What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-12-12 compared with 2023-11-28 · 216 added, 253 removed, 701 unchanged (40% of the section changed)

1 unchanged sentence

of Financial Condition and Results of Operations

information contained in this Quarterly Report on Form 10-Q is intended to update the information contained in our Annual Report on Form

10-K for the year ended December 31, 2022 filed with the Securities and Exchange Commission on November 27, 2023 (the “Form 10-K”)

and presumes that readers have access to, and will have read, the “Management’s Discussion and Analysis of Financial Condition

and Results of Operations” and other information contained in such Form 10-K.

The following discussion and analysis also should

be read together with our financial statements and the notes to the financial statements included elsewhere in this Quarterly Report

on Form 10-Q.

The information contained

in this Quarterly Report on Form 10-Q is intended to update the information contained in our Annual Report on Form 10-K for the year

ended December 31, 2022 filed with the Securities and Exchange Commission on November 28, 2023 (the “Form 10-K”) and presumes

that readers have access to, and will have read, the “Management’s Discussion and Analysis of Financial Condition and Results

of Operations” and other information contained in such Form 10-K.

The following discussion and analysis also should be read together

with our financial statements and the notes to the financial statements included elsewhere in this Quarterly Report on Form 10-Q.

The following discussion

8 unchanged sentences

We strongly encourage

investors to carefully read the factors described in our Annual Report on Form 10-K in the section entitled “Risk Factors”

in the Annual Report on Form 10-K for a description of certain risks that could, among other things, cause actual results to differ from

these forward-looking statements.

We assume no responsibility to update the forward-looking statements contained in this Quarterly Report

on Form 10-Q.

The following should also be read in conjunction with the unaudited financial statements and notes thereto that appear elsewhere

in this report.

investors to carefully read the risk factors described in our Annual Report on Form 10-K in the section entitled “Risk Factors”

for a description of certain risks that could, among other things, cause actual results to differ from these forward-looking statements.

We assume no responsibility to update the forward-looking statements contained in this Quarterly Report on Form 10-Q.

The following should

also be read in conjunction with the unaudited financial statements and notes thereto that appear elsewhere in this report.

Except as otherwise indicated

2 unchanged sentences

We are a developer of proprietary

precision hardware and software grow solutions for the indoor commercial agriculture industry and provides equipment and solutions for

precision hardware and software grow solutions for the indoor commercial agriculture industry and provide equipment and solutions for

cultivation, extraction, post-processing, and testing for the cannabis and hemp industries.

12 unchanged sentences

Our corporate headquarters

are located in Billerica, Massachusetts.

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

including Colorado, Georgia, Massachusetts, Michigan, and Oregon.

Reverse Stock Split

On January 12, 2021, we effected

a 1-for-1.581804 reverse stock split on our Common Stock.

All share and per share information has been retroactively adjusted to give

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

are located in Troy, Michigan.

We also lease properties located within various geographic regions in which we conduct business, including

Colorado, Georgia, Massachusetts, Michigan, and Oregon.

Reverse Stock Splits

On October 18, 2022, the

3 unchanged sentences

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

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.

139 unchanged sentences

On March 9, 2023 we entered

into senior note with High Trail Special Situations LLC (“Holder”).

for value received, promises to pay to High Trail Special

into a senior note with High Trail Special Situations LLC (“Holder”) for value received, promises to pay to High Trail Special

Situations LLC (the “Initial Holder”), or its registered assigns, the principal sum of ten million dollars ($10,000,000) (such

4 unchanged sentences

On March 8, 2023, the Company

entered into a Securities Exchange Agreement (the “ Exchange Agreement ” or “ Second Amendment ”) with

the High Trail Special Situations LLC.

Pursuant to the Exchange Agreement, at closing the Company will prepay approximately $10.3 million

in principal amount under the August 2022 Note and exchange $10.0 in principal amount of the remaining balance of the August 2022 Note

for a new senior secured convertible note (the “ Convertible Note ”) with an original principal amount of $10.0 million.

After the closing of the Exchange Agreement, the August 2022 Note will remain outstanding with a remaining balance of $11.7 million (the

“Modified August 2022 Note” and, collectively with the Convertible Note, the “Notes”).

This exchange was deemed

to be an extinguishment under ASC 470, as the modified debt added a substantive conversion option that was not inherent in the August

As a result, the Company recognized a loss on the extinguishment of debt of $4,619,846.

entered into a Securities Exchange Agreement (the “Exchange Agreement” or “Second Amendment”) with High Trail

Special Situations LLC.

Pursuant to the Exchange Agreement, at closing the Company will prepay approximately $10.3 million in principal

amount under the August 2022 Note and exchange $10.0 million in principal amount of the remaining balance of the August 2022 Note for

a new senior secured convertible note (the “Convertible Note”) with an original principal amount of $10.0 million.

closing of the Exchange Agreement, the August 2022 Note will remain outstanding with a remaining balance of $11.7 million (the “Modified

August 2022 Note” and, collectively with the Convertible Note, the “Notes”)

This exchange was deemed to be an extinguishment

under ASC 470, as the modified debt added a substantive conversion option that was not inherent in the August 2022 Note.

the Company recognized a loss on the extinguishment of debt of $4.6 million.

Convertible Notes

On March 8, 2023, as a result

of the Exchange Agreement, the Company issued a Convertible Note to High Trail Special Situations LLC (the “Lender”) with

a principal balance of $10 million.

The Convertible Note bears a 9.0% annualized interest rate, with interest to be paid monthly, in cash,

beginning April 1, 2023.

The principal amount of the Convertible Note will be payable on the Maturity Date, provided that the Lender will

be entitled to a cash sweep of 30% of the proceeds of any at-the-market equity offering and 20% of the proceeds received by the Company

in connection with any other equity financing, which will reduce the outstanding principal amount under the August 2022 Note or the Convertible

At any time, the Company

may prepay all of the Convertible Note by redemption at a price equal to 102.5% of the then-outstanding principal amount under the Convertible

of the Exchange Agreement, the Company issued a Convertible Note to High Trail Special Situations

LLC (the “Lender”) with a principal balance of $10 million.

The Convertible Note bears a 9.0% annualized interest rate,

with interest to be paid monthly, in cash, beginning April 1, 2023.

The principal amount of the Convertible Note will be payable on the

Maturity Date, provided that the Lender will be entitled to a cash sweep of 30% of the proceeds of any at-the-market equity offering and

20% of the proceeds received by the Company in connection with any other equity financing, which will reduce the outstanding principal

amount under the August 2022 Note or the Convertible Note.

At any time, the Company may

prepay all of the Convertible Note by redemption at a price equal to 102.5% of the then-outstanding principal amount under the Convertible

Note plus accrued but unpaid interest.

33 unchanged sentences

case, to no greater than 9.99%.

Company evaluated the embedded features in accordance with ASC 815-15-25 and determined the embedded features are not required to be bifurcated

Company evaluated the embedded features in accordance with ASC 815-15-25 and the determined embedded features are not required to be bifurcated

and separately measured at fair value.

Interest expense related to the Convertible Notes described above was

$170,974 for the three months ended March 31, 2023.

Accrued interest totaled $170,974 as of March 31, 2023.

Interest expense related to

the Convertible Notes described above was $609,001 for the six months ended June 30, 2023.

Accrued interest totaled $136,913 as of June

At The Marketing Offering

12 unchanged sentences

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.

Due to the late filing of the Company’s 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

26 unchanged sentences

and legal expenses, for net proceeds of $8.2 million.

We intend to use the net proceeds from the Offering, together with its existing

We intend to use the net proceeds from the Offering, together with our existing

cash resources, for working capital and general corporate purposes, which may include capital expenditures and repayment of debt.

Impact of coronavirus pandemic (“COVID-19”)

The extensive impact of the

pandemic caused by COVID-19 has resulted and will likely continue to result in significant disruptions to the global economy, as well

as businesses and capital markets around the world.

In an effort to halt the outbreak of COVID-19, a number of countries, states, counties,

and other jurisdictions have imposed, and may impose in the future, various measures, including but not limited to, voluntary and mandatory

quarantines, stay-at-home orders, travel restrictions, limitations on gatherings of people, reduced operations, and extended closures

of businesses.

To date, although all of

our operations are functioning, COVID-19 has continued to cause some disruptions to our business, such as some temporary delays in the

delivery of our inventory.

Although the ability of our suppliers to timely ship their goods has affected some of our deliveries, currently

the difficulties experienced by our suppliers have not yet materially impacted our ability to deliver products to our customers.

if this continues, it may negatively affect any inventory we may have and more significantly delay the delivery of merchandise to our

customers, which in turn will adversely affect our revenues and results of operations.

The extent to which COVID-19

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

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

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

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

We continue to service our customers amid

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

Use of Estimates

110 unchanged sentences

as financial income.

For the three months ended March 31, 2023 and 2022, we did not have any such financial income.

For the three months ended June 30, 2023 and 2022, we did not have any such financial income.

Payment terms with customers

77 unchanged sentences

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

There have been no impairment charges recorded for

three months ended March 31, 2023 and 2022, respectively.

During the three-month period

ended June 30, 2022, the Company identified a potential 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.

factors, the Company deemed that there may be an impairment to the carrying value of its long-lived assets and accordingly performed interim

testing to determine the proper fair value of its long-lived assets as of June 30, 2022.

Based on its interim testing, the Company noted

that the entire carrying value of its goodwill and intangible assets should be impaired.

Additional information regarding the Company’s

interim testing on goodwill and intangible assets may be found in Note 8 – Intangible Assets, Net and Goodwill, included elsewhere

in the notes to the condensed consolidated financial statements.

During the three and six months ended June 30, 2023, no impairment charges

were recorded.

Capitalization of Internal Software Development

83 unchanged sentences

Results of Operations

Comparison of the Three Months Ended March

31, 2023 and 2022

Comparison of the Three and Six Months Ended

June 30, 2023 and 2022

The following table summarizes

our results of operations for the three months ended March 31, 2023 and 2022:

our results of operations for the three and six months ended June 30, 2023 and 2022:

Three months ended

(In thousands, except share and per share data)

Six Months Ended

Revenue (including $0, $1,129, $46, and $1,763 from related parties, respectively)

4 unchanged sentences

Change in contingent consideration

Impairment of goodwill and intangible assets

Total operating expenses

Loss from operations

Interest (expense) income, net

Interest expense, net

Change in fair value of warrant liabilities

Other income (expense)

Loss on extinguishment of notes payable

Other income (expense), net

Net (loss) income before income taxes

Gain (loss) on extinguishment of notes payable

Other expense, net

Other (expense) income, net

Net loss before income taxes

Income tax benefit

Net (loss) income

Income attributable to non-controlling interest

Net (loss) income attributable to Agrify Corporation

Net (loss) income per share attributable to Common Stockholders – basic

Net (loss) income per share attributable to Common Stockholders – diluted

Weighted average common shares outstanding - basic (1)

Weighted average common shares outstanding - diluted (1)

Income (loss) attributable to non-controlling interests

Net loss attributable to Agrify Corporation

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

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

(1) Periods presented have been adjusted to reflect the 1-for-20

reverse stock split on July 5, 2023.

Additional information regarding reverse stock splits may be found in Note

1 – Overview, Basis of Presentation, and Significant Accounting Policies , included

in the notes to the consolidated financial statements

Our goal is to provide our

3 unchanged sentences

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

We continue to monitor and

address COVID-19 pandemic impacts on our supply chain.

Although the availability of various products is dependent on our suppliers, their

locations, and the extent to which they are impacted by the COVID-19 pandemic, we are proactively working with manufacturers to meet the

needs of our customers during the pandemic.

Product shortages have generally led to increases in prices globally, with significant impacts

to sales and interim profits.

We generate revenue from

1 unchanged sentence

equipment and solutions.

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

customers from early stages of the grow cycle — first during the facility build-out, to the choice of cultivation solutions, running

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

into a sellable product.

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

solutions and services.

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

from early stages of the grow cycle — first during the facility build-out, to the choice of cultivation solutions, running the grow

business with our Agrify Insights software and finally, our extraction, post-processing and testing services to transform harvest into

a sellable product.

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

and services.

The following table provides

a breakdown of our revenue for the three months ended March 31, 2023 and 2022:

a breakdown of our revenue for the three and six months ended June 30, 2023 and 2022:

(In thousands)

Cultivation solutions, including ancillary products and services

solutions, including ancillary products and services

Agrify Insights software

3 unchanged sentences

Revenues decreased by $14.3

million, or 78% for the three months ended March 31, 2023 compared to the same period in 2022.

The comparative decrease in revenue was

generated primarily from decreases in revenue from factory build-outs and extraction solutions.

Extraction division revenues totaled $5.0

million in the first quarter of 2023.

Additionally, design and build revenues decreased by $12.6 million due to the continued build-out

of facilities under our TTK Solutions.

million, or 74% for the three months ended June 30, 2023 compared to the same period in 2022.

Revenues decreased by $34.5 million, or

76%, for the six months ended June 30, 2023 compared to the same period in 2022.

The comparative decreases in revenue were generated primarily

from decreases in revenue from facility build-outs and extraction solutions.

Design and build revenues decreased by $8.8 million and $21.3

million for the three and six months ended June 30, 2023, respectively, due to reduced build-out of facilities under our TTK Solutions.

Additionally, extraction division revenues decreased by $5.5 million and $13.0 million for the three and six months ended June 30, 2023,

respectively.

Cost of Goods Sold

5 unchanged sentences

The following table provides

a breakdown of our cost of goods sold for the three months ended March 31, 2023 and 2022:

a breakdown of our cost of goods sold for the three and six months ended June 30, 2023 and 2022:

Three months ended

Six months ended

(In thousands)

Cultivation solutions, including ancillary products and services

Agrify Insights software

Facility build-outs

2 unchanged sentences

Cost of goods sold decreased

by $17.0 million, or 78%, for the three months ended March 31, 2023 compared to the same period in 2022.

The comparative quarterly decrease

in cost of goods sold is associated with decreases in cost of goods sold related to factory build-outs and extraction solutions.

by $13.3 million, or 75%, for the three months ended June 30, 2023 compared to the same period in 2022.

Cost of goods sold decreased by

$30.3 million, or 77%, for the six months ended June 30, 2023 compared to the same period in 2022.

The comparative decreases in cost of

goods sold is associated with the decreased amount of subcontractor construction costs related to facility build-outs, internal and outsourced

labor and materials costs for the extraction solutions sales and cultivation solutions, including ancillary products and services.

Gross Profit (Loss)

Three months ended

Six months ended

(In thousands)

Gross profit totaled $600

million, or 17.0% of total revenue during the three months ended March 31, 2023 compared to a gross loss of $4.2 million, or 16.0% of

total revenue during the three months ended March 31, 2022.

The comparative $3.2 million first-quarter year over year decrease in gross

profit, as well as the comparative decrease in gross profit margin, is primarily attributable to a smaller decrease in costs of goods

sold relative to the decrease in revenue for the period.

During the first quarter of 2023, we realized a gross profit margin of 28% associated

with our extraction solutions revenue, while we realized a gross profit margin of approximately (215)% on our cultivation-related revenues.

a forward-looking basis, with the full year benefit of anticipated margin contribution associated with the extraction-related revenue

contributions, the Company anticipates that gross margin performance, aided by our extraction-related equipment sales, will be in a mid-teens

We anticipate that we will be able to improve upon that expected gross profit margin performance once we are able to generate meaningful

software and production fee revenues from our TTK Solutions, which we currently expect to begin in the late third or early fourth quarter

thousand, or 11.8% of total revenue during the three months ended June 30, 2023 compared to $1.6 million, or 8.3% of total revenue during

the three months ended June 30, 2022.

Gross profit totaled $1.6 million, or 14.6%, of total revenue during the six months ended June 30,

2023 compared to a gross profit of $5.8 million, or 12.7%, of total revenue during the six months ended June 30, 2022.

General and Administrative

Three months ended

Six months ended

(In thousands)

6 unchanged sentences

G&A expense decreased

by $2.8 million, or 29%, for the three months ended March 31, 2023, compared to the same period in 2022.

The decrease is attributable

to payroll, benefits and related expenses decrease of $1.3 million, a decrease in acquisition-related expenses of $1.3 million, an increase

in consulting and other related expenses of $652 thousand, a decrease in insurance expenses of $207 thousand, a decrease in depreciation

and amortization of $639 thousand.

by $14.6 million, or 75%, for the three months ended June 30, 2023, compared to the same period in 2022.

G&A expense decreased by

$17.4 million, or 60%, for the six months ended June 30, 2023, compared to the same period in 2022.

The decrease is largely attributable

to payroll, benefits and related expenses decreases of $2.1 million, a decrease in acquisition-related expenses of $1.3 million, a decrease

in bad debt expense of $9.0 million, a decrease in consulting and other related expenses of $0.7 million, a decrease in stock based compensation

of $0.9 million, a decrease in insurance expenses of $0.2 million, and a decrease in depreciation and amortization of $0.7 million.

Selling and Marketing

Three months ended

Six months ended

(In thousands)

2 unchanged sentences

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

Selling and marketing ex penses

decreased by $0.5 million, or 24%, for the three months ended March 31, 2023, compared to the same period in 2022.

The decrease is attributable

to a decrease in payroll, advertising and trade show expenses, along with an increase in travel and other expenses.

Selling and marketing expenses

decreased by $1.3 million, or 54%, for the three months ended June 30, 2023, compared to the same period in 2022.

Selling and marketing

expenses decreased by $1.7 million, or 39%, for the six months ended June 30, 2023, compared to the same period in 2022.The decreases

are largely attributable to reduced payroll, advertising and trade show expenses.

Research and Development

Three months ended

Six months ended

(In thousands)

2 unchanged sentences

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

VFUs, which includes:

VFUs, which include:

employee-related expenses, including salaries, benefits, and travel;

2 unchanged sentences

R&D expense decreased

by $$1.3 million, or 65%, for the three months ended March 31, 2023, compared to the same period in 2022.

The decrease is attributable

to the personnel and facility costs associated with the continued development of our VFUs, specifically related to improving the individual

by $1.7 million, or 72%, for the three months ended June 30, 2023, compared to the same period in 2022.

R&D expense decreased by $3.1

million, or 70%, for the six months ended June 30, 2023, compared to the same period in 2022.

The decreases are largely attributable to

the personnel and facility costs associated with the continued development of our VFUs, specifically related to improving the individual

unit cooling and humidity environments.

We expect to continue to

invest in future developments of our VFUs, Agrify Insights software and our extraction products.

As a percentage of net revenue, R&D

expenses were 12.7% of total revenue for the three months ended March 31, 2023, compared to 8.0% for the three months ended March 31,

Other Income (Expense), Net

Other (Expense) Income, Net

Three months ended

Six months ended

(In thousands)

Interest income (expense), net

Loss on extinguishment of notes payable

Interest expense, net

Change in fair value of warrant liabilities

Other income (expense)

Total other income (expense), net

Loss on extinguishment of notes payable

Other expense, net

Total other income, net

Interest income (expense),

net decreased by $1.4 million, or 243%, for the three months ended March 31, 2023, compared to the same period in 2022.

The decrease in

interest income is attributable mainly to decreases in interest from marketable securities and interest income from TTK Solutions.

net decreased by $2.9 million, or 88%, for the three months ended June 30, 2023, compared to the same period in 2022.

Interest income

(expense), net decreased by $1.6 million, or 56%, for the six months ended June 30, 2023, compared to the same period in 2022.The decrease

in interest expense is attributable mainly to the decrease in principal balance of the debt payable to High Trail Special Situations LLC

on which interest in accrued.

The change in fair value

of warrant liabilities during the three months ended March 31, 2023 is related to the fair value remeasurement of warrants issued during

March, August, and December, 2022.

Income (Loss) Attributable to Non-Controlling

We consolidate the results

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

On December 8, 2019, we formed Agrify

Valiant LLC, a joint-venture limited liability company in which we are 60% majority owner and Valiant-America, LLC owns 40%.

Agrify Valiant

LLC started its operations during the second quarter of 2020.

On January 22, 2020, as part of the acquisition of TriGrow, we received

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

brands that utilize our grow technology.

The license of these brands is ancillary to the sale of our VFUs and provides a means to differentiate

customers’ products in the marketplace.

It is not a material aspect of our business and we have not realized any royalty income.

Accordingly, we are currently evaluating whether to continue this legacy business from an operational standpoint, as well as from a legal

and regulatory perspective.

Loss attributable to non-controlling

interest represents the portion of profit (or loss) that are attributable to non-controlling interest calculated as a product of the net

income of the entity multiplied by the percentage of ownership held by the non-controlling interest.

of warrant liabilities decreased by $21.2 million, or 105% during the three months ended June 30, 2023, compared to the same period in

The change in fair value of warrant liabilities decreased by $29.3 million, or 95% during the six months ended June 30, 2023, compared

to the same period in 2022.The decrease is related to a significant decline in the fair value of warrant liabilities during the three

and six months ended June 30, 2022 between the initial grant date fair value and the fair value as of June 30, 2022.

This decline in fair

value was driven by a significant decrease in stock price during that time, which is an input to the valuation calculation.

Such a fluctuation

in stock price did not exist in the same period in 2023 and therefore there was not a significant change in the fair value of warrant

liabilities in the current period.

The loss on extinguishment

of notes payable of $4.6 million incurred during the six months ended June 30, 2023 is driven by the modification of the notes payable

to High Trail Special Situations LLC through the Securities Exchange Agreement that was entered into on March 8, 2023 which was deemed

to be an extinguishment of debt under ASC 470.

Liquidity and Capital Resources

As of March 31, 2023, our

principal sources of liquidity were cash and cash equivalents and marketable securities totaling $1.5 million and $— million in

restricted cash.

Our current working capital needs are to support revenue growth, to fund construction and equipment financing commitments

associated with our TTK Solutions, manage inventory to meet demand forecasts and support operational growth.

Our long-term financial needs

primarily include working capital requirements and capital expenditures.

We anticipate that we will allocate a significant portion of

our current balance of working capital to satisfy the financing requirements of our current and future TTK arrangements.

These arrangements

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

are many factors that may negatively impact our available sources of funds in the future, including the ability to generate cash from

operations, raise debt capital and raise cash from the issuance of our securities.

The amount of cash generated from operations is dependent

upon factors such as the successful execution of our business strategy and general economic conditions.

As of June 30, 2023, our

principal sources of liquidity were cash and cash equivalents totaling $308 thousand.

Our current working capital needs are to support

revenue growth, to fund construction and equipment financing commitments associated with our TTK Solutions, manage inventory to meet demand

forecasts and support operational growth.

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

There are many factors that may negatively impact our available sources of funds in the future, including the ability to generate cash

from operations, raise debt capital and raise cash from the issuance of our securities.

The amount of cash generated from operations is

dependent upon factors such as the successful execution of our business strategy and general economic conditions.

We may opportunistically

4 unchanged sentences

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

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

results and financial condition may be adversely affected.

If we are unable to raise additional capital when desired, we may be forced

to cease operations.

We entered into one Loan

47 unchanged sentences

The following table presents

the major components of net cash flows from and used in operating, investing, and financing activities for the three months ended March

the major components of net cash flows from and used in operating, investing, and financing activities for the six months ended June 30,

2023, and 2022:

(In thousands)

Net cash (used in) provided by:

Net cash and cash equivalents (used in) provided by:

Operating activities

1 unchanged sentence

Financing activities

Net increase in cash, cash equivalents, and restricted cash

Cash Flow from Operating Activities

For the three months ended

March 31, 2023, we incurred a net loss of $10.3 million, which included $0.4 million related to depreciation and amortization, $—

related to amortization of debt issuance costs, $0.9 of stock based compensation expense, and $2.7 related to the change in fair value

Net (decrease) increase in cash and cash equivalents

Cash Flows from Operating Activities

For the six months ended

June 30, 2023, we incurred a net loss of $17.1 million, which included a $12.9 million loss from operations, a $4.6 million loss on extinguishment

of notes payable, and $1.2 million of interest expense, net, partially offset by a $1.6 million credit related to the change in fair value

of warrant liabilities.

Net cash was reduced by changes in operating assets and liabilities of $2.6 million.

For the three months ended

March 31, 2022, we recorded net income of $1.8 million, which included a non-cash gain related to the remeasurement of warrant liabilities

of $10.8 million, non-cash expenses of $1.1 million related to depreciation and amortization, $1.0 million in connection with the issuance

and acceleration of stock options, debt issuance costs of $2.7 million, non-cash interest income of $0.4 million related to TTK Solutions,

and gain attributed to non-controlling interest in the amount of $1 thousand.

Net cash was reduced by a $0.8 million increase in accounts

receivable, a $2.4 million decrease in deferred revenue, a $16.4 million increase in inventory due to demand forecast, and a $3.0 million

increase in prepaid expenses, a $2.1 million increase in accrued expenses and other current liabilities and $2.8 million decrease in accounts

Cash Flow from Investing Activities

For the three months ended March 31, 2023, net cash provided by investing

activities was $9.8 million, which included cash outflows of $0.1 million in net purchases of property, plant and equipment and $0.6 in

issuances of notes receivable and cash inflows of $10.4 million related to proceeds from sales of securities.

For the three months ended

March 31, 2022, net cash used in investing activities was $13.4 million, which included cash outflows of $6.4 million in net purchases

of marketable securities, $3.5 million paid in connection with our 2022 acquisitions of Lab Society, $12.5 million related to the issuance

of TTK-related loans receivable, and $3.7 million of expenditures for property and equipment.

Cash Flow from Financing Activities

For the three months ended

March 31, 2023, net cash used in financing activities was $9.3 million.

Net cash used in financing activities was primarily driven by

repayments of notes payable of $10.7 million, proceeds from at-the-market offerings of $1.5 million, and proceeds from ESPP shares of

$0.03 million.

For the three months ended

March 31, 2022, net cash provided by financing activities was $87.4 million.

Net cash provided by financing activities was primarily driven

by the Company’s two private placements during 2022.

The Company received $65.0 million in net proceeds from our issuance of debt

and warrants in a private placement, and $25.8 million in net proceeds from our issuance of Common Stock and warrants in a private placement.

Additionally, the Company received $11 thousand in proceeds from the exercise of stock options and warrants.

Each of the above inflows

of cash was offset by $81 thousand in payments relating to financing leases.

Net cash used in operating activities for the six months ended June 30, 2023 was $11.6 million.

For the six months ended

June 30, 2022, we incurred a net loss of $72.8 million, which included a $101.3 million loss from operations and $2.8 million of interest

expense, net, partially offset by a $31.0 million credit related to the change in fair value of warrant liabilities.

Net cash used in

operating activities for the six months ended June 30, 2022 was $50.5 million.

Cash Flows from Investing Activities

For the six months ended

June 30, 2023, net cash provided by investing activities was $11.4 million, which included cash inflows of $10.5 million in proceeds from

the sale of securities and $1.5 million in proceeds from the repayment of a loan receivable, partially offset by cash outflows of $591

thousand in costs related to the issuance of loans.

For the six months ended

June 30, 2022, net cash used in investing activities was $29.6 million, which included cash outflows of $20.4 million related to the issuance

of TTK-related loans receivable, $9.1 million of expenditures for property and equipment, $3.5 million paid in connection with our 2022

acquisition of Lab Society and partially offset by $3.4 million in net sales of marketable securities.

Cash Flows from Financing Activities

For the six months ended

June 30, 2023, net cash used in financing activities was $9.9 million, which was primarily driven by repayment of debt in a private placement

of $10.3 million and payments on insurance financing loans of $999 thousand, partially offset by proceeds from the ATM Program of $1.5

For the six months ended

June 30, 2022, net cash provided by financing activities was $86.7 million, which consisted largely of $62.4

million in proceeds from our issuance of debt and warrants in a private placement, and $25.8 million from the issuance of Common Stock

and warrants in a private placement, net of fees.

Off-Balance Sheet Arrangements

6 unchanged sentences

Critical Accounting Policies and Estimates

Part I, Item, 2, “Management’s

Discussion and Analysis of Financial Condition and Results of Operations” discusses our consolidated financial statements, which

have been prepared in accordance with GAAP.

The preparation of these consolidated financial statements requires management to make estimates

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

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

results may differ from these estimates under different assumptions or conditions.

Our consolidated financial

statements have been prepared in accordance with GAAP.

The preparation of these consolidated financial statements requires management

to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and

liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting

Actual results may differ from these estimates under different assumptions or conditions.

These estimates are based

9 unchanged sentences

policies and estimates that have been adopted and followed in the preparation of our consolidated financial statements are detailed in

Note 1 - Overview, Basis of Presentation and Significant Accounting Policies included in our 2022 Annual Report and Note 1 - Overview,

Basis of Presentation and Significant Accounting Policies to our consolidated financial statements in Part I, Item 1 of this Quarterly

Report on Form 10-Q.

There have been no changes in these policies and estimates that had a significant impact on the financial condition

and results of operations for the periods covered in this Quarterly Report.

Note 1 - Overview, Basis of Presentation and Significant Accounting Policies included in our 2022 Annual Report on Form 10-K and in Note

1 - Overview, Basis of Presentation and Significant Accounting Policies to our condensed consolidated financial statements in Part I,

Item 1 of this Quarterly Report on Form 10-Q.

There have been no changes in these policies and estimates that had a significant impact

on the financial condition and results of operations for the periods covered in this Quarterly Report.

Recently Issued Accounting Pronouncements Adopted

For more information on recently

issued accounting pronouncements are included within Note 1 - Overview, Basis of Presentation and Significant Accounting Policies, included

elsewhere in the notes to consolidated financial statements covered under Part I, Item 1 of this Quarterly Report on Form 10-Q.

Information on recently issued

accounting pronouncements is included in Note 1 - Overview, Basis of Presentation and Significant Accounting Policies, included in the

notes to condensed consolidated financial statements covered under Part I, Item 1 of this Quarterly Report on Form 10-Q.

New Accounting Pronouncements Not Yet Adopted

For more information on new

accounting pronouncements not yet adopted are included within Note 1 - Overview, Basis of Presentation and Significant Accounting Policies,

included elsewhere in the notes to consolidated financial statements covered under Part I, Item 1 in this Quarterly Report on Form 10-Q.

More information on new accounting

pronouncements not yet adopted by the Company is included within Note 1 - Overview, Basis of Presentation and Significant Accounting Policies,

included in the notes to consolidated financial statements covered under Part I, Item 1 in this Quarterly Report on Form 10-Q.

Quantitative and Qualitative Disclosures

About Market Risk

As a “smaller reporting

company” as defined by Item 10 of Regulation S-K, the Company is not required to provide information required by this Item.

As a “smaller reporting company” as

defined by Item 10 of Regulation S-K, the Company is not required to provide information required by this Item.

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-Q

Item 2. Management’s Discussion and Analysis