upon the closing of our IPO on February 1, 2021, the convertible

promissory note held by RTC3 2020 Irrevocable Family Trust was converted into 129,548 shares of our common stock.

The warrant has a term

of five years.

NXT3J Capital, LLC transferred its 63,219 warrants to RTC3 2020 Irrevocable Family Trust.

On February 18, 2021, RTC3 2020

Irrevocable Family Trust exercised the warrant and was issued 63,219 shares of common stock.

Raymond Chang, our Chairman of the Board

and Chief Executive Officer, retains the authority to remove the independent trustee, although Mr.

Chang does not have a pecuniary interest

in our securities held by RTC3 2020 Irrevocable Family Trust.

Indemnification

have entered into indemnification agreements with each of our directors and executive officers.

The indemnification agreements and our

articles of incorporation and bylaws require us to indemnify our directors and officers to the fullest extent permitted by Nevada law.

and Procedures for Transactions With Related Persons

February 2021, we adopted a written policy that our executive officers, directors, beneficial owners of more than 5% of any class of

our capital stock, and any members of the immediate family of any of the foregoing persons are not permitted to enter into a related

party transaction with us without the prior consent of our audit committee.

Any request for us to enter into a transaction with an executive

officer, director, beneficial owner of more than 5% of any class of our capital stock, or any member of the immediate family of any of

the foregoing persons, in which such person would have a direct or indirect interest, must first be presented to our audit committee

for review, consideration, and approval or ratification.

In approving or rejecting any such proposal, our audit committee is to consider

the relevant facts and circumstances of the transaction available to it, including, but not limited to, whether the transaction is on

terms no less favorable than terms generally available to an unrelated third party or to employees under the same or similar circumstances,

and the extent of the related person’s interest in the transaction.

The written policy will require that, in determining whether

to approve or reject a related person transaction, our audit committee must consider, in light of known circumstances, whether the transaction

is in, or is not inconsistent with, our best interests and those of our stockholders, as our audit committee determines in good faith.

Accountant Fees and Services.

fees billed to us by Marcum LLP, the Company’s principal independent accountants, during the last two fiscal years were as follows:

Audit-Related Fees

All Other Fees

Fees consist of fees billed for professional services rendered for the audit of our consolidated annual financial statements and review

of the interim consolidated financial statements included in quarterly reports and services that are normally provided by our auditors

in connection with statutory and regulatory filings or engagements.

Audit-Related

Fees consist of services by our independent auditors that, including accounting consultations on transaction related matters including

work related to our S-1 fillings, are reasonably related to the performance of the audit or review of our financial statements and are

not reported above under Audit Fees.

Fees consist of professional services rendered for tax compliance and preparation of our corporate tax returns and other tax advice.

the years ended December 31, 2020 and 2019, Marcum LLP did not incur fees for any other professional services.

accordance with the SEC’s auditor independence rules, the audit committee has established the following policies and procedures

by which it approves in advance any audit or permissible non-audit services to be provided to us by our independent auditor.

to the engagement of the independent auditor for any fiscal year’s audit, management submits to the audit committee for approval

lists of recurring audits, audit-related, tax and other services expected to be provided by the auditor during that fiscal year.

audit committee adopts pre-approval schedules describing the recurring services that it has pre-approved, and is informed on a timely

basis, and in any event by the next scheduled meeting, of any such services rendered by the independent auditor and the related fees.

fees for any services listed in a pre-approval schedule are budgeted, and the audit committee

requires the independent auditor and management to report actual fees versus the budget periodically

throughout the year.

The audit committee will require additional pre-approval if circumstances

arise where it becomes necessary to engage the independent auditor for additional services

above the amount of fees originally pre-approved.

Any audit or non-audit service not listed

in a pre-approval schedule must be separately pre-approved by the audit committee on a case-by-case

Every request to adopt or amend a pre-approval schedule or to provide services that

are not listed in a pre-approval schedule must include a statement by the independent auditors

as to whether, in their view, the request is consistent with the SEC’s rules on

auditor independence.

audit committee will not grant approval for:

any services prohibited by

applicable law or by any rule or regulation of the SEC or other regulatory body applicable to us;

provision by the independent

auditor to us of strategic consulting services of the type typically provided by management consulting firms;

the retention of the independent

auditor in connection with a transaction initially recommended by the independent auditor, the tax treatment of which may not be

clear under the Internal Revenue Code and related regulations and which it is reasonable to conclude will be subject to audit procedures

during an audit of our financial statements.

services proposed to be provided by the auditor to any director, officer or employee of Agrify who is in an accounting role or financial

reporting oversight role must be approved by the audit committee on a case-by-case basis where such services are to be paid for by us,

and the audit committee will be informed of any services to be provided to such individuals that are not to be paid for by us.

determining whether to grant pre-approval of any non-audit services in the “all other”

category, the audit committee will

consider all relevant facts and circumstances, including the following four basic guidelines :

whether the service creates

a mutual or conflicting interest between the auditor and us;

whether the service places

the auditor in the position of auditing his or her own work;

whether the service results

in the auditor acting as management or an employee of Agrify;

whether the service places

the auditor in a position of being an advocate for us.

The information required by this Item 10 will

be included in our Definitive Proxy Statement to be filed with the SEC with respect to our 2022 Annual Meeting of Stockholders and is

incorporated herein by reference.

Principal Accountant Fees and Services.

The information required

by this Item 10 will be included in our Definitive Proxy Statement to be filed with the SEC with respect to our 2022 Annual Meeting of

Stockholders and is incorporated herein by reference.

Exhibits, Financial Statements and Schedules.

(a) Financial

Financial Statements:

The financial statements required to be included in this report appear after the signature page to this report as a separate section

3 unchanged sentences

The Exhibit Index of this report appears below.

(b) Exhibits:

Agreement dated as of February 16, 2021 between the Registrant and Maxim Group, LLC (incorporated by reference to Exhibit 1.1 to

the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 19, 2021)

Agreement dated as of January 27, 2021 between the Registrant and Maxim Group, LLC (incorporated by reference to Exhibit 1.1 to the

Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 2, 2021)

and Plan of Merger dated January 22, 2020 between the Company and TriGrow Systems, Inc.

(incorporated by reference to Exhibit 2.1

to the Registrant’s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on December 22,

of Incorporation of the Registrant, as amended (incorporated by reference to Exhibit 3.1 to the Registrant’s Amendment No.

Agreement and Plan of Merger dated January 22, 2020 between the Registrant and TriGrow Systems, Inc.

(incorporated by reference to Exhibit 2.1 to the Registrant’s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on December 22, 2020)

Plan of Merger and Equity Purchase Agreement, dated as of September 29, 2021, among the Registrant, Sinclair Scientific, LLC, Mass2Media, LLC dba PX2 Holdings, LLC, and each of the equity holders of Sinclair Scientific, LLC named therein (incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 5, 2021

Amendment to Plan of Merger and Equity Purchase Agreement, dated as of October 1, 2021, between the Registrant and Sinclair Scientific, LLC (incorporated by reference to Exhibit 2.2 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 4, 2021)

Membership Interest Purchase Agreement, dated as of December 31, 2021, among the Registrant, PurePressure, LLC, Benjamin Britton as Member Representative, and each of the equity holders of PurePressure, LLC named therein (incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 5, 2022)

Merger Agreement, dated as of February 1, 2022, among the Registrant, LS Holdings Corp., Lab Society NewCo, LLC, Michael S.

as Owner Representative, and each of the Owners named therein (incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 2, 2022).

of Incorporation of the Registrant, as amended (incorporated by reference to Exhibit 3.1 to the Registrant’s Amendment No.

to Registration Statement on Form S-1 filed with the Securities and Exchange Commission on January 13, 2021)

Amended and Restated Certificate of Designations of the Series A Convertible Preferred Stock of the Registrant (incorporated by reference

to Exhibit 3.2 to the Registrant’s Amendment No.

1 to Registration Statement on Form S-1 filed with the Securities

and Exchange Commission on January 13, 2021)

and Restated Bylaws of the Registrant (incorporated by reference to Exhibit 3.3 to the Registrant’s Amendment No.

Registration Statement on Form S-1 filed with the Securities and Exchange Commission on January 26, 2021)

of Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Registrant’s Amendment No.

2 to Registration

Statement on Form S-1 filed with the Securities and Exchange Commission on January 26, 2021)

of Representative’s Warrant dated February 19, 2021 (incorporated by reference to Exhibit 4.2 to the Registrant’s Registration

Statement on Form S-1 filed with the Securities and Exchange Commission on February 11, 2021)

of Representative’s Warrant dated January 27, 2021 (incorporated by reference to Exhibit 4.2 to the Registrant’s Amendment

2 to Registration Statement on Form S-1 filed with the Securities and Exchange Commission on January 26, 2021)

of Warrant issued to Noteholders (incorporated by reference to Exhibit 4.3 to the Registrant’s Registration Statement on Form S-1

filed with the Securities and Exchange Commission on December 22, 2020)

of Registrant’s Securities

Agreement of Agrify-Valiant, LLC dated December 8, 2019 (incorporated by reference to Exhibit 10.1 to the Registrant’s Registration

of Registrant’s Securities (incorporated by reference to Exhibit 4.5 to the Registrant’s Annual Report on Form 10-K filed

with the Securities and Exchange Commission on April 2, 2021).

of Pre-Funded Warrant dated January 28, 2022 (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on

Form 8-K filed with the Securities and Exchange Commission on January 26, 2022).

of Common Stock Purchase Warrant dated January 28, 2022 (incorporated by reference to Exhibit 4.1 to the Registrant’s Current

Report on Form 8-K filed with the Securities and Exchange Commission on January 26, 2022).

Form of Common Stock Purchase Warrant (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on March 18, 2022)

Form of Senior Secured Note (incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on March 18, 2022)

Agreement of Agrify-Valiant, LLC dated December 8, 2019 (incorporated by reference to Exhibit 10.1 to the Registrant’s Registration

Statement on Form S-1 filed with the Securities and Exchange Commission on December 22, 2020)

Agreement dated June 7, 2019 between the Company and Bluezone Products, Inc.±

(incorporated by reference to Exhibit 10.2 to

the Registrant’s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on December 22,

Agreement dated March 9, 2020 between the Company and Enozo Technologies Inc.±

(incorporated by reference to Exhibit 10.3

to the Registrant’s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on December 22,

Agreement dated as of July 10, 2020 between the Company and 4D Bios Inc.±

(incorporated by reference to Exhibit 10.4 to the

Registrant’s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on December 22, 2020)

Agreement of Raymond Chang &dagger;

Agreement of Former Chief Technology Officer, Matthew Liotta &dagger;

(incorporated by reference to Exhibit 10.7 to the Registrant’s

Registration Statement on Form S-1 filed with the Securities and Exchange Commission on December 22, 2020)

Agreement dated August 5, 2020 between the Company and Matthew Liotta &dagger;

(incorporated by reference to Exhibit 10.8 to the

Registrant’s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on December 22, 2020)

Interest Agreement dated January 21, 2020 between the Company and CCI Finance, LLC (incorporated by reference to Exhibit 10.11 to

the Registrant’s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on December 22,

of Registration Rights Agreement between the Company and the Series A Preferred stockholders (incorporated by reference to Exhibit

10.12 to the Registrant’s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on December

of Series A Subscription Agreement between the Company and the Series A Preferred stockholders (incorporated by reference to Exhibit

10.10 to the Registrant’s Amendment No.

1 to Registration Statement on Form S-1 filed with the Securities and Exchange

Commission on January 13, 2021)

Omnibus Equity Incentive Plan &dagger;

(incorporated by reference to Exhibit 10.13 to the Registrant’s Registration Statement

on Form S-1 filed with the Securities and Exchange Commission on December 22, 2020)

of Note and Warrant Purchase Agreement (incorporated by reference to Exhibit 10.14 to the Registrant’s Registration Statement

on Form S-1 filed with the Securities and Exchange Commission on December 22, 2020)

of Convertible Promissory Note (incorporated by reference to Exhibit 10.13 to the Registrant’s Amendment No.

1 to Registration

Statement on Form S-1 filed with the Securities and Exchange Commission on January 13, 2021)

Property Assignment and Transfer Agreement by and among the Company, Agrify Brands, LLC and The Holden Company effective as of January

1, 2020 (incorporated by reference to Exhibit 10.16 to the Registrant’s Registration Statement on Form S-1 filed

with the Securities and Exchange Commission on December 22, 2020)

Agreement by and among the Company and Mack Molding Co.

dated December 7, 2020 ±

(incorporated by reference to Exhibit 10.15

to the Registrant’s Amendment No.

1 to Registration Statement on Form S-1 filed with the Securities and Exchange

Commission on January 13, 2021)

and Restated Operating Agreement of Agrify Brands, LLC effective as of August 12, 2020 (incorporated by reference to Exhibit 10.18

to the Registrant’s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on December 22,

Agreement of Niv Krikov &dagger;

(incorporated by reference to Exhibit 10.17 to the Registrant’s Amendment No.

3 to Registration

Statement on Form S-1 filed with the Securities and Exchange Commission on January 26, 2021)

of Indemnification Agreement with directors and executive officers (incorporated by reference to Exhibit 10.18 to the Registrant’s

Registration Statement on Form S-1 filed with the Securities and Exchange Commission on February 11, 2021)

of Ethics of Agrify Corporation Applicable To Directors, Officers And Employees (incorporated by reference to Exhibit 14.1 to the

Registrant’s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on December 22, 2020)

of the Registrant (incorporated by reference to Exhibit 21.1 to the Registrant’s Amendment No.

1 to Registration Statement

on Form S-1 filed with the Securities and Exchange Commission on January 13, 2021)

Certification

of CEO as required by Rule 13a-14(a)/15d-14, filed herewith.

Certification

of CFO as required by Rule 13a-14(a)/15d-14, filed herewith.

Certification

of CEO as required by Rule 13a-14(a) and Rule 15d-14(b) (17 CFR 240.15d-14(b)) and Section 1350 of Chapter 63 of Title 18 of the

United States Code, filed herewith.

Certification of CFO as required by Rule 13a-14(a) and Rule

15d-14(b) (17 CFR 240.15d-14(b)) and Section 1350 of Chapter 63 of Title 18 of the United States Code, filed herewith.

information has been omitted from this exhibit in reliance upon Item 601(b)(10) of Regulation

Agreement dated June 7, 2019 between the Registrant and Bluezone Products, Inc.± (incorporated by reference to Exhibit 10.2 to

the Registrant’s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on December 22,

Agreement dated March 9, 2020 between the Registrant and Enozo Technologies Inc.± (incorporated by reference to Exhibit 10.3

to the Registrant’s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on December 22,

Purchase Agreement dated as of July 10, 2020 between the Registrant and 4D Bios Inc.± (incorporated by reference to Exhibit 10.4 to the Registrant’s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on December 22, 2020)

Employment Agreement dated as of January 4, 2021 between the Registrant and Raymond Chang † (incorporated by reference to Exhibit 10.5 to the Registrant’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 2, 2021)

2020 Omnibus Equity Incentive Plan † (incorporated by reference to Exhibit 10.13 to the Registrant’s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on December 22, 2020)

Form of Note and Warrant Purchase Agreement (incorporated by reference to Exhibit 10.14 to the Registrant’s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on December 22, 2020)

Form of Convertible Promissory Note (incorporated by reference to Exhibit 10.13 to the Registrant’s Amendment No.

1 to Registration Statement on Form S-1 filed with the Securities and Exchange Commission on January 13, 2021)

Intellectual Property Assignment and Transfer Agreement by and among the Registrant, Agrify Brands, LLC and The Holden Company effective as of January 1, 2020 (incorporated by reference to Exhibit 10.16 to the Registrant’s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on December 22, 2020)

Supply Agreement by and among the Registrant and Mack Molding Co.

dated December 7, 2020 ± (incorporated by reference to Exhibit 10.15 to the Registrant’s Amendment No.

1 to Registration Statement on Form S-1 filed with the Securities and Exchange Commission on January 13, 2021)

Amended and Restated Operating Agreement of Agrify Brands, LLC effective as of August 12, 2020 (incorporated by reference to Exhibit 10.18 to the Registrant’s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on December 22, 2020)

Separation Agreement of Niv Krikov, dated November 3, 2021

Form of Indemnification Agreement with directors and executive officers (incorporated by reference to Exhibit 10.18 to the Registrant’s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on February 11, 2021)

Employment Agreement, dated as of November 10, 2021, between the Registrant and Thomas Massie † (incorporated by reference to Exhibit 10.19 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 8, 2021)

Employment Agreement, dated as of November 10, 2021, between the Registrant and Timothy Oakes † (incorporated by reference to Exhibit 10.20 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 8, 2021)

Form of Securities Purchase Agreement, dated as of January 25, 2022, between the Registrant and the Purchasers party thereto (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 26, 2022.

Form of Registration Rights Agreement, dated as of January 25, 2022, between the Registrant and the Purchasers party thereto (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 26, 2022.

Form of Securities Purchase Agreement, dated as of March 14, 2022, between the Registrant and High Trail Special Situations LLC (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on March 18, 2022)

Code of Ethics of Agrify Corporation Applicable To Directors, Officers And Employees (incorporated by reference to Exhibit 14.1 to the Registrant’s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on December 22, 2020)

Subsidiaries of the Registrant

Consent of Independent Registered Public Accounting Firm

Certification of Principal Executive Officer Pursuant to Securities Exchange Act Rules 13a-14(a) and 15(d)-14(a), as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Certification of Principal Financial Officer Pursuant to Securities Exchange Act Rules 13a-14(a) and 15(d)-14(a), as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Certification of Principal Executive Officer Pursuant to 18 U.S.C.

Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Certification of Principal Financial Officer Pursuant to 18 U.S.C.

Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Inline XBRL Instance Document

Inline XBRL Taxonomy Extension Schema Document.

Inline XBRL Taxonomy Extension Calculation Linkbase Document.

Inline XBRL Taxonomy Extension Definition Linkbase Document.

Inline XBRL Taxonomy Extension Label Linkbase Document.

Inline XBRL Taxonomy Extension Presentation Linkbase Document.

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

Certain information has been omitted from this exhibit in reliance upon Item 601(a)(5) of Regulation S-K.

a management contract or compensatory plan, contract or arrangement.

This certification is being furnished solely to accompany this report pursuant

Section 1350, and is not being filed for purposes of Section 18 of the Exchange

Act of 1934, as amended, and is not to be incorporated by reference into any filings of the

Company, whether made before or after the date hereof, regardless of any general incorporation

language in such filing.

Form 10-K Summary.

to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed

1 unchanged sentence

AGRIFY CORPORATION

April 2, 2021

March 31, 2022

Raymond Chang

8 unchanged sentences

(Principal Executive Officer)

Timothy Oakes

Chief Financial Officer

Timothy Oakes

(Principal Financial and Accounting Officer)

Thomas Massie

Chief Operating Officer and

Thomas Massie

1 unchanged sentence

Krishnan Varier

Timothy Oakes

Timothy Mahoney

2 unchanged sentences

Stuart Wilcox

Agrify Corporation

March 31, 2022

Leonard Sokolow

Index to Consolidated Financial Statements

Years Ended December 31, 2020 and 2019:

Auditors’

Financial Statements

Balance Sheets

Statements of Operations

Statements of Stockholders’

Equity Deficit

Statements of Cash Flows

to Consolidated Financial Statements

Fiscal Years Ended December 31, 2021 and 2020:

Independent Auditors’ Report (PCAOB ID # 688 ) F-2

Consolidated Financial Statements

Consolidated Balance Sheets F-3

Consolidated Statements of Operations F-4

Consolidated Statements of Stockholders’ Equity (Deficit) F-5

Consolidated Statements of Cash Flows F-6

Notes to Consolidated Financial Statements F-7 – F-43

OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors of

Agrify Corporation and Subsidiaries

Opinion on the Financial Statements

We have audited the accompanying consolidated balance

sheets of Agrify Corporation and Subsidiaries (the “Company”) as of December 31, 2020 and 2019, the related consolidated

statements of operations, stockholders’

equity and cash flows for each of the two years in the period ended December 31, 2020 ,

and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements

present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of

its operations and its cash flows for each of the two years in the period ended December 31, 2020, in conformity with accounting principles

generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility

of the Company's management.

Our responsibility is to express an opinion on the Company's financial statements based on our audits.

are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are

required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and

regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards

of the PCAOB.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial

statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged

to perform, an audit of its internal control over financial reporting.

As part of our audits we are required to obtain an understanding

of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal

control over financial reporting.

the Shareholders and Board of Directors of

Corporation and Subsidiaries

on the Financial Statements

We have audited the accompanying consolidated balance sheets of Agrify

Corporation and Subsidiaries (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations,

stockholders’ equity (deficit) and cash flows for each of the two years in the period ended December 31, 2021 , and the related

notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in

all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its

cash flows for each of the two years in the period ended December 31, 2021, in conformity with accounting principles generally accepted

in the United States of America.

financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s

financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board

(United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audits to obtain

reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits

we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion

on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess

the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond

to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well

as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

/s/ Marcum llp

We have served as the Company’s auditor since 2019.

April 2, 2021

AGRIFY CORPORATION AND

audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error

or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding

the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant

estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits

provide a reasonable basis for our opinion.

have served as the Company’s auditor since 2019.

March 31, 2022

CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

2 unchanged sentences

Cash and cash equivalents

Accounts receivable, net of allowance for doubtful accounts

of $54 and $0, as of December 31, 2020 and December 31, 2019, respectively.

Marketable securities

Accounts receivable, net of allowance for doubtful accounts of $ 1,415

and $ 54 , as of December 31, 2021 and December 31, 2020, respectively

Inventory, net of reserves of $ 942 and $ 0 , as of December 31, 2021 and December 31, 2020, respectively

Deferred IPO costs

Prepaid expenses and other receivables

Prepaid expenses and other current assets

Total current assets

Property Plant and Equipment, net

Intangible assets acquired through business combination, net

Capitalized website costs, net

Liabilities and Stockholders’

Loan receivable

Property and equipment, net

Right-of-use assets, net

Intangible assets, net

Other non-current assets

Liabilities and Stockholders’ Equity

Current Liabilities:

1 unchanged sentence

Accrued expenses and other current liabilities

Notes payable, net of debt discount of $4,777 and $0 as of December 31, 2020 and

December 31, 2019, respectively

Notes payable, net of debt discount of $ 0 and $ 4,777 as of December 31, 2021 and December 31, 2020, respectively

Derivative liabilities

Operating lease liabilities, current

Long-term debt, current

Deferred revenue

1 unchanged sentence

Other non-current liabilities

Operating lease liabilities, non-current

Long-term debt

1 unchanged sentence

Commitments and contingencies (Note 21)

Stockholders’

Equity (Deficit)

Common stock, 50,000,000 and 6,500,000 shares, $0.001 par value authorized as

of December 31, 2020 and December 31, 2019, respectively;

4,211,677 and 3,616,125 shares issued at December 31, 2020 and 2019, respectively

Preferred stock 2,895,000 and 0 shares, $0.001 par value authorized as of December

31, 2020 and 2019, respectively;

0 shares issued as of December 31, 2020 and 2019

Preferred A stock 105,000 and 0 shares, $0.001 par value authorized

as of December 31, 2020 and 2019, respectively;

100,000 and 0 shares issued at December 31, 2020 and 2019, respectively

Stockholders’ Equity (Deficit)

Common stock, 50,000,000 shares, $ 0.001 par value authorized as of December 31, 2021 and December 31, 2020, respectively;

22,207,103 and 4,211,677 shares issued and outstanding at December 31, 2021 and 2020, respectively

Preferred stock 2,895,000 shares, $ 0.001 par value authorized as of December 31, 2021 and 2020, respectively;

0 shares issued and outstanding as of December 31, 2021 and 2020, respectively

Preferred A stock 105,000 , $ 0.001 par value authorized as of December 31, 2021 and 2020, respectively;

0 and 100,000 shares issued and outstanding at December 31, 2021 and 2020, respectively

Additional paid-in capital

Subscription receivable

Accumulated deficit

Total Stockholders’

Equity (Deficit)

Total Stockholders’ Equity (Deficit)

Non-controlling Interests

Total Liabilities and

Stockholders’

The accompanying notes are an integral part of

these consolidated financial statements.

AGRIFY CORPORATION AND

Total Liabilities and Stockholders’ Equity

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

CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except for number of shares and per share amounts)

of goods sold

profit (loss)

and development

general and administrative expenses

operating expenses

from operations

(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

attributable to non-controlling interest

loss attributable to Agrify Corporation

loss per share attributable to common stockholders – basic and diluted

average common shares outstanding – basic and diluted

The accompanying notes are an integral part of

these consolidated financial statements.

AGRIFY CORPORATION AND

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’

EQUITY DEFICIT

Cost of goods sold

Selling, general and administrative

Research and development

Change in contingent consideration

Total operating expenses

Loss from operations

Interest income (expense), net

Other expenses

Gain (loss) on extinguishment of notes payable

Gain on forgiveness of PPP loan

Change in fair value of derivative liabilities

Other income (expense), net

Net loss before income taxes

Income tax provision

Income (loss) attributable to non-controlling interest

Net loss attributable to Agrify Corporation

Net loss per share attributable to common stockholders – basic and diluted

Weighted average common shares outstanding – basic and diluted

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

CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(In thousands, except share amounts)

Additional Paid-In

Stockholders’

Balance, January 1, 2019

Issuance of common stock

Stock based compensation

Balance, January 1, 2020

Stock based compensation

Stock subscription

Issuance of Preferred A Stock

Investment in Agrify Valiant

Acquisition of TriGrow Systems

Warrants issued and recorded as debt discount in connection with

notes payable issuances

Balance December 31, 2020

The accompanying notes are an integral part of

these consolidated financial statements.

AGRIFY CORPORATION AND

CONSOLIDATED STATEMENTS OF CASH FLOWS

the year ended

(In thousands)

FLOWS FROM OPERATING ACTIVITIES:

loss attributable to Agrify Corporation

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

and amortization

for doubtful accounts

in connection with the issuance of stock options

Non-cash interest expense

on extinguishment of notes payable, net

in fair value of derivative liabilities

from disposal of fixed assets

attributable to non- controlling interests

in operating assets and liabilities, net of acquisition:

expenses and other receivables

cash used in operating activities

FLOWS FROM INVESTING ACTIVITIES:

of property and equipment

of capitalized website costs

paid for business combination, net of cash acquired

cash used in investing activities

FLOWS FROM FINANCING ACTIVITIES:

from issuance of Preferred A Stock

interest in Valiant

from PPP Loans

of financing leases

from notes payable

of loan with a related party

from issuance of common stock

cash provided by financing activities

increase in cash

Beginning of the period

End of the period

disclosure of non-cash investing and financing activities:

Stockholders’

Equity (Deficit)

Stockholders’ Equity

January 1, 2020

based compensation

of Preferred A Stock

in Agrify Valiant

of TriGrow Systems

issued and recorded as debt discount in connection with notes payable issuances

embedded conversion options recorded as derivative liabilities and debt discount

The accompanying notes are an integral part of

these consolidated financial statements.

December 31, 2020

January 1, 2021

conversion feature associated with amended Convertible Promissory Notes

of Convertible Notes

of common shares in connection with acquisition

of common stock – Initial Public Offering (“IPO”), net of fees

of common stock – Secondary public offering, net of fees

of Preferred A Stock

of Precision and Cascade

of PurePressure

December 31, 2021

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

CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Year ended

CASH FLOWS FROM OPERATING ACTIVITIES:

Net loss attributable to Agrify Corporation

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

Depreciation and amortization

Amortization of premium on investment securities

Interest on investment securities

Change in fair value of contingent consideration

Provision for doubtful accounts

Provision for inventory obsolescence

Compensation in connection with the issuance of stock options

Issuance of common shares in connection with acquisition

Non-cash interest (income) expense

(Gain) loss on extinguishment of notes payable, net

Gain on forgiveness of PPP loan

Change in fair value of derivative liabilities

Deferred income taxes

(Gain) loss from disposal of fixed assets

(Gain) loss attributable to non-controlling interests

Changes in operating assets and liabilities, net of acquisition:

Accounts receivable

Prepaid expenses and other current assets

Right of use assets, net

Accounts payable

Accrued expenses and other current liabilities

Deferred revenue

Net cash used in operating activities

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of property and equipment

Purchases of intangibles assets

Purchase of securities

Proceeds from the sale of securities

Proceeds from the sale of fixed assets

Issuance of loan receivable

Cash paid for business combination, net of cash acquired

Net cash used in investing activities

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from issuance of Preferred A Stock

Proceeds from IPO, net of fees

Proceeds from Secondary public offering, net of fees

Proceeds from exercise of options

Proceeds from exercise of warrants

Payments of financing leases

Minority interest in Valiant

Proceeds from PPP Loans

Payments of financing leases

Proceeds from notes payable

Proceeds from issuance of common stock

Net cash provided by financing activities

Net increase in cash

Cash and cash equivalents – Beginning of period

Cash and cash equivalents – End of

Supplemental disclosure of non-cash investing and financing activities:

Equipment sold for loan receivable to customer

Warrants issued and recorded as debt discount in connection with notes payable issuances

Bifurcated embedded conversion options recorded as derivative liabilities and debt discount

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

CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share amounts)

1 —

(Amounts in thousands unless otherwise specified, except share and per share data)

1 — Nature of Business and Basis of Presentation

Agrify Corporation (“Agrify”

“Company”) is a developer of highly advanced and proprietary precision hardware and software grow solutions for the indoor

agriculture marketplace.

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

its name to Agrify Corporation.

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

“us,”

“our”

and similar terminology.

Company has three wholly owned subsidiaries, AGM Service Corp LLC Ariafy Finance LLC and Agxiom, LLC;

it holds 50% of Teejan Podponics

International LLC (“TPI”) since December 2018 and it holds 60% of Agrify-Valiant, LLC, formed in December 2019.

January 22, 2020, the Company acquired TriGrow Systems, Inc.

(“TriGrow”), which became a wholly-owned subsidiary of the

TriGrow was the sole distributor of the Company’s automated, micro-climate, precision controlled vertical farming units

solution for indoor grow.

As part of the acquisition of TriGrow, the Company received TriGrow’s 75% interest in Agrify Brands,

LLC (formerly TriGrow Brands, LLC), an owner of a portfolio of cannabis consumer brands.

On July 21, 2020, the Company acquired all of

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

producing and assembling many of the Company’s products.

Reverse Stock Split

Corporation (“Agrify” or the “Company”) is a developer of highly advanced and proprietary precision hardware

and software grow solutions for the indoor agriculture marketplace and provides equipment and solutions for cultivation, extraction,

post-processing, and testing for the cannabis and hemp industry.

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

Inc., and subsequently changed its name to Agrify Corporation.

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

“us,” “our,” and similar terminology.

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

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

Systems, LLC (“TriGrow”, which acted as the Company’s exclusive distributor

and which was acquired in January 2020 as TriGrow Systems, Inc.

and converted to TriGrow

Systems, LLC in May 2020);

Finance, LLC;

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

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

Extraction NewCo, LLC (“Precision”)(which was a newly formed subsidiary in connection

with October 1, 2021 acquisition of Mass2Media, LLC, d/b/a PX2 Holdings, LLC, d/b/a Precision

Extraction Solutions and Cascade);

● PurePressure,

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

Company also has ownership interests in the following companies:

Podoponics International LLC (“TPI”)(the Company has owned 50% of TPI”

since December 2018);

● Agrify-Valiant,

LLC (“Agrify-Valiant”)(the Company owns 60% of Agrify-Valient, which was formed

in December 2019);

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

February 1, 2022, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with LS Holdings

(“Lab Society”), Lab Society NewCo, LLC, a newly formed wholly owned subsidiary of the Company (“Merger

Sub”), Michael S.

as the Owner Representative thereunder, and each of the shareholders of Lab Society

(collectively, the “Owners”), pursuant to which the Company agreed to acquire Lab Society.

Concurrently with the

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

surviving such merger as a wholly owned subsidiary of the Company (the “Lab Society Acquisition”).

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

January 12, 2021, the Company effected a 1-for-1.581804 reverse stock split.

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

pandemic (“COVID-19”)

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.

date, although all of the Company’s operations are operating, COVID-19 has caused some disruptions to the Company’s business.

However, the extent to which COVID-19 and the related global economic crisis, affect the Company’s 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.

The Company continues to service its customers amid uncertainty and disruption linked to COVID-19 and is actively

managing its business to respond to the impact.

2 —

Public Offering and Secondary Public Offering

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.

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.

gross proceeds from the offering were $ 62.1 million.

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

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

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.

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

The exercise of the over-allotment 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.

September 14, 2021, the Company entered into a letter agreement and waiver (the “Letter Agreement”), to amend the terms of

its underwriting agreement with the representative of the underwriters in the IPO.

Pursuant to the letter agreement, the representative

agreed to waive the right of first refusal included in the underwriting agreement in consideration of (i) a cash payment of $ 2.4 million

and (ii) the right to participate as a co-manager with ten percent ( 10 %) of the economics with respect to the Company’s next public

offering of securities, payable in cash upon the closing of such offering.

(“COVID-19”) Pandemic

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

There is significant uncertainty

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

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

The extent of the impact of COVID-19 on

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

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

Paycheck Protection Program

May and July 2020, the Company entered into two separate PPP Loans 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

Small Business Administration (the “SBA”)(the “PPP Loans”).

The Company received total proceeds of

approximately $ 823 thousand from the unsecured PPP Loans, of which $ 44 thousand was forgiven in September 2021.

The Company’s

application related to the forgiveness of the remaining outstanding balance of PPP Loans is currently under review by the

2 — Summary of Significant Accounting Policies

for wholly-owned subsidiaries

of Presentation and Principles of Consolidation

Accounting for Wholly Owned Subsidiaries

The accompanying consolidated financial statements

include the accounts of Agrify Corporation and its wholly owned subsidiaries, AGM Service Corp LLC (formerly AGM Service Corp Inc.),

HMH, TriGrow Systems, Inc., Ariafy Finance LLC, and Agxiom LLC, in accordance with the provisions required by the Consolidation Topic

810 of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”).

the results of operations of acquired companies from the date of acquisition.

All significant intercompany transactions and balances

are eliminated.

for joint-venture subsidiary

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

whether these entities are a variable interest entity (a “VIE”) in accordance with ASC 810 and if so, whether the

Company is the primary beneficiary requiring consolidation.

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

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

a controlling financial interest.

VIEs are consolidated by the primary beneficiary, which is the entity that has both the power to direct

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

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

Variable interests in a VIE are contractual,

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

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

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

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

have been prepared in accordance with accounting principles generally accepted in the U.S.

(“GAAP”) and include the accounts

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

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

Accounting Standards Codification (“ASC”).

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

of acquisition.

All significant intercompany transactions and balances are eliminated.

for Less Than Wholly Owned Subsidiaries

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

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

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

A VIE is an entity that has (i) insufficient

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

the characteristics of a controlling financial interest.

VIEs are consolidated by the primary beneficiary, which is the entity that has

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

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

Variable interests

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

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

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

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

a VIE and that the Company is the primary beneficiary.

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

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

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

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

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

the Company consolidates the financial statements of Agrify Valiant LLC and Agrify Brands, LLC under the VIE rules and reflects the third

parties’

interests in the consolidated financial statements as a non-controlling interest.

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

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

The Company records this non-controlling

interest at its initial fair value, adjusting the basis prospectively for the third parties’

share of the respective consolidated

investments’

net income or loss or equity contributions and distributions.

These non-controlling interests are not redeemable

by the equity holders and are presented as part of permanent equity.

Income and losses are allocated to the non-controlling interest

holders based on its economic ownership percentage.

The investment in 50% of the shares of TPI is treated as an equity investment as

the Company cannot exercise significant influence.

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

interest at its initial fair value, adjusting the basis prospectively for the third parties’ share of the respective consolidated

investments’ net income or loss or equity contributions and distributions.

These non-controlling interests are not redeemable by

the equity holders and are presented as part of permanent equity.

Income and losses are allocated to the non-controlling interest holders

based on its economic ownership percentage.

The investment in 50 % of the shares of TPI is treated as an equity investment as the Company

cannot exercise significant influence.

Use of Estimates

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

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

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Actual results could differ from those

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

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

Growth Company

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

as the JOBS Act.

As a result, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements that are applicable

to other companies that are not emerging growth companies.

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

with new or revised accounting standards.

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

our reporting $1.0 billion or more in annual gross

our issuance, in a three-year period, of more than

$1.0 billion in non-convertible debt;

the end of the fiscal year in which the market value

of our common stock held by non-affiliates exceeds $700 million on the last business day of our second fiscal quarter;

December 31, 2026.

Reclassifications

Certain amounts in the prior period financial

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

In this Annual Report on

Form 10-K, we have reclassified our capitalized website costs so that they are included as part of our aggregate intangible assets, net

in our consolidated balance sheets as of December 31, 2021 and 2020.

and Cash Equivalents

and cash equivalents consist principally of cash and deposits with maturities of three months or less as of December 31, 2021 and December

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

The Company’s marketable security investments

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

The mutual funds are recorded at fair value

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

The municipal and corporate bonds are considered

held to maturity and are recorded at amortized cost in the accompanying consolidated balance sheet.

The fair values of these investments

were estimated using recently executed transactions and market price quotations.

The Company considers current assets those investments

which will mature within the next 12 months including interest receivable on the long-term bonds.

Receivable, Net

Accounts receivable, net primarily consists of

amounts billed and currently due from customers.

Accounts receivable balances are presented net of an allowance for credit losses, which

is an estimate of amounts that may not be collectible.

In determining the amount of the allowance at each reporting date, the Company

makes judgments about general economic conditions, historical write-off experience and any specific risks identified in customer collection

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

Account balances are written

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

Adjustments to the allowance

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

Concentration

1 unchanged sentence

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

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

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

depositor with unlimited insurance for funds in noninterest-bearing transaction accounts through December 31, 2020.

At times, the amounts

in these accounts may exceed the federally insured limits.

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

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

the years ended December 31, 2020 and 2019, three customers accounted for 79.2% and two customers accounted for 99% (84.7% was TriGrow — then

the sole distributor of Agrify) of revenue, respectively.

At December 31, 2020, three customers accounted for 88.8% of accounts receivable

(approximately 46% of that balance was paid subsequent to December 31, 2020).

Accounts receivable balance at December 31, 2019 was $0.

Property and Equipment

Property and equipment are stated at cost less

accumulated depreciation and amortization.

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

the estimated useful life of each asset, as follows:

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

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

per depositor with unlimited insurance for funds in noninterest-bearing transaction accounts through December 31, 2021.

At times, the

amounts in these accounts may exceed the federally insured limits.

The Company has certain customers whose revenue

individually represented 10 % or more of the Company’s total revenue, or whose accounts receivable balances individually represent

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

Refer to the following table.

The Company has certain customers whose revenue

individually represented 10 % or more of the Company’s total revenue, or whose accounts receivable balances individually represent

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

Refer to the following table.

the years ended December 31, 2021 and 2020, the Company’s customers that accounted for 10 % or more of the total revenue were as

(Dollar Amounts in Thousands)

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

Greenstone Holdings - Related Party

* Customer revenue, as a percentage of total revenue was less

Accounts Receivable, Net

of December 31, 2021 and 2020, the Company’s customers that accounted for 10 % or more of the total accounts receivable, net, were

(Dollar Amounts in Thousands)

% of Total Accounts Receivable

NEIA – Related Party

* Customer accounts receivable balance, as a percentage of total

accounts receivable balance, was less than 10%

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

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

Write-offs of potentially slow

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

Physical inventories are taken

at least once annually for all inventory locations.

and Equipment

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

Depreciation and amortization expenses are recognized

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

Estimated Useful Life (Years)

Computer equipment and software

Furniture and fixture

Vehicles and machinery

Computer and office equipment

Furniture and fixtures

Research and development laboratory equipment

Machinery and equipment

Leased equipment at customer

Trade show assets

Leasehold improvements

Lower of estimated useful life or remaining lease term

Estimated useful lives are periodically assessed

to determine if changes are appropriate.

Lower of estimated useful life

or remaining lease term

useful lives are periodically assessed to determine if changes are appropriate.

Maintenance and repairs are charged to expense as incurred.

When assets are retired or otherwise

disposed of, the cost of these assets and related accumulated depreciation or amortization are eliminated from the consolidated balance

sheet and any resulting gains or losses are included in the consolidated statement of operations in the period of disposal.

capital assets not yet placed into service are capitalized as construction-in-progress and depreciated once placed into service.

Goodwill and Other Acquired Intangible Assets

The Company initially records goodwill and other

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

Goodwill represents the excess

of the purchase price over the fair value of identifiable tangible and intangible assets acquired and liabilities assumed in a business

combination and is tested at least annually for impairment, historically during our fourth quarter.

Identifiable intangible assets, which consist

principally of customer related assets and brand names, are reported net of accumulated amortization and are being amortized over their

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

The Company reviews

the carrying value of these intangible assets annually, or more frequently if indicators of impairment are present.

In performing the review of the recoverability

of goodwill and other intangible assets the Company considers several factors, including whether there have been significant changes

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

The Company also considers whether

there is an expectation that the asset will be sold or disposed of before the end of its originally estimated useful life.

of goodwill, the Company needs to estimate the fair value of the reporting unit to which the goodwill is assigned.

If as a result of

examining any of these factors the Company concludes that the carrying value of goodwill or any other intangible asset exceeds its estimated

fair value, an impairment charge will be recognized and reduce the carrying value of the asset to its estimated fair value.

Company adopted Accounting Standards Update (“ASU”) No.

2016-02, Leases (“Topic 842”) effective January 1,

Prior to the acquisition of HMH in July 2019, the Company had leases that were classified as short term leases per the standard.

The acquisition of HMH in July 2020, included several financing leases and short term leases.

The Company determines if an arrangement

is a lease at inception and classifies its leases at commencement.

Operating leases are included in operating lease right-of-use (“ROU”)

assets and current and noncurrent operating lease liabilities on the Company’s consolidated balance sheets.

Finance leases are

included in property and equipment, accrued expenses and other liabilities, and other noncurrent liabilities on the Company’s

consolidated balance sheets.

assets represent the Company’s right to use an underlying asset for the lease term and the corresponding lease liabilities represent

its obligation to make lease payments arising from the lease.

Lease ROU assets and lease liabilities are recognized based on the present

value of the future minimum lease payments over the lease term at commencement date.

The lease ROU asset is reduced for tenant incentives.

expenses for minimum lease payments for operating leases are recognized on a straight-line basis over the lease term.

Amortization expense

of the ROU asset for finance leases is recognized on a straight-line basis over the lease term and interest expense for finance leases

is recognized based on the incremental borrowing rate.

Company does not recognize ROU assets or lease liabilities for leases with a term of 12 months or less for any asset classes (short term

Value of Financial Instruments

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

The estimated fair

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

Loss Per Share

and diluted net loss per share attributable to common stockholders is presented in conformity with the two-class method required for

participating securities.

Basic loss per share is computed by dividing net loss available to common stockholders by the weighted average

number of common shares outstanding.

Net loss available to common stockholders represents net loss attributable to common stockholders

reduced by the allocation of earnings to participating securities.

Losses are not allocated to participating securities as the holders

of the participating securities do not have a contractual obligation to share in any losses.

Diluted loss per share adjusts basic loss

per share for the potentially dilutive impact of stock options and warrants.

As the Company has reported losses for all periods presented,

all potentially dilutive securities including stock options and warrants, are antidilutive and accordingly, basic net loss per share

equals diluted net loss per share.

loss per share calculations for all periods have been adjusted to reflect the reverse stock split effected on January 12, 2021.

per share was calculated based on the weighted average number of common stock then outstanding.

When assets are retired or otherwise disposed of, the cost of these assets and related accumulated depreciation or amortization are eliminated

from the consolidated balance sheet and any resulting gains or losses are included in the consolidated statement of operations in the

period of disposal.

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

once placed into service.

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

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

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

A goodwill impairment

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

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

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

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

There have been no impairment charges recorded

for fiscal 2021 and fiscal 2020.

The Company initially records intangible assets

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

Identifiable intangible assets, which consist principally

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

amortization and are being amortized over their estimated useful lives at amortization rates that are proportional to each asset’s

estimated economic benefit.

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

of the assets.

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

finite-lived useful lives are as follows:

Acquired developed technology

Non-compete agreements

Customer relationships

Capitalized website costs

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

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

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

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

its estimated fair value, an impairment charge will be recognized and reduce the carrying value of the asset to its estimated fair value.

Notes Payable

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

financial instruments to be separately accounted for in accordance with Accounting Standards Codification Topic 815 of the FASB.

accounting treatment of derivative financial instruments requires that the Company 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

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the instrument is determined to not be a derivative liability, the Company then evaluates for the existence of a beneficial conversion

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

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

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

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.

generate revenue from the following sources:

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

sell our offerings to customers under a combination of a contract and purchase order.

revenue includes sales from proprietary products designed and engineered by the Company 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.

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.

contracts normally provide for payment upon completion of specified work or units of work

as identified in the contract.

Although there is considerable variation in the terms of these

contracts, they are primarily structured as fixed-price contracts, under which the Company

agrees to do the entire project for a fixed amount.

The Company also enters time-and-materials

contracts under which the Company is paid for labor and equipment at negotiated hourly billing

rates and for other expenses, including materials, as incurred at rates agreed to in the

The Company uses one main sub-contractor to execute the construction contracts.

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

A contract is or contains a lease if the

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

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

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

Leases with an initial term of

12 months or less are not recorded on the balance sheet, but payments are recognized as expense on a straight-line basis over the lease

Company’s contracts may contain both lease and non-lease components.

Non-lease components may include maintenance, utilities, and

other operating costs.

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

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

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

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

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

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

The Company estimates its secured incremental

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

payments on a collateralized basis over a similar term.

of the Company’s leases include options to extend or terminate the lease.

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

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

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

revenue includes amounts collected or billed in excess of revenue recognized.

Deferred revenue is recognized as revenue

as the related performance obligations are satisfied.

Deferred revenue that will be recognized during the succeeding twelve-month

period is recorded as a current liability and the remaining portion is recorded as a noncurrent liability on the consolidated balance

Value of Financial Instruments

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

The estimated fair

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

Stock-Based Compensation

The Company measures all stock options and other

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

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

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

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

The Company classifies stock-based compensation

expense in its consolidated statements of operations and comprehensive loss in the same manner in which the award’s recipient’s

payroll costs are classified.

The fair value of each stock option grant is

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

The Company historically had been a private company and

lacks company-specific historical and implied volatility information.

Therefore, it estimates its expected stock volatility based on

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

data regarding the volatility of its own traded stock price.

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

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

The risk-free interest

rate is determined by reference to the U.S.

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

equal to the expected term of the award.

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

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

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

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

The fair value of the consideration paid, including contingent

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

Goodwill represents

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

judgments are used in determining fair values of assets acquired and liabilities assumed, as well as intangibles and their estimated

useful lives.

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

cost savings and appropriate discount rates used in computing present values.

These judgments may materially impact the estimates used

in allocating acquisition date fair values to assets acquired and liabilities assumed, as well as the Company's current and future operating

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

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

Adjustments to fair values of assets and liabilities made after the end of the measurement period are recorded within the

Company's operating results.

For contingent consideration arrangements, a liability

is recognized at fair value as of the acquisition date with subsequent fair value adjustments recorded in operations.

Additional information

regarding the Company’s contingent consideration arrangements may be found in Note 5 – Fair Value Measures included elsewhere

in the notes to the consolidated financial statements.

Company generates revenue from the following sources:

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

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

the customer contract;

performance obligations that are distinct;

the transaction price;

the transaction price to the distinct performance obligations;

revenue as the performance obligations are satisfied.

the customer contract

customer contract is generally identified when there is approval and commitment from both the Company and its customer, the rights have

been identified, payment terms are identified, the contract has commercial substance and collectability, and consideration is probable.

Specifically, the Company obtains written/electronic signatures on contracts and a purchase order, if said purchase orders are issued

in the normal course of business by the customer.

performance obligations that are distinct

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

A good or service

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

resources that are readily available to the customer, and a company’s promise to transfer the good or service to the customer is

separately identifiable from other promises in the contract.

the transaction price

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

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

the transaction price to distinct performance obligations

The transaction price is allocated to each performance

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

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

obligations separately, if they are distinct.

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

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

revenue as the performance obligations are satisfied

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

Company into enters contracts that can include various combinations of equipment, services and construction, which are generally capable

of being distinct and accounted for as separate performance obligations.

Contracts with customers often include promises to transfer

multiple products and services to a customer.

Determining whether products and services are considered distinct performance obligations

that should be accounted for separately versus together may require significant judgment.

Once the Company determines the performance

obligations, it determines the transaction price, which includes estimating the amount of variable consideration to be included in the

transaction price, if any.

The Company then allocates the transaction price to each performance obligation in the contract based on the

The corresponding revenue is recognized as the related performance obligations are satisfied.

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

The Company determines SSP based on the price at which the

performance obligation is sold separately and the methods of estimating SSP under the guidance of Accounting Standards Codification (“ASC”)

606-10-32-33.

If the SSP is not observable through past transactions, the Company estimates the SSP, taking into account available information

such as market conditions, expected margins, and internally approved pricing guidelines related to the performance obligations.

licenses its software as a SaaS type subscription license, whereby the customer only has a right to access the software over a specified

The full value of the contract is recognized ratably over the contractual term of the SaaS subscription, adjusted monthly

if tiered pricing is relevant.

The Company typically satisfies its performance obligations for equipment sales when equipment is made

available for shipment to the customer;

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

as services are rendered and when contract is completed.

Company utilizes the cost-plus margin method to determine the SSP for equipment and buildout services.

It is based on the cost of the

services from third parties, plus a reasonable markup that the Company believes is reflective of a market-based reseller margin.

SSP for services in time and materials contracts is determined by observable prices in standalone services arrangements.

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

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

Company typically satisfies its performance obligations for equipment sales when equipment is made available for shipment to the customer;

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

is completed.

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

and accounted for as separate performance obligations.

allocate total contract consideration to each distinct performance obligation in an arrangement on a relative standalone selling price

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.

In certain cases, the Company offers its customers

extended payment terms for more than 12 months.

The Company will consider contracts with such extended payment terms as contracts with

a financing component, whether explicit or implicit.

Accordingly, the Company imputes interest on such contracts at an agreed upon interest

rate and will present the financing components separately as financial income.

For the years ended December 31, 2020 and 2019, the Company

did not have any such financial income.

Policies and Judgments —

The Company has elected to treat shipping and handling activities after the customer obtains

control of the goods as a fulfillment cost and not as a promised good or service.

Accordingly, the Company will accrue all fulfillment

costs related to the shipping and handling of consumer goods at the time of shipment.

The Company has payment terms with its customers

of one year or less and has elected the practical expedient applicable to such contracts not to consider the time value of money.

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

Disaggregation

of Revenue —

The following table provides revenue disaggregated by timing of revenue recognition:

December 31,  

Transferred at a point in time  

$ 4,907  

$ 4,066  

Transferred over time  

$ 12,087  

$ 4,088  

Balances 

The Company receives payment from customers based on specified terms that are generally less than 30 days

from the satisfaction of performance obligations.

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

The difference

in the opening and closing balances of our deferred revenue primarily results from the timing difference between our performance and

the customer’s payment.

We fulfil 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.

accordance with ASC 606-10-50-13, the Company is required to include disclosure on its remaining

performance obligations as of the end of the current reporting period.

Due to the nature

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

of the Company’s remaining contracts meet certain exemptions as defined in ASC 606-10-50-14

through 606-10-50-14A, including (i) performance obligation is part of a contract that

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

practical expedient.

If contracts have payment terms that differ from

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

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

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

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

For those contracts in which the period exceeds

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

requires judgment.

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

components separately as financial income.

For the years ended December 31, 2021 and 2020, the Company did not have any such financial

Payment terms with customers typically require

payment 30 days from invoice date.

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

and therefore no specific reserve for such is maintained.

In the infrequent instances where customers raise a concern over delivered

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

in all periods presented.

Company has elected to treat shipping and handling activities after the customer obtains control of the goods as a fulfillment cost and

not as a promised good or service.

Accordingly, the Company will accrue all fulfillment costs related to the shipping and handling of

consumer goods at the time of shipment.

The Company has payment terms with its customers of one year or less and has elected the practical

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

Sales, value add, and other taxes the Company collects

concurrent with revenue-producing activities are excluded from revenue.

The Company receives payment from customers based

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

There are no contract assets

related to performance under the contract.

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

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

The Company fulfils

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

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

The Company recognizes deferred

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

to transfer certain proprietary products.

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

of the current reporting period.

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

The majority of the Company’s remaining contracts meet certain exemptions as defined in ASC 606-10-50-14 through 606-10-50-14A,

including (i) performance obligation is part of a contract that has an original expected duration of one year or less and (ii) the

right to invoice practical expedient.

The Company generally provides a one-year warranty

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

At December 31, 2020, the Company has no product warranty accrual

given the Company’s de minimis historical financial warranty experience.

Company accounts for income taxes pursuant to the provisions of ASC Topic 740, “Income Taxes,”

which requires, among other

The reserve for warranty returns is included in accrued expenses

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

Research and Development Costs

The Company expenses research and development

costs as incurred.

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

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

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

Shipping and Handling Charges

The Company incurs costs related to shipping and

handling of its manufactured products.

These costs are expensed as incurred as a component of cost of sales.

Shipping and handling charges

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

Equity Method Investments

Investments in affiliates which are 50 % or

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

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

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

An assessment of whether or not the Company (as

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

the party that obtains the majority of the benefits of the investment was performed as of December 31, 2021 and December 31, 2020, and

will be performed as of each subsequent reporting date.

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

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

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

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

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

The carrying value of the Company’s investment

in TPI was $ 0 as of December 31, 2021 and December 31, 2020.

The Company did not recognize revenue from TPI for the years ended December

31, 2021 and 2020.

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

things, an asset and liability approach to calculating deferred income taxes.

4 unchanged sentences

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

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

“Basic Recognition Threshold.”

When tax returns are filed, it is highly certain that some positions taken would be sustained

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

of the position that would be ultimately sustained.

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

is recognized in the 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,

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

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

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

In accordance with the guidance

of ASC 740-10-25-6, the benefit of a tax position is recognized in the consolidated financial statements in the period during which,

based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination,

including the resolution of appeals or litigation processes, if any.

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

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

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

the applicable taxing authority.

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

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

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

The Company believes its tax positions are all

highly certain of being upheld upon examination.

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

of December 31, 2020, tax years 2017 through 2020 remain open for IRS audit.

The Company has received no notice of audit from the IRS

for any of the open tax years.

Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more

than 50 percent likely of being realized upon settlement with the applicable taxing authority.

The portion of the benefits associated

with tax positions taken that exceeds the amount measured as described above should be reflected as a liability for unrecognized tax

benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing authorities

upon examination.

The Company believes its tax positions are all highly certain of being upheld upon examination.

As such, the Company

has not recorded a liability for unrecognized tax benefits.

As of December 31, 2021, tax years 2016 through 2021 remain open for IRS

The Company has received no notice of audit from the IRS for any of the open tax years.

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

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

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

3 unchanged sentences

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

As of January 1, 2018, the

Company had not generated any net operating loss (NOL) carryforwards.

There was no federal income tax expense for the years ended December

31, 2020 and 2019 due to the Company’s net losses.

The Company has not yet filed its 2018, 2019 and 2020 federal and state tax

and Development Costs

Company expenses research and development costs as incurred.

During the year ended December 31, 2020, the Company expensed $824 related

to development of hardware solution for deployment of rapid grow solution and additional costs of $107 related to research and development

facility, there were no such costs in the year ended December 31, 2019.

and Handling Charges

Company incurs costs related to shipping and handling of its manufactured products.

These costs are expensed as incurred as a component

of cost of sales.

Shipping and handling charges related to the receipt of raw materials are also incurred, which are recorded as a cost

of the related inventory.

3 —

For the period ended December 31, 2021, the Company

recorded a deferred tax liability of approximately $ 25 thousand, comprised of its change in deferred tax liability during the year related

to its indefinite lived intangible asset balance.

The indefinite lived intangibles are not all available as a source of income and thus

are not fully available to offset the Company's deferred tax assets.

As of December 31, 2021, the Company has federal and state net operating

loss (NOL) carryforwards of approximately $ 52.2 million and $ 28.9 million, respectively.

The Company has not yet filed its 2018, 2019,

2020 and 2021 federal and state tax returns.

There was no federal income tax expense for the

years ended December 31, 2021 and 2020 due to the Company’s net losses.

The Company has not yet filed its 2018, 2019, 2020 and

2021 federal and state tax returns.

Net Loss Per Share

Basic and diluted net loss per share attributable

to common stockholders is presented in conformity with the two-class method required for participating securities.

Basic loss per share

is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding.

available to common stockholders represents net loss attributable to common stockholders reduced by the allocation of earnings to participating

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

obligation to share in any losses.

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

and warrants.

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

and warrants, are antidilutive and accordingly, basic net loss per share equals diluted net loss per share.

Net loss per share calculations for all periods

have been adjusted to reflect the reverse stock split effected on January 12, 2021.

Net loss per share was calculated based on the weighted

average number of common stock outstanding.

Note 3 — Accounting Pronouncements

Recently Adopted Accounting Pronouncements

June 2016, the FASB issued Accounting Standard Update (“ASU”) No. 2016-13, Financial Instruments —

Credit Losses (Topic 326) —

Measurement of Credit Losses on Financial Instruments.

This new standard requires entities to

measure expected credit losses for certain financial assets held at the reporting date using a current expected credit loss model, which

is based on historical experience, adjusted for current conditions and reasonable and supportable forecasts.

The Company’s financial

instruments within the scope of this guidance primarily includes accounts receivable.

The adoption of ASU 2016-13 had no impact on the

Company’s consolidated financial position.

August 2018, the FASB issued ASU No. 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40):

Customer’s

Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which aligns the requirements

for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing

implementation costs incurred to develop or obtain internal-use software.

The new standard requires capitalized costs to be amortized

on a straight-line basis generally over the term of the arrangement, and the financial statement presentation for these capitalized costs

would be the same as that of the fees related to the hosting arrangements.

The Company adopted this standard effective January 1, 2020,

using a prospective approach.

The adoption of this new standard did not have a material impact on the Company’s consolidated financial

Subsequent impact will depend on the magnitude of implementation costs to be incurred.

Implementation costs capitalized subsequent

to adoption will be recognized in operating expenses in the statements of operations over the noncancelable period of the hosting arrangement

plus any renewal periods reasonably certain to be taken.

4 —

In August 2018, the FASB issued ASU No.

Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40):

Customer’s Accounting for Implementation Costs Incurred

in a Cloud Computing Arrangement That is a Service Contract, which aligns the requirements for capitalizing implementation costs incurred

in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or

obtain internal-use software.

The new standard requires capitalized costs to be amortized on a straight-line basis generally over the

term of the arrangement, and the financial statement presentation for these capitalized costs would be the same as that of the fees related

to the hosting arrangements.

The Company adopted this standard effective January 1, 2020, using a prospective approach.

of this new standard did not have a material impact on the Company’s consolidated financial statements.

Subsequent impact will

depend on the magnitude of implementation costs to be incurred.

Implementation costs capitalized subsequent to adoption will be recognized

in operating expenses in the statements of operations over the non-cancelable period of the hosting arrangement plus any renewal periods

reasonably certain to be taken.

Pending Accounting Pronouncements

In June 2016, the Financial Accounting Standards

Board (the “FASB”) issued Accounting Standards Update (“ASU”) No.

2016-13, Financial Instruments—Credit

Losses (Topic 326), which introduces a new methodology for accounting for credit losses on financial instruments, including available-for-sale

debt securities and accounts receivable.

The guidance establishes a new “expected loss model” that requires entities to estimate

current expected credit losses on financial instruments by using all practical and relevant information.

Any expected credit losses are

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

ASU 2016-13 is

effective in the first quarter of fiscal 2024.

The Company is currently evaluating if this guidance will have a material effect to its

consolidated financial statements.

In August 2020, the FASB issued ASU No.

2020-06, Debt

- Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own

Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.

The amendments

2020-06 simplify the complexity associated with applying U.S.

GAAP for certain financial instruments with characteristics

of liabilities and equity.

More specifically, the amendments focus on the guidance for convertible instruments and derivative scope exceptions

for contracts in an entity’s own equity.

ASU 2020-06 is effective for fiscal years beginning after December 15,

2021, including interim periods within those fiscal years.

Early adoption is permitted, but no earlier than fiscal years

beginning after December 15, 2020, including interim periods within those fiscal years.

The Company is currently evaluating

the impact of the new standard on its consolidated financial statements and related disclosures.

In October 2021, the FASB issued ASU No.

2021-08, Business

Combinations (Topic 606):

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

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

if it had originated the contracts.

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

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

prepared financial statements in accordance with U.S.

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

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

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

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

The Company is evaluating the potential impact of this adoption on its consolidated financial statements and related disclosures.

All other Accounting Standards Updates issued

but not yet effective are not expected to have a material effect on the Company’s future financial statements.

Note 4 — Revenue and Deferred Revenue

During the years ended December 31, 2021 and 2020,

the Company generated revenue from the following sources:

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

The Company sells its equipment and services to

customers under a combination of a contract and purchase order.

Equipment revenue includes sales from proprietary products designed and

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

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

surface protection.

Construction contracts normally provide for payment

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

Although there is considerable variation in the terms

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

The Company enters time-and-materials contracts under

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

at rates agreed to in the contract.

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

Disaggregation of Revenue —

The following table provides revenue disaggregated by timing of revenue recognition:

(Dollar Amounts in Thousands)

Transferred at a point in time

Transferred over time

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

of the current reporting period.

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

The majority of the Company’s remaining contracts meet certain exemptions as defined in ASC 606-10-50-14 through 606-10-50-14A,

including (i) performance obligation is part of a contract that has an original expected duration of one year or less and (ii) the

right to invoice practical expedient.

The Company generally provides a one-year warranty

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

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

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

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

As of December 31, 2021, the Company maintains a reserve for warranty

returns of $ 398 thousand.

No warranty reserve was recorded by the Company as of December 31, 2020.

The reserve for warranty returns is

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

Significant changes in the Company’s current

deferred revenue balance for the years ended December 31, 2021 and 2020:

(Dollar Amounts in Thousands)

Total current deferred revenue, beginning of period

Interest income on deferred revenue

Total current deferred revenue, end of period

Deferred revenue balances primarily consist of

customer deposits on our cultivation and extraction solutions equipment.

As of December 31, 2021 and 2020, all of our deferred revenue

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

Note 5 — Fair Value Measures

Fair Values of Assets and Liabilities

The Company measures fair value at the price

that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the

measurement date.

In determining fair value, the assumptions that market participants would use in pricing an asset or liability

(the inputs) are based on a tiered fair value hierarchy consisting of three levels, as follows:

Observable inputs such as quoted prices for identical assets or liabilities in active markets.

Other inputs that are observable directly or indirectly, such as quoted prices for similar instruments

in active markets or for similar markets that are not active.

Unobservable inputs for which there is little or no market data which require the Company to develop

its own assumptions about how market participants would price the asset or liability.

Valuation techniques for assets and liabilities

include methodologies such as the market approach, the income approach, or the cost approach, and may use unobservable inputs such as

projections, estimates and management’s interpretation of current market data.

These unobservable inputs are only utilized

to the extent that observable inputs are not available or cost-effective to obtain.

At December 31, 2021 and December 31, 2020,

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

December 31, 2021

December 31, 2020

Fair Value Measurements Using Input Types

(Dollar Amounts in Thousands)

Mutual funds (included in cash and cash equivalents)

Held to maturity securities

Municipal bonds

Corporate bonds

Total held to maturity securities

Notes payables, net of discount

Derivative liabilities

Contingent consideration

Total liabilities

Fair Value of Financial Instruments

The Company has certain financial instruments which consist of cash

and cash equivalents, marketable securities, accounts receivable, loan receivable, accounts payable, notes payable, derivative liabilities,

deferred revenue, and long-term debt.

Fair value information for each of these instruments is as follows:

Cash and cash equivalents, accounts receivable, accounts payable and deferred revenue liabilities fair values approximate their carrying values, due to the expected duration of these instruments.

Marketable securities classified as held to maturity securities are recorded at amortized cost, which as of December 31, 2021, approximated fair value.

The Company had certain derivative instruments accounted for at fair value.

The Company held a convertible promissory note with a preferential conversion feature which qualifies as a derivative instrument.

The fair value assumptions consider the nature of the conversion feature and the expected timeline to a qualifying conversion event.

The Company’s deferred consideration was recorded in connection with acquisitions during the year ending December 31, 2021 using an estimated fair value discount at the time of the transaction.

As of December 31, 2021, the carrying value of the deferred consideration approximated fair value.

Marketable Securities

As of December 31, 2021, the Company held investments

consisting of mutual funds, municipal bonds, and corporate bonds.

The mutual funds are recorded at fair value in the accompanying consolidated

balance sheet as part of cash and cash equivalents.

The municipal and corporate bonds are considered held to maturity and are recorded

at amortized cost in the accompanying consolidated balance sheet.

The fair values of these investments were estimated using recently executed

transactions and market price quotations.

The Company considers current assets those investments which will mature within the next 12

months including interest receivable on the long-term bonds.

The composition of the Company’s marketable

securities are as follows:

(Dollar Amounts in Thousands)

Current marketable securities:

Municipal bonds

Corporate bonds

Total current marketable securities

The amortized cost and estimated fair value of

held to maturity securities as of December 31, 2021, are as follows:

(Dollar Amounts in Thousands)

Current marketable securities (due within 1 year)

Municipal bonds

Corporate bonds

Contingent Consideration

The Company has classified its net liability for

contingent earnout considerations relating to the two acquisitions completed in Fiscal 2021.

The fair value for the contingent consideration

associated with these acquisitions is within Level 3 of the fair value hierarchy because the associated fair value is determined

using significant unobservable inputs, which included the key assumptions to model future revenue, costs of goods sold and operating expense

A description of the Company’s acquisitions completed in Fiscal 2021 is included within Note 13 – Business Combinations

included elsewhere in the notes to the consolidated financial statements.

The contingent earnout payments for each acquisition

are based on the achievement of certain revenue thresholds.

During the fourth quarter of 2021, the fair value of the contingent earnout

consideration increased by $ 1.4 million due to the actual revenue achievement for the period ended December 31, 2021, being greater than

the initially projected revenue achievement incorporated into our initial purchase price allocation.

This amount, as required by ASC 805,

was recorded as part of our operating expenses in the fourth quarter of 2021.

(Dollar Amounts in Thousands)

Contingent consideration – beginning of year

Accrued contingent consideration

Change in estimated fair value

Contingent consideration – end of year

Contingent consideration is included within accrued

expense in the consolidated balance sheets as of December 31, 2021.

Note 6 — Loan Receivable

A portion of the capital raised from the Company’s

2021 public offering has been allocated to launch Agrify’s total turn-key solution (“TTK Solution”) program, the industry’s

first end-to-end solution for the Company’s customers that provides access to capital for construction costs, equipment lease(s)

to VFUs and other related operating equipment, subscription to the Company’s Agrify Insights software, and business consultation

services, which will enable the Company’s customers to go to market sooner.

Company’s initial allowable investment in the Agrify TTK Solution engagements is currently capped at $ 50.0 million, as approved

by the Company’s Board of Directors.

As of December 31, 2021, the Company has committed $20.3 million to the Agrify TTK Solution

for five customers under contract and the remainder $ 1.9 million is related to non-TTK Solutions contracts.

Of the five customers under

the Agrify TTK Solution, Greenstone Holdings is a related party.

The loan agreements entered into with customers

receiving the Agrify TTK Solution generally provide for loans ranging from approximately $ 200 thousand up to $ 13.5 million with maturity

dates of approximately two to three years after the completion of the construction projects.

Typically, the TTK Solution construction

loans have interest rates ranging from 12 % to 18 % per annum.

breakdown of loans receivable as of December 31, 2021 and December 31, 2020 is as follows:

Amounts in Thousands)

A – TTK Solution

Holdings – TTK Solution – Related Party

C – TTK Solution

D – TTK Solution

E – TTK Solution

The Company analyzed whether any of the above

customers are a variable interest entity (a “VIE”) in accordance with ASC 810 and if so, whether the Company is the primary

beneficiary requiring consolidation.

Based on the Company’s analysis, the Company has determined that Greenstone Holdings is a VIE.

As of December 31, 2021, two of the Company’s employees own approximately 36.6 % of the equity of Greenstone Holdings, however,

since the Company is not the primary beneficiary of Greenstone Holdings, the Company is not required to consolidate Greenstone Holdings.

7 — Accounts Receivable

receivable are recorded at net realizable value consisting of the carrying amount less the allowance for uncollectible accounts.

Company evaluates its accounts receivable on a continuous basis, and if necessary, establishes an allowance for doubtful accounts based

on a number of factors, including current credit conditions and customer payment history.

The Company does not require collateral or

accrue interest on accounts receivable.

Accounts receivable at December 31, 2020 and December 31, 2019 are $4,014 and $0, respectively.

Allowance for doubtful accounts was $54 and $0 as of December 31, 2020 and December 31, 2019.

Bad debt expense was $54 and $0, for the

years ended December 31, 2020 and 2019, respectively.

5 —

Prepaid Expenses and Other Receivables

Expenses and Other Receivables consisted of the following as of December 31, 2020 and December 31, 2019:

Other Receivables  

Prepaid software  

Prepaid professional fees  

Prepaid expenses  

6 —

As of December 31, 2020 and 2019, inventory is

$5,170 and $2,481, respectively.

The Company’s standard payment terms with suppliers may require making payments in advance of

delivery of the Company’s products.

The prepaid inventory is short-term, non-bearing interest that is applied to the purchase of

products once it is delivered.

Prepaid inventory amounted to $833 and $1,585 as of December 31, 2020 and 2019, respectively.

7 —

Receivable consisted of the following as of December 31, 2021 and December 31, 2020:

Amounts in Thousands)

receivable, gross

allowance for doubtful accounts

receivable, net

NEIA, a related party, accounted for $ 3.5 million

and $ 1.7 million of accounts receivable, net as of December 31, 2021 and December 31, 2020, respectively.

The changes in the allowance for doubtful accounts

consisted of the following:

(Dollar Amounts in Thousands)

Balance as of the beginning of the year

Provision for doubtful accounts

Other adjustments

Balance as of the end of the year

debt expense was $ 1.2 million and $ 54 thousand, for the year ended December 31, 2021 and 2020, respectively.

8 — Inventory

are stated at the lower of cost or net realizable value with cost principally determined by the weighted average cost method on a first

in first out basis.

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

The Company’s standard payment

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

The prepaid inventory is short-term,

non-bearing interest that is applied to the purchase of products once it is delivered.

The Company reserves for slow-moving inventory

and inventory that is being evaluated under the Company’s quality control process.

The reserves are based upon management’s

expected method of disposition.

consisted of the following as of December 31, 2021 and December 31, 2020:

(Dollar Amounts in Thousands)

Raw materials

Prepaid inventory

Finished goods

Gross inventory

Inventory reserves

Total inventory, net

Company establishes inventory reserves for obsolete, slow moving and defective items.

Inventory reserves for obsolete, slow moving or

defective items are calculated as the difference between the cost of inventory and its estimated net realizable value.

Changes in inventory

reserve are as follows:

(Dollar Amounts in Thousands)

Inventory reserves – beginning of the year

Increase in inventory reserves

Inventory write-offs

Inventory reserves – end of year

9 — Prepaid Expenses and Other Current Assets

expenses and other current assets consisted of the following as of December 31, 2021 and December 31, 2020:

(Dollar Amounts in Thousands)

Prepaid insurance

Prepaid software

Prepaid expenses, other

Deferred costs

Other note receivables (1)

Other receivables, other

Prepaid expenses and other current assets

(1) Other note receivables relates to the current portion of one of our TTK Solutions loan receivable balances.

Note 10 — Property and Equipment, Net

Property and equipment, net consisted of the

following as of December 31, 2021 and December 31, 2020:

(Dollar Amounts in Thousands)

Computer and office equipment

Furniture and fixtures

Leasehold improvements

Machinery and equipment

Research and development laboratory equipment

Leased equipment at customer

Trade show assets

Total property and equipment, gross

Accumulated depreciation

Construction in progress

Property and equipment, net

and equipment, net consisted of the following as of December 31, 2020 and December 31, 2019:

December 31,

Computer equipment  

Furniture and fixture  

Leasehold Improvements  

Machinery  

Vehicle  

Total property and equipment  

Less accumulated depreciation  

(211 )  

Property and Equipment, Net  

Depreciation expense for the years ended December

31, 2020 and 2019 was $188 and $3, respectively.

8 —

Capitalized website costs, net

Investments in the Company’s website are amortized

over their estimated useful lives of 3 years.

As of December 31, 2020, and December 31, 2019, amortizable website costs were $139

and $143, and accumulated amortization was $48 and $7, respectively.

Amortization expense was $41 and $7 for the years ended December

31, 2020 and 2019, respectively.

9 —

Intangible Assets and Goodwill

breakdown of acquisition-related intangible assets as of December 31, 2020 was as follows:

Rights  

Relationships  

December 31, 2020  

$ 1,780  

Accumulated amortization  

$ 1,603  

were $0 acquisition related intangibles as of December 31, 2019.

Amortization expenses amounted to $177 and $0 for the years ended December

Depreciation expense for the years ended December 31, 2021 and 2020

was $ 655 thousand and $ 188 thousand, respectively.

During the year ended December 31, 2021, the Company retired $ 119 thousand of fixed

assets, with an accompanying accumulated depreciation of $ 84 thousand, resulting in a loss on disposal of $ 36 thousand.

Note 11 — Intangible Assets and Goodwill

Intangible assets are initially recorded at fair

value and tested periodically for impairment.

Goodwill represents the excess of the purchase price over the fair value of identifiable

tangible and intangible assets acquired and liabilities assumed in a business combination and is tested at least annually for impairment.

The Company performs an impairment test of goodwill during the fourth quarter of each year or sooner if indicators of potential impairment

There were no such indicators in the years ended December 31, 2021 and December 31, 2020.

Intangible assets were

Intangible Assets, Gross

Accumulated Amortization

Intangible Assets, Net

(Dollar Amounts in Thousands)

Customer Relationships

Acquired developed Technology

Capitalized website costs

Amortization expenses recorded in selling, general

and administrative in the consolidated statements of operations were $ 655 thousand and $ 218 thousand for the years ended December 31,

2021 and 2020, respectively.

9 —

Intangible Assets and Goodwill (cont.)

future amortization expense on finite-lived acquisition-related intangible assets is as follows:

(in thousands)

Years Ending December 31,  

Amount  

2026 and thereafter  

$ 1,603  

Goodwill balance as of December 31, 2020 and

2019 was $632 and $0, respectively (see note 11).

There was no goodwill impairment identified for the year ended December 31, 2020.

10 —

Accrued Expenses

expenses consisted of the following as of December 31, 2020 and December 31, 2019:

December 31,

Accrued professional fees  

$ 1,135  

Accrued consulting fees  

Compensation related fees  

Accrued construction costs  

Financing lease liabilities  

Other accrued expenses  

Total accrued expenses  

$ 6,550  

Note 11 —

Business Combination

January 22, 2020, the Company completed the acquisition of all outstanding shares of TriGrow.

TriGrow is an integrator and distributor

of the Company’s premium indoor grow solutions for the indoor controlled agriculture marketplace.

As part of the acquisition,

the Company received TriGrow’s 75% interest in Agrify Brands, LLC (formerly TriGrow Brands, LLC), a licensor and marketing supporter

of established portfolio of consumer brands that utilize the Company’s growing technology.

In consideration of TriGrow’s

shares, the Company issued to TriGrow’s shareholders 595,552 shares of Agrify common stock.

In addition, the closing conditions

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

a so called “profit interest”

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

The Company 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 the Company’s investment of the Funding Amount, CCI is obligated to share with the Company 28.5% of the

net revenue generated from its equipment lease agreement with its customer, payable at least annually by CCI to the Company.

sharing percentage is reduced from 28.5% to 20% once the Company has received payments equalling an 18% Internal Rate of Return on the

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

The revenue sharing terminates

upon the later of five years, or the Company’s attainment of the Preferred Return.

To date, no revenue has been generated and

shared with the Company under this agreement.

As part of the acquisition of TriGrow, the Company

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

receipt of $10 million of accumulative purchase orders for TriGrow and/or the Company’s 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 common stock of the

Company is to be distributed by the Company to certain executives of the surviving corporation responsible for achievement of such milestone,

in the Company’s sole discretion.

Estimated future amortization expense on finite-lived

intangible assets is as follows:

Years Ending December 31 (Dollar Amounts in Thousands),

2027 and thereafter

The changes in goodwill are as follows:

(Dollar Amounts in Thousands)

Balance, beginning of period

Goodwill additions

Balance, end of period

There was no goodwill impairment identified for

the years ended December 31, 2021 and December 31, 2020, respectively.

Note 12 — Accrued Expenses and Other Current Liabilities

Accrued expenses consisted of the following as

of December 31, 2021 and December 31, 2020:

(Dollar Amounts in Thousands)

Accrued acquisition liability (1)

Sales tax payable (2)

Accrued construction costs

Compensation related fees

Accrued professional fees

Accrued warranty expenses

Accrued consulting fees

Accrued inventory purchases

Financing lease liabilities

Accrued non-income taxes

Other current liabilities

Total accrued expenses and other current liabilities

(1) Accrued acquisition liabilities includes both the contingent

consideration and the value of held back stock associated with the 2021 acquisitions of Precision and Cascade and PurePressure.

(2) Sales tax payable primarily represents identified sales and use tax liabilities arising from

our acquisition of Precision and Cascade.

These amounts are included as part of our initial purchase price allocations and are the subject

matter of an indemnification claim under the Precision and Cascade acquisition agreement.

Note 13 — Business Combination

Acquisition of Precision and Cascade

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

the Company entered into a Plan of Merger and Equity Purchase Agreement, as amended by an amendment dated as of October 1, 2021 (as amended,

the “Purchase Agreement”), with Sinclair Scientific, LLC, a Delaware limited liability company (“Sinclair”),

Mass2Media, LLC, d/b/a PX2 Holdings, LLC, d/b/a Precision Extraction Solutions, a Michigan limited liability company (“Precision”);

and each of the equity holders of Sinclair named therein (collectively, the “Sinclair Members”).

On October 1, 2021, the

Company consummated the transactions contemplated by the Purchase Agreement.

Subject to the terms and conditions set

forth in the Purchase Agreement, (1) Sinclair transferred, to the Company, and the Company purchased (the “Interest

Purchase”) from Sinclair, 100 % of the equity interests of Cascade Sciences, LLC, a Delaware limited liability company

(“Cascade”), such that immediately after the consummation of such Interest Purchase, Cascade became a wholly owned

subsidiary of the Company, and (2) Precision merged (the “Merger”) with and into a newly-formed wholly owned subsidiary

of the Company, Precision Extraction NewCo, LLC.

The aggregate consideration for the Interest

Purchase and the Merger consisted of:

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

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

(b) the number of shares of the Company’s common stock, subject to adjustment, equal to the quotient of (i) $ 20.0 million divided

by (ii) the volume-weighted average price per share of the Company’s common stock on The Nasdaq Capital Market for the 30 consecutive

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

and (c) the True-Up

Buyer Shares, if any (as defined below), issuable in connection with the Merger.

The Purchase Agreement includes customary post-closing

adjustments, representations and warranties and covenants of the parties.

The Sinclair Members may become entitled to additional shares

of the Company’s common stock (the “True-Up Buyer Shares”) and cash (together with the True-Up Buyer Shares, the “Aggregate

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

during the fiscal year ending December 31, 2021.

However, in no event shall the aggregate purchase price paid by the Company pursuant

to the terms of the Purchase Agreement, taking into account any Aggregate True-Up Payment in favor of the Sinclair Members, exceed $ 65.0 million.

Transaction and related costs, consisting primarily

of professional fees, directly related to the acquisition, totaled $ 4.0 million for the year ended December 31, 2021.

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 values still under review as of December 31,

2021 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:

(Dollar Amounts in Thousands)

Purchase price consideration:

Cash paid to Sinclair Members at close

Cash contributed to escrow accounts at close

Cash paid for excess net working capital

Stock issued at close

Fair value of contingent consideration to be achieved

Fair value of total consideration transferred

Total purchase price, net of cash acquired

Fair value allocation of purchase price:

Cash and cash equivalents

Accounts receivable

Prepaid and other assets

Property and equipment, net

Operating lease right of use assets

Capitalized web costs, net

Accounts payable and accrued expenses

Deferred revenue

Long-term debt

Operating lease liabilities, current

Operating lease liabilities, noncurrent

Acquired intangible assets

Total purchase price

Identified intangible assets consist of trade

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

The fair value of intangible assets and the determination of their

respective useful lives were made in accordance with ASC 805 and are outlined in the table below:

(Dollar Amounts in Thousands)

Identified intangible assets:

Acquired developed technology

Non-compete agreements

Customer relationships

Total identified intangible assets

The Company’s initial fair value estimates

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

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

These valuation methods require management to project revenues, operating

expenses, working capital investment, capital spending and cash flows for the reporting unit over a multiyear period, as well as determine

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

The Company amortizes its intangible assets assuming

no residual value over periods in which the economic benefit of these assets is consumed.

The amount of revenue of Precision and Cascade

included in the consolidated statement of operations from the acquisition date of October 1, 2021 to December 31, 2021 was $ 12.3 million.

The following pro forma financial information

summarizes the combined results of operations for the Company, Precision and Cascade, as though the acquisition of Precision and Cascade

occurred on January 1, 2020.

The unaudited pro forma financial information

was as follows:

Amounts in Thousands)

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 Precision and Cascade 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, 2020.

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, 2020.

Acquisition of PurePressure

On December 31, 2021, the Company entered into a Membership

Interest Purchase Agreement (the “Pure Purchase Agreement”) with PurePressure, LLC, a Colorado Limited liability company (“PurePressure”)

and the members of PurePressure (collectively, the “Members”), Benjamin Britton as the Member Representative thereunder, and

each of the Members.

Concurrently with the execution of the Pure Purchase Agreement, the Company consummated the acquisition of all the

outstanding equity interests of PurePressure, such that immediately after the consummation of such purchase, PurePressure became a wholly

owned subsidiary of the Company (the “Acquisition”).

The aggregate consideration for the Acquisition

consisted of:

(a) $ 4.0 million in cash, subject to certain adjustments for working capital, cash and indebtedness of PurePressure at

(b) 329,179 shares of the Company’s common stock (the “Buyer Shares”);

and (c) the Earn-out Consideration

(as defined below), to the extent earned.

The Company withheld 88,878 of the Buyer Shares

issuable to certain Members (the “Holdback Buyer Shares”) for the purpose of securing any post-closing adjustment owed to

the Company and any claim for indemnification or payment of damages to which the Company may be entitled under the Pure Purchase Agreement.

The Holdback Buyer Shares shall be released following the twelve (12) month anniversary of the Closing Date in accordance with and subject

to the conditions of the Pure Purchase Agreement.

The Pure Purchase Agreement includes customary

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

The Members may become entitled to additional

consideration with a value of up to $3.0 million based on the eligible net revenues achieved by the PurePressure business during the

fiscal years ending December 31, 2022 and December 31, 2023, of which 40% will be payable in cash and the remaining 60% will be payable

by issuing shares of the Company’s common stock (collectively, the “Earn-out Consideration”).

The purchase price allocation for the business combination

has been prepared on a preliminary basis and changes to those allocations may occur as additional information becomes available during

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

Fair values still under review as of December 31, 2021 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:

(Dollar Amounts in Thousands)

Purchase price consideration:

Estimated closing proceeds

Indebtedness paid

Transaction expenses

Closing buyer shares

Holdback buyer shares

Earn-out consideration

Estimated working capital adjustments

Fair value of total consideration transferred

Total purchase price, net of cash acquired

Fair value allocation of purchase price:

Cash and cash equivalents

Accounts receivable, net

Property and equipment, net

Right of use assets, net

Prepaid expenses and other receivables

Other non-current assets

Accounts payable and accrued expenses

Deferred revenue

Operating lease liabilities, current

Operating lease liabilities, noncurrent

Finance lease liabilities, current

Finance lease liabilities, noncurrent

Notes payable, current

Notes payable, noncurrent

Acquired intangible assets

Total purchase price

Identified intangible assets consist of trade

names, technology, and customer relationships.

The fair value of intangible assets and the determination of their respective useful lives

were made in accordance with ASC 805 and are outlined in the table below:

(Dollar Amounts in Thousands)

Identified intangible assets:

developed technology

relationships

identified intangible assets

Subject to certain customary limitations, (i)

the Members will indemnify the Company and its affiliates, officers, directors and other agents against certain losses related to, among

other things, breaches of the Members’ and PurePressure’s representations and warranties, indebtedness, transaction expenses,

pre-closing taxes and the failure to perform covenants or obligations under the Pure Purchase Agreement, and (ii) the Company will indemnify

the Members and their respective affiliates, officers, directors and other agents against certain losses related to, among other things,

breaches of the Company’s representations and warranties and the failure to perform covenants or obligations under the Pure Purchase

Acquisition of TriGrow

On January 22, 2020, the Company completed the acquisition

of all outstanding shares of TriGrow.

TriGrow is an integrator and distributor of the Company’s premium indoor grow solutions for

the indoor controlled agriculture marketplace.

As part of the acquisition, the Company received TriGrow’s 75 % interest in Agrify

Brands, LLC (formerly TriGrow Brands, LLC), a licensor and marketing supporter of established portfolio of consumer brands that utilize

the Company’s growing technology.

In consideration of TriGrow’s shares, the Company issued to TriGrow’s shareholders

595,552 shares of Agrify common stock.

In addition, the closing conditions included the assumption of TriGrow’s outstanding obligation

to invest $ 1.1 million (the “Funding Amount”) in a form of a so called “profit interest” investment in CCI Finance,

The Company 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 the Company’s investment of the Funding

Amount, CCI is obligated to share with the Company 28.5 % of the net revenue generated from its equipment lease agreement with its customer,

payable at least annually by CCI to the Company.

The revenue sharing percentage is reduced from 28.5 % to 20 % once the Company has received

payments equaling an 18 % Internal Rate of Return on the Funding Amount (the “Preferred Return”) prior to the fifth anniversary

of the agreement.

The revenue sharing terminates upon the later of five years, or the Company’s attainment of the Preferred Return.

To date, no revenue has been generated and shared with the Company under this agreement.

As part of the acquisition of TriGrow, the Company made available 121,539 shares

of its common stock for issuance to certain executives of TriGrow upon TriGrow’s and/or the Company’s receipt of $ 10.0 million

of accumulative purchase orders for TriGrow and/or the Company’s 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 common stock of the Company is to be distributed

by the Company to certain executives of the surviving corporation responsible for achievement of such milestone, in the Company’s

sole discretion.

The Company concluded the earn-out, if materialized, will be considered as post combination services.

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

No earn-out was earned through June

purchase price for this business combination was allocated to the tangible and intangible assets acquired and liabilities assumed based

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

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 the Company.

and related costs, consisting primarily of professional fees, directly related to the acquisition, totaled $45 for the year ended December

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

purchase price allocation for the business combination has been prepared on a preliminary basis and changes to the allocation may occur

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

value still under review include values assigned to identifiable intangible assets and goodwill.

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

Additionally, the

Company concluded that the value associated with the earn-out to be de minimis.

No earn-out was ever earned.

The purchase price for this business combination

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

date, with the remaining unallocated purchase price 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 the Company.

Transaction and related costs, consisting

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

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:

(Dollar Amounts in Thousands)

Components of Purchase Price:

Obligation to

invest cash in profit interest

Obligation to invest cash in profit interest

Capital stock consideration

Noncontrolling

Noncontrolling Interest

Total purchase price

Allocation of Purchase Price:

tangible assets, including cash acquired of $44

Identifiable intangible

relationships

Net tangible assets, including cash acquired of $ 44

Identifiable intangible assets:

purchase price allocation

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.

amount of revenue of TriGrow included in the Company’s consolidated statement of operations from the acquisition date of January

22, 2020 to December 31, 2020 was $4,000.

of Harbor Mountain Holdings, LLC

In July 2020, the Company acquired all the outstanding

equity interests of Harbor Mountain Holdings, LLC (“HMH”), located in the Atlanta, GA area, that has been producing and assembling

many of the Company’s products.

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

lease liabilities for existing equipment and premises.

As part of the acquisition of HMH, the Company may issue Agrify stock options

or shares of common stock (at the Company’s discretion), at a value of up to $100 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.

The Company concluded the

earn-out, if materialized, will be considered as post combination services.

Additionally, the Company concluded that the value associated

with the earn-out to be de minimis.

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

purchase price for this business combination was allocated by management to the tangible and intangible assets acquired and liabilities

assumed based on their book value which estimated their fair values on the acquisition date, with the remaining unallocated purchase

price recorded as goodwill.

and related costs, consisting primarily of professional fees, directly related to the acquisition, totaled $35 for the year ended December

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

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

Customer relationships

Total identifiable

intangible assets

Total purchase price

Trade names 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 the Company’s

consolidated statement of operations from the acquisition date of January 22, 2020 to December 31, 2020 was $ 4.0 million.

Acquisition of Harbor Mountain Holdings, LLC

In July 2020, the Company acquired all the outstanding equity

interests of HMH, located in the Atlanta, GA area, that has been producing and assembling many of the Company’s products.

of the acquisition, the Company waived net receivable owed amounting to $ 214 thousand and assumed lease liabilities for existing equipment

and premises.

On September 20, 2021, the Company issued an aggregate of 8,000 shares of common stock to an executive of HMH for achieving

certain milestones from the acquisition date through March 31, 2021.

The common shares were valued at $ 176 thousand based on the Company’s

Stock Price at closing September 20, 2021.

The value of the shares is included in research and development in the condensed consolidated

statements of operations.

The purchase price for this business combination

was allocated by management to the tangible and intangible assets acquired and liabilities assumed based on their book value which estimated

their 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 thousand for the year ended December 31, 2020.

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:

(Dollar Amounts in Thousands)

Components of Purchase Price:

of net receivable owed to Agrify

Waiver of net receivable

owed to Agrify

Total purchase price

4 unchanged sentences

Accrued expenses

lease liabilities

Financing lease liabilities

Net tangible liabilities

purchase price allocation

amount of revenue of HMH included in the Company’s consolidated statement of operations from the acquisition date of July 22,

2020 to December 31, 2020 was $0.

following pro forma financial information summarizes the combined results of operations for the Company, TriGrow and HMH, as though the

acquisition of TriGrow and HMH occurred on January 1, 2019.

11 —

Business Combination (cont.)

The unaudited pro forma financial information

is as follows:

(In thousands)

Net loss before non-controlling

attributable to non-controlling interest

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.

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.

Method Investments

assessment of whether or not the Company (as a holder of 50% of TPI) has the power to direct activities that most significantly impact

TPI’s economic performance and to identify the party that obtains the majority of the benefits of the investment was performed

as of December 31, 2020 and December 31, 2019, and will be performed as of each subsequent reporting date.

After each of these assessments,

we concluded that the activities that most significantly impact TPI’s economic performance are the growth, marketing, sale, and

distribution of products using Podponics’

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

Based on the outcome of these

assessments, we concluded that our investment in TPI should be accounted for under the equity method.

The carrying value of the Company’s investment

in TPI was $0 as of December 31, 2020 and December 31, 2019.

The Company did not recognize revenue from TPI for the years ended December

31, 2020 and 2019.

12 —

Protection Program Loans under the Coronavirus Aid, Relief, and Economic Security Act

May 7, 2020, the Company 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 Company received total proceeds

of $779 from the unsecured PPP Loan.

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 U.S.

Small Business Administration under the CARES Act.

The PPP Loan may be prepaid by the Company 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.

The amount 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 the Company

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, the Company intends to use

the proceeds from the PPP Loan primarily for payroll costs.

There can be no assurance that the Company will be granted forgiveness of

the PPP Loan in whole or in part.

Assuming the principal amount is not forgiven, final payment due on May 7, 2022 for all principal and

accrued interest.

July 27, 2020, Agrify Brands, LLC received a PPP Loan from Bank of America for total proceeds of $44.

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.

13 —

Convertible Promissory Notes

On dates between August 2020 and November 2020,

the Company’s Board of Directors approved the issuance of (i) convertible promissory note (the “Notes”) in the aggregate

amount of $13,500 with an initial maturity date of one year following issuance (which may be extended by the Company in its sole discretion

for an additional one year, referred herein as the “Maturity Date Extension”), convertible at the option of the Company or

the holder of the Notes upon an IPO or public listing into shares of the Company’s common stock, and (ii) warrants (the “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 (and Warrants to purchase an additional 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 to $0.01 in the event the maturity date of the Notes is extended

by the Company).

Solely in the event the Company determines to

effectuate the Maturity Date Extension, the outstanding principal balance of the Notes shall bear interest, in arrears accruing as of

the issuance date of this Note, at a rate per annum equal to eight percent (8%).

Interest shall be computed on the basis of a 360-day

year of twelve (12) 30-day months and shall be payable on the Maturity Date, as extended.

Immediately prior to the consummation of a public

transaction, in which the Borrower is becoming a reporting issuer in the United States (the “Public Transaction”), the outstanding

principal amount of the Notes together with all accrued and unpaid interest hereunder shall convert, at the option of the Company or

the holder of the Notes, 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 shall convert, at the option of the Company or

the holder of the Notes, 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) the Conversion Price.

The “Conversion Price”

shall mean a price equal to the quotient of (i) the lesser of (x) $70

million and (y) 70% of the price per share issued in such Public Transaction multiplied by the total number of total outstanding shares

of common stock immediately prior to the consummation of the Public Transaction on a fully diluted as-converted basis, divided by (ii)

the number of total outstanding shares of common stock immediately prior to the consummation of the Public Transaction on a fully diluted

as-converted basis;

provided, however, in the event the closing of the Public Transaction does not occur by December 31, 2020, the Conversion

Price shall be adjusted to equal the product of (a) the Conversion Price then in effect immediately prior to such adjustment and (b)

In the event of a conversion upon Public Transaction, all shares of common stock issuable upon conversion of the Notes (at an assumed

conversion price per share of $7.43, subject to adjustment pursuant to the terms of the Notes), all outstanding shares of Series A convertible

preferred stock of the Company (at an assumed conversion price per share of $7.43, subject to adjustment pursuant to the terms of Series

A convertible preferred stock), and the exercise and/or conversion of any other outstanding convertible securities and options shall

be deemed to be outstanding (see additional information in Note 19).

As of December 31, 2020, a total of $13,100 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 $2,426 was recorded as debt discount at issuance and is being amortized over the term of the respective Notes.

the year ended December 31, 2020, the Company determined that the Notes contained variable-share settlement features that represented

derivative liabilities and contingent BCFs.

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

which was recorded at issuance as a debt discount and is being amortized over the terms of the respective Notes.

See Note 14 —

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, the Company 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 convertible note.

November 30, 2020, the Company 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, the Company recognized

an aggregate loss on extinguishment of $5,618 for the difference between the net carrying amount of the extinguished debt of $10,038

(inclusive of $11,800 of principal, $4,170 of debt discount and $2,408 of derivative liabilities) and the reacquisition price of the

debt in the same aggregate principal amount of $11,800, plus the fair value of the new notes’

conversion features of an aggregate

As of December 31, 2020, the Notes provided for

the following conversion feature:

immediately prior to the consummation of a public transaction, in which the Borrower is becoming a

reporting issuer in the United States (the “Public Transaction”), the outstanding principal amount of the Notes together

with all accrued and unpaid interest hereunder shall convert, at the option of the Company or the holder of the Notes, 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 shall convert, at the option of the Company or the holder of the Notes, 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) the Conversion Price.

“Conversion Price”

shall mean a price equal to the quotient of (i) the lesser of (x) $70 million and (y) 70% of the price

per share issued in such Public Transaction multiplied by the total number of total outstanding shares of common stock immediately prior

to the consummation of the Public Transaction on a fully diluted as-converted basis, divided by (ii) the number of total outstanding

shares of common stock immediately prior to the consummation of the Public Transaction on a fully diluted as-converted basis;

however, in the event the closing of the Public Transaction does not occur by December 31, 2020 and the Company’s revenue for the

year ended December 31, 2020 did not exceed $45,000, the Conversion Price shall be adjusted to equal the product of (a) the Conversion

Price then in effect immediately prior to such adjustment and (b) 85%.

All of the outstanding Notes converted into an

aggregate of 1,697,075 shares of common stock on February 1, 2021, the closing date of the Company’s IPO.

Total purchase price

The amount of revenue of HMH included in the Company’s

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, 2020.

The unaudited pro forma financial information was as follows:

(Dollar Amounts 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, 2020.

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,

Note 14 — Debt

Paycheck Protection Program Loans under the Coronavirus Aid,

Relief, and Economic Security Act

In May and July 2020, the Company entered into

two separate PPP Loans with Bank of America pursuant to the Paycheck Protection Program (the “PPP”) under the CARES Act administered

Small Business Administration (“SBA”).

The Company received total proceeds of approximately $ 779

thousand and $ 44 thousand from the unsecured PPP Loans, which are scheduled to mature on May 7, 2022 and July 27, 2025, respectively.

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

In September 2021, the PPP Loan in the amount of $ 44 thousand was 100 % forgiven by the SBA.

As a result, the Company recorded

a gain of $ 45 thousand on the forgiveness on the loan and the associated accrued interest.

The Company’s submission to have the

remaining $ 779 thousand PPP Loan forgiven is currently being reviewed by the SBA.

If the remaining principal amount from the $ 779 thousand

PPP Loan is not forgiven in full, the Company would be obligated to repay any principal amount not forgiven and interest accrued thereon.

PurePressure SBA Debt

As part of the acquisition of PurePressure, $ 159 thousand

of debt remained outstanding from SBA loan as of December 31, 2021.

This debt has subsequently been paid as a part of the PurePressure

Note 15 — Convertible Promissory Notes

On January 11, 2021, the Company’s

Board of Directors and shareholders approved the amendment to the conversion formula of the Convertible Promissory Notes (the “Notes”)

issued by the Company on dates between August 2020 and November 2020.

Pursuant to the amendment, immediately prior to the consummation

of a public transaction, the outstanding principal amount of the Notes, together with all accrued and unpaid interest, shall convert

into a number of fully paid and non-assessable shares of common stock, at a conversion price of $ 7.72 .

While the original conversion feature was bifurcated

from the host instrument, the Company determined that the amended conversion feature would not require bifurcation.

Since the accounting

for the conversion feature changed because of the amendment, the Company applied extinguishment accounting pursuant to its accounting

During the year ended December 31, 2020, the Company recognized

an aggregate loss on extinguishment of $ 5.6 million for the difference between the net carrying amount of the extinguished debt of $ 10.0

million (inclusive of $ 11.8 million of principal, $ 4.2 million of debt discount and $ 2.4 million of derivative liabilities) and the reacquisition

price of the debt in the same aggregate principal amount of $ 11.8 million, plus the fair value of the new notes’ conversion features

of an aggregate of $ 3.9 million.

During the year ended December 31, 2021, the Company recognized

a gain on extinguishment of $ 2.7 million in connection with the derecognition of the net carrying amount of the extinguished debt of $ 19.7

million (inclusive of $ 13.1 million of principal, $ 7.1 million of derivative liabilities, less $ 587 thousand of debt discount) and the

recognition of the $ 17.0 million fair value of the new convertible notes (including the same principal amount of $ 13.1 million plus the

$ 3.9 million fair value of the beneficial conversion feature).

On February 1, 2021, in conjunction with the closing of the

Company’s IPO, the Notes in the aggregate principal amount of $ 13.1 million were converted into 1,697,075 shares of common stock

at the election of the Company at a conversion price of $ 7.72 per share.

16 — Derivative Liabilities

the year ended December 31, 2020, the Company recorded Level 3 derivative liabilities that were measured at fair value at issuance in

the aggregate amount of $2,769 related to the variable-share settlement features of certain convertible notes payable.

During the year

ended December 31, 2020, the Company modified the conversion terms of certain notes which resulted in the recognition of an additional

$1,448 of Level 3 derivative liabilities, with a corresponding debit to loss on extinguishment.

See Note 13 —

Convertible Promissory

Notes for additional details.

December 31, 2020, the Company recomputed the fair value of the variable-share settlement features recorded as derivative liabilities

to be $7,141.

The Company recorded a loss of $2,924 on the change in fair value of these derivative liabilities during the year ended

December 31, 2020.

The variable-share settlement features were valued using a combination of a discounted cash flow and a Black-Scholes

valuation technique.

At issuance, the significant unobservable inputs used in the discounted cash flow were a discount rate of approximately

20% and a probability of a Public Transaction occurring of 56%.

During the year ended December 31, 2020, the Company

recorded Level 3 derivative liabilities that were measured at fair value at issuance in the aggregate amount of $ 2.8 million related to

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

During the year ended December 31, 2020, the Company modified

the conversion terms of certain notes which resulted in the recognition of an additional $ 1.4 million of Level 3 derivative liabilities,

with a corresponding debit to loss on extinguishment.

See Note 15 — Convertible Promissory Notes included elsewhere in the notes

to the consolidated financial statements.

On December 31, 2020, the Company recomputed the fair value

of the variable-share settlement features recorded as derivative liabilities to be $ 7.1 million.

The Company recorded a loss of $ 2.9 million

on the change in fair value of these derivative liabilities during the year ended December 31, 2020.

The variable-share settlement features

were valued using a combination of a discounted cash flow and a Black-Scholes valuation technique.

At issuance, the significant unobservable

inputs used in the discounted cash flow were a discount rate of approximately 20 % and a probability of a Public Transaction occurring

The Black-Scholes assumptions were as follows:

Risk-free interest rate  

– 0.16%

Expected term (years)  

0.75 –

Expected volatility  

Expected dividend  

of December 31, 2020, the significant unobservable inputs used in the discounted cash flow were a discount rate of approximately 20%

and a probability of a Public Transaction occurring of 90%.

Risk-free interest rate

0.09 % – 0.16 %

Dividend yield

Expected term (years)

Forfeiture rate

As of December 31, 2020, the significant unobservable inputs

used in the discounted cash flow were a discount rate of approximately 20 % and a probability of a Public Transaction occurring of 90 %.

The Black-Scholes assumptions were as follows:

Risk-free interest rate  

0.09% –

Expected term (years)  

0.66 –

Expected volatility  

Expected dividend  

Capital Structure

January 9, 2020, the Company increased its authorized number of shares to 53,000,000, consisting of:

50,000,000 shares of common stock,

par value $0.001 per share, and 3,000,000 shares of preferred stock, par value $0.001 per share.

At that time, it also designated 100,000

shares of the 3,000,000 authorized shares of preferred stock, par value $0.001 per share, as Series A Convertible Preferred Stock (“Series

the first quarter of 2020, the Company issued an aggregate of 60,000 shares of Series A for an aggregate purchase price of $6,000.

Contemporaneously

with the issuance of Series A, the Company and each respective investor entered into a Registration Rights Agreement and Subscription

Agreement whereby the Company has agreed to use its commercially reasonably efforts as soon as reasonably practical to register such

shares of common stock issuable upon conversion of the Series A pursuant to a registration statement and each respective investor agreed

that it will lock-up any preferred stock or common stock held immediately prior to the effectiveness of the registration statement for

the Company’s IPO for 180 days.

March 19, 2020, the Company increased the number of shares designated as Series A from 100,000 shares to 105,000 shares.

The Series A is senior to any shares of common

stock of the Company (the “common stock”), and each other class or series of capital stock of the Company hereafter created

(together with the common stock, the “Junior Stock”) Holders of Series A are entitled to receive, in preference to any dividend

paid or declared and set aside for any junior stock, dividend at per share price equal to the Series A original issue price at an annual

rate equal to 7% compounded annually.

Holder of Series A will be entitled to cast the number of votes, rounded down to the nearest whole

number, equal to the number of votes that would be attributable to the shares of common stock issuable upon conversion of such shares

of Series A, assuming conversion on the date applicable to the vote.

In the event of a liquidation, dissolution or winding up of the

Company, each share of Series A will be entitled to a payment as set forth in the Company’s Certificate of Designation.

A is convertible, at any time after issuance, into common stock of the Company at the election of the holder into a number of shares

equal to (i) the product of the Series A original price plus unpaid dividends on the shares being converted, multiplied by the number

of Series A shares being converted, divided by (ii) a conversion price of $7.43 per share ($70 million divided by 9,420,288), subject

to adjustment (see additional information in Note 19).

In May 2020, the Company issued 40,000 shares

of Series A Convertible Preferred Stock, $0.001 par value, for total consideration of $4,000.

Subscriptions Receivable

June 2019, the Company issued and sold 1,289,667 shares of common stock to an investor at a purchase price of $3.10 per share for gross

proceeds of $4,000.

At December 31, 2019, the Company recorded a

stock subscription receivable in the amount of $40.

The stock subscription receivable is in connection with the issuance of common stock

in September 2019 and represents 12,902 shares of common stock.

The outstanding balance of such stock subscription was paid in January 2020.

On June 4, 2019, the Company adopted its 2019

Stock Option Plan allowing the issuance of 1,743,744 shares.

On August 10, 2020, the Company’s Board of Directors approved to increase

the maximum number of shares of common stock authorized for issuance over the term of the 2019 Stock Option Plan from 1,743,744 shares

to 3,355,083 shares, subject to and effective upon the effectiveness of this amendment.

On October 8, 2020, the amendment was approved

by the Company’s shareholders.

The Company follows 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 the Company’s

Stock Option Plans.

The Company’s stock option compensation expense was $1,921 and $109 for the years ended December 31, 2020 and

2019, respectively, and there was $3,914 of total unrecognized compensation cost related to unvested options granted under the Company’s

options plans as of December 31, 2020.

This stock option expense will be recognized through December 2024.

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.

following table summarizes the Company’s assumptions used in the valuation of options granted during the year ended December 31,

Risk-free interest rate

1.67% –

0.09 % – 0.16 %

Dividend yield

Expected term (years)

Forfeiture rate

Note 17 — Capital Structure

On January 9, 2020, the Company increased its

authorized number of shares to 53,000,000 , consisting of:

50,000,000 shares of common stock, par value $ 0.001 per share, and 3,000,000

shares of preferred stock, par value $ 0.001 per share.

At that time, it also designated 100,000 shares of the 3,000,000 authorized shares

of preferred stock, par value $ 0.001 per share, as Series A Convertible Preferred Stock (“Series A Preferred Stock”).

Series A Convertible Preferred Stock

Beginning in the first quarter of 2020, the Company issued

an aggregate of 60,000 shares of Series A Preferred Stock, for an aggregate purchase price of $ 6.0 million.

In May 2020, the Company completed

an offering of Series A Preferred Stock with the issuance of an additional 40,000 shares of Series A Preferred Stock for an aggregate

purchase price of $ 4.0 million.

Amendment of Conversion Formulas

On January 11, 2021, the Company’s Board

of Directors approved the amendment to the conversion formula of the Series A Preferred Stock and Notes.

After the amendment:

the Series A Preferred Stock is convertible, at any time after issuance or immediately prior to the closing of a public transaction, into common stock in an amount of shares equal to (i) the product of the Series A Preferred Stock original price plus accrued but unpaid dividends on the shares being converted, multiplied by the number of shares of Series A Preferred Stock being converted, divided by (ii) a conversion price of $7.72 per share (after the reverse split taking effect);

immediately prior to the consummation of a public transaction, the outstanding principal amount of the Notes together with all accrued and unpaid interest shall convert into a number of fully paid and non-assessable shares of common stock equal to the quotient of (i) the outstanding principal amount of the Notes together with all accrued and unpaid interest thereunder immediately prior to such public transaction divided by (ii) a conversion price of $7.72 (after the reverse split taking effect).

On January 11, 2021, the Company’s shareholders

approved the amendment to the Series A Preferred Stock.

Initial Public Offering

On February 1, 2021, the Company completed an

initial public offering (“IPO”) for the sale of 5,400,000 shares of common stock at a price of $ 10.00 per share.

also granted the underwriters:

(a) a 45-day option to purchase up to 810,000 additional shares of common stock on the same terms and

conditions for the purpose of covering any over-allotments in connection with the IPO, and (b) warrants to purchase 162,000 shares of

common stock (equal to 3 % of the aggregate number of shares of common stock issued in the IPO) at an exercise price of $ 12.50 per share

(which is equal to 125 % of the IPO price).

Subsequently, the underwriters exercised the over-allotment option, and on February 4, 2021,

the Company closed on the sale of an additional 810,000 shares of common stock for a price of $ 10.00 per share and granted to the underwriters

warrants to purchase 24,300 additional shares of common stock (equal to 3 % of the amount of shares issued as part of the exercised of

the over-allotment option) at an exercise price of $ 12.50 per share.

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

of shares of common stock sold by the Company in connection with the IPO to 6,210,000 shares and the total net proceeds received in connection

with the IPO to approximately $ 57.0 million, after deducting underwriting discounts and estimated offering expenses.

Immediately prior to the closing of the Company’s

IPO, all outstanding shares of Series A Preferred Stock and Notes were converted into 1,373,038 shares of common stock and 1,697,075

shares of common stock, respectively, at a conversion price of $ 7.72 per share.

Subsequent Public Offering

On February 19, 2021, the Company consummated

a secondary public offering (the “February Offering”) for the sale of 5,555,555 shares of common stock for a price of $ 13.50

The Company also granted the underwriters:

(a) a 45-day option to purchase up to 833,333 additional shares of common stock

on the same terms and conditions for the purpose of covering any over-allotments in connection with the February Offering, and (b) warrants

to purchase 166,667 shares of common stock (equal to 3 % of the aggregate number of shares of common stock issued in the February Offering)

at an exercise price of $ 16.875 per share (which is equal to 125 % of the February Offering).

Subsequently, the underwriters exercised

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

a price of $ 13.50 per share and granted to the underwriters warrants to purchase 25,000 additional shares of common stock (equal to 3 %

of the amount of shares issued as part of the exercised of the over-allotment option) at an exercise price of $ 16.875 per share.

exercise of the over-allotment option brought the total number of shares of common stock sold by the Company in connection with the February

Offering to 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.

Underwriter Termination

On September 14, 2021, the Company entered into a letter agreement and waiver (the

“Letter Agreement”), to amend the terms of its underwriting agreement with the representative of the underwriters in the IPO.

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

in consideration of (i) a cash payment to the representative of $ 2.4 million and (ii) the right to participate as a co-manager with ten

percent ( 10 %) of the economics with respect to the Company’s next public offering of securities, payable in cash upon the closing

of such offering.

Stock Subscriptions Receivable

The outstanding balance of the stock subscription

was paid in January 2020.

Issuance of Common Stock in Connection with Acquisitions

On September 20, 2021, as part of the acquisition

of HMH, the Company issued an aggregate of 8,000 shares of common stock to an executive of HMH for achieving certain milestones from the

acquisition date through March 31, 2021.

The common shares were valued at $ 176 thousand based on the Company’s closing stock price

on September 20, 2021.

The value of the shares is included in research and development in the condensed consolidated statements of operations.

Refer to Note 13 – Business Combinations included elsewhere in the notes to the consolidated financial statements.

On October 1, 2021, the Company issued an aggregate

of 666,403 shares of its common stock to the Precision and Cascade shareholders in connection with the Company’s acquisition

of Precision and Cascade.

Refer to Note 13 – Business Combinations included elsewhere in the notes to the consolidated financial

On December 31, 2021, the Company issued an aggregate

of 240,301 shares of its common stock to the PurePressure shareholders in connection with the Company’s acquisition of PurePressure.

Refer to Note 13 – Business Combinations included elsewhere in the notes to the consolidated financial statements.

Stock Option Plan

On September 4, 2019, the Company adopted and approved the

2019 Stock Option Plan (the “2019 Plan”) which provided for the issuance of 1,743,744 shares of its common stock.

10, 2020 and October 8, 2020, the Company’s board of directors and stockholders, respectively, approved an increase to the maximum

number of shares of common stock authorized for issuance over the term of the 2019 Plan from 1,743,744 shares to 3,355,083 shares.

of December 31, 2021, there are no shares available to be granted under the 2019 Plan.

Prior to the consummation of the Company’s

IPO, the Company cancelled the 2019 Plan and converted the outstanding stock options to the 2020 Plan, as more fully described below.

Under the 2019 Plan, the standard vesting schedule provided that 25 % of the options vest 12 months following issuance and the balance

vests in 36 equal monthly installments thereafter.

However, the Company’s board of directors was permitted to provide for alternative

or accelerated vesting schedules in approving each stock option grant.

In many cases, the Company’s Board of Directors included

an accelerated vesting schedule under which 50 % of the stock options granted vest immediately prior to a change of control transaction

or the Company’s first underwritten public offering.

2020 Omnibus Equity Incentive Plan

On December 18, 2020, the Company’s Board of Directors,

and on January 11, 2021, the Company’s stockholders, adopted and approved the 2020 Omnibus Equity Incentive Plan (the “2020

Plan”), which replaced the 2019 Plan.

The 2020 Plan provides for the grant of stock options, SARs, performance share awards, performance

unit awards, distribution equivalent right awards, restricted stock awards, restricted stock unit awards and unrestricted stock awards

to non-employee directors, officers, employees and non-employee consultants of the Company or its affiliates.

The aggregate number of

shares of common stock that may be reserved and available for grant and issuance under the 2020 Plan is 4,533,732 shares.

be deemed to have been issued under the 2020 Plan solely to the extent actually issued and delivered pursuant to an award.

granted under the 2019 Plan or the 2020 Plan expires, is cancelled, or terminates unexercised or is forfeited, the number of shares subject

thereto is again available for grant under the 2020 Plan.

The 2020 Plan shall continue in effect, unless sooner terminated, until the

tenth (10 th ) anniversary of the date on which it is adopted by the Board of Directors.

Stock-based Compensation

The Company’s stock option compensation expense was $ 5.6 million and $ 1.9

million for the years ended December 31, 2021 and 2020, respectively, and there was $ 3.7 million of total unrecognized compensation cost

related to unvested options granted under the Company’s options plans as of December 31, 2021.

This stock option expense will be

recognized through 2025.

The fair value of each option is estimated on

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

This model incorporates certain assumptions for inputs including a risk-free

market interest rate, expected dividend yield of the underlying common stock, expected option life, and expected volatility in the market

value of the underlying common stock.

The following table summarizes the Company’s

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

Risk-free interest rate

1.10 % – 1.63 %

Dividend yield

0% Expected life (years)

Forfeiture rate

following table summarizes the Company’s assumptions used in the valuation of options granted during the year ended December 31,

The following table summarizes the Company’s

assumptions used in the valuation of options granted during the year ended December 31, 2020:

Risk-free interest rate

0.37% –

0.37 % – 0.78 %

Dividend yield

1 unchanged sentence

Forfeiture rate

Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options, which have no vesting restrictions

and are fully transferable.

In addition, option valuation models require the input of highly subjective assumptions including the expected

stock price volatility.

Because the Company’s stock options and warrants have characteristics different from those of its traded

stock, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s

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

The risk-free

interest rate is based upon quoted market yields for United States Treasury debt securities with a term similar to the expected

The expected dividend yield is based upon the Company’s history of having never issued a dividend and management’s

current expectation of future action surrounding dividends.

The Company calculates the expected volatility of the stock price based on

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

expected term.

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

arriving at stock-based compensation expense, the Company estimates the number of stock-based awards that will be forfeited due to employee

The Company’s forfeiture assumption is based primarily on its 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 the Company’s financial statements.

If the actual forfeiture rate is lower than

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

to expense recognized in the Company’s financial statements.

The expense the Company recognizes in future periods will be affected

by changes in the estimated forfeiture rate and may differ significantly from amounts recognized in the current period.

December 2019, the Company granted 493,102 options to various employees and consultants.

In May 2020, the Company cancelled

all the options that were granted in December 2019.

May 2020, the Company granted to its employees, directors and officers 473,588 options to purchase shares of common stock.

the options will expire 10 years from the date of grant and have an exercise price per share of $2.28 and 93,818 of the options

will expire 5 years from the date of grant and have an exercise price per share of $2.50.

281,522 of the options were fully vested

on the grant date and the remaining stock options vest in equal monthly installments monthly over 24 months thereafter.

the Company granted its employees, directors and officers 1,149,131 options to purchase shares of common stock.

988,320 of the options

will expire 10 years from the date of grant and have an exercise price per share of $2.28 and 160,811 options will expire 5 years

from the date of grant and have an exercise price per share of $2.50.

25% of the options vest 12 months following issuance and the balance

vests in 36 equal monthly installments thereafter.

July 20, 2020, the Company granted to its employees, directors and officers 211,113 options to purchase shares of common stock.

will expire 10 years from the date of grant and have an exercise price per share of $2.28.

25% of the options vest 12 months following

issuance and the balance vests in 36 equal monthly installments thereafter.

August 10, 2020, the Company’s Board of Directors approved grants to its directors of 15,362 options to purchase shares of common

The options will expire 10 years from the date of grant and have an exercise price per share of $2.28.

25% of the options vest

12 months following issuance and the balance vests in 36 equal monthly installments thereafter.

October 19, 2020, the Company’s Board of Directors approved a grant of 1,540,544 options to purchase shares of common stock to

its employees, directors and officers.

The options will expire 10 years from the date of grant and have an exercise price per share of

25% of the options vest 12 months following issuance and the balance vests in 36 equal monthly installments thereafter.

December 21, 2020, the Company’s Board of Directors approved a grant of 44,254 options to purchase shares of common stock to directors.

The options will expire 10 years from the date of grant and have an exercise price per share of $4.86.

25% of the options vest 12 months

following issuance and the balance vests in 36 equal monthly installments thereafter.

This stock option grant provides for accelerated

vesting in the event of a change of control transaction or an initial public offering under which 50% of such options will vest immediately

prior to such event.

options that were granted during fiscal year 2020 have several vesting conditions, including an event-based vesting acceleration (defined

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

of December 31, 2020, there were 221,974 shares available to be granted under the Company’s 2019 Stock Option Plan.

The Black-Scholes option-pricing model was developed

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

In addition, option

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

Because the Company’s

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

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

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

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

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

The expected dividend yield is based upon the Company’s

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

calculates the expected volatility of the stock price based on the corresponding volatility of the Company’s peer group stock price

for a period consistent with the underlying instrument’s expected term.

The expected lives for such grants were based on the simplified

method for employees and directors.

In arriving at stock-based compensation expense,

the Company estimates the number of stock-based awards that will be forfeited due to employee turnover.

The Company’s forfeiture

assumption is based primarily on its 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 the Company’s financial statements.

If the actual forfeiture rate is lower than the estimated forfeiture rate, then an adjustment

will be made to lower the estimated forfeiture rate, which will result in an increase to expense recognized in the Company’s financial

The expense the Company recognizes in future periods will be affected by changes in the estimated forfeiture rate and may

differ significantly from amounts recognized in the current period.

Stock Option Activity

As of December 31, 2021, there were 311,823 shares

available to be granted under the Company’s 2020 Plan.

The following table presents option activity

under the Company’s stock option plans for the years ended December 31, 2019 and 2020:

Options outstanding at June 4, 2019

under the Company’s stock option plans for the years ended December 31, 2020 and 2021:

(Dollar Amounts, Excluding Exercise Price, in Thousands)

Options outstanding at December 31, 2019

Options outstanding at

December 31, 2020

Options vested and exercisable

as of December 31, 2019

Forfeited/Expired/Cancelled

Options outstanding at December 31, 2020

Forfeited/Expired/Cancelled

Options outstanding at December 31, 2021

Options vested and exercisable as of December 31, 2021

Options vested and expected to vest as of December 31, 2021

The following table summarizes information about

options vested and exercisable at December 31, 2021:

Options Vested and Exercisable

as of December 31, 2020

following table summarizes information about options vested and exercisable at December 31, 2020: 

vested and exercisable

Weighted Average

Remaining Contractual

exercise price

following table summarizes information about options expected to vest after December 31, 2020:

Options expected to vest

Weighted Average

Exercise Price

The following table summarizes information about

options expected to vest after December 31, 2021:

Options Vested to

Expected to Vest

Remaining Contractual

1 unchanged sentence

Exercise Price

16 —

Employee Benefit Plan

The Company maintains an employee’s savings

and retirement plan under Section 401(k) of the Internal Revenue Code.

As of December 31, 2021, warrants to purchase

271,844 shares of common stock were outstanding.

The following table presents the Company’s warrant activity for the years

ended December 31, 2021 and 2020:

Warrants outstanding at December 31, 2019

Warrants outstanding at December 31, 2020

Warrants outstanding at December 31, 2021

The Company received proceeds from the exercise of warrants of $ 8 thousand

during the year ended December 31, 2021.

No warrants were exercised during the year ended December 31, 2020.

Subsequent to December 31, 2021, the Company completed a

private placement of our common stock and entered into a securities purchase agreement.

Both of these arrangements include warrant issuance

On January 25, 2022, the Company issued a total of 4,586,389 warrants in connection with the private placement entered into

with an institutional investor and other accredited investors.

The warrant issuance included 1,570,644 pre-funded warrants, with an exercise

price of $ 0.001 , and 3,015,745 warrants with exercise prices ranging between $ 6.80 and $ 6.90 .

On March 23, 2022, the Company issued a

total of 6,881,108 warrants in connection with its entrance into a securities purchase agreement with an accredited investor.

issued have an exercise price of $ 6.75 .

Refer to Note 23 – Subsequent Events included elsewhere in the notes to the consolidated

financial statements.

Note 18 — Employee Benefit Plan

The Company maintains an employee’s savings

and retirement plan under Section 401(k) of the Internal Revenue Code (the “401k Plan”).

All full-time U.S.

employees become eligible to participate

The Company’s contribution to the plan is discretionary and during the years ended December 31, 2020 and 2019 did

not contributed to the plan.

Note 17 –

become eligible to participate in the 401k Plan.

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

During the years

ended December 31, 2021 and 2020, the Company did not contribute to the 401k Plan.

Note 19 — Income Taxes

On March 27, 2020, the Coronavirus Aid, Relief

10 unchanged sentences

The Company evaluated the impact

of the CARES Act and determined that its adoption did not have a material impact to the income tax provision for the year ended December

As of December 31, 2020, the Company has approximately

$17 million of federal net operating loss carryforwards and approximately the same amount of state net operating loss carryforwards.

There was no federal income tax expense for the years ended December 31, 2020 and 2019 due to the Company’s net losses.

has not yet filed its federal and state tax returns for 2018 and 2019.

The net operating losses carry forward for United States income

taxes may be available to reduce future years’

taxable income.

Management believes that the realization of the benefits from these

losses appears not more than likely due to the Company’s limited operating history and continuing losses for United States income

tax purposes.

Accordingly, the Company has provided a 100% valuation allowance on the deferred tax asset to reduce the asset to zero.

Management will review this valuation allowance periodically and make adjustments as necessary.

of the CARES Act and determined that its adoption did not have a material impact to the income tax provision for the years ended December

31, 2021 or December 31, 2020, respectively.

For the period ended December 31, 2021, the Company

recorded a tax provision of approximately $ 25 thousand, comprised of its change in deferred tax liability during the year related to its

indefinite lived intangible asset balance.

The indefinite lived intangibles are not all available as a source of income and thus are not

fully available to offset the Company’s deferred tax assets.

As of December 31, 2021, the Company has federal and state net operating

loss carryforwards of approximately $ 52.2 million and $ 28.9 million, respectively.

The Company has not yet filed its federal and state

tax returns for 2018, 2019, or 2020.

The net operating loss carryforwards for United States income taxes may be available to reduce future

years’ taxable income.

Management believes that the realization of the benefits from these losses appears not more than likely due

to the Company’s limited operating history and continuing losses for United States income tax purposes.

Accordingly, the Company

has provided a 100 % valuation allowance on its net operating loss carryforward deferred tax assets to reduce the assets to zero.

will review this valuation allowance periodically and make adjustments as necessary.

The following table summarizes the significant

differences between the U.S.

Federal statutory tax rate and the Company’s effective tax rate for financial statement purposes for

the years ended December 31, 2021 and 2020:

US Federal statutory tax rate

Permanent differences and other

Debt extinguishment

1 unchanged sentence

Debt discount

Prior period adjustments to opening deferred tax

Stock-based compensation

Change in valuation allowance

1 unchanged sentence

give rise to deferred tax assets and liabilities as of December 31, 2021 and 2020 are summarized as follows:

Deferred Tax Asset:

(Dollar Amounts in Thousands)

Net operating loss carryforward

Debt discount

Intangible assets

Accruals, reserves, and other

Stock-based compensation

Research and development tax credit carryforward

Lease liability

Total deferred tax assets

Valuation allowance

Net deferred tax asset

The Company provided a valuation allowance equal

to the net deferred income tax asset for the years ended December 31, 2020 and 2019 because it was not known whether future taxable income

will be sufficient to utilize the loss carryforward.

The increase in the allowance was $2,062 in 2020.

As of December 31, 2020, the Company

has not performed an IRC Section 382 study to determine the amount, if any, of its net operating losses that may be limited as a result

of the ownership change percentages during 2020 and prior years.

The Company does not have any uncertain tax positions or events leading

to uncertainty in a tax position.

The Company’s 2017 through 2020 Corporate Income Tax Returns are subject to Internal Revenue

Service examination.

18 —

Net Loss Per Share

Net deferred tax assets

Intangible assets

Debt discount

Right of use asset

Deferred commissions

Total deferred tax liabilities

Net deferred tax liabilities

The Company recognizes federal and state deferred

tax assets or liabilities based on the Company’s estimate of future tax effects attributable to temporary differences and carryovers.

The Company records a valuation allowance to reduce any deferred tax assets by the amount of any tax benefits that, based on available

evidence and judgment, are not expected to be realized.

In assessing the realizability of deferred tax assets, the Company considers whether

it is more likely than not that some portion or all of the deferred tax assets will be realized.

The ultimate realization of deferred

tax assets is dependent upon the generation of future taxable income during periods in which those temporary differences become deductible.

The Company considers projected future taxable income and planning strategies in making this assessment.

As of December 31, 2021, as a

result of a three-year cumulative loss and recent events, the Company concluded that a full valuation allowance was necessary to offset

its deferred tax assets.

The Company also has indefinite lived intangibles and goodwill which generate a deferred tax liability that is

not available to fully offset its deferred tax assets due to uncertainty as to when the deferred tax liability will reverse as a source

of taxable income.

As a result, the Company is in a net deferred tax liability position as of December 31, 2021.

The Company intends to

maintain a valuation allowance until sufficient positive evidence exists to support its reversal.

The Company will continue to evaluate

its deferred tax balances to determine any assets that are more likely than not to be realized.

As of December 31, 2021, the Company had federal

and state income tax net operating loss carryovers $ 52.2 million and $ 28.9 million, respectively.

Of the federal balance, approximately

$ 675 thousand will expire if not utilized by 2037 and $ 51.5 million carry forward indefinitely but are only available to offset 80 % of

taxable income per year.

As of December 31, 2021, the Company also had federal research credits of approximately $ 571 thousand that will

expire if not utilized by 2041.

The utilization of the Company’s net operating loss carryforwards and research tax credit carryovers

could be subject to annual limitations under Section 382 and 383 of the Internal Revenue Code of 1986, and similar state tax provisions

due to ownership change limitations that may have occurred previously or that could occur in the future.

These ownership changes limit

the amount of net operating loss carryforwards and other deferred tax assets that can be utilized to offset future taxable income and

tax, respectively.

In general, an ownership change, as defined by Section 382 and 383, results from transactions increasing ownership

of certain stockholders or public groups in the stock of the corporation by more than 50 percent points over a three-year period.

Company has not conducted an analysis of an ownership change under section 382.

To the extent that a study is completed, and an ownership

change is deemed to occur, the Company’s net operating losses and tax credits could be limited.

The Company does not have any uncertain tax positions

or events leading to uncertainty in a tax position.

The Company’s 2016 through 2021 corporate income tax returns are subject to

Internal Revenue Service examination.

In addition, to the extent that tax attributes are utilized in future years to offset taxable income

or income taxes, the IRS and state taxing authorities have the ability to examine the years in which those attributes were generated

and adjust the attributes.

Note 20 — Net Loss Per Share

Net loss per share calculations for all periods

2 unchanged sentences

average number of common stock then outstanding.

net loss per share is calculated using the weighted-average number of common shares outstanding during the periods.

Net loss per share,

assuming dilution, is calculated using the weighted-average number of common shares outstanding and the dilutive effect of all potentially

dilutive securities, including common stock equivalents and convertible securities.

Net loss per share, assuming dilution, is equal to

basic net loss per share because the effect of dilutive securities outstanding during the periods, including options and warrants computed

using the treasury stock method, is anti-dilutive.

components of basic and diluted net loss per share were as follows (in thousands, except share and per share data):

Basic net loss per share is calculated using

the weighted-average number of common shares outstanding during the periods.

Net loss per share, assuming dilution, is calculated using

the weighted-average number of common shares outstanding and the dilutive effect of all potentially dilutive securities, including common

stock equivalents and convertible securities.

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

effect of dilutive securities outstanding during the periods, including options and warrants computed using the treasury stock method,

is anti-dilutive.

The components of basic and diluted net loss

per share were as follows:

Amounts, Excluding Per Share Amounts, in Thousands)

Net loss attributable

3 unchanged sentences

Weighted-average common shares

outstanding – basic and diluted

per share attributable to common stockholders – basic and diluted

each of the years ended December 31, 2020 and 2019, we excluded the following securities from net loss per share as the effect of including

them would have been anti-dilutive.

The shares shown represent the number of shares of common stock which would be issued upon conversion

in the respective years shown below:

December 31,  

Options outstanding  

3,133,109  

493,102  

Warrants outstanding  

828,173  

3,961,282  

493,102  

19 —

Commitments and Contingencies

In September 2019, the Company entered an

operating lease for office space in Burlington, Massachusetts, which expired on April 30, 2020.

The Company had the right to extend the

operating lease on a month-to-month basis through August 31, 2020.

The Company elected to terminate the lease on July 14, 2020.

Company used two apartments for the use of its personnel while attending meetings in the corporate office in Burlington, MA.

apartments was leased by the Chief Executive Officer and a shareholder of the Company.

The Company paid the monthly liability directly

to the Company that owns the apartment complex.

The monthly rent for each apartment was approximately $3.5 and the annual lease that

was set to expire in January 2021 was terminated and ended in August 2020.

part of the acquisition of HMH in July 2020, the Company obtained a couple of facilities leases with term remaining of less than 12 months

(classified as rent expenses part of Selling, general and administrative expenses in the income statement) and several non-cancellable

finance leases for machinery and equipment.

information of our lease activity, for the years ended December 31, 2020 and 2019, is as follows:

December 31,

outstanding – basic and diluted

per share attributable to common stockholders – basic and diluted

As of December 31, 2021 and 2020, the Company

excluded the following securities from net loss per share as the effect of including them would have been anti-dilutive.

The shares shown

represent the number of shares of common stock which would be issued upon conversion in the respective years shown below:

Options outstanding

Warrants outstanding

Note 21 — Commitments and Contingencies

The determination if any arrangement contained

a lease at its inception was done based on whether or not the Company has the right to control the asset during the contract period.

The lease term was determined assuming the exercise of options that were reasonably certain to occur.

Leases with a lease term of 12

months or less at inception were not reflected in the Company’s balance sheet and those lease costs are expensed on a straight-line

basis over the respective term.

Leases with a term greater than 12 months were reflected as non-current right-of-use assets and current

and non-current lease liabilities in the Company’s consolidated balance sheets.

As the implicit interest rate in its leases was

generally not known, the Company’s used its incremental borrowing rate as the discount rate for purposes of determining the present

value of its lease liabilities.

At December 31, 2021, the Company’s weighted average discount rate utilized for its leases was

When a contract contained lease and non-lease

elements, both were accounted as a single lease component.

The Company had several non-cancellable finance

leases for machinery and equipment.

The Company’s finance leases have remaining lease terms of one year to five years.

The Company had several non-cancellable operating

leases for corporate offices, warehouses, showrooms, research and development facilities and vehicles.

The Company’s leases have

remaining lease terms of one year to five years, some of which include options to extend.

Some leases include

payment for common area maintenance associated with the property.

Additional information of the Company’s lease

activity, for the years ended December 31, 2021 and 2020, is as follows:

(Dollar Amounts in Thousands)

Operating lease cost

Finance lease cost:

Amortization of right-of-use assets  

Interest on lease liabilities  

Short-term lease cost  

Total lease cost  

Weighted-average remaining lease term –

finance leases  

Weighted-average discount rate –

finance leases  

8.11 %  

of December 31, 2020, the maturities of lease liabilities under non-cancellable finance leases were as follows:

Amortization of right-of-use assets

Interest on lease liabilities

Short-term lease cost

Total lease cost

Weighted-average remaining lease term – finance leases

Weighted-average remaining lease term – operating leases

Weighted-average discount rate – finance leases

Weighted-average discount rate – operating leases

(Dollar Amounts in Thousands)

Right-of-use assets, net

Operating lease liabilities, current

Operating lease liabilities, non- current

Total operating lease liabilities

Finance lease liabilities, current

Finance lease liabilities, non- current

Total finance lease liabilities

Maturities of operating and finance lease liabilities

as of December 31, 2021 are as follows:

(Dollar Amounts in Thousands)

For the year ending December 31,

Total minimum lease payments

imputed interest

lease liabilities

Less imputed interest

Total lease liabilities

Legal Proceedings

On January 5, 2021, the Company received a demand

letter from Nicholas Cooper and Richard Weinstein, two of its former employees (and one of Mr.

Cooper’s affiliated entities), asserting

that such individuals were entitled to compensation arising out of their employment by the Company, as well as their partial ownership

The demand letter asserts that the former employees are due certain sales commissions under their applicable bonus plan,

equity earn-outs based on certain sales targets, and various equity purchases through the Company’s employee stock ownership plan.

The demand letter also asserts various employment claims, including, but not limited to, statutory wage withholding violations, wrongful

termination, breach of contract, breach of the duty of good faith and fair dealing, fraud in the inducement, promissory estoppel, minority

shareholder oppression, breach of fiduciary duty, unjust enrichment, and violations of state and federal securities laws.

19, 2021, the two former employees filed a lawsuit against the Company in the United States District Court for the Western District of

Washington, alleging the same claims made in their demand letter based on the same facts disclosed above.

The plaintiffs are seeking

relief in the form of monetary damages in an amount to be determined.

Cooper and Weinstein are also seeking relief in the form

of reinstatement and Mr.

Weinstein is seeking rescission of Mr.

Weinstein’s Release of Claims Agreement.

On March 10, 2021, the

Company moved to dismiss all of Cooper and Weinstein’s claims, asserting that the claims failed to allege legal grounds for relief.

A decision on the Company’s motion is expected in the summer of 2021.

The Company does not believe these claims have any merit

and intends to vigorously defend against these claims.

Unconditional Purchase Obligations

In the ordinary course of business, the Company

enters into certain unconditional purchase obligations, which are agreements to purchase goods or services that are enforceable, 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 transaction.

The Company’s purchase orders are based on current needs and are

typically fulfilled by the Company’s vendors within a relatively short time horizon.

As of December 31, 2020, the Company’s

unconditional purchase obligations totaled approximately $894.

letter from Nicholas Cooper and Richard Weinstein (two of the Company’s former employees) and one of Mr.

Cooper’s affiliated

entities, asserting that Messrs.

Cooper and Weinstein were entitled to compensation arising out of their employment by the Company, and

their partial ownership of TriGrow Systems, LLC.

The demand letter asserts that the former employees are due certain sales commissions

under their applicable bonus plan, equity earn-outs based on certain sales targets, and various equity purchases through the Company’s

employee stock ownership plan.

The demand letter also asserts various employment claims, including but not limited to, statutory wage

withholding violations, wrongful termination, breach of contract, breach of the duty of good faith and fair dealing, fraud in the inducement,

promissory estoppel, minority shareholder oppression, breach of fiduciary duty, unjust enrichment, and violations of state and federal

securities laws.

On January 19, 2021, Messrs.

Cooper and Weinstein

filed a lawsuit against the Company in the United States District Court for the Western District of Washington, alleging the same claims

made in their demand letter based on the facts disclosed above.

The plaintiffs are seeking relief in the form of monetary damages in an

amount to be determined.

Cooper and Weinstein are also seeking relief in the form of reinstatement and Mr.

Weinstein is seeking

rescission of his Release of Claims Agreement.

On March 10, 2021, the Company moved to dismiss all Cooper and Weinstein’s claims,

asserting that the claims failed to allege legal grounds for relief.

On May 12, 2021, a Magistrate issued a preliminary Report and Recommendation,

which recommended dismissal of certain of Cooper and Weinstein’s claims, and recommended others for additional factual discovery.

On July 27, 2021, a District Judge entered an order partially adopting the Report and Recommendation, dismissing one claim with prejudice,

dismissing a second claim with leave to amend, and permitting the remaining claims to proceed.

Additionally, on July 29, 2021, the Company filed

a separate arbitration in Boston, Massachusetts against Cooper and Weinstein, in which the Company alleges that Cooper and Weinstein

were liable for certain conduct during the time they were TriGrow employees, including breach of fiduciary duty, unjust enrichment, usurpation

of corporate opportunity, conversion, fraudulent concealment, and false representation.

Also on July 29, 2021, the Company submitted

a claim for indemnification to certain legacy TriGrow Systems, LLC.

shareholders.

The claim for indemnification relates to conduct

by Cooper and Weinstein during the time they were TriGrow employees.

The Company does not believe these claims have any merit and intend

to vigorously defend against them.

Supply Agreement with Mack Molding Co.

In December 2020, the Company entered into a

five-year supply agreement with Mack Molding Co.

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

2021, the Company placed a purchase order with Mack amounting to approximately $ 5.2 million towards initial production of VFUs during

In September 2021, the Company increased the purchase order with Mack to approximately $ 11.5 million towards production of VFUs

during 2021 and 2022.

The Company believes the supply agreement with Mack will provide the Company with increased scaling capabilities

and the ability to more efficiently meet the potential future demand of its customers.

The supply agreement contemplates that, following

an introductory period, the Company will negotiate a minimum percentage of the VFU requirements that the Company will purchase from Mack

each year based on the agreed upon pricing formula.

The introductory period is not time-based but rather refers to the production of

an initial number of units after which the parties have rights to adjust pricing and negotiate a certain minimum requirements percentage.

The Company believes this approach will result in both parties making a more informed decision with respect to the pricing and other

terms of the supply agreement with Mack.

Distribution Agreements with Related Parties

On June 7, 2019, the Company entered into a distribution

agreement with Bluezone Products, Inc.

(“Bluezone”) for distribution rights to the Bluezone products with certain exclusivity

The agreement requires minimum purchases amounting to $480 and $600 for the first and second contract anniversary years.

agreement auto renews for successive one-year periods unless earlier terminated.

The Company exceeded the minimum purchase amount for

the first year and purchased approximately $514 of the committed $660 second year purchases until December 31, 2020.

Bluezone is a related

party to the Company.

On September 7, 2019, the Company entered into

a distribution agreement with Bluezone for distribution rights to the Bluezone products with certain exclusivity rights.

The agreement

requires minimum purchases amounting to $ 480 thousand and $ 600 thousand for the first and second contract anniversary years.

The agreement

auto renews for successive one-year periods unless earlier terminated.

In March 2021, the Company notified Bluezone of non-renewal of

the agreement which means it ended on May 31, 2021.

The Company exceeded the minimum purchase amount for the first year and purchased

approximately $ 309 thousand of the committed $ 660 thousand second year purchases through December 31, 2021.

Bluezone is a related party

to the Company.

On March 9, 2020, the Company entered into a distribution

agreement with Enozo Technologies Inc.

(“Enozo”), for an initial term of five years with auto renewal for successive one-year

periods unless earlier terminated.

The agreement contains the following minimum purchases to retain exclusive distributor status for

one of our products, for the period from the contract date until December 31, 2021 for $375, for the year ended December 31, 2022 for

$750, and for the year ended December 31, 2023 for $1,125, which amount may increase by 3% for the later years.

The Company purchased

approximately $38 of that Enozo product during the year ended December 31, 2020.

The agreement contains the following minimum purchases to retain exclusive distributor status for one

of the Company’s products:

for the period from the contract date until December 31, 2021 for $ 375 thousand, for the year ended December

31, 2022 for $ 750 thousand, and for the year ended December 31, 2023 for $ 1.1 million, which amount may increase by 3 % for the later years.

The Company had $ 40 thousand in purchases of Enozo product for the year ended December 31, 2021, compared to $ 38 thousand for the year

ended December 31, 2020.

Enozo is a related party to the Company.

Purchase Agreement with Related party

On July 28, 2020, the Company entered into a

purchase agreement with 4D Bios (“4D”) to secure purchases of horticultural equipment.

The agreement requires minimum purchases

of between $577 and $607 of 4D products until December 31, 2020.

Committed Purchase Agreement with Related Parties

4D Bios, Inc.

On September 18, 2021, the Company entered into an amended purchase

agreement with 4D Bios, Inc.

(“4D”) to secure purchases of horticultural equipment.

The original agreement required minimum

purchases of between $ 577 dollars and $ 607 dollars per unit of 4D products until December 31, 2020.

The amended agreement requires minimum

purchases of $ 582 dollars per unit with a final payment of approximately $ 864 thousand paid to 4D.

4D is a related party to the Company.

The Company committed purchases exceeding the

minimum purchase requirement and amounting to $1,904 from 4D for the year ended December 31, 2020.The Company settled $672 and accrued

$154 of such commitment, leaving $1,078 open committed purchases as of December 31, 2020.

20 —

Related Parties

For the year ended December 31, 2020, the Company’s purchase

commitment totaled $ 1.9 million.

The Company settled all outstanding commitments, leaving no open committed purchases as of December

Greenstone Holdings

On December 29, 2021, Greenstone

Holdings purchased 239 VFUs from the Company of which 60 VFUs were already in Greenstone Holdings possession under a lease agreement.

Under the lease agreement, Greenstone Holdings owed Agrify a production service fee of $ 300 per pound of flower produced and contained

an option to purchase the equipment within the lease agreement.

The term of this agreement was for ten years but was terminated upon signing

the purchase agreement for the 239 VFUs.

The remaining 179 VFUs were shipped to Greenstone Holdings storage facility on December 30, 2021

and December 31, 2021.

Note 22 — Related Parties

Some of the officers and directors of the Company

are involved in other business activities and may, in the future, become involved in other business opportunities that become available.

following table describes the net purchasing activity with entities identified as related parties to the Company:

December 31,  

(In thousands)  

Bluezone  

4D Bios *  

$ 1,128  

The following table describes the net purchasing

(sales) activity with entities identified as related parties to the Company:

(Dollar Amounts in Thousands)

Cannae Policy Group

Topline Performance Solutions

Valiant Americas, LLC.

$ 7,085  

from 4D for the year ended December 31, 2020 include $480 of down payment on inventory orders.

following table summarizes net related party payable as of December 31, 2020 and December 31, 2019:

(In thousands)  

December 31,

Bluezone  

4D Bios  

Greenstone Holdings

Living Green Farm

(1) Purchases from 4D for the year ended December 31, 2020 includes $ 480 thousand related to a down payment on inventory orders.

The following table summarizes net related party

(payable) receivable as of December 31, 2021 and December 31, 2020:

(Dollar Amounts in Thousands)

Cannae Policy Group

Greenstone Holdings

Living Green Farm

Valiant Americas, LLC.

$ 4,246  

Subsequent Events

Omnibus Equity Incentive Plan

On December 18, 2020, the Company’s board

of directors, and on January 11, 2021, the Company’s stockholders, have adopted and approved the 2020 Omnibus Equity Incentive

Plan (the “2020 Plan”), which has replaced the 2019 Plan.

The 2020 Plan provides for the grant of stock options, SARs, performance

share awards, performance unit awards, distribution equivalent right awards, restricted stock awards, restricted stock unit awards and

unrestricted stock awards to non-employee directors, officers, employees and nonemployee consultants of Agrify or its affiliates.

aggregate number of shares of common stock that may be reserved and available for grant and issuance under the 2020 Plan is 4,533,732

Shares shall be deemed to have been issued under the 2020 Plan solely to the extent actually issued and delivered pursuant to

If any award granted under the 2019 Plan or the 2020 Plan expires, is cancelled, or terminates unexercised or is forfeited,

the number of shares subject thereto is again available for grant under the 2020 Plan.

The 2020 Plan shall continue in effect, unless

sooner terminated, until the tenth (10 th ) anniversary of the date on which it is adopted by the board of directors.

January 24, 2021, the Company’s Board of Directors approved a grant of 144,360 options to purchase shares of common stock to directors.

The options will expire 10 years from the date of grant and have an exercise price per share of $4.86.

25% of the options vest 12 months

following issuance and the balance vests in 36 equal monthly installments thereafter.

A Convertible Preferred Stock and Convertible Promissory Notes

January 11, 2021, the Company’s Board of Directors approved the amendment to the conversion formula of the Series A Preferred

Stock and Convertible Promissory Notes.

After the amendment:

Series A Preferred Stock is convertible, at any time after issuance or immediately prior

to the closing of a public transaction, into common stock in an amount of shares equal to

(i) the product of the Series A Preferred Stock original price plus accrued but unpaid dividends

on the shares being converted, multiplied by the number of shares of Series A Preferred Stock

being converted, divided by (ii) a conversion price of $7.72 per share (after the reverse

split taking effect).

prior to the consummation of a public transaction the outstanding principal amount of the

Notes together with all accrued and unpaid interest shall convert, into a number of fully

paid and non-assessable shares of common stock equal to the quotient of (i) the outstanding

principal amount of the Notes together with all accrued and unpaid interest hereunder immediately

prior to such Public Transaction divided by (ii) a conversion price of $7.72 (after the reverse

split taking effect).

January 11, 2021, the Company’s shareholders approved the amendment to the Series A Preferred Stock.

Public Offering

January 27, 2021, the Company completed an initial public offering (“IPO”) for the sale of 5,400,000 shares of common stock

at a price of $10.00 per share.

The Company also granted the underwriters a 45-day option to purchase up to 810,000 additional shares

of common stock on the same terms and conditions for the purpose of covering any over-allotments in connection with the IPO.

closed on February 1, 2021.

Subsequently, the underwriters exercised the over-allotment option, and on February 4, 2021, the Company

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.

The exercise of the over-allotment option brings the total number of shares of common stock sold by the Company in connection with the

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 expenses.

Subsequent Public Offering

On February 16, 2021, the Company entered into

an underwriting agreement with Maxim Group LLC in connection with an underwritten public offering (the “February Offering”).

On February 16, 2021, the Company 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.

The Company 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, the Company 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 the Company 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

On February 5, 2021, the Company executed a sixty-three-month

lease for office space in Billerica, MA.

The Company will spend $193 on leasehold improvements and plans to occupy the space beginning

June 1, 2021.

The minimum lease liability for the initial lease term amounts to $403.The Company has an option to extend the initial

lease term by an additional five-year term.

Note 23 — Subsequent Events

Private Placement

On January 25, 2022, the

Company entered into a Securities Purchase Agreement (the “Securities Agreement”) with an institutional investor and other

accredited investors for the sale by the Company of (i) 2,450,350 shares (the “Shares”) of the Company’s common stock,

par value $0.001 per share (the “Common Stock”), (ii) pre-funded warrants (the “Pre-Funded Warrants”) to purchase

up to an aggregate of 1,570,644 shares of Common Stock and (iii) warrants to purchase up to an aggregate of 3,015,745 shares of Common

Stock (the “Common Warrants” and, collectively with the Pre-Funded Warrants, the “Warrants”), in a private

placement offering.

The combined purchase price for one share of Common Stock (or one Pre-Funded Warrant) and accompanying fraction

of a Common Warrant was $6.80.

Subject to certain ownership limitations, the

Warrants are exercisable six months from issuance.

Each Pre-Funded Warrant is exercisable into one share of Common Stock at a price per

share of $ 0.001 (as adjusted from time to time in accordance with the terms thereof).

Each Common Warrant is exercisable into one share

of Common Stock at a price per share of $ 7.48 (as adjusted from time to time in accordance with the terms thereof) and will expire on

the fifth anniversary of the initial exercise date.

Raymond Chang, Chairman and Chief Executive Officer

of the Company, and Stuart Wilcox, a member of the Company’s Board of Directors, participated in the private placement on the same

terms as other investors except for a combined purchase price of $ 6.90 .

The gross proceeds to the Company from the private

placement were approximately $ 27.3 million, before deducting the placement agent’s fees and other offering expenses, and excluding

the proceeds, if any, from the exercise of the Warrants.

Acquisition of Lab Society;

Purchase Consideration

On February 1, 2022,

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

(“Lab Society”),

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

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

the Company agreed to acquire Lab Society.

Concurrently with the execution of the Merger Agreement, the Company consummated the merger

of Lab Society with and into Merger Sub, with Merger Sub surviving such merger as a wholly owned subsidiary of the Company (the “Lab

Society Acquisition”).

The aggregate consideration

for the Lab Society Acquisition consisted of:

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

indebtedness of Lab Society at closing;

(b) 425,611 shares of the Company’s common stock (the “Buyer Shares”);

The Company withheld

127,682 of the Buyer Shares issuable to the Owners (the “Holdback Lab Buyer Shares”) for the purpose of securing any post-closing

adjustment owed to the Company and any claim for indemnification or payment of damages to which the Company may be entitled under the

Merger Agreement.

The Holdback Lab Buyer Shares shall be released following the twelve (12) month anniversary of the Closing Date in

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

The Merger Agreement

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

The Owners may become entitled

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

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

be payable by issuing shares of the Company’s common stock.

Securities Purchase Agreement

On March 14, 2022,

the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with an accredited investor

(the “Investor”), pursuant to which, among other things, the Company agreed to issue and sell to the Investor, in a private

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

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

of $ 65 million (the “Note”), and (ii) a warrant (the “Warrant”) to purchase up to an aggregate of 6,881,108

shares of common stock of the Company, par value $ 0.001 per share (“Common Stock”).

The Note will be a senior

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

The Company will be required to make amortization

payments equal to 4.0 % of the original principal amount of the Note on the first day of each calendar month starting on February 1, 2023

and extending through the maturity date of March 1, 2026 (the “Maturity Date”), at which time all remaining outstanding principal

and accrued but unpaid interest will be due.

The Note will have a stated interest rate of 6.75 % per annum, and the Company will be required

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

the one-year anniversary of the Note’s issuance, the Company may, in lieu of paying interest in cash, pay such interest in kind,

in which case interest on the Note will be calculated at the rate of 8.75 % per annum and will be added to the principal amount of the

At any time following the

one-year anniversary of the Note’s issuance, the Company may prepay all (but not less than all) of the Note by redemption at a price

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

The Investor will also have

the option of requiring the Company to redeem the Note if the Company undergoes a fundamental change at a price equal to 107 % of the then-outstanding

principal amount under the Note plus any accrued interest thereon.

The Securities Purchase

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

on substantially the same terms as the initial closing.

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

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

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

The Note will impose certain

customary affirmative and negative covenants upon the Company, as well as covenants that (i) restrict the Company and its subsidiaries

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

the Company and its subsidiaries from making certain investments, subject to specified exceptions, (iii) restrict the declaration

of any dividends or other distributions, subject to specified exceptions, (iv) require the Company to maintain specified earnings

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

If an event of default under

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

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

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

Until the date the Note

is fully repaid, the Investor will, subject to certain exceptions, have the right to participate for up to 30 % of any debt, preferred

stock or equity-linked financing of the Company or its subsidiaries.

Each Warrant to be issued

in the initial closing will have an exercise price of $6.75 per share, subject to adjustment for stock splits, reverse stock splits, stock

dividends and similar transactions, will be immediately exercisable, has a term of five and one-half years from the date of issuance and

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

upon exercise of the Warrant (the “Warrant Shares”), in which case the Warrant shall also be exercisable on a cashless exercise

basis at the Investor’s election.

The Securities Purchase Agreement requires the Company to file resale registration statements

with respect to the Warrant Shares as soon as practicable and in any event within 45 days following the initial closing and any subsequent

The Warrant will provide

that in no event will the number of shares of Common Stock issued upon exercise of the Warrant result in the Investor’s beneficial

ownership exceeding 4.99 % of the Company’s shares outstanding at the time of exercise (which percentage may be decreased or increased

by the Investor, but to no greater than 9.99 %, and provided that any increase above 4.99 % will not be effective until the sixty-first

(61st) day after notice of such request by the Investor to increase its beneficial ownership limit has been delivered to the Company).

The Securities Purchase

Agreement also contains customary representations and warranties of the Company and the Investor.

There is no material relationship between

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

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 9A. Controls and Procedures