RYM filing — read by section

UNITED STATES 
 
 SECURITIES AND EXCHANGE COMMISSION 
 
 Washington, D.C. 20549 
 
 FORM 10-K 
 
 (mark one) 
 
 ☒ ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
 
 For the fiscal year ended December 31 , 2022 
 
 OR 
 
 ☐ 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
 
 For the transition period from ____ to ______ 
 
 Commission file number: 001-39946 
 
 AGRIFY CORPORATION 
 
 (Exact Name of Registrant as Specified in Its Charter)
 
 Nevada 30-0943453 
 (State or other jurisdiction of 

incorporation or organization) (I.R.S. Employer 

Identification No.) 
 
 2468 Industrial Row Dr. 
 
 Troy , Michigan 48084 
 
 (Address of principal executive offices)
 
 (855) 420-0020 
 
 (Registrant’s telephone number, including
area code)
 
 Securities Registered Pursuant to Section 12(b)
of the Act: 
 
 (Title of Class) Trading Symbol (s) (Name of exchange on which registered) 
 Common Stock, par value $0.001 per share AGFY The Nasdaq Capital Market 
 
 Securities Registered Pursuant to Section 12(g)
of the Act: None. 
 
 Indicate by check mark if the registrant is a well-known seasoned issuer,
as defined in Rule 405 of the Securities Act. Yes ☐ No ☒ 
 
 Indicate by check mark if the registrant is not
required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes ☐ 
 No ☒ 
 
 Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past
90 days. Yes ☐ No ☒ 
 
 Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). Yes ☐ 
 No ☒ 
 
 Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See definition of “large
accelerated filer,” “accelerated filer” “smaller reporting company” and “emerging growth company”
in Rule 12b-2 of the Exchange Act.
 
 Large accelerated filer ☐ Accelerated filer ☐ 
 Non-accelerated filer ☒ Smaller reporting company ☒ 
 Emerging growth company ☒ 
 
 If an emerging growth company, indicate by check
mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act. ☐ 
 
 Indicate by check mark whether the registrant
has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or
issued its audit report. ☐ 
 
 If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant
included in the filing reflect the correction of an error to previously issued financial statements. ☐ 
 
 Indicate by check mark whether
any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the
registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
 
 Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ 
No ☒ 
 
 The aggregate market value of the voting and non-voting
common equity held by non-affiliates of the registrant, computed by reference to the price at which the common equity was last sold, or
the average bid and asked price of such common equity, as of June 30, 2023, was approximately $ 5,643,192 . Shares of the registrant’s
common stock held by each officer and director and each person known to the registrant to own 10% or more of the outstanding voting power
of the registrant have been excluded in that such persons may be deemed affiliates. This determination of affiliate status is not a determination
for other purposes.
 
 There were a total of 1,651,281 shares of the
registrant’s common stock, par value $0.001 per share, outstanding as of October 19, 2023.
 
 Table of Contents 
 
 Page # 

 PART I 
 
 Item 1. 
 Business 
 1 

 Item 1A. 
 Risk Factors 
 13 

 Item 1B 
 Unresolved Staff Comments 
 35 

 Item 2. 
 Properties 
 35 

 Item 3. 
 Legal Proceedings 
 35 

 Item 4. 
 Mine Safety Disclosures 
 35 

 PART II 

 Item 5. 
 Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 
 36 

 Item 6. 
 [Reserved] 
 37 

 Item 7. 
 Management’s Discussion and Analysis of Financial Condition and Results of Operations 
 37 

 Item 7A. 
 Quantitative and Qualitative Disclosures About Market Risk 
 60 

 Item 8. 
 Financial Statements and Supplementary Data 
 60 

 Item 9. 
 Changes In and Disagreements With Accountants on Accounting and Financial Disclosure 
 60 

 Item 9A. 
 Controls and Procedures 
 60 

 Item 9B. 
 Other Information 
 61 

 Item 9C. 
 Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. 
 61 

 PART III 

 Item 10. 
 Directors, Executive Officers and Corporate Governance 
 62 

 Item 11. 
 Executive Compensation 
 71 

 Item 12. 
 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 
 78 

 Item 13. 
 Certain Relationships and Related Transactions, and Director Independence 
 80 

 Item 14. 
 Principal Accounting Fees and Services 
 83 

 PART IV 

 Item 15. 
 Exhibits and Financial Statement Schedules 
 84 

 Item 16. 
 Form 10-K Summary 
 87 

 Signatures 
 88 

 i 

 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS 
 
 This report contains forward-looking
statements and information relating to Agrify Corporation. All statements other than statements of historical facts contained in this
report, including statements regarding our future results of operations and financial position, business strategy and plans and our objectives
for future operations, are forward-looking statements. The words “believe,” “may,” “will,” “estimate,”
“continue,” “anticipate,” “intend,” “expect” and similar expressions are intended to identify
forward-looking statements. These forward-looking statements include statements relating to:
 
 ● 
 our market opportunity; 

 ● 
 the effects of increased competition as well as innovations by new and existing competitors in our market; 

 ● 
 our ability to retain our existing customers and to increase our number of customers; 

 ● 
 the future growth of the indoor agriculture industry and demands of our customers; 

 ● 
 our ability to effectively manage or sustain our growth; 

 ● 
 potential issuance of holdback shares from prior acquisitions and integration of complementary businesses and technologies; 

 ● 
 our ability to maintain, or strengthen awareness of, our brand; 

 ● 
 future revenue, hiring plans, expenses, capital expenditures, and capital requirements; 

 ● 
 our ability to comply with new or modified laws and regulations that currently apply or become applicable to our business; 

 ● 
 the loss of key employees or management personnel; 

 ● 
 our financial performance and capital requirements; and 

 ● 
 our ability to maintain, protect, and enhance our intellectual property. 

 We caution you that the foregoing
list may not contain all of the forward-looking statements made in this report. We have based these forward-looking statements largely
on our current expectations and projections about future events and financial trends that we believe may affect our financial condition,
results of operations, business strategy, short term and long-term business operations and objectives, and financial needs. These forward-looking
statements are subject to a number of risks, uncertainties and assumptions, including those described in “Risk Factors.” Moreover,
we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management
to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of
factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of
these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this report may not occur and actual
results could differ materially and adversely from those anticipated or implied in the forward-looking statements.
 
 You should not rely upon
forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected
in the forward-looking statements will be achieved or occur. We undertake no obligation to update publicly any forward-looking statements
for any reason after the date of this report to conform these statements to actual results or to changes in our expectations.
 
 ii 

 SUMMARY OF RISK FACTORS 
 
 Below is a summary of the
principal factors that make an investment in our Common Stock speculative or risky. This summary does not address all of the risks that
we face. Additional discussion of the risks summarized in this risk factor summary, and other risks that we face, can be found below under
the heading “Risk Factors”, and should be carefully considered, together with other information in this Annual Report on Form 10-K
and our other filings with the SEC before making an investment decision regarding our Common Stock.
 
 ● 
 our ability to continue as a “going concern”; 

 ● 
 our short operating history; 

 ● 
 risk of loss associated with our Total Turn-Key Solution (“TTK Solution”) Offerings; 

 ● 
 our ability to obtain additional financing; 

 ● 
 risks associated with strategic acquisitions; 

 ● 
 we have substantial debt and other financial obligations, and we may incur even more debt; 

 ● 
 risk associated with potential future impairment charges; 

 ● 
 our concentration of customers; 

 ● 
 our reliance on a limited base of suppliers; 

 ● 
 operational difficulties of our suppliers as a result of COVID-19; 

 ● 
 risks associated with having clients operating in the cannabis industry; 

 ● 
 the inability of our customers to meet their financial or contractual obligations; 

 ● 
 changes in our credit profile with respect to suppliers; 

 ● 
 our reliance on third parties to provide services; 

 ● 
 no assurance that our backlog and qualified pipeline will translate into bookings; 

 ● 
 our reliance on continued contributions of our CEO, Raymond Chang; 

 ● 
 intense competition for our products and services; 

 ● 
 our ability to protect and defend against intellectual property claims; 

 ● 
 our ability to protect our core technology and intellectual property; 

 ● 
 assertion of intellectual property infringement claims; 

 ● 
 our ability to use net operating losses; 

 ● 
 our management and their affiliates control a substantial interest in us; 

 iii 

 ● 
 our outstanding loans may not be forgivable; 

 ● 
 the potential for a large number of shares eligible for public sale could depress the market price of our Common Stock; 

 ● 
 our failure to meet the continued listing requirements of The Nasdaq Capital Market (“Nasdaq”) could result in a de-listing of our Common Stock; 

 ● 
 the exercise of all or any number of outstanding warrants or the issuance of stock-based awards may dilute your holding of shares of our Common Stock; 

 ● 
 provisions in our charter documents and Nevada law may prevent a change in control of our company; 

 ● 
 we are subject to reduced disclosure requirements applicable to emerging growth companies and smaller reporting companies; 

 ● 
 we have no intention to declare any dividends to our shareholders; 

 ● 
 risks associated with a shortage of raw materials; 

 ● 
 litigation that may adversely affect our business, financial condition, and results of operations; 

 ● 
 the impact of COVID-19 and related risks; 

 ● 
 a prolonged economic downturn; 

 ● 
 risks related to the employment market and wages; 

 ● 
 liquidity of our common stock; 

 ● 
 financial reporting obligations and controls associated with being a public company; 

 ● 
 material weaknesses and ability to remediate them; 

 ● 
 data privacy and security concerns relating to our technology and practices; 

 ● 
 any potential failure of our information technology systems to perform adequately; 

 ● 
 evolving data privacy regulations and our ability to comply with them; 

 ● 
 risks related to trading ability of our common stock if our shares become subject to penny stock rules; 

 ● 
 the risk to our shareholders if we were to dissolve; 

 ● 
 risks related to analyst reports about us, our business or our market, or recommendations relating to our stock; 

 ● 
 increased costs and demands upon management as a result of being a public company; and 

 ● 
 inherent risks related to our financial and operational projections. 

 iv 

 MARKET, INDUSTRY AND OTHER DATA 
 
 Unless otherwise indicated,
information contained in this report concerning our industry and the markets in which we operate, including our general expectations and
market position, market opportunity and market size, is based on information from various sources, on assumptions that we have made that
are based on those data and other similar sources and on our knowledge of the markets for our services. These data involve a number of
assumptions and limitations, and you are cautioned not to give undue weight to such estimates. We have not independently verified any
third-party information and cannot assure you of its accuracy or completeness. While we believe the market position, market opportunity
and market size information included in this report is generally reliable, such information is inherently imprecise. In addition, projections,
assumptions and estimates of our future performance and the future performance of the industry in which we operate is necessarily subject
to a high degree of uncertainty and risk due to a variety of factors, including those described in “Risk Factors” and elsewhere
in this report. These and other factors could cause results to differ materially from those expressed in the estimates made by the independent
parties and by us.
 
 In addition, we own or have
rights to trademarks or trade names that we use in connection with the operation of our business, including our corporate names, logos,
and website names. In addition, we own or have the rights to copyrights, trade secrets and other proprietary rights that protect the content
of our products. This report may also contain trademarks, service marks and trade names of other companies, which are the property of
their respective owners. Our use or display of third parties’ trademarks, service marks, trade names or products in this report
is not intended to, and should not be read to, imply a relationship with or endorsement or sponsorship of us. Solely for convenience,
some of the copyrights, trade names and trademarks referred to in this report are listed without their ©, ® and ™ symbols,
but we will assert, to the fullest extent under applicable law, our rights to our copyrights, trade names and trademarks. All other trademarks
are the property of their respective owners.
 
 v 

 PART I 
 
 Item 1. Business. 
 
 Unless otherwise stated
or the context otherwise requires, references in this report to “Agrify”, the “Company,” “we,” “us,”
“our,” or similar references mean Agrify Corporation and its subsidiaries on a consolidated basis. 
 
 Business Overview 
 
 We are a leading provider
of innovative cultivation and extraction solutions for the cannabis industry, bringing data, science, and technology to the forefront
of the market. Our proprietary micro-environment-controlled Agrify Vertical Farming Units (or “VFUs”) enable cultivators to
produce high quality products with what we believe to be unmatched consistency, yield, and return investment at scale. Our comprehensive
extraction product line, which includes hydrocarbon, alcohol, solventless, post-processing, and lab equipment, empowers producers to maximize
the quantity and quality of extract required for premium concentrates. 
 
 Since our
 inception, we have gone from primarily developing, selling, and supporting our VFUs along with our fully integrated Agrify Insights™
cultivation software (“Agrify Insights™”) to being able to offer customers a far more complete set of solutions, products,
and services across both cultivation and extraction . This has been a function of both our
natural evolution and through a set of strategic mergers and acquisitions. Since 2020, we have integrated
six new brands into Agrify ’s broader organization . Our first acquisition, TriGrow Systems,
Inc., was completed in January 2020 . TriGrow Systems, Inc. was formerly the exclusive distributor of Agrify’s VFUs. We
added Harbor Mountain Holdings, LLC to our portfolio on July 21, 2020, to help scale up our manufacturing strategy with engineering,
prototyping, manufacturing, testing, warehousing, and installation services. Since October 2021, we have been strategically focused on
establishing ourselves as a global leader in the cannabis and hemp extraction equipment industry, complementing our cutting-edge cannabis
and hemp cultivation solutions. Over five months, we acquired four of the top brand names in the industry. On October 1, 2021, we acquired
Precision Extraction Solutions, a market leader in developing and producing high-quality hydrocarbon and alcohol extraction solutions,
and Cascade Sciences, LLC, a market leader in developing and producing high-quality vacuum purge ovens and decarboxylation ovens. On December
31, 2021, we acquired PurePressure, LLC, a market leader in developing and producing high-quality solventless extraction solutions and
advanced ice-water hash processing equipment in the cannabis and hemp industry. Lastly, on February 1, 2022, we completed our acquisition
of LS Holdings Corp., a market leader in developing and producing high-quality distillation and solvent separation solutions for the cannabis
and hemp industry.
 
 We now offer our customers
an extensive ecosystem of solutions, products, training, and service capabilities in what has historically been a highly fragmented market.
Our offerings, which are described in more detail below, are compelling on their own. However, we believe what sets us apart is our ability
to bring to the market the most comprehensive set of cultivation and extraction solutions from a single provider. As a result, we believe
we are well-positioned to capture market share and create a dominant market position in the indoor cannabis sector. We currently have
two primary areas of business focus:
 
 ● 
 Cultivation Solutions; and 

 ● 
 Extraction Solutions. 

 Cultivation Solutions 
 
 While we do not cultivate,
come in contact with, distribute, or dispense cannabis or any cannabis derivatives that are currently prohibited under U.S. federal law,
our equipment and business solutions can be used within indoor grow facilities by fully licensed cannabis cultivators. We sell our proprietary
cultivation solutions to independent licensed cultivators. The two primary products we sell are the VFUs and Agrify Insights™. We
believe we are one of a limited number of companies offering a fully integrated cultivation solution optimized for precision growing with
robust automation capabilities in the industry.
 
 Agrify Vertical Farming Unit 
 
 Our proprietary VFU technology
offers a modular, compartmentalized micro-climate growing system for indoor vertical farming. Our VFU system is designed for craft farmers,
single-state operators, and multi-state operators who are looking to consistently produce higher-quality crops at scale. The VFUs are
designed to line up horizontally in rows, and can be stacked vertically up to three units tall, taking advantage of unused indoor vertical
space with the below benefits:
 
 ● 
 Superior Floor Space Utilization . Each VFU provides two tiers of growing canopy. Our units introduce an open-room facility design approach to maximize available cultivation floor space while offering superior risk mitigation via individual compartmentalized cultivation chambers which aim to contain potential biological threats to cultivation facilities. 

 ● 
 Precise Environmental Controls . Each VFU has an Environmental Control Unit that is integrated with our proprietary cultivation software, Agrify Insights™. This integration allows for precise control and automation over light photoperiod and intensity, temperature, humidity, vapor pressure deficit (“VPD”), carbon dioxide, fertigation, and irrigation throughout the lifecycle of the plants. 

 1 

 ● 
 Modular Scalability . The VFU is designed to stack up to three units tall, sextupling production volume over the same traditional footprint. Each unit is designed to easily integrate with a mezzanine catwalk system providing unparalleled access to all levels of cultivation. 

 ● 
 Worker Safety & Efficiency . The VFU’s design was thoughtful and intentional; from the ergonomic dimensions that facilitate safe, easy access to plants for scouting and plant husbandry, to the integrated catwalks that allow cultivators to work from a safe sitting or standing position without the need for scissor lifts, ladders or removable platforms. 

 ● 
 Biosecurity and Risk Mitigation . The VFU has a motorized curtain on both sides of the unit that encloses the grow area to prevent light pollution and the spread of disease that would typically lead to facility-wide crop failure. Contamination can be controlled and limited to the affected units, which are designed with sanitation in mind. From the aluminum frame to the selection of antimicrobial plastics and down to the IP65 electronics and polycarbonate-lensed LED lights, the entire VFU can be easily sanitized, especially with the VFU’s High Heat mode, which helps sanitize all internal VFU surfaces effortlessly. 

 Agrify Insights™ 
 
 The VFUs are designed to
work in conjunction with our Agrify Insights™ software. Each VFU sold includes a license for Agrify Insights™ and a monthly
Software-as-a-Service (“SaaS”) subscription fee is charged per VFU. The VFU cannot operate successfully without Agrify Insights™,
and we typically charge between $1,500 to $2,400 per VFU sold annually. Agrify Insights™ license agreements are generally for a
multi-year term, with an annual auto-renewal.
 
 Agrify Insights™ is
a SaaS-based solution that interfaces with our proprietary hardware to provide customers with real-time control and monitoring of facilities,
growing conditions and insights into both production and profit optimization. The combination of precise environmental control and automation
with data collection and actionable insights empowers our customers to be more efficient, more productive, and more intelligent about
how they run their businesses. We believe that the robust data analytics capabilities from our Agrify Insights™ platform, coupled
with our VFU system, is enabling our customers to transform their businesses and quality of the product they are cultivating.
 
 Agrify Insights™ is focused on optimizing
four key components:
 
 ● 
 Optimization at the plant level; 

 ● 
 Optimization at the VFU unit level; 

 ● 
 Optimization at the facility level; and 

 ● 
 Optimization at the business level. 

 When these key components
are combined, they encompass the cultivation operations of an Agrify customer. By reducing human error and providing insights through
data collection and analysis, Agrify Insights™ minimizes risk and increases operational efficiencies. Ultimately, our customers
seek to produce end products with the highest level of consistency no matter where they are located.
 
 Plant-Level Optimization 
 
 Central to our solution is
granular control of the cultivation environment. A crop’s end-product is determined by the plant’s genetics and the environment
in which the plants are grown. Control over the growing environment is accomplished through the integration of Agrify Insights™.
Agrify Insights collects data from multiple sensors on a per plant basis between 4 and 60 times an hour. This can result in between 100
thousand and 151 million data points annually, depending on the number of plants and fluctuations in the VFU microclimate. By recording
data points and reproducing specific environments based on the data, cultivators can effectively minimize the variation in their crops
and dial-in the maximum quality. Individual plant varietals can be optimized by tailoring the grow plan (recipe for cultivation) to enhance
genetic traits; increasing the temperature can speed chemical processes and growth rates and adjusting the length of different phases
of a plant’s lifecycle can maximize the crop’s yield. Additionally, when new varieties of plants are cultivated, having multiple
controlled, compartmentalized, growth chambers allow for iterative experiments which offer real insight into how new varieties are best
cultivated which is beneficial for research and development purposes.
 
 Our “Grow Plans”
are the templates or recipes that define the parameters for each lifecycle. Grow Plans define the environmental settings (light - photoperiod
and intensity, temperature, humidity, VPD, CO2, irrigation, fertigation) for each crop variety and cultivator as well as the schedule
for completing, as applicable, “plant touching” tasks such as bottoming, pruning, and harvesting. Agrify Insights™ ships
to the customer with many pre-developed Grow Plans and customers can create their own Grow Plans, electing to share them with other customers
or not.
 
 2 

 Individual VFU Level Optimization 
 
 Our VFU hardware provides
cultivation environmental control within the grow chamber. This hardware and its component valves, motors and sensors are directed and
controlled by Agrify Insights™.
 
 ● 
 Monitor and Control Agrify Hardware . Agrify Insights™ can either automatically or manually control our hardware. For example, the water-chilled fan coil can keep the temperature in a range accurate to 1.5 degrees Fahrenheit. 

 ● 
 Cultivation Environmental Control . Using Agrify Insights™, users can view environmental charts that plot temperature, humidity, and carbon dioxide over time. It also shows when plant irrigation occurs and whether the unit is in cooling, circulating, or dehumidifying mode. We sample these values every minute and report them back to the cloud every 15 minutes or more often if significant changes occur. Each growing chamber reports millions of data points annually, enabling our clients to perform an in-depth analysis of their grow performance. The manual control screen visualizes the current state of the grow chamber and allows our technicians to take direct control for troubleshooting, if necessary. The device log shows us what decisions were made by Agrify Insights™ and why. 

 Facility Level Optimization 
 
 Our modular VFUs are deployed
in scale at a customer’s facility with the smallest commercial operation deployment being 60 VFUs to date. Agrify Insights™
is designed to operate these individual VFUs as a combined facility. Agrify Insights™ features at the facility level include:
 
 ● 
 Production Planning . The production planning feature is designed to maximize a facility’s utilization by executing a “best-fit” scheduling algorithm to selected Grow Plans across VFUs that have been deployed at a customer facility. Since grow plans typically have a different number of growing days that start on staggered schedules, this module is a critical component for optimizing the planting and moving schedules, significantly increasing plant production, and reducing the cost per pound of harvest. 

 ● 
 Workforce Management . Agrify Insights™ includes a workforce planning feature to assign tasks to staff. These tasks can be automatically assigned based on the user role or their knowledge, skills, and abilities. The calendar displays the estimated time required to complete plant-touching tasks on any given day. 

 ● 
 Automatic Notification System . Users can select to subscribe to anomalous events, and users are notified in the order in which they are listed. If a user does not acknowledge the notification within the specified time frame, the next user in the list is notified, providing the business with 24/7 monitoring and notifications. 

 ● 
 Preventative Maintenance . Our equipment and facility preventative maintenance schedules and related tasks are contained, tracked, and monitored within Agrify Insights™. 

 ● 
 Facility Infrastructure Controls . Agrify Insights™ controls the irrigation on a facility level and connects with the water chilled HVAC system and ambient lighting system, providing our customers with a central piece of software for facility management. 

 Optimization at the Business
Level 
 
 Agrify Insights™ analysis
features enable customers to understand how cultivation decisions impact their overall business. Understanding the data from the cultivation
facility can help our customers better plan and make informed decisions that impact downstream parts of their business.
 
 ● 
 Consumables Procurement Integration . Each task can also be assigned a set of consumables whose inventory will be reduced when the task is started. This feature can help customers manage supply levels and can automatically create purchase orders so that they never run out of required supplies. 

 ● 
 Online Standard Operating Procedures (“SOPs’’) and Safety Datasheets . Agrify Insights™ hosts digital copies of our included Standard Operating Procedures and datasheets, or users can upload their own via our content management system, ensuring that the most recent version of SOPs and forms are available to users. 

 ● 
 Roles-Based Dashboards . Ability to obtain access to information specifically suited to your workforce’s various needs. Facility owners have access to high-level information about crop yields and equipment usage in an easy-to-understand scorecard. Farm managers receive a worksheet and calendar that lets them manage their workforce and automatically assign plant-touching tasks. This also provides facility managers with an ongoing window into consumables and lets them set inventory levels. 

 3 

 ● 
 Data Collection . Agrify Insights™ is a centralized repository for all data relating to the cultivation aspects of our clients’ business, including research and development testing data, and the ability to capture and compare test results. By doing so, Agrify Insights™ becomes a customers’ cultivation statement of record. 

 ● 
 Financial Simulator / What If Scenarios . Our operating expenses (“OpEx”) calculator enables users to evaluate impacts to profitability by changing hundreds of attributes including, but not limited to, changes to costs in labor, electric, water, CO 2 , and growing media as well as potential volatility in yields and pricing. 

 ● 
 Regulatory Reporting Integration. We have integrated our software with Metrc, a leading seed-to-harvest compliance management and tracking solution, which will enable our customers to handle most regulatory reporting directly through Agrify Insights™. 

 Cultivation Deployment
Options 
 
 Rapid Deployment Pack (“RDP”)
Program 
 
 The RDP
program was established in 2022 to make it easier for a broader range of customers to access our award-winning cultivation technology.
Featuring our flagship VFUs in a prepackaged, self-contained, and quick-to-deploy format, the thoughtfully designed and engineered RDPs
offer an accelerated path to production, cash flow, and profitability for customers. By removing certain barriers and points of friction
with the RDPs, we can provide customers who have properly equipped facilities with best-in-class cultivation capabilities in potentially
as little as 90 days. Once installed, the modular nature of the RDPs allows for seamless expansion opportunities, enabling customers the
flexibility to grow and scale. 
 
 TTK Solution 
 
 While we do not intend to
enter into any new TTK Solutions for the foreseeable future, we have deployed this program with certain key customers. We also believe
that our data-driven TTK Solution for cultivation solutions is unlike any other customer solution being offered and enables our customers
to get to market faster by providing them with our seamlessly integrated hardware and software offerings as well as access to capital
and a wide range of associated services from experts including consulting, training, design, engineering, and construction to form what
we believe is the most complete solution available from a single provider. We engage qualified cannabis operators in the early phases
of their business plans and provide critical support, typically over a 10-year period.
 
 Our TTK Solution provides
our valued customers with the benefit of working with a single, highly qualified provider in what has historically been a decentralized
market full of piecemeal solutions that were not necessarily designed and engineered to work harmoniously with one another. Given the
significant shortcomings associated with traditional indoor grow methods across all commercial agriculture segments, it was apparent that
a new paradigm in indoor cultivation was needed, which is why we have brought a more modern, manufacturing style approach that is process
driven through technology and measured via data and analytics. Overall, our holistic approach to addressing our customers’ cultivation
needs treats their production facilities as an end-to-end ecosystem whose success depends on all components working together optimally.
Despite the rapidly growing cannabis and hemp industry, many growers and processors face some significant obstacles to their operations
that pose a serious threat to their long-term viability. 
 
 We believe Agrify’s
proprietary TTK Solution is the key to resolving many of the challenges our customers encounter. We have set ourselves apart by bringing
to market a horticulturist expertise, bundled solution of state-of-the-art equipment, software and services that is turn-key, end-to-end,
fully integrated and optimized for precision growing and extraction. Agrify’s TTK Solution provides customers with the following
bundled equipment and services: 
 
 ● 
 Facility design, lab design, and engineering services 

 ● 
 Facility and lab build-out project management 

 ● 
 Agrify VFUs 

 ● 
 Agrify data driven Agrify Insights™ 

 ● 
 Agrify extraction products 

 ● 
 Expert horticulturist training and ongoing support 

 Extraction Solutions 
 
 While we do not extract,
come in contact with, distribute, process, or dispense cannabis or hemp or any cannabis or hemp derivatives that are currently prohibited
under U.S. federal law, our extraction equipment and business solutions can be used within indoor processing facilities by fully licensed
cannabis and hemp cultivators and processors or in some cases, by individual processors for individual use in compliance with applicable
law. We sell our proprietary extraction solutions to independent, licensed cultivators and processing labs.
 
 4 

 Cannabis represents a potential
cornucopia of medicinal and pharmaceutical advancement. Cannabis produces over 550 different phytochemicals, over 120 of which are cannabinoids
like tetrahydrocannabinol (“THC”) and cannabidiol (“CBD”). Other cannabinoids like varins, cannabigerivarin (“CBGV”),
tetrahydrocannabivarin (“THCV”), and cannabidivarin (“CBDV”) are less well known and potentially offer significant
value. As we continue to learn more about the complex chemical composition of cannabis, the need for distillation solutions is clear. Distillation
enables the identification, isolation, and separation of valuable cannabis metabolites. The ability to take cannabis compounds distilled
into their pure forms, and then recombine them into specific, purposeful end-products could have significant potential for the pharmaceutical
industry in the future.
 
 As
stated previously, we strategically acquired four of the top brands in the extraction space in late 2021 and early 2022 in Precision Extraction,
PurePressure, Lab Society, and Cascade Sciences. These iconic brands encompass everything from hydrocarbon, alcohol, and solventless extraction
to distillation and post-processing and have supported and continue to support over 90% of legal operators in one fashion or another. 
 
 Combined, these four acquisitions
provide what we believe to be the most comprehensive extraction solutions from a single provider, with over 7,000 customers, including
over 30 Multi-State-Operators, and some of the best extraction labs in the industry. Our leading extraction brands provide equipment and
solutions for extraction, post-processing, and testing for the cannabis and hemp industries. The extraction, post-processing and testing
services are complementary and highly attractive areas of the supply chain.
 
 Our extraction division now
offers cutting-edge technologies and end-to-end service solutions. Solutions from the extraction division include equipment, technology,
facility and lab design, training, and extensive research and development capabilities. By providing new hardware-as-a-service we intend
to capture higher margin recurring revenue and supply chain optimization through streamlined product sourcing, purchasing, manufacturing,
and warehousing.
 
 These acquisitions have greatly
expanded our product and service offerings in the post-harvest segment of the supply chain. We believe we are positioning Agrify as one
of the most vertically integrated total solutions provider for our cannabis and hemp customers. According to a report published by Grand
View Research in November 2022, the global cannabis extraction market is expected to potentially grow to $15.5 billion by 2030, and as
the cannabis industry continues to experience rapid growth globally, we expect the sales of our extraction solutions to follow a similar
growth trajectory.
 
 Cannabis Market Opportunity 
 
 While we do not cultivate,
come in contact with, distribute or dispense cannabis or any cannabis derivatives that are currently prohibited under U.S. federal law,
our cultivation solutions can be used within state-licensed indoor grow facilities by cannabis cultivators if they choose to do so.
 
 In the U.S., the development
and growth of the regulated medical and recreational (adult-use) cannabis industry has generally been driven by state law and regulation,
and accordingly, the market varies on a state-by-state basis. State laws that legalize and regulate cannabis for medicinal reasons allow
patients to consume cannabis with a designated healthcare provider’s recommendation, subject to various requirements and limitations.
As of January 2023, 39 states have passed laws allowing their citizens to use medical cannabis. On top of this medical condition growth
trend, there has been a slow but steady increase in the number of states that have chosen to legalize cannabis for recreational use. As
of January 2023, 21 states have passed laws allowing their citizens to use recreational cannabis. Shifting public attitudes and state
law and legislative activity are driving this change as indicated by a 2019 poll by Quinnipiac University that found that 93% of Americans
support patient access to medical-use cannabis if recommended by a doctor, which was the same level of support from a similar poll conducted
by Quinnipiac University in 2018. Similarly, the trend toward further legalization and regulation of cannabis sales is spreading globally.
As of the date of this report, over 70 countries outside the U.S. currently have medicinal cannabis regulation in force, and that number
is expected to significantly increase over time.
 
 Given that the market size
of legal cannabis in the U.S. in 2022 was estimated to be $27.7 billion according to MarketsandMarkets research Pvt Ltd, and 88% of legal
U.S. cannabis cultivators grow indoors (Fluence 2022 Industry lighting report), we estimate that the indoor segment of the legal U.S.
cannabis sector is a $10 billion market with the expectation that there will be even more growth on the horizon. A recent report from
statista.com projected global cannabis revenue to reach $47.2 billion in 2023, with annual growth rate of 12.69%, with a projected global
market volume of $76.1 billion by 2027.
 
 5 

 The different cultivation
environments for cannabis each have advantages and disadvantages, and this leads to a variance in price points based on quality, actual
and perceived, and process. According to New Leaf Data Services January 27, 2023 U.S. cannabis spot index, the average wholesale price
per pound of an outdoor-grown flower was $408 per pound, greenhouse flower averaged $633 per pound, while indoor-grown flower averaged
$1,298 per pound and the total market on average was $977 per pound. Based on the Fluence 2022 state of the cannabis industry lighting
report, 88% of cultivators have some or all of their facilities growing indoors, up 9% over 2021.
 
 Competitive Landscape 
 
 We believe our full suite
of product offerings forms an unmatched ecosystem for indoor growing and extraction. At this time, our VFUs, Agrify Insights™, extraction
solutions, our facility design and build services, and our engineering/installation services are highly differentiated from anything else
on the market.
 
 At the same time, our customers
are actively being approached by a variety of companies who do offer compelling standalone products and services, so we recognize that
our customers do have choices and alternatives, and they also need to factor in opportunity costs whenever they make purchasing decisions.
Consequently, we more broadly define our competition as any other company going after the same finite budget dollars as us in the indoor
agriculture space. We have highlighted below the most notable players that operate across some of the same functional, highly fragmented
areas of agriculture technology that we operate.
 
 ● 
 Semi-Integrated Vertical Cultivation Systems — Sprout AI 

 ● 
 Aeroponic Systems — AEssenceGrows and Thrive Growing 

 ● 
 Horticultural Lighting — Gavita, Fluence, VividGro, Hydrofarm, GrowGeneration, Hawthorne and Heliospectra 

 ● 
 Extraction Solutions — ExtractionTek Solutions, Mach Technologies, Decimal Engineering, Low Temp Plates, Whistler Technologies, Maratek and Hashatron 

 ● 
 Monitoring Software — Grownetics and Trym 

 ● 
 Cultivation Software — Quantum Leaf, Flourish, and Grow Link 

 ● 
 Vertical Cultivation Racking Systems — Pipp Horticulture and Montel 

 Despite the presence of some
well-funded and well-established competitors who offer pieces of what we do, we are able to compete on the basis of several defensible
factors including our industry experience, our technical expertise, the differentiated value proposition of our individual offerings,
and our positioning as a single-source provider. However, we believe above all else, it is our ability to offer an unrivaled level of
precision through a total end-to-end turnkey solution that sets us apart from existing competitors and potential new market entrants.
 
 6 

 Our Competitive Strengths 
 
 We believe our business has,
and our future success will be driven by, the following competitive strengths:
 
 ● 
 Innovative Technology in an Attractive Growing Industry . Our innovative solutions are aimed at large and growing U.S. domestic and global markets. We believe we are the only provider of a fully integrated end-to-end hardware and software turnkey solution for indoor cultivation and extraction facilities that allows customers to produce high-quality products with consistency at scale while meeting the growing demand and needs of end users at a relatively low cost. As such, we believe we have a first mover advantage due to innovating this new type of smart cannabis and hemp cultivation and processing solution, which is already designed, manufactured, and implemented in several commercial scale deployments across multiple states within the U.S. 

 ● 
 Integrated Proprietary Components . We design and create our own hardware, software, and SOPs from the ground up rather than buying piecemeal from third parties. We take a systems-engineered integrated approach that we believe has inherent advantages over other, ad-hoc systems. 

 ● 
 Emphasis on Precision and Consistency Through Our Proprietary Grow Solutions . While being able to help our customers increase capacity, yield and consequently revenues holds a tremendous amount of value, we believe that our biggest differentiator is our ability to impact the actual quality and consistency of the output by controlling the environment in which the crops are grown and all the variables that influence harvests with an unparalleled level of precision. The by-product of our TTK Solution is that our customers can create consistent high-quality products with repeatability from anywhere similar to any other consumer product company that provides a branded food or drink product. 

 ● 
 Emphasis on Precision and Consistency Through Our Extraction Division. In addition to our premium grow solutions, we have begun offering our customers industry leading cannabis and hemp extraction equipment, design, and training solutions. By acquiring leading brands earlier this year, we are immediately able to offer our customers premium solutions to meet their processing needs in this rapidly expanding sector. 

 ● 
 Market Knowledge and Understanding . We have extensive experience with controlled agriculture environments, extraction, post-processing, and scale-up manufacturing, as well as industry technical knowledge and relationships. We are keenly aware of the struggles that indoor cultivators and extractors face, and we serve as a credible and collaborative partner through the entire customer lifecycle. We believe that our fully integrated TTK Solution, extraction equipment and ancillary services are the key to resolving many of the challenges our customers face. 

 ● 
 Differentiated Business Model . Unlike many of our competitors, we offer a diversified mix of hardware, software, and services, which leads to potential multiple revenue streams. Given the nature of our deployments, we become deeply embedded in our customers’ operations through our numerous product offerings. This puts us in a position where customer success is directly tied to our equipment. Our ability to differentiate our business model provides us with multiple opportunities to expand our installed user base, which we believe will lead to future high-margin and stable recurring SaaS revenues, via our Agrify Insights™ and production fee revenues. 

 7 

 Our Customers 
 
 We primarily market and sell
our products to newly licensed, well-funded producers in a single market as well as multi-state operators. Our customers choose us for
several reasons, including the breadth and availability of the products we offer, our extensive expertise, and the quality of our customer
service. For large multi-state operators, our solutions allow operators to produce consistent high-quality products regardless of the
geographic locations where they are licensed to operate. Our system removes the variations of local grow environments, and also provides
consistent standard operating procedures across different facilities, helping every facility to achieve the highest Good Manufacturing
Processes standards. Our ability to provide a “one-stop shop” experience allows us to be the preferred vendor to many of these
customers by streamlining their entry or expansion of their cultivation capabilities. In addition, we believe our customers find great
value in the advice and recommendations provided by our knowledgeable sales and service associates, which further increases demand for
our products.
 
 We believe the nature of
our solutions and our high-touch customer service model strengthens relationships, builds loyalty and drives repeat business as our customers’
businesses expand. In addition, we feel as if our premium product lines and comprehensive product portfolio position us well to meet our
customers’ needs. Furthermore, we fully anticipate that we will be able to leverage all the data that we are collecting from our
existing customer base to make continuous improvements to our offerings and better serve our current and new customers in the future.
 
 To date, we have customers
across the U.S. and internationally in the cannabis and hemp industry and are of all sizes, ranging from small, single location businesses
to multi-state enterprise operations that use Agrify’s solutions. For each of the fiscal years ended December 31, 2022 and December
31, 2021, we had two customers that represented more than 10% of total revenues.
 
 Our Growth Strategy 
 
 We have developed a multi-pronged
growth strategy as described below to help us capitalize on the sizable opportunity at hand. Through methodical sales and marketing efforts,
cultivation and extraction solutions, and scale-up manufacturing, we believe we have implemented several key initiatives we can use to
grow our business more effectively. We also intend to opportunistically pursue the strategies described below to continue our upward trajectory
and enhance shareholder value. We believe we have significantly improved our new bookings and qualified pipeline. With our expanded product
line that includes quality extraction solutions, we have become more attractive to our prospects and customers, enhancing our overall
appeal and the scope of opportunities we are able to pursue. We expect our qualified pipeline and new bookings of opportunities to continue
to grow.
 
 Sales and Marketing 
 
 Rigorous Sales Process
and Strong Infrastructure in Place to Drive Revenue Growth 
 
 We utilize a highly structured
sales process to evaluate potential new opportunities and then advance vetted prospects through the different phases of our qualified
pipeline. Our salespeople spend most of their time building relationships and qualifying opportunities to make closing new business more
streamlined, collaborative, and organic in nature. There are specific requirements, milestones, and events that we have identified along
the sales process that must be met to move prospects through and convert them from vetted opportunities into committed sales orders within
a 12-month period. At each phase of the pipeline, a prospect opportunity is assigned a probability value for closing, providing management
production forecast ability.
 
 Our sales team works to convert
our qualified pipeline of opportunities into confirmed contractual bookings. Given our emphasis on enterprise sales opportunities, we
believe we are able to significantly scale our business in the coming year without significant increases in our headcount. At the time
of this report, our sales team was comprised of one Sales Vice President, Directors of Business Development, Account Managers, Channel
Partner Managers, Customer Support and Success Manager, Customer Service Support Reps, and a Sales Support Admin. Additionally, we take
measures to ensure that all members of the sales organization are cross-trained on cultivation and extraction products.
 
 8 

 We believe our business has,
and our future success will be driven by, the following sales and marketing strategy:
 
 ● 
 Direct Marketing . We capitalize on our direct marketing efforts by utilizing our internal CRM database, as well as the external help of trusted industry databases to target the right audience. Emails go out on a weekly basis and are subdivided by product focus and state, depending on the campaign. We use A/B testing in our email campaign strategy to harness meaningful messages. 

 ● 
 Social Media and Thought Leadership. Through the creation and promotion of engaging content that positions us as a thought leader, we continue to organically grow our social media audience. We share original videos, photography, industry-related articles, and blog content on a consistent basis. By developing strong relationships with our customers and sharing testimonials as well as live footage of our products being in action, we are better positioning ourselves on social. Furthermore, we promote our social media in our email communications, on our website, and through paid advertising. We also keep our finger on the pulse of trends and competitors in the market, remaining in the know. 

 ● 
 Trade Shows. Trade shows and events related to the cannabis industry have proven to be highly effective. When attending trade shows and events, we typically position ourselves front and center, with high-level sponsorships, outstanding booth placement, and speaking opportunities. Our product and subject matter experts take advantage of speaking opportunities, positioning Agrify as an industry thought leader. We expect to continue to grow our industry presence by generating leads using conferences as a platform. The trade show plan has been carefully vetted to ensure that these shows are reputable, have a strong business-to-business focus, high foot-traffic rates, as well as hosted in a desirable market. 

 ● 
 Paid Advertising . We utilize paid advertising such as banner ads on high-trafficked media sites that largely focus on cannabis and other relevant topics. We provide content offers and other downloadable materials to capture these leads. As we gain experience through these different marketing initiatives, we will make appropriate spending adjustments with our most effective outlets. We seek to expand our business both nationally and internationally and will do so when we have proven, viable marketing options available to us. 

 ● 
 Public Relations Campaigns. We have actively utilized press releases, industry and investor events, and interviews and speaking engagements to increase awareness of our brand, solutions, customer engagements, and other relevant company developments. With our industry positioning using thought leadership and ongoing participation in industry conferences, we have been highlighted through the Newswire and featured in a variety of media outlets. We will continue to sponsor and present keynotes at industry-related events including technology and agriculture conferences, podcasts, radio shows and more to continue to gain press and ultimately more exposure. 

 Scale-Up Manufacturing Capabilities in Order
to Meet the Increasing Demand for Our Grow Solutions 
 
 We currently use both internal
and external manufacturing to support our increasing demand. Internal production is primarily at our Michigan, Colorado, and Georgia facilities.
Externally, we use a variety of contract manufacturers (“CMs”) in the U.S. and in Asia for prototyping and volume manufacturing,
and we plan to expand our capabilities to meet the increasing demand for our grow solutions. We design the systems internally, and then
work with our CMs and suppliers to refine, prototype, and test the designs. The designs are documented at a level that allows us to have
our products manufactured at multiple CMs, both in the U.S. and abroad. As demand increases beyond our internal capacities additional
volume can be shifted to external manufacturing to ensure market demands are met.
 
 Overall, our approach to
manufacturing is to use both internal and external manufacturing capabilities to prototype, iterate, and begin initial production, then
transition to volume production. As volumes increase, this will also include increasing production in lower-cost geographies, which results
in both rapid time-to-market and low production costs. As we grow, we intend to continually analyze and evolve our manufacturing capabilities
to best meet our customers’ needs while always focusing on ways to maximize operating margins.
 
 9 

 Intellectual Property 
 
 We rely on a combination
of patent, trademark, copyright, and trade secret, including federal, state and common law rights in the U.S. and other countries, nondisclosure
agreements, and other measures to protect our intellectual property. We require our employees, consultants, and advisors to execute confidentiality
agreements and to agree to disclose and assign to us all inventions conceived under their respective employment, consultant, or advisor
agreement, using our property, or which relate to our business. Despite any measures taken to protect our intellectual property, unauthorized
parties may attempt to copy aspects of our products or to obtain and use information that we regard as proprietary. Our business is affected
by our ability to protect against misappropriation and infringement of our intellectual property, including our trademarks, service marks,
patents, domain names, copyrights and other proprietary rights.
 
 Patents 
 
 We hold 20 patents in the
U.S. We also have one pending patent application. These patents and patents applications are directed to, among other things, extraction
and processing of botanicals and particular compounds. 
 
 Trademarks and Copyrights 
 
 We own or have applications
for numerous national and state trademarks which are essential to our businesses, including Agrify, Precision, PurePressure, PressWare,
Lab Society and Elitelab, among others. In addition, we recognize common-law trademark rights AGRIFY INSIGHTS and AGRINAMICS for SaaS
products.
 
 Our subsidiary, Agrify Brands,
LLC is the owner of certain common-law trademarks that it licenses to third parties. Marks covered by the license include, DAWG STAR (including
multiple logo designs), WESTERN CULTURED (including multiple logo designs), TWISTED LEGION (logo), WAXTRONAUT (including multiple logo
designs) and WAXTRONAUT COSMICALLY CURATED EXTRACTS.
 
 Although we have not sought
copyright registration for our technology or works to date, we rely on common law copyright and trade secret protections in relation to
our TechOps/ Agrify Insights™ computer program for indoor agriculture management. We have registered our Internet domain names related
to our business. We license software from third parties and utilize open-source software for integration into our applications.
 
 In addition, while we know
that our current product and service capabilities are highly novel and compelling, we do not intend to be complacent. We will continue
to learn from our customers and from the market, and if there is an opportunity to deploy a new and improved version of one of our offerings
or if we decide there is room in the market for a new type of solution, we fully intend to diligently explore those possibilities to augment
our existing business and grow our reach.
 
 Human Capital Resources 
 
 As of October 1, 2023, we
had a total of 72 employees, of which 72 are full-time employees, with 10 located in the New England area, 18 in Colorado, 26 in Michigan,
5 in Georgia, and 13 located in other states. None of our employees are subject to collective bargaining agreements. We consider our relationship
with our employees to be good.
 
 We strive to attract and
retain diverse, high-caliber employees who raise the talent bar by offering competitive compensation and benefit packages, regardless
of their gender, race, or other personal characteristics. We regularly review and survey our compensation and benefit programs against
the market to ensure we remain competitive in our hiring practices. We provide employee salaries that are competitive and consider factors
such as an employee’s role and experience, the location of their job and their performance. In addition to our competitive salaries,
to enhance our employees’ sense of participation in the company and to further align their interests with those of our stockholders,
we offer equity packages to a majority of our employees. The principal purposes of our equity incentive plan are to attract, retain and
reward personnel through the granting of stock-based compensation awards, in order to increase stockholder value and the success of our
company by motivating such individuals to perform to the best of their abilities and achieve our objectives.
 
 We
strive to hire, develop, and retain talent that continuously raises the performance bar. We encourage, support, and compensate our employees
based on our philosophy of recognizing and rewarding exceptional performance. We believe that performance and development is an ongoing
process in which all employees should be active participants. Individual and company key performance goals are linked to employee compensation.
 
 10 

 Regulatory Implications of Providing
Equipment and Services in the Cannabis and Hemp Industry 
 
 We sell products and services
that end users may purchase for use in industries or segments, including the growing and processing of cannabis and hemp, which are subject
to varying, inconsistent, and rapidly changing laws, regulations, administrative practices, enforcement approaches, judicial interpretations,
and consumer perceptions. For example, certain countries and 36 U.S. states have adopted frameworks that authorize, regulate, and tax
the cultivation, processing, sale, and use of cannabis for medicinal and/or non-medicinal use, while the U.S. Controlled Substances Act
and the laws of other U.S. states prohibit growing cannabis. In addition, with the passage of the Farm Bill in December 2018, hemp cultivation
is now broadly permitted. The Farm Bill explicitly allows the transfer of hemp-derived products across state lines for commercial or other
purposes. It also removes restrictions on the sale, transport, or possession of hemp-derived products, so long as those items are produced
in a manner consistent with the law. Our products are multi-purpose products and may be used on a wide range of plants and are purchased
by cultivators who may grow any variety of plants, including cannabis and hemp.
 
 Although the majority of
states now have laws that regulate or decriminalize various types of cannabis use, marijuana remains a Schedule I drug under the Controlled
Substances Act, making it illegal under federal law in the U.S. to, among other things, cultivate, distribute or possess cannabis in the
U.S. In those states in which the use of marijuana has been legalized, its use remains a violation of federal law pursuant to the Controlled
Substances Act. The Controlled Substances Act classifies marijuana as a Schedule I controlled substance, and as such, medical and adult
cannabis use is illegal under U.S. federal law. Unless and until the U.S. Congress amends the Controlled Substances Act with respect to
marijuana (and the President approves such amendment), there is a risk that federal authorities may enforce current federal law. Financial
transactions involving proceeds generated by, or intended to promote, cannabis-related business activities in the U.S. may form the basis
for prosecution under applicable U.S. federal money laundering legislation. The approach to enforcement of such laws by the federal government
in the U.S. has trended toward non-enforcement against individuals and businesses that comply with medical or adult-use cannabis regulatory
programs in states where such programs are legal, strict compliance with state laws with respect to cannabis.
 
 In most states that have
legalized medical- and recreational-use cannabis in some form, the growing, processing and/or dispensing of cannabis generally requires
that the operator obtain one or more licenses in accordance with applicable state requirements. In addition, many states regulate various
aspects of the growing, processing and/or dispensing of cannabis and hemp. Local governments in some cases also impose rules and regulations
on the manner of operating cannabis and hemp businesses. As a result, applicable state and local laws and regulations vary widely, including,
but not limited to, regulations governing the medical cannabis program, product testing, the level of enforcement by state and local authorities
on non-licensed cannabis operators, state and local taxation of regulated cannabis products, local municipality bans on operations and
operator licensing processes and renewals.
 
 As part of its rigorous due
diligence policy on all potential customers, the Company carefully reviews the appropriate licensure of each potential customer in the
cannabis and hemp industry for compliance with applicable local, state, and federal laws. The Company is not involved in the cultivation,
processing, or retail of cannabis products and never takes a controlling interest in any of the operations of its cannabis customers as
a matter of state law.
 
 11 

 Implications of Being an Emerging Growth Company
and Smaller Reporting Company 
 
 We 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. Accordingly, for so long as we are an “emerging growth company,” we will not be required to:
 
 ● 
 engage an auditor to report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes–Oxley Act of 2002, or the Sarbanes–Oxley Act; 

 ● 
 comply with any requirement that may be adopted by the Public Company Accounting Oversight Board, or the PCAOB, regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (i.e., an auditor discussion and analysis); 

 ● 
 submit certain executive compensation matters to shareholder advisory votes, such as “say-on-pay,” “say-on-frequency,” and “say-on-golden parachutes;” or 

 ● 
 disclose certain executive compensation-related items such as the correlation between executive compensation and performance and the comparison of the chief executive officer’s compensation to median employee compensation. 

 In addition, the JOBS Act
provides that an “emerging growth company” can use the extended transition period for complying with new or revised accounting
standards.
 
 We will remain an “emerging
growth company” until the earliest to occur of:
 
 ● 
 our reporting $1 billion or more in annual gross revenues; 

 ● 
 our issuance, in a three-year period, of more than $1 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; and 

 ● 
 December 31, 2026. 

 We cannot predict if investors
will find our securities less attractive because we may rely on these exemptions, which could result in a less active trading market for
our securities and increased volatility in the price of our securities.
 
 Finally, we are a “smaller
reporting company” (and may continue to qualify as such even after we no longer qualify as an emerging growth company) and accordingly
may provide less public disclosure than larger public companies, including the inclusion of only two years of audited financial statements
and only two years of management’s discussion and analysis of financial condition and results of operations disclosure. As a result,
the information that we provide to our stockholders may be different than you might receive from other public reporting companies in which
you hold equity interests.
 
 Corporate Information 
 
 Our executive offices are
located at 2468 Industrial Row, Dr., Troy, Michigan 48084. Our telephone number at our executive offices is (855) 420-0020.
 
 Agrify
Corporation was incorporated in the state of Nevada on June 6, 2016, originally incorporated as Agrinamics, Inc. (or Agrinamics). On September
16, 2019, Agrinamics amended its articles of incorporation to reflect a name change to Agrify Corporation.
 
 Available Information 
 
 The Company’s Form
10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to reports filed pursuant to Sections 13(a) and 15(d)
of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are filed with the SEC. We are subject to the informational
requirements of the Exchange Act and file or furnish reports, proxy statements and other information with the SEC. Such reports and other
information filed by us with the SEC are available free of charge at https://ir.agrify.com/financials-and-filings/sec-filings when
such reports are available on the SEC’s website. The SEC maintains an Internet site that contains reports, proxy and information
statements, and other information regarding issuers that file electronically with the SEC at www.sec.gov. We periodically provide other
information for investors on our corporate website, www.agrify.com, and our investor relations website, investor.gnln.com. This includes
press releases and other information about financial performance, information on corporate
governance and details related to our annual meeting of shareholders. The information contained on the websites referenced in this Form
10-K is not incorporated by reference into this filing. Further, our references to website URLs are intended to be inactive textual references
only. 
 
 12 

 Item 1A. Risk Factors. 
 
 Investing in our Common
Stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of
the other information in this Annual Report on Form 10-K, including the section titled “Management’s Discussion and Analysis
of Financial Condition and Results of Operations” and our consolidated financial statements and related notes, before making a decision
to invest in our Common Stock. The risks and uncertainties described below may not be the only ones we face. If any of the risks actually
occur, our business, financial condition, results of operations, and prospects could be materially and adversely affected. In that event,
the market price of our Common Stock could decline, and you could lose part or all of your investment. 
 
 Risks Related to Our Business and Industry 
 
 We have a history of losses, expect to continue
to incur losses in the near term and may not achieve or sustain profitability in the future, and as a result, our management has identified,
and our auditors agreed that there is a substantial doubt about our ability to continue as a going concern. 
 
 Our consolidated financial
statements have been prepared assuming we will continue as a going concern. Since inception, we have experienced recurring net losses
which losses caused an accumulated deficit of approximately $247.1 million as of December 31, 2022. These factors, among others, raise
substantial doubt about our ability to continue as a going concern. Our consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
 
 We have a relatively short operating history,
which makes it difficult to evaluate our business and future prospects .
 
 We have a relatively short
operating history, which makes it difficult to evaluate our business and future prospects. We have been in existence since June 2016 and
much of our revenue growth has occurred during 2021 and 2022. We have encountered, and will continue to encounter, risks and difficulties
frequently experienced by growing companies in rapidly changing industries, including those related to:
 
 ● 
 market acceptance of our current and future products and services; 

 ● 
 changing regulatory environments and costs associated with compliance, particularly as related to our operations in the cannabis sector; 

 ● 
 our ability to compete with other companies offering similar products and services; 

 ● 
 our ability to effectively market our products and services and attract new clients; 

 ● 
 the amount and timing of operating expenses, particularly sales and marketing expenses, related to the maintenance and expansion of our business, operations, and infrastructure; 

 ● 
 our ability to control costs, including operating expenses; 

 ● 
 our ability to manage organic growth and growth fueled by acquisitions; 

 ● 
 public perception and acceptance of cannabis-related products and services generally; and 

 ● 
 general economic conditions and events. 

 If we do not manage these risks successfully,
our business and financial performance will be adversely affected.
 
 13 

 Potential risk of loss associated with our
TTK Solution Offerings 
 
 During 2021, we introduced
our TTK Solution, which among other things, includes financing arrangements related to both facility design and build services and equipment.
These arrangements require a significant upfront investment of working capital over a one- to two-year period, before we start to receive
repayment on the upfront construction advances and on our recurring monthly SaaS fees and production fees.
 
 As of December 31, 2022,
a significant amount of our working capital has been invested in funding our TTK Solution construction and equipment commitments. 
 
 We believe that there is
a potential risk of loss associated with our ability to receive anticipated future payments that are in line with our projected financial
unit metrics due to a host of variables including, but not limited to the following:
 
 ● 
 as we are in the early stages of our TTK Solution offerings, the TTK Solution is currently an unproven business model; 

 ● 
 the TTK Solution offering requires a significant amount of capital and our collection of advanced amounts is subject to customer credit risk; 

 ● 
 our anticipated downstream production fee revenue assumes that our VFUs will successfully produce 35 pounds of product per VFU per year; and 

 ● 
 our anticipated returns are reliant upon our customers’ ability to market and sell the products. 

 During the year ended December
31, 2022, we established a reserve of approximately $12.5 million specifically related to Greenstone Holdings (“Greenstone”)
TTK Solution. Greenstone is a related party because one of our former Agrify Brands employees and our VP of Engineering had a minority
ownership. We established the reserve based upon our review of Greenstone’s financial stability, which would impact collectability,
which is primarily the result of unfavorable market conditions within the Colorado market. On April 6, 2023, Denver Greens, LLC (“Denver
Greens”) acquired certain interests in the Greenstone project through various transactions so that Denver Greens is now the operator
of this TTK Solution. The Company wrote off the entire Greenstone loan receivable in 2022.
 
 On September 15, 2022, we
provided a notice of default under the Bud & Mary’s TTK Agreement between us and Bud & Mary’s. On October 5, 2022,
Bud & Mary’s filed a complaint in the Superior Court of Massachusetts in Suffolk County naming us as the defendant. Bud &
Mary’s is seeking, among other relief, monetary damages in connection with alleged unfair or deceptive trade practices, breach of
contract, and conversion arising from the Bud & Mary’s TTK Agreement. In response, we established a reserve of $14.7 million
specifically related to Bud & Mary’s. We deemed it necessary to fully reserve the $14.7 million outstanding balance in the third
quarter of 2022 due to the current litigation and the uncertainty of the customer’s ability to repay the outstanding balance. If
we are unable to realize revenue from our TTK Solution offerings on a timely basis, or at all, or if we incur additional losses as a result
of the Bud & Mary’s claim, our business and financial performance will be adversely affected.
 
 14 

 We may require additional financing to achieve
our goals, and a failure to obtain this necessary capital when needed on acceptable terms, or at all, may force us to delay, limit, reduce,
or terminate our product manufacturing and development, and other operations. 
 
 At December 31, 2022, we
had $20.5 million of cash, cash equivalents, and restricted cash. Our restricted cash of $10 million is associated with a
senior secured promissory note in an aggregate principal amount of $65 million (the “SPA Note”) which was exchanged
for a new senior secured note (the “Exchange Note”) as of December 31, 2022. Our operating plan may change because of factors
currently unknown to us, and we may need to seek additional funds sooner than planned. Even if we are able to substantially increase revenue
and reduce operational expenditures, we may need to raise additional capital, either through borrowings, private offerings, public offerings,
or some type of business combination, such as a merger or buyout, and there can be no assurance that we will be successful in such pursuits.
Accordingly, if we are unable to generate adequate cash from operations, and if we are unable to find sources of funding, it may be necessary
for us to sell one or more lines of business or all or a portion of our assets, enter into a business combination, or reduce or eliminate
operations. These possibilities, to the extent available, may be on terms that result in significant dilution to our shareholders or that
result in our investors losing all of their investment in our company.
 
 As of April 1, 2023, after
which time the ATM program was discontinued, we sold 629,710 shares of Common Stock, under the ATM at an average price of $27.29 per share,
resulting in gross proceeds to us of $17.2 million, and net proceeds of $16.7 million after commissions and fees to the Agent totaling
$516 thousand. $3.0 million of the proceeds under the ATM Program were used to repay amounts due to the investor (the
“Investor”) under the Exchange Note.
 
 If we are able to raise additional
capital, we do not know what the terms of any such capital raising would be. In addition, any future sale of our equity securities would
dilute the ownership and control of your shares and could be at prices substantially below prices at which our shares currently trade.
Our inability to raise capital could require us to significantly curtail or terminate our operations. We may seek to increase our cash
reserves through the sale of additional equity or debt securities. The sale of convertible debt securities or additional equity securities
could result in additional and potentially substantial dilution to our shareholders. The incurrence of indebtedness would result in increased
debt service obligations and could result in operating and financing covenants that would restrict our operations and liquidity, and ability
to pay dividends. In addition, our ability to obtain additional capital on acceptable terms is subject to a variety of uncertainties.
We cannot assure you that financing will be available in amounts or on terms acceptable to us, if at all. Any failure to raise additional
funds on favorable terms could have a material adverse effect on our liquidity and financial condition.
 
 We face risks associated with strategic
acquisitions. 
 
 Since our inception, we have
strategically acquired several businesses, and plan to continue to make strategic acquisitions, some of which may be material. These acquisitions
may involve a number of financial, accounting, managerial, operational, legal, compliance, and other risks and challenges, including the
following, any of which could adversely affect our results of operations:
 
 ● 
 any acquired business could under-perform relative to our expectations and the price that we paid for it, or not perform in accordance with its anticipated timetable; 

 ● 
 we may incur or assume significant debt in connection with our acquisitions; 

 ● 
 acquisitions could cause our results of operations to differ from our own or the investment community’s expectations in any given period, or over the long term; and 

 ● 
 acquisitions could create demands on our management that they may be unable to effectively address, or for which we may incur additional costs. 

 Additionally, following any
business acquisition, we could experience difficulty in integrating personnel, operations, financial and other systems, and in retaining
key employees and customers.
 
 We may record goodwill and
other intangible assets on our consolidated balance sheet in connection with our acquisitions. If we are not able to realize the value
of these assets, we may be required to incur charges relating to the impairment of these assets, which could materially impact our results
of operations.
 
 15 

 We have substantial
debt and other financial obligations, and we may incur even more debt. Any failure to meet our debt and other financial obligations or
maintain compliance with related covenants could harm our business, financial condition, and results of operations. 
 
 On
March 14, 2022, we entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with an accredited investor
(the “Investor”), pursuant to which we agreed to issue and sell to the Investor the SPA Note, in a private placement transaction,
in exchange for the payment by the Investor of $65 million, less applicable expenses as set forth in the Securities Purchase Agreement,
and a warrant (the “SPA Warrant”) to purchase up to an aggregate of 34,406 shares of Common Stock. 
 
 On
August 18, 2022, we reached an agreement with the Investor to amend the existing SPA Note and entered into a Securities Exchange Agreement
(the “August 2022 Exchange Agreement”). Pursuant to the August 2022 Exchange Agreement, we partially paid $35.2 million along
with approximately $300 thousand in repayments for other fees under the SPA Note and exchanged the remaining balance of the SPA Note for
a new senior secured note with an aggregate original principal amount of $35.0 million and a new warrant to purchase 71,139 shares of
Common Stock (the “Note Exchange Warrant”). Additionally, we exchanged the SPA Warrant for a new warrant for the same number
of underlying shares but with a reduced exercise price (the “Modified Warrant” and, collectively with the Note Exchange Warrant,
the “August 2022 Warrants”). The Exchange Note will mature on the three-year anniversary of its issuance.
 
 On
March 8, 2023, we entered into a second Securities Exchange Agreement with the Investor (the “March 2023 Exchange Agreement”
and together with the August 2022 Exchange Agreement, the “Exchange Agreements”), pursuant to which we paid approximately
$10.3 million in principal under the Exchange Note and exchanged $10.0 million in principal amount under the Exchange Note for a new senior
convertible note (the “Convertible Note” and, together with the Exchange Note, the “Notes”) with an original principal
amount of $10.0 million. The Convertible Note will mature on August 19, 2025.
 
 On
October 27, 2023, CP Acquisitions LLC (the “New Lender”), an entity affiliated with and controlled by Raymond Chang, our Chief
Executive Officer, acquired the Notes from the Investor.
 
 Pursuant to the terms of
the Notes, we are subject to various covenants, including negative covenants that restrict our ability to engage in certain transactions,
which may limit our ability to respond to changing business and economic conditions. Such negative covenants include, among other things,
limitations on our ability and the ability of our subsidiaries to:
 
 ● 
 incur debt; 

 ● 
 incur liens; 

 ● 
 make investments (including acquisitions); 

 ● 
 sell assets; and 

 ● 
 pay dividends on our capital stock. 

 In addition, the Notes impose
certain customary affirmative and negative covenants upon us, as well as covenants that restrict us and our subsidiaries from incurring
any additional indebtedness or suffering any liens, subject to specified exceptions, restrict the ability of us and our subsidiaries
from making certain investments, subject to specified exceptions, and restrict the declaration of any dividends or other distributions,
subject to specified exceptions.
 
 If we are not in compliance
with certain of these covenants, in addition to other actions the New Lender may require, the amounts outstanding under the Exchange Agreements
may become immediately due and payable. This immediate payment may negatively impact our financial condition. In addition, any failure
to make scheduled payments of interest and principal on our outstanding indebtedness would likely harm our ability to incur additional
indebtedness on acceptable terms. Our cash flow and capital resources may be insufficient to pay interest and principal on our debt in
the future. If that should occur, our capital raising or debt restructuring measures may be unsuccessful or inadequate to meet our scheduled
debt service obligations, which could cause us to default on our obligations and further impair our liquidity.
 
 Our ability to make scheduled
payments on our debt and other financial obligations and comply with financial covenants depends on our financial and operating performance.
Our financial and operating performance will continue to be subject to prevailing economic conditions and to financial, business, and
other factors, some of which are beyond our control. Failure within any applicable grace or cure periods to make such payments, comply
with the financial covenants, or any other non-financial or restrictive covenant, would create a default under the Notes. Our cash flow
and existing capital resources may be insufficient to repay our debt at maturity, in which case we would have to extend such maturity
date, or otherwise repay, refinance, and/or restructure the obligations under the Notes, including with proceeds from the sale of assets,
and additional equity or debt capital. If we are unsuccessful in obtaining such extension, or entering into such repayment, refinance,
or restructure prior to maturity, or any other default existed under the Notes, the New Lender could accelerate the indebtedness under
the Notes, foreclose against its collateral, or seek other remedies, which would jeopardize our ability to continue our current operations. 
 
 16 

 We may be required to record impairment
charges against the carrying value of our goodwill and other intangible assets in the future. 
 
 During the three-month period
ended June 30, 2022, we identified an impairment-triggering event associated with both a sustained decline in our stock price and associated
market capitalization, as well as a second-quarter slowdown in the cannabis industry as a whole. Due to these factors, we deemed that
there was an impairment to the carrying value of our property and equipment and accordingly performed interim testing as of June 30, 2022.
 
 Based on its interim testing,
we noted that the carrying value of equity exceeded the calculated fair value by an amount greater than the aggregate value of our goodwill
and intangible assets. Accordingly, we concluded that the entire carrying value of our goodwill and intangible assets were impaired, resulting
in a second-quarter impairment charge of $69.9 million. Additional information regarding the interim testing on goodwill may be found
in Note 7 – Goodwill and Intangible Assets, Net, included in the notes to the consolidated financial statements.
 
 During the year ended December 31, 2022,
two customers accounted for approximately $16.8 million, or 28.8%, of our total revenue. In the event of any material decrease in revenue
from these customers, or if we are unable to replace the revenue through the sale of our products to additional customers, our financial
condition and results of operations could be materially and adversely affected .
 
 This concentration of customers
leaves us exposed to the risks associated with the loss of one or both of these significant customers, which would materially and adversely
affect our revenues and results of operations. In addition, some customers have experienced and may continue to experience construction
delays in building out their facilities and we have been assisting these customers in addressing these delays, including in certain cases
extending their payment terms. Any continued delays will likely result in a negative impact on our revenues. Further, if these customers
were to significantly reduce their relationship with us, or in the event that we are unable to replace the revenue through the sale of
our products to additional customers, our financial condition and results of operations could be negatively impacted, and such impact
would likely be significant.
 
 Our reliance on a limited base of suppliers
for our products may result in disruptions to our supply chain and business and adversely affect our financial results .
 
 We rely on a limited number
of suppliers for our products and other supplies. If we are unable to maintain supplier arrangements and relationships, if we are unable
to contract with suppliers at the quantity and quality levels needed for our business, if any of our key suppliers becomes insolvent or
experiences other financial distress or if any of our key suppliers is negatively impacted by COVID-19, including with respect to staffing
and shipping of products, we could experience disruptions in our supply chain, which could have a material adverse effect on our financial
condition, results of operations, and cash flows.
 
 17 

 Many of our suppliers are experiencing operational
difficulties as a result of COVID-19, which in turn may have an adverse effect on our ability to provide products to our customers. 
 
 The measures being taken
to combat the pandemic are impacting our suppliers and may destabilize our supply chain. For example, manufacturing plants have closed
and work at others has been curtailed in many places where we source our products. Some of our suppliers have had to temporarily close
a facility for disinfecting after employees tested positive for COVID-19, and others have faced staffing shortages from employees who
are sick or apprehensive about coming to work. Further, the ability of our suppliers to ship their goods to us has become difficult as
transportation networks and distribution facilities have had reduced capacity and have been dealing with changes in the types of goods
being shipped.
 
 Although the ability of our
suppliers to timely ship their goods has affected some of our deliveries, currently the difficulties experienced by our suppliers have
not yet materially impacted our ability to deliver products to our customers and we do not significantly depend on any one supplier; however,
if this continues, it may negatively affect any inventory we may have and more significantly delay the delivery of merchandise to our
customers, which in turn will adversely affect our revenues and results of operations. If the difficulties experienced by our suppliers
continue, we cannot guarantee that we will be able to locate alternative sources of supply for our merchandise on acceptable terms, or
at all. If we are unable to adequately purchase appropriate amounts of supplies for our products, our business and results of operations
may be materially and adversely affected.
 
 As a company with clients operating in the
cannabis industry, we face many particular and evolving risks associated with that industry. 
 
 We currently serve private
clients as they operate in the growing cannabis industry. Any risks related to the cannabis industry that may adversely affect our clients
and potential clients may, in turn, adversely affect demand for our products. Specific risks faced by companies operating in the cannabis
industry include, but are not limited to, the following:
 
 Marijuana remains illegal
under U.S. federal law 
 
 Marijuana is a Schedule-I
controlled substance under the Controlled Substances Act and is illegal under federal law. It remains illegal under U.S. Federal law to
grow, cultivate, sell, or possess marijuana for any purpose or to assist or conspire with those who do so. Additionally, 21 U.S.C. 856
makes it illegal to “knowingly open, lease, rent, use, or maintain any place, whether permanently or temporarily, for the purpose
of manufacturing, distributing, or using any controlled substance.” Even in those states in which the use of marijuana has been
authorized, its use remains a violation of federal law. Since federal law criminalizing the use of marijuana is not preempted by state
laws that legalize its use, strict enforcement of federal law regarding marijuana would likely result in our clients’ inability
to proceed with their operations, which would adversely affect demands for our products.
 
 Uncertainty of federal
enforcement and the need to renew temporary safeguards 
 
 On January 4, 2018, former
Attorney General Sessions rescinded the previously issued memoranda (known as the Cole Memorandum) from the U.S. Department of Justice
(“DOJ”) that had de-prioritized the enforcement of federal law against marijuana users and businesses that comply with state
marijuana laws, adding uncertainty to the question of how the federal government will choose to enforce federal laws regarding marijuana.
Attorney General Sessions issued a memorandum to all U.S. Attorneys in which the DOJ affirmatively rescinded the previous guidance as
to marijuana enforcement, calling such guidance “unnecessary.” This one-page memorandum was vague in nature, stating that
federal prosecutors should use established principles in setting their law enforcement priorities. Under previous administrations, the
DOJ indicated that those users and suppliers of medical marijuana who complied with state laws, which required compliance with certain
criteria, would not be prosecuted. As a result, it is now unclear if the DOJ will seek to enforce the Controlled Substances Act against
those users and suppliers who comply with state marijuana laws.
 
 18 

 Despite former Attorney General
Sessions’ rescission of the Cole Memorandum, the Department of the Treasury, Financial Crimes Enforcement Network, has not rescinded
the “FinCEN Memo” dated February 14, 2014, which de-prioritizes enforcement of the Bank Secrecy Act against financial institutions
and marijuana-related businesses which utilize them. This memo appears to be a standalone document and is presumptively still in effect.
At any time, however, the Department of the Treasury, Financial Crimes Enforcement Network, could elect to rescind the FinCEN Memo. This
would make it more difficult for our clients and potential clients to access the U.S. banking systems and conduct financial transactions,
which would adversely affect our operations.
 
 In 2014, Congress passed
a spending bill (“2015 Appropriations Bill”) containing a provision (“Appropriations Rider”) blocking federal
funds and resources allocated under the 2015 Appropriations Bill from being used to “prevent such States from implementing their
own State medical marijuana law.” The Appropriations Rider seemed to have prohibited the federal government from interfering with
the ability of states to administer their medical marijuana laws, although it did not codify federal protections for medical marijuana
patients and producers. Moreover, despite the Appropriations Rider, the Justice Department maintains that it can still prosecute violations
of the federal marijuana ban and continue cases already in the courts. Additionally, the Appropriations Rider must be re-enacted every
year. While it was continued in subsequent years and remains in effect, continued re-authorization of the Appropriations Rider cannot
be guaranteed. If the Appropriations Rider is no longer in effect, the risk of federal enforcement and override of state marijuana laws
would increase.
 
 Further legislative development
beneficial to our operations is not guaranteed 
 
 One aspect of our business
involves selling goods and services to state-licensed cannabis cultivators. The success of our business may partly depend on the continued
development of the cannabis industry and the activity of commercial business within the industry. The continued development of the cannabis
industry is dependent upon continued legislative and regulatory authorization of cannabis at the state level and a continued laissez-faire
approach by federal enforcement agencies. Any number of factors could slow or halt progress in this area. Further regulatory progress
beneficial to the industry cannot be assured. While there may be ample public support for legislative action, numerous factors impact
the legislative and regulatory process, including election results, scientific findings, or general public events. Any one of these factors
could slow or halt progressive legislation relating to cannabis and the current tolerance for the use of cannabis by consumers, which
could adversely affect demand for our products and operations.
 
 The cannabis industry
could face strong opposition from other industries 
 
 We believe that established
businesses in other industries may have a strong economic interest in opposing the development of the cannabis industry. Cannabis may
be seen by companies in other industries as an attractive alternative to their products, including recreational marijuana as an alternative
to alcohol, and medical marijuana as an alternative to various commercial pharmaceuticals. Many industries that could view the emerging
cannabis industry as an economic threat are well established, with vast economic and federal and state lobbying resources. It is possible
that companies within these industries could use their resources to attempt to slow or reverse legislation legalizing cannabis. Any inroads
these companies make in halting or impeding legislative initiatives that would be beneficial to the cannabis industry could have a detrimental
impact on some of our clients and, in turn, on our operations.
 
 The legality of marijuana
could be reversed in one or more states 
 
 The voters or legislatures
of states in which marijuana has already been legalized could potentially repeal applicable laws which permit the operation of both medical
and retail marijuana businesses. These actions might force businesses, including those that are our clients, to cease operations in one
or more states entirely.
 
 Changing legislation and
evolving interpretations of law 
 
 Laws and regulations affecting
the medical and adult-use marijuana industry are constantly changing, which could detrimentally affect some of our clients and, in turn,
our operations. Local, state, and federal marijuana laws and regulations are broad in scope and subject to evolving interpretations, which
could require our clients and thus us to incur substantial costs associated with modification of operations to ensure such clients’
compliance. In addition, violations of these laws, or allegations of such violations, could disrupt our clients’ businesses and
result in a material adverse effect on our operations. In addition, it is possible that regulations may be enacted in the future that
will limit the amount of cannabis growth, or related products that our commercial clients are authorized to produce. We cannot predict
the nature of any future laws, regulations, interpretations, or applications, nor can we determine what effect additional governmental
regulations or administrative policies and procedures, when and if promulgated, could have on our operations.
 
 19 

 Our business depends in
part on client licensing 
 
 Our business is partly dependent
on certain of our customers obtaining various licenses from various municipalities and state licensing agencies. There can be no assurance
that any or all licenses necessary for our clients to operate their businesses will be obtained, retained, or renewed. If a licensing
body were to determine that a client of ours had violated applicable rules and regulations, there is a risk the license granted to that
client could be revoked, which could adversely affect our operations. There can be no assurance that our existing clients will be able
to retain their licenses going forward, or that new licenses will be granted to existing and new market entrants.
 
 Banking regulations could
limit access to banking services 
 
 Since the use of marijuana
is illegal under federal law, there is a compelling argument that banks cannot lawfully accept for deposit funds from businesses involved
with marijuana. Consequently, businesses involved in the cannabis industry often have trouble finding a bank willing to accept their business.
The inability to open bank accounts may make it difficult for some of our clients to operate and their reliance on cash can result in
a heightened risk of theft, which could harm their businesses and, in turn, harm our business. Although the proposal of the Secure and
Fair Enforcement Banking Act, also referred to as the SAFE Banking Act, would allow banks to work with cannabis businesses and prevent
federal banking regulators from intervening or punishing those banks, the legislation still requires the approval of the U.S. Senate.
There can be no assurance that the SAFE Banking Act will become law in the U.S. Additionally, most courts have denied marijuana-related
businesses bankruptcy protection, thus making it very difficult for lenders to recoup their investments, which may limit the willingness
of banks to lend to our clients and to us.
 
 We may face insurance
risks 
 
 In the U.S., many marijuana-related
businesses are subject to a lack of adequate insurance coverage. In addition, many insurance companies may deny claims for any loss relating
to marijuana or marijuana-related operations based on their illegality under federal law, noting that a contract for an illegal transaction
is unenforceable.
 
 We participate in an evolving
industry 
 
 The cannabis industry is
not yet well-developed, and many aspects of this industry’s development and evolution cannot be accurately predicted. While we have
attempted to identify many risks specific to the cannabis industry, you should carefully consider that there are other risks that cannot
be foreseen or are not described in this report, which could materially and adversely affect our business and financial performance. We
expect that the cannabis market and our business will evolve in ways that are difficult to predict. Our long-term success may depend on
our ability to successfully adjust our strategy to meet the changing market dynamics. If we are unable to successfully adapt to changes
in the cannabis industry, our operations could be adversely affected.
 
 20 

 The inability of our customers to meet their
financial or contractual obligations to us may result in disruption to our results of operations and could result in financial losses. 
 
 We have exposure to several
customers and certain of these customers are experiencing financial difficulties. We have in the past, and may in the future, need to
take allowances against and need to write off receivables due to the creditworthiness of these customers. Further, the inability of these
customers to purchase our products could materially adversely affect our results of operations.
 
 Changes in our credit profile may affect
our relationship with our suppliers, which could have a material adverse effect on our liquidity. 
 
 Changes in our credit profile
may affect the way our suppliers view our ability to make payments and may induce them to shorten the payment terms of their invoices.
Given the large dollar amounts and volume of our purchases from suppliers, a change in payment terms may have a material adverse effect
on our liquidity and our ability to make payments to our suppliers and, consequently, may have a material adverse effect on our business
and results of operations.
 
 Although we believe our current sales backlog,
which consists of purchase orders or purchase commitments, and our qualified pipeline of carefully vetted potential sales opportunities,
will translate into future revenue, there can be no assurance that we will be successful in such pursuit. 
 
 Although we conduct a detailed
due diligence investigation on our current and potential customers and place a heavy emphasis on the qualification process to ensure that
all active customer purchase orders and commitments relating to our backlog and all active opportunities in our qualified pipeline have
been meticulously vetted, the criteria we rely on and the internal analysis we undertake is subjective. Furthermore, we have a relatively
short operating history and do not have significant data relating to the conversion of our backlog into revenue and the conversion of
our qualified pipeline into customer contracts. Accordingly, although we believe that a portion of our backlog and qualified pipeline
will translate into bookings over the next 12 months, there can be no assurance that we will be successful in such pursuit. In the event
our backlog and qualified pipeline do not translate into bookings as projected, it could materially and adversely affect our business
and financial performance.
 
 21 

 We rely on third parties for certain services
made available to our customers, which could limit our control over the quality of the user experience and our cost of providing services .
 
 Some of the applications
and services available through our proprietary Agrify cultivation solution, including our flagship hardware product, the Agrify Vertical
Farming Unit (“VFU”), and our proprietary SaaS product, Agrify Insights™, are provided through relationships with third
party service providers. We do not typically have any direct control over these third-party service providers. These third-party service
providers could experience service outages, data loss, privacy breaches, including cyber-attacks, and other events relating to the applications
and services they provide that could diminish the utility of these services and which could harm users thereof. Our platform is currently
hosted by a third-party service provider. There are readily available alternative hosting services available should we desire or need
to move to a different web host. Certain ancillary services provided by us also uses the services of third-party providers, for which,
we believe, there are readily available alternatives on comparable economic terms. Offering integrated platforms which rely, in part,
on the services of other providers lessens the control that we have over the total client experience. Should the third-party service providers
we rely upon not deliver at standards we expect and desire, acceptance of our platforms could suffer, which would have an adverse effect
on our business and financial performance. Further, we cannot be assured of entering into agreements with such third-party service providers
on economically favorable terms.
 
 The growth and success of our business depends
on the continued contributions of Raymond Chang, as our key executive officer, as well as our ability to attract and retain qualified
personnel .
 
 Our growth and success are
dependent upon the continued contributions made by our Chairman of the Board and Chief Executive Officer, Raymond Chang. We rely on Mr.
Chang’s expertise in business operations when we are developing new products and services. If Mr. Chang cannot serve us or is no
longer willing to do so, we may not be able to find alternatives in a timely manner or at all. This may have a material adverse effect
on our business. In addition, our growth and success will depend to a significant extent on our ability to identify, attract, hire, train
and retain qualified professional, creative, technical and managerial personnel. Timothy R. Oakes, our Chief Financial Officer, notified
us on January 2, 2023 that he intended to resign from his role with us effective as of February 28, 2023 to pursue other opportunities.
While we are conducting a search for Mr. Oakes’ successor, there is no assurance that we will be able to identify, attract or hire
a replacement in a timely manner. Competition for experience and qualified talent in the indoor agriculture marketplace can be intense.
We may not be successful in identifying, attracting, hiring, training and retaining such personnel in the future. If we are unable to
hire, assimilate and retain qualified personnel in the future, such inability could adversely affect our operations.
 
 We face intense competition that could prohibit
us from developing or increasing our customer base .
 
 The indoor agriculture industry
is highly competitive. We may compete with companies that have greater capital resources and facilities. More established companies with
much greater financial resources which do not currently compete with us may be able to adapt their existing operations more easily to
our line of business. In addition, the continued growth of the cannabis industry will likely attract some of these existing companies
and incentivize them to produce solutions that are competitive with those offered by us. Our competitors may also introduce new and improved
products, and manufacturers may sell equipment direct to consumers. We may not be able to successfully compete with larger enterprises
devoting significant resources to compete in our target market space. Due to this competition, there is no assurance that we will not
encounter difficulties in increasing revenues and maintaining and/or increasing market share. In addition, increased competition may lead
to reduced prices and/or margins for products we sell.
 
 22 

 Protecting and defending against intellectual
property claims may have a material adverse effect on our business .
 
 Our ability to compete depends,
in part, upon the successful protection of our intellectual property relating to our proprietary Agrify cultivation solution, including
our flagship hardware product, the VFU, and our proprietary SaaS product, Agrify Insights™. We seek to protect our proprietary and
intellectual property rights through patent applications, common law copyright and trademark laws, nondisclosure agreements, and non-disclosure
provisions within our licensing and distribution arrangements with reputable companies in our target markets. Enforcement of our intellectual
property rights would be costly, and there can be no assurance that we will have the resources to undertake all necessary action to protect
our intellectual property rights or that we will be successful. Any infringement of our material intellectual property rights could require
us to redirect resources to actions necessary to protect same and could distract management from our underlying business operations. An
infringement of our material intellectual property rights and resulting actions could adversely affect our operations.
 
 We cannot assure investors
that we will continue to innovate and file new patent applications, or that any current or future patent applications will result in granted
patents. Further, we cannot predict how long it will take for such patents to issue, if at all. It is possible that, for any of our patents
that may issue in the future, our competitors may design their products around our patented technologies. Further, we cannot assure investors
that other parties will not challenge any patents granted to us, or that courts or regulatory agencies will hold our patents to be valid,
enforceable, and/or infringed. We cannot guarantee investors that we will be successful in defending challenges made against our patents
and patent applications. Any successful third-party challenge or challenges to our patents could result in the unenforceability or invalidity
of such patents, or such patents being interpreted narrowly and/or in a manner adverse to our interests. Our ability to establish or maintain
a technological or competitive advantage over our competitors and/or market entrants may be diminished because of these uncertainties.
For these and other reasons, our intellectual property may not provide us with any competitive advantage. For example:
 
 ● 
 we may not have been the first to make the inventions claimed or disclosed in our patent application; 

 ● 
 we may not have been the first to file patent application. To determine the priority of these inventions, we may have to participate in interference proceedings or derivation proceedings declared by the U.S. Patent and Trademark Office (“USPTO”), which could result in substantial cost to us, and could possibly result in a loss or narrowing of patent rights. No assurance can be given that our granted patents will have priority over any other patent or patent application involved in such a proceeding, or will be held valid as an outcome of the proceeding; 

 ● 
 other parties may independently develop similar or alternative products and technologies or duplicate any of our products and technologies, which can potentially impact our market share, revenue, and goodwill, regardless of 

 ● 
 it is possible that our issued patents may not provide intellectual property protection of commercially viable products or product features, may not provide us with any competitive advantages, or may be challenged and invalidated by third parties, patent offices, and/or the courts; 

 ● 
 we may be unaware of or unfamiliar with prior art and/or interpretations of prior art that could potentially impact the validity or scope of our patents or patent applications that we may file; 

 ● 
 we take efforts and enter into agreements with employees, consultants, collaborators, and advisors to confirm ownership and chain of title in intellectual property rights. However, an inventorship or ownership dispute could arise that may permit one or more third parties to practice or enforce our intellectual property rights, including possible efforts to enforce rights against us; 

 ● 
 we may elect not to maintain or pursue intellectual property rights that, at some point in time, may be considered relevant to or enforceable against a competitor; 

 ● 
 we may not develop additional proprietary products and technologies that are patentable, or we may develop additional proprietary products and technologies that are not patentable; 

 ● 
 the patents or other intellectual property rights of others may have an adverse effect on our business; and 

 ● 
 we apply for patents relating to our products and technologies and uses thereof, as we deem appropriate. However, we or our representatives or their agents may fail to apply for patents on important products and technologies in a timely fashion or at all, or we or our representatives or their agents may fail to apply for patents in potentially relevant jurisdictions. 

 To the extent our intellectual
property offers inadequate protection, or is found to be invalid or unenforceable, we would be exposed to a greater risk of direct or
indirect competition. If our intellectual property does not provide adequate coverage over our competitors’ products, our competitive
position could be adversely affected, as could our business.
 
 23 

 Our success depends in part upon our ability to protect our core
technology and intellectual property .
 
 Our success depends in part
upon our ability to protect our core technology and intellectual property. To establish and protect our proprietary rights, we rely on
a combination of trademark, copyright, patent, trade secret and unfair competition laws of the U.S. and other countries, as well as contract
provisions, license agreements, confidentiality procedures, non-disclosure agreements with third parties, employee disclosure and invention
assignment agreements, and other contractual rights, as well as procedures governing internet/domain name registrations. However, there
can be no assurance that these measures will be successful in any given case. We may be unable to prevent the misappropriation, infringement
or violation of our intellectual property rights, breach of any contractual obligations to us, or independent development of intellectual
property that is similar to ours, any of which could reduce or eliminate any competitive advantage we have developed, adversely affecting
our revenues or otherwise harming our business.
 
 We generally control access
to and use of our proprietary technology and other confidential information through the use of internal and external controls, including
contractual protections with employees, contractors, customers, and partners, and our software is protected by U.S. copyright laws.
 
 Despite efforts to protect
our proprietary rights through intellectual property laws, licenses, and confidentiality agreements, unauthorized parties may still copy
or otherwise obtain and use our software and technology. Companies in the Internet, technology, and software industries frequently enter
into litigation based on allegations of infringement, misappropriation, or violations of intellectual property rights or other laws. From
time to time, we may face allegations that we have infringed the trademarks, copyrights, patents, trade secrets and other intellectual
property rights of third parties, including competitors. If it became necessary for us to resort to litigation to protect these rights,
any proceedings could be burdensome, costly and divert the attention of our personnel, and we may not prevail. In addition, any repeal
or weakening of laws or enforcement in the U.S. or internationally intended to protect intellectual property rights could make it more
difficult for us to adequately protect our intellectual property rights, negatively impacting their value and increasing the cost of enforcing
our rights.
 
 We have obtained and applied
for U.S. trademark and service mark registrations and will continue to evaluate the registration of additional trademarks and service
marks or, as appropriate. We cannot guarantee that any of our pending trademark applications will be approved by the applicable governmental
authorities. Moreover, even if the trademark applications are approved, third parties may seek to oppose or otherwise challenge these
registrations. A failure to obtain registrations for our trademarks could limit and impede our marketing efforts.
 
 We may need to enter into intellectual property
license agreements in the future, and if we are unable to obtain these licenses, our business could be harmed .
 
 We may need or may choose
to obtain licenses and/or acquire intellectual property rights from third parties to advance our research or commercialization of our
current or future products. We also cannot provide any assurances that third-party patents do not exist that might be enforced against
our current or future products in the absence of such a license or acquisition. We may fail to obtain any of these licenses or intellectual
property rights on commercially reasonable terms. Even if we are able to obtain a license, it may be non-exclusive, thereby giving our
competitors access to the same technologies licensed to us. In that event, we may be required to expend significant time and resources
to develop or license replacement technology. If we are unable to do so, we may be unable to develop or commercialize the affected products,
which could materially harm our business and the third parties owning such intellectual property rights could seek either an injunction
prohibiting our sales, or, with respect to our sales, an obligation on our part to pay royalties and/or other forms of compensation.
 
 24 

 Others may assert intellectual property infringement claims against
us .
 
 Companies in the software
and technology industries can own patents, copyrights, trademarks, and trade secrets, and frequently enter into litigation based on allegations
of infringement, misappropriation, or other violations of intellectual property or other rights. In addition, various “non-practicing
entities” that own patents (colloquially known as “patent trolls”) often attempt to aggressively assert their rights
to extract value from technology companies. It is possible that, from time to time, third parties may claim that our products misappropriate
or infringe their intellectual property rights. Irrespective of the validity or the successful assertion of any such claims, we could
incur significant costs and diversion of resources in defending against these claims, which could adversely affect our operations. We
may receive unfavorable preliminary or interim rulings in the course of litigation, and there can be no assurances that favorable final
outcomes will be obtained in all cases. We may decide to settle such lawsuits and disputes on terms that are unfavorable to us. As a result,
we may also be required to develop alternative non-infringing technology or practices or discontinue the practices. The development of
alternative non-infringing technology or practices could require significant effort and expense or may not be feasible. In addition, to
the extent claims against us are successful, we may have to pay substantial money damages or discontinue, modify, or rename certain products
or services that are found to be in violation of another party’s rights. We may have to seek a license (if available on acceptable
terms, or at all) to continue offering products and services, which may significantly increase our operating expenses.
 
 Our ability to use our net operating losses
to offset future taxable income may be subject to certain limitations .
 
 As of December 31, 2022,
we had net operating loss (“NOL”) carryforwards for federal and state income tax purposes which may be available to offset
taxable income in future years. Approximately $675 thousand of federal NOLs will expire if not utilized by 2037 and approximately $96.0
million of federal NOLs carryforward indefinitely but are only available to offset 80% of taxable income per year. The $71.6 million state
NOLs will expire depending upon the various rules in the states in which we operate. A lack of future taxable income would adversely affect
our ability to utilize these NOLs before they expire. The utilization of our NOLs could be subject to annual limitations under Section
382 and 383 of the Internal Revenue Code (“IRC” or the “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. In general, under Section 382, a corporation
that undergoes an “ownership change” (as defined under Section 382 of the Code and applicable Treasury Regulations) is subject
to limitations on its ability to utilize its pre-change NOLs to offset its future taxable income. As of December 31, 2022, we have 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, in the past or future, our NOLs and any NOLs of companies that we have acquired could be limited to offset any future taxable
income.
 
 There is also a risk that
due to regulatory changes, such as suspensions on the use of NOLs or other unforeseen reasons, our existing NOLs could expire or otherwise
be unavailable to reduce future income tax liabilities for federal and state income tax purposes. For these reasons, we may not be able
to utilize a material portion of our NOLs, even if we attain profitability, which could result in increased future tax liability to us
and could adversely affect the results of our operations and overall financial condition.
 
 There are no assurances that our outstanding
loans will be forgivable in whole or in part .
 
 In May 2020, we entered into
a Loan Agreement and Promissory Note with Bank of America pursuant to the Paycheck Protection Program (the “PPP”) under the
Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) administered by the U.S. Small Business Administration (the
“SBA”). We received total proceeds of approximately $779 thousand from the unsecured PPP loan which was originally scheduled
to mature in May 2022. We applied for forgiveness on the $779 thousand of our PPP loan, but forgiveness was denied by the SBA. On June
23, 2022, we received a letter from Bank of America agreeing to extend the maturity date to May 7, 2025 with interest at a rate of 1.00%
per year. The PPP loan is payable in 34 equal combined monthly principal and interest payments of approximately $24 thousand that commenced
on August 7, 2022.
 
 25 

 Risks Related to Ownership of our Common Stock 
 
 Concentration of ownership among our existing
executive officers, directors and their affiliates may prevent new investors from influencing significant corporate decisions .
 
 Our executive officers, directors
and their affiliates beneficially own, in the aggregate, approximately 10.54% of our outstanding shares of Common Stock. In particular,
Raymond Chang, our Chairman of the Board and Chief Executive Officer, beneficially owns approximately 9.99% of our outstanding shares
of Common Stock. As a result, these stockholders will be able to exercise a significant level of control over all matters requiring stockholder
approval, including the election of directors, amendment of our articles of incorporation and approval of significant corporate transactions.
This control could have the effect of delaying or preventing a change of control of our company or changes in management and will make
the approval of certain transactions difficult or impossible without the support of these stockholders.
 
 The large number of shares eligible for
public sale could depress the market price of our Common Stock .
 
 We have filed a registration
statement to register the shares of Common Stock underlying outstanding options and shares reserved for future issuance under our equity
compensation plans. Upon effectiveness of that registration statement, subject to the satisfaction of applicable exercise periods and
subject to our insider trading policy, the shares of Common Stock issued upon exercise of outstanding options will be available for immediate
resale in the U.S. in the open market.
 
 Sales of our Common Stock
as restrictions end or pursuant to registration rights may make it more difficult for us to sell equity securities in the future at a
time and at a price that we deem appropriate. These sales also could cause our stock price to fall and make it more difficult for you
to sell shares of our Common Stock.
 
 26 

 Our failure to meet the continued listing requirements of Nasdaq
could result in a de-listing of our Common Stock. 
 
 If we fail to continue to
satisfy the continued listing requirements of Nasdaq, such as the corporate governance requirements or the minimum closing bid price requirement,
Nasdaq will take steps to delist our Common Stock. Such a de-listing would likely have a negative effect on the price of our Common Stock
and would impair stockholders’ ability to sell or purchase our Common Stock when they wish to do so, as well as adversely affect
our ability to issue additional securities and obtain additional financing in the future.
 
 On January 19, 2023, we received
a new deficiency letter from the Staff of Nasdaq notifying us that, for the last 30 consecutive business days, the bid price for our Common
Stock had closed below $1.00 per share, which is the minimum closing price required to maintain
continued listing on The Nasdaq Capital Market under Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Requirement”) .
In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we had 180 calendar days to regain compliance with the Minimum Bid Requirement.
To regain compliance with the Minimum Bid Requirement, the closing bid price of our Common Stock must be at least $1.00 per share for
a minimum of 10 consecutive trading days during this 180-day compliance period, unless the Staff exercises its discretion to
extend the minimum trading day period pursuant to Nasdaq Listing Rule 5810(c)(3)(G). On July 19, 2023, we received a notice from Nasdaq
confirming our compliance with the minimum bid price rule.
 
 On April 18, 2023, we received
a notice from Nasdaq (the “April Nasdaq Notice”) that we were noncompliance with Nasdaq Listing Rule 5250(c)(1) as a result
of our failure to file this Annual Report on Form 10-K (the “Form 10-K”) with the SEC by the required due date.
 
 On
May 17, 2023, we received a second notice from Nasdaq (the “May Nasdaq Notice”) that we remained noncompliant with Nasdaq
Listing Rule 5250(c)(1) as a result of our failure to file our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023 (the
“First Quarter Form 10-Q”) with the SEC by the required due date. 
 
 On August 16, 2023, we received
a third notice from Nasdaq that we remain noncompliant with Nasdaq Listing Rule 5250(c)(1) as a result of our failure to file our Quarterly
Report on Form 10-Q for the fiscal quarter ended June 30, 2023 (the “Second Quarter Form 10-Q”) with the SEC by the required
filing date (the “August Nasdaq Notice” and, together with the April Nasdaq Notice and the May Nasdaq Notice, the “Nasdaq
Notices”).
 
 On
October 17, 2023, we received a Staff Delisting Determination (the “Staff Determination”) from the Listing Qualifications
Department of Nasdaq notifying us that we were not in compliance with Nasdaq’s continued listing requirements under the Listing
Rule as a result of our failure to file the First Quarter Form 10-Q, the Second Quarter Form 10-Q and the Form 10-K (collectively, the
“Delinquent Reports”) in a timely manner. The Staff Determination has no immediate effect and will not immediately result
in the suspension of trading or delisting of our shares of common stock.
 
 We timely requested a hearing
before the Nasdaq Hearings Panel (the “Panel”), and the Panel scheduled a hearing for January 11, 2024. In connection with
the hearing request, we requested that the stay be extended through the hearing and the expiration of any additional extension period
granted by the Panel following the hearing. In that regard, pursuant to the Nasdaq Listing Rules, the Panel has granted this additional
extension period. However, there can be no assurance that we will be able to regain compliance by the end of any additional extension
period.
 
 As disclosed in the Current
Report on Form 8-K filed on April 17, 2023, our audit committee concluded that, as a result of inadvertent errors in the accounting for
warrants previously issued by us, it was appropriate to restate our previously issued unaudited condensed consolidated interim consolidated
financial statements as of and for the quarterly periods ended March 31, 2022, June 30, 2022 and September 30, 2022 included in our Quarterly
Reports on Form 10-Q for such periods in amended quarterly reports for the affected periods. As a result of such restatements, we were
unable to timely file the Form 10-K, the First Quarter Form 10-Q and the Second Quarter Form 10-Q without unreasonable effort or expense.
 
 27 

 We will take all possible
actions to restore our compliance with Nasdaq, but we can provide no assurances that the listing of our Common Stock will be restored
or that we otherwise will remain listed on Nasdaq.
 
 The exercise of all or any number of outstanding
warrants or the issuance of stock-based awards may dilute your holding of shares of our Common Stock. 
 
 We have issued several securities
providing for the right to purchase our common stock. Investors could be subject to increased dilution upon the exercise of our warrants.
A total of 1,495,011 warrants were issued and outstanding as of October 1, 2023.
 
 Additionally, 9,354 shares
of Common Stock were reserved for issuance of currently outstanding equity-based awards to employees, directors and certain other individuals
under the Company’s 2022 Omnibus Equity Incentive Plan. The exercise of equity awards, including any restricted stock units that
we may grant in the future, and the exercise of warrants and the subsequent sale of shares of Common Stock issued thereby, could have
an adverse effect on the market for our Common Stock, including the price that an investor could obtain for their shares.
 
 Investors may experience
dilution in the value of their investment upon the exercise of the warrants and any equity awards that may be granted or issued pursuant
to the 2022 Omnibus Equity Incentive Plan.
 
 Provisions in our articles of incorporation,
our by-laws and Nevada law might discourage, delay or prevent a change in control of our company or changes in our management and, therefore,
depress the trading price of our Common Stock . 
 
 Provisions of our articles
of incorporation, our by-laws and Nevada law may have the effect of deterring unsolicited takeovers or delaying or preventing a change
in control of our company or changes in our management, including transactions in which our stockholders might otherwise receive a premium
for their shares over then current market prices. In addition, these provisions may limit the ability of stockholders to approve transactions
that they may deem to be in their best interests. These provisions include:
 
 ● 
 the inability of stockholders to call special meetings; and 

 ● 
 the ability of our board of directors to designate the terms of and issue new series of preferred stock without stockholder approval, which could include the right to approve an acquisition or other change in our control or could be used to institute a rights plan, also known as a poison pill, that would work to dilute the stock ownership of a potential hostile acquirer, likely preventing acquisitions that have not been approved by our board of directors. 

 The existence of the forgoing
provisions and anti-takeover measures could limit the price that investors might be willing to pay in the future for shares of our Common
Stock. They could also deter potential acquirers of our company, thereby reducing the likelihood that you could receive a premium for
your Common Stock in an acquisition.
 
 28 

 We are an “emerging growth company,”
as defined in the JOBS Act, and a “smaller reporting company” within the meaning of the Securities Act, and we cannot be certain
if the reduced disclosure requirements applicable to emerging growth companies or smaller reporting companies will make our Common Stock
less attractive to investors. 
 
 We are an “emerging
growth company,” as defined in the JOBS Act. For as long as we continue to be an emerging growth company, we may take advantage
of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies,
including (1) not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, (2) reduced
disclosure obligations regarding executive compensation in this report and our periodic reports and proxy statements and (3) exemptions
from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute
payments not previously approved. In addition, as an emerging growth company, we are only required to provide two years of audited consolidated
financial statements and two years of selected financial data in this report. We could be an emerging growth company for up to five years,
although circumstances could cause us to lose that status earlier, including if the market value of our Common Stock held by non-affiliates
exceeds $700 million as of any March 31 before that time or if we have total annual gross revenue of $1.0 billion or more during any fiscal
year before that time, after which, in each case, we would no longer be an emerging growth company as of the following December 31 or,
if we issue more than $1.0 billion in non-convertible debt during any three-year period before that time, we would cease to be an emerging
growth company immediately.
 
 Additionally, we are a “smaller
reporting company” as defined in Item 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced
disclosure obligations, including, among other things, providing only two years of audited consolidated financial statements. We will
remain a smaller reporting company until the last day of the fiscal year in which (1) the market value of our shares of Common Stock held
by non-affiliates exceeds $250 million as of the prior June 30, or (2) our annual revenues exceeded $100 million during such completed
fiscal year and the market value of our ordinary shares held by non-affiliates exceeds $700 million as of the prior June 30. To the extent
we take advantage of such reduced disclosure obligations, it may also make comparison of our consolidated financial statements with other
public companies difficult or impossible.
 
 After we are no longer an
“emerging growth company,” we expect to incur additional management time and cost to comply with the more stringent reporting
requirements applicable to companies that are deemed accelerated filers or large accelerated filers, including complying with the auditor
attestation requirements of Section 404 of the Sarbanes-Oxley Act. We cannot predict or estimate the amount of additional costs we may
incur or the timing of such costs.
 
 We have not and do not expect to declare
any dividends to our shareholders in the foreseeable future .
 
 We have not and do not anticipate
declaring any cash dividends to holders of our Common Stock in the foreseeable future. Consequently, investors may need to rely on sales
of their Common Stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment.
Investors seeking cash dividends should not purchase our Common Stock.
 
 29 

 General Risk Factors 
 
 The COVID-19 pandemic and the efforts to mitigate its impact
may have an adverse effect on our business, liquidity, results of operations, financial condition and price of our securities .
 
 The pandemic involving the
novel strain of coronavirus and related respiratory disease (which we refer to as COVID-19) and the measures taken to combat it, have
had an adverse effect on our business. Public health authorities and governments at local, national and international levels have announced
various measures to respond to this pandemic. Some measures that directly or indirectly impact our business include:
 
 ● voluntary or mandatory quarantines; 

 ● restrictions on travel; and 

 ● limiting gatherings of people
in public places. 

 We have undertaken measures
in an effort to mitigate the spread of COVID-19 including limiting company travel and in-person meetings. We also have enacted our business
continuity plans, including implementing procedures requiring employees working remotely where possible which may make maintaining our
normal level of corporate operations, quality controls and internal controls difficult. Notwithstanding these efforts, our results of
operations have been adversely impacted by COVID-19 and this may continue.
 
 Moreover, the COVID-19 pandemic
has previously caused some temporary delays in the delivery of our inventory, although recently we are no longer experiencing such delays.
In addition, the travel restrictions imposed as a result of COVID-19 have impacted our ability to visit customer sites to perform services
related to our products. Further, the COVID-19 pandemic and mitigation efforts have also adversely affected our customers’ financial
condition, resulting in reduced spending for the products we sell.
 
 As events are rapidly changing,
we do not know how long the COVID-19 pandemic, or localized outbreaks or recurrences of COVID-19, and the measures that have been introduced
to respond to COVID-19 will disrupt our operations or the full extent of that disruption. Further, once we are able to restart normal
operations doing so may take time and will involve costs and uncertainty. We also cannot predict how long the effects of COVID-19 and
the efforts to contain it will continue to impact our business after the pandemic is under control. Governments could take additional
restrictive measures to combat the pandemic that could further impact our business or the economy in the geographies in which we operate.
It is also possible that the impact of the pandemic and response on our suppliers, customers and markets will persist for some time after
governments ease their restrictions. These measures have negatively impacted, and may continue to impact, our business and financial condition
as the responses to control COVID-19 continue.
 
 A prolonged economic downturn, particularly
in light of the COVID-19 pandemic, could adversely affect our business .
 
 Uncertain global economic
conditions, in particular in light of the COVID-19 pandemic, could adversely affect our business. Negative global and national economic
trends, such as decreased consumer and business spending, high unemployment levels and declining consumer and business confidence, pose
challenges to our business and could result in declining revenues, profitability and cash flow. Although we continue to devote significant
resources to support our brands, unfavorable economic conditions may negatively affect demand for our products.
 
 30 

 Increases in costs, disruption of supply or shortage of raw materials
could harm our business .
 
 We may experience increases
in the cost or a sustained interruption in the supply or shortage of raw materials. For example, the tariffs currently imposed for importing
goods from China has significantly increased. Any such an increase or supply interruption could materially negatively impact our business,
prospects, financial condition and operating results. We use various raw materials in our business including aluminum. The prices for
these raw materials fluctuate depending on market conditions and global demand for these materials and could adversely affect our business
and operating results. Substantial increases in the prices for our raw materials increase our operating costs and could reduce our margins
if we cannot recoup the increased costs through increased prices for our products and services.
 
 Matters relating to the employment market
and prevailing wage standards may adversely affect our business. 
 
 Our ability to meet our labor
needs on a cost-effective basis is subject to numerous external factors, including the availability of qualified personnel in the workforce
in the markets in which we operate, unemployment levels within those markets, prevailing wage rates, which have increased significantly,
health and other insurance costs and changes in employment and labor laws. In the event prevailing wage rates continue to increase in
the markets in which we operate, we may be required to concurrently increase the wages paid to our employees to maintain the quality of
our workforce. To the extent such increases are not offset by price increases, our business and operating results could be adversely affected.
If we are unable to hire and retain employees capable of meeting our business needs and expectations, our business and reputation may
be impaired. Any failure to meet our staffing needs or any material increase in turnover rates of our employees may adversely affect our
business, results of operations and financial condition.
 
 Further, we rely on the ability
to attract and retain employees on a cost-effective basis. The availability of employees in the markets in which we operate has declined
in recent years and competition for such personnel has increased, especially under the economic crises experienced throughout the COVID-19
pandemic. Our ability to attract and retain a sufficient workforce on a cost-effective basis depends on several factors, including the
ability to protect staff during the COVID-19 pandemic. We may not be able to attract and retain a sufficient workforce on a cost-effective
basis in the future. In the event of increased costs of attracting and retaining a workforce, our business and operating results could
be adversely affected.
 
 31 

 Litigation may adversely affect our business, financial condition
and results of operations .
 
 From time to time in the
normal course of our business operations, we may become subject to litigation involving intellectual property, data privacy and security,
consumer protection, commercial disputes and other matters that may negatively affect our operating results if changes to our business
operation are required. Due to our manufacturing and sale of our products, including hardware and software, we may also be subject to
a variety of claims including product warranty, product liability, and consumer protection claims related to product defects, among other
litigation. We may also be subject to claims involving health and safety, hazardous materials usage, other environmental impacts, or service
disruptions or failures. The cost to defend such litigation may be significant and may require a diversion of our resources. There also
may be adverse publicity associated with litigation that could negatively affect customer perception of our business, regardless of whether
the allegations are valid or whether we are ultimately found liable. As a result, litigation may adversely affect our business, financial
condition and results of operations. In addition, insurance may not cover existing or future claims, be sufficient to fully compensate
us for one or more of such claims or continue to be available on terms acceptable to us. A claim brought against us that is uninsured
or underinsured could result in unanticipated costs, thereby adversely affecting our results of operations and resulting in a reduction
in the trading price of our stock.
 
 An active, liquid, and orderly trading market
for our Common Stock may not develop, the price of our stock may be volatile, and you could lose all or part of your investment .
 
 The trading price of our
Common Stock may be highly volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond
our control. Our stock price could be subject to wide fluctuations in response to a variety of factors, which include:
 
 ● whether we achieve our anticipated
corporate objectives; 

 ● actual or anticipated fluctuations
in our quarterly or annual operating results; 

 ● changes in our financial or
operational estimates or projections; 

 ● our ability to implement our
operational plans; 

 ● termination of the lock-up
agreement or other restrictions on the ability of our stockholders to sell shares; 

 ● changes in the economic performance
or market valuations of companies similar to ours; and 

 ● general economic or political
conditions in the U.S. or elsewhere. 

 In addition, the stock market
in general, and the market for technology companies, has experienced extreme price and volume fluctuations that have often been unrelated
or disproportionate to the operating performance of those companies. Broad market and industry factors may seriously affect the market
price of companies’ stock, including ours, regardless of actual operating performance. In addition, in the past, following periods
of volatility in the overall market and the market price of a particular company’s securities, securities class action litigation
has often been instituted against these companies. This litigation, if instituted against us, could result in substantial costs and a
diversion of our management’s attention and resources.
 
 32 

 We incur increased costs and demands upon management as a result
of complying with the laws and regulations affecting public companies, which could adversely affect our operating results .
 
 As a public company, we incur
significant legal, accounting, and other expenses that we did not incur as a private company, including costs associated with public company
reporting and corporate governance requirements. These requirements include compliance with Section 404 and other provisions of the Sarbanes-Oxley
Act, as well as rules implemented by the Securities and Exchange Commission, or (“SEC”), and Nasdaq. In addition, our management
team also has to adapt to the requirements of being a public company. We expect complying with these rules and regulations will substantially
increase our legal and financial compliance costs and to make some activities more time-consuming and costly.
 
 The increased costs associated
with operating as a public company will decrease our net income or increase our net loss and may require us to reduce costs in other areas
of our business or increase the prices of our products or services. Additionally, if these requirements divert our management’s
attention from other business concerns, they could have a material adverse effect on our business, financial condition, and operating
results.
 
 As a public company, we also
expect that it may be more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required
to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result,
it may be more difficult for us to attract and retain qualified individuals to serve on our board of directors or as our executive officers.
 
 As a public company, we are obligated to
develop and maintain proper and effective internal control over financial reporting. These internal controls may not be determined to
be effective, which may adversely affect investor confidence in our company and, as a result, the value of our Common Stock .
 
 We are required, pursuant
to Section 404 of the Sarbanes-Oxley Act, to annually furnish a report by management on, among other things, the effectiveness of our
internal control over financial reporting. This assessment includes disclosure of any material weaknesses identified by our management
in our internal control over financial reporting, as well as a statement that our auditors have issued an attestation report on effectiveness
of our internal controls.
 
 We are in the very early
stages of the costly and challenging process of compiling the system and processing the documentation necessary to perform the evaluation
needed to comply with Section 404. We may not be able to remediate future material weaknesses, or to complete our evaluation, testing
and any required remediation in a timely fashion. During the evaluation and testing process, if we identify one or more material weaknesses
in our internal control over financial reporting, we will be unable to assert that our internal controls are effective. If we are unable
to assert that our internal control over financial reporting is effective, or if our auditors are unable to express an opinion on the
effectiveness of our internal controls, we could lose investor confidence in the accuracy and completeness of our financial reports, which
would have a material adverse effect on the price of our Common Stock.
 
 We have identified
material weaknesses in our internal control over financial reporting. If we are unable to remediate these material weaknesses, or if we
experience additional material weaknesses in the future or otherwise fail to maintain an effective system of internal controls, we may
not be able to accurately or timely requirements applicable to public companies, which may adversely affect investor confidence in us,
and, as a result, the market price of our common stock. 
 
 Our management is responsible
for establishing and maintaining adequate internal control over financial reporting designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with
GAAP. Our management is likewise required, on a quarterly basis, to evaluate the effectiveness of our internal controls and to disclose
any changes and material weaknesses identified through such evaluation in those internal controls. 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 our consolidated financial statements will not be prevented or detected on a timely basis.
 
 As described elsewhere in this Report, we have
identified the following material weaknesses:
 
 ● 
 inability to close timely; 

 ● 
 lack of technical expertise; and 

 ● 
 accounting for complex financial instruments. 

 As a result of these material
weaknesses, our management concluded that our internal control over financial reporting was not effective as of December 31, 2022.
 
 To respond to these material
weaknesses, we have devoted, and plan to continue to devote, significant effort and resources to the remediation and improvement of our
internal control over financial reporting. Our plans currently include rebuild of the internal finance function and engagement of external
financial consultants. The elements of our remediation plan can only be accomplished over time, and we can offer no assurance that these
initiatives will ultimately have the intended effects.
 
 33 

 Any failure to maintain such
internal control could adversely impact our ability to report our financial position and results from operations on a timely and accurate
basis. If our consolidated financial statements are not accurate, investors may not have a complete understanding of our operations. Likewise,
if our consolidated financial statements are not filed on a timely basis, we could be subject to sanctions or investigations by Nasdaq,
the SEC or other regulatory authorities. In either case, there could result a material adverse effect on our business. Ineffective internal
controls could also cause investors to lose confidence in our reported financial information which could have a negative effect on the
trading price of our stock.
 
 We can give no assurance
that the measures we have taken and plan to take in the future will remediate the material weaknesses identified or that any additional
material weaknesses or restatements of financial results will not arise in the future due to a failure to implement and maintain adequate
internal control over financial reporting or circumvention of these controls. In addition, even if we are successful in strengthening
our controls and procedures, in the future those controls, and procedures may not be adequate to prevent or identify irregularities or
errors or to facilitate the fair presentation of our consolidated financial statements.
 
 Data privacy and security concerns relating
to our technology and our practices could damage our reputation, cause us to incur significant liability, and deter current and potential
users or customers from using our products and services. Software bugs or defects, security breaches, and attacks on our systems could
result in the improper disclosure and use of user data and interference with our users and customers’ ability to use our products
and services, harming our business operations and reputation. 
 
 Concerns about our practices
with regard to the collection, use, disclosure, or security of personal information or other data-privacy-related matters, even if unfounded,
could harm our reputation, financial condition, and operating results. Our policies and practices may change over time as expectations
regarding privacy and data change. Our products and services involve the storage and transmission of proprietary information, and bugs,
theft, misuse, defects, vulnerabilities in our products and services, and security breaches expose us to a risk of loss of this information,
improper use and disclosure of such information, litigation, and other potential liability. Systems and control failures, security breaches
and/or inadvertent disclosure of user data could result in government and legal exposure, seriously harm our reputation and brand and,
therefore, our business, and impair our ability to attract and retain customers.
 
 We may experience cyber-attacks
and other attempts to gain unauthorized access to our systems. We may experience future security issues, whether due to employee error
or malfeasance or system errors or vulnerabilities in our or other parties’ systems, which could result in significant legal and
financial exposure. We may be unable to anticipate or detect attacks or vulnerabilities or implement adequate preventative measures. Attacks
and security issues could also compromise trade secrets and other sensitive information, harming our business. As a result, we may suffer
significant legal, reputational, or financial exposure, which could harm our business, financial condition, and operating results.
 
 Our operations may be impaired if our information
technology systems fail to perform adequately or if we are the subject of a data breach or cyber-attack .
 
 We rely on information technology
systems to conduct business, including communicating with employees and our key commercial customers, ordering and managing materials
from suppliers, shipping products and providing SaaS services to our customers and analyzing and reporting results of operations. While
we have taken steps to ensure the security of our information technology systems, our systems may nevertheless be vulnerable to computer
viruses, security breaches and other disruptions from unauthorized users. If our information technology systems are damaged or cease to
function properly for an extended period of time, whether as a result of a significant cyber incident or otherwise, our ability to communicate
internally as well as with our customers could be significantly impaired, which may adversely impact our business.
 
 Additionally, in the normal
course of our business, we collect, store and transmit proprietary and confidential information regarding our customers, employees, suppliers
and others, including personally identifiable information. An operational failure or breach of security from increasingly sophisticated
cyber threats could lead to loss, misuse or unauthorized disclosure of this information about our employees or customers, which may result
in regulatory or other legal proceedings, and have a material adverse effect on our business and reputation. We also may not have the
resources or technical sophistication to anticipate or prevent rapidly evolving types of cyber-attacks. Any such attacks or precautionary
measures taken to prevent anticipated attacks may result in increasing costs, including costs for additional technologies, training, and
third-party consultants. The losses incurred from a breach of data security and operational failures as well as the precautionary measures
required to address this evolving risk may adversely impact our financial condition, results of operations and cash flows.
 
 Privacy regulation is an evolving area and
compliance with applicable privacy regulations may increase our operating costs or adversely impact our ability to service our clients
and market our products and services .
 
 Because we store, process,
and use data, some of which contains personal information, we are subject to complex and evolving federal, state, and foreign laws and
regulations regarding privacy, data protection, and other matters. While we believe we are currently in compliance with applicable laws
and regulations, many of these laws and regulations are subject to change and uncertain interpretation, and could result in investigations,
claims, changes to our business practices, increased cost of operations, and declines in user growth, retention, or engagement, any of
which could seriously harm our business.
 
 34 

 If our shares of Common Stock become subject
to the penny stock rules, it would become more difficult to trade our shares .
 
 The SEC has adopted rules
that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with
a price of less than $5.00, other than securities registered on certain national securities exchanges or authorized for quotation on certain
automated quotation systems, provided that current price and volume information with respect to transactions in such securities is provided
by the exchange or system. If we do not retain a listing on Nasdaq and if the price of our Common Stock is less than $5.00, our Common
Stock will be deemed a penny stock. The penny stock rules require a broker-dealer, before a transaction in a penny stock not otherwise
exempt from those rules, to deliver a standardized risk disclosure document containing specified information. In addition, the penny stock
rules require that before effecting any transaction in a penny stock not otherwise exempt from those rules, a broker-dealer must make
a special written determination that the penny stock is a suitable investment for the purchaser and receive (i) the purchaser’s
written acknowledgment of the receipt of a risk disclosure statement; (ii) a written agreement to transactions involving penny stocks;
and (iii) a signed and dated copy of a written suitability statement. These disclosure requirements may have the effect of reducing the
trading activity in the secondary market for our Common Stock, and therefore stockholders may have difficulty selling their shares.
 
 The financial and operational projections
that we may make from time to time are subject to inherent risks .
 
 The projections that our
management may provide from time to time (including, but not limited to, those relating to potential peak sales amounts, production, and
supply dates, and other financial or operational matters) reflect numerous assumptions made by management, including assumptions with
respect to our specific as well as general business, economic, market and financial conditions and other matters, all of which are difficult
to predict and many of which are beyond our control. Accordingly, there is a risk that the assumptions made in preparing the projections,
or the projections themselves, will prove inaccurate. There will be differences between actual and projected results, and actual results
may be materially different from those contained in the projections. The inclusion of the projections in this report should not be regarded
as an indication that we or our management or representatives considered or consider the projections to be a reliable prediction of future
events, and the projections should not be relied upon as such.
 
 If we were to dissolve, the holders of our
securities may lose all or substantial amounts of their investments .
 
 If we were to dissolve as
a corporation, as part of ceasing to do business or otherwise, we may be required to pay all amounts owed to any creditors before distributing
any assets to the investors. There is a risk that in the event of such a dissolution, there will be insufficient funds to repay amounts
owed to holders of any of our indebtedness and insufficient assets to distribute to our other investors, in which case investors could
lose their entire investment.
 
 If securities or industry analysts do not
publish or cease publishing research or reports about us, our business, or our market, or if they change their recommendations regarding
our stock adversely, our stock price and trading volume could decline .
 
 The trading market for our
Common Stock will be influenced by the research and reports that industry or securities analysts may publish about us, our business, our
market or our competitors. If any of the analysts who may cover us change their recommendation regarding our stock adversely, or provide
more favorable relative recommendations about our competitors, our stock price would likely decline. If any analyst who may cover us were
to cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which
in turn could cause our stock price or trading volume to decline.
 
 Item 1B. Unresolved Staff Comments. 
 
 None.
 
 Item 2. Properties. 
 
 Our corporate headquarters
is in Troy, Michigan where we occupy approximately 15,825 square feet of office, warehousing, and light industrial space under a lease
that expires in 2026. We lease properties located within various geographic regions in which we conduct business, including Colorado,
Georgia, and Michigan. Our properties include office spaces, showrooms, and warehouses used for research and development, operational,
sales, management, and administrative purposes. All of our facilities are leased.
 
 We believe our facilities
are adequate for our needs and believe that we should be able to renew any of our existing leases or secure similar property without an
adverse impact on our operations.
 
 Item 3. Legal Proceedings. 
 
 From
time to time, we are a party to various legal proceedings or claims arising in the ordinary course of business. For information related
to significant legal proceedings in which we are involved, see the discussion under the caption Legal Matters in Note 17 –
 Commitments and Contingencies and Note 19 – Subsequent Events to our consolidated financial
statements included in Part II, Item 8 of this Annual Report on Form 10K, which information is incorporated by reference into this Item
3. 
 
 Item 4. Mine Safety Disclosures. 
 
 Not applicable.
 
 35 

 PART II 
 
 Item 5. Market for Registrant’s Common
Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. 
 
 Market Information 
 
 Our Common Stock is traded
on the Nasdaq Capital Market under the symbol “AGFY.”
 
 Holders of Record 
 
 As of October 1, 2023, there
were 58 holders of record of our Common Stock. Such numbers do not include beneficial owners holding shares of our Common Stock in nominee
or “street” name through various brokerage firms.
 
 Dividends 
 
 We have never paid cash dividends
on any of our capital stock and currently intend to retain our future earnings, if any, to fund the development and growth of our business.
 
 Securities Authorized for Issuance under Equity
Compensation Plans 
 
 For information concerning
our equity compensation plan, see Part III, Item 12 of this Annual Report on Form 10-K.
 
 Equity Repurchases 
 
 None.
 
 Recent Sales of Unregistered Securities 
 
 The following summarizes
all issuances of our unregistered securities during the year ended December 31, 2022 that were not previously disclosed in a Current Report
on Form 8-K or Quarterly Report on Form 10-Q. The securities in the below-referenced transactions were (i) issued without registration
and (ii) were subject to restrictions under the Securities Act and the securities laws of certain states, in reliance on the private offering
exemptions contained in Sections 4(2), 4(6) and/or 3(b) of the Securities Act and on Regulation D promulgated there under, and in reliance
on similar exemptions under applicable state laws as transactions not involving a public offering. No placement or underwriting fees
were paid in connection with these transactions.
 
 On August 17, 2022, we issued
435 shares of Common Stock for contingent liabilities to the former holders of Precision and Cascade in connection with the acquisition
of Precision and Cascade.
 
 36 

 Item 6. [Reserved]. 
 
 Not applicable.
 
 Item 7. Management’s Discussion and Analysis
of Financial Condition and Results of Operations. 
 
 You should read the following
discussion and analysis of our financial condition and results of our operations together with our consolidated financial statements and
the notes thereto appearing elsewhere in this report. This discussion contains forward-looking statements reflecting our current expectations,
whose actual outcomes involve risks and uncertainties. Actual results and the timing of events may differ materially from those stated
in or implied by these forward-looking statements due to a number of factors, including those discussed in the sections entitled “Risk
Factors,” “Cautionary Statement regarding Forward-Looking Statements” and elsewhere in this report. 
 
 Overview 
 
 We are one of the most innovative
providers of advanced cultivation and extraction solutions for the cannabis industry, bringing data, science, and technology to the forefront
of the market. Our proprietary micro-environment-controlled Agrify Vertical Farming Units (or “VFUs”) enable cultivators to
produce the highest quality products with what we believe to be an unmatched consistency, yield, and Return on Investment at scale. Our
comprehensive extraction product line, which includes hydrocarbon, ethanol, solventless, post-processing, and lab equipment, empowers
producers to maximize the quantity and quality of extract required for premium concentrates. 
 
 Our cultivation and extraction
solutions seamlessly combine our integrated hardware and software offerings with a broad range of associated services including consulting,
engineering, and construction and are designed to deliver the most complete commercial indoor farming solution available from a single
provider. The totality of our product offerings and service capabilities forms an unrivaled ecosystem in what has historically been a
highly fragmented market. As a result, we believe we are well situated to create a dominant market position in the indoor agriculture
sector.
 
 Agrify Corporation was incorporated
in the state of Nevada on June 6, 2016, originally incorporated as Agrinamics, Inc. (or “Agrinamics”). On September 16, 2019,
Agrinamics amended its articles of incorporation to reflect a name change to Agrify Corporation.
 
 Our corporate headquarters
are located in Troy, Michigan. We also lease properties located within various geographic regions in which we conduct business, including
Colorado, Georgia and Michigan.
 
 Reverse Stock Splits 
 
 On January 12, 2021, we effected
a 1-for-1.581804 reverse stock split on our Common Stock.
 
 On October 18, 2022, we effected
a 1-for-10 reverse stock split on our Common Stock.
 
 On July 5 th , 2023,
we effected a 1-for-20 reverse stock split on our Common Stock. All share and per information has been retroactively adjusted to give
effect to the reverse stock splits for all periods presented, unless otherwise indicated.
 
 Recent Business Developments 
 
 Private Placement 
 
 On
January 25, 2022, we entered into a Securities Purchase Agreement (the “Securities Agreement”) with an institutional investor
and other accredited investors for the sale of 12,253 shares (the “SA Shares”) of our Common Stock, pre-funded warrants (the
“Pre-Funded Warrants”) to purchase up to an aggregate of 7,853 shares of Common Stock and warrants to purchase up to an aggregate
of 15,079 shares of Common Stock (the “Common Warrants” and, collectively with the Pre-Funded Warrants, the “SA
Warrants”), in a private placement offering. The combined purchase price for one share of Common Stock (or one Pre-Funded Warrant)
and the accompanying fraction of a Common Warrant was $1,360.00 per share.
 
 37 

 Subject to certain ownership
limitations, the SA Warrants became exercisable six months from issuance. Each Pre-Funded Warrant is exercisable into one share of Common
Stock (as adjusted from time to time in accordance with the terms thereof). Each Common Warrant is exercisable into one share of Common
Stock at a price per share of $1,496.00 (as adjusted from time to time in accordance with the terms thereof) and will expire on the fifth
anniversary of the initial exercise date. The institutional investor that received the Pre-Funded Warrants fully exercised such warrants
in March 2022.
 
 Raymond Chang, our Chairman
and Chief Executive Officer (“CEO”), and Stuart Wilcox, who previously served as our Chief Operating Officer, and at the time
was a member of our Board of Directors, participated in the private placement on essentially the same terms as other investors, except
for having a combined purchase price of $1,380.00 per share.
 
 The gross proceeds to us
from the private placement were approximately $27.3 million, before deducting the placement agent’s fees and other offering
expenses.
 
 Acquisition of Lab Society 
 
 On February 1, 2022, we entered
into an Agreement and Plan of Merger (the “Merger Agreement”) with LS Holdings Corp. (“Lab Society”), Lab Society
NewCo, LLC, a newly-formed wholly-owned subsidiary of us (“Merger Sub”), Michael S. Maibach Jr. as the Owner Representative
thereunder, and each of the shareholders of Lab Society (collectively, the “Owners”), pursuant to which we agreed to acquire
Lab Society. Concurrently with the execution of the Merger Agreement, we consummated the merger of Lab Society with and into Merger Sub,
with Merger Sub surviving such merger as a wholly-owned subsidiary of us (the “Lab Society Acquisition”).
 
 The aggregate consideration
for the Lab Society Acquisition consisted of $4.0 million in cash, subject to certain adjustments for working capital, cash and indebtedness
of Lab Society at closing; 2,128 shares of Common Stock (the “Buyer Shares”); and the Earn-out Consideration (as defined below),
to the extent earned.
 
 We withheld 638 of the Buyer
Shares issuable to the Owners (the “Holdback Lab Buyer Shares”) for the purpose of securing any post-closing adjustment owed
to us and any claim for indemnification or payment of damages to which we may be entitled under the Merger Agreement. During the third
quarter of 2022, 139 of the Holdback Lab Buyer Shares were forfeited after the finalization of the net working capital settlement. The
remaining 499 Holdback Lab Buyer Shares were released following the twelve-month anniversary of the Closing Date in accordance with and
subject to the conditions of the Merger Agreement. Additional information regarding our contingent consideration arrangements may
be found in Note 4 – Fair Value Measures, included in the notes to the consolidated financial statements.
 
 The
Merger Agreement includes customary post-closing adjustments, representations, and warranties and covenants of the parties. The Owners
may become entitled to additional consideration with a value of up to $3.5 million based on the eligible net revenues achieved by the
Lab Society business during the fiscal years ending December 31, 2022, and December 31, 2023, of which 50% will be payable in cash and
the remaining 50% will be payable by issuing shares of Common Stock.
 
 Based upon the combined first
and second-quarter actual revenue performance, Lab Society’s revenue trend is significantly below the originally estimated revenue
trends incorporated into our original fair value estimates at the time of the acquisition. We have concluded Lab Society will not achieve
any contingent earn-out consideration in connection with its first earn-out period. Accordingly, we reversed the current accrued contingent
consideration liability associated with Lab Society’s first earn-out period as of September 30, 2022. The reversal of this liability
of approximately $1.0 million, as required by Accounting Standards Codification (“ASC”) Topic 805 Business Combination (“ASC
805”), was recorded as a reduction in operating expenses during the second quarter of 2022.
 
 38 

 The purchase price allocation
for the business combination has been prepared on a preliminary basis and changes to those allocations may occur as additional information
becomes available during the respective measurement period (up to one year from the acquisition date). The estimated fair value at acquisition
is $7.9 million and may be adjusted upon further review of the values assigned to identifiable intangible assets and goodwill.
 
 Our initial fair value estimates
related to the various identified intangible assets were determined under various valuation approaches including the Income Approach,
Relief-from-Royalty Method, and Discounted Cash Flow Method. These valuation methods require management to project revenues, operating
expenses, working capital investment, capital spending and cash flows for the reporting unit over a multiyear period, as well as determine
the weighted-average cost of capital to be used as a discount rate.
 
 During the three-month ended
June 30, 2022, we identified an impairment-triggering event associated with both a sustained decline in our stock price and associated
market capitalization, as well as a second-quarter slowdown in the cannabis industry as a whole. Due to these factors, we deemed that
there was an impairment to the carrying value of our property and equipment and accordingly performed interim testing as of June 30, 2022.
Based on our interim testing, we noted that the entire carrying value of its goodwill and intangible assets should be impaired. Additional
information regarding our interim testing on goodwill and intangible assets may be found in Note 7 – Goodwill and Intangible Assets,
Net, included in the notes to the consolidated financial statements.
 
 Securities Purchase Agreement 
 
 On
March 14, 2022, we entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with an accredited investor
(the “Investor”), we agreed to issue and sell to the Investor, in a private placement transaction, in exchange for the payment
by the Investor of $65 million, less applicable expenses as set forth in the Securities Purchase Agreement, a senior secured promissory
note in an aggregate principal amount of $65 million (the “SPA Note”), and a warrant (the “SPA Warrant”)
to purchase up to an aggregate of 34,406 shares of Common Stock. 
 
 August 2022 Securities Exchange Agreement 
 
 On
August 18, 2022, we reached an agreement with the Investor to amend its existing SPA Note and entered into a Securities Exchange Agreement
(the “August 2022 Exchange Agreement”). Pursuant to the August 2022 Exchange Agreement, we partially paid $35.2 million along
with approximately $300 thousand in repayments for other fees under the SPA Note and exchanged the remaining balance of the SPA Note for
a the Exchange Note with an aggregate original principal amount of $35.0 million and a new warrant to purchase 71,139 shares of Common
Stock (the “Note Exchange Warrant”). Additionally, we exchanged the SPA Warrant for a new warrant for the same number of underlying
shares but with a reduced exercise price (the “Modified Warrant” and, collectively with the Note Exchange Warrant, the “August
2022 Warrants”). Additional information regarding our August 2022 Warrants may be found in Note
1 – Overview, Basis of Presentation and Significant Accounting Policies and Note 4 –
Fair Value Measures, included in the notes to the condensed consolidated financial statements. 
 
 The
Exchange Note is a senior secured obligation of ours and ranks senior to all indebtedness of ours. The Exchange Note will mature on the
three-year anniversary of its issuance (the “Maturity Date”) and contains a 9.0% annualized interest rate, with interest
to be paid monthly, in cash, beginning September 1, 2022. The principal amount of the Exchange Note will be payable on the Maturity
Date, provided that the holder will be entitled to a cash sweep of 20% of the proceeds received by us in connection with any equity financing,
which will reduce the outstanding principal amount under the Exchange Note.
 
 At
any time, we may prepay all of the Exchange Note by redemption at a price equal to 102.5% of the then-outstanding principal amount under
the Note plus accrued but unpaid interest. The holder will also have the option of requiring us to redeem the Exchange Note on the one-year
or two-year anniversaries of issuance at a price equal to the then-outstanding principal amount under the Exchange Note plus accrued but
unpaid interest, or if we undergo a fundamental change at a price equal to 102.5% of the then-outstanding principal amount under the Exchange
Note plus accrued but unpaid interest.
 
 39 

 The
Exchange Note imposes certain customary affirmative and negative covenants upon us, as well as covenants that restrict us and our subsidiaries
from incurring any additional indebtedness or suffering any liens, subject to specified exceptions, restrict the ability of us and
our subsidiaries from making certain investments, subject to specified exceptions, restrict the declaration of any dividends or other
distributions, subject to specified exceptions, requires us not to exceed maximum levels of allowable cash spend while the Exchange
Note is outstanding, and requires us to maintain minimum amounts of cash on hand. If an event of default under the Exchange Note
occurs, the holder can elect to redeem the Exchange Note for cash equal to 115% of the then-outstanding principal amount of the Note (or
such lesser principal amount accelerated by the holder), plus accrued and unpaid interest, including default interest, which accrues at
a rate per year equal to 15% from the date of a default or event of default.
 
 Until
the date the Exchange Note is fully repaid, the holder has, subject to certain exceptions, the right to participate for up to 30% of any
offering of debt, equity (other than an offering of solely Common Stock), or equity-linked securities, including without limitation any
debt, preferred stock or other instrument or security, of us or our subsidiaries.
 
 The
Modified Warrant has an exercise price of $430.00 per share, subject to adjustment for stock splits, reverse stock splits, stock dividends
and similar transactions, will be exercisable on and after the six-month anniversary of issuance, has a term of five and one-half years
from the date of issuance and will be exercisable on a cash basis, unless there is not an effective registration statement covering the
resale of the shares issuable upon exercise of the Modified Warrant (the “Modified Warrant Shares”), in which case the Modified
Warrant will also be exercisable on a cashless exercise basis at the holder’s election.
 
 The
Note Exchange Warrant has an exercise price of $246.00 per share, subject to adjustment for stock splits, reverse stock splits, stock
dividends and similar transactions, was exercisable upon issuance, and has a term of five and one-half years from the date of issuance
and is exercisable on a cash basis, unless there is not an effective registration statement covering the resale of the shares issuable
upon exercise of the Warrant (the “Note Exchange Warrant Shares” and, together with the Modified Warrant Shares, the “Exchange
Warrant Shares”), in which case the Note Exchange Warrant will also be exercisable on a cashless exercise basis at the holder’s
election. Until we completed a qualified equity financing of at least $15.0 million, which requirement was satisfied with sales under
the at-the-market continuous equity offering (“ATM” or “ATM Program”), the Note Exchange Warrant’s exercise
price would have been reduced to the extent we issued securities for a lower purchase price. The Note Exchange Warrant also prohibited
us, until following the completion of such qualified equity financing, from issuing warrants with more favorable or preferential terms
and/or provisions.
 
 The
August 2022 Warrants each provide that in no event will the number of shares of Common Stock issued upon exercise of such warrants result
in the holder’s beneficial ownership exceeding 4.99% of our shares of Common Stock outstanding at the time of exercise (which percentage
may be decreased or increased by the holder, but to no greater than 9.99%). Additionally, the August 2022 Warrants could not be exercised
for more than an aggregate of 26,542 shares of Common Stock unless and until shareholder approval is obtained, which approval was obtained
on October 14, 2022.
 
 March 2023 Securities Exchange Agreement 
 
 On March 8, 2023, we entered
into a second Securities Exchange Agreement with the Investor (the “March 2023 Exchange Agreement”), pursuant to which we
prepaid approximately $10.3 million in principal under the Exchange Note and exchanged $10.0 million in principal amount under the Exchange
Note for a new senior convertible note (the “Convertible Note” and, together with the Exchange Note, the “Notes”)
with an original principal amount of $10.0 million. The Convertible Note will mature on August 19, 2025. We also amended the Exchange
Note to remove covenants regarding minimum cash spend and cash on hand.
 
 At The Marketing Offering 
 
 On October 18, 2022, we entered
into the ATM Program with Canaccord Genuity LLC (the “Agent”) pursuant to which we could issue and sell, from time to
time, shares of our Common Stock having an aggregate offering price of up to $50 million, depending on market demand, with the Agent acting
as an agent for sales. The ATM Program allowed us to sell shares of Common Stock pursuant to specific parameters defined by us as well
as those defined by the SEC and the ATM Program agreement. Beginning October 18, 2022 through December 31, 2022, we sold 306,628 shares
of Common Stock under the ATM at an average price of $50.85, resulting in gross proceeds of $15.6 million and net proceeds of $15.1 million
after commissions and fees to the Agent totaling $468 thousand. Subsequent to December 31, 2022 through April 1, 2023, after which time
the ATM program was discontinued, we sold an additional 323,082 shares of Common Stock under the ATM at an average price of $4.93, resulting
in gross proceeds of $1.6 million and net proceeds of $1.6 million after commissions and fees to the Agent totaling $48 thousand. For
the entire period from October 18, 2022 through April 1, 2023, we sold 629,710 shares of Common Stock under the ATM at an average price
of $27.29 per share, resulting in gross proceeds of $17.2 million, and net proceeds of $16.7 million after commissions and fees to the
Agent totaling $516 thousand. $3.0 million of the proceeds under the ATM Program were used to repay amounts due to the Investor under
the Exchange Note. We used the net proceeds generated from the ATM Program for working capital and general corporate purposes, including
repayment of indebtedness, funding its transformation initiatives and product category expansion efforts and capital expenditures.
 
 40 

 Confidentially Marketed Public Offering 
 
 On December 16, 2022, we
entered into an underwriting agreement (the “Underwriting Agreement”) with Canaccord Genuity LLC as the underwriter, pursuant
to which we agreed to sell an aggregate of 594,232 shares of our Common Stock, and, in lieu of Common Stock to certain investors
that so chose, pre-funded warrants (the “Pre-Funded 2022 Warrants”) to purchase 75,000 shares of our Common Stock, and accompanying
warrants (the “December 2022 Warrants”) to purchase 1,338,462 shares of our Common Stock (the “Offering”). The
combined public offering price for each share of Common Stock and accompanying two warrants was $13.00 per share, and the combined offering
price for each Pre-Funded Warrant and accompanying two warrants was $12.98 per share.
 
 The December 2022 Warrants
may not be exercised by the holder to the extent that the holder, together with its affiliates, would beneficially own, after such exercise
more than 4.99% of the shares of our Common Stock then outstanding (subject to the right of the holder to increase or decrease such beneficial
ownership limitation upon notice to us, provided that such limitation cannot exceed 9.99%) . 
 
 The Pre-Funded 2022 Warrants
were classified as a component of permanent equity and the December 2022 Warrants were liability-classified and were recorded at the issuance
date using a relative fair value allocation method. The Pre-Funded 2022 Warrants are equity-classified because they are freestanding financial
instruments that are legally detachable and separately exercisable from the equity instruments, are immediately exercisable, and permit
the holders to receive a fixed number of shares of common stock upon exercise. In addition, such warrants do not provide any guarantee
of value or return. The December 2022 Warrants are liability-classified as there is a volatility floor and these warrants are not indexed
to our Common Stock.
 
 Raymond Chang, our Chairman
and CEO, participated in the Offering and purchased 115,385 shares of Common Stock and 230,769 warrants for an aggregate purchase price
of approximately $1.5 million. 
 
 We received aggregate gross
proceeds to us from the Offering of approximately $8.7 million including offering costs of approximately $0.5 million for broker fees
and legal expenses, for net proceeds of $8.2 million. We intend to use the net proceeds from the Offering, together with its existing
cash resources, for working capital and general corporate purposes, which may include capital expenditures and repayment of debt.
 
 Impact of coronavirus pandemic (“COVID-19”) 
 
 The extensive impact of the
pandemic caused by COVID-19 has resulted and will likely continue to result in significant disruptions to the global economy, as well
as businesses and capital markets around the world. In an effort to halt the outbreak of COVID-19, a number of countries, states,
counties, and other jurisdictions have imposed, and may impose in the future, various measures, including but not limited to, voluntary
and mandatory quarantines, stay-at-home orders, travel restrictions, limitations on gatherings of people, reduced operations, and
extended closures of businesses.
 
 41 

 To date, although all of
our operations are functioning, COVID-19 has continued to cause some disruptions to our business, such as some temporary delays in the
delivery of our inventory. Although the ability of our suppliers to timely ship their goods has affected some of our deliveries, currently
the difficulties experienced by our suppliers have not yet materially impacted our ability to deliver products to our customers. However,
if this continues, it may negatively affect any inventory we may have and more significantly delay the delivery of merchandise to our
customers, which in turn will adversely affect our revenues and results of operations.
 
 The extent to which COVID-19
and the related global economic crisis, affect our business, results of operations and financial condition, will depend on future developments
that are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and any recovery period, future actions
taken by governmental authorities, central banks and other third parties (including new financial regulation and other regulatory reform)
in response to the pandemic, and the effects on our produce, clients, vendors and employees. We continue to service our customers amid
uncertainty and disruption linked to COVID-19 and we are actively managing our business to respond to its impact.
 
 Nasdaq Deficiency Notices 
 
 On
October 4, 2022, we received a deficiency letter from the Listing Qualifications Department (the “Staff”) of The Nasdaq Stock
Market, LLC (“Nasdaq”) notifying us that, for the last 30 consecutive business days, the bid price for our Common Stock had
closed below $1.00 per share, which is the minimum closing price required to maintain continued listing on The Nasdaq Capital Market under
Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Requirement”). In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we had
180 calendar days to regain compliance with the Minimum Bid Requirement. To regain compliance with the Minimum Bid Requirement, the closing
bid price of our Common Stock must be at least $1.00 per share for a minimum of 10 consecutive trading days during this 180-day compliance
period, unless the Staff exercises its discretion to extend the minimum trading day period pursuant to Nasdaq Listing Rule 5810(c)(3)(G).
On October 28, 2022, the Staff notified us that the closing bid price of our Common Stock was more than $1.00 for 10 consecutive trading
days, and that we therefore regained compliance with the Minimum Bid Requirement. 
 
 On January 19, 2023,
we received a new deficiency letter from the Staff of Nasdaq notifying us that, for the last 30 consecutive business days, the bid price
for our Common Stock had closed below $1.00 per share, which is the minimum closing price required to maintain a continued listing on
The Nasdaq Capital Market under the Minimum Bid Requirement. In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we have 180 calendar
days to regain compliance with the Minimum Bid Requirement. To regain compliance with the Minimum Bid Requirement, the closing bid price
of our Common Stock must be at least $1.00 per share for a minimum of 10 consecutive trading days during this 180-day compliance
period, unless the Staff exercises its discretion to extend the minimum trading day period pursuant to Nasdaq Listing Rule 5810(c)(3)(G).
On July 19, 2023, we received a notice from Nasdaq confirming our recompliance with the minimum bid price rule.
 
 On April 18, 2023, we received
a notice from Nasdaq (the “April Nasdaq Notice”) that we were noncompliance with Nasdaq Listing Rule 5250(c)(1) as a result
of our failure to file this Annual Report on Form 10-K (the “Form 10-K”) with the SEC by the required due date.
 
 On
May 17, 2023, we received a second notice from Nasdaq (the “May Nasdaq Notice”) that we remained noncompliant with Nasdaq
Listing Rule 5250(c)(1) as a result of our failure to file our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023 (the
“First Quarter Form 10-Q”) with the SEC by the required due date. 
 
 On August 16, 2023, we received
a third notice from Nasdaq that we remain noncompliant with Nasdaq Listing Rule 5250(c)(1) as a result of our failure to file our Quarterly
Report on Form 10-Q for the fiscal quarter ended June 30, 2023 (the “Second Quarter Form 10-Q”) with the SEC by the required
filing date (the “August Nasdaq Notice” and, together with the April Nasdaq Notice and the May Nasdaq Notice, the “Nasdaq
Notices”).
 
 42 

 On
October 17, 2023, we received a Staff Delisting Determination (the “Staff Determination”) from the Listing Qualifications
Department of Nasdaq notifying us that we were not in compliance with Nasdaq’s continued listing requirements under the Listing
Rule as a result of our failure to file the First Quarter Form 10-Q, the Second Quarter Form 10-Q and the Form 10-K (collectively, the
“Delinquent Reports”) in a timely manner. The Staff Determination has no immediate effect and will not immediately result
in the suspension of trading or delisting of our shares of common stock.
 
 We
timely requested a hearing before the Nasdaq Hearings Panel (the “Panel”), and the Panel scheduled a hearing for January 11,
2024. In connection with the hearing request, we requested that the stay be extended through the hearing and the expiration of any additional
extension period granted by the Panel following the hearing. In that regard, pursuant to the Nasdaq Listing Rules, the Panel has granted
this additional extension period. However, there can be no assurance that we will be able to regain compliance by the end of any additional
extension period.
 
 As disclosed in the Current
Report on Form 8-K filed on April 17, 2023, our audit committee concluded that, as a result of inadvertent errors in the accounting for
warrants previously issued by us, it was appropriate to restate our previously issued unaudited condensed consolidated interim financial
statements as of and for the quarterly periods ended March 31, 2022, June 30, 2022 and September 30, 2022 included in the Company’s
Quarterly Reports on Form 10-Q for such periods in amended quarterly reports for the affected periods. As a result of such restatements,
we were unable to timely file the Form 10-K, the First Quarter Form 10-Q and the Second Quarter Form 10-Q without unreasonable effort
or expense.
 
 Mack Molding Modification
Agreement 
 
 On
October 27, 2023, and with an effective date as of October 18, 2023, we entered into a Modification and Settlement Agreement (the “Modification
Agreement”) with Mack Molding Company (“Mack”). Pursuant to the Modification Agreement, we agreed to settle an outstanding
dispute with Mack under the Supply Agreement between the parties dated December 7, 2020 (the “Supply Agreement”). The Modification
Agreement requires us to make payments of $500,000 and $250,000 to Mack on or before November 1, 2023 and February 15, 2024, respectively.
Following the November 1, 2023 payment, we will be entitled to take possession of certain Vertical Farming Units (“VFUs”)
that were assembled under the Supply Agreement. The Modification Agreement also requires us to purchase from Mack a minimum of 25 VFUs
per quarter for each quarter during 2024 and a minimum of 50 VFUs per quarter for the six quarters beginning with the first quarter of
2025. We are required to pay a storage fee of $25,000 per month for VFUs subject to the Modification Agreement.
 
 Additionally,
as part of the Modification Agreement, we agreed to issue to Mack a warrant to purchase 750,000 shares of common stock. The
warrant has an exercise price of $4.00 per share, was exercisable upon issuance, has a term of three years from the date of issuance,
and is exercisable on a cash basis unless at the time of exercise there is no effective registration statement for the resale of the underlying
shares, in which case the warrant may be exercised on a cashless exercise basis at Mack’s election. 
 
 Warrant Issuance 
 
 On
October 27, 2023, we entered into a letter agreement with the Investor. Pursuant to the agreement, we agreed to exchange $3.0 million
in principal and approximately $1.1 million in accrued but unpaid interest outstanding under the Exchange Note to purchase 2,809,669 shares
of common stock (the “Exchange Warrant”). Additionally, we agreed to exchange the 375,629 shares of common stock held in abeyance
for the lender under the terms of a letter agreement between us and the Investor dated April 26, 2023 for a warrant to purchase 375,629
shares of common stock (the “Abeyance Warrant”).
 
 Each
warrant has an exercise price of $0.001 per share, was exercisable upon issuance, has a term of five years from the date of issuance and
is exercisable on a cash basis or on a cashless exercise basis at the holder’s election. 
 
 The
Exchange Warrant provides that in the event that Raymond Chang or his affiliates acquire securities from us, exercise convertible securities
or amend the terms of convertible securities at a purchase or conversion price lower than $1.46, then the number of shares of common stock
underlying Exchange Warrant will be increased to an amount equal to $3.0 million divided by such purchase or conversion price, subject
to proportional adjustment in the event the Exchange Warrant has been partially exercised. Additionally, in the event that we have not
issued equity securities in exchange for gross proceeds of at least $3.0 million to Mr. Chang or his affiliates (subject to certain offsets)
by the third calendar day after the date when we receive stockholder approval, then on December 26, 2023, the number of shares of common
stock underlying Exchange Warrant will be increased to an amount equal to $3.0 million divided by the Minimum Price as defined under Nasdaq
listing rules, subject to proportional adjustment in the event the Exchange Warrant has been partially exercised. 
 
 43 

 The
Letter Agreement requires us to issue equity securities to Mr. Chang or his affiliates for aggregate gross proceeds of at least $3.0 million,
minus any funds advanced by Mr. Chang to us since July 1, 2023. 
 
 Note
Purchase 
 
 On
October 27, 2023, CP Acquisitions LLC (the “New Lender”), an entity affiliated with and controlled by Raymond Chang, our Chief
Executive Officer, purchased the Exchange Note and the Convertible Note from the Investor .
In connection with the Note Purchase, the New Lender has agreed to waive any events of default under the acquired notes through December
31, 2023 and to enter into an agreement with us to extend the maturity date thereon to December 31, 2025. 
 
 Note
Amendment and Secured Promissory Note 
 
 On
July 12, 2023, we issued an unsecured promissory note (the “Note”) in favor of GIC Acquisition, LLC (“GIC”), an
entity that is managed by Raymond Chang, our Chairman and Chief Executive Officer, with an original principal amount of up to $500,000.
On October 27, 2023, we and GIC amended and restated the Note (the “Restated Note”). Pursuant to the terms of the Restated
Note, the Maturity Date was extended until December 31, 2023 and we granted a security interest in our assets that ranks junior to the
Exchange Note and the Convertible Note. 
 
 Concurrently
with the Restated Note, we issued a junior secured promissory note (the “Junior Secured Note”) to the New Lender. Pursuant
to the Junior Secured Note, the New Lender will lend up to $3,000,000 to us. The Junior Secured Note bears interest at a rate of 10% per
annum, will mature in full on December 31, 2023, and may be prepaid without any fee or penalty. The Junior Secured Note is a secured obligation
that ranks junior to the Exchange Note and the Convertible Note. 
 
 Use of Estimates 
 
 The preparation of consolidated
financial statements in accordance with accounting principles generally accepted in the U.S. (“GAAP”) requires management
to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and
liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates. Significant estimates include assumptions about collection of accounts and notes
receivable, the valuation and recognition of stock-based compensation expense, valuation allowance for deferred tax assets, the valuation
of inventory, and useful life of fixed assets and intangible assets.
 
 Financial Overview 
 
 Critical Accounting Policies and Significant Judgments and Estimates 
 
 Our management’s discussion
and analysis of our financial position and results of operations is based on our financial statements, which have been prepared in accordance
with GAAP. The preparation of consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions
that affect the amounts reported in the consolidated financial statements and accompanying notes. On an ongoing basis, we evaluate estimates,
which include estimates related to accruals, stock-based compensation expense, and reported amounts of revenues and expenses during the
reported period. We base our estimates on historical experience and other market-specific or other relevant assumptions that we believe
to be reasonable under the circumstances. Actual results may differ materially from those estimates or assumptions.
 
 44 

 Revenue Recognition 
 
 Overview 
 
 We generate revenue from
the following sources: (1) equipment sales, (2) providing services and (3) construction contracts.
 
 In accordance with ASC 606
“Revenue Recognition”, we recognize revenue from contracts with customers using a five-step model, which is described below:
 
 ● identify the customer contract; 

 ● identify performance obligations
that are distinct; 

 ● determine the transaction price; 

 ● allocate the transaction price
to the distinct performance obligations; and 

 ● recognize revenue as the performance
obligations are satisfied. 

 Identify the customer contract 
 
 A customer contract is generally
identified when there is approval and commitment from both us and its customer, the rights have been identified, payment terms are identified,
the contract has commercial substance and collectability, and consideration is probable. Specifically, we obtain written/electronic signatures
on contracts and a purchase order, if said purchase orders are issued in the normal course of business by the customer.
 
 Identify performance
obligations that are distinct 
 
 A performance obligation
is a promise by us 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 our promise to transfer the good or service to the customer is separately identifiable from
other promises in the contract.
 
 Determine the transaction
price 
 
 The transaction price is
the amount of consideration to which we expect to be entitled in exchange for transferring goods or services to a customer, excluding
sales taxes that are collected on behalf of government agencies.
 
 Allocate 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. Our contracts typically contain multiple performance obligations, for which we account for individual
performance obligations separately, if they are distinct. The standalone selling price reflects the price we would charge for a specific
piece of equipment or service if it was sold separately in similar circumstances and to similar customers.
 
 Recognize revenue as
the performance obligations are satisfied 
 
 Revenue is recognized when,
or as, performance obligations are satisfied by transferring control of a promised product or service to a customer.
 
 Significant Judgments 
 
 We enter into contracts that
may include various combinations of equipment, services and construction, which are generally capable of being distinct and accounted
for as separate performance obligations. Contracts with customers often include promises to transfer multiple products and services to
a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately
versus together may require significant judgment. Once we determine the performance obligations, it determines the transaction price,
which includes estimating the amount of variable consideration to be included in the transaction price, if any. We then allocate the transaction
price to each performance obligation in the contract based on the SSP. The corresponding revenue is recognized as the related performance
obligations are satisfied.
 
 45 

 Judgment is required to determine
the SSP for each distinct performance obligation. We determine SSP based on the price at which the performance obligation is sold separately
and the methods of estimating SSP under the guidance of ASC 606-10-32-33. If the SSP is not observable through past transactions, we estimate
the SSP, considering available information such as market conditions, expected margins, and internally approved pricing guidelines related
to the performance obligations. We license our software as a Software-as-a-Service (“SaaS”) type subscription license, whereby
the customer only has a right to access the software over a specified time period. The full value of the contract is recognized ratably
over the contractual term of the SaaS subscription, adjusted monthly if tiered pricing is relevant. We typically satisfy our performance
obligations for equipment sales when equipment is made available for shipment to the customer; for services sales as services are rendered
to the customer and for construction contracts both as services are rendered and when contract is completed.
 
 We utilize the cost-plus
margin method to determine the SSP for equipment and build-out services. This method is based on the cost of the services from third parties,
plus a reasonable markup that we believe is reflective of a market-based reseller margin.
 
 We determine the SSP for
services in time and materials contracts by observable prices in standalone services arrangements.
 
 We estimate variable consideration
in the form of royalties, revenue share, monthly fees, and service credits are estimated at contract inception and updated at the end
of each reporting period if additional information becomes available. Variable consideration is typically not subject to constraint. Changes
to variable consideration were not material for the periods presented.
 
 If a contract has payment
terms that differ from the timing of revenue recognition, we will assess whether the transaction price for those contracts includes a
significant financing component. We have elected the practical expedient that permits an entity to not adjust for the effects of a significant
financing component if we expect that at the contract inception, the period between when the entity transfers a promised good or service
to a customer and when the customer pays for that good or service, will be one year or less. For those contracts in which the period exceeds
the one-year threshold, this assessment, as well as the quantitative estimate of the financing component and its relative significance,
requires judgment. Accordingly, we impute interest on such contracts at an agreed-upon interest rate and will present the financing components
separately as financial income. For the years ended December 31, 2022 and 2021, we did not have any such financial income.
 
 Payment terms with customers
typically require payment 30 days from the invoice date. Our agreements with customers do not provide for any refunds for services or
products and therefore no specific reserve for such is maintained. In the infrequent instances where customers raise a concern over
delivered products or services, we have endeavored to remedy the concern and all costs related to such matters have been insignificant
in all periods presented.
 
 We have elected to treat
shipping and handling activities after the customer obtains control of the goods as a fulfillment cost and not as a promised good or service.
Accordingly, we will accrue all fulfillment costs related to the shipping and handling of consumer goods at the time of shipment. We have
payment terms with its customers of one year or less and has elected the practical expedient applicable to such contracts not to consider
the time value of money. Sales, value add, and other taxes we collect concurrent with revenue-producing activities are excluded from revenue.
 
 We receive payment from customers
based on specified terms that are generally less than 30 days from the satisfaction of performance obligations. There are no contract
assets related to performance under the contract. The difference in the opening and closing balances of our deferred revenue primarily
results from the timing difference between our performance and the customer’s payment. We fulfill obligations under a contract with
a customer by transferring products and services in exchange for consideration from the customer. Accounts receivables are recorded when
the customer has been billed or the right to consideration is unconditional. We recognize deferred revenue when consideration has been
received or an amount of consideration is due from the customer, and we have a future obligation to transfer certain proprietary products.
 
 46 

 In accordance with ASC 606-10-50-13,
we are required to include disclosure on its remaining performance obligations as of the end of the current reporting period. Due to the
nature of our contracts, these reporting requirements are not applicable. The majority of our remaining contracts meet certain exemptions
as defined in ASC 606-10-50-14 through 606-10-50-14A, including (i) performance obligation is part of a contract that has an original
expected duration of one year or less and (ii) the right to invoice practical expedient.
 
 We generally provide a one-year
warranty on our products for materials and workmanship but may provide multiple-year warranties as negotiated, and will pass on the warranties
from its vendors, if any, which generally covers this one-year period. In accordance with ASC 450-20-25, we accrue for product warranties
when the loss is probable and can be reasonably estimated. The reserve for warranty returns is included in accrued expenses and other
current liabilities in our consolidated balance sheets.
 
 Accounting for Business Combinations 
 
 We allocated the purchase
price of acquired companies to the tangible and intangible assets acquired, including in-process research and development assets, and
liabilities assumed, based upon their estimated fair values at the acquisition date. These fair values are typically estimated with assistance
from independent valuation specialists. The purchase price allocation process requires us to make significant estimates and assumptions,
especially at the acquisition date with respect to intangible assets, contractual support obligations assumed, contingent consideration
arrangements, and pre-acquisition contingencies.
 
 Although we believe the assumptions
and estimates we have made in the past have been reasonable and appropriate, they are based in part on historical experience and information
obtained from the management of the acquired companies and are inherently uncertain.
 
 Examples of critical estimates
in valuing certain of the intangible assets we have acquired or may acquire in the future include but are not limited to:
 
 ● future expected cash flows
from software license sales, support agreements, consulting contracts, other customer contracts, and acquired developed technologies; 

 ● expected costs to develop in-process
research and development into commercially viable products and estimated cash flows from the projects when completed; 

 ● the acquired company’s
brand and competitive position, as well as assumptions about the period of time the acquired brand will continue to be used in the combined
company’s product portfolio; 

 ● cost of capital and discount
rates; and 

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

 The 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.
 
 47 

 Goodwill and Intangible Assets 
 
 Amortization of acquired
intangible assets is the result of the acquisition of TriGrow Systems, LLC (“TriGrow”), which occurred in 2020, the acquisition
of Precision Extraction NewCo, LLC (“Precision”) and Cascade Sciences, LLC (“Cascade”) which occurred in 2021,
the acquisition of PurePressure, LLC (“PurePressure”), which also occurred in 2021, and the acquisition of Lab Society, which
occurred in 2022. As a result of these transactions, customer relationships, acquired developed technology, non-compete agreements and
trade names were identified as intangible assets, and are amortized over their estimated useful lives.
 
 We recognize the excess of
the purchase price over the fair value of identifiable net assets acquired as goodwill. Goodwill is not amortized but is tested for impairment
 at least annually in the fourth quarter of the year, or more frequently if events or changes
in circumstances indicate that the carrying amount of the goodwill may not be recoverable. We have determined that were a single reporting
unit for the purpose of conducting the goodwill impairment assessment. A goodwill impairment charge is recorded if the amount by which
our carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. Factors that could lead to a future impairment
include material uncertainties such as a significant reduction in projected revenues, a deterioration of projected financial performance,
future acquisitions and/or mergers, and a decline in our market value as a result of a significant decline in our stock price.
 
 During the three-month ended
June 30, 2022, we identified an impairment-triggering event associated with both a sustained decline in our stock price and associated
market capitalization, as well as a second-quarter slowdown in the cannabis industry as a whole. Due to these factors, we deemed that
there was an impairment to the carrying value of our property and equipment and accordingly performed interim testing as of June 30, 2022.
Based on our interim testing, we noted that the entire carrying value of our goodwill and intangible assets should be impaired. Additional
information regarding our interim testing on goodwill and intangible assets may be found in Note 7 – Goodwill and Intangible Assets,
Net, included elsewhere in the notes to the consolidated financial statements.
 
 Convertible Notes Payable 
 
 We evaluate our convertible
instruments to determine if those contracts or embedded components of those contracts qualify as derivative financial instruments to be
separately accounted for in accordance with ASC Topic 815 Derivatives and Hedging (“ASC 815”). The accounting treatment of
derivative financial instruments requires that we identify and record certain embedded conversion options (“ECOs”), certain
variable-share settlement features, and any related freestanding instruments at their fair values as of the inception date of the agreement
and at fair value as of each subsequent balance sheet date. Any change in fair value is recorded as non-operating, non-cash income or
expense for each reporting period at each balance sheet date. We reassess the classification of our derivative instruments at each balance
sheet date. If the classification changes as a result of events during the period, the contract is reclassified as of the date of the
event that caused the reclassification. Bifurcated embedded conversion options, variable-share settlement features and any related freestanding
instruments are recorded as a discount to the host instrument which is amortized to interest expense over the life of the respective note
using the effective interest method.
 
 If we determine that an instrument
is not a derivative liability, we then evaluate whether there is a beneficial conversion feature (“BCF”), by comparing the
commitment date fair value to the effective current conversion price of the instrument. We record a BCF as a debt discount which is amortized
to interest expense over the life of the respective note using the effective interest method. BCFs that are contingent upon the occurrence
of a future event are recognized when the contingency is resolved.
 
 Warrant Liabilities 
 
 We do not use derivative
instruments to hedge exposures to cash flow, market, or foreign currency risks. We evaluate all of our financial instruments, including
issued private placement stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as
embedded derivatives, pursuant to ASC Topic 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815. We account
for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms
and applicable authoritative guidance in ASC 480 and ASC 815. Our assessment considers whether the warrants are freestanding financial
instruments pursuant to ASC 480, whether they meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all
of the requirements for equity classification under ASC 815, including whether the warrants are indexed to our own Common Stock among
other conditions for equity classification.
 
 48 

 For
issued or modified warrants that meet all of the criteria for equity classification, they are recorded as a component of additional paid-in
capital at the time of issuance. For issued or modified warrants that are precluded from equity classification, they are recorded as a
liability at their initial fair value on the date of issuance and subject to remeasurement on each balance sheet date with changes in
the estimated fair value of the warrants to be recognized as an unrealized gain or loss in the condensed consolidated statements of operations. 
 
 Capitalization of Internal Software Development
Costs 
 
 We capitalize on certain
software engineering efforts related to the continued development of Agrify Insights™ cultivation software (“Agrify Insights™”)
under ASC 985-20. Costs incurred during the application development phase are only capitalized once technical feasibility
has been established and the work performed will result in new or additional functionality. The types of costs capitalized during
the application development phase include employee compensation, as well as consulting fees for third-party software developers working
on these projects. Costs related to the research and development are expensed as incurred until technical feasibility is established
as well as post-implementation activities. Internal-use software is amortized on a straight-line basis over the estimated useful life
of the asset, which ranges from two to five years. 
 
 Income Taxes 
 
 We account for income taxes
pursuant to the provisions of ASC Topic 740, “Income Taxes,” which requires, among other things, an asset and liability approach
to calculating deferred income taxes. The asset and liability approach requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities.
A valuation allowance is provided to offset any net deferred tax assets for which management believes it is more likely than not that
the net deferred asset will not be realized.
 
 We follow the provisions
of ASC 740-10-25-5, “Basic Recognition Threshold.” When tax returns are filed, it is highly certain that some positions taken
would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position
taken or the amount of the position that would be ultimately sustained. In accordance with the guidance of ASC 740-10-25-6, the benefit
of a tax position is recognized in the consolidated financial statements in the period during which, based on all available evidence,
management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals
or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not
recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement
with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured
as described above should be reflected as a liability for unrecognized tax benefits in the accompanying balance sheets along with any
associated interest and penalties that would be payable to the taxing authorities upon examination. We believe our tax positions are all
highly certain of being upheld upon examination. As such, we have not recorded a liability for unrecognized tax benefits.
 
 We recognize the benefit
of a tax position when it is effectively settled. ASC 740-10-25-10, “Basic Recognition Threshold” provides guidance on how
an entity should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits.
ASC 740-10-25-10 clarifies that a tax position can be effectively settled upon the completion of an examination by a taxing authority.
For tax positions considered effectively settled, we recognize the full amount of the tax benefit.
 
 Accounting for Stock-Based Compensation 
 
 We follow the provisions
of ASC Topic 718, Compensation-Stock Compensation (“ASC 718”) which establishes standards surrounding the accounting for transactions
in which an entity exchanges our equity instruments for goods or services. ASC 718 focuses primarily on accounting for transactions in
which an entity obtains employee services in share-based payment transactions, such as options issued under our Stock Option Plans.
 
 49 

 The fair value of each option
is estimated on the date of grant using the Black-Scholes option-pricing model. This model incorporates certain assumptions for inputs
including a risk-free market interest rate, expected dividend yield of the underlying Common Stock, expected option life, and expected
volatility in the market value of the underlying Common Stock.
 
 The Black-Scholes option-pricing
model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable.
In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility.
Because our stock options and warrants have characteristics different from those of our traded stock, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of such stock options. The risk-free interest rate is based upon quoted market yields
for United States Treasury debt securities with a term similar to the expected term. The expected dividend yield is based upon our history
of having never issued a dividend and management’s current expectation of future action surrounding dividends. We calculate the
expected volatility of the stock price based on the corresponding volatility of our peer group stock price for a period consistent with
the underlying instrument’s expected term. The expected lives for such grants were based on the simplified method for employees
and directors.
 
 In arriving at stock-based
compensation expense, we estimate the number of stock-based awards that will be forfeited due to employee turnover. Our forfeiture assumption
is based primarily on its turn-over historical experience. If the actual forfeiture rate is higher than the estimated forfeiture rate,
then an adjustment will be made to increase the estimated forfeiture rate, which will result in a decrease to the expense recognized in
our consolidated financial statements. If the actual forfeiture rate is lower than the estimated forfeiture rate, then an adjustment will
be made to lower the estimated forfeiture rate, which will result in an increase to expense recognized in our consolidated financial statements.
The expense we recognize in future periods will be affected by changes in the estimated forfeiture rate and may differ significantly from
amounts recognized in the current period.
 
 It is important that the
discussion of our operating results that follows be read in conjunction with the critical accounting policies disclosed above. 
 
 Results of Operations 
 
 We have incurred recurring
losses to date. Our consolidated financial statements have been prepared assuming that we will continue as a going concern and, accordingly,
do not include adjustments relating to the recoverability and realization of assets and classification of liabilities that might be necessary
should we be unable to continue in operation.
 
 Our continuation as a going concern is dependent upon our ability to
obtain the necessary debt or equity financing to continue operations until we begin generating sufficient cash flows from operations to
meet our obligations. If we are unable raise additional funds, we may be forced to cease operations.
 
 50 

 Comparison of Years Ended December 31, 2022
and 2021 
 
 The following table summarizes our results of
operations for the years ended December 31, 2022 and 2021:
 
 Year Ended
 December 31, 
 
 (In thousands) 
 
 2022 
 
 2021 
 
 Revenue (including $2,417 and $31,439 from related parties, respectively) 
 
 $ 
 58,259 
 
 $ 
 59,859 
 
 Cost of goods sold 
 
 90,054 
 
 54,625 
 
 Gross (loss) profit 
 
 (31,795 
 ) 
 
 5,234 
 
 General and administrative 
 
 73,354 
 
 30,807 
 
 Selling and marketing 
 
 9,338 
 
 4,163 
 
 Research and development 
 
 8,179 
 
 3,925 
 
 Change in contingent consideration 
 
 (2,156 
 ) 
 
 1,412 
 
 Impairment of property and equipment 
 
 2,912 
 
 — 
 
 Impairment of goodwill and intangible assets 
 
 69,904 
 
 — 
 
 Total operating expenses 
 
 161,531 
 
 40,307 
 
 Loss from operations 
 
 (193,326 
 ) 
 
 (35,073 
 ) 

 Interest (expense) income, net 
 
 (8,750 
 ) 
 
 74 
 
 Other expense, net 
 
 1,316 
 
 (31 
 ) 

 Change in fair value of warrant liability 
 
 51,461 
 
 — 
 
 Gain on forgiveness of PPP Loan 
 
 — 
 
 45 
 
 (Loss) gain on extinguishment of notes payable 
 
 (38,985 
 ) 
 
 2,685 
 
 Other income, net 
 
 5,042 
 
 2,773 
 
 Net loss before income taxes 
 
 (188,284 
 ) 
 
 (32,300 
 ) 

 Income tax expense 
 
 (23 
 ) 
 
 (25 
 ) 

 Net loss 
 
 (188,307 
 ) 
 
 (32,325 
 ) 

 (Income) loss attributable to non-controlling interests 
 
 134 
 
 (140 
 ) 

 Net loss attributable to Agrify Corporation 
 
 $ 
 (188,173 
 ) 
 
 $ 
 (32,465 
 ) 

 51 

 Revenues 
 
 Our goal is to provide our
customers with a variety of products to address their entire indoor agriculture needs. Our core product offering includes our VFUs and
Agrify Integrated Grow Racks with our Agrify Insights™, which are supplemented with environmental control products, grow lights,
facility build-out services, and extraction equipment.
 
 We generate revenue from
sales of cultivation solutions, including ancillary products and services, Agrify Insights™, facility build-outs, and extraction
equipment and solutions. We believe that our product mix forms an integrated ecosystem that allows us to be engaged with our potential
customers from the early stages of the grow cycle — first during the facility build-out, to the choice of cultivation solutions,
running the grow business with our Agrify Insights™ and finally, our extraction, post-processing, and testing services to transform
harvest into a sellable product. We believe that the delivery of each solution in the various stages of the process will generate sales
of additional solutions and services. 
 
 The following table provides a breakdown of our
revenue for the years ended December 31, 2022 and 2021:
 
 Year Ended 
 December 31, 
 
 (In thousands) 
 2022 
 2021 
 Change 
 % Change 

 Cultivation solutions, including ancillary products and services 
 $ 711 
 $ 11,354 
 $ (10,643 ) 
 (94 )% 

 Agrify Insights™ 
 74 
 8 
 66 
 825 % 

 Facility build-outs 
 23,129 
 36,193 
 (13,064 ) 
 (36 )% 

 Extraction solutions 
 34,345 
 12,304 
 22,041 
 179 % 

 Total revenue 
 $ 58,259 
 $ 59,859 
 $ (1,600 ) 
 (3 )% 

 Revenues decreased by $1.6
million, or 3%, for the year ended December 31, 2022, as compared to the same period in 2021. The comparative decrease in revenue was
primarily driven by a $13.1 million reduction in facility build-outs due to completion of one construction project and $7.0 million of
revenue for Bud & Mary’s that was deferred due to pending litigation. Additionally, there was a $10.6 million decrease in cultivation
solutions due to the migration to a VFU leasing model. This was partially offset by revenue generated by our extraction solutions sales
of equipment and services from our acquisition of Lab Society in 2022 and Precision, Cascade, and PurePressure in 2021, which contributed
$22.0 million. 
 
 52 

 Cost of Goods Sold 
 
 Cost of goods sold represents
a combination of the following: construction-related costs associated with our facility build-outs, internal and outsourced labor and
material costs associated with the assembly of both cultivation equipment (primarily VFUs), and extraction equipment, as well as labor
and parts costs associated with the sale or provision of other products and services.
 
 The following table provides a breakdown of our
cost of goods sold for the years ended December 31, 2022 and 2021:
 
 Year Ended 
 December 31, 
 
 (In thousands) 
 2022 
 2021 
 Change 
 % Change 

 Cultivation solutions, including ancillary products, and services 
 $ 27,513 
 $ 10,855 
 $ 16,658 
 153 % 

 Agrify Insights™ 
 — 
 — 
 — 
 — % 

 Facility build-outs 
 31,588 
 35,012 
 (3,424 ) 
 (10 )% 

 Extraction solutions 
 30,953 
 8,758 
 22,195 
 253 % 

 Total cost of goods sold 
 $ 90,054 
 $ 54,625 
 $ 35,429 
 65 % 

 Cost of goods sold increased
$35.4 million, or 65%, for the year ended December 31, 2022, as compared to the same period in 2021. The year-over-year increase in cost
of goods sold is primarily associated with increased inventory reserves due to the overall decline in the market and obsolescence. The
decline in facility build-outs was the result of the completion of one construction project and the cessation of construction on the Bud
and Mary’s project due to pending litigation.
 
 Gross (Loss) Profit 
 
 Year Ended 
 December 31, 
 
 (In thousands) 
 2022 
 2021 
 Change 
 % Change 

 Gross (loss) profit 
 $ (31,795 ) 
 $ 5,234 
 $ (37,029 ) 
 (707 )% 

 Gross loss totaled $31.8
million, or (54.6)%, of total revenue during the year ended December 31, 2022 compared to
a gross profit of $5.2 million, or 8.7% of total revenue during the year ended December 31, 2021. The
comparative $37.0 million year-over-year decline in gross profit, as well as the comparative decline in gross profit margin, is primarily
 attributable to reserves for inventory and facility build-outs. The Bud & Mary’s project
was the main contributor to the gross margin decline in facility build-outs due to the pending litigation. The gross profit decline was
partially offset by increased Extraction solutions revenue in 2022 . 
 
 53 

 Operating Expenses 
 
 Year Ended 
 December 31, 
 
 (In thousands) 
 2022 
 2021 
 Change 
 % Change 

 General and administrative 
 $ 73,354 
 $ 30,807 
 $ 42,547 
 138 % 

 Selling and marketing 
 9,338 
 4,163 
 5,175 
 124 % 

 Research and development 
 8,179 
 3,925 
 4,254 
 108 % 

 Change in contingent consideration 
 (2,156 ) 
 1,412 
 (3,568 ) 
 (253 )% 

 Impairment of property and equipment 
 2,912 
 — 
 2,912 
 NA 

 Impairment of goodwill and intangible assets 
 69,904 
 — 
 69,904 
 NA 

 Total operating expenses 
 $ 161,531 
 $ 40,307 
 $ 121,224 
 301 % 

 General and administrative 
 
 General and administrative
(“G&A”) expenses consist principally of salaries and related costs, including stock-based compensation and travel expenses,
for personnel associated with executive and other administrative functions. Other G&A expenses include, but are not limited to, professional
fees for legal, consulting, depreciation and amortization, and accounting services, as well as facility-related costs.
 
 G&A expenses increased by $42.5 million, or 138%, for the year
ended December 31, 2022, compared to the same period in 2021. The primary drivers of the year-over-year increase of G&A expenses were
largely attributable to an increase in trade and loan receivable allowances of $33.1 million, primarily related to our TTK projects, and
an increase of $6.3 million in employee related expenses and severance expense. 
 
 During
the second, third, and fourth quarters of 2022, we increased our loan receivable reserve by approximately $7.1 million, $14.7 million,
and $11.3 million, respectively. The $7.1 million increase during the second quarter of 2022 was specifically related to Greenstone Holdings
(“Greenstone”). Greenstone is a related party because one of our former Agrify Brands employees and our VP of Engineering
had a minority ownership. We specifically established the loan reserve related to Greenstone based on our review of Greenstone’s
financial stability, which would impact collectability and is primarily the result of unfavorable market conditions within the Colorado
market. We wrote off the entire Greenstone loan receivable as of June 30, 2023. Additional information regarding recent developments with
Greenstone may be found in Note 5 – Loans Receivable, included in the notes to the consolidated
financial statements. The $14.7 million increase during the third quarter of 2022 specifically related to Bud & Mary’s.
We deemed it necessary to fully reserve Bud & Mary’s loan receivable balance due to the current litigation and the uncertainty
of the customer’s ability to repay the outstanding balance. We believe the litigation is without merit and will continue to vigorously
defend ourselves. The $11.3 million increase during the fourth quarter of 2022 related to three customer balances that were fully or partially
reserved.
 
 Selling and marketing 
 
 Selling and marketing expenses
consist primarily of salaries and related costs of personnel, travel expenses, trade shows, and advertising expenses.
 
 Selling and marketing expenses
increased by $5.2 million, or 124%, for the year ended December 31, 2022, compared to the same period in 2021. The comparative period
increase was primarily related to our acquisition of Lab Society in 2022 and the acquisitions of Precision, Cascade, and PurePressure
in 2021, which contributed $3.7 million of increased selling and marketing expenses, an increase in payroll, severance, and related expenses
of $957 thousand, and an increase in advertising, trade shows, and other expenses of $558 thousand.
 
 54 

 Research and development 
 
 Research and development
(“R&D”) expenses consisted primarily of costs incurred for the development of our Agrify Insights™ and next-generation
VFUs, which includes:
 
 ● employee-related expenses,
including salaries, benefits, and travel; 

 ● subcontractor expenses incurred
under agreements to provide engineering work related to the development of our next-generation VFUs; and 

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

 R&D expenses increased
by $4.3 million, or 108%, for the year ended December 31, 2022, compared to the same period in 2021. The comparative period increase is
primarily related to our acquisition of Lab Society in 2022 and the acquisitions of Precision, Cascade, and PurePressure in 2021, which
increased research and development expenses by $1.8 million, an increase in consulting and other cost of $1.8 million, and an increase
in payroll, severance, and related expenses of $736 thousand. As a percentage of net revenue, R&D expenses were 14.0% of total revenue
for the year ended December 31, 2022, compared to 6.6% for same period in 2021.
 
 We expect to continue to
invest in future developments for our VFUs, Agrify Insights™, and extraction products. Although we continue to invest in R&D
activities, we expect R&D expenses to decrease as a percentage of revenue as our revenue grows.
 
 Change in contingent consideration 
 
 Contingent consideration
decreased $2.2 million for the year ended December 31, 2022, compared to an increase of $1.4 million for the same period in 2021. The
change in contingent consideration, which was recognized by us during the second and third quarters of 2022, primarily related to the
reduction in the projected earn-out achievement associated with Lab Society’s and PurePressure’s first twelve-month earn-out
period, for which revenue projections were trending below our original earn-out estimates used in calculating the fair value of the contingent
consideration.
 
 Impairment of property and equipment 
 
 Results from a 50% reserve on equipment to be
leased to Hannah Industries due to uncertainty of the project.
 
 Impairment of goodwill and intangible assets 
 
 During the three months ended
June 30, 2022, we identified an impairment-triggering event associated with both a sustained decline in our stock price and associated
market capitalization, as well as a second-quarter slowdown in the cannabis industry as a whole. Due to these factors, we deemed that
there was an impairment to the carrying value of our property and equipment and accordingly performed interim testing as of June 30, 2022.
 
 Based on our interim testing,
we noted that the current carrying value of equity significantly exceeded the calculated fair value of equity, by an amount greater than
the aggregate value of our goodwill and intangible assets. Accordingly, we concluded that the entire carrying value of our goodwill and
intangible assets were impaired, resulting in a second-quarter impairment charge of $69.9 million. Additional information regarding our
interim impairment testing may be found in Note 7 – Goodwill and Intangible Assets, Net, included in the notes to the consolidated
financial statements. 
 
 55 

 Other Income, Net 
 
 Year Ended 
 December 31, 
 
 (In thousands) 
 2022 
 2021 
 Change 
 % Change 

 Interest (expense) income, net 
 $ (8,750 ) 
 $ 74 
 $ (8,824 ) 
 (11,924 )% 

 Other expense, net 
 1,316 
 (31 ) 
 1,347 
 (4,345 )% 

 Change in fair value of warrant liability 
 51,461 
 — 
 51,461 
 NA 

 Gain on forgiveness of PPP loan 
 — 
 45 
 (45 ) 
 (100 )% 

 (Loss) gain on extinguishment of notes payable 
 (38,985 ) 
 2,685 
 (41,670 ) 
 (1,552 )% 

 $ 5,042 
 $ 2,773 
 $ 2,269 
 82 % 

 Interest (expense) income, net 
 
 Interest expense was approximately
$8.8 million for the year ended December 31, 2022 compared to interest income of approximately $74 thousand for the same period in 2021.
The interest expense in 2022 is primarily attributable to modification of our debt facilities related to our SPA Note and Exchange Note.
 
 Other expense, net 
 
 Other expense, net increased
by $1.3 million, or 4,345%, for the year ended December 31, 2022, compared to the same period in 2021.
 
 Change in fair value of warrant liability 
 
 Change in fair value of warrant
liability was $51.5 million for the year ended December 31, 2022. There was no change in fair value of warrant liability in 2021. During
the year ended December 31, 2022, we recorded a non-cash gain of $51.5 million related to changes
in the valuation of our liability-classified warrants issued in August and December 2022, which was primarily driven by movements in our
stock price. Additional information regarding the fair value of our liability-classified
warrants may be found in Note 4 – Fair Value Measures, included in the notes to the consolidated financial statements.
 
 Gain on forgiveness of PPP loan 
 
 In September 2021, the PPP
loan for $45 thousand was forgiven by the U.S. Small Business Administration. As a result, we recorded a gain of $45 thousand on the forgiveness
of the loan and the associated accrued interest. There was no associated forgiveness in the year ended December 31, 2022.
 
 (Loss) gain on extinguishment of notes payable 
 
 Loss
on extinguishment of notes payable was $39.0 million for the year ended December 31, 2022, compared to a gain of $2.7 million for the
same period in 2021. The loss on extinguishment of notes payable, which was recognized by us during the third quarter of 2022, related
to the extinguishment of the SPA Note dated March 14, 2022. We recognized a loss on extinguishment of $39.0 million (inclusive of $13.1
million of unamortized warrants, $5.0 million for a default penalty on the principal amount, $2.3 million of unamortized issuance costs,
and $1.2 million for the incremental fair value of warrants modified in exchange of debt). Additional information relating to our SPA
Note may be found in Note 9 – Debt, included in the notes to the consolidated financial statements.
 
 The gain on extinguishment
of $2.7 million for the year ended December 31, 2021 related to the derecognition of the net carrying amount of 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 a new convertible note (including the same principal amount of $13.1 million plus the $3.9 million
fair value of the beneficial conversion feature). Additional information relating to our gain on extinguishment of notes payable may be
found in Note 11 – Convertible Promissory Notes, included in the notes to the consolidated financial statements. 
 
 56 

 Income Tax Expense 
 
 Year Ended 
 December 31, 
 
 (In thousands) 
 2022 
 2021 
 Change 
 % Change 

 Income tax expense 
 $ (23 ) 
 $ (25 ) 
 $ 2 
 (0.1 )% 

 Effective tax rate 
 0.0 % 
 0.0 % 
 
 Income (Loss) Attributable to Non-Controlling
Interest 
 
 We consolidate the results
of operations of two less than wholly-owned entities into our consolidated statements of operations. On December 8, 2019, we formed Agrify-Valiant,
LLC (“Agrify-Valiant”), a joint-venture limited liability company in which we are the 60% majority owner and Valiant-America,
LLC owns 40%. Agrify-Valiant started its operations during the second quarter of 2020. On October 27, 2022, we provided notice to Valiant-America
of our intention to begin the winding up of Agrify-Valiant. On January 22, 2020, as part of the acquisition of TriGrow, we received TriGrow’s
75% interest in Agrify Brands, LLC (formerly TriGrow Brands, LLC), a licensor of an established portfolio of consumer brands that utilize
our grow technology. The license for these brands is ancillary to the sale of our VFUs and provides a means to differentiate customers’
products in the marketplace. It is not a material aspect of our business and we have not realized any royalty income. Accordingly, we
are currently evaluating whether to continue this legacy business from an operational standpoint, as well as from a legal and regulatory
perspective.
 
 Income (loss) attributable
to non-controlling interest represents the portion of profit (or loss) that is attributable to the non-controlling interest calculated
as a product of the net income of the entity multiplied by the percentage of ownership held by the non-controlling interest.
 
 Liquidity and Capital Resources 
 
 Operating Capital Requirements 
 
 We have incurred operating
losses since our inception and have negative cash flows from operations. We have an accumulated deficit of approximately $247.1 million
as of December 31, 2022. Our primary sources of liquidity are cash and cash equivalents, with additional liquidity accessible, subject
to market conditions and other factors, including limitations that may apply to us under applicable SEC regulations, from the capital
markets.
 
 As of December 31, 2022,
we had $20.5 million of cash, cash equivalents, and restricted cash. Our restricted cash and restricted marketable securities of $10.0
million is associated with the Exchange Note as of December 31, 2022. Current liabilities were $70.6 million as of December 31, 2022.
 
 On October 18, 2022, we
entered into the ATM Program with the Agent pursuant to which we could issue and sell, from time to time, shares of our Common Stock
having an aggregate offering price of up to $50 million, depending on market demand, with the Agent acting as an agent for sales. The
ATM Program allowed us to sell shares of Common Stock pursuant to specific parameters defined by us as well as those defined by the SEC
and the ATM Program agreement. Beginning October 18, 2022 through December 31, 2022, we sold 306,628 shares of Common Stock under the
ATM at an average price of $50.85, resulting in gross proceeds of $15.6 million and net proceeds of $15.1 million after commissions and
fees to the Agent totaling $468 thousand. Subsequent to December 31, 2022 through April 1, 2023, after which time the ATM program was
discontinued, we sold an additional 323,082 shares of Common Stock under the ATM at an average price of $4.93, resulting in gross proceeds
of $1.6 million and net proceeds of $1.6 million after commissions and fees to the Agent totaling $48 thousand. For the entire period
from October 18, 2022 through April 1, 2023, we sold 629,710 shares of Common Stock under the ATM at an average price of $27.29 per share,
resulting in gross proceeds of $17.2 million, and net proceeds of $16.7 million after commissions and fees to the Agent totaling $516
thousand. $3.0 million of the proceeds under the ATM Program were used to repay amounts due to the Investor under the Exchange Note.
We used the net proceeds generated from the ATM Program for working capital and general corporate purposes, including repayment of indebtedness,
funding its transformation initiatives and product category expansion efforts and capital expenditures. Due to the late filing of this
Annual Report on Form 10-K, we are no longer eligible to utilize the registration statement on Form S-3 relating to the ATM Program,
and do not anticipate any further sales under the ATM Program in the foreseeable future. 
 
 57 

 Our current working capital
needs are to support revenue growth, fund construction and equipment financing commitments associated with our TTK Solutions, manage
inventory to meet demand forecasts and support operational growth. Our long-term financial needs primarily include working capital requirements
and capital expenditures. We anticipate that we will allocate a significant portion of our current balance of working capital to satisfy
the financing requirements of our current and possible future TTK arrangements. These arrangements require a significant amount of upfront
capital necessary to fund construction, associated with facility build-outs, and equipment. We do not intend to enter into any new TTK
Solutions for the foreseeable future, however, we have deployed this program with certain key customers.
 
 We may opportunistically
raise debt capital, subject to market and other conditions. Additionally, as part of our growth strategies, we may also raise debt capital
for strategic alternatives and general corporate purposes. If additional financing is required from outside sources, we may not be able
to raise such capital on terms acceptable to us or at all. If we are unable to raise additional capital when desired, our business, operating
results, and financial condition may be adversely affected.
 
 These consolidated
financial statements have been prepared based on the assumption that we will continue as a going concern for the next twelve-months
from the date these consolidated financial statements are available to be issued. However, we have incurred operating losses since
our inception and have negative cash flows from operations, and our significant operating losses raise substantial doubt about our
ability to continue as a going concern. Our continuation as a going concern is dependent upon our ability to obtain the
necessary debt or equity financing to continue operations until we begin generating sufficient cash flows from operations to meet
our obligations. If we are unable to raise additional funds, we may be forced to cease operations.
 
 There is no assurance that
we will ever be profitable. The consolidated financial statements do not include any adjustments to reflect the potential future effects
on the recoverability and classification of assets or the amounts and classifications of liabilities that may result should we be unable
to continue as a going concern.
 
 Indebtedness 
 
 We entered into one Loan
Agreement and Promissory Note with Bank of America pursuant to the Paycheck Protection Program (the “PPP”) under the Coronavirus
Aid, Relief, and Economic Security Act (“CARES Act”) administered by the U.S. Small Business Administration. We received total
proceeds of approximately $779 thousand from the unsecured PPP Loan which was originally scheduled to mature in May 2022. We applied for
forgiveness on the $779 thousand of our PPP Loan however was denied by the SBA. On June 23, 2022, we received a letter from Bank of America
agreeing to extend the maturity date to May 7, 2025 and bears interest at a rate of 1.00% per year. The PPP loan is payable in 34 equal
combined monthly principal and interest payments of approximately $24 thousand that commenced on August 7, 2022.
 
 On
March 14, 2022, we entered into a Securities Purchase Agreement with an institutional investor. The Purchase Agreement provides for the
issuance of the SPA Note in the aggregate amount of $65.0 million and a SPA Warrant to purchase up to an aggregate of 34,406 shares of
Common Stock, with the potential for two potential subsequent closings for notes with an original principal amount of $35.0 million each.
 
 On
August 18, 2022, we entered into a Securities Exchange Agreement. Pursuant to the August 2022 Exchange Agreement, we partially paid $35.2
million along with approximately $300 thousand in repayments for other fees under the SPA Note and exchanged the remaining balance of
the SPA Note for an Exchange Note with an aggregate original principal amount of $35.0 million and a Note Exchange Warrant to purchase
71,139 shares of Common Stock. Additionally, we exchanged the SPA Warrant for a Modified Warrant for the same number of underlying shares
but with a reduced exercise price.
 
 On
March 8, 2023, the Company entered into a new Securities Exchange Agreement. Pursuant to the March 2023 Exchange Agreement, we prepaid
approximately $10.3 million in principal amount under the Exchange Note and exchanged $10.0 million in principal amount of the remaining
balance of the Exchange Note for a new senior secured convertible note (the “Convertible Note”).
 
 The
Convertible Note is a senior secured obligation and will rank senior to all of our indebtedness. The Convertible Note will mature on August
19, 2025 (the “Maturity Date”) and has a 9.0% annualized interest rate, with interest to be paid monthly, in cash. The principal
amount of the Convertible Note will be payable on the maturity date, provided that the lender will be entitled to a cash sweep of 30%
of the proceeds of any at-the-market equity offering and 20% of the proceeds received by us in connection with any other equity financing,
which will reduce the outstanding principal amount under the Exchange Note. On October 27, 2023, CP Acquisitions LLC, and entity affiliated
with and controlled by Raymond Chang, acquired the Exchange Note and the Convertible Note. As of October 30, 2023, there was approximately
$6.7 million outstanding under the Exchange Note and $8.8 million outstanding under the Convertible Note.
 
 58 

 At
any time, we may prepay all of the Exchange Note by redemption at a price equal to 102.5% of the then-outstanding principal amount under
the Note plus accrued but unpaid interest. The holder will also have the option of requiring us to redeem the Exchange Note on the one-year
or two-year anniversaries of issuance at a price equal to the then-outstanding principal amount under the Exchange Note plus accrued but
unpaid interest, or if we undergo a fundamental change at a price equal to 102.5% of the then-outstanding principal amount under the Exchange
Note plus accrued but unpaid interest.
 
 Summary Statement of Cash Flows 
 
 The following table presents
the major components of net cash flows from and used in operating, investing, and financing activities for the years ended December 31,
2022 and 2021:
 
 (In thousands) 
 December 31, 
 2022 
 December 31,
 2021 

 Net cash (used in) provided by: 
 
 Operating activities 
 $ (72,021 ) 
 $ (30,149 ) 

 Investing activities 
 (2,317 ) 
 (104,740 ) 

 Financing activities 
 72,781 
 138,792 

 Net increase in cash and cash equivalents 
 $ (1,557 ) 
 $ 3,903 

 Cash Flows from Operating Activities 
 
 Cash
used in operating activities consists of net loss adjusted for non-cash benefits and expenses, and changes in operating assets and liabilities.
Net cash used in operating activities increased for the year ended December 31, 2022, compared to the year ended December 31, 2021, primarily
due to higher inventory purchases to meet demand, increased construction costs related to TTK Solutions, payments for employee-related
expenditures, and other working capital needs. 
 
 Cash Flows from Investing Activities 
 
 Cash used in investing activities
consists primarily of maturities and sales of investments in marketable securities. Cash used in investing activities consists primarily
of purchases of marketable securities, cash paid associated with our 2022 and 2021 acquisitions, the issuance of loans receivable in connection
with our financing of construction and equipment under our TTK Solutions offering, and purchases of property and equipment. Capital expenditures
are used to expand research, development, and testing capabilities and, to a lesser extent, to replace existing equipment. Investing activities
used $1.2 million for the year ended December 31, 2022, compared to the use of $104.7 million for
the year ended December 31, 2021, primarily due to net cash of $34.3 million provided by purchases, sales, and maturities of marketable
securities in 2022, compared to net cash of $44.5 million used for purchases, sales, and maturities of marketable securities in 2021,
along with decreased cash paid for business combinations, partially offset by an increase in purchases of property and equipment . 
 
 Cash Flows from Financing Activities 
 
 Cash
provided by financing activities consists primarily of proceeds from the issuance of Common Stock, debt, and warrants in private placements
and proceeds from public offerings. Cash used in financing activities consists primarily of repayment of our debt. Net cash provided by
financing activities decreased for the year ended December 31, 2022, compared to the year ended December 31, 2021, largely due to the
repayment of debt. 
 
 59 

 Item 7A. Quantitative and Qualitative Disclosures
About Market Risk. 
 
 As a “smaller reporting
company” as defined by Item 10 of Regulation S-K, we are not required to provide information required by this Item.
 
 Item 8. Financial Statements and Supplementary
Data. 
 
 The consolidated financial
statements required to be filed pursuant to this Item 8 are appended to this Annual Report on Form 10-K, which consolidated financial
statements are incorporated by reference in response to this Item 8. An index of those consolidated financial statements is found in “Item 15. Exhibits
and Financial Statement Schedules” of this Annual Report on Form 10-K.
 
 Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosures. 
 
 None.
 
 Item 9A. Controls and Procedures. 
 
 Evaluation of Disclosure Controls and Procedures 
 
 Management, with the participation
of our Chief Executive Officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2022. 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 concluded that our disclosure controls and procedures were not effective
at the reasonable assurance level as of December 31, 2022.
 
 Management’s 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. Under the supervision and with the participation of our management, including our Chief Executive 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. Based
on the results of this evaluation, management has concluded that our internal control over financial reporting was not effective at the
reasonable assurance level as of December 31, 2022.
 
 During the year ended December 31, 2022, management identified material
weaknesses in internal control over financial reporting. These material weaknesses related to the accounting for complex financial instruments,
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 our annual books and records, and insufficient technical accounting resources and lack of segregation of duties.
These deficiencies could result in misstatements to our consolidated financial statements that could be material and may not be prevented
or detected on a timely basis.
 
 Because 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.
 
 60 

 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.
 
 Remediation of Material Weakness in Internal
Control over Financial Reporting 
 
 As of December 31, 2022 and through the date of
this filing, we were in varying stages of remediating the current and previously reported material weaknesses in our internal control
over financial reporting. During the fiscal year ended December 31, 2022, we have increased the number of accounting resources employed
by us. We have added technically qualified personnel and are in the process of improving our technical accounting resources and capabilities.
However, the finance team has remained weakened, with the departure of our CFO and VP of Finance. We are in the process of rebuilding
the finance function and have engaged outside consultants to assist. We will need to continue to devote specific attention to these aspects
of our internal control environment to ensure that these material weaknesses are fully remediated.
 
 The material weaknesses identified
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 material misstatements to our annual or interim consolidated 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.
 
 Changes in Internal Control Over Financial
Reporting 
 
 Other than the changes to
remediate the material weaknesses 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, 2022 that has materially affected, or is
reasonably likely to materially affect, our internal control over financial reporting.
 
 Item 9B. Other Information. 
 
 None. 
 
 Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent
Inspections. 
 
 Not applicable.
 
 61 

 PART III 
 
 Item 10. Directors, Executive Officers and Corporate Governance. 
 
 Executive Officers 
 
 Executive Officers of the Company 
 
 Following are the names and ages of the Agrify’s
current executive officers, the year they became an executive officer, and their principal occupations or employment for at least the
past five years.
 
 Name 
 
 Age 
 
 Experience 

 Raymond Chang 
 
 53 
 
 Refer to “Directors” below. 

 David Kessler 
 
 45 
 
 Mr. Kessler has served as our Chief Science Officer since July 2022. Since 2013, he has served as owner and operator of Willowbrook Orchids LLC, a national award-winning boutique orchid nursery. From 2006 through 2016, Mr. Kessler served as a Horticulturist at Atlantic Hydroponics, where he oversaw project management. Mr. Kessler has over twenty years of cannabis cultivation experience including ten years of CEA (closed environmental agriculture) indoor farm design. Mr. Kessler’s focus on the application of technology to optimize process & workflow while reducing operational costs are a common theme throughout his prolific industry publications having written for such companies as Sunlight Supply, Maximum Yield Magazine, Botanicare, and Hawthorne Gardening Company. Mr. Kessler also regularly lectures at many cannabis industry events and appears regularly on industry podcasts. Mr. Kessler’s decades of experience with horticultural lighting have allowed him the opportunity to be a product tester for companies such as Sharp Electronics and the Horticultural Lighting Group. He has worked with independent 3rd party laboratories to provide unbiased testing data comparing product performance from a multitude of horticultural lighting manufacturers. Mr. Kessler received a Bachelor of Arts degree and undertook post graduate studies in biology at SUNY-Oswego. 

 Brian Towns 
 
 37 
 
 Mr. Towns has served as the Executive Vice
 President and General Manager of the Extraction Division since May 2023, and previously served as Vice President of Operations from
 October 2021 through May 2023. Prior to that role, Mr. Towns served as Operations Manager of Precision Extraction from
 October 2016 through January 2019, at which time, Mr. Towns was appointed as the Director of Operations role at Precision Extraction
 in January 2019 until the acquisition by Agrify in October 2021. In these roles, with increasing responsibility, he oversaw multiple
 critical functions, including supply chain management, manufacturing, compliance, engineering, customer support, and field service
 teams. Mr. Town’s visionary approach and commitment to maintaining the highest standards ensured that Precision Extraction
 delivered top-notch products and services to its customers. The acquisition of Precision Extraction by Agrify in October of 2021 and
 the addition of industry leading equipment providers Pure Pressure, Lab Society, and Cascade Sciences put Mr. Towns in the position
 to lead the extraction businesses. At Agrify, Mr. Town’s expertise and innovative mindset continue to drive the extraction
 division’s success. With 7 years of experience in the cannabis extraction industry, Mr. Towns helps spearhead the development
 and implementation of cutting-edge extraction technologies, ensuring Agrify remains at the forefront of the market. Before joining
 Agrify, Mr. Towns honed his skills in executive protection, ensuring the safety and security of high-profile individuals from
 January 2012 through September 2014 as an account executive. Mr. Town’s early career led him to regional management in the
 wireless retail business from August 2014 to October 2016, where he demonstrated exceptional leadership and strategic acumen. Mr.
 Towns received his formal education in Michigan. 

 62 

 Directors 
 
 Set
forth below is certain information regarding the directors of the Company, based on information furnished to the Company by each director.
The biographical description below for each director includes his age, all positions he holds with the Company, his principal occupation
and business experience over the past five years, and the names of other publicly-held companies for which he currently serves as
a director or has served as a director during the past five years. Stuart
Wilcox served on the Board until July 14, 2022, when he resigned in connection with his appointment as Chief Operating Officer, and Thomas
Massie served on the Board until July 8, 2022, when he resigned from the Board and from his position as President and Chief Operating
Officer. Max Holtzman was appointed to the Board on July 14, 2022. 
 
 Nominees for Election 
 
 Name 
 
 Age 
 
 Experience 

 Raymond Chang 
 
 53 
 
 Mr. Chang has served as Chief Executive Officer and Chairman of the Board of Directors since June 2019 and served as the Company’s President from June 2019 to November 2021. 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. In 1997, Mr. 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. In 2007, Mr. 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: 0360.HK). In 2014, Mr. 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. In 2000, Mr. 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 21 century. He was also featured in 2005 as a panel speaker at the World Economic Forum in Zurich, Switzerland. Mr. Chang was the former treasurer/elected board member of Shanghai American School and a member of the Young Presidents Organization — Shanghai Chapter. Mr. Chang received his BA from New York University, MBA from Yale School of Management, and MPA from Harvard JFK School of Government. Mr. Chang has served as a Director of our Company since June 2019. 

 63 

 Name 
 
 Age 
 
 Experience 

 Max Holtzman 
 
 54 
 
 Mr. Holtzman has served as a member of our Board of Directors since July 14, 2022. Mr. Holtzman has served as Operations Director at Ocean 14 Capital, a private equity impact fund focused on the Blue Economy, since December 2021. Mr. Holtzman has also served as Investments Principal at Pontos Aqua, LLC, which provides strategic advisory services in the global seafood and aquaculture space, since June 2017. Mr. Holtzman is a founding officer of Stronger America through Seafood, which strives to increase the production of healthy, sustainable, and affordable seafood in the United States. Mr. Holtzman previously served as the Vice Chairman of Capitol Peak Asset Management, which focused on infrastructure projects and companies in Rural America. Prior to Capitol Peak, Mr. Holtzman was appointed by President Obama as the Senior Advisor to the United States Secretary of Agriculture. From 2009 to 2014, Mr. Holtzman advised the Secretary on the development of new public-private partnerships, aquaculture, trade, biotechnology, and international food security. He also served as Acting Deputy Under Secretary for Farm and Foreign Agriculture Services and as Acting Deputy Under Secretary of Marketing and Regulatory Programs. In these roles, Mr. Holtzman represented the United States in its negotiations with the Peoples Republic of China as a four-time Delegate on the Joint Committee on Commerce and Trade, and he was regularly involved with a multitude of international trade issues, trade missions, and trade negotiations. He also served as the United States Chairman of the North American Biotechnology Initiative, which includes the United States, Canada, and Mexico. Prior to this appointment, Mr. Holtzman, an attorney for over 25 years, provided strategic consulting to multi-national companies related to transportation infrastructure, project finance, public-private partnerships, health care, and government procurement. He also served as a City Attorney and Special Counsel to several municipalities. Mr. Holtzman has served as a Board Member of The Arcadia Center for Sustainable Food and Agriculture since September 2016, the Founding Chairman of Adopt-A-Classroom, and he has sat on the Global Advisory Council of Secure System since January 2018. Mr. Holtzman received his undergraduate degree in Agricultural Economics from the University of Florida’s Institute of Food and Agricultural Sciences and his law degree from the University of Miami. 

 Guichao Hua 
 
 57 
 
 Mr. Hua has served as a member of our Board of Directors since June 15, 2019. Mr. 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 businesses. In 2007, Mr. 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. Mr. 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. Mr. Hua received his Ph.D. 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. Mr. Hua has obtained more than 20 U.S. patents and published more than 70 theses, enjoying a strong reputation in the switch power industry. Mr. Hua has served as a member of Agrify’s Board of Directors since June 2019. 

 64 

 Name 
 
 Age 
 
 Experience 

 Leonard J. Sokolow 
 
 66 
 
 Mr. Sokolow has been Chief Executive Officer
 and President of Newbridge Financial, Inc., a financial services holding company, and Chairman of Newbridge Securities Corporation, its
 broker-dealer subsidiary, since 2015. Mr. Sokolow previously served in a variety of roles at vFinance, Inc., a publicly traded
 financial services company, including as Chairman of the board of directors from January 2007, a member of the board of directors
 from November 1997 and Chief Executive Officer from November 1999 through July 2008, when it merged into National Holdings
 Corporation, a publicly traded financial services company. Mr. Sokolow also served as President of vFinance, Inc. from January 2001
 through December 2006. From July 2008 until July 2012, Mr. Sokolow was President of National Holdings Corporation,
 and from July 2008 until July 2014, he was Vice Chairman of the board of directors of National Holdings Corporation. Mr. Sokolow
 has served on the board of directors of Consolidated Water Co. Ltd. (Nasdaq: CWCO), a developer and operator of advanced water supply
 and treatment plants and water distribution systems, since June 2006, where he currently serves as Chairman of the Audit Committee
 and as a member of the Nominations and Corporate Governance Committee. In addition, Mr. Sokolow has served as a director of the SQL
 Technologies Corp. (Nasdaq: SKYX) since November 2015 and has been a member of its Business Development Committee. Mr. Sokolow
 has served on the board of directors of Vivos Therapeutics, Inc. (Nasdaq: VVOS), a medical technology company focused on developing and
 commercializing innovative treatments for adult patients suffering from sleep-disordered breathing, since June 2020, where he
 currently serves as Chair of the Audit Committee and as a member of the Nominating and Corporate Governance Committee. Since August 2021
 Mr. Sokolow served on the Advisory Board of Masterworks. Mr. Sokolow earned a B.A. in Economics from the University of Florida,
 a J.D. from the University of Florida School of Law and a Masters of Law in Taxation from the New York University School of Law.
 Mr. Sokolow has served as a member of Agrify’s Board of Directors since December 2021.

 Timothy Mahoney 
 
 65 
 
 Mr. Mahoney is the owner of Caribou LLC, a strategic advisory firm he founded 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. Mr. Mahoney served as a U.S. Representative for Florida’s 16 congressional district from January 2007 to January 2009. From 1998 to 2007, Mr. Mahoney was a Co-Founder of vFinance, Inc., which subsequently acquired National Holdings Corporation. National Holdings Corporation has grown to become one of America’s leading middle-market investment brokerage firms, managing more than $5 billion of client assets with over 50 offices worldwide. Mr. Mahoney has also been involved with companies in the cannabis industry in varying capacities as a private investor, advisor and consultant, including Atlas Biotechnologies, Inc., a licensed medical cannabis grower operating in Canada and the EU, and Volcanic Green Holdings, Inc., a holding company for a Colombian based outdoor cultivation cannabis grower and CBD extracts producer. Mr. Mahoney holds a BA degree in Computer Science and Business from West Virginia University and an MBA from George Washington University. Mr. Mahoney has served as a member of Agrify’s Board of Directors since December 2020. 

 65 

 Name 
 
 Age 
 
 Experience 

 Krishnan Varier 
 
 43 
 
 Mr. Varier joined Agrify’s Board of Directors in June 2020, after briefly serving as a board observer. He is a Managing Partner and the Chief Investment Officer of Arcadian Capital Management, a Los Angeles, California based venture capital private equity firm particularly focused on investing in ancillary businesses related to the cannabis and hemp industries. He has served in this role since joining Arcadian in 2018 to help lead its principal investing activities, bringing more than 15 years of financial services and Wall Street deal-making experience. From 2016 through 2018, Mr. Varier formed Varier Venture Consulting LLC to assist in the growth of early-stage startup companies, primarily by providing strategic advice regarding capital raising strategies. From 2014 through 2016, Mr. Varier was an investment banker with Cowen & Company, where he covered corporate clients in the healthcare biotechnology industry. From 2013 through 2014, he was a Senior Investment Analyst with Health Care REIT, which has since been re-branded as Welltower REIT, and is a leading provider of real estate capital to seniors housing operators, post-acute healthcare providers and health systems. From 2011 through 2013, Mr. Varier was an investment banker in BofA-Merrill Lynch’s Global Corporate & Investment Banking group covering healthcare corporate clients. He began his investment banking career in 2010 with Morgan Keegan, which is now part of Raymond James Financial Services, Inc. Mr. Varier has been involved in more than $6 billion in closed capital raising and merger and acquisition transactions as an investment banking professional. Mr. Varier earned a B.A. in Economics with a focus in Business Administration in 2001 from the University of Texas at Austin. In 2010, Mr. Varier received an MBA degree in Finance and Investment Management from the University of North Carolina at Chapel Hill, Kenan-Flagler Business School. Mr. Varier has served as a member of our Board of Directors since June 2020. 

 Director Qualifications 
 
 The Nominating and Corporate
Governance Committee reviews annually with the Board the composition of the Board as a whole and recommends, if necessary, measures to
be taken so that the Board reflects the appropriate balance of knowledge, experience, skills, expertise and diversity required for the
Board as a whole and contains at least the minimum number of independent directors required by applicable laws and regulations. The Nominating
and Corporate Governance Committee is responsible for ensuring that the composition of the Board accurately reflects the needs of the
Company’s business and, in furtherance of this goal, proposing the addition of members and the necessary resignation of members
for purposes of achieving this goal. The Committee also considers the nominees’ roles in assisting with development and implementation
of the Company’s strategic plan.
 
 The Board of Directors believes
that each director nominee brings a strong and unique background and set of skills to the Board, giving the Board as a whole competence
and experience in a wide variety of areas, including corporate governance and board service, executive management, private equity, finance,
marketing and international business. Set forth below are the particular experiences, qualifications, attributes or skills, which led
the Company’s Board of Directors to conclude that each director nominee should serve as a director of the Company.
 
 Mr. Chang, a director
since June 2019, is currently the chairman and chief executive officer of the Company. Mr. Chang has a wealth of successful
experience directing, managing and/or financing early-stage agricultural- and technology-based companies. Mr. Chang’s
entrepreneurial nature and well-developed leadership and financial experience led the Nominating and Corporate Governance Committee
to conclude that his skills fit with the needs of the Board of Directors and qualified him to continue to serve as a director of the Company.
 
 Mr. Holtzman, a director since
July 2022, is Operations Director at Ocean 14 Capital, a private equity impact fund. Mr. Holtzman’s extensive experience in finance,
government relations and international trade led the Nominating and Corporate Governance Committee to conclude that his skills and background
fit the needs of the Board of Directors and qualified him to continue to serve as a direct of the Company.
 
 66 

 Mr. Hua, a director since
June 2019, is currently the executive chairman of Inventronics, Inc., and provides the Company with extensive industry knowledge
related to the design and manufacturing of indoor growing and lighting solutions. Mr. Hua’s exemplary career building thriving
global hardware companies along with his design, engineering and manufacturing expertise led the Nominating and Corporate Governance Committee
to conclude that his skills and background fit the needs of the Board of Directors and qualified him to continue to serve as a director
of the Company.
 
 Mr. Mahoney, a director
since December 2020, through his strategic advisory firm, has worked as an independent consultant assisting management teams and
boards of directors through the identification of systemic risk and the development of creative strategies targeted towards maximizing
shareholder value. He also qualifies as an “audit committee financial expert” as defined under SEC rules. Mr. Mahoney’s
knowledge and experience with the legislative process of Congress and his diverse experience and knowledge in corporate governance led
the Nominating and Corporate Governance Committee to conclude that his skills and background fit the needs of the Board of Directors and
qualified him to continue to serve as a director of the Company.
 
 Mr. Sokolow, a director
since December 2021, is currently the chief executive officer and president of Newbridge Financial, Inc. and the Chairman of Newbridge
Securities Corporation. Mr. Sokolow has vast financing and public company executive management and board of director experience.
He also qualifies as an “audit committee financial expert” as defined under SEC rules. Mr. Sokolow’s financial
experience, combined with his operational and board of director experience led the Nominating and Corporate Governance Committee to conclude
that his skills and background fit the needs of the Board of Directors and qualified him to continue to serve as a director of the Company.
 
 Mr. Varier, a director
since June 2020, is a managing partner of Arcadian Capital Management, a leader in cannabis venture capital. Mr. Varier has
nearly 20 years of experience in corporate finance and investment advisory. He also qualifies as an “audit committee financial
expert” as defined under SEC rules. Mr. Varier’s extensive capital markets experience, knowledge of the cannabis industry,
as well as his experience working with cannabis companies as an investor, mentor, advisor and consultant, led the Nominating and Corporate
Governance Committee to conclude that his overall experience fits the needs of the Board of Directors and qualified him to continue to
serve as a director of the Company.
 
 Leadership Structure 
 
 Combining Chairman and
Chief Executive Officer Roles. Our Board of Directors is committed to the principle of independence from management
and to the highest standards of corporate governance. All of our directors other than Messrs. Chang and Hua are independent under Nasdaq
listing rules. Our Nominating and Corporate Governance, Audit and Compensation Committees are currently composed entirely of independent
directors. Our Board of Directors has adopted a flexible policy regarding the issue of whether the positions of Chairman and Chief Executive
Officer should be separate or combined. This policy allows the Board to evaluate regularly whether the Company is best served at any
particular time by having our Chief Executive Officer or another director hold the position of Chairman.
 
 Currently, the Board believes
there are several important advantages to combining the positions of Chairman and Chief Executive Officer. The Chief Executive Officer
is the director most familiar with our business and industry and is most capable of effectively identifying strategic priorities and leading
the discussion and execution of strategy. The Company’s independent directors bring experience, oversight, and expertise from outside
the Company and industry, while the Chief Executive Officer brings Company-specific experience and expertise. Combining the Chief
Executive Officer and Chairman positions creates a firm link between management and the Board, promotes the development and implementation
of corporate strategy and facilitates information flow between management and the Board, which are essential to effective governance.
The Board currently believes that combining the roles of Chairman and Chief Executive Officer contributes to a more efficient and effective
Board, does not undermine the independence of the Board, and certainly has no bearing on the ethical integrity of the directors.
 
 67 

 Board and Board Committee Matters 
 
 The Board currently consists
of six directors. The Board has determined that Max Holtzman, Timothy Mahoney, Leonard J. Sokolow, and Krishnan Varier are all “Independent”
directors under the Nasdaq listing standards.
 
 As required by the Nasdaq listing
standards, the Board must be composed of a majority of independent directors. The committee charters are reviewed annually and updated
as necessary to reflect changes in regulatory requirements and evolving oversight practices.
 
 The Board currently has four
standing committees consisting of: the Nominating and Corporate Governance Committee, the Compensation Committee, and the Audit Committee
and the Mergers and Acquisitions Committee. No member of the Audit, Compensation or Nominating and Corporate Governance Committee is an
employee of the Company or its subsidiaries, and all are currently independent as defined by the Nasdaq listing standards. In March 2022,
the Company became aware of a consulting arrangement between an entity partially owned by Mr. Mahoney and the Company that resulted
in Mr. Mahoney not being considered independent for purposes of Audit Committee membership. Mr. Mahoney did not provide any
consulting services on behalf of the consulting group and did not receive any fees from the consulting group in connection with the agreement
between the consulting group and the Company. The Company promptly terminated the consulting relationship, upon which Mr. Mahoney
regained his independent status for Audit Committee purposes. Each of the Audit, Compensation and Nominating and Corporate Governance
Committees has a written charter approved by the Board of Directors. The committee charters as well as the Company’s Code of Conduct
and Ethics, which applies to all directors, officers and employees, are available under “Corporate Governance” in the Investor
Relations section of our Company’s website at https://ir.agrify.com . Please note that the information contained on the Company
website is not incorporated by reference in, or considered to be a part of, this Annual Report on Form 10-K.
 
 The current members of the
Committees are identified below:
 
 Director 
 Nominating
 and Corporate
 Governance 
 Compensation 
 Audit 
 Mergers and
 Acquisitions 

 Max Holtzman 
 X (Chair) 
 X 
 
 X 

 Timothy Mahoney 
 X 
 X (Chair) 
 X 
 X 

 Leonard J. Sokolow 
 
 X 
 X 
 
 Krishnan Varier 
 X 
 
 X (Chair) 
 X (Chair) 

 Nominating and Corporate
Governance Committee. The current members of the Nominating and Corporate Governance Committee are directors
Holtzman, who chairs the committee, Mahoney and Varier. Each of these directors is independent as defined under applicable Nasdaq listing
requirements. This Committee’s responsibilities include the selection of potential candidates for the Board. Mr. Wilcox served as
chair of the committee until his resignation from the Board on July 14, 2022.
 
 Compensation
Committee. The current members of the Compensation Committee are directors Mahoney, who chairs the committee, Sokolow and
Holtzman. Each of these directors is independent as defined under applicable Nasdaq listing requirements. The Compensation Committee
is responsible for discharging the responsibilities of the Board with respect to the compensation of our executive officers. The
Compensation Committee sets performance goals and objectives for the Chief Executive Officer and the other executive officers,
evaluates their performance with respect to those goals and sets their compensation based upon the evaluation of their performance.
In evaluating executive officer pay, the Compensation Committee has retained the services of a compensation consultant and considers
recommendations from the Chief Executive Officer with respect to goals and compensation of the other executive officers. The
Compensation Committee assesses the information it receives in accordance with its business judgment. The Compensation Committee
also periodically reviews director compensation. All decisions with respect to executive and director compensation are approved by
the Compensation Committee and, in the case of director compensation, ratified by the Board. Mr. Wilcox served as a member of the
committee until his resignation from the Board on July 14, 2022.
 
 68 

 Audit Committee. The
current members of the Audit Committee are directors Varier, who chairs the committee, Mahoney and Sokolow. The Board of Directors
has determined that all members of the Audit Committee satisfy the financial literacy requirements of the Nasdaq listing standards
and are independent as defined under the Nasdaq listing requirements and applicable Securities and Exchange Commission
(“SEC”) rules. In addition, our Board of Directors has determined that each of Messrs. Varier and Sokolow qualifies as
an “Audit Committee Financial Expert” as defined under SEC rules. The Audit Committee is primarily concerned with the
accuracy and effectiveness of the audits of our consolidated financial statements by our independent registered public accountants.
Its duties include, among other things:
 
 ● appointing,
 compensating, retaining, evaluating, terminating, and overseeing our independent registered
 public accounting firm; 

 ● discussing
 with our independent registered public accounting firm the independence of its members from
 its management; 

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

 ● approving
 all audit and permissible non-audit services to be performed by our independent registered
 public accounting firm; 

 ● overseeing
 the financial reporting process and discussing with management and our independent registered
 public accounting firm the interim and annual consolidated financial statements that we file
 with the SEC; 

 ● reviewing
 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 

 ● reviewing
 and approving related-person transactions. 

 The
Audit Committee’s procedures for the pre-approval of audit and permitted non-audit services are described in “Item 5:
Ratification of the Auditor Appointment.” For more information on the Audit Committee, refer to the “Report of the Audit
Committee” included elsewhere herein. 
 
 Mergers and Acquisitions
Committee. The current members of the Mergers and Acquisitions Committee are directors Varier, who chairs the committee,
Mahoney and Holtzman. The purpose of the Mergers & Acquisitions Committee is to assist the Board and the Audit Committee in
evaluating any related party transactions that the Company may consider from time to time. Mr. Wilcox served as a member of the committee
until his resignation from the Board on July 14, 2022.
 
 69 

 Board
of Directors’ Oversight of Risk 
 
 Our management bears responsibility
for the management and assessment of risk at the Company on a daily basis. Management is also responsible for communicating the most material
risks to the Board and its committees, who provide oversight of the risk management practices implemented by management. Our full Board
provides oversight for risk management, except for the oversight of risks that have been specifically delegated to a committee. Even when
the oversight of a specific area of risk has been delegated to a committee, the full Board may maintain oversight over such risks through
the receipt of reports from the committee. In addition, the full Board may assume oversight over a particular risk, even if the risk was
initially overseen by a committee, when the Board deems it appropriate. The Board and committee reviews occur principally through the
receipt of regular reports from Company management on these areas of risk and discussions with management regarding risk assessment and
risk management.
 
 Committees. The
Audit Committee maintains initial oversight over risks related to the integrity of the Company’s consolidated financial
statements, internal control over financial reporting and disclosure controls, the performance of the Company’s independent
registered public accounting firm and the operation of the Company’s ethics program. The Company’s Compensation
Committee maintains initial oversight of risks related to the Company’s compensation practices, including practices related to
equity programs, other executive or Company-wide incentive programs and hiring and retention. The Nominating and Corporate
Governance Committee assists the Board of Directors in fulfilling its oversight responsibilities with respect to independence of
Board members and compliance with SEC rules and Nasdaq listing standards with respect to Board and committee composition.
 
 Full Board. At
its regularly scheduled meetings, the Board generally receives several reports which include information relating to specific risks faced
by the Company. As appropriate, the Company’s Chief Executive Officer or other members of senior management provide operational
reports, which include risks relating to the Company’s business. At each regularly scheduled Board meeting, the full Board also
receives reports from committee chairpersons, which may include a discussion of risks initially overseen by the committees for discussion
and input from the full Board. As noted above, in addition to these regular reports, the Board receives reports on specific areas of
risk from time-to-time, such as cyclical or other risks that are not covered in the regular reports given to the Board.
 
 Code of Ethics and Business Conduct 
 
 The Company has adopted a code
of ethics and business conduct that applies to our directors, officers and employees. This code of ethics and business conduct (which
we refer to as a “code of conduct”) may be accessed and reviewed through the Company’s website at https://ir.agrify.com .
Any amendments to, or waivers from, any provisions of the code of conduct which apply to our principal executive officer, principal financial
officer, principal accounting officer or controller, or any person performing similar functions, will be disclosed either on a Current
Report on Form 8-K or on our website promptly following the date of any such amendment or waiver.
 
 Delinquent Section 16(a) Reports 
 
 Under the U.S. securities
laws, directors, executive officers and persons holding more than 10% of the Company’s Common Stock must report their initial ownership
of the Common Stock and any changes in that ownership to the SEC. The SEC has designated specific due dates for these reports and
we must identify in this Annual Report on Form 10-K those persons who did not file these reports when due. Based solely on our review
of the copies of these forms received by us or written representations furnished to us, we believe that, for the reporting period covering
our 2022 fiscal year, our executive officers and directors complied with all their reporting requirements under Section 16(a) for
this fiscal year, except for (i) Form 4s filed by Messrs. Chang and Wilcox on February 2, 2022 relating to transactions that occurred
on January 28, 2022 due to an administrative oversight, (ii) a Form 4 filed by Mr. Holtzman on July 21, 2022 relating to a grant that
occurred on July 14, 2022 due to a delay in obtaining EDGAR codes, (iii) Form 3s filed by Steve Drucker and Chris Benyo on July 28, 2022
relating to a reportable event on July 14, 2022 due to a delay in obtaining EDGAR codes, (iv) a Form 3 filed by David Kessler on August
5, 2022 relating to a reportable event on July 14, 2022 due to a delay in obtaining EDGAR codes, (v) a Form 3 filed by Timothy Hayden
on November 14, 2022 relating to a reportable event on November 1, 2022 due to an administrative oversight, and (vi) a Form 4 filed by
Timothy Oakes on December 19, 2022 relating to a grant that occurred on November 10, 2022 due to an administrative oversight.
 
 70 

 Stockholder Nomination
Procedures 
 
 As
of the date of this Annual Report on Form 10-K, there have been no material changes to the procedures by which stockholders may recommend
nominees to our Board of Directors.
 
 Item 11. Executive Compensation. 
 
 This
section describes the compensation paid, or payable, for the last two fiscal years to our named executive officers. Our named
executive officers during the fiscal year ended December 31, 2022 were Raymond Chang, our Chairman and Chief Executive Officer, David
Kessler, our Chief Science Officer, Thomas Massie, our former President and Chief Operating Officer, and Timothy Oakes, our former Chief
Financial Officer. Mr. Massie resigned as President and Chief Operating Officer on July 8, 2022. Mr. Oakes resigned as Chief Financial
Officer effective as of February 28, 2023.
 
 Summary Compensation Table 
 
 The table below summarizes
the total compensation paid or earned by each of the named executive officers noted below for services rendered in all capacities, during
the fiscal years ended December 31, 2022 and 2021. As a smaller reporting company, we are only required to provide two years
of compensation information for our named executive officers.
 
 Name and Principal Position 
 Year 
 Salary 
 Stock
 Awards (1) 
 Option
 Awards (1) 
 Non-Equity

Incentive Plan
 Compensation (2) 
 Non-qualified
 Deferred
 Compensation
 Earnings 
 All
Other
 Compensation (3) 
 Total 

 Raymond Chang 
 2022 
 $ 350,479 
 $ 471,000 
 $ — 
 $ 175,000 
 $ — 
 $ 33,099 
 $ 1,029,578 

 Chairman and Chief Executive Officer 
 2021 
 290,000 
 — 
 4,559,100 
 325,000 
 — 
 31,951 
 5,206,051 

 David Kessler 
 2022 
 220,233 
 177,550 
 — 
 50,000 
 — 
 32,164 
 479,947 

 Chief Science Officer 
 2021 
 210,750 
 — 
 350,700 
 80,000 
 — 
 29,919 
 671,369 

 Thomas Massie (4) 
 2022 
 655,605 
 384,000 
 — 
 117,033 
 — 
 33,033 
 1,189,671 

 Former President and Chief Operating Officer 
 2021 
 70,686 
 — 
 828,137 
 42,033 
 — 
 2,663 
 943,519 

 Timothy Oakes (5) 
 2022 
 264,454 
 247,625 
 — 
 78,022 
 — 
 19,626 
 609,727 

 Former Chief Financial Officer 
 2021 
 63,667 
 — 
 350,700 
 28,022 
 — 
 — 
 442,389 

 (1) Amounts are based on the aggregate grant date fair value of
stock awards and stock option awards made to the Named Executive Officers in the applicable year. The reported amounts are calculated
in accordance with the provisions of ASC Topic 718. See Note 13 of the notes to consolidated financial statements included
elsewhere in this Annual Report on Form 10-K regarding assumptions underlying the valuation of the Company’s equity awards in 2022
and 2021. 

 (2) Represent amounts earned by each Named Executive Officer under
the Company’s performance-based annual incentive plan. 

 (3) Amounts represent payment of health plan premiums as per Company
policy. 

 (4) Mr. Massie resigned as President and Chief Operating Officer
on July 8, 2022. Mr. Massie’s reported salary amount for the year ended December 31, 2022 includes $500,000 in severance
payments. 

 (5) Mr. Oakes resigned as Chief Financial Officer effective February
28, 2023. 

 71 

 Outstanding Equity Awards at Fiscal Year End 
 
 The following table sets forth outstanding equity awards for Named
Executive Officers as of December 31, 2022.
 
 Option Awards 
 Stock Awards 

 Grant 
 Vesting 
 Number of
 Securities
 Underlying
 Unexercised
 Options 
 Option
 Exercise 
 Option
 Expiration 
 Number of
 Shares of
 Stock
 That Have 
 Market
 Value of
 Shares of
 Stock
 That Have 

 Name 
 Date 
 Period 
 Exercisable 
 Unexercisable 
 Price 
 Date 
 Not Vested 
 Not Vested 

 Raymond Chang 
 5/6/20 
 (1) 
 1,689 
 — 
 $ 456.00 
 5/6/30 
 — 
 $ — 

 7/20/20 
 (2) 
 71 
 — 
 456.00 
 7/20/30 
 — 
 — 

 10/19/20 
 (2) 
 1,324 
 — 
 972.00 
 10/19/30 
 — 
 — 

 2/17/21 
 (3) 
 1,986 
 1,264 
 2,768.00 
 2/17/31 
 — 
 — 

 8/8/22 
 (5) 
 — 
 — 
 — 
 — 
 1,500 
 9,990 

 David Kessler 
 5/6/20 
 (1) 
 168 
 — 
 456.00 
 5/6/30 
 — 
 — 

 7/20/20 
 (2) 
 159 
 — 
 456.00 
 7/20/30 
 — 
 — 

 10/19/20 
 (2) 
 241 
 — 
 972.00 
 10/19/30 
 — 
 — 

 2/17/21 
 (3) 
 134 
 86 
 2,768.00 
 2/17/31 
 — 
 — 

 8/8/22 
 (5) 
 — 
 — 
 — 
 — 
 500 
 3,330 

 9/30/22 
 (5) 
 — 
 — 
 — 
 — 
 250 
 1,665 

 Timothy Oakes 
 10/19/20 
 (2) 
 206 
 — 
 972.00 
 10/19/30 
 — 
 — 

 2/17/21 
 (3) 
 153 
 97 
 2,768.00 
 2/17/31 
 — 
 — 

 8/8/22 
 (5) 
 — 
 — 
 — 
 — 
 625 
 4,163 

 8/8/22 
 (6) 
 — 
 — 
 — 
 — 
 417 
 2,777 

 Thomas Massie 
 5/6/20 
 (7) 
 92 
 — 
 456.00 
 5/6/30 
 — 
 — 

 8/10/20 
 (7) 
 66 
 — 
 456.00 
 7/20/30 
 — 
 — 

 10/19/20 
 (7) 
 185 
 — 
 972.00 
 10/19/30 
 — 
 — 

 12/21/20 
 (7) 
 111 
 — 
 972.00 
 12/21/30 
 — 
 — 

 2/17/21 
 (7) 
 250 
 — 
 2,768.00 
 2/17/31 
 — 
 — 

 11/10/21 
 (7) 
 — 
 — 
 — 
 — 
 — 
 — 

 (1) Options granted replaced previous options awards issued on December 27,
2019, which were cancelled in May 2020. A portion of the May 6, 2020 option awards re-issued were partially vest at the
time of re-issuance, with the remaining unvested portion of the stock options vesting between 24 and 48 months. 50% of the options vested
upon the initial public offering. 

 (2) 25% of options granted will vest 12 months from the date
of grant with the balance vesting in 36 equal monthly installments thereafter. 50% of the options vested upon the initial public offering. 

 (3) Options granted will vest in 36 equal monthly installments from
the date of grant. 

 (4) 33% of options granted will vest 12 months from the date
of grant with the balance vesting in 24 equal monthly installments thereafter. 

 (5) 33% of the restricted stock units vest on each of the 1-year,
2-year and 3-year anniversaries of grant. 

 (6) 33% of the restricted stock units vest on each of November 10,
2022, November 10, 2023 and November 10, 2024. 

 (7) Pursuant to the terms of his separation agreement, all of Mr.
Massie’s options vested upon his departure in July 2022 and remain exercisable through December 31, 2023. 

 72 

 Employment and Separation Agreements 
 
 The Compensation Committee
believes that it is in the Company’s best interest as well as the interests of its stockholders to offer severance and change in
control benefits to certain of its Named Executive Officers. The Company competes for talent in a highly competitive market in which companies
routinely offer similar benefits to senior executives. The Compensation Committee believes that providing severance and change in control
benefits to its Named Executive Officers reduces any reluctance of senior management to pursue potential change in control transactions
that may be in the best interests of stockholders. In addition, the income security provided by competitive severance and change in control
arrangements helps minimize distractions caused by uncertain personal financial circumstances during the negotiation of a potential change
in control transaction, a period of time requiring focused and thoughtful leadership to ensure a successful outcome.
 
 Employment Agreement for
Mr. Chang : On January 4, 2021, the Company entered into a three-year employment agreement with
Mr. Chang as the Company’s Chief Executive Officer, effective February 1, 2021 (the “Mr. Chang’s Employment
Agreement”). The Mr. Chang’s Employment Agreement, at the end of the initial three-year term, if not terminated by either
Mr. Chang or the Company, automatically renews for a successive three-year period.
 
 Mr. Chang’s Employment
Agreement establishes a minimum annual base salary level of $300,000 and provides for a discretionary bonus of $300,000, with payment
subject to Mr. Chang being employed by the Company at the time of payment.
 
 In accordance with the terms
of the agreement, if Mr. Chang’s employment is terminated by the Company without cause, or in connection with a change of control,
or by Mr. Chang for good reason, Mr. Chang 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. Mr. Chang will also be eligible to receive insurance
benefits for a period of up to twelve months following his termination of employment. 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 November 8, 2021, the
Compensation Committee, in contemplation of expected executive level changes within the Company, performed a market study of compensation
trends related to our various executive level positions. Based upon this review, the Compensation Committee approved increases to Mr. Chang’s
base salary (increasing it from $300,000 to $350,000) and discretionary bonus (from $300,000 to $400,000), effective as of January 1,
2022.
 
 Employment Offer Letter
for Mr. Kessler : On January 20, 2020, the Company provided a letter of employment offer to Mr. Kessler, as amended by the updated
offer letter effective as of August 9, 2022 (as amended, the “Offer Letter”).
 
 Mr. Kessler’s Offer Letter
established a minimum annual base salary level of $250,000 and provided for a discretionary performance-based bonus of $150,000. Mr. Kessler
is an at will employee of the Company, and there are no severance benefits.
 
 Employment Agreement for
Mr. Massie : On November 10, 2021, the Company entered into a two-year employment agreement with
Mr. Massie as the Company’s President and Chief Operating Officer, effective November 10, 2021. The agreement, at the
end of the initial two-year term, if not terminated by either Mr. Massie or the Company, would automatically renew for successive
one-year periods.
 
 Mr. Massie’s Employment
Agreement established a minimum annual base salary level of $300,000 and provided for a discretionary performance-based bonus of
$300,000, payable in quarterly $75,000 installments, with payment subject to Mr. Massie being employed by the Company at the time
of payment. The Board could from time to time elect to pay additional bonuses based on performance that exceeded the mutually agreed upon
goals.
 
 73 

 In accordance with the terms
of the agreement, if Mr. Massie’s employment was terminated by the Company without cause, or in connection with a change of
control, or by Mr. Massie for good reason, Mr. Massie would be entitled to receive certain severance benefits, including severance
pay equal to the greater of (a) 100% of his annual base salary plus his projected bonus for such fiscal year and (b) $1,000,000.
Mr. Massie would also be eligible to receive insurance benefits for a period of up to twelve months following his termination
of employment. We could terminate Mr. Massie’s employment for cause only if we receive the unanimous agreement of our board
of directors. In addition, if we terminated his employment without cause, or if Mr. Massie resigned for good reason, or upon the
occurrence of a change of control, all of his issued but unvested options would immediately vest.
 
 In addition to the terms of
our standard invention assignment, restrictive covenants, and confidentiality agreement, Mr. Massie’s employment agreement
contained confidentiality, non-solicitation, and non-competition provisions, whereby Mr. Massie 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. Mr. Massie resigned as President and Chief Operating Officer effective July 8, 2022.
 
 Separation
Agreement for Mr. Massie : On July 8, 2022, we entered into a separation agreement with Mr. Massie
(the “Separation Agreement”). Per the terms of the Separation Agreement, Mr.
Massie will receive (a) an aggregate of $1,000,000 in severance payments, payable in monthly installments of $83,333.33 from July 2022
through December 2022 and one installment of $500,000 in January 2023, (b) continuation of health insurance benefits through June 30,
2023, subject to certain conditions, (c) full vesting of all of Mr. Massie’s outstanding stock options and restricted stock units,
and (d) an extended exercise period for Mr. Massie’s outstanding stock options through December 31, 2023. 
 
 Employment Agreement for
Mr. Oakes : On November 10, 2021, the Company entered into a two-year employment agreement with
Mr. Oakes as the Company’s Chief Financial Officer, effective November 10, 2021. The agreement, at the end of the initial
one-year term, if not terminated by either Mr. Oakes or the Company, automatically renews for successive one-year periods.
 
 Mr. Oakes’ Employment
Agreement established a minimum annual base salary level of $250,000 and provided for a discretionary performance-based bonus of
$200,000, payable in quarterly $50,000 installments, with payment subject to Mr. Oakes being employed by the Company at the time
of payment. The Board could from time to time elect to pay additional bonuses based on performance that exceeds the mutually agreed upon
goals. On August 8, 2022, based on a report from its independent compensation consultant and discussions with the consultant, the Compensation
Committee approved an increase to Mr. Oakes’ base salary from $250,000 to $275,000 per year, and an increase in his maximum discretionary
bonus opportunity from $200,000 to $250,000 per year.
 
 In accordance with the terms
of the agreement, if Mr. Oakes’ employment was terminated by the Company without cause, or in connection with a change of control,
or by Mr. Oakes for good reason, Mr. Oakes would be entitled to receive certain severance benefits, including severance pay
equal to 100% of his annual base salary plus his projected bonus for such fiscal year. Mr. Oakes would also be eligible to receive
insurance benefits for a period of up to twelve months following his termination of employment. We could terminate Mr. Oakes’
employment for cause only if we received the unanimous agreement of our board of directors. In addition, if we terminated his employment
without cause, or if Mr. Oakes resigned for good reason, or upon the occurrence of a change of control, all of his issued but unvested
options would immediately vest.
 
 In addition to the terms of
our standard invention assignment, restrictive covenants, and confidentiality agreement, Mr. Oakes’ employment agreement contained
confidentiality, non-solicitation, and non-competition provisions, whereby Mr. Oakes 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. Mr. Oakes resigned as Chief Financial Officer effective February 28, 2023.
 
 74 

 Potential Termination Payments and Equity Awards 
 
 The Employment Agreements for
our Named Executive Officers, as described above, generally provide for cash payment in the event that their employment with the Company
is terminated in certain circumstances by the Company without cause or by such Named Executive Officer for Good Reason (1) outside
of a change of control and (2) in connection with a change of control. The potential payouts each Named Executive Officer may be
eligible to receive in either instance under their respective employment agreements is calculated based upon the measurement criteria
described above.
 
 If the Named Executive Officers
covered by employment agreements or severance agreements had their employment terminated as of December 31, 2022, the Named Executive
Officers would have been eligible to receive payments, depending upon whether the termination was for Good Reason or based upon a Change
in Control, as set forth in the following table.
 
 Termination Payout Table 
 
 The following table sets forth
information concerning termination payouts for Named Executive Officers as of December 31, 2022. These disclosed amounts are estimates
only and do not necessarily reflect the actual amounts that would be paid to the Named Executive Officers, which would only be known at
the time that they become eligible for payment and would only be payable if the events set forth in the table below occur.
 
 Potential Termination Payments 
 
 Without Cause or for Good Reason (1) 
 
 Change of Control (2) 
 
 Termination 
 
 Other 
 
 Total 
 
 Name 
 
 Salary
 and Bonus 
 
 Benefits (3) 
 
 Option
 Award
 Acceleration (4) 
 
 Total 
 
 Salary
 and Bonus 
 
 Benefits 
 
 Option
 Award
 Acceleration 
 
 Total 
 
 Raymond Chang 
 
 $ 
 1,050,000 
 
 $ 
 35,858 
 
 $ 
 8,598 
 
 $ 
 1,094,456 
 
 $ 
 1,050,000 
 
 $ 
 35,858 
 
 $ 
 8,598 
 
 $ 
 1,094,456 
 
 Timothy Oakes 
 
 525,000 
 
 19,626 
 
 661 
 
 545,287 
 
 525,000 
 
 19,626 
 
 661 
 
 545,287 
 
 (1) Represents circumstances involving termination without cause
or for Good Reason outside of any Change in Control. 

 (2) Represents circumstances involving termination without cause
or for Good Reason in connection with a Change in Control. 

 (3) Consists of health, dental, and life insurance coverage for
a period of twelve months. The reported value is based upon the type of insurance coverage carried by each Named Executive Officer
as of December 31, 2022 and is valued at the premiums in effect on December 31, 2022. 

 (4) Certain unvested outstanding equity awards contain acceleration
provisions, and assuming the applicability and operation of such provisions as of December 31, 2022, the Named Executive Officer
could have realized the following values from acceleration (based on the closing price of $6.66 on December 30, 2022 over any applicable
exercise price or par value payment obligation for such accelerated awards). 

 Director and Officer Indemnification Agreements 
 
 We 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.
 
 75 

 Compensation of Outside Directors 
 
 Annual Cash Compensation. Each
of the Company’s non-employee directors receives an annual cash retainer of $24,000, payable in twelve monthly installments.
In addition, the following Committee retainer amounts are payable to Committee members.
 
 The Audit Committee Chair receives
an annual retainer of $5,000 per year, while Audit Committee members are entitled to receive an annual retainer of $1,000. The annual
retainers are paid in twelve monthly installments and are in addition to the annual cash retainer for non-employee directors described
above.
 
 The Compensation Committee
Chair receives an annual retainer of $5,000 per year, while Compensation Committee members are entitled to receive an annual retainer
of $1,000. The annual retainers are paid in twelve monthly installments and are in addition to the annual cash retainer for non-employee directors
described above.
 
 The Nominating and Corporate
Governance Committee Chair receives an annual retainer of $5,000 per year, while Nominating and Corporate Governance Committee members
are entitled to receive an annual retainer of $1,000. The annual retainers are paid in twelve monthly installments and are in addition
to the annual cash retainer for non-employee directors described above.
 
 Currently, there are no annual
retainer fees awarded to either the Merger and Acquisitions Committee Chair or the Merger and Acquisition Committee members.
 
 Stock Options
and Share-Based Awards. Following initial election to the Company’s Board of Directors,
non-employee directors are eligible to receive restricted stock units as determined by the Board.
 
 The Company’s Board and
Compensation Committee believe that equity-based awards are essential to our continued success. Equity-based awards are necessary
to attract, retain and motivate highly qualified directors to serve Agrify and to improve Agrify’s business results and earnings
by providing these individuals an opportunity to acquire or increase a direct proprietary interest in Agrify’s operations and future
success while further aligning recipient’s interests with those of shareholders.
 
 The Board compensation guidelines
described above are designed to (a) compensate Committee members through Committee cash retainers in order to provide compensation
commensurate with relevant service level commitments for Committee service and (b) set overall Board compensation at a level that
is competitive with market norms, in order to enable the Company to attract potential new directors and provide market-based remuneration
for existing directors.
 
 Non-Equity Incentive
Plan Compensation. We do not provide Non-Equity Incentive Compensation to our directors.
 
 Pension Benefits. We
do not have a pension plan and therefore, do not offer any such pension arrangements to our directors.
 
 76 

 Outside Directors Compensation Table for 2022 
 
 The table below provides compensation
information for the year ended December 31, 2022 for each non-employee member of our Board of Directors. Stuart Wilcox served
on the Board until July 14, 2022, when he resigned in connection with his appointment as Chief Operating Officer, and Thomas Massie served
on the Board until July 8, 2022, when he resigned from the Board and from his position as President and Chief Operating Officer. Max Holtzman
was appointed to the Board on July 14, 2022.
 
 Director 
 Fees
 Earned
 or Paid
 In
 Cash (1) 
 Stock Awards (2)(3) 
 Option
 Awards (4) 
 Non-Equity
 Incentive Plan
 Compensation 
 Change In
 Pension Value
 and
 Nonqualified
 Deferred
 Compensation
 Earnings 
 All Other
 Compensation 
 Total 

 Guichao Hua 
 $ 25,500 
 $ 366 
 $ — 
 $ — 
 $ — 
 $ — 
 $ 25,866 

 Max Holtzman 
 18,000 
 422 
 — 
 — 
 — 
 — 
 18,422 

 Timothy Mahoney 
 42,393 
 422 
 — 
 — 
 — 
 — 
 42,815 

 Leonard J. Sokolow 
 34,583 
 422 
 — 
 — 
 — 
 — 
 35,005 

 Krishnan Varier 
 37,667 
 422 
 — 
 — 
 — 
 — 
 38,089 

 Stuart Wilcox (5) 
 13,500 
 1,580 
 — 
 — 
 — 
 — 
 15,080 

 (1) Represents the aggregate dollar amount of all fees earned or
paid in cash for services as a director, including monthly retainer fees and committee membership, as described above. 

 (2) The reported amounts are calculated in accordance with the provisions
of Financial Accounting Standards Board (“FASB”) Accounting Standard Codification Topic 718, “Compensation — Stock
Compensation (“ASC Topic 718”). 

 (3) As of December 31, 2022, the aggregate number of unvested
restricted stock units outstanding for each current non-employee director were as follows: 267 for each of Messrs. Hua, Mahoney,
Varier, Sokolow and Holtzman. 

 (4) As of December 31, 2022, the aggregate number of unexercised
stock option awards outstanding for each current non-employee director were as follows: 435 for Mr. Hua, 435 for Mr. Mahoney, 432
for Mr. Varier; 160 for Mr. Sokolow and none for Mr. Holtzman. 

 (5) Starting in 2021, the Company entered into a strategic advisory
consulting agreement with Mr. Wilcox leveraging his cannabis-related expertise in cultivation, extraction, supply chain optimization
and industry networking. Per the terms of the agreement, the Company paid a $10,000 monthly consulting fee to Mr. Wilcox, which
fee was in addition to his board-related monthly retainer and committee membership fees described above. The consulting agreement
was terminated on July 14, 2022. 

 Compensation Committee Interlocks and Insider
Participation 
 
 During 2022, Messrs. Mahoney,
Wilcox, Sokolow and Holtzman each served as members of the Compensation Committee. Mr. Wilcox served as a member of the committee until
his resignation from the Board on July 14, 2022 in connection with his appointment as Chief Operating Officer. Upon his appointment, Mr. Wilcox
was removed as a member of the Compensation Committee. During 2022, no member of the Compensation Committee, aside from Mr. Wilcox
being named as an executive officer of the Company concurrently with his removal from the Compensation Committee, is or has ever been
one of our officers or an employee of the Company. None of our executive officers serves as a member of the board of directors or compensation
committee of any entity that has one or more of its executive officers serving as a member of our Board of Directors or Compensation Committee.
 
 77 

 Item 12. Security Ownership of Certain Beneficial
Owners, Management and Related Stockholder Matters. 
 
 Beneficial Ownership of Certain Stockholders, Directors and Executive
Officers 
 
 The following table provides
information, as of October 1, 2023, about the beneficial ownership of our Company’s Common Stock by: (1) the persons known
to us to be beneficial owners of more than 5% of our Company’s outstanding Common Stock; (2) our directors; (3) each Named
Executive Officer (as defined under “Compensation of Named Executive Officers”); and (4) our directors and executive
officers as a group. To the best of our knowledge, each such person has sole voting and investment power over the shares shown in this
table, except as otherwise indicated. As of October 1, 2023, there were 58 record holders and 1,651,281 outstanding shares of our Company’s
Common Stock.
 
 The number of shares beneficially
owned by each stockholder is determined under rules issued by the SEC and includes voting or investment power with respect to securities.
Under these rules, beneficial ownership includes any shares as to which the individual or entity has sole or shared voting power or investment
power and includes any shares as to which the individual or entity has the right to acquire beneficial ownership within 60 days after
October 1, 2023 through the exercise of any warrant, stock option or other right. The inclusion in this Annual Report on Form 10-K of
such shares, however, does not constitute an admission that the named stockholder is a direct or indirect beneficial owner of such shares.
Common stock subject to options or warrants currently exercisable, or exercisable within 60 days after October 1, 2023, are deemed
outstanding for the purpose of computing the percentage ownership of the person holding those options or warrants but are not deemed outstanding
for computing the percentage ownership of any other person.
 
 78 

 Unless otherwise indicated
below, to our knowledge, all persons named in the table have sole voting and investment power with respect to their shares of Common Stock,
except to the extent spouses share authority under community property laws.
 
 Beneficial Ownership 
 
 Number of 
 Shares 
 
 Percent of 
 Total (1) 
 
 Principal Stockholders 
 
 Alyeska Investment Group, L.P. (2) 
 
 161,701 
 
 9.23 
 % 

 77 West Wacker Drive, 7 th Floor Chicago, IL 60601 
 
 Directors and Executive Officers (3)(5) 
 
 Raymond Chang (4) 
 
 356,772 
 
 9.99 
 % 

 Stuart Wilcox 
 
 650 
 
 * 
 
 David Kessler 
 
 1,020 
 
 * 
 
 Guichao Hua 
 
 3,822 
 
 * 
 
 Max Holtzman 
 
 89 
 
 * 
 
 Timothy Mahoney 
 
 524 
 
 * 
 
 Krishnan Varier 
 
 521 
 
 * 
 
 Leonard J. Sokolow 
 
 249 
 
 * 
 
 Timothy Oakes 
 
 208 
 
 * 
 
 Thomas Massie 
 
 2,057 
 
 * 
 
 All Directors and Executive Officers as a Group (10 persons) 
 
 365,912 
 
 10.54 
 % 

 * Less than 1%. 

 (1) The percentages shown with respect to any identified individual
or group are calculated by dividing: (i) the sum of (a) the number of shares of Common Stock actually owned as of October 1,
2023 plus (b) the number of shares of Common Stock that may be acquired through the exercise of stock options, warrants or any other
rights or the vesting of Restricted Stock Units within 60 days thereof (“Currently Exercisable Awards”) by (ii) the
sum of 1,651,281 shares of Common Stock outstanding as of October 1, 2023, plus the amount referenced in clause (i)(b) for such
individual or group. 

 (2) Includes 61,701 shares of Common Stock and warrants to purchase
100,000 shares of Common Stock. For purposes of the reporting requirements of the Exchange Act, Alyeska Fund GP, LLC and Anand Parekh
are deemed to be beneficial owners of such securities. Information set forth above and in this note (2) is based upon the Schedule 13G
filed by Alyeska Investment Group, L.P., Alyeska Fund GP, LLC and Anand Parekh on February 14, 2023. 

 (3) The address of each of the directors and executive officers
listed above is c/o Agrify Corporation, 2468 Industrial Row Dr., Troy, MI 48084. 

 (4) Includes (i) options to purchase 6,063 shares of Common
Stock that are exercisable within 60 days of October 1, 2023, (ii) 575 shares of Common Stock owned by Mr. Chang, (iii) 118,077 shares
of common stock held by RTC3 2020 Irrevocable Family Trust, of which Mr. Chang retains the authority to remove the independent trustee,
(iv) 648 shares of common stock held by NXT3J Capital, LLC, an entity controlled by Mr. Chang, (v) warrants to purchase
317 shares of common stock associated with our 2020 convertible promissory notes held by RTC3 2020 Irrevocable Family Trust, (vi) options
to purchase 186 shares of common stock held by Mr. Chang’s son that are exercisable within 60 days of October 1,
2023, and (vii) warrants to purchase 230,906 shares of Common Stock that are held by RTC3 2020 Irrevocable Family Trust, but only to
the extent exercisable due to a 9.99% beneficial ownership limitation. 

 (5) Includes the following shares subject to options that are exercisable
within 60 days of October 1, 2023: Mr. Wilcox, 0; Mr. Kessler, 770; Mr. Hua, 435; Mr. Holtzman, 0; Mr. Mahoney, 435;
Mr. Varier 432; Mr. Sokolow, 160; Mr. Oakes, 0; and Mr. Massie, 954. Includes 136 shares of Common Stock underlying a warrant
held by Mr. Wilcox. 

 79 

 Equity Compensation Plan Table 
 
 The following table sets forth
certain information as of December 31, 2022, for our 2022 Omnibus Equity Incentive Plan and 2020 Omnibus Equity Incentive Plan:
 
 Plan Category 
 (A) 
 Number of
 Shares to be Issued
 upon Exercise of

 Outstanding
 Stock Options 
 (B) 
 Weighted-Average Exercise Price of Outstanding Stock Options 
 (C) 
 Number of 
 Shares Remaining
 Available for
 Issuance under Equity 
 Compensation 
 Plans (Excluding Shares
 Reflected in
 Column (A)) 

 2022 Omnibus Plan 
 — 
 $ — 
 9,354 

 2020 Omnibus Plan 
 — 
 2,768 
 — 

 TOTAL 
 — 
 2,768 
 9,354 

 Item 13. Certain Relationships and Related Transactions, and Director
Independence. 
 
 We have entered into indemnity
agreements with our directors and Named Executive Officers which provide, among other things, that we will indemnify such executive officer
or director, under the circumstances and to the extent provided for therein, for expenses, damages, judgments, fines and settlements he
or she may be required to pay in actions or proceedings which he or she is or may be made a party by reason of his or her position as
a director, executive officer or other agent of our Company, and otherwise to the full extent permitted under Nevada law and our Company’s
amended and restated bylaws.
 
 In order to identify and address
concerns regarding related party transactions and their disclosures, the Company uses Director and Officer Questionnaires and its conduct
and ethics policies. The Company also considers the independence of its directors.
 
 Director and Officer Questionnaires
are distributed to executive officers and directors at the beginning of each fiscal year to identify any potential related-party transactions.
Within the questionnaire, executive officers and directors are asked to describe any transaction, arrangement or relationship or any series
of similar transactions, arrangements or relationships, occurring since the beginning of the prior fiscal year, in which the Company was
or is to be a participant and the amount involved exceeds $120,000, and in which any of the following had or will have a direct or indirect
interest: (i) the individual; (ii) any director or executive officer of the Company; (iii) a nominee for director; (iv) an
immediate family member of a director or executive officer of the Company; (v) an immediate family member of a nominee for director;
(vi) a security holder of more than 5% of the common stock; or (vii) an immediate family member of the security holder. Responses
provided within the questionnaire are reviewed by management of the Company to determine any necessary course of action.
 
 It is the policy of the Company
that all employees, directors and agents maintain the highest ethical standards and comply with all applicable legal requirements when
conducting Company business. Guidelines regarding conflicts of interest are detailed in the Company’s Code of Conduct and Business
Ethics, which was adopted by the Board. The Company’s Code of Conduct and Business Ethics policy is available on the Company’s
website at https://ir.agrify.com . All Company employees must deal with vendors, customers and others doing business with the
Company in a manner that avoids even the appearance of conflict between personal interests and those of the Company. Potential conflicts
of interest may arise from any of the following:
 
 ● a
 direct or indirect financial interest in any business or organization that is a Company vendor
 or competitor, if the employee or director can influence decisions with respect to the Company’s
 business with respect to such business or organization; and 

 ● serving
 on the board of directors of, or being employed in any capacity by, a vendor, competitor
 or customer of the Company. 

 80 

 The
Audit Committee is authorized to review all potential conflicts of interest involving directors and executive officers. 
 
 Relationships,
including business, financial, personal, and family, may give rise to conflicts of interest or the appearance of a conflict. Employees
should carefully evaluate their relationships as they relate to Company business to avoid conflict or the appearance of a conflict. To
avoid conflicts of interest or the appearance of a conflict: 
 
 ● An
 employee should not work in a position in which he or she has the authority to hire, directly
 supervise or attempt to influence the employment actions of an immediate family member or
 romantic partner. Any individual in a supervisory position should not pursue a romantic
 relationship with any person with whom there is a reporting relationship. 

 ● Employees
 and directors should not have an undisclosed relationship with, or financial interest in,
 any business that competes or deals with the Company; provided that the ownership of less
 than 1% of the outstanding shares, units or other interests of any class of publicly traded
 securities is acceptable. 

 ● Employees
 are prohibited from directly or indirectly competing or performing services for any person
 or entity in competition with, the Company. 

 ● Employees
 should comply with the policies set forth in this Code of Conduct and Business Ethics regarding
 the receipt or giving of gifts, favors or entertainment. 

 ● A
 full-time employee should obtain the approval of his or her supervisor before serving
 as a trustee, regent, director or officer of a philanthropic, professional, national, regional
 or community organization, or educational institution. This policy applies where significant
 time spent in support of these functions may interfere with time that should be devoted to
 the Company’s business. 

 ● Employees
 may not sell or lease equipment, materials or property to the Company without appropriate
 corporate authority. 

 ● Employees
 should purchase Company equipment, materials or property only on terms available to the general
 public. 

 Any
employee or director who becomes aware of a conflict is required to bring it to the attention of a supervisor, management or other appropriate
personnel. 
 
 Directors are expected and
required to uphold the same dedication to corporate ethics as the Company’s employees.
 
 If a conflict of interest arises
involving an executive officer or director, the Board must approve a waiver to the Code of Conduct and Business Ethics and if a director
has the conflict, that director must abstain from the approval. Waivers are made on a case-by-case basis. The Board has
not adopted a formal written policy with respect to waiving conflict of interests or approving related party transactions. In making
this determination, the Board considered the infrequency in occurrence of these transactions. Any waivers to the Code of Conduct
and Business Ethics granted to an executive officer or director shall be disclosed by the Company on its website at https://ir.agrify.com .
 
 Related Party Transactions 
 
 Distribution Agreement with Enozo 
 
 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.
 
 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 the Company’s products: for the period from the contract date until December 31,
2021 for $375,000, for the year ended December 31, 2022 for $750,000, and for the year ended December 31, 2023 for $1,100,000,
which amount may increase by 3% for the later years. The Company had no purchases of Enozo product for the year ended December 31,
2022, compared to $40,000 for the year ended December 31, 2021, and this agreement was terminated in mid-2022.
 
 81 

 Securities Purchase Agreement with RTC3 2020
Irrevocable Family Trust 
 
 On December 20, 2022, as part
of our public offering of shares of Common Stock and warrants, the RTC3 2020 Irrevocable Family Trust purchased shares of Common Stock
and warrants to purchase 1,154 shares of Common Stock. The purchase price per share of Common Stock and warrant was $2,600. Raymond Chang,
our Chairman of the Board and Chief Executive Officer, retains the authority to remove the independent trustee of the RTC3 2020 Irrevocable
Family Trust, although Mr. Chang does not have a pecuniary interest in our securities held by that trust.
 
 Public Offering Purchases by RTC3 2020 Irrevocable
Family Trust 
 
 On January 28, 2022, as
part of our private placement financing, we entered into a Securities Purchase Agreement with parties including the RTC3 2020 Irrevocable
Family Trust. Pursuant to that agreement, we sold 1,823 shares of Common Stock and warrants to purchase 1,372 shares of Common
Stock to the RTC3 2020 Irrevocable Family Trust. The purchase price per share of Common Stock and partial warrant was $2,760.00. Raymond
Chang, our Chairman of the Board and Chief Executive Officer, retains the authority to remove the independent trustee of the RTC3 2020
Irrevocable Family Trust, although Mr. Chang does not have a pecuniary interest in our securities held by that trust.
 
 Greenstone Holdings (“Greenstone”) 
 
 Greenstone is a related party
because one of our former Agrify Brands employees and our VP of Engineering had a minority ownership, and is a customer of Agrify’s
that is in the process of installing Vertical Farming Units (“VFUs”) in its indoor growing facility in Denver, Colorado.
The Company has generated revenues from Greenstone through both construction services and the sale of VFUs. A current and former non-executive level
employee owns approximately 27% and 10% of Greenstone, respectively. The Company has determined that Greenstone as a Variable Interest
Entity, however it does not consolidate the operating results of Greenstone into its consolidated financial statements as Agrify does
not have a “controlling interest” in Greenstone. Agrify reported revenues from Greenstone totaling $648,000 during the year
ended December 31, 2022 and $9,429,000 during the year ended December 31, 2021. Additionally, the Company made purchases from Greenstone
totaling approximately $1.0 million in 2022.
 
 Director Independence 
 
 The
board of directors has determined that the directors listed in Part III, Item 10 of this Annual Report on Form 10-K are
“independent” as such term is currently defined by applicable Nasdaq rules, except for Messrs. Chang and Hua.
 
 The
Board of Directors has determined that all members of the Audit Committee, the Compensation Committee and the Nominating and Corporate
Governance Committee of the Board of Directors are “independent” as such term is currently defined by Nasdaq rules. Additionally,
the Board has Directors has determined that all members of the Audit Committee of the Board of Directors meet the criteria for independence
set forth under the rules of the Securities and Exchange Commission.
 
 82 

 Item 14. Principal Accountant Fees and Services. 
 
 The following table sets forth
the aggregate fees billed by Marcum LLP (“Marcum”) for professional services rendered during the fiscal years ended December 31,
2022 and 2021:
 
 Types of Fees 
 2022 
 2021 

 Audit Fees 
 $ 418,695 
 $ 241,535 

 Audit-Related Fees 
 31,003 
 123,085 

 Tax Fees 
 23,433 
 15,450 

 Total Fees 
 $ 473,131 
 $ 380,070 

 In the table above, “Audit
Fees” are fees the Company paid to Marcum for professional services rendered connection with the audit of the Company’s consolidated
financial statements, the review of consolidated financial statements included in our Quarterly Reports on Form 10-Q filed with
the SEC, or for services that are normally provided by the auditors in connection with statutory and regulatory filings or engagements,
net of out of pocket expenses; “Audit-Related Fees” are fees billed by Marcum for assurance and related services that
are reasonably related to the performance of the audit or review of the Company’s consolidated financial statements (accounting
consultations on transaction related matters including work related to our S-1 and S-3 fillings); and “Tax Fees”
are fees billed by Marcum either for corporate income tax return preparation and filing services and/or individual expatriate income tax
services and advice.
 
 Policy on Audit Committee Pre-Approval of
Audit and Non-Audit Services of Independent Auditor 
 
 The Audit Committee has adopted
policies and procedures relating to the approval of all audit and non-audit services that are performed by our independent registered
public accounting firm. This policy generally provides that we will not engage our independent registered public accounting firm to render
audit or non-audit services unless the service is specifically approved in advance by the Audit Committee or the engagement is entered
into pursuant to pre-approval procedures. On an ongoing basis, management communicates specific projects and categories of services
for which the advance approval of the Audit Committee is requested. The Audit Committee reviews these requests and advises management
if the Committee approves the engagement of the independent registered public accountants. On a periodic basis, management reports to
the Audit Committee regarding the actual spending for such projects and services compared to the approved amounts.
 
 The Audit Committee considers
whether the provisions of these services are compatible with maintaining the auditor’s independence, and it determined such services
for 2022 and 2021 were compatible.
 
 83 

 PART IV 
 
 Item 15. Exhibits, Financial Statements and
Schedules. 
 
 (a) 
 Financial Statements: 

 (1)
The consolidated financial statements required to be included in this report appear after the signature page to this report as a separate
section beginning on page F-1.
 
 (2)
All supplemental schedules have been omitted since the information is either included in the consolidated financial statements or the
notes thereto or they are not required or are not applicable.
 
 (3)
The Exhibit Index of this report appears below.
 
 (b) 
 Exhibits: 

 Exhibit No. 
 
 Description 

 2.1± 
 
 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 

 2.2 
 
 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 

 2.3± 
 
 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) 

 2.4± 
 
 Merger Agreement, dated as of February 1, 2022, among the Registrant, LS Holdings Corp., Lab Society NewCo, LLC, Michael S. Maibach Jr. 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) 

 3.1 
 
 Articles of Incorporation of the Registrant, as amended (incorporated by reference to Exhibit 3.1 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) 

 3.2 
 
 Third 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) 

 3.3 
 
 Amended and Restated Bylaws of the Registrant (incorporated by reference to Exhibit 3.3 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) 

 3.4 
 
 Certificate of Amendment to the Articles of Incorporation of the Registrant, filed July 11, 2022 (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on July 14, 2022). 

 3.5 
 
 Certificate of Amendment to the Articles of Incorporation of the Registrant, filed October 17, 2022 (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 17, 2022). 

 3.6 
 
 Certificate of Amendment to the Articles of Incorporation of the Registrant, filed March 1, 2023 (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report filed with the Securities and Exchange Commission on March 3, 2023. 

 84 

 4.1 
 
 Form 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) 

 4.2 
 
 Form 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) 

 4.3 
 
 Form of Representative’s Warrant dated January 27, 2021 (incorporated by reference to Exhibit 4.2 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) 

 4.4 
 
 Form 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) 

 4.5 
 
 Description 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) 

 4.6 
 
 Form of Common Stock Purchase Warrant dated January 28, 2022 (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 January 26, 2022) 

 4.7 
 
 Form of Senior Secured Note (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 August 19, 2022). 

 4.8 
 
 Form of Warrant Exchange Warrant (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 August 19, 2022). 

 4.9 
 
 Form of Note Exchange Warrant (incorporated by reference to Exhibit 4.3 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 19, 2022). 

 4.10 
 
 Form of Pre-Funded 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 December 16, 2022) 

 4.11 
 
 Form of Common Warrant (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 December 16, 2022) 

 4.12 
 
 Form of Senior Secured Convertible Note (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 9, 2023) 

 4.13 
 
 Amendment to 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 9, 2023) 

 4.14 
 
 Exchange Warrant, dated October 27, 2023 (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 October 30, 2023) 

 4.15 
 
 Abeyance Warrant, dated October 27, 2023 (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 October 30, 2023) 

 4.16 
 
 Common Stock Purchase Warrant, dated October 27, 2023 (incorporated by reference to Exhibit 4.3 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 30, 2023) 

 4.17 
 
 Amended and Restated Junior Secured Promissory Note (incorporated by reference to Exhibit 4.4 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 30, 2023) 

 4.18 
 
 Junior Secured Promissory Note (incorporated by reference to Exhibit 4.5 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 30, 2023) 

 10.1 
 
 Operating 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) 

 10.2 
 
 Distribution 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, 2020) 

 10.3 
 
 Distribution 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, 2020) 

 10.4 
 
 Purchase Agreement dated as of July 28, 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) 

 85 

 10.5† 
 
 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) 

 10.6† 
 
 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) 

 10.7 
 
 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) 

 10.8 
 
 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) 

 10.9 
 
 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) 

 10.10 
 
 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) 

 10.11† 
 
 Employment Agreement, dated as of November 10, 2021, between the Registrant and Timothy Oakes † (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 November 15, 2021) 

 10.12± 
 
 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 

 10.13± 
 
 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) 

 10.14† 
 
 Agrify Corporation 2022 Omnibus Equity Incentive Plan (incorporated by reference to Appendix A to the Registrant’s Definitive Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission on April 29, 2022) 

 10.15† 
 
 Agrify Corporation 2022 Employee Stock Purchase Plan (incorporated by reference to Appendix B to the Registrant’s Definitive Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission on April 29, 2022) 

 10.16† 
 
 Separation Agreement of Thomas Massie, dated as of July 8, 2022 (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 July 14, 2022). 

 10.17† 
 
 Employment Agreement, dated as of July 14, 2022, between the Registrant and Stuart Wilcox (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 July 14, 2022). 

 10.18± 
 
 Exchange Agreement, dated as of August 18, 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 August 19, 2022). 

 10.19± 
 
 Equity Distribution Agreement, dated as of October 18, 2022, between the Registrant and Canaccord Genuity 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 October 18, 2022). 

 10.20† 
 
 Employment Agreement, dated as of July 25, 2022, between the Registrant and Timothy Hayden (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 24, 2023) 

 10.21± 
 
 Exchange Agreement, dated as of March 8, 2023, 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 9, 2023) 

 10.22 
 
 Company and Investor Acknowledgment, dated as of October 27, 2023, between the Registrant and CP acquisitions 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 October 30, 2023) 

 86 

 10.23 
 
 Letter Agreement, dated as of October 27, 2023, between the Registrant and High Trail Special Situations LLC (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 October 30, 2023) 

 10.24± 
 
 Modification Agreement, effective as of October 18, 2023, between the Registrant and Mack Molding Company (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 30, 2023) 

 14.1 
 
 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) 

 21.1* 
 
 Subsidiaries of the Registrant 

 23.1* 
 
 Consent of Independent Registered Public Accounting Firm 

 31.1* 
 
 Certification of Principal Executive Officer and Principal Financial and Accounting 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 

 32.1** 
 
 Certification of Principal Executive Officer and Principal Financial and Accounting Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 

 101.INS 
 
 Inline XBRL Instance Document 

 101.SCH 
 
 Inline XBRL Taxonomy Extension Schema Document. 

 101.CAL 
 
 Inline XBRL Taxonomy Extension Calculation Linkbase Document. 

 101.DEF 
 
 Inline XBRL Taxonomy Extension Definition Linkbase Document. 

 101.LAB 
 
 Inline XBRL Taxonomy Extension Label Linkbase Document. 

 101.PRE 
 
 Inline XBRL Taxonomy Extension Presentation Linkbase Document. 

 104 
 
 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. 

 † 
 Indicates a management contract, compensatory plan, or
 arrangement. 

 * 
 Filed herewith. 

 ** 
 Furnished herewith. 

 Item 16. Form 10-K
Summary. 
 
 None.
 
 87 

 SIGNATURES 
 
 Pursuant 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 on its behalf by
the undersigned, thereunto duly authorized.
 
 AGRIFY CORPORATION 

 Date: November 27, 2023 
 By: 
 /s/ Raymond Chang 

 By: Raymond Chang 

 Chief Executive Officer 

(Principal Executive Officer and Principal Financial and Accounting Officer) 

 Pursuant to the requirements
of the Securities Exchange Act of 1934, this Report has been signed below by the following person on behalf of the Registrant and in the
capacities and on the dates indicated.
 
 Signature 
 
 Title 
 
 Date 

 /s/ Raymond Chang 
 
 Chief Executive Officer and Director 
 
 November 27, 2023 

 Raymond Chang 
 
 (Principal Executive Officer and Principal Financial and Accounting Officer) 
 
 /s/ Guichao Hua 
 
 Director 
 
 November 27, 2023 

 Guichao Hua 
 
 /s/ Krishnan Varier 
 
 Director 
 
 November 27, 2023 

 Krishnan Varier 
 
 /s/ Timothy Mahoney 
 
 Director 
 
 November 27, 2023 

 Timothy Mahoney 
 
 /s/ Max Holtzman 
 
 Director 
 
 November 27, 2023 

 Max Holtzman 
 
 /s/ Leonard Sokolow 
 
 Director 
 
 November 27, 2023 

 Leonard Sokolow 
 
 88 

 AGRIFY CORPORATION AND SUBSIDIARIES 
 
 Index to Consolidated Financial Statements 
 
 Fiscal Years Ended December 31, 2022 and 2021: 
 
 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 F-5 
 Consolidated Statements of Cash Flows F-7 
 Notes to Consolidated Financial Statements F-8 – F-61 
 
 F- 1 

 REPORT 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, 2022 and 2021, the related consolidated
statements of operations, stockholders’ deficit (equity) and cash flows for each of the two years in the period ended December 31,
2022, 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, 2022 and 2021, and the results of its
operations and its cash flows for each of the two years in the period ended December 31, 2022, in conformity with accounting principles
generally accepted in the United States of America.
 
 Explanatory Paragraph – Going Concern 
 
 The accompanying consolidated financial statements
have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 1, the Company has a significant
working capital deficiency, has incurred significant losses and needs to raise additional funds to meet its obligations and sustain its
operations. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
 
 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. 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. 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. 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 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.
 
 /s/ Marcum llp 
 
 Marcum llp 
 
 We have served as the Company’s auditor since 2019.
 
 Melville, NY 
 
 November 27, 2023
 
 F- 2 

 AGRIFY CORPORATION AND SUBSIDIARIES 
 
 Consolidated Balance Sheets 
 
 (In thousands, except share and per share data) 
 
 As of December 31, 

 2022 
 2021 

 Assets 
 
 Current assets: 
 
 Cash and cash equivalents 
 $ 10,457 
 $ 12,014 

 Restricted cash 
 10,000 
 —
 
 Marketable securities 
 460 
 44,550 

 Accounts receivable, net of allowance for doubtful accounts of $ 4,605 and $ 1,415 at December 31, 2022 and 2021, respectively 
 1,070 
 7,222 

 Inventory, net of reserves of $ 32,422 and $ 942 at December 31, 2022 and 2021, respectively 
 21,396 
 20,498 

 Prepaid expenses and other current assets 
 1,510 
 2,452 

 Total current assets 
 44,893 
 86,736 

 Loans receivable, net of allowance for doubtful accounts of $ 33,050 and $ 0 at December 31, 2022 and 2021, respectively 
 12,214 
 22,255 

 Property and equipment, net 
 10,044 
 6,232 

 Operating lease right-of-use assets 
 2,210 
 1,479 

 Goodwill 
 —
 
 50,090 

 Intangible assets, net 
 —
 
 14,072 

 Other non-current assets 
 326 
 1,184 

 Total assets 
 $ 69,687 
 $ 182,048 

 Liabilities and Stockholders’ Equity 
 
 Current liabilities: 
 
 Accounts payable 
 $ 20,543 
 $ 9,151 

 Accrued expenses and other current liabilities 
 16,380 
 28,764 

 Operating lease liabilities, current 
 734 
 814 

 Long-term debt, current 
 28,833 
 1,089 

 Deferred revenue 
 4,112 
 3,772 

 Total current liabilities 
 70,602 
 43,590 

 Warrant liabilities 
 5,985 
 —
 
 Operating lease liabilities, net of current 
 1,587 
 704 

 Long-term debt, net of current 
 407 
 12 

 Other non-current liabilities 
 147 
 318 

 Total liabilities 
 78,728 
 44,624 

 Commitments and contingencies (Note 17) 
 
 Stockholders’ (deficit) equity: 
 
 Common Stock, $ 0.001 par value per share, 5,000,000 and 2,500,000 shares authorized at December 31, 2022 and 2021, respectively, 1,038,298 and 111,035 shares issued and outstanding at December 31, 2022 and 2021, respectively (1) 
 1 
 —
 
 Preferred Stock, $ 0.001 par value per share, 2,895,000 shares authorized, no shares issued or outstanding 
 —
 
 —
 
 Preferred A Stock, $ 0.001 par value per share, 105,000 shares authorized, no shares issued or outstanding 
 —
 
 —
 
 Additional paid-in capital 
 237,875 
 196,034 

 Accumulated deficit 
 ( 247,148 ) 
 ( 58,975 ) 

 Total stockholders’ (deficit) equity attributable to Agrify 
 ( 9,272 ) 
 137,059 

 Non-controlling interests 
 231 
 365 

 Total liabilities and stockholders’ equity 
 $ 69,687 
 $ 182,048 

 (1) Periods presented have been adjusted to reflect the 1-for-10 reverse stock split on October 18, 2022, and the 1-for-20 reverse stock split on July 5, 2023. Additional information regarding the reverse stock splits may be found in Note 1 – Overview, Basis of Presentation, and Significant Accounting Policies , included elsewhere in the notes to the consolidated financial statements. 
 
 The accompanying notes are an integral part
of these consolidated financial statements. 
 
 F- 3 

 AGRIFY CORPORATION AND SUBSIDIARIES 
 
 Consolidated Statements of Operations 
 
 (In thousands, except share and per share data) 
 
 Year Ended
 December 31, 

 2022 
 2021 

 Revenue (including $ 2,417 and $ 31,439 from related parties, respectively) 
 $ 58,259 
 $ 59,859 

 Cost of goods sold 
 90,054 
 54,625 

 Gross (loss) profit 
 ( 31,795 ) 
 5,234 

 General and administrative 
 73,354 
 30,807 

 Selling and marketing 
 9,338 
 4,163 

 Research and development 
 8,179 
 3,925 

 Change in contingent consideration 
 ( 2,156 ) 
 1,412 

 Impairment of property and equipment 
 2,912 
 —
 
 Impairment of goodwill and intangible assets 
 69,904 
 —
 
 Total operating expenses 
 161,531 
 40,307 

 Loss from operations 
 ( 193,326 ) 
 ( 35,073 ) 

 Interest (expense) income, net 
 ( 8,750 ) 
 74 

 Other expense, net 
 1,316 
 ( 31 ) 

 Change in fair value of warrant liabilities 
 51,461 
 —
 
 Gain on forgiveness of PPP loan 
 —
 
 45 

 (Loss) gain on extinguishment of notes payable 
 ( 38,985 ) 
 2,685 

 Other income, net 
 5,042 
 2,773 

 Net loss before income taxes 
 ( 188,284 ) 
 ( 32,300 ) 

 Income tax expense 
 ( 23 ) 
 ( 25 ) 

 Net loss 
 ( 188,307 ) 
 ( 32,325 ) 

 (Income) loss attributable to non-controlling interests 
 134 
 ( 140 ) 

 Net loss attributable to Agrify Corporation 
 $ ( 188,173 ) 
 $ ( 32,465 ) 

 Net loss per share attributable to Common Stockholders – basic and diluted (1) 
 $ ( 902.19 ) 
 $ ( 340.75 ) 

 Weighted-average common shares outstanding – basic and diluted (1) 
 208,573 
 95,455 

 (1) Periods presented have been adjusted to reflect the 1-for-10 reverse
stock split on October 18, 2022, and the 1-for-20 reverse stock split on July 5, 2023. Additional information regarding the reverse stock
splits may be found in Note 1 – Overview, Basis of Presentation, and Significant Accounting Policies, included elsewhere in the
notes to the consolidated financial statements. 
 
 The accompanying notes are an integral part
of these consolidated financial statements. 
 
 F- 4 

 AGRIFY
CORPORATION AND SUBSIDIARIES 
 
 Consolidated Statements of Stockholders’
(Deficit) Equity 
 
 (In thousands, except share data) 
 
 Common Stock 
 Preferred A

 Stock 
 Additional 
 Paid-In- 
 Accumulated 
 Total 
 Stockholders’ 
 (Deficit)

 Equity 
 attributable 
 Non-
 Controlling 
 Total

 Stockholders’

(Deficit)
 
 Shares 
 Amount 
 Shares 
 Amount 
 Capital 
 Deficit 
 to Agrify 
 Interests 
 Equity 

 Balance at January 1, 2021 
 21,058 
 $ —
 
 100,000 
 $ —
 
 $ 19,831 
 $ ( 26,510 ) 
 $ ( 6,679 ) 
 $ 225 
 $ ( 6,454 ) 

 Stock-based compensation 
 — 
 —
 
 — 
 —
 
 5,552 
 —
 
 5,552 
 —
 
 5,552 

 Beneficial conversion feature associated with amended Convertible Promissory Notes 
 — 
 —
 
 — 
 —
 
 3,869 
 —
 
 3,869 
 —
 
 3,869 

 Conversion of Convertible Notes 
 8,485 
 —
 
 —
 
 —
 
 13,100 
 —
 
 13,100 
 —
 
 13,100 

 Issuance of Common Stock – Initial Public Offering (“IPO”), net of fees 
 31,050 
 —
 
 —
 
 —
 
 56,961 
 —
 
 56,961 
 —
 
 56,961 

 Issuance of Common Stock – Secondary public offering, net of fees 
 31,945 
 —
 
 —
 
 —
 
 79,839 
 —
 
 79,839 
 —
 
 79,839 

 Issuance of Common Stock in connection with acquisition 
 40 
 —
 
 —
 
 —
 
 176 
 —
 
 176 
 —
 
 176 

 Conversion of Preferred A Stock 
 6,865 
 —
 
 ( 100,000 ) 
 —
 
 —
 
 —
 
 —
 
 —
 
 —
 
 Acquisition of Precision and Cascade 
 3,332 
 —
 
 —
 
 —
 
 12,355 
 —
 
 12,355 
 —
 
 12,355 

 Acquisition of PurePressure 
 1,202 
 —
 
 —
 
 —
 
 2,211 
 —
 
 2,211 
 —
 
 2,211 

 Exercise of options 
 3,288 
 —
 
 —
 
 —
 
 2,132 
 —
 
 2,132 
 —
 
 2,132 

 Exercise of warrants 
 3,770 
 —
 
 —
 
 —
 
 8 
 —
 
 8 
 —
 
 8 

 Net loss 
 — 
 —
 
 — 
 —
 
 —
 
 ( 32,465 ) 
 ( 32,465 ) 
 140 
 ( 32,325 ) 

 Balance at December 31, 2021 
 111,035 
 $ —
 
 —
 
 $ —
 
 $ 196,034 
 $ ( 58,975 ) 
 $ 137,059 
 $ 365 
 $ 137,424 

 F- 5 

 AGRIFY
CORPORATION AND SUBSIDIARIES 
 
 Consolidated Statements of Stockholders’
(Deficit) Equity (Continued) 
 
 (In thousands, except share data) 
 
 Common Stock 
 Preferred A

 Stock 
 Additional 
 Paid-In- 
 Accumulated 
 Total 
 Stockholders’ 
 (Deficit)

 Equity 
 attributable 
 Non-
 Controlling 
 Total 
 Stockholders’

(Deficit) 

 Shares 
 Amount 
 Shares 
 Amount 
 Capital 
 Deficit 
 to Agrify 
 Interests 
 Equity 

 Balance at January 1, 2022 
 111,035 
 $ —
 
 —
 
 $ —
 
 $ 196,034 
 $ ( 58,975 ) 
 $ 137,059 
 $ 365 
 $ 137,424 

 Stock-based compensation 
 — 
 —
 
 — 
 —
 
 4,319 
 —
 
 4,319 
 —
 
 4,319 

 Issuance of Common Stock, warrants, and prefunded warrants in private placement 
 20,105 
 —
 
 —
 
 —
 
 14,824 
 —
 
 14,824 
 —
 
 14,824 

 Confidentially marketed public offering 
 594,232 
 1 
 —
 
 —
 
 3,269 
 —
 
 3,270 
 —
 
 3,270 

 Issuance of Common Stock through an “at the market” offering, net of fees 
 306,628 
 —
 
 —
 
 —
 
 15,042 
 —
 
 15,042 
 —
 
 15,042 

 Common Stock issued for contingent liabilities 
 435 
 —
 
 —
 
 —
 
 2,220 
 —
 
 2,220 
 —
 
 2,220 

 Acquisition of Lab Society 
 2,128 
 —
 
 —
 
 —
 
 1,904 
 —
 
 1,904 
 —
 
 1,904 

 Exercise of options 
 43 
 —
 
 —
 
 —
 
 20 
 —
 
 20 
 —
 
 20 

 Exercise of warrants 
 
 2,443 
 
 — 
 
 — 
 
 — 
 
 243 
 
 — 
 
 243 
 
 — 
 
 243 
 
 Vesting of restricted stock units 
 
 1,249 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 Net loss 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 ( 188,173 
 ) 
 
 ( 188,173 
 ) 
 
 ( 134 
 ) 
 
 ( 188,307 
 ) 

 Balance at December 31, 2022 
 
 1,038,298 
 
 $ 
 1 
 
 — 
 
 $ 
 — 
 
 $ 
 237,875 
 
 $ 
 ( 247,148 
 ) 
 
 $ 
 ( 9,272 ) 
 
 $ 
 231 
 
 $ 
 ( 9,041 ) 
 
 The accompanying notes are an integral part
of these consolidated financial statements. 
 
 F- 6 

 AGRIFY CORPORATION AND SUBSIDIARIES 
 
 Consolidated Statements of Cash Flows 
 
 (In thousands) 
 
 Year Ended
 December 31, 

 2022 
 2021 

 Cash flows from operating activities 
 
 Net loss attributable to Agrify Corporation 
 $ ( 188,173 ) 
 $ ( 32,465 ) 

 Adjustments to reconcile net loss attributable to Agrify Corporation to net cash used in operating activities: 
 
 Depreciation and amortization 
 3,047 
 1,310 

 Impairment on goodwill and intangible assets 
 69,904 
 —
 
 Loss (gain) on extinguishment of notes payable 
 38,985 
 ( 2,685 ) 

 Change in fair value of warrant liabilities 
 ( 51,461 ) 
 —
 
 Amortization of premium on marketable securities 
 —
 
 951 

 Interest on marketable securities 
 ( 232 ) 
 ( 1,035 ) 

 Provision for doubtful accounts 
 36,694 
 1,187 

 Provision for inventory obsolescence 
 31,480 
 942 

 Amortization of debt discount 
 4,459 
 ( 42 ) 

 Amortization of issuance costs 
 420 
 —
 
 Income tax 
 23 
 25 

 Compensation in connection with the issuance of stock options and restricted stock units 
 4,319 
 5,552 

 Issuance of common shares in connection with acquisition 
 —
 
 176 

 Loss (income) from disposal of fixed assets 
 33 
 ( 5 ) 

 Impairment of property and equipment 
 2,912 
 —
 
 Gain on forgiveness of PPP Loan 
 —
 
 ( 45 ) 

 (Income) loss attributed to non-controlling interest 
 ( 134 ) 
 140 

 Change in fair value of contingent consideration 
 ( 2,156 ) 
 1,412 

 Changes in operating assets and liabilities, net of acquisitions: 
 
 Accounts receivable 
 1,540 
 ( 3,391 ) 

 Inventory 
 ( 30,248 ) 
 ( 6,568 ) 

 Prepaid expenses and other current assets 
 3,222 
 ( 1,745 ) 

 Right-of-use assets, net 
 ( 731 ) 
 29 

 Other non-current assets 
 1,138 
 —
 
 Accounts payable 
 11,236 
 1,127 

 Accrued expenses and other current liabilities 
 ( 8,555 ) 
 8,284 

 Other non-current liabilities 
 882 
 —
 
 Deferred revenue 
 ( 625 ) 
 ( 3,303 ) 

 Net cash used in operating activities 
 ( 72,021 ) 
 ( 30,149 ) 

 Cash flows from investing activities 
 
 Purchases of property and equipment 
 ( 8,134 ) 
 ( 2,220 ) 

 Purchases of intangibles assets 
 —
 
 ( 104 ) 

 Purchase of marketable securities 
 ( 294,687 ) 
 ( 62,209 ) 

 Proceeds from the sale of marketable securities 
 329,009 
 17,743 

 Proceeds from the sale of fixed assets 
 —
 
 101 

 Issuance of loans receivable, net 
 ( 23,009 ) 
 ( 22,143 ) 

 Payments on contingent liabilities 
 ( 3,330 ) 
 —
 
 Cash received from escrow account related to Sinclair acquisition 
 1,351 
 —
 
 Cash paid for business combination, net of cash acquired 
 ( 3,517 ) 
 ( 35,908 ) 

 Net cash used in investing activities 
 ( 2,317 ) 
 ( 104,740 ) 

 Cash flows from financing activities 
 
 Proceeds from issuance of debt and warrants in Security Purchase Agreement 
 61,817 
 —
 
 Proceeds from Common Stock and warrants in private placement 
 25,796 
 —
 
 Proceeds from Common Stock through an “at the market” offering, net of fees 
 15,042 
 —
 
 Proceeds from IPO, net of fees 
 —
 
 56,961 

 Proceeds from Secondary public offering, net of fees 
 —
 
 79,839 

 Proceeds from exercise of options 
 20 
 2,132 

 Proceeds from exercise of warrants 
 —
 
 8 

 Proceeds from confidentially marketed public offering 
 8,193 
 —
 
 Repayment of debt in private placement 
 ( 35,497 ) 
 —
 
 Repayment of notes payable, other 
 ( 187 ) 
 —
 
 Payments on insurance financing loans 
 ( 1,928 ) 
 —
 
 Payments of other financing loans 
 ( 254 ) 
 —
 
 Payments of financing leases 
 ( 221 ) 
 ( 148 ) 

 Net cash provided by financing activities 
 72,781 
 138,792 

 Net (decrease) increase in cash and cash equivalents 
 ( 1,557 ) 
 3,903 

 Cash and cash equivalents at the beginning of period 
 12,014 
 8,111 

 Cash and cash equivalents at the end of period 
 $ 10,457 
 $ 12,014 

 Cash, cash equivalents, and restricted cash at end of period 
 
 Cash and cash equivalents 
 $ 10,457 
 $ 12,014 

 Restricted cash 
 10,000 
 —
 
 Total cash, cash equivalents, and restricted cash at the end of period 
 $ 20,457 
 $ 12,014 

 Supplemental disclosures 
 
 Cash paid for interest 
 $ 4,969 
 $ 30 

 Cash paid for taxes 
 $ —
 
 $ —
 
 Supplemental disclosures of non-cash information 
 
 Equipment sold for loan receivable to customer 
 $ —
 
 $ 289 

 Initial fair value of warrants 
 $ 55,627 
 $ —
 
 Financing of prepaid insurance 
 $ 1,928 
 $ —
 
 The accompanying notes are an integral part
of these consolidated financial statements. 
 
 F- 7 

 AGRIFY CORPORATION AND SUBSIDIARIES 
 
 Notes to Consolidated Financial Statements 
 
 Note 1 — Overview, Basis of Presentation,
and Significant Accounting Policies 

 Description of Business 
 
 Agrify Corporation (“Agrify”
or the “Company”) is a leading provider of innovative cultivation and extraction solutions for the cannabis industry, bringing
data, science, and technology to the forefront of the market. The Company’s proprietary micro-environment-controlled Agrify Vertical
Farming Units (or “VFUs”) enable cultivators to produce the highest quality products with what we believe to be unmatched
consistency, yield, and return investment at scale. The Company’s comprehensive extraction product line, which includes hydrocarbon,
alcohol, solventless, post-processing, and lab equipment, empowers producers to maximize the quantity and quality of extract required
for premium concentrates.  
 
 The Company believes it is
the only company with an automated and fully integrated grow solution in the industry. The Company’s cultivation and extraction
solutions seamlessly combines its integrated hardware and software offerings with a broad range of associated services including consulting,
engineering, and construction and is designed to deliver the most complete commercial indoor farming solution available from a single
provider. The totality of its product offerings and service capabilities forms an unrivaled ecosystem in what has historically been a
highly fragmented market. As a result, the Company believes it is well-positioned to capture market share and create a dominant market
position in the indoor cannabis sector.
 
 The Company was formed in
the State of Nevada on June 6, 2016 as Agrinamics, Inc., and subsequently changed its name to Agrify Corporation. The Company is sometimes
referred to herein by the words “we,” “us,” “our,” and similar terminology.
 
 The Company has nine wholly-owned
subsidiaries, which are collectively referred to as the “Subsidiaries” and the Company also has ownership interests in certain
companies. (Please refer to Exhibit 21.1 for further details.)
 
 Reverse Stock Splits 
 
 On October 18, 2022, the
Company effected a 1-for-10 reverse stock split of its Common Stock. All share and per share information has been retroactively adjusted
to give effect to the reverse stock split for all periods presented unless otherwise indicated.
 
 On July 5, 2023, the Company
effected a 1-for-20 reverse stock split of its Common Stock. All share and per share information has been retroactively adjusted to give
effect to the reverse stock split for all periods presented unless otherwise indicated.
 
 No fractional shares of Common
Stock were issued as a result of these reverse stock splits. Any fractional shares in connection with these reverse stock splits were
rounded up to the nearest whole share and no stockholders received cash in lieu of fractional shares. The reverse stock splits had no
impact on the number of shares of Common Stock that the Company is authorized to issue pursuant to its articles of incorporation or on
the par value per share of the Common Stock. Proportional adjustments were made to the number of
shares of Common Stock issuable upon exercise or conversion of the Company’s outstanding
stock options and warrants, the exercise price or conversion price (as applicable) of the Company’s outstanding stock options and
warrants, and the number of shares reserved for issuance under the Company’s equity incentive plan. All share and per share
information included in this Annual Report on Form 10-K has been retroactively adjusted to reflect the impact of these reverse stock splits.
 
 F- 8 

 Initial Public Offering and Secondary Public
Offering 
 
 On February 1, 2021, the
Company closed its initial public offering, or (“IPO”), of 31,050 shares of its Common Stock (inclusive of 4,050 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 Securities Exchange Commission (“SEC”) on January 27,
2021. In the IPO, Maxim Group LLC and Roth Capital Partners acted as the underwriters. The IPO price for shares of Common Stock was $ 2,000.00 
per share. The total gross proceeds from the IPO were $ 62.1 million.
 
 After deducting underwriting
discounts and commissions of $ 4 million and offering expenses paid by the Company of approximately $ 1 million, the net proceeds from the
IPO were approximately $ 57 million. The Company used the net proceeds from the IPO for its working capital needs, to support revenue growth,
increase inventory to meet customer demand forecasts, and support operational growth.
 
 On February 19, 2021, the
Company consummated a secondary public offering (the “February Offering”) of 27,778 shares of its Common Stock for a price
of $ 2,700.00 per share, less certain underwriting discounts, and commissions. On March 22, 2021, the Company closed on the sale of an
additional 4,167 shares of Common Stock on the same terms and conditions pursuant to the exercise of the underwriters’ over-allotment
option. The exercise of the over-allotment option brought the total number of shares of Common Stock sold by the Company in connection
with the February Offering to 31,945 shares and the total net proceeds received in connection with the February Offering to approximately
$ 80 million, after deducting underwriting discounts and offering expenses. The Company used the net proceeds from the IPO for its working
capital needs, to support revenue growth, increase inventory, meet customer demand forecasts, and support operational growth.
 
 Confidentially Marketed Public Offering 
 
 On December 16, 2022, the
Company entered into an underwriting agreement (the “Underwriting Agreement”) with Canaccord Genuity LLC as the underwriter,
pursuant to which the Company agreed to issue and sell an aggregate of 594,232 shares of its Common Stock, and, in lieu of Common
Stock to certain investors that so chose, pre-funded warrants (the “Pre-Funded 2022 Warrants”) to purchase 75,000 shares of
our
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.
RYTHM, Inc. 10-K
