What changed in this filing

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Item 9A. Controls and Procedures

2023-11-28 compared with 2022-03-31 · 3686 added, 2034 removed, 314 unchanged (95% of the section changed)

This section is long enough that the comparison stopped early. What follows is partial, and the remainder is not necessarily unchanged.

Controls and Procedures.

of Disclosure Controls and Procedures

Management, with the participation of our Chief

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

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

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

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

the SEC’s rules and forms.

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

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

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

regarding required disclosure.

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

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

relationship of possible controls and procedures.

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

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

Report on Internal Control over Financial Reporting

Management is responsible for establishing and

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

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

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.

“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.

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

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

During the year ended December 31, 2021, management

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

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

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

Also, projections of

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

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

This Annual Report on Form 10-K does not include

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

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

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

404 of the Sarbanes-Oxley Act.

of Material Weakness in Internal Control over Financial Reporting

In the course of preparing the financial statements

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

in internal control over financial reporting.

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

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

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

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

A material weakness is a deficiency

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

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

These deficiencies could result in misstatements

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

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

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

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

We have added

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

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

between transactional, reconciliation and review and approval functions.

During the fourth quarter of 2021, we took steps

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

While these actions,

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

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

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

The material weakness related to the timeliness

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

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

Our management

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

If not remediated,

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

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

If we are unable to assert that our internal

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

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

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

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

could require additional financial and management resources.

in Internal Control Over Financial Reporting

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

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

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

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.

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

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

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.

Other Information.

2 unchanged sentences

Directors, Executive Officers and Corporate Governance.

The information required by this Item 10

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

and is incorporated herein by reference.

Executive 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.

Raymond Chang

Refer to “Directors” below.

David Kessler

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.

Kessler has over twenty years of cannabis cultivation experience including ten years of CEA (closed environmental agriculture) indoor farm design.

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.

Kessler also regularly lectures at many cannabis industry events and appears regularly on industry podcasts.

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.

Kessler received a Bachelor of Arts degree and undertook post graduate studies in biology at SUNY-Oswego.

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

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

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.

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.

Towns received his formal education in Michigan.

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.

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

Max Holtzman was appointed to the Board on July 14, 2022.

Nominees for Election

Raymond Chang

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.

Chang founded GigaMedia, the first broadband company in Asia.

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

GIGM) and raised $280 million, one of the largest IPOs for an internet company prior to 2000.

Chang founded Luckypai, a leading TV shopping company in China and raised venture financing from Lightspeed Venture Partners, DT Capital, Intel, Lehman Brothers, and Goldman Sachs.

Luckypai was sold to Lotte Group, which is one of the largest Asian conglomerates based in Korea, for $160 million in 2010.

From 2012 to 2013, Mr.

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

Chang completed the sale of New Focus Auto to CDH Investments, which is one of the largest private equity firms based in Asia and raised over $150 million for the company.

Chang was selected by Fortune as one of the twenty-five “Next Generation Global Leaders Under 40” and by Business Week Asia as one of Asia’s 20 most influential new economy leaders in the 21 century.

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

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

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

Chang has served as a Director of our Company since June 2019.

Holtzman has served as a member of our Board of Directors since July 14, 2022.

Holtzman has served as Operations Director at Ocean 14 Capital, a private equity impact fund focused on the Blue Economy, since December 2021.

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.

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.

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.

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.

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.

Hua has served as a member of our Board of Directors since June 15, 2019.

Hua is a renowned expert in the global power electronics arena.

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

Hua founded Inventronics Inc., which is currently one of the largest companies in the world engaged in the design and manufacture of high efficiency, high reliability and long-life LED drivers, and served as the founder and chief executive officer from 2007 to 2019 and has served as the executive chairman since 2019.

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

In December 2017, Mr.

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

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

Hua is a co-founder and former vice president of engineering of VPT Inc., which is now one of the largest military/aerospace power companies in the world.

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.

Hua has obtained more than 20 U.S.

patents and published more than 70 theses, enjoying a strong reputation in the switch power industry.

Hua has served as a member of Agrify’s Board of Directors since June 2019.

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.

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.

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.

has served on the board of directors of Consolidated Water Co.

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.

SKYX) since November 2015 and has been a member of its Business Development Committee.

has served on the board of directors of Vivos Therapeutics, Inc.

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

Sokolow served on the Advisory Board of Masterworks.

Sokolow earned a B.A.

in Economics from the University of Florida,

from the University of Florida School of Law and a Masters of Law in Taxation from the New York University School of Law.

Sokolow has served as a member of Agrify’s Board of Directors since December 2021.

Timothy Mahoney

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.

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.

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.

Mahoney holds a BA degree in Computer Science and Business from West Virginia University and an MBA from George Washington University.

Mahoney has served as a member of Agrify’s Board of Directors since December 2020.

Krishnan Varier

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.

Varier has been involved in more than $6 billion in closed capital raising and merger and acquisition transactions as an investment banking professional.

Varier earned a B.A.

in Economics with a focus in Business Administration in 2001 from the University of Texas at Austin.

Varier received an MBA degree in Finance and Investment Management from the University of North Carolina at Chapel Hill, Kenan-Flagler Business School.

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.

Chang, a director

since June 2019, is currently the chairman and chief executive officer of the Company.

Chang has a wealth of successful

experience directing, managing and/or financing early-stage agricultural- and technology-based companies.

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.

Holtzman, a director since

July 2022, is Operations Director at Ocean 14 Capital, a private equity impact fund.

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.

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.

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.

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.

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.

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.

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.

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.

Varier, a director

since June 2020, is a managing partner of Arcadian Capital Management, a leader in cannabis venture capital.

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.

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

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.

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

Mahoney not being considered independent for purposes of Audit Committee membership.

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.

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:

and Corporate

Timothy Mahoney

Krishnan Varier

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.

Wilcox served as

chair of the committee until his resignation from the Board on July 14, 2022.

The current members of the Compensation Committee are directors Mahoney, who chairs the committee, Sokolow and

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.

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.

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.

Wilcox served as a member of the

committee until his resignation from the Board on July 14, 2022.

Audit Committee.

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;

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

its management;

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

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

public accounting firm;

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

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

with the SEC;

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

and compliance with legal and regulatory requirements;

● coordinating

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

controls and procedures;

● establishing

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

internal controls or auditing matters;

and approving related-person transactions.

Audit Committee’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

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.

Wilcox served as a member of the committee

until his resignation from the Board on July 14, 2022.

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.

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.

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.

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.

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.

Stockholder Nomination

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.

Executive Compensation.

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

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

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

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

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

Certain Relationships and Related Transactions, and Director Independence.

The information required by this Item 10 will

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

incorporated herein by reference.

section describes the compensation paid, or payable, for the last two fiscal years to our named executive officers.

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.

Massie resigned as President and Chief Operating Officer on July 8, 2022.

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

Incentive Plan

Compensation (2)

Non-qualified

Compensation (3)

Raymond Chang

Chairman and Chief Executive Officer

David Kessler

Chief Science Officer

Thomas Massie (4)

Former President and Chief Operating Officer

Timothy Oakes (5)

Former Chief Financial Officer

(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

(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

Massie resigned as President and Chief Operating Officer

on July 8, 2022.

Massie’s reported salary amount for the year ended December 31, 2022 includes $500,000 in severance

Oakes resigned as Chief Financial Officer effective February

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

Unexercisable

Raymond Chang

David Kessler

Timothy Oakes

Thomas Massie

(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.

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

On January 4, 2021, the Company entered into a three-year employment agreement with

Chang as the Company’s Chief Executive Officer, effective February 1, 2021 (the “Mr.

Chang’s Employment

Chang’s Employment Agreement, at the end of the initial three-year term, if not terminated by either

Chang or the Company, automatically renews for a successive three-year period.

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,

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.

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,

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

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.

base salary (increasing it from $300,000 to $350,000) and discretionary bonus (from $300,000 to $400,000), effective as of January 1,

Employment Offer Letter

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”).

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.

is an at will employee of the Company, and there are no severance benefits.

Employment Agreement for

On November 10, 2021, the Company entered into a two-year employment agreement with

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.

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

The Board could from time to time elect to pay additional bonuses based on performance that exceeded the mutually agreed upon

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.

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

Massie resigned as President and Chief Operating Officer effective July 8, 2022.

Agreement for Mr.

On July 8, 2022, we entered into a separation agreement with Mr.

(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

On November 10, 2021, the Company entered into a two-year employment agreement with

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.

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

The Board could from time to time elect to pay additional bonuses based on performance that exceeds the mutually agreed upon

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,

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.

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.

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

Oakes resigned as Chief Financial Officer effective February 28, 2023.

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)

Acceleration (4)

Raymond Chang

Timothy Oakes

(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.

Compensation of Outside Directors

Annual Cash Compensation.

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.

retainers are paid in twelve monthly installments and are in addition to the annual cash retainer for non-employee directors described

The Compensation Committee

Chair receives an annual retainer of $5,000 per year, while Compensation Committee members are entitled to receive an annual retainer

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.

do not have a pension plan and therefore, do not offer any such pension arrangements to our directors.

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.

was appointed to the Board on July 14, 2022.

Stock Awards (2)(3)

Incentive Plan

Pension Value

Timothy Mahoney

Krishnan Varier

Stuart Wilcox (5)

(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:

Hua, 435 for Mr.

Sokolow and none for Mr.

(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.

Wilcox, Sokolow and Holtzman each served as members of the Compensation Committee.

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.

was removed as a member of the Compensation Committee.

During 2022, no member of the Compensation Committee, aside from Mr.

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.

Security Ownership of Certain Beneficial

Owners, Management and Related Stockholder Matters.

Beneficial Ownership of Certain Stockholders, Directors and Executive

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.

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

Principal Stockholders

Alyeska Investment Group, L.P.

77 West Wacker Drive, 7 th Floor Chicago, IL 60601

Directors and Executive Officers (3)(5)

Raymond Chang (4)

Stuart Wilcox

David Kessler

Timothy Mahoney

Krishnan Varier

Timothy Oakes

Thomas Massie

All Directors and Executive Officers as a Group (10 persons)

* 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:

Kessler, 770;

Mahoney, 435;

Sokolow, 160;

Includes 136 shares of Common Stock underlying a warrant

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

Shares to be Issued

upon Exercise of

Stock Options

Weighted-Average Exercise Price of Outstanding Stock Options

Shares Remaining

Available for

Issuance under Equity

Plans (Excluding Shares

2022 Omnibus Plan

2020 Omnibus Plan

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

(i) the individual;

(ii) any director or executive officer of the Company;

(iii) a nominee for director;

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.

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:

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;

on the board of directors of, or being employed in any capacity by, a vendor, competitor

or customer of the Company.

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.

should carefully evaluate their relationships as they relate to Company business to avoid conflict or the appearance of a conflict.

avoid conflicts of interest or the appearance of a conflict:

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.

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.

are prohibited from directly or indirectly competing or performing services for any person

or entity in competition with, the Company.

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.

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.

may not sell or lease equipment, materials or property to the Company without appropriate

corporate authority.

should purchase Company equipment, materials or property only on terms available to the general

employee or director who becomes aware of a conflict is required to bring it to the attention of a supervisor, management or other appropriate

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.

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.

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

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.

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

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.

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.

Principal Accountant Fees and Services.

The information required

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

Stockholders and is incorporated herein by reference.

Exhibits, Financial Statements and Schedules.

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

Audit-Related Fees

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.

Exhibits, Financial Statements and

Financial Statements:

The 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.

All supplemental schedules have been omitted since the information is either included in the financial statements or the notes thereto

or they are not required or are not applicable.

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.

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.

The Exhibit Index of this report appears below.

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

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

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

3 unchanged sentences

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

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

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)

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

to Exhibit 3.2 to the Registrant’s Amendment No.

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

and Exchange Commission on January 13, 2021)

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

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

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

2 to Registration

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

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

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

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

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)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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)

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).

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).

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.

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)

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)

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)

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)

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)

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)

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).

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).

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).

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)

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)

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)

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)

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)

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)

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)

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)

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)

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)

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)

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)

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)

1 unchanged sentence

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

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

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

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

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

3 unchanged sentences

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

Separation Agreement of Niv Krikov, dated November 3, 2021

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

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

Employment Agreement, dated as of November 10, 2021, between the Registrant and Timothy Oakes † (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 15, 2021)

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

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

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

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)

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)

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).

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).

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).

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).

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)

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)

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)

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)

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)

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)

1 unchanged sentence

Consent of Independent Registered Public Accounting Firm

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

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

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

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

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

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

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

7 unchanged sentences

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

a management contract or compensatory plan, contract or arrangement.

Form 10-K Summary.

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

on its behalf by the undersigned, thereunto duly authorized.

Indicates a management contract, compensatory plan, or

Filed herewith.

Furnished herewith.

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

March 31, 2022

Raymond Chang

November 27, 2023

/s/ Raymond Chang

Raymond Chang

Chief Executive Officer

(principal executive officer)

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.

Raymond Chang

Chief Executive Officer and

(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.

/s/ Raymond Chang

Chief Executive Officer and Director

November 27, 2023

Raymond Chang

(Principal Executive Officer)

Timothy Oakes

Chief Financial Officer

Timothy Oakes

(Principal Financial and Accounting Officer)

Thomas Massie

Chief Operating Officer and

Thomas Massie

Krishnan Varier

(Principal Executive Officer and Principal Financial and Accounting Officer)

/s/ Guichao Hua

November 27, 2023

/s/ Krishnan Varier

November 27, 2023

Krishnan Varier

Timothy Mahoney

/s/ Timothy Mahoney

November 27, 2023

Timothy Mahoney

Stuart Wilcox

March 31, 2022

/s/ Max Holtzman

November 27, 2023

/s/ Leonard Sokolow

November 27, 2023

Leonard Sokolow

AGRIFY CORPORATION AND SUBSIDIARIES

Index to Consolidated Financial Statements

4 unchanged sentences

Consolidated Statements of Operations F-4

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

Consolidated Statements of Stockholders’ Equity F-5

Consolidated Statements of Cash Flows F-7

Notes to Consolidated Financial Statements F-8 – F-61

OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

the Shareholders and Board of Directors of

Corporation and Subsidiaries

on the Financial Statements

We have audited the accompanying consolidated balance sheets of Agrify

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

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

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

In our opinion, the financial statements present fairly, in

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

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

in the United States of America.

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

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

financial statements based on our audits.

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

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

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

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

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

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

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

As part of our audits

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

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

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING

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

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.

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.

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

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

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

the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant

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

We believe that our audits

provide a reasonable basis for our opinion.

have served as the Company’s auditor since 2019.

March 31, 2022

CORPORATION AND SUBSIDIARIES

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

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

November 27, 2023

AGRIFY CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets

1 unchanged sentence

As of December 31,

Current assets:

Cash and cash equivalents

Restricted cash

Marketable securities

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

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

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

Deferred IPO costs

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

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

Prepaid expenses and other current assets

Total current assets

Loan receivable

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

Property and equipment, net

Right-of-use assets, net

Operating lease right-of-use assets

Intangible assets, net

4 unchanged sentences

Accrued expenses and other current liabilities

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

Derivative liabilities

Operating lease liabilities, current

2 unchanged sentences

Total current liabilities

Warrant liabilities

Operating lease liabilities, net of current

Long-term debt, net of current

Other non-current liabilities

Operating lease liabilities, non-current

Long-term debt

Total liabilities

Commitments and contingencies (Note 17)

Stockholders’ Equity (Deficit)

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

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

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

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

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

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

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)

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

Accumulated deficit

Total Stockholders’ Equity (Deficit)

Total stockholders’ (deficit) equity attributable to Agrify

Non-controlling interests

Total liabilities and stockholders’ equity

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

CORPORATION AND SUBSIDIARIES

(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.

AGRIFY CORPORATION AND SUBSIDIARIES

Consolidated Statements of Operations

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

(In thousands, except share and per share data)

Revenue (including $ 2,417 and $ 31,439 from related parties, respectively)

Cost of goods sold

Selling, general and administrative

Gross (loss) profit

General and administrative

Selling and marketing

Research and development

Change in contingent consideration

Impairment of property and equipment

Impairment of goodwill and intangible assets

Total operating expenses

Loss from operations

Interest income (expense), net

Other expenses

Gain (loss) on extinguishment of notes payable

Interest (expense) income, net

Other expense, net

Change in fair value of warrant liabilities

Gain on forgiveness of PPP loan

Change in fair value of derivative liabilities

Other income (expense), net

(Loss) gain on extinguishment of notes payable

Other income, net

Net loss before income taxes

Income tax provision

Income (loss) attributable to non-controlling interest

Income tax expense

(Income) loss attributable to non-controlling interests

Net loss attributable to Agrify Corporation

$ ( 188,173 )

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

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

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

(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.

CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(In thousands, except share amounts)

Consolidated Statements of Stockholders’

(Deficit) Equity

(In thousands, except share data)

Stockholders’

Equity (Deficit)

Stockholders’ Equity

January 1, 2020

based compensation

of Preferred A Stock

in Agrify Valiant

of TriGrow Systems

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

December 31, 2020

January 1, 2021

conversion feature associated with amended Convertible Promissory Notes

of Convertible Notes

of common shares in connection with acquisition

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

of common stock – Secondary public offering, net of fees

of Preferred A Stock

of Precision and Cascade

of PurePressure

December 31, 2021

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

Stockholders’

Balance at January 1, 2021

Stock-based compensation

Beneficial conversion feature associated with amended Convertible Promissory Notes

Conversion of Convertible Notes

Issuance of Common Stock – Initial Public Offering (“IPO”), net of fees

Issuance of Common Stock – Secondary public offering, net of fees

Issuance of Common Stock in connection with acquisition

Conversion of Preferred A Stock

Acquisition of Precision and Cascade

Acquisition of PurePressure

Exercise of options

Exercise of warrants

Balance at December 31, 2021

CORPORATION AND SUBSIDIARIES

Consolidated Statements of Stockholders’

(Deficit) Equity (Continued)

(In thousands, except share data)

Stockholders’

Balance at January 1, 2022

Stock-based compensation

Issuance of Common Stock, warrants, and prefunded warrants in private placement

Confidentially marketed public offering

Issuance of Common Stock through an “at the market” offering, net of fees

Common Stock issued for contingent liabilities

Acquisition of Lab Society

Exercise of options

Exercise of warrants

Vesting of restricted stock units

Balance at December 31, 2022

The accompanying notes are an integral part

of these consolidated financial statements.

AGRIFY CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows

For the Year ended

(In thousands)

Cash flows from operating activities

Net loss attributable to Agrify Corporation

$ ( 188,173 )

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

Depreciation and amortization

Amortization of premium on investment securities

Interest on investment securities

Change in fair value of contingent consideration

Impairment on goodwill and intangible assets

Loss (gain) on extinguishment of notes payable

Change in fair value of warrant liabilities

Amortization of premium on marketable securities

Interest on marketable securities

Provision for doubtful accounts

Provision for inventory obsolescence

Compensation in connection with the issuance of stock options

Amortization of debt discount

Amortization of issuance costs

Compensation in connection with the issuance of stock options and restricted stock units

Issuance of common shares in connection with acquisition

Non-cash interest (income) expense

(Gain) loss on extinguishment of notes payable, net

Loss (income) from disposal of fixed assets

Impairment of property and equipment

Gain on forgiveness of PPP Loan

Change in fair value of derivative liabilities

Deferred income taxes

(Gain) loss from disposal of fixed assets

(Gain) loss attributable to non-controlling interests

Changes in operating assets and liabilities, net of acquisition:

(Income) loss attributed to non-controlling interest

Change in fair value of contingent consideration

Changes in operating assets and liabilities, net of acquisitions:

Accounts receivable

1 unchanged sentence

Right-of-use assets, net

Other non-current assets

Accounts payable

Accrued expenses and other current liabilities

Other non-current liabilities

Deferred revenue

3 unchanged sentences

Purchases of intangibles assets

Purchase of securities

Proceeds from the sale of securities

Purchase of marketable securities

Proceeds from the sale of marketable securities

Proceeds from the sale of fixed assets

Issuance of loan receivable

Issuance of loans receivable, net

Payments on contingent liabilities

Cash received from escrow account related to Sinclair acquisition

Cash paid for business combination, net of cash acquired

1 unchanged sentence

Cash flows from financing activities

Proceeds from issuance of Preferred A Stock

Proceeds from issuance of debt and warrants in Security Purchase Agreement

Proceeds from Common Stock and warrants in private placement

Proceeds from Common Stock through an “at the market” offering, net of fees

Proceeds from IPO, net of fees

2 unchanged sentences

Proceeds from exercise of warrants

Payments of financing leases

Minority interest in Valiant

Proceeds from PPP Loans

Proceeds from confidentially marketed public offering

Repayment of debt in private placement

Repayment of notes payable, other

Payments on insurance financing loans

Payments of other financing loans

Payments of financing leases

Proceeds from notes payable

Proceeds from issuance of common stock

Net cash provided by financing activities

Net increase in cash

Cash and cash equivalents – Beginning of period

Cash and cash equivalents – End of

Supplemental disclosure of non-cash investing and financing activities:

Net (decrease) increase in cash and cash equivalents

Cash and cash equivalents at the beginning of period

Cash and cash equivalents at the end of period

Cash, cash equivalents, and restricted cash at end of period

Cash and cash equivalents

Restricted cash

Total cash, cash equivalents, and restricted cash at the end of period

Supplemental disclosures

Cash paid for interest

Cash paid for taxes

Supplemental disclosures of non-cash information

Equipment sold for loan receivable to customer

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

Bifurcated embedded conversion options recorded as derivative liabilities and debt discount

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

CORPORATION AND SUBSIDIARIES

Initial fair value of warrants

Financing of prepaid insurance

The accompanying notes are an integral part

of these consolidated financial statements.

AGRIFY CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

1 — Nature of Business and Basis of Presentation

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

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

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

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

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

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

“us,” “our,” and similar terminology.

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

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

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

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

and converted to TriGrow

Systems, LLC in May 2020);

Finance, LLC;

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

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

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

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

Extraction Solutions and Cascade);

● PurePressure,

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

Company also has ownership interests in the following companies:

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

since December 2018);

● Agrify-Valiant,

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

in December 2019);

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

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

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

Sub”), Michael S.

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

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

Concurrently with the

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

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

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

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

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.

Public Offering and Secondary Public Offering

February 1, 2021, we closed our initial public offering, or (“IPO”), of 6,210,000 shares of common stock (inclusive of 810,000

shares of common stock from the full exercise of the over-allotment option of shares granted to the underwriters).

The offer and sale

of all of the shares in the IPO were registered under the Securities Act of 1933, as amended, pursuant to a registration statement on

Form S-1 (File Nos.

333- 251616 and 333-252490), which was declared effective by the SEC on January 27, 2021.

Maxim Group LLC and Roth

Capital Partners acted as the underwriters.

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

gross proceeds from the offering were $ 62.1 million.

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

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

During the fiscal year ended December 31, 2021, we used the net proceeds

from the IPO for our current working capital needs to support accounts receivable growth, manage inventory to meet demand forecasts,

and support operational growth.

February 19, 2021, we consummated a secondary public offering (the “February Offering”) of 5,555,555 shares of common stock

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

On March 22, 2021, we closed on the sale of an

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

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

(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.

Initial Public Offering and Secondary Public

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

333-251616 and 333-252490), which was declared effective by the Securities Exchange Commission (“SEC”) on January 27,

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

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

The exercise of the over-allotment option brought the total number of shares of common stock sold by us in connection with the

February Offering to 6,388,888 shares and the total net proceeds received in connection with the February Offering to approximately $ 80

million, after deducting underwriting discounts and estimated offering expenses.

During the fiscal year ended December 31, 2021, we used

the net proceeds from the IPO for our current working capital needs to support accounts receivable growth, manage inventory to meet demand

forecasts, and support operational growth.

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

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

Pursuant to the letter agreement, the representative

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

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

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

(“COVID-19”) Pandemic

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

There is significant uncertainty

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

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

The extent of the impact of COVID-19 on

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

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

Paycheck Protection Program

May and July 2020, the Company entered into two separate PPP Loans with Bank of America pursuant to the Paycheck Protection Program

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

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

The Company received total proceeds of

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

The Company’s

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

2 — Summary of Significant Accounting Policies

of Presentation and Principles of Consolidation

Accounting for Wholly Owned Subsidiaries

The accompanying consolidated financial statements

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

(“GAAP”) and include the accounts

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

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

Accounting Standards Codification (“ASC”).

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

of acquisition.

All significant intercompany transactions and balances are eliminated.

for Less Than Wholly Owned Subsidiaries

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

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

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

A VIE is an entity that has (i) insufficient

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

the characteristics of a controlling financial interest.

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

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

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

Variable interests

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

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

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

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

a VIE and that the Company is the primary beneficiary.

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

75 % of Agrify Brands, LLC’s equity interests, the remaining equity interests in Agrify-Valiant, LLC and Agrify Brands, LLC are

owned by unrelated third parties, and the agreement with these third parties provides the Company with greater voting rights.

the Company consolidates the financial statements of Agrify-Valiant, LLC and Agrify Brands, LLC under the VIE rules and reflects the

third parties’ interests in the consolidated financial statements as a non-controlling interest.

The Company records this non-controlling

interest at its initial fair value, adjusting the basis prospectively for the third parties’ share of the respective consolidated

investments’ net income or loss or equity contributions and distributions.

These non-controlling interests are not redeemable by

the equity holders and are presented as part of permanent equity.

Income and losses are allocated to the non-controlling interest holders

based on its economic ownership percentage.

The investment in 50 % of the shares of TPI is treated as an equity investment as the Company

cannot exercise significant influence.

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 Common Stock, and accompanying warrants (the “December 2022 Warrants”) to purchase 1,338,462 shares of the Company’s

Common Stock (the “Offering”).

The shares of Common Stock (or Pre-Funded 2022 Warrants) and the accompanying December 2022

Warrants will be issued separately but can only be purchased together in this Offering.

Additional information regarding the Company’s

December 2022 Warrants may be found in Note 4 – Fair Value Measures and Note 12 – Stockholders’

Equity, included elsewhere in the notes to the consolidated financial statements.

The aggregate gross proceeds

to the Company from the Offering were 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.

The Company has used 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.

Nasdaq Deficiency Notice

October 4, 2022, the Company received a deficiency letter from the Listing Qualifications Department (the “Staff”) of The

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

the Company’s 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 Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Requirement”).

In accordance with

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

compliance with the Minimum Bid Requirement, the closing bid price of the Company’s 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 exercised 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 the Company that

the closing bid price for its Common Stock was more than $ 1.00 for 10 consecutive trading days, and that the Company therefore regained

compliance with the Minimum Bid Requirement.

On January 19, 2023,

the Company received a new deficiency letter from the Staff of Nasdaq notifying the Company that, for the previous 30 consecutive business

days, the bid price for its 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) ,

the Company 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 the Company’s 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, the Company received a notice from Nasdaq confirming its recompliance with the

minimum bid price rule.

As disclosed in the Current

Report on Form 8-K filed on April 17, 2023, the Company’s audit committee concluded that, as a result of inadvertent errors in the

accounting for warrants previously issued by the Company, it was appropriate to restate the Company’s 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

As a result of such restatements, the Company was unable to timely file the 2022 Form 10-K, the First Quarter 2023 Form 10-Q

and the Second Quarter 2023 Form 10-Q without unreasonable effort or expense.

On April 18, 2023, the Company

received a notice from Nasdaq (the “April Nasdaq Notice”) that it was noncompliant with Nasdaq Listing Rule 5250(c)(1) as

a result of its failure to file its Annual Report on Form 10-K (the “Form 10-K”) with the SEC by the required due date.

May 17, 2023, the Company received a second notice from Nasdaq (the “May Nasdaq Notice”)

that it remained noncompliant with Nasdaq Listing Rule 5250(c)(1) as a result of its failure to file its 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, the Company

received a third notice from Nasdaq that it remain noncompliant with Nasdaq Listing Rule 5250(c)(1) as a result of its failure to file

its 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”).

Nasdaq granted the Company an exception until October 16, 2023, to file its 2022 Form 10-K and First and Second Quarter 2023 Forms 10-Q.

The Nasdaq Notice had no immediate effect on the listing of the Company’s common stock on The Nasdaq Stock Market LLC.

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

Department of Nasdaq notifying the Company that it was not in compliance with Nasdaq’s continued listing requirements under the

Listing Rule as a result of its 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.

Company timely requested a hearing before the Nasdaq Hearings Panel (the “Panel”), and the Panel scheduled a hearing for January

In connection with the hearing request, the Company 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 granted the additional extension period.

However, there can be no assurance that the Company will be able to regain compliance by

the end of any additional extension period.

The Paycheck Protection Program

In May 2020, the Company

received an unsecured Paycheck Protection Program Loan (“PPP Loan”) from the Bank of America pursuant to the Paycheck Protection

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

Small Business Administration (the “SBA”).

The Company received total loan proceeds of approximately $ 779 thousand

from the PPP Loan.

On February 18, 2022, the Company applied for forgiveness of the outstanding balance of the PPP Loan and the application

was denied by the SBA on March 18,2022.

However, on June 23, 2022, the Company received a letter from Bank of America agreeing to

extend the maturity date to May 7, 2025 and the loan will bear 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.

In July 2020, the Company

received a separate PPP loan in the amount of $ 45,000 .

In September 2021, this loan was 100% forgiven by the SBA.

The forgiveness of this

loan is reflected in the 2021 Consolidated Statement of Operations as a gain on forgiveness.

Basis of Presentation and Principles of Consolidation

Accounting for Wholly-Owned

The accompanying consolidated

financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”)

and include the accounts of Agrify Corporation and its wholly-owned subsidiaries, as described above, in accordance with the provisions

required by the Consolidation Topic 810 of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification

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

All significant intercompany

transactions and balances are eliminated.

Accounting for Less

Than Wholly-Owned Subsidiaries

For the Company’s less

than wholly-owned subsidiaries, which include Teejan Podponics International LLC (“TPI”), Agrify-Valiant LLC (“Agrify-Valiant”),

and Agrify Brands, LLC (“Agrify Brands”), the Company first analyzes whether these entities are a variable interest entity

(a “VIE”) in accordance with ASC Topic 810, Consolidation (“ASC 810”), and if so, whether the Company is

the primary beneficiary requiring consolidation.

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

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

financial interest.

The financial results of a VIE are consolidated by the primary beneficiary, which is the entity that has both the

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

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

Variable interests in a VIE are

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

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

If it is determined that the joint-venture qualifies as a VIE and the Company is the primary beneficiary, the Company’s financial

interest in the VIE is consolidated.

Based on the Company’s

analysis of these entities, the Company has determined that Agrify-Valiant and Agrify Brands are each a VIE, and that the Company is the

primary beneficiary.

While the Company owns 60 % of Agrify-Valiant’s equity interests and 75 % of Agrify Brand’s equity interests,

the remaining equity interests in Agrify-Valiant and Agrify Brands are owned by unrelated third parties, and the agreement with these

third parties provides the Company with greater voting rights.

Accordingly, the Company consolidates its interest in the financial statements

of Agrify-Valiant and Agrify Brands under the VIE rules and reflects the third parties’ interests in the consolidated financial

statements as a non-controlling interest.

The Company records this non-controlling interest at its initial fair value, adjusting the basis

prospectively for the third parties’ share of the respective consolidated investments’ net income or loss or equity contributions

and distributions.

These non-controlling interests are not redeemable by the equity holders and are presented as part of permanent equity.

Income and losses are allocated to the non-controlling interest holders based on its economic ownership percentage.

The investment in

50 % of the shares of TPI is treated as an equity investment as the Company cannot exercise significant influence.

Going Concern

In accordance with the FASB

Accounting Standards Update (“ASU”) 2014-15, “Presentation of Financial Statements - Going Concern,” the Company’s

management evaluated whether there are conditions or events that raise substantial doubt about its ability to continue as a going concern

within one year after the consolidated financial statements’ issuance date.

The following matters raise substantial doubt about

the Company’s ability to continue as a going concern within one year after the date the consolidated financial statements are issued.

The Company has incurred

operating losses since its inception, has negative cash flows from operations and a working capital deficiency.

The Company also has an

accumulated deficit of approximately $ 247.1 million as of December 31, 2022.

The Company’s primary sources of liquidity are its

cash and cash equivalents and marketable securities, with additional liquidity accessible, subject to market conditions and other factors,

including limitations that may apply to the Company under applicable SEC regulations, from the capital markets, including under its at-the-market

continuous equity offering (“ATM” or “ATM Program”).

As of December 31, 2022,

the Company had $ 20.5 million of cash, cash equivalents, and restricted cash.

The Company’s restricted cash is associated with its

senior secured note (the “Exchange Note”) and was $ 10.0 million as of December 31, 2022.

Additional information regarding

the Company’s Exchange Note may be found in Note 9 – Debt, included elsewhere in the notes to the consolidated financial statements.

On October 18, 2022, the

Company entered into the ATM Program with Canaccord Genuity LLC (the “Agent”) pursuant to which it may issue and sell,

from time to time, shares of its 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 the Company to sell shares of Common Stock pursuant to specific parameters

defined by the Company as well as those defined by the SEC and the ATM Program agreement.

As of December 31, 2022, the Company sold 306,628

shares of Common Stock under the ATM Program at an average price of $50.85 per share, resulting in gross proceeds of $15.6 million, and

net proceeds of $15.0 million after commissions and fees to the Agent totaling $468 thousand and legal fees totaling $75 thousand.

to December 31, 2022 through April 1, 2023, after which time the ATM program was discontinued, the Company 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.

$ 3.0 million of the proceeds under the ATM Program were used to

repay amounts due to the Investor under the Exchange Note.

The Company 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, the Company is no longer

eligible to utilize the registration statement on Form S-3 relating to the ATM Program.

These consolidated

financial statements have been prepared on a going concern basis, which implies the Company believes these conditions

raise substantial doubt about its ability to continue as a going concern within the next twelve-months from the date these

consolidated financial statements are available to be issued.

The Company’s continuation as a going concern is dependent upon

its ability to obtain the necessary debt or equity financing to continue operations until the Company begins generating sufficient

cash flows from operations to meet its obligations.

If the Company is unable raise additional funds, it may be forced to cease operations.

There is no assurance that

the Company 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 the

Company be unable to continue as a going concern.

Use of Estimates

preparation of the Company’s consolidated financial statements in conformity with GAAP requires management to make estimates and

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

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

Significant estimates and

assumptions reflected in these consolidated financial statements include, but are not limited to, the accrual of expenses.

bases its estimates on historical experience, known trends and other market-specific or other relevant factors that it believes to be

reasonable under the circumstances.

On an ongoing basis, management evaluates its estimates when there are changes in circumstances,

facts and experience.

The preparation of the Company’s

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

amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements,

and the reported amounts of expenses during the reporting period.

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.

The Company bases its estimates on historical experience,

known trends and other market-specific information, other relevant factors that it believes to be reasonable under the circumstances,

and management’s judgement.

On an ongoing basis, management evaluates its estimates when there are changes in circumstances, facts,

and experience.

Changes in estimates are recorded in the period in which they become known.

Actual results could differ from those

Company, and its Subsidiaries, Fiscal Year ends on December 31, each year.

Growth Company

qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, which we refer to

as the JOBS Act.

As a result, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements that are applicable

to other companies that are not emerging growth companies.

addition, the JOBS Act provides that an “emerging growth company” can use the extended transition period for complying

with new or revised accounting standards.

will remain an “emerging growth company” until the earliest to occur of:

our reporting $1.0 billion or more in annual gross

our issuance, in a three-year period, of more than

$1.0 billion in non-convertible debt;

the end of the fiscal year in which the market value

of our common stock held by non-affiliates exceeds $700 million on the last business day of our second fiscal quarter;

December 31, 2026.

Actual financial results could differ from

those estimates.

Reclassifications

Certain amounts in the prior period financial

statements have been reclassified to conform to the presentation of the current period financial statements.

In this Annual Report on

Form 10-K, we have reclassified our capitalized website costs so that they are included as part of our aggregate intangible assets, net

in our consolidated balance sheets as of December 31, 2021 and 2020.

and Cash Equivalents

and cash equivalents consist principally of cash and deposits with maturities of three months or less as of December 31, 2021 and December

Certain amounts in the Company’s

prior period consolidated financial statements have been reclassified to conform to the presentation of the current period consolidated

financial statements.

In this Form 10-K, the Company has reclassified selling, general and administrative expenses to two separate line

items in the accompanying consolidated statements of operations as general and administrative expenses and selling and marketing expenses

for the years ended December 31, 2022 and 2021.

In addition, the Company

effected a 1-for-10 reverse stock split of its Common Stock on October 18, 2022 and a 1-for-20 reverse stock split of its Common Stock

on July 5, 2023.

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.

The shares of Common Stock retained a par value of $ 0.001 per share.

Accordingly, the Stockholders’

equity section of the Consolidated Balance Sheet reflects the reverse stock split by reclassifying from “Common Stock” to

“Additional paid-in capital” an amount equal to the par value of the decreased shares resulting from the reverse stock split.

Cash, Cash Equivalents, and Restricted Cash

and cash equivalents consists principally of cash and deposits with maturities of three months or less as of December 31, 2022 and 2021.

All cash equivalents are carried at cost, which approximates fair value.

The Company’s marketable security investments

primarily include investments held in mutual funds, municipal bonds, and corporate bonds.

The mutual funds are recorded at fair value

in the accompanying consolidated balance sheets as part of cash and cash equivalents.

The municipal and corporate bonds are considered

held to maturity and are recorded at amortized cost in the accompanying consolidated balance sheet.

The fair values of these investments

were estimated using recently executed transactions and market price quotations.

The Company considers current assets those investments

which will mature within the next 12 months including interest receivable on the long-term bonds.

Receivable, Net

Accounts receivable, net primarily consists of

amounts billed and currently due from customers.

Accounts receivable balances are presented net of an allowance for credit losses, which

is an estimate of amounts that may not be collectible.

In determining the amount of the allowance at each reporting date, the Company

makes judgments about general economic conditions, historical write-off experience and any specific risks identified in customer collection

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

Account balances are written

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

Adjustments to the allowance

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

Concentration

of Credit Risk and Significant Customer

instruments that potentially subject the Company to concentration of credit risk primarily consist of cash and accounts receivable.

Company places its cash with financial institutions in the United States.

The cash balances are insured by the FDIC up to $ 250 thousand

per depositor with unlimited insurance for funds in noninterest-bearing transaction accounts through December 31, 2021.

At times, the

amounts in these accounts may exceed the federally insured limits.

The Company has certain customers whose revenue

individually represented 10 % or more of the Company’s total revenue, or whose accounts receivable balances individually represent

10 % or more of the Company’s total accounts receivable.

Refer to the following table.

The Company has certain customers whose revenue

individually represented 10 % or more of the Company’s total revenue, or whose accounts receivable balances individually represent

10 % or more of the Company’s total accounts receivable.

Refer to the following table.

the years ended December 31, 2021 and 2020, the Company’s customers that accounted for 10 % or more of the total revenue were as

(Dollar Amounts in Thousands)

Restricted cash represents cash required to be held as collateral

for the Company’s Notes.

Accordingly, these balances contain restrictions as to their availability and usage and are classified

as restricted cash in the consolidated balance sheets.

Additional information relating to the Company’s Notes may be found in Note

9 – Debt, included elsewhere in the notes to the consolidated financial statements.

Marketable Securities

The Company’s marketable

security investments primarily include investments held in mutual funds, municipal bonds, and corporate bonds.

The mutual funds are recorded

at fair value in the accompanying consolidated balance sheets as part of cash and cash equivalents.

The municipal and corporate bonds

are considered to be held-to-maturity securities and are recorded at amortized cost in the accompanying consolidated balance sheets.

fair value of these investments was estimated using recently executed transactions and market price quotations.

The Company considers

current assets to be those investments that will mature within the next 12 months, including interest receivable on long-term bonds.

Accounts Receivable, Net

Accounts receivable, net,

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

Accounts receivable balances are

presented net of an allowance for credit losses, which is an estimate of billed amounts that may not be collectible.

In determining the

amount of the allowance at each reporting date, management makes judgments about general economic conditions, historical write-off experience,

and any specific risks identified in customer collection matters, including the aging of unpaid accounts receivable and changes in customer

financial conditions.

Accounts receivable balances are written off after all means of collection are exhausted and the potential for non-recovery

is determined to be probable.

Adjustments to the allowance for credit losses are recorded as general and administrative expenses in the

consolidated statements of operations.

Concentration of Credit Risk and Significant

Financial instruments that

potentially subject the Company to a concentration of credit risk primarily consist of cash, cash equivalents, restricted cash, marketable

securities, and accounts receivable.

Cash equivalents primarily consist of money market funds with

original maturities of three months or less, which are invested primarily with U.S.

financial institutions.

Cash deposits with financial

institutions, including restricted cash, generally exceed federally insured limits.

Management believes minimal credit risk exists with

respect to these financial institutions and the Company has not experienced any losses on such amounts.

tables below show customers who account for 10 % or more of the Company’s total revenues and 10 % or more of the Company’s accounts

receivable for the periods presented.

For the years ended December

31, 2022 and 2021, the Company’s customers that accounted for 10 % or more of the total revenue were as follows:

December 31, 2022

December 31, 2021

(In thousands)

New England Innovation Academy (“NEIA”) – Related Party

Greenstone Holdings - Related Party

* Customer revenue, as a percentage of total revenue was less

Greenstone Holdings (“Greenstone”) – Greenstone is a related party because one of the Company’s former Agrify Brands employees and its VP of Engineering had a minority ownership

Company Customer Number – 136

Company Customer Number – 139

* Customer revenue, as a percentage of total revenue, was less than 10 %

Accounts Receivable, Net

of December 31, 2021 and 2020, the Company’s customers that accounted for 10 % or more of the total accounts receivable, net, were

(Dollar Amounts in Thousands)

% of Total Accounts Receivable

As of December 31, 2022 and

2021, the Company’s customers that accounted for 10 % or more of the total accounts receivable, net, were as follows:

December 31, 2022

December 31, 2021

(In thousands)

NEIA – Related Party

* Customer accounts receivable balance, as a percentage of total

accounts receivable balance, was less than 10%

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

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

Write-offs of potentially slow

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

Physical inventories are taken

at least once annually for all inventory locations.

and Equipment

and equipment are stated at cost less accumulated depreciation and amortization.

Depreciation and amortization expenses are recognized

using the straight-line method over the estimated useful life of each asset, as follows:

Estimated Useful Life (Years)

Company Customer Number – 126 (1)

Company Customer Number – 15095

Company Customer Number – 10888

Company Customer Number – 16491

* Customer accounts receivable balance, as a percentage of total accounts receivable balance, was less than 10 %

(1) The accounts receivable balance was fully reserved at December 31, 2022 due to an ongoing dispute with the customer.

The Company values all its

inventories, which consist primarily of significant raw material hardware components, at the lower of cost or net realizable value, with

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

Write-offs of potentially slow-moving

or damaged inventory are recorded through specific identification of obsolete or damaged material.

The Company takes physical inventory

at least once annually at all inventory locations.

Property and Equipment

Property and equipment are

stated at cost less accumulated depreciation and amortization.

Depreciation and amortization expenses are recognized using the straight-line

method over the estimated useful life of each asset, as follows:

Estimated Useful

Computer and office equipment

2 unchanged sentences

Machinery and equipment

Leased equipment at customer

Leased equipment

Trade show assets

Leasehold improvements

Lower of estimated useful life

or remaining lease term

useful lives are periodically assessed to determine if changes are appropriate.

Maintenance and repairs are charged to expense as incurred.

When assets are retired or otherwise disposed of, the cost of these assets and related accumulated depreciation or amortization are eliminated

from the consolidated balance sheet and any resulting gains or losses are included in the consolidated statement of operations in the

period of disposal.

Costs for capital assets not yet placed into service are capitalized as construction-in-progress and depreciated

once placed into service.

is defined as the excess of cost over the fair value of assets acquired and liabilities assumed in a business combination.

tested for impairment annually and more frequently if events and circumstances indicate that the asset might be impaired.

has determined it is a single reporting unit for the purpose of conducting the goodwill impairment assessment.

A goodwill impairment

charge is recorded if the amount by which the Company’s carrying value exceeds its fair value, not to exceed the carrying amount

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

revenues, a deterioration of projected financial performance, future acquisitions and/or mergers, and a decline in the Company’s

market value as a result of a significant decline in the Company’s stock price.

There have been no impairment charges recorded

for fiscal 2021 and fiscal 2020.

The Company initially records intangible assets

at their estimated fair values and reviews these assets periodically for impairment.

Identifiable intangible assets, which consist principally

of customer-related assets, acquired and/or developed technology, non-compete agreements, and trade names, are reported net of accumulated

amortization and are being amortized over their estimated useful lives at amortization rates that are proportional to each asset’s

estimated economic benefit.

The Company’s intangible assets are amortized on a straight-line basis over the estimated useful lives

of the assets.

The Company reviews the carrying value of these intangible assets annually, or more frequently if indicators of impairment

finite-lived useful lives are as follows:

Lower of estimated useful

life or remaining

The estimated useful lives

of the Company’s property and equipment are periodically assessed to determine if changes are appropriate.

The Company charges maintenance

and repairs to expense as incurred.

When the Company retires or disposes of assets, the carrying cost of these assets and related accumulated

depreciation or amortization are eliminated from the consolidated balance sheet and any resulting gain or loss are included in the consolidated

statements of operations in the period of retirement or disposal.

Costs for capital assets

not yet placed into service are capitalized as construction-in-progress and depreciated once placed into service.

construction, costs are accumulated in a construction-in-progress account, with no depreciation.

Upon completion, costs are transferred

to the appropriate asset account, and depreciation begins when the asset is placed into service.

Goodwill is defined as the

excess of cost over the fair value of assets acquired and liabilities assumed in a business combination.

Goodwill is tested for impairment

annually, and more frequently if events and circumstances indicate that the asset might be impaired.

The Company has determined that it

is a single reporting unit for the purpose of conducting the goodwill impairment assessment.

A goodwill impairment charge is recorded

if the amount by which the Company’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill.

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

of projected financial performance, future acquisitions and/or mergers, and/or a decline in the Company’s market value as a result

of a significant decline in the Company’s stock price.

During the quarter ended

June 30, 2022, the Company identified an impairment-triggering event associated with both a sustained decline in the Company’s stock

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

Due to these factors,

the Company deemed that there was an impairment to the carrying value of its property and equipment and accordingly performed interim

testing as of June 30, 2022.

Based on its interim testing,

the Company noted that the carrying value of equity exceeded the calculated fair value by an amount greater than the aggregate value of

our goodwill.

Accordingly, the Company concluded that the entire carrying value of its goodwill was impaired, resulting in a second-quarter

impairment charge of $ 54.7 million.

Additional information regarding the Company’s interim testing on goodwill may be found in Note

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

Intangible Assets

The Company initially records

intangible assets at their estimated fair values and reviews these assets periodically for impairment.

Identifiable intangible assets,

which consist principally of customer-related acquired assets, acquired and/or developed technology, non-compete agreements, and trade

names, are reported net of accumulated amortization, and are being amortized over their estimated useful lives at amortization rates that

are proportional to each asset’s estimated economic benefit.

The Company’s intangible assets are amortized on a straight-line

basis over the estimated useful lives of the assets.

The Company reviews the carrying value of these intangible assets annually, or more

frequently if indicators of impairment are present.

The useful lives are as follows:

Acquired developed technology

2 unchanged sentences

Capitalized website costs

performing the review of the recoverability intangible assets, the Company considers several factors, including whether there have been

significant changes in legal factors or the overall business climate that could affect the underlying value of an asset.

also considers whether there is an expectation that the asset will be sold or disposed of before the end of its originally estimated

If, as a result of examining any of these factors, the Company concludes that the carrying value of intangible asset exceeds

its estimated fair value, an impairment charge will be recognized and reduce the carrying value of the asset to its estimated fair value.

Notes Payable

Company evaluates its convertible instruments to determine if those contracts or embedded components of those contracts qualify as derivative

financial instruments to be separately accounted for in accordance with Accounting Standards Codification Topic 815 of the FASB.

accounting treatment of derivative financial instruments requires that the Company record certain embedded conversion options (“ECOs”),

certain variable-share settlement features and any related freestanding instruments at their fair values as of the inception date of

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.

The Company reassesses the classification of its 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.

the instrument is determined to not be a derivative liability, the Company then evaluates for the existence of a beneficial conversion

feature (“BCF”) by comparing the commitment date fair value to the effective conversion price of the instrument.

records a BCF as debt discount which is amortized to interest expense over the life of the respective note using the effective interest

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

Company determines at the inception of a contract if such arrangement is or contains a lease.

A contract is or contains a lease if the

contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

classifies leases at the lease commencement date as operating or finance leases and records a right-of-use asset and a lease liability

on the consolidated balance sheet for all leases with an initial lease term of greater than 12 months.

Leases with an initial term of

12 months or less are not recorded on the balance sheet, but payments are recognized as expense on a straight-line basis over the lease

Company’s contracts may contain both lease and non-lease components.

Non-lease components may include maintenance, utilities, and

other operating costs.

The Company combines the lease and non-lease components of fixed costs in its lease arrangements as a single lease

Variable costs, such as utilities or maintenance costs, are not included in the measurement of right-of-use assets and lease

liabilities, but rather are expensed when the event determining the amount of variable consideration to be paid occurs.

liabilities and their corresponding right-of-use assets are recorded based on the present value of future lease payments over the expected

The Company determines the present value of future lease payments by using its estimated secured incremental borrowing rate

for that lease term as the interest rate implicit in the lease is not readily determinable.

The Company estimates its secured incremental

borrowing rate for each lease based on the rate of interest that the Company would have to pay to borrow an amount equal to the lease

payments on a collateralized basis over a similar term.

of the Company’s leases include options to extend or terminate the lease.

The amounts determined for the Company’s right-of-use

assets and lease liabilities generally do not assume that renewal options or early-termination provisions, if any, are exercised, unless

it is reasonably certain that the Company will exercise such options.

revenue includes amounts collected or billed in excess of revenue recognized.

Deferred revenue is recognized as revenue

as the related performance obligations are satisfied.

Deferred revenue that will be recognized during the succeeding twelve-month

period is recorded as a current liability and the remaining portion is recorded as a noncurrent liability on the consolidated balance

Value of Financial Instruments

Company’s financial instruments consist of cash, accounts receivable, accounts payable and accrued expenses.

The estimated fair

value of the accounts receivable and accounts payable approximates their carrying value due to the short-term nature of these instruments.

In performing the review

of the recoverability of intangible assets, the Company considers several factors, including whether there have been significant changes

in legal factors or the overall business climate that could affect the underlying value of an asset.

The Company also considers whether

there is an expectation that the asset will be sold or disposed of before the end of its remaining estimated useful life.

If, as the result

of examining any of these factors, the Company concludes that the carrying value of the intangible asset exceeds its estimated fair value,

the Company recognizes an impairment charge and reduces the carrying value of the asset to its estimated fair value.

During the quarter ended

June 30, 2022, the Company identified an impairment-triggering event associated with both a sustained decline in the Company’s stock

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

Due to these factors,

the Company deemed that there was an impairment to the carrying value of its property and equipment and accordingly performed interim

testing as of June 30, 2022.

Based on its interim testing,

the Company noted that the carrying value of equity exceeded the calculated fair value by an amount greater than the aggregate value of

our intangible assets.

Accordingly, the Company concluded that the entire carrying value of its intangible assets should be impaired,

resulting in a second-quarter impairment charge of $ 15.2 million.

Additional information regarding the Company’s interim testing

on 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

The Company evaluates its

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

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

The accounting treatment

of derivative financial instruments requires that the Company identify and record certain 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.

The Company reassesses the classification of its 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

If the Company determines

that an instrument is not a derivative liability, it then evaluates whether there is a BCF, by comparing the commitment date fair value

to the effective current conversion price of the instrument.

The Company records 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.

Additionally, adoption of ASU 2020-06 simplifies

the accounting for convertible instruments by eliminating the cash conversion and the BCF accounting models for convertible debt and convertible

preferred stock.

Warrant Liabilities

The Company does not use

derivative instruments to hedge exposures to cash flow, market, or foreign currency risks.

The Company evaluates all its 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.

The Company accounts 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.

Management’s assessment considers whether the warrants

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

the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s

own Common Stock among other conditions for equity classification.

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

capital at the time of issuance.

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

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

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

August 18, 2022, the Company reached an agreement with its institutional lender to amend its existing Securities Purchase Agreement and

entered into a Securities Exchange Agreement (the “August 2022 Exchange Agreement”).

Pursuant to the August 2022 Exchange

Agreement, the Company issued a new warrant to purchase 71,139 shares of Common Stock (the “Note Exchange Warrant”) and modified

an existing warrant (the “SPA Warrant”) to purchase up to an aggregate of 34,406 shares of Common Stock.

The Company exchanged

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

and, collectively with the Note Exchange Warrant, the “August 2022 Warrants”).

Additional information regarding the August

2022 Exchange Agreement and August 2022 Warrants may be found in Note 4 – Fair Value Measures and Note 9 – Debt, included

elsewhere in the notes to the consolidated financial statements.

Debt Issuance Costs and Debt Discount

The Company may record debt

issuance costs and/or debt discounts in connection with the issuance of debt.

The Company may cover these costs by paying cash or issuing

These costs are amortized to interest expense over the expected life of the debt.

If a conversion of the underlying debt occurs,

a proportionate share of the unamortized amounts is immediately expensed.

Issue Discount

Certain convertible debt

issued by the Company may provide the debt holder with an original issue discount.

The Company would record the original issue discount

to debt discount, reducing the face amount of the note, and is then amortized to interest expense over the life of the debt.

The Company determines at

the inception of an asset contract if such arrangement is or contains a lease.

A contract is or contains a lease if the contract conveys

the right to control the use of an identified asset for a period of time in exchange for consideration.

The Company classifies leases

at the lease commencement date as operating or finance leases and records a right-of-use asset and a lease liability on its consolidated

balance sheet for all leases with an initial lease term of greater than 12 months.

A lease with an initial term of 12 months or less is

not recorded on the balance sheet, but related payments are recognized as an expense on a straight-line basis over the lease term.

The Company’s asset

contracts may contain both lease and non-lease components.

Non-lease components may include maintenance, utilities, and other operating

The Company combines the lease and non-lease components of fixed costs in its lease arrangements as a single lease component.

costs, such as utilities or maintenance costs, are not included in the measurement of right-of-use assets and lease liabilities, but rather

are expensed when the event determining the amount of variable consideration to be paid occurs.

Lease liabilities and their

corresponding right-of-use assets are recorded based on the present value of future lease payments over the expected lease term.

determines the present value of future lease payments by using its estimated secured incremental borrowing rate for that lease term as

the interest rate implicit in the lease is not readily determinable.

The Company estimates its secured incremental borrowing rate for

each lease based on the rate of interest that the Company would have to pay to borrow an amount equal to the lease payments on a collateralized

basis over a similar term.

Certain of the Company’s

leases include options to extend or terminate the lease.

The amounts determined for the Company’s right-of-use assets and lease

liabilities generally do not assume that renewal options or early-termination provisions, if any, are exercised unless it is reasonably

certain that the Company will exercise such options.

Deferred Revenue

Deferred revenue includes

amounts collected or billed in excess of revenue that the Company can recognize.

The Company recognizes deferred revenue and non-current

deferred revenue as revenue as the related performance obligation is satisfied.

The Company records deferred revenue that will

be recognized during the succeeding twelve-month period as a current liability on the consolidated balance sheet.

Fair Value of Financial Instruments

The Company’s financial

instruments consist of cash, accounts receivable, accounts payable and accrued expenses.

The estimated fair values of accounts receivable

and accounts payable approximate their carrying values due to the short-term nature of these instruments.

Stock-Based Compensation

The Company measures all stock options and other

stock-based awards granted to employees and directors based on the fair value on the date of the grant and recognizes compensation expense

of those awards, net of estimated forfeitures, over the requisite service period, which is generally the vesting period of the respective

Historically, the Company has issued stock options to employees, directors and consultants with only service-based vesting conditions

and records the expense for these awards using the straight-line method.

The Company classifies stock-based compensation

expense in its consolidated statements of operations and comprehensive loss in the same manner in which the award’s recipient’s

payroll costs are classified.

The fair value of each stock option grant is

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

The Company historically had been a private company and

lacks company-specific historical and implied volatility information.

Therefore, it estimates its expected stock volatility based on

the historical volatility of similar publicly traded companies and expects to continue to do so until such time as it has adequate historical

data regarding the volatility of its own traded stock price.

The expected term of the Company’s stock options has been determined

utilizing the “simplified” method for awards that qualify as “plain-vanilla” options.

The risk-free interest

rate is determined by reference to the U.S.

Treasury yield curve in effect at the time of grant of the award for time periods approximately

equal to the expected term of the award.

The expected dividend yield is based on the fact that the Company has never paid cash dividends

and does not expect to pay any cash dividends in the foreseeable future.

Company accounts for business acquisitions using the purchase method of accounting, in accordance with which assets acquired and liabilities

assumed are recorded at their respective fair values at the acquisition date.

The fair value of the consideration paid, including contingent

consideration, is assigned to the assets acquired and liabilities assumed based on their respective fair values.

Goodwill represents

excess of the purchase price over the estimated fair values of the assets acquired and liabilities assumed.

judgments are used in determining fair values of assets acquired and liabilities assumed, as well as intangibles and their estimated

useful lives.

Fair value and useful life determinations are based on, among other factors, estimates of future expected cash flows, royalty

cost savings and appropriate discount rates used in computing present values.

These judgments may materially impact the estimates used

in allocating acquisition date fair values to assets acquired and liabilities assumed, as well as the Company's current and future operating

Actual results may vary from these estimates which may result in adjustments to goodwill and acquisition date fair values of

assets and liabilities during a measurement period or upon a final determination of asset and liability fair values, whichever occurs

Adjustments to fair values of assets and liabilities made after the end of the measurement period are recorded within the

Company's operating results.

For contingent consideration arrangements, a liability

is recognized at fair value as of the acquisition date with subsequent fair value adjustments recorded in operations.

Additional information

regarding the Company’s contingent consideration arrangements may be found in Note 5 – Fair Value Measures included elsewhere

in the notes to the consolidated financial statements.

Company generates revenue from the following sources:

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

Company recognizes revenue from contracts with customers using a five-step model, which is described below:

the customer contract;

performance obligations that are distinct;

the transaction price;

the transaction price to the distinct performance obligations;

revenue as the performance obligations are satisfied.

the customer contract

customer contract is generally identified when there is approval and commitment from both the Company and its customer, the rights have

been identified, payment terms are identified, the contract has commercial substance and collectability, and consideration is probable.

Specifically, the Company obtains written/electronic signatures on contracts and a purchase order, if said purchase orders are issued

in the normal course of business by the customer.

performance obligations that are distinct

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

A good or service

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

resources that are readily available to the customer, and a company’s promise to transfer the good or service to the customer is

separately identifiable from other promises in the contract.

the transaction price

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

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

the transaction price to distinct performance obligations

The transaction price is allocated to each performance

obligation based on the relative standalone selling prices (“SSP”) of the goods or services being provided to the customer.

The Company’s contracts typically contain multiple performance obligations, for which the Company accounts for individual performance

obligations separately, if they are distinct.

The standalone selling price reflects the price the Company would charge for a specific

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

revenue as the performance obligations are satisfied

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

Company into enters contracts that can include various combinations of equipment, services and construction, which are generally capable

of being distinct and accounted for as separate performance obligations.

Contracts with customers often include promises to transfer

multiple products and services to a customer.

Determining whether products and services are considered distinct performance obligations

that should be accounted for separately versus together may require significant judgment.

Once the Company determines the performance

obligations, it determines the transaction price, which includes estimating the amount of variable consideration to be included in the

transaction price, if any.

The Company then allocates the transaction price to each performance obligation in the contract based on the

The corresponding revenue is recognized as the related performance obligations are satisfied.

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

The Company determines SSP based on the price at which the

performance obligation is sold separately and the methods of estimating SSP under the guidance of Accounting Standards Codification (“ASC”)

606-10-32-33.

If the SSP is not observable through past transactions, the Company estimates the SSP, taking into account available information

such as market conditions, expected margins, and internally approved pricing guidelines related to the performance obligations.

licenses its software as a SaaS type subscription license, whereby the customer only has a right to access the software over a specified

The full value of the contract is recognized ratably over the contractual term of the SaaS subscription, adjusted monthly

if tiered pricing is relevant.

The Company typically satisfies its performance obligations for equipment sales when equipment is made

available for shipment to the customer;

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

as services are rendered and when contract is completed.

Company utilizes the cost-plus margin method to determine the SSP for equipment and buildout services.

It is based on the cost of the

services from third parties, plus a reasonable markup that the Company believes is reflective of a market-based reseller margin.

SSP for services in time and materials contracts is determined by observable prices in standalone services arrangements.

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

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

The Company measures all

stock options and other stock-based awards granted to employees, directors, and consultants, based on the fair value on the date of the

grant and recognizes compensation expense of those awards, net of estimated forfeitures, over the requisite service period, which is generally

the vesting period of the respective award.

Historically, the Company has issued stock options to employees, directors, and consultants

with only service-based vesting conditions and records the expense for these awards using the straight-line method.

The Company classifies stock-based

compensation expense in its consolidated statements of operations in the same manner in which the award recipient’s payroll costs

are classified.

The Company estimates the

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

Before the IPO, the Company

was a private company and therefore lacks company-specific historical and implied volatility information.

Therefore, it estimates its

expected stock volatility based on the historical volatility of similar publicly-traded companies and expects to continue to do so until

such time as it has adequate historical data regarding the volatility of its own traded stock price.

The expected term of the Company’s

stock options has been determined utilizing the “simplified” method for awards that qualify as “plain-vanilla”

The risk-free interest rate is determined by reference to the U.S.

Treasury yield curve in effect at the time of grant of the

award for time periods approximately equal to the expected term of the award.

The expected dividend yield is based on the fact that the

Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future.

Business Combinations

The Company accounts for

business acquisitions using the purchase method of accounting, in accordance with which assets acquired and liabilities assumed are recorded

at their respective fair values at the acquisition date.

The fair value of the consideration paid, including contingent consideration,

is assigned to the assets acquired and liabilities assumed based on their respective fair values.

Goodwill represents the excess of the

purchase price over the estimated fair values of the assets acquired and liabilities assumed.

The Company’s management

exercises significant judgments in determining the fair value of assets acquired and liabilities assumed, as well as intangibles and their

estimated useful lives.

Fair value and useful life determinations are based on, among other factors, estimates of future expected cash

flows, royalty cost savings, and appropriate discount rates used in computing present values.

These judgments may materially impact the

estimates used in allocating acquisition date fair values to assets acquired and liabilities assumed, as well as the Company’s current

and future operating results.

Actual results may vary from these estimates, which may result in adjustments to goodwill and acquisition

date fair values of assets and liabilities during a measurement period or upon a final determination of asset and liability fair

values, whichever occurs first.

Adjustments to the fair value of assets and liabilities made after the end of the measurement period

are recorded within the Company’s operating results.

For contingent consideration

arrangements, the Company recognizes a liability at fair value as of the acquisition date with subsequent fair value adjustments recorded

in the consolidated statements of operations.

Additional information regarding the Company’s contingent consideration arrangements

may be found in Note 4 – Fair Value Measures, included elsewhere in the notes to the consolidated financial statements.

Revenue Recognition

The Company generates revenue

from the following sources:

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

In accordance with ASC 606

“Revenue Recognition”, the Company recognizes revenue from contracts with customers using a five-step model, which is described

identify the customer contract;

identify performance obligations that are distinct;

determine the transaction price;

allocate the transaction price to the distinct performance obligations;

recognize revenue as the performance obligations are satisfied.

Identify the customer

A customer contract is generally

identified when there is approval and commitment from both the Company and its customer, the rights have been identified, payment terms

are identified, the contract has commercial substance, and collectability is probable.

Specifically, the Company obtains written/electronic

signatures on contracts and purchase orders, 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 the Company to provide a distinct good or service or a series of distinct goods or services.

A good or service that is

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

that are readily available to the customer, and a company’s promise to transfer the good or service to the customer is separately

identifiable from other promises in the contract.

Determine the transaction price

The transaction price is

the amount of consideration to which the Company expects to be entitled in exchange for transferring goods or services to a customer,

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

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.

The Company’s contracts typically contain multiple performance obligations, for which the Company

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

The standalone selling price reflects the price the

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

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

The Company enters 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

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

versus together may require significant judgment.

Once the Company determines the performance obligations, it determines the transaction

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

The Company then

allocates the transaction price to each performance obligation in the contract based on the SSP.

The corresponding revenue is recognized

as the related performance obligations are satisfied.

Judgment is required to determine

the SSP for each distinct performance obligation.

The Company determines SSP based on the price at which the performance obligation is

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

If the SSP is not observable through past transactions,

the Company estimates the SSP, taking into account available information such as market conditions, expected margins, and internally approved

pricing guidelines related to the performance obligations.

The Company licenses its 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.

The Company typically satisfies its performance obligations

for equipment sales when equipment is made available for shipment to the customer;

for services sales as services are rendered to the

customer and for construction contracts both as services are rendered and when the contract is completed.

The Company utilizes 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 the Company believes is reflective of a market-based reseller margin.

The Company determines the

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

The Company estimates variable

consideration in the form of royalties, revenue share, monthly fees, and service credits at contract inception and it is 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 contracts have payment terms that differ from

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

The Company has elected the practical expedient that permits an entity to not adjust for the effects of a significant financing

component if the Company expects that at the contract inception, the period between when the entity transfers a promised good or service

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

For those contracts in which the period exceeds

the one-year threshold, this assessment, as well as the quantitative estimate of the financing component and its relative significance,

requires judgment.

Accordingly, the Company imputes interest on such contracts at an agreed upon interest rate and will present the financing

components separately as financial income.

For the years ended December 31, 2021 and 2020, the Company did not have any such financial

Payment terms with customers typically require

payment 30 days from invoice date.

The Company’s agreements with its customers do not provide for any refunds for services or products

and therefore no specific reserve for such is maintained.

In the infrequent instances where customers raise a concern over delivered

products or services, the Company has endeavored to remedy the concern and all costs related to such matters have been insignificant

in all periods presented.

Company has elected to treat shipping and handling activities after the customer obtains control of the goods as a fulfillment cost and

not as a promised good or service.

Accordingly, the Company will accrue all fulfillment costs related to the shipping and handling of

consumer goods at the time of shipment.

The Company has payment terms with its customers of one year or less and has elected the practical

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

Sales, value add, and other taxes the Company collects

concurrent with revenue-producing activities are excluded from revenue.

The Company receives payment from customers based

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

There are no contract assets

related to performance under the contract.

The difference in the opening and closing balances of the Company’s deferred revenue

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

The Company fulfils

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

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

The Company recognizes deferred

revenue when consideration has been received or an amount of consideration is due from the customer, and the Company has a future obligation

to transfer certain proprietary products.

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

of the current reporting period.

If a contract has payment

terms that differ from the timing of revenue recognition, the Company will assess whether the transaction price for those contracts include

a significant financing component.

The Company has elected the practical expedient that permits an entity to not adjust for the effects

of a significant financing component if the Company expects that at the contract inception, the period between when the entity transfers

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

For those contracts

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

its relative significance, requires judgment.

Accordingly, the Company imputes interest on such contracts at an agreed-upon interest rate

and will present the financing components separately as financial income.

For the years ended December 31, 2022 and 2021, the Company

did not have any such financial income.

Payment terms with customers

typically require payment 30 days from the invoice date.

The Company’s agreements with its customers do not provide for any refunds

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

In the infrequent instances where customers raise

concern over delivered products or services, the Company has endeavored to remedy the concern and all costs related to such matters

have been insignificant in all periods presented.

The Company has elected to

treat shipping and handling activities after the customer obtains control of the goods as a fulfillment cost and not as a promised good

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

The Company has payment terms with its customers of one year or less and has elected the practical expedient applicable to

such contracts not to consider the time value of money.

Sales, value add, and other taxes the Company collects concurrent with revenue-producing

activities are excluded from revenue.

The Company receives payment

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

are no contract assets related to performance under the contract.

The difference in the opening and closing balances of the Company’s

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

The Company fulfills obligations under a contract with a customer by transferring products and services in exchange for consideration

from the customer.

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

The Company recognizes deferred revenue when consideration has been received or an amount of consideration is due from the customer, and

the Company has a future obligation to transfer certain proprietary products.

In accordance with ASC 606-10-50-13,

the Company is required to include disclosure on its remaining performance obligations as of the end of the current reporting period.

Due to the nature of the Company’s contracts, these reporting requirements are not applicable.

The majority of the Company’s remaining contracts meet certain exemptions as defined in ASC 606-10-50-14 through 606-10-50-14A,

including (i) performance obligation is part of a contract that has an original expected duration of one year or less and (ii) the

right to invoice practical expedient.

The Company generally provides a one-year warranty

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

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

In accordance with ASC 450-20-25, the Company accrues for product

warranties when the loss is probable and can be reasonably estimated.

The reserve for warranty returns is included in accrued expenses

and other current liabilities in the Company’s consolidated balance sheets.

The majority of the Company’s

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

is part of a contract that has an original expected duration of one year or less and (ii) the right to invoice practical expedient.

The Company generally provides

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

transfers to its customers the warranties it receives from its vendors, if any, which generally cover this one-year period.

In accordance

with ASC 450-20-25, the Company accrues for product warranties when the loss is probable and can be reasonably estimated.

maintains a reserve for warranty returns of $ 553 thousand and $ 398 thousand for December 31, 2022 and 2021, respectively.

The Company’s

reserve for warranty returns is included in accrued expenses and other current liabilities in its consolidated balance sheets.

information regarding the Company’s warranty reserve may be found in Note 3 – Supplemental

Consolidated Balance Sheet Information, included elsewhere in the notes to the consolidated financial statements.

Research and Development Costs

The Company expenses research and development

costs as incurred.

Research and development expenses include payroll, employee benefits and other expenses associated with product development.

The Company incurs research and development costs associated with the development and enhancement of both hardware and software products

associated with its cultivation and extraction equipment, as well as its SaaS-based software offering, Agrify Insights.

Shipping and Handling Charges

The Company incurs costs related to shipping and

handling of its manufactured products.

These costs are expensed as incurred as a component of cost of sales.

Shipping and handling charges

related to the receipt of raw materials are also incurred, which are recorded as a cost of the related inventory.

Equity Method Investments

Investments in affiliates which are 50 % or

less owned by the Company for which the Company exercises significant influence but does not have control are accounted for on the equity

The Company has investments in equity investments without readily determinable fair values, which represents investments in entities

where the Company does not have the ability to significantly influence the operations of the entities.

An assessment of whether or not the Company (as

a holder of 50 % of TPI) has the power to direct activities that most significantly impact TPI’s economic performance and to identify

the party that obtains the majority of the benefits of the investment was performed as of December 31, 2021 and December 31, 2020, and

will be performed as of each subsequent reporting date.

After each of these assessments, the Company concluded that the activities that

most significantly impact TPI’s economic performance are the growth, marketing, sale, and distribution of products using TPI’s

technology and IP, each of which are solely directed by TPI.

Based on our consideration of these assessments, the Company concluded that

the Company’s investment in TPI should be accounted for under the equity method.

The carrying value of the Company’s investment

in TPI was $ 0 as of December 31, 2021 and December 31, 2020.

The Company did not recognize revenue from TPI for the years ended December

31, 2021 and 2020.

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

things, an asset and liability approach to calculating deferred income taxes.

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.

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

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

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

In accordance with the guidance

of ASC 740-10-25-6, the benefit of a tax position is recognized in the consolidated financial statements in the period during which,

based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination,

including the resolution of appeals or litigation processes, if any.

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

Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more

than 50 percent likely of being realized upon settlement with the applicable taxing authority.

The portion of the benefits associated

with tax positions taken that exceeds the amount measured as described above should be reflected as a liability for unrecognized tax

benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing authorities

The Company expenses research

and development costs as incurred.

Research and development expenses include payroll, employee benefits, and other expenses associated

with product development.

The Company incurs research and development costs associated with the development and enhancement of both hardware

and software products associated with its cultivation and extraction equipment, as well as its SaaS-based software offering, Agrify Insights™

cultivation software (“Agrify Insights™”).

Capitalization of Internal Software Development

The Company capitalizes certain

software engineering efforts related to the continued development of 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.

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

The Company accounts for

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

liability approach to calculating deferred income taxes.

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 tax asset will not be realized.

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.

2 unchanged sentences

has not recorded a liability for unrecognized tax benefits.

As of December 31, 2021, tax years 2016 through 2021 remain open for IRS

The Company has received no notice of audit from the IRS for any of the open tax years.

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

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

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

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.

As of December 31, 2022, tax years 2017 through 2021 remain open for audit

by the Internal Revenue Service (“IRS”).

The Company has received no notice of audit from the IRS for any of the open tax

The Company recognizes the

benefit of a tax position when it is effectively settled.

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

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

tax benefits.

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

For tax positions considered effectively settled, the Company recognizes the full amount of the tax benefit.

For the period ended December 31, 2021, the Company

recorded a deferred tax liability of approximately $ 25 thousand, comprised of its change in deferred tax liability during the year related

to its indefinite lived intangible asset balance.

The indefinite lived intangibles are not all available as a source of income and thus

are not fully available to offset the Company's deferred tax assets.

As of December 31, 2021, the Company has federal and state net operating

loss (NOL) carryforwards of approximately $ 52.2 million and $ 28.9 million, respectively.

The Company has not yet filed its 2018, 2019,

2020 and 2021 federal and state tax returns.

There was no federal income tax expense for the

years ended December 31, 2021 and 2020 due to the Company’s net losses.

The Company has not yet filed its 2018, 2019, 2020 and

2021 federal and state tax returns.

For the year ended December

31, 2021, the Company recorded a deferred tax liability of approximately $ 25 thousand, comprised of its change in deferred tax liability

during the year related to its indefinite-lived intangible asset balance.

The indefinite-lived intangibles are not all available as a

source of income and thus are not fully available to offset the Company’s deferred tax assets.

As of December 31, 2022, the Company

has federal and state net operating loss (“NOL”) carryforwards of approximately $ 96.7 million and $ 71.6 million, respectively.

There was no federal income tax expense for the years ended December 31, 2022 and 2021 due to the Company’s net losses.

Net Loss Per Share

Basic and diluted net loss per share attributable

to common stockholders is presented in conformity with the two-class method required for participating securities.

Basic loss per share

is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding.

available to common stockholders represents net loss attributable to common stockholders reduced by the allocation of earnings to participating

Losses are not allocated to participating securities as the holders of the participating securities do not have a contractual

obligation to share in any losses.

Diluted loss per share adjusts basic loss per share for the potentially dilutive impact of stock options

and warrants.

As the Company has reported losses for all periods presented, all potentially dilutive securities including stock options

and warrants, are antidilutive and accordingly, basic net loss per share equals diluted net loss per share.

Net loss per share calculations for all periods

have been adjusted to reflect the reverse stock split effected on January 12, 2021.

Net loss per share was calculated based on the weighted

average number of common stock outstanding.

Note 3 — Accounting Pronouncements

The Company presents basic

and diluted net loss per share attributable to Common Stockholders in conformity with the two-class method required for participating

The Company computes basic loss per share by dividing net loss available to Common Stockholders by the weighted-average number

of common shares outstanding.

Net loss available to Common Stockholders represents net loss attributable to Common Stockholders reduced

by the allocation of earnings to participating securities.

Losses are not allocated to participating securities as the holders of the

participating securities do not have a contractual obligation to share in any losses.

Diluted loss per share adjusts basic loss per share

for the potentially dilutive impact of stock options and warrants.

As the Company has reported losses for all periods presented, all potentially

dilutive securities including stock options and warrants, are anti-dilutive, and accordingly, basic net loss per share equals diluted

net loss per share.

Net loss per share calculations

for all periods have been adjusted to reflect the reverse stock splits effected on January 12, 2021, October 18, 2022 and July 5, 2023.

Net loss per share was calculated based on the weighted-average number of Common Stock outstanding.

Recently Adopted Accounting Pronouncements

In August 2018, the FASB issued ASU No.

Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40):

Customer’s Accounting for Implementation Costs Incurred

in a Cloud Computing Arrangement That is a Service Contract, which aligns the requirements for capitalizing implementation costs incurred

in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or

obtain internal-use software.

The new standard requires capitalized costs to be amortized on a straight-line basis generally over the

term of the arrangement, and the financial statement presentation for these capitalized costs would be the same as that of the fees related

to the hosting arrangements.

The Company adopted this standard effective January 1, 2020, using a prospective approach.

of this new standard did not have a material impact on the Company’s consolidated financial statements.

Subsequent impact will

depend on the magnitude of implementation costs to be incurred.

Implementation costs capitalized subsequent to adoption will be recognized

in operating expenses in the statements of operations over the non-cancelable period of the hosting arrangement plus any renewal periods

reasonably certain to be taken.

Pending Accounting Pronouncements

In June 2016, the Financial Accounting Standards

Board (the “FASB”) issued Accounting Standards Update (“ASU”) No.

2016-13, Financial Instruments—Credit

Losses (Topic 326), which introduces a new methodology for accounting for credit losses on financial instruments, including available-for-sale

debt securities and accounts receivable.

The guidance establishes a new “expected loss model” that requires entities to estimate

current expected credit losses on financial instruments by using all practical and relevant information.

Any expected credit losses are

to be reflected as allowances rather than reductions in the amortized cost of available-for-sale debt securities.

In August 2020, the

FASB issued ASU No.

2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20), and Derivatives

and Hedging—Contracts in an Entity’s Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and

Contracts in an Entity’s Own Equity.

The amendments in ASU No.

2020-06 simplify the complexity associated with applying

GAAP for certain financial instruments with characteristics of liabilities and equity.

More specifically, the amendments focus on the

guidance for convertible instruments and derivative scope exceptions for contracts in an entity’s own equity.

ASU 2020-06 is

effective in the first quarter of fiscal 2024.

The Company is currently evaluating if this guidance will have a material effect to its

consolidated financial statements.

In August 2020, the FASB issued ASU No.

2020-06, Debt

- Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own

Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.

The amendments

2020-06 simplify the complexity associated with applying U.S.

GAAP for certain financial instruments with characteristics

of liabilities and equity.

More specifically, the amendments focus on the guidance for convertible instruments and derivative scope exceptions

for contracts in an entity’s own equity.

effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years.

adoption of this new accounting guidance had no impact on the Company’s consolidated financial position.

Pending Accounting Pronouncements

In June 2016, the FASB issued

2016-13, Financial Instruments—Credit Losses (Topic 326), which introduces a new methodology for accounting for credit

losses on financial instruments, including available-for-sale debt securities and accounts receivable.

The guidance establishes a new

“expected loss model” that requires entities to estimate current expected credit losses on financial instruments by using

all practical and relevant information.

Any expected credit losses are to be reflected as allowances rather than reductions in the amortized

cost of available-for-sale debt securities.

ASU 2016-13 is effective for fiscal years beginning after December 15, 2022.

2021, including interim periods within those fiscal years.

Early adoption is permitted, but no earlier than fiscal years

beginning after December 15, 2020, including interim periods within those fiscal years.

The Company is currently evaluating

the impact of the new standard on its consolidated financial statements and related disclosures.

In October 2021, the FASB issued ASU No.

2021-08, Business

Combinations (Topic 606):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires

that an entity recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606 as

if it had originated the contracts.

Generally, this should result in an acquirer recognizing and measuring the acquired contract assets

and contract liabilities consistent with how they were recognized and measured in the acquiree’s financial statements, if the acquiree

prepared financial statements in accordance with U.S.

The amendment in this update is effective for fiscal years beginning after December

15, 2022, including interim periods within those fiscal years.

The Company does not expect that the application of ASU No.

2016-13 will have a material impact on the presentation of its results of

operations, financial position, or disclosures.

In October 2021, the

FASB issued ASU No.

2021-08, Business Combinations (Topic 606):

Accounting for Contract Assets and Contract Liabilities

from Contracts with Customers, which requires that an entity recognize and measure contract assets and contract liabilities acquired in

a business combination in accordance with Topic 606 as if it had originated the contracts.

Generally, this should result in

an acquirer recognizing and measuring the acquired contract assets and contract liabilities consistent with how they were recognized and

measured in the acquiree’s financial statements, if the acquiree prepared financial statements in accordance with GAAP.

The amendment

in this update is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal

Early adoption is permitted, including adoption in an interim period.

The guidance should be applied prospectively to business combinations occurring on or after the effective date of the amendment in this

The Company is evaluating the potential impact of this adoption on its consolidated financial statements and related disclosures.

All other Accounting Standards Updates issued

but not yet effective are not expected to have a material effect on the Company’s future financial statements.

The Company does not expect that the application of ASU 2021-08

will have a material impact on the presentation of its results of operations, financial position, or disclosures.

recent accounting pronouncements did not or are not believed by management to have a material impact on the Company’s present or

future consolidated financial statements.

Note 2 — Revenue and Deferred Revenue

During the years ended December 31, 2021 and 2020,

the Company generated revenue from the following sources:

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

The Company sells its equipment and services to

customers under a combination of a contract and purchase order.

Equipment revenue includes sales from proprietary products designed and

engineered by the Company such as Agrify Vertical Farming Units (“VFUs”), container farms, integrated grow racks, and LED

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

surface protection.

Construction contracts normally provide for payment

upon completion of specified work or units of work as identified in the contract.

Although there is considerable variation in the terms

of these contracts, they are primarily structured as time-and-material contracts.

The Company enters time-and-materials contracts under

which the Company is paid for labor and equipment at negotiated hourly billing rates and other expenses, including materials, as incurred

at rates agreed to in the contract.

The Company uses two main sub-contractors to execute the construction contracts.

Disaggregation of Revenue —

The following table provides revenue disaggregated by timing of revenue recognition:

(Dollar Amounts in Thousands)

The Company sells its equipment

and services to customers under a combination of a contract and purchase order.

Equipment revenue includes sales from proprietary products

designed and engineered by the Company such as Agrify Vertical Farming Units (“VFUs”), container farms, integrated grow racks,

and LED grow lights, and non-proprietary products designed, engineered, and manufactured by third parties such as air cleaning systems

and pesticide-free surface protection.

Construction contracts normally

provide for payment upon completion of specified work or units of work as identified in the contract.

Although there is considerable variation

in the terms of these contracts, they are primarily structured as time-and-material contracts.

The Company enters into time-and-materials

contracts under which the Company is paid for labor and equipment at negotiated hourly billing rates and other expenses, including materials,

as incurred at rates agreed to in the contract.

The Company uses three main sub-contractors to execute the construction contracts.

The following table provides the Company’s

revenue disaggregated by the timing of revenue recognition:

(In thousands)

Transferred at a point in time

Transferred over time

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

of the current reporting period.

Due to the nature of the Company’s contracts, these reporting requirements are not applicable.

The majority of the Company’s remaining contracts meet certain exemptions as defined in ASC 606-10-50-14 through 606-10-50-14A,

including (i) performance obligation is part of a contract that has an original expected duration of one year or less and (ii) the

right to invoice practical expedient.

The Company generally provides a one-year warranty

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

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

In accordance with ASC 450-20-25, the Company accrues for product

warranties when the loss is probable and can be reasonably estimated.

As of December 31, 2021, the Company maintains a reserve for warranty

returns of $ 398 thousand.

No warranty reserve was recorded by the Company as of December 31, 2020.

The reserve for warranty returns is

included in accrued expenses and other current liabilities in the Company’s consolidated balance sheets.

Significant changes in the Company’s current

deferred revenue balance for the years ended December 31, 2021 and 2020:

(Dollar Amounts in Thousands)

Total current deferred revenue, beginning of period

Interest income on deferred revenue

Total current deferred revenue, end of period

Deferred revenue balances primarily consist of

customer deposits on our cultivation and extraction solutions equipment.

As of December 31, 2021 and 2020, all of our deferred revenue

balances were reported as current liabilities in the accompanying consolidated balance sheets.

Total revenue

The following table provides the Company’s

revenue disaggregated by revenue type:

(In thousands)

Cultivation solutions, including ancillary products and services

Agrify Insights™

Facility build-outs

Extraction solutions

Total revenue

In accordance with ASC 606-10-50-13,

the Company is required to include disclosure on its remaining performance obligations as of the end of the current reporting period.

Due to the nature of the Company’s contracts, these reporting requirements are not applicable, because the majority of the Company’s

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

is part of a contract that has an original expected duration of one year or less and (ii) the right to invoice practical expedient.

Deferred Revenue

Changes in the Company’s current deferred

revenue balance for the years ended December 31, 2022 and 2021 were as follows:

(In thousands)

Deferred revenue – beginning of period

Deferred revenue – end of period

Deferred revenue balances

primarily consist of customer deposits on the Company’s cultivation and extraction solutions equipment.

As of December 31, 2022

and 2021, all of the Company’s deferred revenue balances were reported as current liabilities in the accompanying consolidated balance

In the year ended December

31, 2022, the Company recognized $ 2.7 million of revenue that was deferred during 2021.

And, during the year ended December 31, 2021,

the Company recognized $ 120 thousand of revenue that was deferred during 2020.

Note 3 — Supplemental Consolidated Balance Sheet Information

Accounts Receivable

Accounts receivable consisted of the following

as of December 31, 2022 and 2021:

(In thousands)

Accounts receivable, gross

Less allowance for doubtful accounts

Accounts receivable, net

NEIA, a related party, accounted

for $ 3 thousand and $ 3.5 million of the Company’s accounts receivable, net as of December 31, 2022 and 2021, respectively.

The changes in the allowance for doubtful accounts

consisted of the following:

(In thousands)

Allowance for doubtful accounts - beginning of period

Provision for doubtful accounts

Other adjustments

Allowance for doubtful accounts - end of period

Bad debt expense was $ 3.4

million and $ 1.2 million for the years ended December 31, 2022 and 2021, respectively.

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted

of the following as of December 31, 2022 and 2021:

(In thousands)

Other receivables

Prepaid expenses, other

Prepaid insurance

Deferred issuance costs

Prepaid software

Prepaid materials

Other note receivables (1)

Deferred costs

Total prepaid expenses and other current assets

(1) Other note receivables relate to the current portion of one of its loan receivable balances related to the total turn-key solution (“TTK Solution”) program.

Property and Equipment, Net

Property and equipment, net consisted of the following

as of December 31, 2022 and 2021:

(In thousands)

Leasehold improvements

Machinery and equipment

Computer and office equipment

Leased equipment

Furniture and fixtures

Research and development laboratory equipment

Trade show assets

Total property and equipment, gross

Accumulated depreciation

Construction in progress

Total property and equipment, net

Depreciation expense for

the years ended December 31, 2022 and 2021 was $ 1.7 million and $ 655 thousand, respectively.

Other Non-Current Assets

Other non-current assets consisted of the following

as of December 31, 2022 and 2021:

(In thousands)

Long-term deferred commissions expense

Security deposits

Total other non-current assets

Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities

consisted of the following as of December 31, 2022 and 2021:

(In thousands)

Sales tax payable (1)

Accrued acquisition liabilities (2)

Accrued construction costs

Compensation related fees

Accrued inventory purchases

Accrued warranty costs

Accrued professional fees

Accrued interest expense

Financing lease liabilities

Other current liabilities

Total accrued expenses and other current liabilities

(1) Sales tax payable primarily represents identified sales and use tax liabilities arising from the acquisition of Precision and Cascade.

These amounts are included as part of the initial purchase price allocations and are the subject matter of an indemnification claim under the Precision and Cascade acquisition agreement.

(2) Accrued acquisition liabilities include both the contingent consideration and the value of held-back Common Stock associated with the 2022 acquisition of Lab Society and the 2021 acquisitions of PurePressure, Cascade, and Precision.

Accrued Warranty Costs

The following table summarizes the activity related

to the Company’s accrued liability for estimated future warranty costs:

(In thousands)

Warranty accrual – beginning of period

Liabilities accrued for warranties issued during period

Warranty accrual – end of period

Note 4 — Fair Value Measures

Fair Values of Assets and Liabilities

The Company measures fair value at the price

that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the

measurement date.

In determining fair value, the assumptions that market participants would use in pricing an asset or liability

(the inputs) are based on a tiered fair value hierarchy consisting of three levels, as follows:

Fair Values of Assets

and Liabilities

In accordance with ASC Topic

820 “Fair Value Measurement,” the Company measures fair value at the price that would be received to sell an asset or paid

to transfer a liability in an orderly transaction between market participants at the measurement date.

In determining fair value,

the assumptions that market participants would use in pricing an asset or liability (the inputs) are based on a tiered fair value hierarchy

consisting of three levels, as follows:

Observable inputs such as quoted prices for identical assets or liabilities in active markets.

Other inputs that are observable directly or indirectly, such as quoted prices for similar instruments

in active markets or for similar markets that are not active.

Unobservable inputs for which there is little or no market data which require the Company to develop

its own assumptions about how market participants would price the asset or liability.

Valuation techniques for assets and liabilities

include methodologies such as the market approach, the income approach, or the cost approach, and may use unobservable inputs such as

projections, estimates and management’s interpretation of current market data.

These unobservable inputs are only utilized

to the extent that observable inputs are not available or cost-effective to obtain.

At December 31, 2021 and December 31, 2020,

Other inputs that are observable directly or indirectly, such as quoted prices for similar instruments in active markets or for similar markets that are not active.

Unobservable inputs for which there is little or no market data which require the Company to develop its own assumptions about how market participants would price the asset or liability.

Valuation techniques for

assets and liabilities include methodologies such as the market approach, the income approach, or the cost approach, and may use unobservable

inputs such as projections, estimates, and management’s interpretation of current market data.

These unobservable inputs are

only utilized to the extent that observable inputs are not available or cost-effective to obtain.

At December 31, 2022 and

2021, the Company’s assets and liabilities measured at fair value on a recurring basis were as follows:

December 31, 2021

December 31, 2020

Fair Value Measurements Using Input Types

(Dollar Amounts in Thousands)

Mutual funds (included in cash and cash equivalents)

Held to maturity securities

Measurements Using Input Types

(In thousands)

Mutual funds (included in cash and cash equivalents in 2021)

Municipal bonds

Corporate bonds

Total held to maturity securities

Notes payables, net of discount

Derivative liabilities

Contingent consideration

Warrant Liabilities – January 2022 Warrants

Warrant Liabilities – March 2022 Warrants

Warrant Liabilities – August 2022 Warrants

Warrant Liabilities – December 2022 Warrants

Total liabilities

Fair Value of Financial Instruments

The Company has certain financial instruments which consist of cash

and cash equivalents, marketable securities, accounts receivable, loan receivable, accounts payable, notes payable, derivative liabilities,

deferred revenue, and long-term debt.

Fair value information for each of these instruments is as follows:

Cash and cash equivalents, accounts receivable, accounts payable and deferred revenue liabilities fair values approximate their carrying values, due to the expected duration of these instruments.

Marketable securities classified as held to maturity securities are recorded at amortized cost, which as of December 31, 2021, approximated fair value.

The Company had certain derivative instruments accounted for at fair value.

The Company held a convertible promissory note with a preferential conversion feature which qualifies as a derivative instrument.

The fair value assumptions consider the nature of the conversion feature and the expected timeline to a qualifying conversion event.

The Company’s deferred consideration was recorded in connection with acquisitions during the year ending December 31, 2021 using an estimated fair value discount at the time of the transaction.

As of December 31, 2021, the carrying value of the deferred consideration approximated fair value.

The Company has certain financial

instruments which consist of cash and cash equivalents, marketable securities, warrant liabilities, and contingent consideration.

value information for each of these instruments as well as other balances of the Company are as follows:

Cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, and deferred revenue liabilities approximate their fair values based on the short-term nature of these instruments.

Marketable securities classified as current held-to-maturity securities are recorded at amortized cost, which at December 31, 2022, approximated fair value.

The Company’s deferred consideration was recorded in connection with acquisitions during the fourth quarter of fiscal 2021 and the first quarter of fiscal 2022 using an estimated fair value discount at the time of the transactions.

As of December 31, 2022 and 2021, the carrying value of the deferred consideration approximated fair value.

The Company’s warrant liabilities are marked-to-market each reporting period with the changes in fair value of warrant liabilities recorded in other income (expense), net in the accompanying consolidated statements of operations until the warrants are exercised.

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

Marketable Securities

As of December 31, 2021, the Company held investments

consisting of mutual funds, municipal bonds, and corporate bonds.

The mutual funds are recorded at fair value in the accompanying consolidated

balance sheet as part of cash and cash equivalents.

The municipal and corporate bonds are considered held to maturity and are recorded

at amortized cost in the accompanying consolidated balance sheet.

The fair values of these investments were estimated using recently executed

transactions and market price quotations.

The Company considers current assets those investments which will mature within the next 12

months including interest receivable on the long-term bonds.

As of December 31, 2022 and

2021, the Company held investments in municipal bonds and corporate bonds.

The municipal and corporate bonds are considered held-to-maturity

securities and are recorded at amortized cost in the accompanying consolidated balance sheet.

The fair values of these investments were

estimated using recently executed transactions and market price quotations.

The Company considers current assets as those investments

which will mature within the next 12 months including interest receivable on long-term bonds.

The composition of the Company’s marketable

securities are as follows:

(Dollar Amounts in Thousands)

(In thousands)

Current marketable securities

1 unchanged sentence

Corporate bonds

Total current marketable securities

The amortized cost and estimated fair value of

held to maturity securities as of December 31, 2021, are as follows:

(Dollar Amounts in Thousands)

At December 31, 2022, marketable securities consisted

of the following:

(In thousands)

Current marketable securities (due within 1 year)

Corporate bonds

At December 31, 2021, marketable securities consisted

of the following:

(In thousands)

Current marketable securities (due within 1 year)

Municipal bonds

1 unchanged sentence

Contingent Consideration

The Company has classified its net liability for

contingent earnout considerations relating to the two acquisitions completed in Fiscal 2021.

The fair value for the contingent consideration

associated with these acquisitions is within Level 3 of the fair value hierarchy because the associated fair value is determined

using significant unobservable inputs, which included the key assumptions to model future revenue, costs of goods sold and operating expense

A description of the Company’s acquisitions completed in Fiscal 2021 is included within Note 13 – Business Combinations

The Company has classified

its net liability for contingent earn-out considerations to the sellers relating to one acquisition completed during the first quarter

of 2022 and two acquisitions completed during fiscal 2021.

The fair value for the contingent consideration associated with these acquisitions

is within Level 3 of the fair value hierarchy because the associated fair value is determined using significant unobservable inputs,

which included the key assumptions to model future revenue, costs of goods sold, and operating expense projections.

A description of the

Company’s acquisitions completed during the first quarter of 2022 and fiscal 2021 are included within Note 8 – Business Combinations,

included elsewhere in the notes to the consolidated financial statements.

The contingent earnout payments for each acquisition

are based on the achievement of certain revenue thresholds.

During the fourth quarter of 2021, the fair value of the contingent earnout

consideration increased by $ 1.4 million due to the actual revenue achievement for the period ended December 31, 2021, being greater than

the initially projected revenue achievement incorporated into our initial purchase price allocation.

This amount, as required by ASC 805,

was recorded as part of our operating expenses in the fourth quarter of 2021.

(Dollar Amounts in Thousands)

Contingent consideration – beginning of year

(In thousands)

Contingent consideration – beginning of period

Accrued contingent consideration

Accretion of contingent consideration

Cash paid and Common Stock issued for contingent liabilities

Change in estimated fair value

Contingent consideration – end of year

Contingent consideration is included within accrued

expense in the consolidated balance sheets as of December 31, 2021.

Note 6 — Loan Receivable

A portion of the capital raised from the Company’s

2021 public offering has been allocated to launch Agrify’s total turn-key solution (“TTK Solution”) program, the industry’s

first end-to-end solution for the Company’s customers that provides access to capital for construction costs, equipment lease(s)

to VFUs and other related operating equipment, subscription to the Company’s Agrify Insights software, and business consultation

services, which will enable the Company’s customers to go to market sooner.

Company’s initial allowable investment in the Agrify TTK Solution engagements is currently capped at $ 50.0 million, as approved

by the Company’s Board of Directors.

As of December 31, 2021, the Company has committed $20.3 million to the Agrify TTK Solution

for five customers under contract and the remainder $ 1.9 million is related to non-TTK Solutions contracts.

Of the five customers under

the Agrify TTK Solution, Greenstone Holdings is a related party.

The loan agreements entered into with customers

receiving the Agrify TTK Solution generally provide for loans ranging from approximately $ 200 thousand up to $ 13.5 million with maturity

dates of approximately two to three years after the completion of the construction projects.

Typically, the TTK Solution construction

loans have interest rates ranging from 12 % to 18 % per annum.

breakdown of loans receivable as of December 31, 2021 and December 31, 2020 is as follows:

Amounts in Thousands)

A – TTK Solution

Holdings – TTK Solution – Related Party

C – TTK Solution

D – TTK Solution

E – TTK Solution

The Company analyzed whether any of the above

customers are a variable interest entity (a “VIE”) in accordance with ASC 810 and if so, whether the Company is the primary

beneficiary requiring consolidation.

Based on the Company’s analysis, the Company has determined that Greenstone Holdings is a VIE.

As of December 31, 2021, two of the Company’s employees own approximately 36.6 % of the equity of Greenstone Holdings, however,

since the Company is not the primary beneficiary of Greenstone Holdings, the Company is not required to consolidate Greenstone Holdings.

7 — Accounts Receivable

Receivable consisted of the following as of December 31, 2021 and December 31, 2020:

Amounts in Thousands)

receivable, gross

allowance for doubtful accounts

receivable, net

NEIA, a related party, accounted for $ 3.5 million

and $ 1.7 million of accounts receivable, net as of December 31, 2021 and December 31, 2020, respectively.

The changes in the allowance for doubtful accounts

consisted of the following:

(Dollar Amounts in Thousands)

Balance as of the beginning of the year

Provision for doubtful accounts

Other adjustments

Balance as of the end of the year

debt expense was $ 1.2 million and $ 54 thousand, for the year ended December 31, 2021 and 2020, respectively.

8 — Inventory

are stated at the lower of cost or net realizable value with cost principally determined by the weighted average cost method on a first

in first out basis.

Contingent consideration – end of period

The Company included contingent

consideration within accrued expenses and other current liabilities in its consolidated balance sheets as of December 31, 2022 and 2021.

See below for additional

information related to each acquisition’s contingent consideration.

Contingent Consideration –

Company, in its review of actual revenue performance as compared to its originally projected revenue estimates, noted that PurePressure’s

revenue trend is materially below the originally estimated revenue trends incorporated into the Company’s original fair value estimates

at the time of the acquisition.

As a result, the Company has reduced its fair value estimate of achievement for PurePressure’s first

earn-out period.

During the third quarter ended September 30, 2022, the Company reduced the estimated fair value of the contingent consideration

liability associated with PurePressure’s first earn-out period by approximately $ 602 thousand and their second earn-out by approximately

$ 170 thousand.

As required by ASC Topic 805 Business Combination (“ASC 805”), the change in contingent consideration was recorded

as a reduction in operating expenses during the third and fourth quarters of 2022, respectively.

Contingent Consideration –

Company, in its review of actual revenue performance as compared to its originally projected revenue estimates, noted that Lab Society’s

revenue trend is materially below the originally estimated revenue trends incorporated into the Company’s original fair value estimates

at the time of the acquisition.

As a result, the Company has reduced its fair value estimate of achievement for Lab Society’s first

earn-out period.

During the second quarter ended June 30, 2022, the Company reduced the estimated fair value of the contingent consideration

liability associated with Lab Society’s first earn-out period by approximately $ 1.0 million and their second earn-out by approximately

$ 484 thousand.

As required by ASC 805, the change in contingent consideration was recorded as a reduction in operating expenses during

the second and fourth quarters of 2022, respectively.

Contingent Consideration

– Precision and Cascade

The earn-out period for the

potential contingent consideration to be earned by the former members of Precision and Cascade

concluded on December 31, 2021.

The Company, during the second quarter of 2022, increased the amount

of the contingent consideration earned by the former members of Precision and Cascade by approximately $ 121 thousand to reflect the final

contingent consideration amount due.

This amount was recorded as an increase in operating expenses during the second quarter of 2022.

During the year ended December 31, 2022 , the Company made the final payment on the contingent

consideration of approximately $ 5.6 million to the members of Precision and Cascade.

Additional information regarding the Company’s

final payment to Precision and Cascade may be found in Note 8 – Business Combinations, included elsewhere in the notes to the consolidated

financial statements.

Warrant Liabilities

The estimated fair value

of the warrant liabilities on December 31, 2022 is determined using Level 3 inputs.

Inherent in a Black-Scholes option-pricing model

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

The volatility rate is

determined utilizing the Company’s own share price and the share price of competitors over time.

However, inherent uncertainties

are involved.

If factors or assumptions change, the estimated fair values could be materially different.

2022 Warrants

The following table summarizes the Company’s

assumptions used in the valuation for the year ended December 31, 2022:

Option exercise price

Expected term (Years)

Discount rate (Treasury yield)

The following table sets

forth a summary of the changes in the fair value of the Level 3 warrant liabilities for the year ended December 31, 2022:

(In thousands)

Warrant liabilities – beginning of period

Initial fair value of warrant liabilities

Change in estimated fair value

Warrant liabilities – end of period

2022 Warrants

The following table summarizes

the Company’s assumptions used in the valuation for the year ended December 31, 2022:

Option exercise price

Expected term (Years)

Discount rate (Treasury yield)

The following table sets

forth a summary of the changes in the fair value of the Level 3 warrant liabilities for the year ended December 31, 2022:

(In thousands)

Warrant liabilities – beginning of period

Initial fair value of warrant liabilities

Change in estimated fair value

Component of loss on debt extinguishment

Warrant liabilities – end of period

August 2022 Warrants

The following table summarizes

the Company’s assumptions used in the valuation for the year ended December 31, 2022:

Option exercise price

Expected term (Years)

Discount rate (Treasury yield)

The following table sets

forth a summary of the changes in the fair value of the Level 3 warrant liabilities for the year ended December 31, 2022:

(In thousands)

Warrant liabilities – beginning of period

Initial fair value of warrant liabilities

Change in estimated fair value

Warrants settled in period

Warrant liabilities – end of period

December 2022 Warrants

The following table summarizes

the Company’s assumptions used in the valuation for the year ended December 31, 2022:

Option exercise price

Expected term (Years)

Discount rate (Treasury yield)

The following table sets

forth a summary of the changes in the fair value of the Level 3 warrant liabilities for the year ended December 31, 2022:

(In thousands)

Warrant liabilities – beginning of period

Initial fair value of warrant liabilities

Change in estimated fair value

Warrant liabilities – end of period

Note 5 — Loans Receivable

A portion of the capital

raised from the Company’s IPO was allocated to launch the Company’s TTK Solution program.

The TTK Solution is the industry’s

first-of-its-kind program in which the Company engages with qualified cannabis operators in the early phases of their business

plans and provides critical support, typically over a 10 -year period, which includes:

access to capital for construction costs, the design

and build-out of their cultivation and extraction facilities, state-of-the-art cultivation and extraction equipment, subscription to the

Company’s Agrify Insights™, process design, training, implementation, proven grow recipes, product formulations, data analytics,

and consumer branding.

The Company recorded $ 11.3

million in loan reserves during the fourth quarter of 2022, related to three customer balances that were fully or partially reserved.

On September 15, 2022, the

Company provided a notice of default under the term loan agreement between the Company and Bud & Mary’s (the “Bud &

Mary’s TTK Agreement”).

On October 5, 2022, Bud & Mary’s Cultivation, Inc.

(the “Bud & Mary’s”)

filed a complaint in the Superior Court of Massachusetts in Suffolk County naming the Company as 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, the Company established a reserve of $14.7 million specifically related

to Bud & Mary’s.

The Company deemed it necessary to fully reserve the $ 14.7 million outstanding balance in the third quarter

of 2022 due to the litigation and the uncertainty of the customer’s ability to repay the outstanding balance.

The Company believes

that Bud & Mary’s claims have no merit and intends to defend itself vigorously.

The Company is taking all necessary steps to

pursue repayment from Bud & Mary’s and is taking all actions necessary to protect its shareholders’ interests.

During the year ended December

31, 2022, the Company established a reserve of approximately $ 12.5 million specifically related to Greenstone.

Greenstone is a related

party because one of the Company’s former Agrify Brands employees and its VP of Engineering had a minority ownership.

established the reserve based upon its review of Greenstone’s financial stability, which would impact collectability, which is primarily

the result of unfavorable market conditions within the Colorado market.

The Company will continue to monitor the operations of Greenstone

in an effort to collect all outstanding receivables, but due to the uncertain nature of Greenstone’s business at this time the Company

has made the decision to place a reserve against the receivables.

Greenstone is a related party as of December 31, 2022 and 2021.

The breakdown of loans receivable by customer

as of December 31, 2022 and 2021 were as follows:

(In thousands)

Bud & Mary’s – TTK Solution

Greenstone – TTK Solution – Greenstone is a related party because one of the Company’s former Agrify Brands employees and its VP of Engineering had a minority ownership

Company Customer Number 136 – TTK Solution

Company Customer Number 125 – TTK Solution

Company Customer Number 71 – Non-TTK Solution (1)

Company Customer Number 140 – TTK Solution (2)

TTK Solution – Allowance for doubtful accounts (3)

Total loan receivable

(1) The current portion of loan receivable is included within Note 3 – Supplemental Consolidated Balance Sheet Information, included elsewhere in the notes to the consolidated financial statements.

(2) The balance was written off at December 31, 2022 due to the cancellation of this TTK Solution project.

(3) The Company established an allowance for doubtful accounts of approximately $ 14.7 million related to Bud & Mary’s ongoing litigation.

Approximately $ 12.5 million relates to Greenstone, which is a related party because one of the Company’s former Agrify Brands employees and its VP of Engineering had a minority ownership, consisting of capital advances, accrued interest, and VFUs sales.

Approximately $ 4.5 million relates to Hannah, and $ 1.4 million relates to WhiteCloud.

At this time, the Company

is not aware of, nor has it identified any risk or potential performance failure associated with any of its TTK Solution arrangements,

other than the noted exceptions of Bud & Mary’s TTK Solution and Greenstone TTK Solution, which is a related party, as described

The Company analyzed whether

any of the above customers are a VIE in accordance with ASC 810 and if so, whether the Company is the primary beneficiary requiring consolidation.

Based on the Company’s analysis, the Company has determined that Greenstone, which is a related party because one of the Company’s

former Agrify Brands employees and its VP of Engineering had a minority ownership, is a VIE.

As of December 31, 2022, two of the Company’s

employees own approximately 36.6 % of the equity of Greenstone, however, since the Company is not the primary beneficiary and does

not hold significant influence over Greenstone business decisions, the Company is not required to consolidate Greenstone.

Note 6 — Inventory

Inventories are stated at

the lower of cost or net realizable value, with cost principally determined by the weighted-average cost method on a first-in, first-out

Such costs include the acquisition cost for raw materials and operating supplies.

The Company’s standard payment

terms with suppliers may require making payments in advance of delivery of the Company’s products.

The prepaid inventory is short-term,

non-bearing interest that is applied to the purchase of products once it is delivered.

The Company reserves for slow-moving inventory

and inventory that is being evaluated under the Company’s quality control process.

The reserves are based upon management’s

expected method of disposition.

consisted of the following as of December 31, 2021 and December 31, 2020:

(Dollar Amounts in Thousands)

The Company’s standard payment terms with

suppliers may require making payments in advance of delivery of the Company’s products.

The Company’s prepaid inventory is

a short-term, non-interest-bearing asset that is applied to the purchase of products once they are delivered.

Inventory consisted of the following as of December

31, 2022 and 2021 as follows:

(In thousands)

Raw materials

1 unchanged sentence

Finished goods

Gross inventory

Inventory, gross

Inventory reserves

Total inventory, net

Company establishes inventory reserves for obsolete, slow moving and defective items.

Inventory reserves for obsolete, slow moving or

defective items are calculated as the difference between the cost of inventory and its estimated net realizable value.

Changes in inventory

reserve are as follows:

(Dollar Amounts in Thousands)

Inventory reserves – beginning of the year

Inventory Reserves

The Company establishes an

inventory reserve for obsolete, slow-moving, and defective inventory.

The Company calculates inventory reserves for obsolete, slow-moving,

or defective items as the difference between the cost of inventory and its estimated net realizable value.

The reserves are based upon

management’s expected method of disposition.

Changes in the Company’s inventory reserve

are as follows:

(In thousands)

Inventory reserves – beginning of period

Increase in inventory reserves

Inventory write-offs

Inventory reserves – end of year

9 — Prepaid Expenses and Other Current Assets

expenses and other current assets consisted of the following as of December 31, 2021 and December 31, 2020:

(Dollar Amounts in Thousands)

Prepaid insurance

Prepaid software

Prepaid expenses, other

Deferred costs

Other note receivables (1)

Other receivables, other

Prepaid expenses and other current assets

(1) Other note receivables relates to the current portion of one of our TTK Solutions loan receivable balances.

Note 10 — Property and Equipment, Net

Property and equipment, net consisted of the

following as of December 31, 2021 and December 31, 2020:

(Dollar Amounts in Thousands)

Computer and office equipment

Furniture and fixtures

Leasehold improvements

Machinery and equipment

Research and development laboratory equipment

Leased equipment at customer

Trade show assets

Total property and equipment, gross

Accumulated depreciation

Construction in progress

Property and equipment, net

Depreciation expense for the years ended December 31, 2021 and 2020

was $ 655 thousand and $ 188 thousand, respectively.

During the year ended December 31, 2021, the Company retired $ 119 thousand of fixed

assets, with an accompanying accumulated depreciation of $ 84 thousand, resulting in a loss on disposal of $ 36 thousand.

Note 11 — Intangible Assets and Goodwill

Intangible assets are initially recorded at fair

value and tested periodically for impairment.

Goodwill represents the excess of the purchase price over the fair value of identifiable

tangible and intangible assets acquired and liabilities assumed in a business combination and is tested at least annually for impairment.

The Company performs an impairment test of goodwill during the fourth quarter of each year or sooner if indicators of potential impairment

There were no such indicators in the years ended December 31, 2021 and December 31, 2020.

Intangible assets were

Inventory reserves – end of period

Note 7 — Goodwill and Intangible Assets, Net

Intangible assets are initially

recorded at fair value and tested periodically for impairment.

Goodwill represents the excess of the purchase price over the fair value

of identifiable tangible and intangible assets acquired and liabilities assumed in a business combination and is tested at least annually

for impairment.

The Company performs its goodwill impairment testing annually during the fourth quarter, or sooner if indicators or if

circumstances were to occur that would more likely than not reduce the fair value of the Company’s reporting unit below its carrying

The Company would recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s

fair value, not to exceed the total amount of goodwill.

The Company has concluded

that there was an impairment-triggering event during the quarter ended June 30, 2022 that required the Company to perform a detailed analysis

of the current carrying value of its goodwill and intangible assets.

For goodwill and intangible asset impairment testing purposes, the

Company has one reporting unit.

During the quarter ended

June 30, 2022, the Company’s market capitalization fell below total net assets.

In addition, financial performance continued to

weaken during the quarter, which was contrary to prior experience.

Management reassessed business performance expectations following persistent

adverse developments in equity markets, deterioration in the environment in which the Company operates, lower-than-expected sales, and

an increase in operating expenses.

These indicators, in the aggregate, required impairment testing for goodwill and intangible assets.

Based on the results of this

testing, the Company determined that the carrying values of the aggregate value of its goodwill and intangible assets were not recoverable.

The Company recorded impairment charges during the second quarter of 2022, representing a full impairment of the carrying value of its

goodwill and intangible assets.

The Company recorded an impairment charge of approximately $ 69.9 million, representing the carrying values

of goodwill and intangible assets, which totaled $ 54.7 million and $ 15.2 million, respectively.

Changes in goodwill consisted of the following:

(In thousands)

Goodwill - beginning of period

Goodwill acquired during period

Goodwill purchase accounting adjustment

Goodwill impairment loss

Goodwill - end of period

Intangible assets, net as of December 31, 2022

were as follows:

Intangible Assets, Gross

Accumulated Amortization and Impairment

Intangible Assets, Net

(In thousands)

Customer relationships

Acquired developed technology

Non-compete agreements

Capitalized website costs

Intangible assets, net as of December 31, 2021

was as follows:

Intangible Assets, Gross

Accumulated Amortization

Intangible Assets, Net

(Dollar Amounts in Thousands)

(In thousands)

Customer relationships

Acquired developed technology

Non-compete agreements

Capitalized website costs

Amortization expenses recorded in selling, general

and administrative in the consolidated statements of operations were $ 655 thousand and $ 218 thousand for the years ended December 31,

expense recorded in general and administrative expense in the consolidated statements of operations were $ 1.4 million and $ 655 thousand

for the years ended December 31, 2022 and 2021, respectively.

Note 8 — Business Combinations

Acquisition of Lab Society

February 1, 2022, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Lab Society, a newly-formed

wholly-owned subsidiary of the Company (“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 the Company agreed to acquire Lab

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

Sub, with Merger Sub surviving such merger as a wholly-owned subsidiary of the Company (the “Lab Society Acquisition”).

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.

Company 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 the Company and any claim for indemnification or payment of damages to which the Company 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.

Merger Agreement includes customary post-closing adjustments, representations and warranties, and covenants of the parties.

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.

Additional information regarding the Company’s contingent consideration

arrangements may be found in Note 4 – Fair Value Measures, included elsewhere in the notes to the consolidated financial statements.

Transaction and related costs,

consisting primarily of professional fees, related to the acquisition, totaled approximately $ 66 thousand and $ 0 for the years ended December

31, 2022 and 2021, respectively.

Estimated future amortization expense on finite-lived

intangible assets is as follows:

Years Ending December 31 (Dollar Amounts in Thousands),

2027 and thereafter

The changes in goodwill are as follows:

(Dollar Amounts in Thousands)

Balance, beginning of period

Goodwill additions

Balance, end of period

There was no goodwill impairment identified for

the years ended December 31, 2021 and December 31, 2020, respectively.

Note 12 — Accrued Expenses and Other Current Liabilities

Accrued expenses consisted of the following as

of December 31, 2021 and December 31, 2020:

(Dollar Amounts in Thousands)

Accrued acquisition liability (1)

Sales tax payable (2)

Accrued construction costs

Compensation related fees

Accrued professional fees

Accrued warranty expenses

Accrued consulting fees

Accrued inventory purchases

Financing lease liabilities

Accrued non-income taxes

Other current liabilities

Total accrued expenses and other current liabilities

(1) Accrued acquisition liabilities includes both the contingent

consideration and the value of held back stock associated with the 2021 acquisitions of Precision and Cascade and PurePressure.

(2) Sales tax payable primarily represents identified sales and use tax liabilities arising from

our acquisition of Precision and Cascade.

These amounts are included as part of our initial purchase price allocations and are the subject

matter of an indemnification claim under the Precision and Cascade acquisition agreement.

Note 13 — Business Combination

All transaction and related costs were expensed as incurred and are included in general and administrative

The Company has prepared

purchase price allocations for the business combination.

The following table sets forth the components and the allocation of the purchase

price for the business combination:

(In thousands)

Purchase price consideration

Closing proceeds

Transaction expenses

Closing buyer shares

Holdback buyer shares

Earn-out consideration

Working capital adjustment

Fair value of total consideration transferred

Total purchase price, net of cash acquired

Fair value allocation of purchase price

Cash and cash equivalents

Accounts receivable

Prepaid expenses and other current receivables

Right - of-use assets, net

Property and equipment, net

Prepaid and refundable taxes

Accounts payable, accrued expenses, and other current liabilities

Deferred revenue

Deferred tax liability

Finance lease liabilities, current

Finance lease liabilities, non-current

Operating lease liabilities, current

Operating lease liabilities, non-current

Acquired intangible assets

Total purchase price

Identified intangible assets

consist of trade names, technology, and customer relationships.

The fair value of intangible assets and the determination of their respective

useful lives were made in accordance with ASC 805 and are outlined in the table below:

(In thousands)

Identified intangible assets

Acquired developed technology

Customer relationships

Total identified intangible assets

The Company’s initial

fair value estimates related to the various identified intangible assets of Lab Society 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 quarter ended

June 30, 2022, the Company identified an impairment-triggering event associated with both a sustained decline in the Company’s stock

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

Due to these factors,

the Company deemed that there was an impairment to the carrying value of its property and equipment and accordingly performed interim

testing as of June 30, 2022.

Based on its interim testing, the Company noted that the entire carrying value of its goodwill and intangible

assets were impaired.

Additional information regarding the Company’s 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.

The amount of revenue of

Lab Society included in the consolidated statements of operations from the acquisition date of February 1, 2022 to December 31, 2022 was

$ 4.5 million.

Acquisition of Precision and Cascade

On September 29, 2021 (the “Execution Date”),

the Company entered into a Plan of Merger and Equity Purchase Agreement, as amended by an amendment dated as of October 1, 2021 (as amended,

the “Purchase Agreement”), with Sinclair Scientific, LLC, a Delaware limited liability company (“Sinclair”),

Mass2Media, LLC, d/b/a PX2 Holdings, LLC, d/b/a Precision Extraction Solutions, a Michigan limited liability company (“Precision”);

and each of the equity holders of Sinclair named therein (collectively, the “Sinclair Members”).

On October 1, 2021, the

Company consummated the transactions contemplated by the Purchase Agreement.

Subject to the terms and conditions set

forth in the Purchase Agreement, (1) Sinclair transferred, to the Company, and the Company purchased (the “Interest

Purchase”) from Sinclair, 100 % of the equity interests of Cascade Sciences, LLC, a Delaware limited liability company

(“Cascade”), such that immediately after the consummation of such Interest Purchase, Cascade became a wholly owned

subsidiary of the Company, and (2) Precision merged (the “Merger”) with and into a newly-formed wholly owned subsidiary

of the Company, Precision Extraction NewCo, LLC.

The aggregate consideration for the Interest

Purchase and the Merger consisted of:

(a) the sum of $ 30 million, plus consideration payable to holders of outstanding Sinclair

equity awards, subject to certain adjustments for working capital, cash and indebtedness, payable in connection with the Interest Purchase;

(b) the number of shares of the Company’s common stock, subject to adjustment, equal to the quotient of (i) $ 20.0 million divided

by (ii) the volume-weighted average price per share of the Company’s common stock on The Nasdaq Capital Market for the 30 consecutive

trading days ending on the Execution Date (the “VWAP Price”), issuable in connection with the Merger;

and (c) the True-Up

Buyer Shares, if any (as defined below), issuable in connection with the Merger.

The Purchase Agreement includes customary post-closing

adjustments, representations and warranties and covenants of the parties.

The Sinclair Members may become entitled to additional shares

of the Company’s common stock (the “True-Up Buyer Shares”) and cash (together with the True-Up Buyer Shares, the “Aggregate

True-Up Payment) based on the eligible net revenues (as defined in the Purchase Agreement) achieved by the Cascade and Precision businesses

during the fiscal year ending December 31, 2021.

However, in no event shall the aggregate purchase price paid by the Company pursuant

to the terms of the Purchase Agreement, taking into account any Aggregate True-Up Payment in favor of the Sinclair Members, exceed $ 65.0 million.

Transaction and related costs, consisting primarily

of professional fees, directly related to the acquisition, totaled $ 4.0 million for the year ended December 31, 2021.

All transaction

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

The purchase price allocation for the business

combination has been prepared on a preliminary basis and changes to those allocations may occur as additional information becomes available

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

Fair values still under review as of December 31,

2021 include values assigned to identifiable intangible assets and goodwill.

The following table sets forth the components

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

(Dollar Amounts in Thousands)

On September 29, 2021 (the

“Execution Date”), the Company entered into a Plan of Merger and Equity Purchase Agreement, as amended by an amendment dated

October 1, 2021 (as amended, the “Purchase Agreement”), with Sinclair Scientific, LLC, a Delaware limited liability company

(“Sinclair”), Mass2Media, LLC, Precision, a Michigan limited liability company;

and each of the equity holders of Sinclair

named therein (collectively, the “Sinclair Members”).

On October 1, 2021, the Company consummated the transactions contemplated

by the Purchase Agreement.

Subject to the terms and

conditions set forth in the Purchase Agreement, Sinclair transferred to the Company, and the Company purchased (the “Interest Purchase”)

from Sinclair, 100 % of the equity interests of Cascade, a Delaware limited liability company, such that immediately after the consummation

of such Interest Purchase, Cascade became a wholly-owned subsidiary of the Company, and Precision merged (the “Merger”) with

and into a newly-formed wholly-owned subsidiary of the Company, Precision Extraction NewCo, LLC.

The aggregate consideration

for the Interest Purchase and the Merger consisted of the sum of $30 million in cash, plus consideration payable to holders of outstanding

Sinclair equity awards, subject to certain adjustments for working capital, cash, and indebtedness, payable in connection with the Interest

the number of shares of Common Stock, subject to adjustment, equal to the quotient of $20.0 million divided by the volume

weighted average price per share of Common Stock on The Nasdaq Capital Market for the 30 consecutive trading days ending on the Execution

Date (the “VWAP Price”), issuable in connection with the Merger;

Holdback Buyer Shares;

and the True-Up Buyer Shares, issuable

in connection with the Merger.

The Company withheld 588

shares issuable to certain members (the “Holdback Buyer Shares”) for the purpose of securing any post-closing adjustment owed

to the Company and any claim for indemnification or payment of damages to which the Company may be entitled under the Purchase Agreement.

These shares were not released as of December 31,2022.

Purchase Agreement included customary post-closing adjustments, representations and warranties, and covenants of the parties.

Members became entitled to additional shares of Common Stock (the “True-Up Buyer Shares”) and cash (together with the True-Up

Buyer Shares, the “Aggregate True-Up Payment”) based on the eligible net revenues (as defined in the Purchase Agreement) achieved

by the Cascade and Precision businesses during the fiscal year ending December 31, 2021.

On August 10, 2022, the Company

entered into a post-closing adjustment settlement agreement (“Agreement”) with Sinclair.

The Agreement was entered into in

connection with the Purchase Agreement.

According to the Purchase Agreement, $2.5 million was held by the escrow agent as the Adjustment

Escrow Amount, $4.5 million was held by the escrow agent as the Indemnity Escrow Amount.

On August 17, 2022 ,

the Company made the final Aggregate True-up Payment of approximately $5.6 million, of which $3.3 million was paid in cash and

435 True-Up Buyer Shares were released to the Sinclair Members, and the Company received $1.4 million from the Adjustment Escrow Amount,

and the remaining $1.1 million balance of the Adjustment Escrow Amount became part of the Indemnity Escrow Amount.

Transaction and related costs,

consisting primarily of professional fees, related to the acquisition, totaled approximately $ 63 thousand and $ 4.0 million for the years

ended December 31, 2022 and 2021, respectively.

All transaction and related costs were expensed as incurred and are included in general

and administrative expense.

The following table sets

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

(In thousands)

Purchase price consideration

Cash paid to Sinclair Members at close

Cash contributed to escrow accounts at close

Cash paid to Sinclair Members at the close

Cash contributed to escrow accounts at the close

Cash paid for excess net working capital

Stock issued at close

Stock issued at the close

Fair value of contingent consideration to be achieved

4 unchanged sentences

Accounts receivable

Prepaid and other assets

Prepaid expenses and other current receivables

Property and equipment, net

Operating lease right of use assets

Right-of-use assets, net

Capitalized web costs, net

3 unchanged sentences

Operating lease liabilities, current

Operating lease liabilities, noncurrent

Operating lease liabilities, non-current

Acquired intangible assets

Total purchase price

Identified intangible assets consist of trade

names, technology, non-compete agreements, and customer relationships.

The fair value of intangible assets and the determination of their

respective useful lives were made in accordance with ASC 805 and are outlined in the table below:

(Dollar Amounts in Thousands)

Identified intangible assets

consist of trade names, technology, non-compete agreements, and customer relationships.

The fair value of intangible assets and the determination

of their respective useful lives were made in accordance with ASC 805 and are outlined in the table below:

(In thousands)

Identified intangible assets

Acquired developed technology

2 unchanged sentences

Total identified intangible assets

The Company’s initial fair value estimates

related to the various identified intangible assets were determined under various valuation approaches including the Income Approach,

Relief-from-Royalty Method, and Discounted Cash Flow Method.

These valuation methods require management to project revenues, operating

expenses, working capital investment, capital spending and cash flows for the reporting unit over a multiyear period, as well as determine

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

The Company amortizes its intangible assets assuming

no residual value over periods in which the economic benefit of these assets is consumed.

The amount of revenue of Precision and Cascade

included in the consolidated statement of operations from the acquisition date of October 1, 2021 to December 31, 2021 was $ 12.3 million.

The following pro forma financial information

summarizes the combined results of operations for the Company, Precision and Cascade, as though the acquisition of Precision and Cascade

occurred on January 1, 2020.

The unaudited pro forma financial information

was as follows:

Amounts in Thousands)

loss before non-controlling interest

(loss) attributable to non-controlling interest

The pro forma financial information for all periods

presented above has been calculated after adjusting the results of Precision and Cascade to reflect the business combination accounting

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

though the acquisition occurred on January 1, 2020.

The historical consolidated financial statements have been adjusted in the pro forma

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

The pro forma financial information is for informational

purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place on

January 1, 2020.

The Company’s initial

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

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

These valuation methods require management to project

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

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

During the quarter ended

June 30, 2022, the Company identified an impairment-triggering event associated with both a sustained decline in the Company’s stock

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

Due to these factors,

the Company deemed that there was an impairment to the carrying value of its property and equipment and accordingly performed interim

testing as of June 30, 2022.

Based on its interim testing, the Company noted that the entire carrying value of its goodwill and intangible

assets were impaired.

Additional information regarding the Company’s 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.

Acquisition of PurePressure

On December 31, 2021, the Company entered into a Membership

Interest Purchase Agreement (the “Pure Purchase Agreement”) with PurePressure, LLC, a Colorado Limited liability company (“PurePressure”)

and the members of PurePressure (collectively, the “Members”), Benjamin Britton as the Member Representative thereunder, and

each of the Members.

Concurrently with the execution of the Pure Purchase Agreement, the Company consummated the acquisition of all the

outstanding equity interests of PurePressure, such that immediately after the consummation of such purchase, PurePressure became a wholly

owned subsidiary of the Company (the “Acquisition”).

The aggregate consideration for the Acquisition

consisted of:

(a) $ 4.0 million in cash, subject to certain adjustments for working capital, cash and indebtedness of PurePressure at

(b) 329,179 shares of the Company’s common stock (the “Buyer Shares”);

and (c) the Earn-out Consideration

(as defined below), to the extent earned.

The Company withheld 88,878 of the Buyer Shares

issuable to certain Members (the “Holdback Buyer Shares”) for the purpose of securing any post-closing adjustment owed to

the Company and any claim for indemnification or payment of damages to which the Company may be entitled under the Pure Purchase Agreement.

The Holdback Buyer Shares shall be released following the twelve (12) month anniversary of the Closing Date in accordance with and subject

to the conditions of the Pure Purchase Agreement.

The Pure Purchase Agreement includes customary

post-closing adjustments, representations and warranties and covenants of the parties.

The Members may become entitled to additional

consideration with a value of up to $3.0 million based on the eligible net revenues achieved by the PurePressure business during the

fiscal years ending December 31, 2022 and December 31, 2023, of which 40% will be payable in cash and the remaining 60% will be payable

by issuing shares of the Company’s common stock (collectively, the “Earn-out Consideration”).

The purchase price allocation for the business combination

has been prepared on a preliminary basis and changes to those allocations may occur as additional information becomes available during

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

Fair values still under review as of December 31, 2021 include

values assigned to identifiable intangible assets and goodwill.

The following table sets forth the components

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

(Dollar Amounts in Thousands)

On December 31, 2021, the

Company entered into a Membership Interest Purchase Agreement (the “Pure Purchase Agreement”) with PurePressure, LLC, a Colorado

Limited liability company (“PurePressure”), and the members of PurePressure (collectively, the “Members”), Benjamin

Britton as the Member Representative thereunder, and each of the Members.

Concurrently with the execution of the Pure Purchase Agreement,

the Company consummated the acquisition of all the outstanding equity interests of PurePressure, such that immediately after the consummation

of such purchase, PurePressure became a wholly-owned subsidiary of the Company (the “Acquisition”).

The aggregate consideration

for the Acquisition consisted of $ 4.0 million in cash, subject to certain adjustments for working capital, cash, and indebtedness of PurePressure

1,646 shares of Common Stock (the “Buyer Shares”);

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

The Company withheld 444

of the Buyer Shares issuable to certain Members (the “Holdback Buyer Shares”) for the purpose of securing any post-closing

adjustment owed to the Company and any claim for indemnification or payment of damages to which the Company may be entitled under the

Pure Purchase Agreement.

During the third quarter of 2022, 72 of the Holdback Buyer Shares were forfeited after the finalization of the

net working capital settlement.

On January 31, 2023 , the remaining 372 Holdback Buyer Shares were

released, including 6 Holdback Buyer Shares that were withheld to cover a tax indemnification claim in accordance with the Purchase

The Pure Purchase Agreement

includes customary post-closing adjustments, representations and warranties, and covenants of the parties.

The Members may become entitled

to additional consideration with a value of up to $3.0 million based on the eligible net revenues achieved by the PurePressure business

during the fiscal years ending December 31, 2022 and December 31, 2023, of which 40% will be payable in cash and the remaining 60% will

be payable by issuing shares of Common Stock (collectively, the “Earn-out Consideration”).

Additional information regarding

the Company’s contingent consideration arrangements may be found in Note 4 – Fair Value Measures, included elsewhere in the

notes to the consolidated financial statements.

Subject to certain customary

limitations, the Members will indemnify the Company and its affiliates, officers, directors, and other agents against certain losses related

to, among other things, breaches of the Members’ and PurePressure’s representations and warranties, indebtedness, transaction

expenses, pre-closing taxes, and the failure to perform covenants or obligations under the Pure Purchase Agreement, and the Company will

indemnify the Members and their respective affiliates, officers, directors, and other agents against certain losses related to, among

other things, breaches of the Company’s representations and warranties and the failure to perform covenants or obligations under

the Pure Purchase Agreement.

Transaction and related costs,

consisting primarily of professional fees, related to the acquisition, totaled approximately $ 563 thousand and $ 0 for the years ended

December 31, 2022 and 2021, respectively.

All transaction and related costs were expensed as incurred and are included in general and

administrative expense.

The Company has prepared

purchase price allocations for the business combination.

The following table sets forth the components and the allocation of the purchase

price for the business combination:

(In thousands)

Purchase price consideration

Estimated closing proceeds

Closing proceeds

Indebtedness paid

3 unchanged sentences

Earn-out consideration

Estimated working capital adjustments

Working capital adjustment

Fair value of total consideration transferred

5 unchanged sentences

Right-of-use assets, net

Prepaid expenses and other receivables

Prepaid expenses and other current receivables

Other non-current assets

2 unchanged sentences

Operating lease liabilities, current

Operating lease liabilities, noncurrent

Operating lease liabilities, non-current

Finance lease liabilities, current

Finance lease liabilities, noncurrent

Finance lease liabilities, non-current

Notes payable, current

Notes payable, noncurrent

Notes payable, non-current

Acquired intangible assets

Total purchase price

Identified intangible assets consist of trade

names, technology, and customer relationships.

The fair value of intangible assets and the determination of their respective useful lives

were made in accordance with ASC 805 and are outlined in the table below:

(Dollar Amounts in Thousands)

Identified intangible assets

developed technology

relationships

consist of trade names, technology, and customer relationships.

The fair value of intangible assets and the determination of their respective

useful lives were made in accordance with ASC 805 and are outlined in the table below:

(In thousands)

Identified intangible assets

Subject to certain customary limitations, (i)

the Members will indemnify the Company and its affiliates, officers, directors and other agents against certain losses related to, among

other things, breaches of the Members’ and PurePressure’s representations and warranties, indebtedness, transaction expenses,

pre-closing taxes and the failure to perform covenants or obligations under the Pure Purchase Agreement, and (ii) the Company will indemnify

the Members and their respective affiliates, officers, directors and other agents against certain losses related to, among other things,

breaches of the Company’s representations and warranties and the failure to perform covenants or obligations under the Pure Purchase

Acquisition of TriGrow

On January 22, 2020, the Company completed the acquisition

of all outstanding shares of TriGrow.

TriGrow is an integrator and distributor of the Company’s premium indoor grow solutions for

the indoor controlled agriculture marketplace.

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

Brands, LLC (formerly TriGrow Brands, LLC), a licensor and marketing supporter of established portfolio of consumer brands that utilize

the Company’s growing technology.

In consideration of TriGrow’s shares, the Company issued to TriGrow’s shareholders

595,552 shares of Agrify common stock.

In addition, the closing conditions included the assumption of TriGrow’s outstanding obligation

to invest $ 1.1 million (the “Funding Amount”) in a form of a so called “profit interest” investment in CCI Finance,

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

a Profits Interest Agreement with CCI.

Under the Profits Interest Agreement, in return for the Company’s investment of the Funding

Amount, CCI is obligated to share with the Company 28.5 % of the net revenue generated from its equipment lease agreement with its customer,

payable at least annually by CCI to the Company.

The revenue sharing percentage is reduced from 28.5 % to 20 % once the Company has received

payments equaling an 18 % Internal Rate of Return on the Funding Amount (the “Preferred Return”) prior to the fifth anniversary

of the agreement.

The revenue sharing terminates upon the later of five years, or the Company’s attainment of the Preferred Return.

To date, no revenue has been generated and shared with the Company under this agreement.

As part of the acquisition of TriGrow, the Company made available 121,539 shares

of its common stock for issuance to certain executives of TriGrow upon TriGrow’s and/or the Company’s receipt of $ 10.0 million

of accumulative purchase orders for TriGrow and/or the Company’s equipment, products, and services, for the period from November

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

Such common stock of the Company is to be distributed

by the Company to certain executives of the surviving corporation responsible for achievement of such milestone, in the Company’s

sole discretion.

The Company concluded the earn-out, if materialized, will be considered as post combination services.

Additionally, the

Company concluded that the value associated with the earn-out to be de minimis.

No earn-out was ever earned.

The purchase price for this business combination

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

date, with the remaining unallocated purchase price recorded as goodwill.

The fair value assigned to identifiable intangible assets acquired

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

assumptions determined by the Company.

Transaction and related costs, consisting

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

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

The following table sets forth the components

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

(Dollar Amounts in Thousands)

Components of Purchase Price:

Obligation to invest cash in profit interest

Capital stock consideration

Noncontrolling Interest

Total purchase price

Allocation of Purchase Price:

Net tangible assets, including cash acquired of $ 44

Identifiable intangible assets:

Acquired developed technology

Customer relationships

Total identifiable

intangible assets

Total purchase price

Trade names and Customer relationships were assigned estimated

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

The amount of revenue of TriGrow included in the Company’s

consolidated statement of operations from the acquisition date of January 22, 2020 to December 31, 2020 was $ 4.0 million.

Acquisition of Harbor Mountain Holdings, LLC

In July 2020, the Company acquired all the outstanding equity

interests of HMH, located in the Atlanta, GA area, that has been producing and assembling many of the Company’s products.

of the acquisition, the Company waived net receivable owed amounting to $ 214 thousand and assumed lease liabilities for existing equipment

and premises.

On September 20, 2021, the Company issued an aggregate of 8,000 shares of common stock to an executive of HMH for achieving

certain milestones from the acquisition date through March 31, 2021.

The common shares were valued at $ 176 thousand based on the Company’s

Stock Price at closing September 20, 2021.

The value of the shares is included in research and development in the condensed consolidated

statements of operations.

The purchase price for this business combination

was allocated by management to the tangible and intangible assets acquired and liabilities assumed based on their book value which estimated

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

Transaction and related costs, consisting

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

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

The following table sets forth the components

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

(Dollar Amounts in Thousands)

Components of Purchase Price:

Waiver of net receivable

owed to Agrify

Total purchase price

Allocation of Purchase Price:

Net tangible assets (liabilities):

Property and Equipment

Accounts payable

Accrued expenses

Financing lease liabilities

Net tangible liabilities

Total purchase price

The amount of revenue of HMH included in the Company’s

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

The following pro forma financial information summarizes the

combined results of operations for us, TriGrow and HMH, as though the acquisition of TriGrow and HMH occurred on January 1, 2020.

The unaudited pro forma financial information was as follows:

(Dollar Amounts in Thousands)

Net loss before non-controlling interest

Loss attributable to non-controlling interest

The pro forma financial information for all periods presented

above has been calculated after adjusting the results of TriGrow and HMH to reflect the business combination accounting effects resulting

from these acquisitions, including acquisition costs and the amortization expense from acquired intangible assets as though the acquisition

occurred on January 1, 2020.

The historical consolidated financial statements have been adjusted in the pro forma combined financial statements

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

The pro forma financial information is for informational purposes

only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place on January 1,

Total identified intangible assets

During the quarter ended

June 30, 2022, the Company identified an impairment-triggering event associated with both a sustained decline in the Company’s stock

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

Due to these factors,

the Company deemed that there was an impairment to the carrying value of its property and equipment and accordingly performed interim

testing as of June 30, 2022.

Based on its interim testing, the Company noted that the entire carrying value of its goodwill and intangible

assets were impaired.

Additional information regarding the Company’s 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.

Note 9 – Debt

The Company’s debt consisted of:

(In thousands)

Note payable – Exchange Note

Other notes payable

unamortized debt discount

Total debt, net of debt discount

current portion, net of current unamortized debt discount

Long-term debt

Securities Purchase Agreement

March 14, 2022, the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with the Investor,

pursuant to which the Company agreed to issue and sell to the Investor, in a private placement transaction, in exchange for the payment

by the Investor of $65.0 million, less applicable expenses, as set forth in the Securities Purchase Agreement, a

senior secured promissory note in an aggregate principal amount of $65.0 million (the “SPA Note”) , and a

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

August 2022 Securities

Exchange Agreement

August 18, 2022, the Company reached an agreement with the Investor to amend its existing senior SPA Note and entered into the August

2022 Exchange Agreement.

Pursuant to the August 2022 Exchange Agreement, the Company 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 new Note Exchange Warrant to purchase 71,139 shares of Common Stock

and modified an existing SPA Warrants to purchase up to an aggregate of 34,406 shares of Common Stock.

The Company exchanged the SPA Warrant

for new August 2022 Warrants.

Exchange Note is a senior secured obligation of the Company and ranks senior to all indebtedness of the Company.

The Exchange Note will

mature on the three-year anniversary of its issuance (the “Maturity Date”) and contains a 9.0 % annualized interest

rate, with interest to be paid monthly, in cash, beginning September 1, 2022.

The principal amount of the Exchange Note will be payable

on the Maturity Date, provided that the Investor will be entitled to a cash sweep of 20 % of the proceeds received by the Company in connection

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

any time, the Company may prepay all of the Exchange Note by redemption at a price equal to 102.5 % of the then-outstanding principal amount

under the Note plus accrued but unpaid interest.

The Investor will also have the option of requiring the Company 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 the Company undergoes 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.

Exchange Note imposes certain customary affirmative and negative covenants upon the Company, as well as covenants that restrict the Company

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

the ability of the Company and its subsidiaries from making certain investments, subject to specified exceptions, restrict the declaration

of any dividends or other distributions, subject to specified exceptions, require the Company not to exceed maximum levels of allowable

cash spend while the Exchange Note is outstanding, and require the Company to maintain minimum amounts of cash on hand.

of default under the Exchange Note occurs, the Investor can elect to redeem the Exchange Note for cash equal to 115 % of the then-outstanding

principal amount of the Note (or such lesser principal amount accelerated by the Investor), plus accrued and unpaid interest, including

default interest, which accrues at a rate per year equal to 15 % from the date of a default or event of default.

the date the Exchange Note is fully repaid, the Investor has, subject to certain exceptions, the right to participate for up to 30 % of

any offering of debt, equity (other than an offering of solely Common Stock), or equity-linked securities, including without limitation

any debt, preferred stock, or other instrument or security, of the Company or its 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, have 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”) or if shareholder approval for the full exercise of

the Modified Warrant is not received, in which case the Modified Warrant will also be exercisable on a cashless exercise basis at the

Investor’s election.

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, were exercisable upon issuance, and have a term of five and one-half years from the date of issuance

and will be exercisable on a cash basis, unless there is not an effective registration statement covering the resale of the shares issuable

upon exercise of the Warrant (the “Note Exchange Warrant Shares” and, together with the Modified Warrant Shares, the “Exchange

Warrant Shares”) or if shareholder approval for the full exercise of the Note Exchange Warrant is not received, in which case the

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

Until the Company completed

a qualified equity financing of at least $ 15.0 million, which requirement was satisfied with sales under the ATM Program, the Note Exchange

Warrant’s exercise price would have been reduced to the extent the Company issued securities, subject to certain exceptions, for

a lower purchase price.

The Note Exchange Warrant also prohibited the Company, until following the completion of such qualified equity

financing, from issuing warrants with more favorable or preferential terms and/or provisions.

August 2022 Warrants will each provide that in no event will the number of shares of Common Stock issued upon exercise of such warrant

result in the Investor’s beneficial ownership exceeding 4.99% of the Company’s shares of Common Stock outstanding at the time

of exercise (which percentage may be decreased or increased by the Investor, but to no greater than 9.99%, and provided that any increase

above 4.99% will not be effective until the sixty-first day after notice of such request by the Investor to increase its beneficial ownership

limit has been delivered to the Company).

the year ended December 31, 2022, the Company issued 2,000 shares of its Common Stock pursuant to the cashless exercise of August 2022

As of December 31, 2022, the Company had outstanding liability-classified August 2022 Warrants that allow the Investor to purchase

100,544 shares of the Company’s Common Stock.

Additional information regarding the Company’s August 2022 Warrants may be found

in Note 1 – Overview, Basis of Presentation, and Significant Accounting Policies and

Note 4 – Fair Value Measures, included elsewhere in the notes to the consolidated financial

following table summarizes the short-term and long-term portions of the Exchange Note as of December 31, 2022:

(In thousands)

Unamortized discount

Net carrying amount

Paycheck Protection Program Loan

Paycheck Protection Program Loans under the Coronavirus Aid,

Relief, and Economic Security Act

In May and July 2020, the Company entered into

two separate PPP Loans with Bank of America pursuant to the Paycheck Protection Program (the “PPP”) under the CARES Act administered

Small Business Administration (“SBA”).

The Company received total proceeds of approximately $ 779

thousand and $ 44 thousand from the unsecured PPP Loans, which are scheduled to mature on May 7, 2022 and July 27, 2025, respectively.

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

In September 2021, the PPP Loan in the amount of $ 44 thousand was 100 % forgiven by the SBA.

As a result, the Company recorded

a gain of $ 45 thousand on the forgiveness on the loan and the associated accrued interest.

The Company’s submission to have the

remaining $ 779 thousand PPP Loan forgiven is currently being reviewed by the SBA.

If the remaining principal amount from the $ 779 thousand

PPP Loan is not forgiven in full, the Company would be obligated to repay any principal amount not forgiven and interest accrued thereon.

In May 2020, the Company

entered into a PPP Loan with Bank of America pursuant to the PPP under the CARES Act administered by the SBA.

The Company received total

proceeds of approximately $ 779 thousand from the unsecured PPP Loan, which was originally scheduled to mature on May 7, 2022 .

applied for forgiveness on the $ 779 thousand of PPP loan, but forgiveness was denied by the SBA.

On June 23, 2022, the Company received

a letter from Bank of America agreeing to extend the maturity date to May 7, 2025 and the loan 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

The breakdown of PPP Loan

balances by current and non-current as of December 31, 2022 and 2021 were as follows:

(In thousands)

Balance Sheet

PPP Loan, current

Long-term debt,

PPP Loan, non-current

Long-term debt

Total PPP Loan outstanding

PurePressure SBA Debt

As part of the acquisition of PurePressure, $ 159 thousand

of debt remained outstanding from SBA loan as of December 31, 2021.

This debt has subsequently been paid as a part of the PurePressure

Note 15 — Convertible Promissory Notes

On January 11, 2021, the Company’s

Board of Directors and shareholders approved the amendment to the conversion formula of the Convertible Promissory Notes (the “Notes”)

issued by the Company on dates between August 2020 and November 2020.

Pursuant to the amendment, immediately prior to the consummation

of a public transaction, the outstanding principal amount of the Notes, together with all accrued and unpaid interest, shall convert

into a number of fully paid and non-assessable shares of common stock, at a conversion price of $ 7.72 .

While the original conversion feature was bifurcated

from the host instrument, the Company determined that the amended conversion feature would not require bifurcation.

Since the accounting

for the conversion feature changed because of the amendment, the Company applied extinguishment accounting pursuant to its accounting

During the year ended December 31, 2020, the Company recognized

an aggregate loss on extinguishment of $ 5.6 million for the difference between the net carrying amount of the extinguished debt of $ 10.0

million (inclusive of $ 11.8 million of principal, $ 4.2 million of debt discount and $ 2.4 million of derivative liabilities) and the reacquisition

price of the debt in the same aggregate principal amount of $ 11.8 million, plus the fair value of the new notes’ conversion features

of an aggregate of $ 3.9 million.

During the year ended December 31, 2021, the Company recognized

a gain on extinguishment of $ 2.7 million in connection with the derecognition of the net carrying amount of the extinguished debt of $ 19.7

million (inclusive of $ 13.1 million of principal, $ 7.1 million of derivative liabilities, less $ 587 thousand of debt discount) and the

recognition of the $ 17.0 million fair value of the new convertible notes (including the same principal amount of $ 13.1 million plus the

$ 3.9 million fair value of the beneficial conversion feature).

On February 1, 2021, in conjunction with the closing of the

Company’s IPO, the Notes in the aggregate principal amount of $ 13.1 million were converted into 1,697,075 shares of common stock

at the election of the Company at a conversion price of $ 7.72 per share.

16 — Derivative Liabilities

During the year ended December 31, 2020, the Company

recorded Level 3 derivative liabilities that were measured at fair value at issuance in the aggregate amount of $ 2.8 million related to

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

During the year ended December 31, 2020, the Company modified

the conversion terms of certain notes which resulted in the recognition of an additional $ 1.4 million of Level 3 derivative liabilities,

with a corresponding debit to loss on extinguishment.

See Note 15 — Convertible Promissory Notes included elsewhere in the notes

to the consolidated financial statements.

On December 31, 2020, the Company recomputed the fair value

of the variable-share settlement features recorded as derivative liabilities to be $ 7.1 million.

The Company recorded a loss of $ 2.9 million

on the change in fair value of these derivative liabilities during the year ended December 31, 2020.

The variable-share settlement features

were valued using a combination of a discounted cash flow and a Black-Scholes valuation technique.

At issuance, the significant unobservable

inputs used in the discounted cash flow were a discount rate of approximately 20 % and a probability of a Public Transaction occurring

The Black-Scholes assumptions were as follows:

Risk-free interest rate

0.09 % – 0.16 %

Dividend yield

Expected term (years)

Forfeiture rate

As of December 31, 2020, the significant unobservable inputs

used in the discounted cash flow were a discount rate of approximately 20 % and a probability of a Public Transaction occurring of 90 %.

The Black-Scholes assumptions were as follows:

Risk-free interest rate

0.09 % – 0.16 %

Dividend yield

Expected term (years)

Forfeiture rate

Note 17 — Capital Structure

On January 9, 2020, the Company increased its

authorized number of shares to 53,000,000 , consisting of:

As part of the acquisition

of PurePressure, $ 159 thousand of debt remained outstanding from a standard SBA loan as of December 31, 2021.

This debt was paid off during

the year ended December 31, 2022 as a part of the PurePressure acquisition.

As of December 31, 2022,

future minimum principal payments for all debt were as follows:

Years Ending December 31 (In thousands),

Total future payments

Note 10 — Leases

The determination if any

arrangement contained a lease at its inception was done based on whether or not the Company has the right to control the asset during

the contract period.

The lease term was determined assuming the exercise of options that were reasonably certain to occur.

a lease term of 12 months or less at inception were not reflected in the Company’s balance sheet and those lease costs are expensed

on a straight-line basis over the respective term.

Leases with a term greater than 12 months were reflected as non-current right-of-use

assets and current and non-current lease liabilities in the Company’s consolidated balance sheets.

As the implicit interest

rate in its leases was generally not known, the Company’s used its incremental borrowing rate as the discount rate for purposes

of determining the present value of its lease liabilities.

At December 31, 2022 and 2021, the Company’s weighted-average discount

rate utilized for its leases was 7.29 % and 7.16 %, respectively.

When a contract contained

lease and non-lease elements, both were accounted for as a single lease component.

The Company had several non-cancelable

finance leases for machinery and equipment.

The Company’s finance leases have remaining lease terms of one year to five years.

The Company had several non-cancelable

operating leases for corporate offices, warehouses, showrooms, research and development facilities, and vehicles.

The Company’s

leases have remaining lease terms of one year to five years, some of which include options to extend.

leases include payment for communal area maintenance associated with the property.

Additional information on the Company’s

operating and financing lease activity was as follows:

(In thousands)

Operating lease cost

Finance lease cost:

Amortization of right-of-use assets

Interest on lease liabilities

Total lease cost

(In thousands)

Balance Sheet

Right-of-use assets, net

Operating lease right-of-use assets, net

Finance lease assets

Property and equipment, net

Total lease assets

Operating lease liabilities, current

Accrued expenses and other current liabilities

Operating lease liabilities, non-current

Other non-current liabilities

Total lease liabilities

Weighted-average remaining lease term – operating leases

Weighted-average remaining lease term – finance leases

Weighted-average discount rate – operating leases

Weighted-average discount rate – finance leases

Maturities of operating and finance lease liabilities

as of December 31, 2022 were as follows:

Years Ending December 31 (In thousands),

Total minimum lease payments

Less imputed interest

Total lease liabilities

Note 11 — Convertible Promissory

On January 11, 2021, the

Company’s Board of Directors and shareholders approved the amendment to the conversion formula of the Convertible Promissory Notes

(the “Convertible Notes”) issued by the Company on dates between August 2020 and November 2020.

Pursuant to the amendment,

immediately prior to the consummation of a public transaction, the outstanding principal amount of the Convertible Notes, together with

all accrued and unpaid interest, shall convert into a number of fully paid and non-assessable shares of Common Stock, at a conversion

price of $ 1,544.00 per share.

While the original conversion

feature was bifurcated from the host instrument, the Company determined that the amended conversion feature would not require bifurcation.

Since the accounting for the conversion feature changed because of the amendment, the Company applied extinguishment accounting pursuant

to its accounting policy.

Accordingly, the Company

recognized a gain on extinguishment of $ 2.7 million in connection with the derecognition of the net carrying amount of the extinguished

debt of $ 19.7 million (inclusive of $ 13.1 million of principal and $ 7.1 million of derivative liabilities, less $ 587 thousand of debt

discount) and the recognition of the $ 17.0 million fair value of the new convertible notes (including the same principal amount of $ 13.1

million plus the $ 3.9 million fair value of the beneficial conversion feature).

On February 1, 2021, in conjunction

with the closing of the Company’s IPO, the Convertible Notes in the aggregate principal amount of $ 13.1 million were converted into

8,485 shares of Common Stock at the election of the Company at a conversion price of $ 1,544.00 per share.

Note 12 — Stockholders’ Equity

On July 11, 2022, the Company

increased its authorized number of shares to 8,000,000 , consisting of:

5,000,000 shares of Common Stock, par value $ 0.001 per share and

3,000,000 shares of preferred stock, par value $ 0.001 per share.

At that time, it also designated 100,000 shares of the 3,000,000 authorized shares

of preferred stock, par value $ 0.001 per share, as Series A Convertible Preferred Stock (“Series A Preferred Stock”).

Series A Convertible Preferred Stock

Beginning in the first quarter of 2020, the Company issued

an aggregate of 60,000 shares of Series A Preferred Stock, for an aggregate purchase price of $ 6.0 million.

In May 2020, the Company completed

an offering of Series A Preferred Stock with the issuance of an additional 40,000 shares of Series A Preferred Stock for an aggregate

purchase price of $ 4.0 million.

On January 9, 2020, the Company designated 105,000 shares of the 3,000,000

authorized shares of Preferred Stock, as Series A Convertible Preferred Stock (“Series A Preferred Stock”).

Amendment of Conversion Formulas

On January 11, 2021, the Company’s Board

of Directors approved the amendment to the conversion formula of the Series A Preferred Stock and Notes.

On January 11, 2021, the

Company’s Board of Directors approved the amendment to the conversion formula of the Series A Preferred Stock and Convertible Notes.

After the amendment:

the Series A Preferred Stock is convertible, at any time after issuance or immediately prior to the closing of a public transaction, into common stock in an amount of shares equal to (i) the product of the Series A Preferred Stock original price plus accrued but unpaid dividends on the shares being converted, multiplied by the number of shares of Series A Preferred Stock being converted, divided by (ii) a conversion price of $7.72 per share (after the reverse split taking effect);

immediately prior to the consummation of a public transaction, the outstanding principal amount of the Notes together with all accrued and unpaid interest shall convert into a number of fully paid and non-assessable shares of common stock equal to the quotient of (i) the outstanding principal amount of the Notes together with all accrued and unpaid interest thereunder immediately prior to such public transaction divided by (ii) a conversion price of $7.72 (after the reverse split taking effect).

On January 11, 2021, the Company’s shareholders

approved the amendment to the Series A Preferred Stock.

● the Series A Preferred Stock

is convertible, at any time after the issuance or immediately prior to the closing of a public transaction, into Common Stock in an amount

of shares equal to (i) the product of the Series A Preferred Stock original price plus accrued but unpaid dividends on the shares being

converted, multiplied by the number of shares of Series A Preferred Stock being converted, divided by (ii) a conversion price of $1,544.00

per share (after the reverse split taking effect);

● immediately prior to the consummation

of a public transaction, the outstanding principal amount of the Convertible Notes together with all accrued and unpaid interest shall

convert into a number of fully paid and non-assessable shares of Common Stock equal to the quotient of (i) the outstanding principal

amount of the Convertible Notes together with all accrued and unpaid interest thereunder immediately prior to such public transaction

divided by (ii) a conversion price of $1,544.00 per share (after the reverse split taking effect).

Initial Public Offering

On February 1, 2021, the Company completed an

initial public offering (“IPO”) for the sale of 5,400,000 shares of common stock at a price of $ 10.00 per share.

also granted the underwriters:

(a) a 45-day option to purchase up to 810,000 additional shares of common stock on the same terms and

conditions for the purpose of covering any over-allotments in connection with the IPO, and (b) warrants to purchase 162,000 shares of

common stock (equal to 3 % of the aggregate number of shares of common stock issued in the IPO) at an exercise price of $ 12.50 per share

(which is equal to 125 % of the IPO price).

Subsequently, the underwriters exercised the over-allotment option, and on February 4, 2021,

the Company closed on the sale of an additional 810,000 shares of common stock for a price of $ 10.00 per share and granted to the underwriters

warrants to purchase 24,300 additional shares of common stock (equal to 3 % of the amount of shares issued as part of the exercised of

the over-allotment option) at an exercise price of $ 12.50 per share.

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

of shares of common stock sold by the Company in connection with the IPO to 6,210,000 shares and the total net proceeds received in connection

with the IPO to approximately $ 57.0 million, after deducting underwriting discounts and estimated offering expenses.

Immediately prior to the closing of the Company’s

IPO, all outstanding shares of Series A Preferred Stock and Notes were converted into 1,373,038 shares of common stock and 1,697,075

shares of common stock, respectively, at a conversion price of $ 7.72 per share.

Subsequent Public Offering

On February 19, 2021, the Company consummated

a secondary public offering (the “February Offering”) for the sale of 5,555,555 shares of common stock for a price of $ 13.50

The Company also granted the underwriters:

(a) a 45-day option to purchase up to 833,333 additional shares of common stock

on the same terms and conditions for the purpose of covering any over-allotments in connection with the February Offering, and (b) warrants

to purchase 166,667 shares of common stock (equal to 3 % of the aggregate number of shares of common stock issued in the February Offering)

at an exercise price of $ 16.875 per share (which is equal to 125 % of the February Offering).

Subsequently, the underwriters exercised

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

a price of $ 13.50 per share and granted to the underwriters warrants to purchase 25,000 additional shares of common stock (equal to 3 %

of the amount of shares issued as part of the exercised of the over-allotment option) at an exercise price of $ 16.875 per share.

exercise of the over-allotment option brought the total number of shares of common stock sold by the Company in connection with the February

Offering to 6,388,888 shares and the total net proceeds received in connection with the February Offering to approximately $ 80 million,

On February 1, 2021, the

Company completed an IPO for the sale of 27,000 shares of Common Stock at a price of $ 2,000.00 per share.

The Company also granted the

underwriters a 45-day option to purchase up to 4,050 additional shares of Common Stock on the same terms and conditions for the purpose

of covering any over-allotments in connection with the IPO, and warrants to purchase 810 shares of Common Stock (equal to 3 % of the aggregate

number of shares of Common Stock issued in the IPO) at an exercise price of $ 2,500.00 per share (which is equal to 125 % of the IPO price).

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

4,050 shares of Common Stock for a price of $ 2,000.00 per share and granted to the underwriters warrants to purchase 121 additional shares

of Common Stock (equal to 3 % of the amount of shares issued as part of the exercised of the over-allotment option) at an exercise price

of $ 2,500.00 per share.

The exercise of the over-allotment option brought the total number of shares of Common Stock sold by the Company

in connection with the IPO to 31,050 shares and the total net proceeds received in connection with the IPO to approximately $ 57 million,

after deducting underwriting discounts and estimated offering expenses.

Immediately prior to the

closing of the Company’s IPO, all outstanding shares of Series A Preferred Stock and Convertible Notes were converted into 6,865

shares of Common Stock and 8,485 shares of Common Stock, respectively, at a conversion price of $ 1,544.00 per share.

Subsequent Public Offering

On February 19, 2021, the

Company consummated the February Offering for the sale of 27,778 shares of Common Stock for a price of $ 2,700.00 per share.

also granted the underwriters a 45-day option to purchase up to 4,167 additional shares of Common Stock on the same terms and conditions

for the purpose of covering any over-allotments in connection with the February Offering, and warrants to purchase 833 shares of Common

Stock (equal to 3 % of the aggregate number of shares of Common Stock issued in the February Offering) at an exercise price of $ 3,375.00

per share (which is equal to 125 % of the February Offering).

Subsequently, the underwriters exercised the over-allotment option, and on

March 22, 2021, the Company closed on the sale of an additional 4,167 shares of Common Stock for a price of $ 2,700.00 per share and granted

to the underwriters warrants to purchase 125 additional shares of Common Stock (equal to 3 % of the amount of shares issued as part of

the exercised of the over-allotment option) at an exercise price of $ 3,375.00 per share.

The exercise of the over-allotment option brought

the total number of shares of Common Stock sold by the Company in connection with the February Offering to 31,944 shares and the total

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

estimated offering expenses.

Underwriter Termination

On September 14, 2021, the Company entered into a letter agreement and waiver (the

“Letter Agreement”), to amend the terms of its underwriting agreement with the representative of the underwriters in the IPO.

Pursuant to the Letter Agreement, the representative agreed to waive the right of first refusal included in the underwriting agreement

in consideration of (i) a cash payment to the representative of $ 2.4 million and (ii) the right to participate as a co-manager with ten

percent ( 10 %) of the economics with respect to the Company’s next public offering of securities, payable in cash upon the closing

of such offering.

Stock Subscriptions Receivable

The outstanding balance of the stock subscription

was paid in January 2020.

Issuance of Common Stock in Connection with Acquisitions

On September 20, 2021, as part of the acquisition

of HMH, the Company issued an aggregate of 8,000 shares of common stock to an executive of HMH for achieving certain milestones from the

acquisition date through March 31, 2021.

The common shares were valued at $ 176 thousand based on the Company’s closing stock price

on September 20, 2021.

The value of the shares is included in research and development in the condensed consolidated statements of operations.

Refer to Note 13 – Business Combinations included elsewhere in the notes to the consolidated financial statements.

On October 1, 2021, the Company issued an aggregate

of 666,403 shares of its common stock to the Precision and Cascade shareholders in connection with the Company’s acquisition

of Precision and Cascade.

Refer to Note 13 – Business Combinations included elsewhere in the notes to the consolidated financial

On December 31, 2021, the Company issued an aggregate

of 240,301 shares of its common stock to the PurePressure shareholders in connection with the Company’s acquisition of PurePressure.

Refer to Note 13 – Business Combinations included elsewhere in the notes to the consolidated financial statements.

Stock Option Plan

On September 4, 2019, the Company adopted and approved the

2019 Stock Option Plan (the “2019 Plan”) which provided for the issuance of 1,743,744 shares of its common stock.

10, 2020 and October 8, 2020, the Company’s board of directors and stockholders, respectively, approved an increase to the maximum

number of shares of common stock authorized for issuance over the term of the 2019 Plan from 1,743,744 shares to 3,355,083 shares.

of December 31, 2021, there are no shares available to be granted under the 2019 Plan.

Prior to the consummation of the Company’s

IPO, the Company cancelled the 2019 Plan and converted the outstanding stock options to the 2020 Plan, as more fully described below.

Under the 2019 Plan, the standard vesting schedule provided that 25 % of the options vest 12 months following issuance and the balance

vests in 36 equal monthly installments thereafter.

However, the Company’s board of directors was permitted to provide for alternative

or accelerated vesting schedules in approving each stock option grant.

In many cases, the Company’s Board of Directors included

an accelerated vesting schedule under which 50 % of the stock options granted vest immediately prior to a change of control transaction

or the Company’s first underwritten public offering.

On September 14, 2021, the

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

with the representative of the underwriters in the IPO.

Pursuant to the Letter Agreement, the representative agreed to waive the right

of first refusal included in the underwriting agreement in consideration of a cash payment to the representative of $ 2.4 million and the

right to participate as a co-manager with 10 % of the economics with respect to the Company’s next public offering of securities,

payable in cash upon the closing of such offering.

Private Placement

On January 25, 2022, the

Company entered into a Securities Purchase Agreement (the “Securities Agreement”) with an institutional investor and other

accredited investors for the sale by the Company of 12,253 shares (the “SA Shares”) of 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.

Subject to certain ownership limitations, the SA Warrants are exercisable

six months from issuance.

Each Pre-Funded Warrant was 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, Chairman and

Chief Executive Officer (“CEO”) of the Company, and Stuart Wilcox, who formerly served as our Chief Operating Officer, and

at the time he was a member of the Company’s 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 the

Company from the private placement were approximately $ 27.3 million, before deducting the placement agent’s fees and other

offering expenses, and excluding the proceeds, if any, from the exercise of the SA Warrants.

of Common Stock in Connection with Acquisitions

On October 1, 2021, the Company

issued an aggregate of 3,332 shares of its Common Stock to the Precision and Cascade shareholders in connection with the Company’s

acquisition of Precision and Cascade.

On August 17, 2022, the Company issued an additional 435 shares of its Common Stock to the

Precision and Cascade shareholders for contingent liabilities.

Refer to Note 8 – Business

Combinations, included elsewhere in the notes to the consolidated financial statements.

On December 31, 2021, the

Company issued an aggregate of 1,202 shares of its Common Stock to the PurePressure shareholders in connection with the Company’s

acquisition of PurePressure.

On January 31, 2023 , the remaining 372 Holdback Buyer Shares were released,

including 6 Holdback Buyer Shares that were withheld to cover a tax indemnification claim in accordance with the Purchase Agreement.

Additional information regarding the PurePressure Holdback Buyer Shares may be found in Note 8 –

Business Combinations, included elsewhere in the notes to the consolidated financial statements.

On February 1, 2022, the

Company issued an aggregate of 1,491 shares of its Common Stock to the Lab Society shareholders in connection with the Company’s

acquisition of Lab Society.

On April 28, 2023, the Company issued the remaining 499 Holdback Buyer

Shares to the Lab Society Owners in accordance with the Lab Society Merger Agreement.

to Note 8 – Business Combinations, included elsewhere in the notes to the consolidated financial statements.

At The Marketing Offering

On October 18, 2022, the

Company entered into the ATM Program with the Agent pursuant to which it may issue and sell, from time to time, shares of its 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.

ATM Program allowed the Company to sell shares of Common Stock pursuant to specific parameters defined by the Company as well as those

defined by the SEC and the ATM Program agreement.

As of December 31, 2022, the Company sold 306,628 shares of Common Stock, under the

ATM at an average price of $ 50.85 per share, resulting in gross proceeds of $ 15.6 million, and net proceeds of $ 15.0 million after commissions

and fees to the Agent totaling $ 468 thousand and legal fees totaling $ 75 thousand.

$ 3.0 million of the proceeds under the ATM Program

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

The Company used 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, the Company is no longer

eligible to utilize the registration statement on Form S-3 relating to the ATM Program, and does not anticipate any further sales under

the ATM Program in the foreseeable future.

Confidentially Marketed Public Offering

On December 16, 2022, the

Company issued 594,232 shares of its Common Stock, Pre-Funded 2022 Warrants to purchase 75,000 shares of its Common Stock, and accompanying

December 2022 Warrants to purchase 1,338,462 shares of the Company’s Common Stock.

The Company received net proceeds from the Offering

of approximately $ 8.2 million, after deducting underwriting discounts and commissions, and estimated expenses.

The Company used 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.

The Pre-Funded 2022 Warrants

were exercisable immediately upon issuance at an exercise price of $ 0.001 per share and do not have an expiration date.

The December 2022

Warrants were exercisable immediately and have a term of exercise equal to five years from the initial exercise date at an exercise price

of $13.00 per share.

The offering price for the securities was $ 13.00 per share (or $ 12.98 for each Pre-Funded 2022 Warrant).

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 the Company’s Common Stock then outstanding (subject to the right of the holder to increase or

decrease such beneficial ownership limitation upon notice to the Company, provided that such limitation cannot exceed 9.99 %) and provided

that any increase in the beneficial ownership limitation shall not be effective until the sixty-first day after such notice is delivered.

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 the Company’s own stock.

As of December 31, 2022,

the Company valued the December 2022 Warrants using the Black-Scholes option-pricing model and determined the fair value at $ 5.9 million.

The key inputs to the valuation model included the annualized volatility of 98.0 % and the expected term of about 5 years.

Raymond Chang, Chairman and

CEO, participated in the Offering and purchased 115,385 shares of Common Stock and 230,769 December 2022 Warrants for an aggregate purchase

price of approximately $ 1.5 million.

Additional information regarding

the Company’s December 2022 Warrants may be found in Note 1 – Overview, Basis

of Presentation, and Significant Accounting Policies and Note 4 – Fair Value Measures, included

elsewhere in the notes to the consolidated financial statements.

Note 13 — Stock-Based

Compensation and Employee Benefit Plans

2022 Omnibus Equity Incentive Plan

On December 18, 2020, the Company’s Board of Directors,

and on January 11, 2021, the Company’s stockholders, adopted and approved the 2020 Omnibus Equity Incentive Plan (the “2020

Plan”), which replaced the 2019 Plan.

The 2020 Plan provides for the grant of stock options, SARs, performance share awards, performance

unit awards, distribution equivalent right awards, restricted stock awards, restricted stock unit awards and unrestricted stock awards

to non-employee directors, officers, employees and non-employee consultants of the Company or its affiliates.

The aggregate number of

shares of common stock that may be reserved and available for grant and issuance under the 2020 Plan is 4,533,732 shares.

be deemed to have been issued under the 2020 Plan solely to the extent actually issued and delivered pursuant to an award.

granted under the 2019 Plan or the 2020 Plan expires, is cancelled, or terminates unexercised or is forfeited, the number of shares subject

thereto is again available for grant under the 2020 Plan.

The 2020 Plan shall continue in effect, unless sooner terminated, until the

tenth (10 th ) anniversary of the date on which it is adopted by the Board of Directors.

Stock-based Compensation

The Company’s stock option compensation expense was $ 5.6 million and $ 1.9

million for the years ended December 31, 2021 and 2020, respectively, and there was $ 3.7 million of total unrecognized compensation cost

related to unvested options granted under the Company’s options plans as of December 31, 2021.

This stock option expense will be

recognized through 2025.

The fair value of each option is estimated on

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

This model incorporates certain assumptions for inputs including a risk-free

market interest rate, expected dividend yield of the underlying common stock, expected option life, and expected volatility in the market

value of the underlying common stock.

The following table summarizes the Company’s

assumptions used in the valuation of options granted during the year ended December 31, 2021:

Risk-free interest rate

1.10 % – 1.63 %

Dividend yield

0% Expected life (years)

Forfeiture rate

On April 29, 2022, the Company’s

Board of Directors, and on June 8, 2022, the Company’s stockholders, adopted and approved the 2022 Omnibus Equity Incentive Plan

(the “2022 Plan”), which replaced the 2020 Stock Option Plan (the “2020 Plan”).

The 2022 Plan provides for the

grant of stock options, stock appreciation right awards, performance share awards, restricted stock awards, restricted stock unit awards,

other stock-based awards, and cash-based awards.

The aggregate number of shares of Common Stock that may be reserved and available for

grant and issuance under the 2022 Plan is 26,483 shares, which includes the 10,000 shares authorized under the 2022 Plan, plus the rollover

of 16,483 issued and outstanding awards under the 2020 Plan.

Shares will be deemed to have been issued under the 2022 Plan solely to the

extent actually issued and delivered pursuant to an award.

If any award granted under the 2020 Plan or the 2022 Plan expires, is canceled,

terminates unexercised, or is forfeited, the number of shares subject thereto is again available for grant under the 2022 Plan.

Plan shall continue in effect, unless sooner terminated, until the tenth anniversary of the date on which it is adopted by the Board of

As of December 31, 2022, there were 4,104 shares of Common Stock available to be granted under the Company’s 2022

Company’s stock option compensation expense was $ 4.3 million and $ 5.6 million for the years ended December 31, 2022 and

2021, respectively.

Stock Options

Stock options granted under

the Company’s 2022 Plan are generally non-qualified and are granted with an exercise price equal to the market price of the

Company’s Common Stock on the date of grant.

The fair value of each option grant was estimated on the date of the 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.

No stock options were granted during the year ended December 31, 2022.

The following table summarizes the Company’s

5 unchanged sentences

Forfeiture rate

The Black-Scholes option-pricing model was developed

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

In addition, option

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

Because the Company’s

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

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

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

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

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

The expected dividend yield is based upon the Company’s

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

calculates the expected volatility of the stock price based on the corresponding volatility of the Company’s peer group stock price

for a period consistent with the underlying instrument’s expected term.

The expected lives for such grants were based on the simplified

method for employees and directors.

In arriving at stock-based compensation expense,

the Company estimates the number of stock-based awards that will be forfeited due to employee turnover.

The Company’s forfeiture

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

If the actual forfeiture rate is higher than the estimated forfeiture

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

in the Company’s financial statements.

If the actual forfeiture rate is lower than the estimated forfeiture rate, then an adjustment

will be made to lower the estimated forfeiture rate, which will result in an increase to expense recognized in the Company’s financial

The expense the Company recognizes in future periods will be affected by changes in the estimated forfeiture rate and may

differ significantly from amounts recognized in the current period.

Stock Option Activity

As of December 31, 2021, there were 311,823 shares

available to be granted under the Company’s 2020 Plan.

The following table presents option activity

under the Company’s stock option plans for the years ended December 31, 2020 and 2021:

(Dollar Amounts, Excluding Exercise Price, in Thousands)

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.

The risk-free interest rate is based upon quoted market yields for United States Treasury debt securities with a term similar to

the expected term.

The expected dividend yield is based upon the Company’s history of having never issued a dividend and management’s

current expectation of future action surrounding dividends.

The Company calculates the expected volatility of the stock price based on

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

expected term.

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

In arriving at stock-based

compensation expense, the Company estimates the number of stock-based awards that will be forfeited due to employee turnover.

The Company’s

forfeiture assumption is based primarily on its employee turnover historical experience.

If the actual forfeiture rate is higher than

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

to the expense recognized in the Company’s 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 the Company’s consolidated financial statements.

The expense the Company recognizes in future periods will be affected by changes

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

The following table presents

option activity under the Company’s stock option plans for the years ended December 31, 2022 and 2021:

(In thousands, except share and per share data)

Options outstanding at December 31, 2020

Forfeited/Expired/Cancelled

Options outstanding at December 31, 2021

Forfeited/Expired/Cancelled

Options outstanding at December 31, 2022

Options vested and exercisable as of December 31, 2022

Options vested and expected to vest as of December 31, 2021

Total recognized compensation

expense related to the Company’s stock option plans for the years ended December 31, 2022 and 2021 was $ 3.5 million and $ 5.6 million,

respectively.

As of December 31, 2022, total unrecognized compensation expense related to unvested options under the Company’s

option plans was $ 2.9 million, which is expected to be recognized over a weighted average period of 7.84 years.

The following table summarizes information about

5 unchanged sentences

Exercise Price

The following table summarizes information about

options expected to vest after December 31, 2021:

Options Vested to

Expected to Vest

Remaining Contractual

Weighted Average

Exercise Price

As of December 31, 2021, warrants to purchase

271,844 shares of common stock were outstanding.

The following table presents the Company’s warrant activity for the years

ended December 31, 2021 and 2020:

$ 1,536.00-1,840.00

$ 2,768.00-3,722.00

Restricted Stock Units

Under the 2022 Plan, the

Company may grant restricted stock units to employees, directors, and officers.

The restricted stock units granted generally vest equally

over periods ranging from one to three years.

The fair value of restricted stock units is determined based on the closing

market price of the Company’s Common Stock on the date of grant.

Compensation expense related to the restricted stock units is recognized

using a straight-line attribution method over the vesting period.

The following table presents restricted stock

unit activity under the 2022 Plan for the year ended December 31, 2022:

Balance at December 31, 2021

Balance at December 31, 2022

Total recognized compensation

expense related to the Company’s restricted stock units for the years ended December 31, 2022 and 2021 was $ 818,000 and $ 0 , respectively.

As of December 31, 2022, total unrecognized compensation expense related to unvested restricted stock units was $ 1.4 million, which

is expected to be recognized over a weighted average period of 2.59 years.

2022 Employee Stock

Purchase Plan

On April 29, 2022, the Company’s

Board of Directors, and on June 8, 2022, the Company’s stockholders, adopted and approved the 2022 Employee Stock Purchase Plan

The Company has initially reserved 2,500 shares of Common Stock for issuance under the ESPP.

31, 2022, 2,500 shares were available for future issuance.

Under the ESPP, eligible employees are granted options to purchase

shares of Common Stock at the lower of 85 % of the fair market value of the stock at the time of grant or 85 % of the fair market

value at the time of exercise.

Options to purchase shares are granted twice yearly on or about August 1 and February 1 and are exercisable

on or about the succeeding January 31 and July 31, respectively, of each year.

No participant may purchase more than $ 25 thousand worth

of Common Stock annually.

No Common Stock was granted under the 2022 ESPP during the year ended December 31, 2022.

Employee Benefit Plan

The Company maintains an

employee’s savings and retirement plan under Section 401(k) of the Internal Revenue Code (the “401(k) Plan”).

full-time U.S.

employees become eligible to participate in the 401(k) Plan.

The Company’s contribution to the 401(k) Plan is discretionary.

During the years ended December 31, 2022 and 2021, the Company did not contribute to the 401(k) Plan.

Note 14 — Stock Warrants

The following table presents

all warrant activity of the Company for the years ended December 31, 2022 and 2021:

Warrants outstanding at December 31, 2020

1 unchanged sentence

Warrants outstanding at December 31, 2022

The Company received proceeds from the exercise of warrants of $ 8 thousand

during the year ended December 31, 2021.

No warrants were exercised during the year ended December 31, 2020.

Subsequent to December 31, 2021, the Company completed a

private placement of our common stock and entered into a securities purchase agreement.

Both of these arrangements include warrant issuance

On January 25, 2022, the Company issued a total of 4,586,389 warrants in connection with the private placement entered into

with an institutional investor and other accredited investors.

The warrant issuance included 1,570,644 pre-funded warrants, with an exercise

price of $ 0.001 , and 3,015,745 warrants with exercise prices ranging between $ 6.80 and $ 6.90 .

On March 23, 2022, the Company issued a

total of 6,881,108 warrants in connection with its entrance into a securities purchase agreement with an accredited investor.

issued have an exercise price of $ 6.75 .

Refer to Note 23 – Subsequent Events included elsewhere in the notes to the consolidated

financial statements.

Note 18 — Employee Benefit Plan

The Company maintains an employee’s savings

and retirement plan under Section 401(k) of the Internal Revenue Code (the “401k Plan”).

All full-time U.S.

become eligible to participate in the 401k Plan.

The Company’s contribution to the 401k Plan is discretionary.

During the years

ended December 31, 2021 and 2020, the Company did not contribute to the 401k Plan.

The Company received proceeds

from the exercise of warrants of $ 2 thousand and $ 8 thousand for the years ended December 31,

2022 and 2021, respectively.

Note 15 — Income Taxes

On March 27, 2020, the Coronavirus Aid, Relief

and Economic Security (CARES) Act was enacted and signed into law.

GAAP requires recognition of the tax effects of new legislation

during the reporting period that includes the enactment date.

The CARES Act includes changes to the tax provisions that benefits business

entities and makes certain technical corrections to the 2017 Tax Cuts and Jobs Act.

The tax relief measures for businesses include a

five-year net operating loss carryback, suspension of the annual deduction limitation of 80 % of taxable income from net operating losses

generated in a tax year beginning after December 31, 2017, changes to the deductibility of interest, acceleration of alternative minimum

tax credit refunds, payroll tax relief, and a technical correction to allow accelerated deductions for qualified improvement property.

The CARES Act also provides other non-tax benefits to assist those impacted by the COVID-19 pandemic.

The Company evaluated the impact

of the CARES Act and determined that its adoption did not have a material impact to the income tax provision for the years ended December

31, 2021 or December 31, 2020, respectively.

For the period ended December 31, 2021, the Company

recorded a tax provision of approximately $ 25 thousand, comprised of its change in deferred tax liability during the year related to its

indefinite lived intangible asset balance.

The indefinite lived intangibles are not all available as a source of income and thus are not

fully available to offset the Company’s deferred tax assets.

As of December 31, 2021, the Company has federal and state net operating

loss carryforwards of approximately $ 52.2 million and $ 28.9 million, respectively.

The Company has not yet filed its federal and state

tax returns for 2018, 2019, or 2020.

The net operating loss carryforwards for United States income taxes may be available to reduce future

years’ taxable income.

Management believes that the realization of the benefits from these losses appears not more than likely due

to the Company’s limited operating history and continuing losses for United States income tax purposes.

Accordingly, the Company

has provided a 100 % valuation allowance on its net operating loss carryforward deferred tax assets to reduce the assets to zero.

will review this valuation allowance periodically and make adjustments as necessary.

The following table summarizes the significant

differences between the U.S.

Federal statutory tax rate and the Company’s effective tax rate for financial statement purposes for

the years ended December 31, 2021 and 2020:

On March 27, 2020, the CARES Act was enacted and signed into law.

requires recognition of the tax effects of new legislation during the reporting period that includes the enactment date.

The CARES Act

includes changes to the tax provisions that benefits business entities and makes certain technical corrections to the 2017 Tax Cuts and

The tax relief measures for businesses include a five-year net operating loss carryback, suspension of the annual deduction

limitation of 80 % of taxable income from net operating losses generated in a tax year beginning after December 31, 2017, changes to the

deductibility of interest, acceleration of alternative minimum tax credit refunds, payroll tax relief, and a technical correction to allow

accelerated deductions for qualified improvement property.

The CARES Act also provides other non-tax benefits to assist those impacted

by the COVID-19 pandemic.

The Company evaluated the impact of the CARES Act and determined that its adoption did not have a material impact

to the income tax provision for the years ended December 31, 2022 or December 31, 2021, respectively.

For the period ended December

31, 2022, the Company recorded a tax provision of approximately $ 23 thousand, comprised of its change in deferred tax liability during

the year related to its indefinite-lived intangible asset balance.

The indefinite-lived intangibles are not all available as a source

of income and thus are not fully available to offset the Company’s deferred tax assets.

As of December 31, 2022, the Company has

federal and state net operating loss carryforwards of approximately $ 96.7 million and $ 71.6 million, respectively.

The net operating loss

carryforwards for United States income taxes may be available to reduce future years’ taxable income.

Management believes that the

realization of the benefits from these losses appears not more than likely due to the Company’s limited operating history and continuing

losses for United States income tax purposes.

Accordingly, the Company has provided a 100 % valuation allowance on its net operating loss

carryforward deferred tax assets to reduce the assets to zero.

Management will review this valuation allowance periodically and adjust

as necessary.

The following table summarizes

the significant differences between the U.S.

Federal statutory tax rate and the Company’s effective tax rate for financial statement

purposes for the years ended December 31, 2022 and 2021:

US Federal statutory tax rate

2 unchanged sentences

Derivative liabilities

Stock-based compensation

Intangible Asset Impairment

Debt discount

Prior period adjustments to opening deferred tax

Stock-based compensation

Change in valuation allowance

The tax effects of temporary differences that

give rise to deferred tax assets and liabilities as of December 31, 2021 and 2020 are summarized as follows:

(Dollar Amounts in Thousands)

The tax effects of temporary

differences that give rise to deferred tax assets and liabilities as of December 31, 2022 and 2021 were as follows:

(In thousands)

Net operating loss carryforward

1 unchanged sentence

Stock-based compensation

Intangible Assets

Capitalized Sec.

Research and development tax credit carryforward

5 unchanged sentences

Debt discount

Right of use asset

Right-of-use assets

Deferred commissions

Total deferred tax liabilities

Net deferred tax liabilities

The Company recognizes federal and state deferred

tax assets or liabilities based on the Company’s estimate of future tax effects attributable to temporary differences and carryovers.

The Company records a valuation allowance to reduce any deferred tax assets by the amount of any tax benefits that, based on available

evidence and judgment, are not expected to be realized.

In assessing the realizability of deferred tax assets, the Company considers whether

it is more likely than not that some portion or all of the deferred tax assets will be realized.

The ultimate realization of deferred

tax assets is dependent upon the generation of future taxable income during periods in which those temporary differences become deductible.

The Company considers projected future taxable income and planning strategies in making this assessment.

As of December 31, 2021, as a

result of a three-year cumulative loss and recent events, the Company concluded that a full valuation allowance was necessary to offset

its deferred tax assets.

The Company also has indefinite lived intangibles and goodwill which generate a deferred tax liability that is

not available to fully offset its deferred tax assets due to uncertainty as to when the deferred tax liability will reverse as a source

of taxable income.

As a result, the Company is in a net deferred tax liability position as of December 31, 2021.

The Company intends to

maintain a valuation allowance until sufficient positive evidence exists to support its reversal.

The Company will continue to evaluate

its deferred tax balances to determine any assets that are more likely than not to be realized.

As of December 31, 2021, the Company had federal

and state income tax net operating loss carryovers $ 52.2 million and $ 28.9 million, respectively.

Of the federal balance, approximately

$ 675 thousand will expire if not utilized by 2037 and $ 51.5 million carry forward indefinitely but are only available to offset 80 % of

taxable income per year.

As of December 31, 2021, the Company also had federal research credits of approximately $ 571 thousand that will

expire if not utilized by 2041.

The utilization of the Company’s net operating loss carryforwards and research tax credit carryovers

could be subject to annual limitations under Section 382 and 383 of the Internal Revenue Code of 1986, and similar state tax provisions

due to ownership change limitations that may have occurred previously or that could occur in the future.

These ownership changes limit

the amount of net operating loss carryforwards and other deferred tax assets that can be utilized to offset future taxable income and

tax, respectively.

In general, an ownership change, as defined by Section 382 and 383, results from transactions increasing ownership

of certain stockholders or public groups in the stock of the corporation by more than 50 percent points over a three-year period.

Company has not conducted an analysis of an ownership change under section 382.

To the extent that a study is completed, and an ownership

change is deemed to occur, the Company’s net operating losses and tax credits could be limited.

The Company does not have any uncertain tax positions

or events leading to uncertainty in a tax position.

The Company’s 2016 through 2021 corporate income tax returns are subject to

Internal Revenue Service examination.

In addition, to the extent that tax attributes are utilized in future years to offset taxable income

or income taxes, the IRS and state taxing authorities have the ability to examine the years in which those attributes were generated

and adjust the attributes.

The Company recognizes federal and state deferred tax assets or liabilities

based on the Company’s estimate of future tax effects attributable to temporary differences and carryovers.

The Company records

a valuation allowance to reduce any deferred tax assets by the amount of any tax benefits that, based on available evidence and judgment,

are not expected to be realized.

In assessing the realizability of deferred tax assets, the Company considers whether it is more likely

than not that some portion or all the deferred tax assets will be realized.

The ultimate realization of deferred tax assets is dependent

upon the generation of future taxable income during periods in which those temporary differences become deductible.

The Company considers

projected future taxable income and planning strategies in making this assessment.

As of December 31, 2021, because of a three-year cumulative

loss and recent events, the Company concluded that a full valuation allowance was necessary to offset its deferred tax assets.

also has indefinite-lived intangibles and goodwill which generate a deferred tax liability that is not available to fully offset its deferred

tax assets due to uncertainty as to when the deferred tax liability will reverse as a source of taxable income.

As a result, the Company

is in a net deferred tax liability position as of December 31, 2022.

The Company intends to maintain a valuation allowance until sufficient

positive evidence exists to support its reversal.

The Company will continue to evaluate its deferred tax balances to determine any assets

that are more likely than not to be realized.

As of December 31, 2022, the Company had federal and state income tax net operating loss

carryovers $ 96.7 million and $ 71.6 million, respectively.

Of the federal balance, approximately $ 675 thousand will expire if not utilized

by 2037 and $ 96.0 million carry forward indefinitely but are only available to offset 80 % of taxable income per year.

As of December 31,

2022, the Company also had federal research credits of approximately $ 1.1 million that will expire if not utilized by 2041.

The utilization

of the Company’s net operating loss carryforwards and research tax credit carryovers could be subject to annual limitations under

Section 382 and 383 of the Internal Revenue Code of 1986, and similar state tax provisions due to ownership change limitations that may

have occurred previously or that could occur in the future.

These ownership changes limit the amount of net operating loss carryforwards

and other deferred tax assets that can be utilized to offset future taxable income and tax, respectively.

In general, an ownership change,

as defined by Section 382 and 383, results from transactions increasing ownership of certain stockholders or public groups in the stock

of the corporation by more than 50 percent points over a three-year period.

The Company has not conducted an analysis of an ownership

change under section 382.

To the extent that a study is completed, and an ownership change is deemed to occur, the Company’s net

operating losses and tax credits could be limited.

The Company does not have

any uncertain tax positions or events leading to uncertainty in a tax position.

The Company’s 2017 through 2021 corporate income

tax returns are subject to Internal Revenue Service examination.

In addition, to the extent that tax attributes are utilized in future

years to offset taxable income or income taxes, the IRS and state taxing authorities can examine the years in which those attributes were

generated and adjust the attributes.

Note 16 — Net Loss Per Share

Net loss per share calculations for all periods

have been adjusted to reflect the reverse stock split effected on January 12, 2021.

Net loss per share was calculated based on the weighted

average number of common stock then outstanding.

Basic net loss per share is calculated using

the weighted-average number of common shares outstanding during the periods.

Net loss per share, assuming dilution, is calculated using

the weighted-average number of common shares outstanding and the dilutive effect of all potentially dilutive securities, including common

stock equivalents and convertible securities.

Net loss per share, assuming dilution, is equal to basic net loss per share because the

effect of dilutive securities outstanding during the periods, including options and warrants computed using the treasury stock method,

Net loss per share calculations

for all periods have been adjusted to reflect the Company’s reverse stock splits.

Net loss per share was calculated based on the

weighted-average number of the Company’s Common Stock outstanding.

Basic net loss per share

is calculated using the weighted-average number of Common Stock outstanding during the periods.

Diluted net loss per share is computed

by giving effect to all potential shares of Common Stock, including outstanding stock options, stock related to unvested restricted stock

units, and outstanding warrants to the extent dilutive.

Net loss per share, assuming dilution, is equal to basic net loss per share because

the effect of dilutive securities outstanding during the periods, including options and warrants computed using the treasury stock method,

is anti-dilutive.

The components of basic and diluted net loss

per share were as follows:

Amounts, Excluding Per Share Amounts, in Thousands)

Net loss attributable

to Agrify Corporation

dividend attributable to Preferred A Stockholders

available for common shareholders

Weighted-average common shares

outstanding – basic and diluted

per share attributable to common stockholders – basic and diluted

As of December 31, 2021 and 2020, the Company

excluded the following securities from net loss per share as the effect of including them would have been anti-dilutive.

The shares shown

represent the number of shares of common stock which would be issued upon conversion in the respective years shown below:

Options outstanding

Warrants outstanding

The components of basic and diluted net loss per

share were as follows:

(In thousands, except share and per share data)

Net loss attributable to Agrify Corporation

$ ( 188,173 )

Accrued dividend attributable to Preferred A Stockholders

Net loss available for Common Stockholders

$ ( 188,173 )

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

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

Company’s potential dilutive securities, which include stock options, restricted stock units, and warrants, have been excluded from

the computation of diluted net loss per share as the effect would be to reduce the net loss per share.

Therefore, the weighted-average

number of Common Shares outstanding used to calculate both basic and diluted net loss per share attributable to Common Stockholders is

The Company excluded the following potential Common Stock equivalents presented based on amounts outstanding at each period

end, from the computation of diluted net loss per share attributable to Common Stockholders for the periods indicated because including

them would have had an anti-dilutive effect:

Shares subject to outstanding stock options

Shares subject to unvested restricted stock units

Shares subject to outstanding warrants

Note 17 — Commitments and Contingencies

The determination if any arrangement contained

a lease at its inception was done based on whether or not the Company has the right to control the asset during the contract period.

The lease term was determined assuming the exercise of options that were reasonably certain to occur.

Leases with a lease term of 12

months or less at inception were not reflected in the Company’s balance sheet and those lease costs are expensed on a straight-line

basis over the respective term.

Leases with a term greater than 12 months were reflected as non-current right-of-use assets and current

and non-current lease liabilities in the Company’s consolidated balance sheets.

As the implicit interest rate in its leases was

generally not known, the Company’s used its incremental borrowing rate as the discount rate for purposes of determining the present

value of its lease liabilities.

At December 31, 2021, the Company’s weighted average discount rate utilized for its leases was

When a contract contained lease and non-lease

elements, both were accounted as a single lease component.

The Company had several non-cancellable finance

leases for machinery and equipment.

The Company’s finance leases have remaining lease terms of one year to five years.

The Company had several non-cancellable operating

leases for corporate offices, warehouses, showrooms, research and development facilities and vehicles.

The Company’s leases have

remaining lease terms of one year to five years, some of which include options to extend.

Some leases include

payment for common area maintenance associated with the property.

Additional information of the Company’s lease

activity, for the years ended December 31, 2021 and 2020, is as follows:

(Dollar Amounts in Thousands)

Operating lease cost

Finance lease cost:

Amortization of right-of-use assets

Interest on lease liabilities

Short-term lease cost

Total lease cost

Weighted-average remaining lease term – finance leases

Weighted-average remaining lease term – operating leases

Weighted-average discount rate – finance leases

Weighted-average discount rate – operating leases

(Dollar Amounts in Thousands)

Right-of-use assets, net

Operating lease liabilities, current

Operating lease liabilities, non- current

Total operating lease liabilities

Finance lease liabilities, current

Finance lease liabilities, non- current

Total finance lease liabilities

Maturities of operating and finance lease liabilities

as of December 31, 2021 are as follows:

(Dollar Amounts in Thousands)

For the year ending December 31,

Total minimum lease payments

Less imputed interest

Total lease liabilities

Legal Proceedings

On January 5, 2021, the Company received a demand

letter from Nicholas Cooper and Richard Weinstein (two of the Company’s former employees) and one of Mr.

Cooper’s affiliated

entities, asserting that Messrs.

Cooper and Weinstein were entitled to compensation arising out of their employment by the Company, and

their partial ownership of TriGrow Systems, LLC.

The demand letter asserts that the former employees are due certain sales commissions

under their applicable bonus plan, equity earn-outs based on certain sales targets, and various equity purchases through the Company’s

employee stock ownership plan.

The demand letter also asserts various employment claims, including but not limited to, statutory wage

withholding violations, wrongful termination, breach of contract, breach of the duty of good faith and fair dealing, fraud in the inducement,

promissory estoppel, minority shareholder oppression, breach of fiduciary duty, unjust enrichment, and violations of state and federal

securities laws.

On January 19, 2021, Messrs.

Cooper and Weinstein

filed a lawsuit against the Company in the United States District Court for the Western District of Washington, alleging the same claims

made in their demand letter based on the facts disclosed above.

The plaintiffs are seeking relief in the form of monetary damages in an

amount to be determined.

Cooper and Weinstein are also seeking relief in the form of reinstatement and Mr.

Weinstein is seeking

rescission of his Release of Claims Agreement.

On March 10, 2021, the Company moved to dismiss all Cooper and Weinstein’s claims,

asserting that the claims failed to allege legal grounds for relief.

On May 12, 2021, a Magistrate issued a preliminary Report and Recommendation,

which recommended dismissal of certain of Cooper and Weinstein’s claims, and recommended others for additional factual discovery.

On July 27, 2021, a District Judge entered an order partially adopting the Report and Recommendation, dismissing one claim with prejudice,

dismissing a second claim with leave to amend, and permitting the remaining claims to proceed.

Additionally, on July 29, 2021, the Company filed

a separate arbitration in Boston, Massachusetts against Cooper and Weinstein, in which the Company alleges that Cooper and Weinstein

were liable for certain conduct during the time they were TriGrow employees, including breach of fiduciary duty, unjust enrichment, usurpation

of corporate opportunity, conversion, fraudulent concealment, and false representation.

Also on July 29, 2021, the Company submitted

a claim for indemnification to certain legacy TriGrow Systems, LLC.

shareholders.

The claim for indemnification relates to conduct

by Cooper and Weinstein during the time they were TriGrow employees.

The Company does not believe these claims have any merit and intend

to vigorously defend against them.

Supply Agreement with Mack Molding Co.

In December 2020, the Company entered into a

five-year supply agreement with Mack Molding Co.

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

2021, the Company placed a purchase order with Mack amounting to approximately $ 5.2 million towards initial production of VFUs during

In September 2021, the Company increased the purchase order with Mack to approximately $ 11.5 million towards production of VFUs

during 2021 and 2022.

The Company believes the supply agreement with Mack will provide the Company with increased scaling capabilities

and the ability to more efficiently meet the potential future demand of its customers.

Legal Matters

On September 15, 2022, the

Company provided a notice of default to Bud & Mary’s and certain related parties notifying such parties that Bud & Mary’s

was in default of its obligations under the Bud & Mary TTK Agreement.

On October 5, 2022, Bud & Mary’s filed a complaint

in the Superior Court of Massachusetts in Suffolk County, naming the Company 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 Agreement.

While the Company believes the claim is without merit and will continue to vigorously defend itself against Bud &

Mary’s allegations, litigation is inherently unpredictable and there can be no assurance that the Company will prevail in this matter.

During the third quarter

of 2022, the Company deemed it necessary to fully reserve for the outstanding $ 14.7 million note receivable balance due to the current

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

The $ 14.7 million represents the amount of the

contingent loss that the Company has determined to be reasonably possible and estimable.

The actual cost of resolving this matter may

be higher or lower than the amount the Company has reserved.

If the Company is unable

to realize revenue from its TTK Solution offerings on a timely basis or at all, or if it incurs an additional loss as a result of the

Bud & Mary’s claim, the Company’s business and financial performance will be adversely affected.

On November 14, 2022,

the Company filed its answers and affirmative defenses to the Bud & Mary’s complaint and counterclaims.

The Company is seeking,

among other relief, monetary damages in connection with the breach of contract, breach of the implied covenant of good faith and fair

dealing, unjust enrichment, and enforcement of the guarantees.

Bud & Mary’s is permitted to file an amended complaint, and Agrify will be permitted to make responsive filings, which may include an answer and counterclaim.

Bowdoin Construction

February 22, 2023, Bowdoin Construction Corp.

(“Bowdoin”) filed a complaint (the “Bowdoin Complaint”) in the

Superior Court of Massachusetts in Norfolk County naming the Company, Bud & Mary’s and certain related parties as

defendants, captioned Bowdoin Construction Corp.

Agrify Corporation, Bud & Mary’s Cultivation, Inc.

BMLC2, LLC , case no.

The Bowdoin Complaint relates to a construction contract

between Bowdoin and the Company relating to the property that is the subject of the Bud & Mary’s Complaint, and alleges

breach of contract by Bud & Mary’s and by the Company due to nonpayment of approximately $ 7.0 million due under the

contract and related indemnification claims and mechanics’ liens.

Certain of Bowdoin’s subcontractors have filed

ancillary civil actions, some seeking direct recovery of sums (which sums are understood to be subsumed in / covered by

Bowdoin’s claims) against the Company.

The Company is entitled to indemnification by Bud & Mary’s and intends to

vigorously defend this and ancillary claim(s).

Mack Molding Co.

In December 2020, the Company

entered into a five-year supply agreement with Mack Molding Co.

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

In February 2021, the Company placed a purchase order with Mack amounting to approximately $ 5.2 million towards the initial production

of VFUs during 2021.

Since February 2021, the Company increased the purchase order with Mack to approximately $ 26.5 million towards production

of VFUs during 2021 and 2022.

The Company believed the supply agreement with Mack would provide the Company with increased scaling capabilities

and the ability to meet the potential future demand of its customers more efficiently.

The supply agreement contemplates that, following

1 unchanged sentence

each year based on the agreed-upon pricing formula.

The introductory period is not time-based but rather refers to the production of

an initial number of units after which the parties have rights to adjust pricing and negotiate a certain minimum requirements percentage.

The Company believes this approach will result in both parties making a more informed decision with respect to the pricing and other

The introductory period is not time-based but rather refers to the production of an

initial number of units after which the parties have rights to adjust pricing and negotiate a certain minimum requirements percentage.

The Company believed this approach would result in both parties making a more informed decision with respect to the pricing and other

terms of the supply agreement with Mack.

Distribution Agreements with Related Parties

On September 7, 2019, the Company entered into

a distribution agreement with Bluezone for distribution rights to the Bluezone products with certain exclusivity rights.

The agreement

requires minimum purchases amounting to $ 480 thousand and $ 600 thousand for the first and second contract anniversary years.

The agreement

auto renews for successive one-year periods unless earlier terminated.

In March 2021, the Company notified Bluezone of non-renewal of

the agreement which means it ended on May 31, 2021.

The Company exceeded the minimum purchase amount for the first year and purchased

approximately $ 309 thousand of the committed $ 660 thousand second year purchases through December 31, 2021.

Bluezone is a related party

to the Company.

On March 9, 2020, the Company entered into a distribution

agreement with Enozo Technologies Inc.

(“Enozo”), for an initial term of five years with auto renewal for successive one-year

periods unless earlier terminated.

The agreement contains the following minimum purchases to retain exclusive distributor status for one

of the Company’s products:

for the period from the contract date until December 31, 2021 for $ 375 thousand, for the year ended December

31, 2022 for $ 750 thousand, and for the year ended December 31, 2023 for $ 1.1 million, which amount may increase by 3 % for the later years.

The Company had $ 40 thousand in purchases of Enozo product for the year ended December 31, 2021, compared to $ 38 thousand for the year

ended December 31, 2020.

Enozo is a related party to the Company.

Committed Purchase Agreement with Related Parties

4D Bios, Inc.

On September 18, 2021, the Company entered into an amended purchase

agreement with 4D Bios, Inc.

On October 11, 2022, the

Company received a $ 9.4 million invoice from Mack for inventory purchased on the Company’s behalf to build VFUs.

the terms of the contract manufacturing agreement, Mack had the contractual right to bill the Company for any inventory that had aged

greater than nine months.

Due to the slowdown in the demand for the VFUs and the lack of a demand forecast that the Company could

provide to the vendor, Mack exercised the right to invoice the Company for the slow-moving inventory.

As of December 31, 2022, the

Company owed Mack $ 8.4 million for purchased inventory on behalf of the Company to produce VFUs, which is included in accounts payable

in the consolidated balance sheet.

On March 2, 2023, Mack filed

an arbitration action seeking the amounts owed to Mack for purchased inventory.

On October 27, 2023, and effective as of October 18, 2023,

Mack and the Company entered into a Modification and Settlement Agreement with respect to the dispute.

See Note 19 –

Subsequent Events.

TRC Electronics Litigation

The Company was named as

a defendant in a complaint filed by TRC Electronics, Inc.

(“TRC”) on April 13, 2023 in the United States District Court for

the Eastern District of Pennsylvania.

In the Complaint, TRC asserts two causes of action against the Company:

(1) breach of contract,

and (2) promissory estoppel.

TRC’s claims are based on allegations that the Company failed to make payments due under three purchase

orders for commercial electronics parts.

TRC seeks damages in the amount of $ 565,210 , plus attorneys’ fees, costs, and post-judgment

The Company has filed an answer denying liability on TRC’s claims and is proceeding with discovery.

Sinclair Scientific

On June 15, 2023, the Company

and its wholly-owned subsidiary Precision Extraction Newco, LLC (“Precision”), filed an Amended Verified Complaint in the

Court of Chancery of the State of Delaware against Sinclair Scientific, LLC (“Sinclair”) and certain individual defendants

(the “Delaware Action”).

The claims filed in the Delaware Action concern various breaches of the Plan of Merger and Equity

Purchase Agreement dated September 29, 2021, by and between the Company, Sinclair, Mass2Media, LLC, and certain of their members (the

“Merger Agreement”).

In response to the Delaware Action, certain of the defendants filed counterclaims for breach of contract

and declaratory judgment against the Company and Precision alleging breach of the Merger Agreement.

The Company and Precision filed an

answer to the counterclaims denying all liability on the claims and discovery in the Delaware Action has recently commenced.

Supply Agreement with

Mack Molding Co.

In December 2020, the Company

entered into a five-year supply agreement with Mack Molding Co.

(“Mack”) pursuant to which Mack would become a key supplier

In February 2021, the Company placed a purchase order with Mack amounting to approximately $ 5.2 million towards the initial production

of VFUs during 2021.

Since February 2021, the Company increased the purchase order with Mack to approximately $ 26.5 million towards production

of VFUs during 2021 and 2022.

The Company believed the supply agreement with Mack would provide the Company with increased scaling capabilities

and the ability to meet the potential future demand of its customers more efficiently.

The supply agreement contemplates that, following

an introductory period, the Company will negotiate a minimum percentage of the VFU requirements that the Company will purchase from Mack

each year based on the agreed-upon pricing formula.

The introductory period is not time-based but rather refers to the production of an

initial number of units, after which the parties have rights to adjust pricing and negotiate a certain minimum requirements percentage.

The Company believed this approach would result in both parties making a more informed decision with respect to the pricing and other

terms of the supply agreement with Mack.

On October 11, 2022, the

Company received a $ 9.4 million invoice from Mack for inventory purchased on the Company’s behalf to build VFUs.

the terms of the contract manufacturing agreement, Mack had the contractual right to bill the Company for any inventory that had aged

greater than nine months.

Due to the slowdown in the demand for the VFUs and the lack of a demand forecast that the Company could

provide to the vendor, Mack exercised the right to invoice the Company for the slow-moving inventory.

As of December 31, 2022, the

Company owed Mack $ 8.4 million for purchased inventory on behalf of the Company to produce VFUs, which is included in accounts payable

in the consolidated balance sheet.

On October 27, 2023, and effective as of October 18, 2023, Mack and the Company entered into a Modification

and Settlement Agreement with respect to the dispute.

See Note 19 – Subsequent Events.

Distribution Agreements

with Related Party – Bluezone Products, Inc.

On September 7, 2019, the

Company entered into a distribution agreement with Bluezone Products, Inc.

(“Bluezone”) for distribution rights to the Bluezone

products with certain exclusivity rights.

The agreement requires minimum purchases amounting to $ 480 thousand and $ 600 thousand for the

first and second contract anniversary years.

The agreement auto-renews for successive one-year periods unless earlier terminated.

2021, the Company notified Bluezone of the non-renewal of the agreement which means it ended on May 31, 2021.

The Company exceeded the

minimum purchase amount for the first year and purchased approximately $ 309 thousand of the committed $ 660 thousand second-year purchases

through December 31, 2021.

Bluezone is a related party to the Company.

Committed Purchase

Agreement with Related Party – 4D Bios, Inc.

On September 18, 2021, the

Company entered into an amended purchase agreement with 4D Bios, Inc.

(“4D”) to secure purchases of horticultural equipment.

The original agreement required minimum

purchases of between $ 577 dollars and $ 607 dollars per unit of 4D products until December 31, 2020.

The amended agreement requires minimum

purchases of $ 582 dollars per unit with a final payment of approximately $ 864 thousand paid to 4D.

The original agreement required minimum purchases of between $577 dollars and $607 dollars per unit of 4D products until December 31,

The amended agreement requires minimum purchases of $582 dollars per unit with a final payment of approximately $864 thousand paid

4D is a related party to the Company.

For the year ended December 31, 2020, the Company’s purchase

commitment totaled $ 1.9 million.

The Company settled all outstanding commitments, leaving no open committed purchases as of December

Greenstone Holdings

On December 29, 2021, Greenstone

Holdings purchased 239 VFUs from the Company of which 60 VFUs were already in Greenstone Holdings possession under a lease agreement.

Under the lease agreement, Greenstone Holdings owed Agrify a production service fee of $ 300 per pound of flower produced and contained

an option to purchase the equipment within the lease agreement.

The term of this agreement was for ten years but was terminated upon signing

the purchase agreement for the 239 VFUs.

The remaining 179 VFUs were shipped to Greenstone Holdings storage facility on December 30, 2021

and December 31, 2021.

The Company settled all outstanding commitments, leaving no open committed purchases as of

December 31, 2021 .

Committed Purchase

Agreement with Related Party – Ora Pharm

In June 2022, the Company

entered into an agreement with Ora Pharm (“Ora”) pursuant to which Ora will purchase approximately $ 1.6 million in equipment

from the Company, and Ora may purchase software services from the Company in the future.

Stuart Wilcox, the Company’s former Chief

Operating Officer, is the Chairman of Ora.

Other Commitments and Contingencies

The Company is potentially

subject to claims related to various non-income taxes (such as sales, value-added, consumption, and similar taxes) from various tax authorities,

including in jurisdictions in which the Company already collects and remits such taxes.

If the relevant taxing authorities successfully

pursue these claims, the Company could be subject to additional tax liabilities.

Refer to Note 9 – Debt,

included elsewhere in the notes to the consolidated financial statements for details of the Company’s future minimum debt payments.

Refer to Note 10 – Leases, included elsewhere in the notes to the consolidated financial statements for details of the Company’s

future minimum lease payments under operating and financing lease liabilities.

Refer to Note 15 – Income Taxes, included elsewhere

in the notes to the consolidated financial statements for information regarding income tax contingencies.

Note 18 — Related Parties

Some of the officers and directors of the Company

are involved in other business activities and may, in the future, become involved in other business opportunities that become available.

The following table describes the net purchasing

(sales) activity with entities identified as related parties to the Company:

(Dollar Amounts in Thousands)

Some of the officers and

directors of the Company are involved in other business activities and may, in the future, become involved in other business opportunities

that become available.

The following table describes

the net purchasing (sales) activity with entities identified as related parties to the Company:

(In thousands)

Cannae Policy Group

Topline Performance Solutions

Valiant Americas, LLC.

Greenstone Holdings

Living Green Farm

(1) Purchases from 4D for the year ended December 31, 2020 includes $ 480 thousand related to a down payment on inventory orders.

Topline Performance Group

Greenstone, which is a related party because one of the Company’s former Agrify Brands employees and its VP of Engineering had a minority ownership

Valiant-America, LLC (1)

Living Greens Farm

(1) On October 27, 2022, the Company provided notice to Valiant-America, LLC of its intention to begin winding up of Agrify-Valiant.

The following table summarizes net related party

(payable) receivable as of December 31, 2021 and December 31, 2020:

(Dollar Amounts in Thousands)

receivable (payable) as of December 31, 2022 and 2021 were as follows:

(In thousands)

Cannae Policy Group

Greenstone Holdings

Living Green Farm

Valiant Americas, LLC.

Greenstone (net of allowance for doubtful accounts of $ 9,360 and $ 0 at December 31, 2022 and 2021, respectively) (1)

Living Greens Farm (2)

Valiant-America, LLC (3)

Topline Performance Group

(1) Greenstone is a related party

because one of the Company’s former Agrify Brands employees and its VP of Engineering had a minority ownership.

The Greenstone

allowance for doubtful accounts balance consisted of capital advances, accrued interest and VFUs sales.

Additional information regarding

recent developments with Greenstone may be found in Note 5 – Loans Receivable, included elsewhere

in the notes to the consolidated financial statements.

(2) The balance was fully reserved

at December 31, 2022, due to an ongoing dispute with the customer.

(3) On October 27, 2022, the Company

provided notice to Valiant-America, LLC of its intention to begin winding up of Agrify-Valiant.

Note 19 — Subsequent Events

Private Placement

On January 25, 2022, the

Company entered into a Securities Purchase Agreement (the “Securities Agreement”) with an institutional investor and other

accredited investors for the sale by the Company of (i) 2,450,350 shares (the “Shares”) of the Company’s common stock,

par value $0.001 per share (the “Common Stock”), (ii) pre-funded warrants (the “Pre-Funded Warrants”) to purchase

up to an aggregate of 1,570,644 shares of Common Stock and (iii) warrants to purchase up to an aggregate of 3,015,745 shares of Common

Stock (the “Common Warrants” and, collectively with the Pre-Funded Warrants, the “Warrants”), in a private

placement offering.

The combined purchase price for one share of Common Stock (or one Pre-Funded Warrant) and accompanying fraction

of a Common Warrant was $6.80.

Subject to certain ownership limitations, the

Warrants are exercisable six months from issuance.

Each Pre-Funded Warrant is exercisable into one share of Common Stock at a price per

share of $ 0.001 (as adjusted from time to time in accordance with the terms thereof).

Each Common Warrant is exercisable into one share

of Common Stock at a price per share of $ 7.48 (as adjusted from time to time in accordance with the terms thereof) and will expire on

the fifth anniversary of the initial exercise date.

Raymond Chang, Chairman and Chief Executive Officer

of the Company, and Stuart Wilcox, a member of the Company’s Board of Directors, participated in the private placement on the same

terms as other investors except for a combined purchase price of $ 6.90 .

The gross proceeds to the Company from the private

placement were approximately $ 27.3 million, before deducting the placement agent’s fees and other offering expenses, and excluding

the proceeds, if any, from the exercise of the Warrants.

Acquisition of Lab Society;

Purchase Consideration

The Company evaluated subsequent

events and transactions that occurred after the balance sheet date up to the date that the financial statements were issued.

Chief Financial Officer Resignation and Appointment

of Raymond Chang as principal financial and accounting officer

On January 2, 2023, Timothy

Oakes, the Chief Financial Officer (“CFO”) of the Company, notified the Company that he would resign as CFO effective as

of February 28, 2023 (the “Effective Date”) to pursue other opportunities.

Oakes’ resignation did not result from

any disagreement regarding the Company’s operations, policies or practices.

Oakes assisted with the resulting transition ahead

of the Effective Date.

In connection with Mr.

Oakes’ resignation, the Company is continuing its process to identify a replacement

Chief Financial Officer.

Further, Raymond Chang, the Company’s Chief Executive Officer, will serve as the Company’s principal

financial and accounting officer.

Nasdaq Deficiency Notices

On January 19,

2023, the Company received a deficiency letter from the Staff of Nasdaq notifying the Company that, for the previous 30 consecutive business

days, the bid price for its 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), the Company

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 the Company’s Common Stock had to be at least $1.00 per share for a minimum of 10 consecutive trading days

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

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

On July 19, 2023, the Company received a notice from Nasdaq confirming its recompliance with the

minimum bid price rule.

As disclosed in a Current

Report on Form 8-K filed on April 17, 2023, the Company’s audit committee concluded that, as a result of inadvertent errors in the

accounting for warrants previously issued by the Company, it was appropriate to restate the Company’s 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 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, the Company was unable to timely file the Form 10-K, the First Quarter 2023 Form

10-Q, and the Second Quarter 2023 Form 10-Q without unreasonable effort or expense.

On April 18, 2023, the Company

received a notice from Nasdaq (the “April Nasdaq Notice”) that it was noncompliant with Nasdaq Listing Rule 5250(c)(1) as

a result of its failure to file its Annual Report on Form 10-K with the SEC by the required due date.

May 17, 2023, the Company received a second notice from Nasdaq (the “May Nasdaq Notice”)

that it remained noncompliant with Nasdaq Listing Rule 5250(c)(1) as a result of its failure to file its 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, the Company

received a third notice from Nasdaq that it remain noncompliant with Nasdaq Listing Rule 5250(c)(1) as a result of its failure to file

its 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”).

Nasdaq granted the Company an exception until October 16, 2023, to file its 2022 Form 10-K and First and Second Quarter 2023 Forms 10-Q

(the “Delayed Reports”).

The Nasdaq Notice had no immediate effect on the listing of the Company’s common stock on The

Nasdaq Stock Market LLC.

On October 17, 2023, the

Company received the Staff Determination from the Listing Qualifications Department of Nasdaq notifying the Company that it was not in

compliance with Nasdaq’s continued listing requirements under the Listing Rule as a result of its failure to file the Delinquent

Reports in a timely manner.

The Company timely requested a hearing before the Nasdaq Hearings Panel (the “Panel”), and the

Panel scheduled a hearing for January 11, 2024.

Bowdoin Litigation

On February 22, 2023,

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

(“Lab Society”),

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

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

the Company agreed to acquire Lab Society.

Concurrently with the execution of the Merger Agreement, the Company consummated the merger

of Lab Society with and into Merger Sub, with Merger Sub surviving such merger as a wholly owned subsidiary of the Company (the “Lab

Society Acquisition”).

The aggregate consideration

for the Lab Society Acquisition consisted of:

(a) $4.0 million in cash, subject to certain adjustments for working capital, cash and

indebtedness of Lab Society at closing;

(b) 425,611 shares of the Company’s common stock (the “Buyer Shares”);

The Company withheld

127,682 of the Buyer Shares issuable to the Owners (the “Holdback Lab Buyer Shares”) for the purpose of securing any post-closing

adjustment owed to the Company and any claim for indemnification or payment of damages to which the Company may be entitled under the

Merger Agreement.

The Holdback Lab Buyer Shares shall be released following the twelve (12) month anniversary of the Closing Date in

accordance with and subject to the conditions of the Merger Agreement.

The Merger Agreement

includes customary post-closing adjustments, representations and warranties and covenants of the parties.

The Owners may become entitled

to additional consideration with a value of up to $3.5 million based on the eligible net revenues achieved by the Lab Society business

during the fiscal years ending December 31, 2022 and December 31, 2023, of which 50% will be payable in cash and the remaining 50% will

be payable by issuing shares of the Company’s common stock.

Securities Purchase Agreement

On March 14, 2022,

the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with an accredited investor

(the “Investor”), pursuant to which, among other things, the Company agreed to issue and sell to the Investor, in a private

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

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

of $ 65 million (the “Note”), and (ii) a warrant (the “Warrant”) to purchase up to an aggregate of 6,881,108

shares of common stock of the Company, par value $ 0.001 per share (“Common Stock”).

The Note will be a senior

secured obligation of the Company and ranks senior to all indebtedness of the Company.

The Company will be required to make amortization

payments equal to 4.0 % of the original principal amount of the Note on the first day of each calendar month starting on February 1, 2023

and extending through the maturity date of March 1, 2026 (the “Maturity Date”), at which time all remaining outstanding principal

and accrued but unpaid interest will be due.

The Note will have a stated interest rate of 6.75 % per annum, and the Company will be required

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

the one-year anniversary of the Note’s issuance, the Company may, in lieu of paying interest in cash, pay such interest in kind,

in which case interest on the Note will be calculated at the rate of 8.75 % per annum and will be added to the principal amount of the

At any time following the

one-year anniversary of the Note’s issuance, the Company may prepay all (but not less than all) of the Note by redemption at a price

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

The Investor will also have

the option of requiring the Company to redeem the Note if the Company undergoes a fundamental change at a price equal to 107 % of the then-outstanding

principal amount under the Note plus any accrued interest thereon.

The Securities Purchase

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

on substantially the same terms as the initial closing.

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

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

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

The Note will impose certain

customary affirmative and negative covenants upon the Company, as well as covenants that (i) restrict the Company and its subsidiaries

from incurring any additional indebtedness or suffering any liens, subject to specified exceptions, (ii) restrict the ability of

the Company and its subsidiaries from making certain investments, subject to specified exceptions, (iii) restrict the declaration

of any dividends or other distributions, subject to specified exceptions, (iv) require the Company to maintain specified earnings

and adjusted EBITDA targets, and (v) require the Company to maintain minimum amounts of cash on hand.

If an event of default under

the Note occurs, the Investor can elect to redeem the Note for cash equal to 115% of the then-outstanding principal amount of the Note

(or such lesser principal amount accelerated by the Investor), plus accrued and unpaid interest, including default interest, which accrues

at a rate per annum equal to 15% from the date of a default or event of default.

Until the date the Note

is fully repaid, the Investor will, subject to certain exceptions, have the right to participate for up to 30 % of any debt, preferred

stock or equity-linked financing of the Company or its subsidiaries.

Each Warrant to be issued

in the initial closing will have an exercise price of $6.75 per share, subject to adjustment for stock splits, reverse stock splits, stock

dividends and similar transactions, will be immediately exercisable, has a term of five and one-half years from the date of issuance and

will be exercisable on a cash basis, unless there is not an effective registration statement covering the resale of the shares issuable

upon exercise of the Warrant (the “Warrant Shares”), in which case the Warrant shall also be exercisable on a cashless exercise

basis at the Investor’s election.

The Securities Purchase Agreement requires the Company to file resale registration statements

with respect to the Warrant Shares as soon as practicable and in any event within 45 days following the initial closing and any subsequent

The Warrant will provide

that in no event will the number of shares of Common Stock issued upon exercise of the Warrant result in the Investor’s beneficial

ownership exceeding 4.99 % of the Company’s shares outstanding at the time of exercise (which percentage may be decreased or increased

by the Investor, but to no greater than 9.99 %, and provided that any increase above 4.99 % will not be effective until the sixty-first

(61st) day after notice of such request by the Investor to increase its beneficial ownership limit has been delivered to the Company).

The Securities Purchase

Agreement also contains customary representations and warranties of the Company and the Investor.

There is no material relationship between

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

Bowdoin Construction Corp.

(“Bowdoin”) filed a complaint in the Superior Court of Massachusetts in Norfolk County naming

the Company, Bud & Mary’s and certain related parties as defendants.

The Bowdoin Complaint relates to a construction

contract between Bowdoin and Agrify relating to the property that is the subject of the Bud & Mary’s Complaint and alleges

breach of contract by Bud & Mary’s and by Agrify due to nonpayment of approximately $ 7.0 million due under the contract

and related indemnification claims and mechanics’ liens.

Certain of Bowdoin’s

subcontractors have filed ancillary civil actions, some seeking direct recovery of sums (which sums are understood to be subsumed in

/ covered by Bowdoin’s claims) against the Company.

While the Company believes the claim is without merit and will

continue to vigorously defend itself against Bowdoin’s allegations, litigation is inherently unpredictable and there can be no

assurance that the Company will prevail in this matter.

Amendments to Articles of Incorporation

On March 1, 2023, the Company

filed Articles of Amendment (the “Charter Amendment”) to its Articles of Incorporation with the Secretary of State for the

State of Nevada.

The Charter Amendment increased the number of authorized shares of the Company’s Common Stock from 5,000,000 to

10,000,000 , and correspondingly increased the total authorized shares of stock from 8,000,000 to 13,000,000 .

The Charter Amendment was

approved by the Company’s stockholders at the Special Meeting on February 28, 2023 and became effective upon filing.

Securities Exchange Agreement

On March 8, 2023, the Company

entered into a new Securities Exchange Agreement (the “March 2023 Exchange Agreement”) with an accredited lender.

to the March 2023 Exchange Agreement, at closing the Company 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”) with an original principal amount of $ 10.0 million.

The Convertible Note is a senior secured

obligation of the Company and ranks senior to all indebtedness of the Company.

The Convertible Note will mature on August 19, 2025 and

contains a 9.0 % annualized interest rate, with interest to be paid monthly, in cash, beginning April 1, 2023.

Concurrently with the closing

under the March 2023 Exchange Agreement, the Company and the lender entered into an Amendment to the Exchange Note (the “Note Amendment”).

Pursuant to the Note Amendment, the Exchange Note was amended to, among other changes, remove covenants that require the Company not to

exceed maximum levels of allowable cash spend while the Exchange Note is outstanding and require the Company to maintain minimum amounts

of cash on hand.

On April 26, 2023, the Company

entered into a letter agreement with the above referenced accredited lender (the “Letter Agreement”), pursuant to which the

Company and the lender agreed to exchange $ 2.0 million of the remaining outstanding principal amount under the Exchange Note for 445,197

shares of common stock of the Company, subject to a Beneficial Ownership Limitation of 4.99 % of the Company’s Common Stock.

Discontinuance of the ATM Program

As of April 1, 2023, after

which time the ATM Program was discontinued, the Company sold 629,710 shares of Common Stock, under the ATM Program at an average price

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures