What changed in this filing

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Item 9A. Controls and Procedures

2024-04-15 compared with 2023-11-28 · 2456 added, 3530 removed, 470 unchanged (93% 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.

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

of Disclosure Controls and Procedures

with the participation of our Chief Executive Officer, evaluated the effectiveness of our disclosure controls and procedures as of December

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

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

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

specified in the SEC’s rules and forms.

Disclosure controls and procedures include, without limitation, controls and procedures

designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange

Act is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate

to allow timely decisions regarding required disclosure.

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

and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in

evaluating the cost-benefit relationship of possible controls and procedures.

Our Chief Executive Officer concluded that our disclosure

controls and procedures were not effective at the reasonable assurance level as of December 31, 2023.

Report on Internal Control over Financial Reporting

is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and

15d-15(f) under the Exchange Act.

Under the supervision and with the participation of our management, including our Chief Executive Officer,

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

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

Based on the results of this evaluation, management has concluded that our internal control over financial reporting was not effective

at the reasonable assurance level as of December 31, 2023.

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 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.

the year ended December 31, 2023, 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.

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.

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

of December 31, 2023 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, 2023, we have improved

our technical accounting resources by hiring outside consultants that have strong technical knowledge in financial reporting and accounting.

However, the finance team has remained weakened, with the departure of our CFO and VP of Finance.

3 unchanged sentences

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.

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.

in Internal Control Over Financial Reporting

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 year ended December 31, 2022 that has materially

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

Other Information.

Disclosure Regarding Foreign Jurisdictions that Prevent

Not applicable.

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.

Directors, Executive Officers and Corporate Governance.

Executive Officers

Executive Officers of the Company

Following are the names and ages of the Agrify’s

current executive officers, the year they became an executive officer, and their principal occupations or employment for at least the

past five years.

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.

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

2024 Annual Meeting of Stockholders and is incorporated herein by reference.

Executive Compensation.

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.

information required by this Item 11 will be included in our Definitive Proxy Statement to be filed

with the SEC with respect to our 2024 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 12 will be included in our Definitive Proxy Statement to be filed

with the SEC with respect to our 2024 Annual Meeting of Stockholders and is incorporated herein by reference.

Certain Relationships and Related Transactions, and Director Independence.

information required by this Item 13 will be included in our Definitive Proxy Statement to be filed

with the SEC with respect to our 2024 Annual Meeting of Stockholders and is incorporated herein by reference.

Principal Accountant Fees and Services.

The following table sets forth

the aggregate fees billed by Marcum LLP (“Marcum”) for professional services rendered during the fiscal years ended December 31,

2022 and 2021:

Types of Fees

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 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.

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

information required by this Item 14 will be included in our Definitive Proxy Statement to be filed

with the SEC with respect to our 2024 Annual Meeting of Stockholders and is incorporated herein by reference.

Exhibits, Financial Statements and Schedules.

(a) Financial

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.

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

Exhibit Index of this report appears below.

(b) Exhibits:

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,

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

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

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

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

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)

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)

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.

Interest Purchase Agreement, dated as of December 31, 2021, among the Registrant, PurePressure, LLC, Benjamin Britton as Member Representative,

and each of the equity holders of PurePressure, LLC named therein (incorporated by reference to Exhibit 2.1 to the Registrant’s

Current Report on Form 8-K filed with the Securities and Exchange Commission on January 5, 2022)

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

as Owner Representative, and each of the Owners named therein (incorporated by reference to Exhibit 2.1 to the Registrant’s

Current Report on Form 8-K filed with the Securities and Exchange Commission on February 2, 2022)

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

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

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

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

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

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

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

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).

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).

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).

of Change to Articles of Incorporation of Agrify Corporation, filed June 30, 2023 (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 3, 2023).

of Amendment to the Articles of Incorporation of the Registrant, filed January 22, 2024 (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 January 25, 2024).

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)

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

2 to Registration Statement

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

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

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

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

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

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)

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 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 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)

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 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)

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).

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).

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).

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)

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)

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)

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)

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)

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)

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)

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)

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)

to Junior Secured Promissory Note, dated December 4, 2023, between Agrify Corporation and CP Acquisitions, LLC (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

Secured Amended, Restated and Consolidated Convertible Promissory Note dated January 25, 2024 (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 25, 2024).

Amended and Restated Junior Secured Promissory Note dated January 25, 2024 (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 25, 2024).

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 February 28, 2024).

of Placement Agent 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 February 28, 2024).

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, 2020)

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)

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)

Agreement dated as of January 4, 2021 between the Registrant and Raymond Chang (incorporated by reference to Exhibit 10.5 to the

Registrant’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 2, 2021)

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)

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)

Agreement by and among the Registrant and Mack Molding Co.

dated December 7, 2020 ± (incorporated by reference to Exhibit

10.15 to the Registrant’s Amendment No.

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

on January 13, 2021)

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)

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)

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)

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

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)

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)

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)

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) .

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).

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,

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

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)

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)

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

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

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)

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

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

Subsidiaries of the Registrant

3 unchanged sentences

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

Inline XBRL Instance Document

Inline XBRL Taxonomy Extension Schema Document.

Inline XBRL Taxonomy Extension Calculation Linkbase Document.

Inline XBRL Taxonomy Extension Definition Linkbase Document.

Inline XBRL Taxonomy Extension Label Linkbase Document.

Inline XBRL Taxonomy Extension Presentation Linkbase Document.

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

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

Indicates a management contract, compensatory plan, or

Agrify Corporation Clawback policy

XBRL Instance Document

XBRL Taxonomy Extension Schema Document.

XBRL Taxonomy Extension Calculation Linkbase Document.

XBRL Taxonomy Extension Definition Linkbase Document.

XBRL Taxonomy Extension Label Linkbase Document.

XBRL Taxonomy Extension Presentation Linkbase Document.

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

Certain information has

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

Indicates a management

contract, compensatory plan, or arrangement.

Filed herewith.

Furnished herewith.

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

November 27, 2023

/s/ Raymond Chang

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.

April 15, 2024

Raymond Chang

Chief Executive Officer

(Principal Executive Officer and Principal Financial and Accounting Officer)

Pursuant to the requirements

of the Securities Exchange Act of 1934, this Report has been signed below by the following person on behalf of the Registrant and in the

capacities and on the dates indicated.

/s/ Raymond Chang

Chief Executive Officer and Director

November 27, 2023

(Principal Executive Officer

and Principal

Financial and Accounting 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

(Principal Executive Officer and Principal Financial and Accounting Officer)

/s/ Guichao Hua

November 27, 2023

/s/ Krishnan Varier

November 27, 2023

Chief Executive Officer

April 15, 2024

Raymond Chang

(Principal Executive Officer

and Principal Financial and Accounting Officer)

Krishnan Varier

/s/ Timothy Mahoney

November 27, 2023

April 15, 2024

Krishnan Varier

Timothy Mahoney

/s/ Max Holtzman

November 27, 2023

/s/ Leonard Sokolow

November 27, 2023

April 15, 2024

Timothy Mahoney

April 15, 2024

Leonard Sokolow

AGRIFY CORPORATION AND SUBSIDIARIES

Index to Consolidated Financial Statements

April 15, 2024

Leonard Sokolow

I-Tseng Jenny Chan

April 15, 2024

I-Tseng Jenny Chan

April 15, 2024

to Consolidated Financial Statements

Fiscal Years Ended December 31, 2023 and 2022:

3 unchanged sentences

Consolidated Statements of Operations F-4

Consolidated Statements of Stockholders’ Equity F-5

Consolidated Statements of Stockholders’ Deficit F-5

Consolidated Statements of Cash Flows F-6

Notes to Consolidated Financial Statements F-7 - F-58

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.

OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

the Shareholders and Board of Directors of

Agrify Corporation and Subsidiaries

on the Financial Statements

have audited the accompanying consolidated balance sheets of Agrify Corporation and Subsidiaries (the “Company”) as of December

31, 2023 and 2022, the related consolidated statements of operations, stockholders’ deficit and cash flows for each of

the two years in the period ended December 31, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2023,

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.

accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.

fully described in Note 1, the Company has a significant working capital deficiency, has incurred significant losses and needs to raise

additional funds to meet its obligations and sustain its operations.

These conditions raise substantial doubt about the Company’s

ability to continue as a going concern.

Management’s plans in regard to these matters are also described in Note 1.

The consolidated

financial statements do not include any adjustments that might result from the outcome of this uncertainty.

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

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

financial statements based on our audits.

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

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

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

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

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

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

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

As part of our audits

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

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

Accordingly, we express no such opinion.

Our audits included performing procedures to assess

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

to those risks.

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

(In thousands, except share and per share data)

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.

We have served

as the Company’s auditor since 2019.

Financial Statements

BALANCE SHEETS

thousands, except share and per share data)

As of December 31,

3 unchanged sentences

Marketable securities

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

Accounts receivable, net of allowance for credit losses of $ 1,887 and $ 4,605 at December 31, 2023 and 2022, respectively

Inventory, net of reserves of $ 17,599 and $ 32,422 at December 31, 2023 and 2022, respectively

1 unchanged sentence

Total current assets

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

Loan receivable, net of allowance for credit losses of $ 19,215 and $ 33,050 at December 31, 2023 and 2022, respectively

Property and equipment, net

Operating lease right-of-use assets

Intangible assets, net

Other non-current assets

Liabilities and Stockholders’ Equity

Liabilities and Stockholders’ Deficit

Current liabilities:

3 unchanged sentences

Long-term debt, current

Related party debt, current

Deferred revenue

1 unchanged sentence

Warrant liabilities

Other non-current liabilities

Operating lease liabilities, net of current

Long-term debt, net of current

Other non-current liabilities

Total liabilities

Commitments and contingencies (Note 16)

Stockholders’ (deficit) equity:

Stockholders’ deficit:

Common Stock, $ 0.001 par value per share, 10,000,000 and 5,000,000 shares authorized at December 31, 2023 and 2022, respectively, 1,701,243 and 1,038,298 shares issued and outstanding at December 31, 2023 and 2022, respectively (1)

3 unchanged sentences

Accumulated deficit

Total stockholders’ (deficit) equity attributable to Agrify

Total stockholders’ deficit attributable to Agrify

Non-controlling interests

Total liabilities and stockholders’ equity

(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 share and per share data)

Total liabilities and stockholders’ deficit

(1) Periods presented have been adjusted to reflect 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 in the notes to the consolidated financial statements

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

STATEMENTS OF OPERATIONS

thousands, except share and per share data)

Ended December 31,

Revenue (including $ 0 , and $ 2,417 from related parties, respectively)

Cost of goods sold

Gross (loss) profit

profit (loss)

General and administrative

2 unchanged sentences

Change in contingent consideration

Gain on disposal on property and equipment

Impairment of property and equipment

Impairment of goodwill and intangible assets

Total operating expenses

Loss from operations

Interest (expense) income, net

Other expense, net

Impairment of goodwill

and intangible assets

operating expenses

from operations

Interest expense, net

Change in fair value of warrant liabilities

Gain on forgiveness of PPP loan

(Loss) gain on extinguishment of notes payable

Loss on extinguishment of long-term debt, net

Other income, net

Net loss before income taxes

other income, net

Net loss before income

Income tax expense

(Income) loss attributable to non-controlling interests

Net loss attributable to Agrify Corporation

Income attributable to non-controlling

loss attributable to Agrify Corporation

$ ( 188,173 )

1 unchanged sentence

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

(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’

(Deficit) Equity

(In thousands, except share data)

(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 elsewhere in the notes to the consolidated financial statements

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

STATEMENTS OF STOCKHOLDERS’ DEFICIT

Stockholders’

Equity (Deficit) attributable to

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)

at January 1, 2022

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

Confidentially

marketed public offering

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

Stock issued for contingent liabilities

of Lab Society

of restricted stock units

at December 31, 2022

Stockholders’

attributable to

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

(In thousands)

at January 1, 2023

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

of held-back shares to Lab Society

of Common Stock to Pure Pressure

of restricted stock units

of prefunded warrants in private placement

of equity classified warrants

of private placement debt into equity classified warrants

of Exchange Note

of Convertible Note

from Employee Stock Purchase Plan Shares

stock split fractional share settlement

December 31, 2023

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

STATEMENTS OF CASH FLOWS

Ended December 31,

Cash flows from operating activities:

Net loss attributable to Agrify Corporation

Net loss attributable to Agrify

$ ( 188,173 )

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

Adjustments to reconcile net loss attributable

to Agrify Corporation to net cash used in operating activities:

Depreciation and amortization

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

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

Loss (income) from disposal of fixed assets

Impairment of property and equipment

Gain on forgiveness of PPP Loan

(Income) loss attributed to non-controlling interest

Change in fair value of contingent consideration

Changes in operating assets and liabilities, net of acquisitions:

Amortization of debt

(premium) discount

Interest on investment

Amortization of issuance

Deferred income taxes

Stock based compensation

Change in fair value

of warrant liabilities

Loss on extinguishment

of long-term debt, net

Impairment of goodwill

and intangible assets

(Recovery of) provision

for credit losses

(Recovery of) provision

for slow-moving inventory

(Gain) loss on disposal

of property and equipment

Impairment of property

and equipment

Change in fair value

of contingent consideration

Income attributable

to non-controlling interests

Changes in operating assets and liabilities,

net of acquisitions:

Accounts receivable

Prepaid expenses and other current assets

Right-of-use assets, net

Prepaid expenses and

other current assets

Right of use assets,

Other non-current assets

Accounts payable

Accrued expenses and other current liabilities

Accrued expenses and

other current liabilities

Operating lease liabilities

Other non-current liabilities

Deferred revenue

Net cash used in operating activities

Cash flows from investing activities

Purchases of property and equipment

Purchases of intangibles assets

Purchase of marketable securities

Proceeds from the sale of marketable securities

Proceeds from the sale of fixed assets

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

Net cash used in investing activities

Cash flows from financing activities

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

Proceeds from Secondary public offering, net of fees

cash and cash equivalents used in operating activities

Cash flows from investing

Purchases of property

and equipment

Proceeds from disposal

of property and equipment

Purchase of marketable

Proceeds from sale of

marketable securities

Issuance of loans receivable

Proceeds from repayment

of loan receivable

Payments on contingent

Cash received from escrow

account related to Sinclair acquisition

Cash paid for business

combination, net of cash acquired

cash and cash equivalents provided by (used in) investing activities

Cash flows from financing

Proceeds from issuance

of debt and warrants in private placement, net of fees

Proceeds from issuance

of Common Stock and warrants in private placement, net of fees

Proceeds from issuance

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

Proceeds from Employee

Stock Purchase Plan Shares

Proceeds from exercise of options

Proceeds from exercise of warrants

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

Net cash provided by 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

Proceeds from confidentially

marketed public offering

Proceeds from issuance

of warrants in settlement agreement

Proceeds from issuance

of related party notes

Repayments of notes

payable, other

Repayment of debt in

private placement

Payments on other financing

Payments on insurance

financing loans

Payments of financing

cash and cash equivalents (used in) provided by financing activities

Net decrease 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

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

Supplemental disclosures

of non-cash flow information

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

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 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’

Financing of prepaid

Transfer of property

and equipment to inventory

Conversion of convertible

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

TO CONSOLIDATED FINANCIAL STATEMENTS

1 — Overview, Basis of Presentation and Significant Accounting Policies

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.

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 combine its integrated hardware and software offerings with a broad range of associated services

including consulting, engineering, and construction and is designed to deliver the most complete commercial indoor farming solution available

from a single provider.

The totality of its product offerings and service capabilities forms an unrivaled ecosystem in what has historically

been a highly fragmented market.

As a result, the Company believes it is well-positioned to capture market share and create a dominant

market position in the indoor cannabis sector.

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 nine wholly-owned subsidiaries, which are collectively referred to as the “Subsidiaries” and the Company also

has ownership interests in certain companies.

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.

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.

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.

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.

Confidentially

Marketed Public Offering

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 11 – 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

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.

TO CONSOLIDATED FINANCIAL STATEMENTS

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

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.

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

4 unchanged sentences

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”).

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 compliance with the minimum bid price rule.

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 consolidated interim financial statements as of and for the quarterly periods ended March 31, 2022, June

30, 2022 and September 30, 2022 included in the Company’s Quarterly Reports on Form 10-Q for such periods in amended quarterly

reports for the affected periods.

As a result of such restatements, 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.

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.

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.

4 unchanged sentences

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

TO CONSOLIDATED FINANCIAL STATEMENTS

November 16, 2023, the Company received a notice from Nasdaq that the Company remains noncompliant with the Listing Rule as a result

of its failure to file its Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2023 with the SEC by the required

filing date (the “November Nasdaq Notice” and, together with the April Nasdaq Notice, the May Nasdaq Notice, and the August

Nasdaq Notice, the “Nasdaq Notices”).

December 1, 2023, the Company received a notice from The Nasdaq Stock Market LLC (“Nasdaq”) stating that because the Company

reported stockholders’ equity of $( 17.17 ) million in its Form 10-Q for the quarter ended March 30, 2023, the Company was no longer

in compliance with Nasdaq Listing Rule 5550(b)(1) (the “Primary Equity Listing Rule”), which requires that listed companies

maintain a minimum of $ 2.5 million in stockholders’ equity.

In response, the Company timely requested a hearing before a Nasdaq

Hearings Panel (the “Panel”), which stayed any further action by the Listing Qualifications Staff.

The hearing was held on

January 11, 2024.

The Company arrived at the hearing having previously cured any additional grounds for delisting as a result of delinquent

periodic filings during 2023 that were filed prior to the hearing.

January 30, 2024, the Company received formal notice that the Panel had granted the Company’s request for an exception through

April 15, 2024 to evidence compliance with the Listing Rule.

The compliance date of April 15, 2024 represents the full extent of the

Panel’s discretion to grant continued listing while the Company is non-compliant with Nasdaq Listing Rules.

Accordingly, there

can be no assurance that the Company will be able to regain compliance with the Nasdaq listing rules or maintain its listing on the Nasdaq

Capital Market.

If the Company’s common stock is delisted, it could be more difficult to buy or sell the Company’s common

stock or to obtain accurate quotations, and the price of the Company’s common stock could suffer a material decline.

could also impair the Company’s ability to raise capital.

Paycheck Protection Program

May 2020, the Company received an unsecured Paycheck Protection Program Loan (“PPP Loan”) from Bank of America pursuant to

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

administered by the U.S.

Small Business Administration (the “SBA”).

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.

The Company received total loan proceeds of approximately

$ 0.8 million 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.

of Presentation and Principles of Consolidation

for Wholly-Owned Subsidiaries

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 (“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, 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 VIE.

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.

TO CONSOLIDATED FINANCIAL STATEMENTS

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.

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 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 financial statements

The Company has incurred operating losses since its inception and has

negative cash flows from operations and a working capital deficit.

The Company also has an accumulated deficit of $ 265.8 million as of

December 31, 2023.

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 market.

As of December 31, 2023, the Company had $ 0.4 million of cash, cash equivalents,

and marketable securities.

The Company had no restricted cash as of December 31, 2023.

Current liabilities were $ 41.2 million as of December

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

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.

October 27, 2023, the company executed a financial transaction, issuing a junior secured promissory note to CP Acquisitions, LLC (“CP”)

with a maximum principal amount of $ 3.0 million, which was later amended on December 4, 2023 to increase the maximum principal amount

to $ 4.0 million.

Additionally, an unsecured promissory note of $ 0.5 million was issued to GIC Acquisition LLC (“GIC”).

information regarding these transactions is included in Note 9 – Debt, included elsewhere in the notes to the consolidated financial

of February 28, 2024, the company raised net proceeds of $ 2.2 million via an S-1 offering through Alexander Capital.

The company intends

to raise additional capital later this year to support its 2024 and 2025 funding needs.

The company also continues to make additional

adjustments in headcount, salary, travel, sales and marketing spending, but there is no guarantee that these ongoing cost-cutting efforts

or capital raises will be sufficient to maintain operations.

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.

TO CONSOLIDATED FINANCIAL STATEMENTS

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 financial results could differ from

those estimates.

Actual financial results could differ from those estimates.

Reclassifications

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.

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.

the Stockholders’ deficit section of the consolidated balance sheets 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.

and Cash Equivalents

and cash equivalents consist principally of cash and deposits with maturities of three months or less as of December 31, 2023 and December

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

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.

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.

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.

municipal and corporate bonds are considered to be held-to-maturity securities and are recorded at amortized cost in the accompanying

consolidated balance sheets.

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

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 and Loan Receivable,

Accounts receivable, net, primarily consists of amounts for goods and

services that are billed and currently due from customers.

The composition of loan receivable, net is detailed in Note 5.

Accounts receivable

and loan receivable balances are presented net of an allowance for credit losses, which is an estimate of billed or borrowed 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 or borrower collection matters, including the

aging of unpaid accounts receivable and changes in customer or borrower financial conditions.

Accounts and loans 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 Customer

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 (“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

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:

TO CONSOLIDATED FINANCIAL STATEMENTS

the year ended December 31, 2023 and 2022, the Company’s customers that accounted for 10 % or more of the total revenue were as

of Total Revenue

Company Customer

Company Customer Number

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

Accounts Receivable, Net

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

Company Customer Number – 126 (1)

Receivable, Net

of December 31, 2023 and 2022, the Company’s customers that accounted for 10 % or more of the total accounts receivable, net, were

of Total Accounts Receivable

Company Customer Number –

1 unchanged sentence

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

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

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.

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

takes physical inventory at least once annually at all inventory locations.

TO CONSOLIDATED FINANCIAL STATEMENTS

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:

Computer and office equipment

Furniture and fixtures

Research and development laboratory equipment

Research and development of laboratory equipment

Machinery and equipment

2 unchanged sentences

Leasehold improvements

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.

Lower of estimated useful life or remaining lease term

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 sheets and any resulting

gain or loss is included in the consolidated statements of operations in the period of retirement or disposal.

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

During 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:

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

A goodwill impairment

charge is recorded for 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/or a decline in the Company’s

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

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

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.

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

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

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.

TO CONSOLIDATED FINANCIAL STATEMENTS

useful lives are as follows:

Acquired developed technology

2 unchanged sentences

Capitalized website costs

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.

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.

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

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

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

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.

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.

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 ASC Topic 815, Derivatives and Hedging (“ASC 815”).

The accounting treatment of derivative financial instruments requires that the Company identify and record certain embedded conversion

options (“ECOs”), certain variable-share settlement features, and any related freestanding instruments at their fair values

as of the inception date of the agreement and at fair value as of each subsequent balance sheet date.

Any change in fair value is recorded

as non-operating, non-cash income or expense for each reporting period at each balance sheet date.

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.

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.

TO CONSOLIDATED FINANCIAL STATEMENTS

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.

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

9 unchanged sentences

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

Additionally,

o n April 18, 2023, the Company modified the exercise price of certain

warrants, to reduce this from $ 13.00 per share to $ 3.45 per share.

Issuance Costs and Debt Discount

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 warrants.

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.

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, 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”

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

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.

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.

Company’s asset 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 component.

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.

TO CONSOLIDATED FINANCIAL STATEMENTS

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 sheets.

Value of Financial Instruments

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.

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

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.

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

the IPO, the Company was a private company and therefore lacks company-specific historical and implied volatility information.

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.

3 unchanged sentences

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:

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.

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.

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.

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

TO CONSOLIDATED FINANCIAL STATEMENTS

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.

accordance with ASC 606 “Revenue Recognition”, the 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 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.

performance obligations that are distinct

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

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

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 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 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.

TO CONSOLIDATED FINANCIAL STATEMENTS

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.

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.

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.

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

Company estimates variable consideration in the form of royalties, revenue share, monthly fees, and service credits at contract inception

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

Variable consideration is typically not

subject to constraint.

Changes to variable consideration were not material for the periods presented.

If a contract has payment

terms that differ from the timing of revenue recognition, 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.

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.

As of December 31,

2023 and 2022, the Company did not have any such financial income.

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.

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.

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

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

The difference in the opening and closing balances

of 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.

TO CONSOLIDATED FINANCIAL STATEMENTS

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 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™

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

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.

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

The Company maintains a reserve for warranty returns of $ 0.4 million and $ 0.6 million as of December 31, 2023 and December

31, 2022, respectively.

The Company’s reserve for warranty returns is included in accrued expenses and other current liabilities

in its consolidated balance sheets.

Additional 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.

and Development Costs

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 Costs

Company capitalizes certain software engineering efforts related to the continued development of Agrify Insights™ under ASC Topic

350-40 The costs incurred in the preliminary stages of development are expensed as incurred as research costs.

Once the application has

reached the development stage, internal and external costs incurred to develop internal-use software are capitalized and amortized on

a straight-line basis over the estimated useful life of the software.

Maintenance and enhancement costs, including those costs in the

post-implementation stages, are typically expensed as incurred, unless such costs relate to substantial upgrades and enhancements to

the software that result in added functionality, in which case the costs are capitalized and amortized on a straight-line basis over

the estimated useful life of the software.

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.

The estimated useful life of capitalized internal-use

software ranges from two to five years.

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.

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

In accordance with the guidance of ASC 740-10-25-6, the benefit of a tax position is recognized in the consolidated financial

statements in the period during which, based on all available evidence, management believes it is more likely than not that the position

will be sustained upon examination, including the resolution of appeals or litigation processes, if any.

Tax positions taken are not

offset or aggregated with other positions.

Tax positions that meet the more-likely-than-not recognition threshold are measured as the

largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority.

The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above should be reflected

as a liability for unrecognized tax benefits in the accompanying balance sheets along with any associated interest and penalties that

would be payable to the taxing authorities upon examination.

The Company believes its tax positions are all highly certain of being upheld

upon examination.

The Company believes its tax positions are all highly certain of being upheld upon examination.

As such, the Company

has not recorded a liability for unrecognized tax benefits.

As of December 31, 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 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

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.

As such, the Company has not recorded a liability for unrecognized tax benefits.

TO CONSOLIDATED FINANCIAL STATEMENTS

Company recognizes the benefit of a tax position when it is effectively settled.

ASC 740-10-25-10, provides guidance on how an entity

should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits.

740-10-25-10 clarifies that a tax position can be effectively settled upon the completion of an examination by a taxing authority.

tax positions considered effectively settled, the Company recognizes the full amount of the tax benefit.

Company’s quarterly provision for income taxes is measured using an annual effective tax rate, adjusted for discrete items within

the period presented.

To determine the annual effective tax rate, the Company estimates both the total income (loss) before income taxes

for the full year and the jurisdictions in which that income (loss) is subject to tax.

The actual effective tax rate for the full year

may differ from these estimates if income (loss) before income taxes is greater than or less than what was estimated or if the allocation

of income (loss) to jurisdictions in which it is taxed is different from the estimated allocations.

provision for income taxes represents Federal and state and local income taxes.

The effective rate differs from statutory rates due to

the effect of certain nondeductible expenses.

Our effective tax rate will change from quarter to quarter based on recurring and non-recurring

factors including, but not limited to, the geographical mix of earnings, enacted tax legislation, and state and local income taxes.

addition, changes in judgment from the evaluation of new information resulting in the recognition, derecognition or re-measurement of

a tax position taken in a prior annual period is recognized separately in the quarter of the change.

contingencies are recorded, if needed, to address potential exposure involving tax positions the Company has taken that could be challenged

by tax authorities.

These potential exposures could result from applications of various statutes, rules, regulations and interpretations.

Any estimates of tax contingencies contain assumptions and judgments about potential actions by taxing jurisdictions.

Any interest and

penalties related to uncertain tax positions would be included as part of the income tax provision.

The Company’s conclusions regarding

uncertain tax positions may be subject to review and adjustment at a later date based upon ongoing analysis of or changes in tax laws,

regulations and interpretations thereof as well as other factors.

Loss Per Share

Company presents basic and diluted net loss per share attributable to Common Stockholders in conformity with the two-class method required

for participating securities.

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.

loss per share calculations for all periods have been adjusted to reflect the reverse stock splits effected on October 18, 2022 and July

Net loss per share was calculated based on the weighted-average number of Common Stock outstanding.

Recently Adopted Accounting Pronouncements

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.

Adopted Accounting Pronouncements

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 for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years.

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 for fiscal years beginning after

December 15, 2021, including interim periods within those fiscal years.

The Company adopted this standard as of January 1, 2022.

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.

June 2016, the FASB issued ASU No.

2016-13, Financial Instruments-Credit Losses (Topic 326), which introduces a new methodology for accounting

for credit losses on financial instruments, including available-for-sale debt securities and accounts receivable.

The guidance establishes

a new “expected loss model” that requires entities to estimate current expected credit losses on financial instruments by

using all practical and relevant information.

Any expected credit losses are to be reflected as allowances rather than reductions in

the amortized cost of available-for-sale debt securities.

ASU 2016-13 is effective for fiscal years beginning after December 15, 2022.

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.

The Company adopted ASU 2016-13 on January 1, 2023.

The adoption of this standard did not have a material impact on these consolidated

financial statements.

TO CONSOLIDATED FINANCIAL STATEMENTS

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 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.

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 years.

adoption is permitted, including adoption in an interim period.

The Company adopted ASU 2021-08 on January 1, 2023.

The adoption of this

standard did not have a material impact on these consolidated financial statements.

Announced Accounting Pronouncements

2023-09, Improvements to Income Tax Disclosures ∙ On December 14, 2023, the FASB issued, ASU 2023-09, Improvements to Income Tax

Disclosures, a final standard on improvements to income tax disclosures.

The standard requires disaggregated information about a reporting

entity’s effective tax rate reconciliation as well as information on income taxes paid.

The standard applies to all entities subject

to income taxes and is intended to benefit investors by providing more detailed income tax disclosures that would be useful in making

capital allocation decisions.

For public business entities (PBEs), the new requirements will be effective for annual periods beginning

after December 15, 2024.

The guidance will be applied on a prospective basis with the option to apply the standard retrospectively.

Company is currently in the process of evaluating the effect of this guidance on its financial statements.

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

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:

— Revenue and Deferred Revenue

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 a 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.

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.

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.

following table provides the Company’s revenue disaggregated by the timing of revenue recognition:

Ended December 31,

(In thousands)

1 unchanged sentence

Transferred over time

Total revenue

The following table provides the Company’s

revenue disaggregated by revenue type:

TO CONSOLIDATED FINANCIAL STATEMENTS

following table provides the Company’s revenue disaggregated by revenue type:

Ended December 31,

(In thousands)

Cultivation solutions, including ancillary products and services

Cultivation solutions, including

ancillary products and services

Agrify Insights™

1 unchanged sentence

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:

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.

in the Company’s current deferred revenue balance for the years ended December 31, 2023 and 2022 were as follows:

Ended December 31,

(In thousands)

1 unchanged sentence

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:

revenue balances primarily consist of customer deposits on the Company’s cultivation and extraction solutions equipment.

December 31, 2023 and December 31, 2022, all of the Company’s deferred revenue balances were reported as current liabilities in

the accompanying consolidated balance sheets.

the year ended December 31, 2023, the Company recognized $ 2.5 million of revenue that was deferred during 2022.

And, during the year

ended December 31, 2022, the Company recognized $ 2.7 million of revenue that was deferred during 2021.

— Supplemental Consolidated Balance Sheet Information

receivable consisted of the following as of December 31, 2023 and December 31, 2022:

Ended December 31,

(In thousands)

Accounts receivable, gross

Less allowance for doubtful accounts

allowance for credit losses

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:

TO CONSOLIDATED FINANCIAL STATEMENTS

changes in the allowance for credit losses accounts consisted of the following:

Ended December 31,

(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:

Allowance for credit losses - beginning

(Recovery of) allowance

for credit losses

Write-offs of uncollectible

Allowance for credit losses

- end of period

Company recognized a net recovery of credit losses of $ 1.4 million and a provision credit losses of $ 4.9 million for the years ended

December 31, 2023 and 2022, respectively.

Expenses and Other Current Assets

expenses and other current assets consisted of the following as of December 31, 2023 and December 31, 2022:

Ended December 31,

(In thousands)

Other receivables

Prepaid expenses, other

Prepaid settlement asset

Other receivables, other

Prepaid insurance

Deferred issuance costs

Prepaid expenses, other

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:

Deferred issuance costs,

prepaid expenses and other current assets

and Equipment, Net

and equipment, net consisted of the following as of December 31, 2023 and December 31, 2022:

(In thousands)

Leased equipment

Leasehold improvements

1 unchanged sentence

Computer and office equipment

Leased equipment

Furniture and fixtures

Research and development laboratory equipment

Furniture and fixtures

Trade show assets

2 unchanged sentences

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:

Total property and equipment,

expense for the years ended December 31, 2023 and 2022 was $ 1.9 million and $ 1.7 million, respectively.

TO CONSOLIDATED FINANCIAL STATEMENTS

Non-Current Assets

non-current assets consisted of the following as of December 31, 2023 and December 31, 2022:

Ended December 31,

(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:

Long-term deferred commissions

other non-current assets

Expenses and Other Current Liabilities

expenses and other current liabilities consisted of the following as of December 31, 2023 and December 31, 2022:

Ended December 31,

(In thousands)

2 unchanged sentences

Accrued construction costs

Accrued interest expense

Compensation related fees

Accrued inventory purchases

Accrued warranty costs

Accrued warranty expenses

Accrued professional fees

Accrued interest expense

Accrued inventory purchases

Accrued consulting fees

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:

accrued expenses and other current liabilities

(1) 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.

(2) Accrued acquisition liabilities includes 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 Precision, Cascade and PurePressure.

Warranty Costs

following table summarizes the activity related to the Company’s accrued liability for estimated future warranty costs:

Ended December 31,

(In thousands)

Warranty accrual – beginning of period

Liabilities accrued for warranties issued during period

Liabilities accrued for

warranties issued during the period

accruals paid during the period

Warranty accrual – end of period

Note 4 — Fair Value Measures

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:

— Fair Value Measures

Values of Assets and Liabilities

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, 2022 and

2021, the Company’s assets and liabilities measured at fair value on a recurring basis were as follows:

Measurements Using Input Types

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.

TO CONSOLIDATED FINANCIAL STATEMENTS

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.

December 31, 2023 and December 31, 2022, the Company’s assets and liabilities measured at fair value on a recurring basis were

December 31, 2023

December 31, 2022

Fair Value Measurements Using Input Types

(In thousands)

Mutual funds (included in cash and cash equivalents in 2021)

Municipal bonds

Mutual funds (included in cash and cash equivalents)

Money market funds

Corporate bonds

Contingent consideration

Warrant liabilities - January 2022 warrants

3 unchanged sentences

Total liabilities

Fair Value of Financial Instruments

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, 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:

TO CONSOLIDATED FINANCIAL STATEMENTS

of Financial Instruments

Company has certain financial instruments which consist of cash and cash equivalents, marketable securities, warrant liabilities, and

contingent consideration.

Fair value information for each of these instruments as well as other balances of the Company are as follows:

and cash equivalents, accounts receivable, accounts payable, accrued expenses, and deferred

revenue liabilities approximate their fair value based on the short-term nature of these

securities classified as current held-to-maturity securities are recorded at amortized cost,

which at December 31, 2023 and 2022, approximated fair value.

Company’s deferred consideration was recorded in connection with acquisitions during

the year ended December 31, 2023 and fiscal 2022 using an estimated fair value discount at

the time of the transactions.

As of December 31, 2023 and 2022, the carrying value of the

deferred consideration approximated fair value.

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.

of December 31, 2023 and 2022, 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.

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.

composition of the Company’s marketable securities are as follows:

Ended December 31,

(In thousands)

Current marketable securities:

Municipal bonds

Corporate bonds

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

Corporate bonds

Contingent Consideration

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.

Consideration

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.

The company recorded no change in contingent consideration for the year ended December 31, 2023.

contingent earn-out payments to the sellers for each acquisition are based on the achievement of certain revenue thresholds.

TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands)

1 unchanged sentence

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 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 –

Accretion of contingent

consideration

Payments made on contingent

in estimated fair value

Contingent consideration – end of

Company included contingent consideration within accrued expenses and other current liabilities on its consolidated balance sheet as

of December 31, 2022.

below for additional information related to each acquisition’s contingent consideration.

Consideration – PurePressure

Company, in its review of actual revenue performance as compared to its originally projected revenue estimates, noted that PurePressure’s

1 unchanged sentence

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 –

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 $ 0.6 million and their second earn-out

by approximately $ 0.2 million.

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.

Consideration – Lab Society

Company, in its review of actual revenue performance as compared to its originally projected revenue estimates, noted that Lab Society’s

5 unchanged sentences

liability associated with Lab Society’s first earn-out period by approximately $ 1.0 million and their second earn-out by approximately

$ 484 thousand.

$ 0.5 million.

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.

Consideration – Precision and Cascade

earn-out period for the potential contingent consideration to be earned by the former members of Precision and Cascade concluded on December

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 $ 0.1 million, 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 period 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.

estimated fair value of the warrant liabilities on December 31, 2023 and 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.

inherent uncertainties are involved.

If factors or assumptions change, the estimated fair values could be materially different.

TO CONSOLIDATED FINANCIAL STATEMENTS

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)

following table summarizes the Company’s assumptions used in the valuation of December 31, 2023 and December 31, 2022:

Ended December 31,

Exercise price

Expected term (in 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:

following table sets forth a summary of the changes in the fair value of the Level 3 warrant liabilities of December 31, 2023 and December

Ended December 31,

(In thousands)

Warrant liabilities – beginning of period

Initial fair value of warrant liabilities

Change in estimated fair value

Initial fair value of warrant

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)

following table summarizes the Company’s assumptions used in the valuation of December 31, 2023 and December 31, 2022:

Ended December 31,

Exercise price

Expected term (in 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:

following table sets forth a summary of the changes in the fair value of the Level 3 warrant liabilities of December 31, 2023 and December

Ended December 31,

(In thousands)

Warrant liabilities – beginning of period

Initial fair value of warrant liabilities

Change in estimated fair value

Component of loss on debt extinguishment

Initial fair value of warrant

Change in estimated fair

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)

TO CONSOLIDATED FINANCIAL STATEMENTS

2022 Warrants

following table summarizes the Company’s assumptions used in the valuation of December 31, 2023 and December 31, 2022:

Ended December 31,

Exercise price

Expected term (in 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:

following table sets forth a summary for the changes in the fair value of the Level 3 warrant liabilities of December 31, 2023 and December

Ended December 31,

(In thousands)

Warrant liabilities – beginning of period

Initial fair value of warrant liabilities

Change in estimated fair value

Warrants settled in period

Initial fair value of warrant

Change in estimated fair

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)

2022 Warrants

following table summarizes the Company’s assumptions used in the valuation of December 31, 2023 and December 31, 2022:

Ended December 31,

Exercise price

Expected term (in 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:

following table sets forth a summary for the changes in the fair value of the Level 3 warrant liabilities of December 31, 2023 and December

Ended December 31,

(In thousands)

Warrant liabilities – beginning of period

Initial fair value of warrant liabilities

Change in estimated fair value

Initial fair value of warrant

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”).

TO CONSOLIDATED FINANCIAL STATEMENTS

5 — Loans Receivable

portion of the capital raised from the Company’s IPO was allocated to launch the Company’s TTK Solution program.

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.

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:

& 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 current litigation and the uncertainty of the customer’s ability to repay the outstanding

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’

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

The Company 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.

During the quarter ended June 30, 2023, the Greenstone

loan was fully written off against the reserve as a result of the sale of Greenstone to Denver Greens.

It was agreed that Denver Greens

would not have to pay back Greenstone’s Loan.

breakdown of loans receivable by customer as of December 31, 2023 and December 31, 2022 were as follows:

Ended December 31,

(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

Customer 24096

Other – Non-TTK Solution (1)

Allowance for credit

losses (2)(3)

loan receivable

(1) The current portion of loan receivable is included in prepaid expenses and other current assets on the balance sheet.

(2) As of December 31, 2023 The TTK Solution project balance was written off due to the cancellation of the project.

(3) The Company established an allowance for credit losses of approximately $ 14.7 million related to Bud & Mary’s ongoing litigation.

Approximately $ 4.5 million relates to Hannah.

TO CONSOLIDATED FINANCIAL STATEMENTS

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, Hannah, and Greenstone TTK Solution, which

is a related party, as described above.

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.

The Company’s loan receivable from Greenstone was written off in full during the quarter ending June 30, 2023.

are stated at the lower of cost or net realizable value, with cost principally determined by the weighted-average cost method on a first-in,

first-out basis.

Such costs include the acquisition cost for raw materials and operating supplies.

The Company’s standard payment terms with

suppliers may require making payments in advance of delivery of the Company’s products.

The 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:

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.

consisted of the following as of December 31, 2023 and December 31, 2022:

Ended December 31,

(In thousands)

2 unchanged sentences

Finished goods

Inventory for resale

Inventory, gross

Inventory reserves

Total inventory, net

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:

inventory, net

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.

in the Company’s inventory reserve are as follows:

Ended December 31,

(In thousands)

2 unchanged sentences

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:

— Goodwill and Intangible Assets, Net

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 circumstances were to occur that would more likely than not reduce the fair value of the Company’s reporting

unit below its carrying amount.

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.

TO CONSOLIDATED FINANCIAL STATEMENTS

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.

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

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.

in goodwill consisted of the following:

(In thousands)

Goodwill - beginning of period

Goodwill acquired during period

Goodwill purchase accounting adjustment

Goodwill impairment loss

Goodwill acquired during

Goodwill purchase accounting

impairment loss

Goodwill - end of period

Intangible assets, net as of December 31, 2022

were as follows:

assets, net as of December 31, 2022 were as follows:

Intangible Assets, Gross

2 unchanged sentences

(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

(In thousands)

January 1, 2022

Additions and Retirements, net

December 31, 2022

January 1, 2022

Expense and Retirements, net

Customer relationships

Acquired developed technology

Non-compete agreements

Capitalized website costs

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

expense recorded in general and administrative expense in the consolidated statements of operations was zero and $ 1.4 million for the

years ended December 31, 2023, and 2022, respectively.

TO CONSOLIDATED FINANCIAL STATEMENTS

8 - Business Combinations

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

18 unchanged sentences

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.

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:

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

and related costs, consisting primarily of professional fees, related to the acquisition, totaled approximately $ 0 and $ 66 thousand for

the years ended December 31, 2023, and 2022, respectively.

All transaction and related costs were expensed as incurred and are included

in general and administrative expense.

TO CONSOLIDATED FINANCIAL STATEMENTS

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)

6 unchanged sentences

Working capital adjustment

Fair value of total consideration transferred

Total purchase price, net of cash acquired

Fair value of total

consideration transferred

Total purchase price,

net of cash acquired

Fair value allocation of purchase price

5 unchanged sentences

Prepaid and refundable taxes

Accounts payable, accrued expenses, and other current liabilities

Accounts payable, accrued expenses, and other

current liabilities

Deferred revenue

6 unchanged sentences

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:

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)

2 unchanged sentences

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

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;

Total identified intangible

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.

TO CONSOLIDATED FINANCIAL STATEMENTS

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

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 - Intangible Assets, Net and Goodwill included elsewhere in the notes to the consolidated

financial statements.

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.

of Precision and Cascade

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.

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.

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 Purchase;

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.

the True-Up Buyer Shares, issuable in connection with the Merger.

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, 2023.

1 unchanged sentence

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.

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.

August 10, 2022, the Company entered into a post-closing adjustment settlement agreement (“Agreement”) with Sinclair.

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,

2 unchanged sentences

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:

TO CONSOLIDATED FINANCIAL STATEMENTS

and related costs, consisting primarily of professional fees, related to the acquisition, totaled approximately $ 0 and $ 63 thousand for

the years ended December 31, 2023, and 2022, respectively.

All transaction and related costs were expensed as incurred and are included

in general and administrative expense.

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 the close

Cash contributed to escrow accounts at the close

Cash paid for excess net working capital

Sinclair Members at the close

Cash contributed to escrow

accounts at the close

Cash paid for excess net

working capital

Stock issued at the close

Fair value of contingent consideration to be achieved

Fair value of total consideration transferred

Total purchase price, net of cash acquired

value of contingent consideration to be achieved

value of total consideration transferred

purchase price, net of cash acquired

Fair value allocation of purchase price

1 unchanged sentence

Accounts receivable

Prepaid expenses and other current receivables

Property and equipment, net

Prepaid expenses and other

current receivables

Property and equipment,

Right-of-use assets, net

Capitalized web costs, net

Accounts payable and accrued expenses

Accounts payable and accrued

Deferred revenue

Long-term debt

Operating lease liabilities, current

Operating lease liabilities, non-current

Operating lease liabilities,

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:

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)

4 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.

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 $ 4.0 million in cash, subject to certain adjustments for working capital, cash, and indebtedness of PurePressure

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.

TO CONSOLIDATED FINANCIAL STATEMENTS

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

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 - Intangible Assets, Net and Goodwill, included elsewhere in the notes to the consolidated

financial statements.

of PurePressure

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”).

aggregate consideration for the Acquisition consisted of $ 4.0 million in cash, subject to certain adjustments for working capital, cash,

and indebtedness of PurePressure at closing;

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:

and the Earn-out Consideration

(as defined below), to the extent earned.

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 Agreement.

Pure Purchase Agreement includes customary post-closing adjustments, representations and warranties, and covenants of the parties.

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.

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.

and related costs, consisting primarily of professional fees, related to the acquisition, totaled approximately $ 0 and $ 563 thousand

for the years ended December 31, 2023, and 2022, respectively.

All transaction and related costs were expensed as incurred and are included

in general and administrative expense.

TO CONSOLIDATED FINANCIAL STATEMENTS

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)

7 unchanged sentences

Working capital adjustment

Fair value of total consideration transferred

Total purchase price, net of cash acquired

Fair value of total

consideration transferred

Total purchase price,

net of cash acquired

Fair value allocation of purchase price

15 unchanged sentences

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:

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)

2 unchanged sentences

Customer relationships

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:

Total identified intangible

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

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 - Intangible Assets, Net and Goodwill, included elsewhere in the notes to the consolidated

financial statements.

TO CONSOLIDATED FINANCIAL STATEMENTS

Company’s debt consisted of:

Year Ended December 31,

(In thousands)

Note payable – Exchange Note

Note payable – Exchange Note and Convertible Note

Related party debt

Other notes payable (1)

unamortized debt discount

Unamortized debt premium (discount)

Total debt, net of debt discount

current portion, net of current unamortized debt discount

Long-term debt

Securities Purchase Agreement

Long-term debt, net of current

(1) Other notes payable relates to a one-year insurance premium that was

financed over nine-months and incurred interest expense of approximately $ 85 thousand.

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

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.

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

1 unchanged sentence

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

$ 0.3 million 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.

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

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

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

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

If an event 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.

TO CONSOLIDATED FINANCIAL STATEMENTS

the date the Exchange Note is fully repaid, the Investor has, subject to certain exceptions, the right to participate for up to 30 % of

1 unchanged sentence

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.

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

11 unchanged sentences

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 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:

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).

of Notes Payable

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”).

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.

As a result, the Company recognized a loss on the extinguishment of debt of approximately $ 4.6 million.

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 Note.

TO CONSOLIDATED FINANCIAL STATEMENTS

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.

The Lender will also have the option of requiring the Company to

redeem the Convertible Note (i) on August 19, 2023 or August 19, 2024 at a price equal to the then-outstanding principal amount under

the Convertible Note plus accrued but unpaid interest, provided that the redemption right on August 19, 2023 will not be exercisable

if the Company raises at least $ 8.0 million in gross proceeds from equity offerings prior to such date, or (ii) if the Company undergoes

a fundamental change (as defined below) at a price equal to 102.5 % of the then-outstanding principal amount under the Convertible Note

plus accrued but unpaid interest.

Convertible Note will impose certain customary affirmative and negative covenants upon the Company, as well as covenants that will (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, and (iii)

restrict the declaration of any dividends or other distributions, subject to specified exceptions.

If an event of default under the Convertible

Note occurs, the Lender can elect to redeem the Convertible Note for cash equal to (A) 115 % of the then-outstanding principal amount

of the Convertible 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, or, only in connection with

certain events of default, (B) the greater of the amount under clause (A) or the sum of (i) 115 % of the product of (a) the conversion

rate in effect as of the trading day immediately preceding the date that the Lender delivers a notice of acceleration;

(b) the total

then outstanding principal amount under the Convertible Note (in thousands);

and (c) the greater of (1) the highest daily volume weighted

average price (“VWAP”) per share of Common Stock occurring during the fifteen consecutive trading days ending on, and including,

the trading day immediately before the date the Lender delivers such notice and (2) the highest daily VWAP per share of Common Stock

occurring during the fifteen consecutive trading days ending on, and including, the trading immediately before the date the applicable

event of default occurred and (ii) the accrued and unpaid interest on the Convertible Note.

the date the Convertible Note is fully repaid, the Lender will have, 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 Lender elects to convert the Convertible Note, the conversion price per share will be $ 0.3820 , subject to customary adjustments for

certain corporate events.

The conversion of the Convertible Note will be subject to certain customary conditions.

The Convertible Note

may not be converted into shares of Common Stock if such conversion would result in the Lender and its affiliates owning an aggregate

of in excess of 4.99 % of the then-outstanding shares of Common Stock, provided that upon 61 days’ notice, such ownership limitation

may be adjusted by the Lender, but in any case, to no greater than 9.99 %.

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 Note and Exchange Note described above was $ 1,840,300 as of December 31, 2023.

to the Exchange Agreement the Company entered into with High Trail Special Situations LLC on March 8, 2023, the Lender elected, on April

26, 2023, to convert $ 1.6 million of the remaining outstanding principal amount on the Convertible Note for 153,617 shares of Common

Stock of the Company.

May 1, 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 or redeem $ 2.0 million of the remaining outstanding principal amount

under the Exchange Note for a total of 445,196 shares of Common Stock of the Company, subject to a Beneficial Ownership Limitation of

4.99 % of the Company’s Common Stock.

Due to the Beneficial Ownership Limitation of 4.99 %, a total of 69,568 shares of Common Stock

of the Company were issued to the Lender, with the remaining 375,629 shares held in abeyance until the balance (or portion thereof) may

be issued in compliance with such limitations.

As a result, the Company recognized a loss on the redemption of approximately $ 12 thousand.

TO CONSOLIDATED FINANCIAL STATEMENTS

The total aggregated Exchange

Note and Convertible Note is classified as long-term as of December 31, 2023:

Note Forgiveness

On November 30, 2023, the New Lender (defined below) agreed to forgive

$ 1.0 million of the principal amount outstanding on the Convertible Note (the “Principal Forgiveness”).

The Principal Forgiveness

was accounted for as a troubled debt restructuring under ASC 470, as 1) the Company was determined to be experiencing financial difficulties

as defined by the ASC, and 2) the Principal Forgiveness was deemed a concession by the New Lender.

Per ASC 470-60-35-5, a debtor in a

troubled debt restructuring involving only modification of terms of a payable (i.e., not involving a transfer of assets or grant of an

equity interest) shall account for the effects of the restructuring prospectively from the time of restructuring and shall not change

the carrying amount of the payable at the time of the restructuring unless the carrying amount exceeds the total future cash payments

specified by the new terms.

As the future undiscounted cash flows were greater than or equal to the net carrying value of the original

debt, the carrying amount of the debt at the time of the restructuring was not changed.

July 12, 2023, the Board of Directors of the Company approved the issuance of an unsecured promissory note (the “Related Party

Note”) in favor of GIC Acquisition, LLC (“GIC”), an entity that is owned and managed by the Company’s Chairman

and Chief Executive Officer.

Pursuant to the Related Party Note, GIC is obligated to lend up to $ 0.5 million to the Company, $ 0.3 million

of which was delivered at issuance and the remaining $ 0.2 million delivered on July 31, 2023.

The Related Party Note bears interest at

a rate of 10 % per annum, will mature in full on August 6, 2023, and may be prepaid without any fee or penalty.

The Related Party Note

ranks junior to all existing secured indebtedness of the Company.

On October 27, 2023, the maturity date of the Related Party Note was

subsequently amended to December 31, 2024 at which point principal and accrued interest will be repaid in full.

Interest expense incurred

on the Related Party Note amounted to approximately $ 25 thousand for the year ended December 31, 2023.

As of December 31, 2023, the Company

has borrowed approximately $ 645 thousand under the Related Party Note agreement.

October 27, 2023, CP Acquisitions LLC (the “New Lender” or “CP”), an entity affiliated with and controlled by

the Company’s Chief Executive Officer, purchased the Exchange Note and the Convertible Note from their holder (the “Note

In connection with the Note Purchase, the New Lender has agreed to waive any events of default under the acquired notes

through December 31, 2023.

As part of the same transaction, the Company issued a junior secured promissory note (the “Junior Secured

Note”) to the New Lender.

Pursuant to the Junior Secured Note, the New Lender will lend up to $ 3.0 million to the Company.

Junior Secured Note bears interest at a rate of 10 % per annum, will mature in full on December 31, 2023, and may be prepaid without any

fee or penalty.

On December 4, 2023, the New Lender and the Company amended and restated the Junior Secured Note agreement.

to the terms of the amendment, the maximum principal amount that may be loaned by CP to the Company was increased to $ 4.0 million and

extended the maturity date thereon to December 31, 2024.

As of December 31, 2023, the Company has borrowed $ 3.8 million and incurred

interest expense of approximately $ 253 thousand.

TO CONSOLIDATED FINANCIAL STATEMENTS

Protection Program Loan

Protection Program Loans under the Coronavirus Aid, Relief, and Economic Security Act

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.

Company received total proceeds of approximately $ 0.8 million from the unsecured PPP Loan, which was originally scheduled to mature on

May 7, 2022 .

The Company applied for forgiveness on the $ 0.8 million of PPP loan, but forgiveness was denied by the SBA due to failure

to comply with the application deadline.

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 7, 2022.

breakdown of PPP Loan balances by current and non-current as of December 31, 2023 and December 31, 2022 were as follows:

(In thousands)

Balance Sheet

Sheet Location

PPP Loan, current

Long-term debt,

Long-term debt, current

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 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),

PPP Loan outstanding

of December 31, 2023, future minimum payments on all debt positions were as follows:

(In thousands)

Years Ended December 31,

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:

interest totaled approximately $ 321 and $ 240 thousand as of December 31, 2023 and December 31, 2022, respectively.

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

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.

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, 2023 and 2022, the Company’s weighted-average

discount rate utilized for its leases was 7.51 % and 7.29 %, respectively.

a contract contained lease and non-lease elements, both were accounted for as a single lease component.

Company had several non-cancelable finance leases for machinery and equipment.

As of December 31, 2023 the Company had no active finance

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 communal area maintenance associated with the property.

TO CONSOLIDATED FINANCIAL STATEMENTS

information on the Company’s operating and financing lease activity was as follows:

Ended December 31,

(In thousands)

1 unchanged sentence

Finance lease cost:

Amortization of right-of-use assets

Interest on lease liabilities

Amortization of right-of-use

on lease liabilities

Total lease cost

Ended December 31,

(In thousands)

Balance Sheet

Right-of-use assets, net

Operating lease right-of-use assets, net

Finance lease assets

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

Right-of-use, net

Property and equipment, net

Total lease assets

Operating lease liabilities,

Operating lease liabilities, current

Accrued expenses and other current liabilities

lease liabilities, non-current

Operating lease liabilities, non-current

operating lease liabilities

Finance lease liabilities,

Accrued expenses and other current liabilities

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

finance lease liabilities

of operating and finance lease liabilities as of December 31, 2023 are as follows:

December 31 (In thousands),

Total minimum lease

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.

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 Convertible Notes.

After the amendment:

● 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 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 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.

TO CONSOLIDATED FINANCIAL STATEMENTS

11 — Stockholders’ Equity

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.

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

March 1, 2023, the Company further increased its authorized number of shares to 13,000,000 , consisting of:

10,000,000 shares of Common

Stock, par value $ 0.001 per share and 3,000,000 shares of preferred stock, par value $ 0.001 per share.

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.

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.

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.

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 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

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

Expected life (Years)

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.

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

Options outstanding at December 31, 2021

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.

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.

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.

The Marketing Offering

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.

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 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 $ 0.5 million and legal fees totaling $ 0.1 million.

$ 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.

TO CONSOLIDATED FINANCIAL STATEMENTS

Confidentially

Marketed Public Offering

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 1,338,471 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 intends to use the net proceeds from the Offering, together with its existing cash resources, for working capital and general

corporate purposes, which may include capital expenditures and repayment of debt.

Pre-Funded 2022 Warrants were exercisable immediately upon issuance at an exercise price of $ 0.001 per share and do not have an expiration

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).

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.

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.

of December 31, 2023 and 2022, the Company valued the December Warrants using the Black-Scholes option-pricing model and determined the

fair value at $ 1.3 million and $ 5.9 million, respectively.

The key inputs to the valuation model included the annualized volatility of

98.0 % and the expected term of about 5 years.

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.

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.

October 2023, the Company issued 750,000 warrants to Mack Molding Co.

in conjunction with the Modification and Settlement Agreement (the

“Mack Warrants”).

The warrants have a three-year term and an exercise price of $ 4.00 per share, and are subject to adjustment

for stock splits, reverse stock splits, stock dividends, and similar transactions.

The warrants 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 warrants or if shareholder approval for the full exercise of the warrants are not received, in which case the Modified

Warrant will also be exercisable on a cashless exercise basis at the Investor’s election.

measurement of fair value of the Mack Warrants were determined utilizing a Black-Scholes model considering all relevant assumptions current

at the date of issuance (i.e., share price of $ 2.79 , exercise price of $ 4.00 , term of three years , volatility of 138 %, risk-free rate

of 5.03 %, and expected dividend rate of 0 %).

The grant date fair value of these Investor Warrants was estimated to be $ 1.6 million on

October 18, 2023 and is reflected within additional paid-in capital as of December

TO CONSOLIDATED FINANCIAL STATEMENTS

October 27, 2023, as a condition precedent to the Note Purchase, the Company entered into a letter agreement (the “October Letter

Agreement”) with the holder of the Exchange Note and the Convertible Note.

Pursuant to the agreement, the Company agreed to exchange

$ 3.0 million in principal, approximately $ 95,000 in unamortized debt premium, and approximately $ 1.1 million in accrued but unpaid interest

outstanding under the Exchange Note for a warrant to purchase 2,809,669 shares of common stock (the “Exchange Warrant”).

Additionally, the Company agreed to exchange the 375,629 shares of common stock held in abeyance for the Investor under the terms of

the Letter Agreement for a warrant to purchase 375,629 shares of common stock (the “Abeyance Warrant”).

The Company concluded

that the Exchange Warrant and the Abeyance Warrant are both equity classified at issuance and recorded within additional paid-in capital

in the accompanying consolidated balance sheet.

The Company recognized the Exchange Warrant and Abeyance Warrant at fair value at issuance

in the amounts of $ 3.9 million and $ 0.4 million, respectively.

Resulting from the exchange within the October Letter Agreement, the Company

recognized a gain on debt extinguishment of $ 320,125 included within the accompanying consolidated statement of operations for the year

ended December 31, 2023.

warrant has an exercise price of $ 0.001 per share, was exercisable upon issuance, has a term of five years from the date of issuance

and is exercisable on a cash basis or on a cashless exercise basis at the holder’s election.

Exchange Warrant provides that in the event that Raymond Chang or his affiliates acquire securities from the Company, exercise convertible

securities or amend the terms of convertible securities at a purchase or conversion price lower than $ 1.46 , then the number of shares

of common stock underlying Exchange Warrant will be increased to an amount equal to $ 3.0 million divided by such purchase or conversion

price, subject to proportional adjustment in the event the Exchange Warrant has been partially exercised.

Additionally, in the event

that the Company has not issued equity securities in exchange for gross proceeds of at least $ 3.0 million to Mr.

Chang or his affiliates

(subject to certain offsets) by the third calendar day after the date when the Company receives stockholder approval, then on December

26, 2023, the number of shares of common stock underlying Exchange Warrant will be increased to an amount equal to $ 3.0 million divided

by the Minimum Price as defined under Nasdaq listing rules, subject to proportional adjustment in the event the Exchange Warrant has

been partially exercised.

Letter Agreement requires that the Company issue equity securities to Mr.

Chang or his affiliates for aggregate gross proceeds of at

least $ 3.0 million, minus any funds advanced by Mr.

Chang to the Company since July 1, 2023.

— Stock-Based Compensation and Employee Benefit Plans

Equity Incentive Plan

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.

The 2022 Plan shall continue in effect, unless sooner terminated, until the tenth anniversary of the date

on which it is adopted by the Board of Directors.

As of December 31, 2023, there were 10,310 shares of Common Stock available to be granted

under the Company’s 2022 Plan.

Company’s stock compensation expense was $ 2.7 million an d $ 4.3 million for the year ended

December 31, 2023 and 2022 , respectively.

TO CONSOLIDATED FINANCIAL STATEMENTS

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 years ended December

31, 2023 and 2022.

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

arriving at stock-based compensation expense, the Company estimates the number of stock-based awards that will be forfeited due to employee

The Company’s forfeiture assumption is based primarily on its 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.

following table presents option activity under the Company’s stock option plans for the years

ended December 31, 2023 and 2022:

(In thousands,

except share and per share data)

Weighted-Average

Exercise Price

Options outstanding at January 1, 2021

Options outstanding at December 31, 2022

Options vested and exercisable as of December 31, 2022

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

options vested and exercisable at December 31, 2022:

Options outstanding at

December 31, 2023

Options vested and exercisable

as of December 31, 2023

Options vested and expected

to vest as of December 31, 2023

of December 31, 2023, total unrecognized compensation expense related to unvested options under the Company’s 2022 Plan was $ 0.4

million, which is expected to be recognized over a weighted average period of 0.2 years.

TO CONSOLIDATED FINANCIAL STATEMENTS

following table summarizes information about options vested and exercisable at December 31, 2023:

Vested and Exercisable

Weighted-Average

Remaining Contractual

Remaining Contractual Life

Weighted-Average

Exercise Price

$ 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.

following table summarizes information about options expected to vest after December 31, 2023:

Vested and Expected to Vest

Weighted-Average

Remaining Contractual Life

Weighted-Average

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.

November 28, 2023, the Company granted an aggregate of 1,774,409 restricted stock units pursuant to its 2022 Plan to its officers, directors

and employees.

The vesting of the RSUs is subject to future shareholder approval of an amendment to the Plan to increase the shares available

for issuance thereunder by an amount that is sufficient for issuance of the underlying shares.

following table presents restricted stock unit activity under the 2022 Plan for the year ended December 31, 2023:

Number of Shares

Unvested at December 31, 2021

Unvested at December 31, 2022

Unvested at December 31, 2023

of December 31, 2023, total unrecognized compensation expense related to unvested restricted stock units was $ 0.4 million, which is expected

to be recognized over a weighted average period of 1.67 years.

TO CONSOLIDATED FINANCIAL STATEMENTS

Employee Stock Purchase Plan

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 (“ESPP”).

The Company has initially reserved 2,500 shares of Common Stock for issuance

under the ESPP.

On December 31, 2023, 2,500 shares were available for future issuance.

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 $ 25,000 worth of Common Stock annually.

No Common Stock was granted under the 2022 ESPP during

the year ended December 31, 2023.

Company maintains an employee’s savings and retirement plan under Section 401(k) of the Internal Revenue Code (the “401(k)

All 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:

The Company’s contribution to the

401(k) Plan is discretionary.

During the year ended December 31, 2023 and 2022, the Company did not contribute to the 401(k) Plan.

— Stock Warrants

following tables present all warrant activity of the Company for the year ended December

31, 2023 and 2022:

Weighted-Average

Exercise Price

Warrants outstanding at December 31, 2021

1 unchanged sentence

Warrants outstanding at December 31, 2023

The Company received proceeds

from the exercise of warrants of $ 2 thousand and $ 8 thousand for the years ended December 31,

Company received proceeds from the exercise of cashless warrants of $ 0 and $ 2 thousand for the for the years ended December 31, 2023,

and 2022, respectively.

Note 15 — Income Taxes

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

Permanent differences and other

Debt extinguishment

Derivative liabilities

Stock-based compensation

Intangible Asset Impairment

Debt discount

Prior period adjustments to opening deferred tax

Change in valuation allowance

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:

— Income Taxes

financial reporting purposes, the net pre-tax book income and/or loss for the U.S.

and foreign entities, in the aggregate, was:

(In thousands)

United States

TO CONSOLIDATED FINANCIAL STATEMENTS

tax expense consisted of the following for the years ended December 31, 2023 and December 31, 2022:

(In thousands)

reconciliation between the Company’s effective tax rate on income from continuing operations and the statutory tax rate for the

years ended December 31, 2023 and December 31, 2022 is as follows:

(In thousands)

Current tax at U.S.

statutory rate

Nondeductible/nontaxable items

Foreign operations

True-up and other

Valuation allowance

Income tax expense

income taxes reflect the net tax effects of temporary differences between carrying amounts of assets and liabilities for financial reporting

purposes and the amounts used for income tax purposes.

Realization of net deferred tax assets is dependent upon future earnings, if any,

the timing and amount of which are uncertain.

TO CONSOLIDATED FINANCIAL STATEMENTS

following items comprise the Company’s net deferred tax assets and liabilities as of December 31, 2023 and December 31, 2022:

(In thousands)

Deferred tax assets :

Net operating loss carryforward

1 unchanged sentence

Stock-based compensation

Intangible Assets

Capitalized Sec.

Research and development tax credit carryforward

Lease liability

Total deferred tax assets

Valuation allowance

Net deferred tax assets

Intangible assets

Debt discount

Right-of-use assets

Deferred commissions

Total 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 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 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:

(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

Capitalized sec.

Total Deferred Tax Asset

Valuation allowance

Deferred income tax assets, net of VA

Deferred tax liabilities:

Prepaid Expenses

Right-of-Use Asset

Deferred Tax Liability

Net Deferred Tax Asset/(Liability)

Company continually evaluates the likelihood of the realization of deferred tax assets and adjusts the carrying amount of the deferred

tax assets by the valuation allowance to the extent the future realization of the deferred tax assets is more likely than not.

considers many factors when assessing the likelihood of future realization of its deferred tax assets, including its recent cumulative

earnings experience by taxing jurisdiction, expectation of future taxable income or loss, the carryforward periods available to the Company

for tax reporting purposes, and other relevant factors.

of December 31, 2023, based on the Company’s history of earnings and its assessment of future earnings, management believes that

it is more likely than not that future taxable income will not be sufficient to realize the deferred tax assets.

Therefore full valuation

allowance has been applied to deferred tax assets.

for tax years beginning after December 31, 2021, taxpayers are required to capitalize any expenses incurred that are considered incidental

to research and experimentation (R&E) activities under IRC Section 174.

While taxpayers historically had the option of deducting

these expenses under IRC Section 174, the December 2017 Tax Cuts and Jobs Act mandates capitalization and amortization of R&E expenses

for tax years beginning after December 31, 2021.

Expenses incurred in connection with R&E activities in the US must be amortized

over a 5-year period if incurred, and R&E expenses incurred outside the US must be amortized over a 15-year period.

R&E activities

are broader in scope than qualified research activities that are considered under IRC Section 41 (relating to the research tax credit).

the year ended December 31, 2023, the Company performed an analysis based on available guidance and determined that it will not impact

(increase) taxable income.

The Company will continue to monitor this issue for future developments and its impact on taxable income.

of the year ended December 31, 2023, the Company has federal and state net operating loss carryforwards of approximately $ 144.2 million

and $ 87.7 million respectively.

Federal net operating loss carryforwards in the amount of $ 0.7 million begin expiring in 2036 and approximately

$ 143.5 million have an indefinite life.

Federal NOL carryforwards generated after tax year 2021 are subject to an 80 % limitation on taxable

income, do not expire and will carryforward indefinitely.

State net operating loss carryforwards in the amount of $ 82.3 million begin

expiring in 2039 and approximately $ 5.4 million have an indefinite life.

TO CONSOLIDATED FINANCIAL STATEMENTS

utilization of the Company’s net operating losses may be subject to a U.S.

federal limitation due to the “change in ownership

provisions” under Section 382 of the Internal Revenue Code and other similar limitations in various state jurisdictions.

Such limitations

may result in a reduction of the amount of net operating loss carryforwards in future years and possibly the expiration of certain net

operating loss carryforwards before their utilization.

(In thousands)

NOL Available

Federal - Indefinite

Subtotal - Federal

State - Indefinite

Subtotal - Federal

Foreign - Indefinite

Subtotal - Foreign

Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates.

In the normal course of business,

the Company is subject to examinations by federal, foreign, and state and local jurisdictions, where applicable.

There are currently

no pending tax examinations.

The Company’s tax years are still open under statute from 2018 to the present in the U.S.

2016 to present in the Company’s foreign operations.

To the extent the Company has tax attribute carryforwards, the tax years in

which the attribute was generated may still be adjusted upon examination by the Internal Revenue Service and state and local tax authorities

to the extent utilized in a future period.

Company is also subject to certain non-income taxes such as value added taxes, sales taxes, and property taxes.

The Company has taken

certain positions that management feels, although not free from doubt, should not result in a successful challenge by certain tax authorities.

required by the uncertain tax position guidance in ASC No.

740, Income Tax the Company recognizes the financial statement benefit of

a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit.

For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit

that has a greater than 50 % likelihood of being realized upon ultimate settlement with the relevant tax authority.

The Company applied

the uncertain tax position guidance in ASC No.

740, Accounting for Income to all tax positions for which the statute of limitations remained

Any estimates of tax contingencies contain assumptions and judgments about potential actions by taxing jurisdictions.

and penalties related to uncertain tax positions would be included as part of the income tax provision.

Company’s conclusions regarding uncertain tax positions may be subject to review and adjustment at a later date based upon ongoing

analysis of or changes in tax laws, regulations and interpretations thereof as well as other factors.

August 16, 2022, the Inflation Reduction Act of 2022 (the “IRA”) was enacted and signed into law.

Regarded as the reduced

version of the proposed Build Back Better Act, the IRS contains two main corporate income tax provisions, including a 15 % minimum tax

on the average annual adjusted financial statement income of corporations with profits over $ 1 billion over a three-year period, as well

as a 1 % excise tax on the corporate stock buybacks by domestic publicly traded corporations.

The Company is currently evaluating the

impact of the IRA on its financial statements for tax year 2023 but does not expect a material impact to the Company’s tax position.

TO CONSOLIDATED FINANCIAL STATEMENTS

— Net Loss Per Share

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.

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.

components of basic and diluted net loss per share were as follows:

Ended December 31,

(In thousands,

except share and per share data)

Net loss available

for common shareholders

$ ( 188,173 )

1 unchanged sentence

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

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.

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

3 unchanged sentences

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

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.

Ended December 31,

Shares subject to outstanding stock

Shares subject to unvested restricted stock

Shares subject to outstanding

— Commitments and Contingencies

time to time, we may become involved in material legal proceedings or be subject to claims arising in the ordinary course of our business.

However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time

that may harm our business.

TO CONSOLIDATED FINANCIAL STATEMENTS

& Mary’s Litigation

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.

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,

1 unchanged sentence

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

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.

Construction Corp.

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.

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

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 March 2, 2023, Mack filed

an arbitration action seeking the amounts owed to Mack for purchased inventory.

and 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 $ 6.3 million due under the contract and related indemnification claims and mechanics’ liens.

The Company is entitled

to indemnification by Bud & Mary’s and intends to vigorously defend this claim .

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.

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.

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.

As part of 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

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.

18, 2023, Mack and the Company entered into a Modification and Settlement Agreement (the “Modification Agreement”)with respect

to the dispute.

Modification Agreement requires the Company to make payments of $ 500,000 and $ 250,000 to Mack on or before November 1, 2023 and February

15, 2024, respectively.

The Company has made the first of these two payments in the amount of $ 500,000 .

Following the November 1, 2023

payment, the Company is entitled to take possession of certain VFUs that were assembled under the Supply Agreement.

The Modification

Agreement also requires the Company to purchase from Mack a minimum of 25 VFUs per quarter for each quarter during 2024 and a minimum

of 50 VFUs per quarter for the six quarters beginning with the first quarter of 2025.

The Company is required to pay a storage fee of

$ 25,000 per month for VFUs subject to the Modification Agreement.

TO CONSOLIDATED FINANCIAL STATEMENTS

Electronics Litigation

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,

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.

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:

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 interest.

The Company has filed an answer denying liability on TRC’s claims and is proceeding with

Scientific Litigation

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.

a Settlement and Release Agreement, dated December 14, 2023, the Company and Sinclair dismissed all legal claims and entered into a settlement

for an undisclosed amount.

September 2023, the Company settled a legal dispute with a specific customer which resulted in the recognition of a gain of approximately

$ 0.9 million, of which $ 0.3 million was paid in October 2023, with the remaining approximate $ 0.6 million to be paid in equal monthly

installments, beginning in January, 2024.

This gain was recognized as part of other income, net per the consolidated statement of operations

for the year ended December 31, 2023, with the approximate $ 0.9 million receivable balance recognized as part of prepaid expenses and

other current assets, per the consolidated balance sheet, as of December 31, 2023.

The settlement also resulted in the return of equipment

to the Company in October 2023.

addition to the above, the Company entered into several additional vendor settlement agreements during the year ended December 31, 2023,

which resulted in an aggregate gain being recognized for the year ended December 31, 2023, and a corresponding reduction in accounts

payable owing by the Company, as of December 31, 2023, of approximately $ 1 million.

Purchase Agreement with Related Party – Ora Pharm

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.

Commitments and Contingencies

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.

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 14 –

Income Taxes, included elsewhere in the notes to the consolidated financial statements for information regarding income tax contingencies.

TO CONSOLIDATED FINANCIAL STATEMENTS

— Related Parties

of the officers and directors of the Company are involved in other business activities and may, in the future, become involved in other

business opportunities that become available.

following table describes the net purchasing (sales) activity with entities identified as related parties to the Company:

Ended December 31,

(In thousands)

1 unchanged sentence

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

Greenstone Holdings

Valiant Americas, LLC (1)

(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

receivable (payable) as of December 31, 2022 and 2021 were as follows:

following table summarizes net related party (payable) receivable as of December 31, 2023 and December 31, 2022:

Ended December 31,

(In thousands)

Cannae Policy Group

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)

Valiant Americas, LLC (1)

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

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,

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

October 27, 2022, the Company provided notice to Valiant-America, LLC of its intention to

begin winding up of Agrify-Valiant.

July 12, 2023, the Company issued an unsecured promissory note in favor of GIC Acquisition, LLC, an entity that is owned and managed

by the Company’s Chairman and Chief Executive Officer.

Refer to Note 9 - Debt for further disclosure related to this Related Party

October 27, 2023, CP Acquisitions LLC, an entity affiliated with and controlled by Company’s

Chairman and Chief Executive Officer , purchased the Exchange Note and the Convertible Note .

In addition, the Company issued to CP a Junior Secured Note.

Refer to Note 9 - Debt for further disclosure related to this Related Party

18 — Subsequent Events

Company evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the financial statements

Equity Incentive Plan Amendment

January 8, 2024, the shareholders of the Company approved an amendment to the Company’s 2022 Omnibus Equity Incentive Plan to increase

the number of shares of Common Stock available for issuance thereunder by 250,000 shares and to revise the minimum vesting provision

(the “Plan Amendment”).

TO CONSOLIDATED FINANCIAL STATEMENTS

and Restatement of Convertible and Junior Secured Promissory Note

January 25, 2024, the Company and the New Lender consolidated the outstanding principal and interest due under the Junior Secured Note

and the Exchange Note into the Convertible Note and amended and restated the Convertible Note consistent with the Note Restatement Proposal

(the “Restated Note”), with an outstanding principal amount of approximately $ 18.9 million at the time of issuance of the

Restated Note.

The Restated Note reduced the conversion price to $ 1.46 per share of common stock, increased the beneficial ownership

limitation to 49.99 % with respect to any individual or group, provided that the New Lender may assign its right to receive shares upon

conversion to Mr.

Chang and/or Ms.

Chan or their affiliates, in which case the 49.99 % beneficial ownership limitation will apply to each

of them individually, extended the maturity date to December 31, 2025 , increased the interest rate from 9 % to 10 % per annum, increased

the default interest from 15 % to 18 % per annum, and provided for the payment of interest every six months, or in lieu of cash interest

payments, the Company may issue shares as payments-in-kind at a conversion price equal to the higher of $ 1.46 or a 20 % discount to its

trailing seven-day volume weighted average price as of the date of interest payment.

Following the execution of the Restated Note, the

New Lender immediately elected to convert approximately $ 3.9 million of outstanding principal into an aggregate of 2,671,633 shares of

common stock, and assigned its rights to receive such shares to entities affiliated with Mr.

Chang and Ms.

Following the conversion,

there was $ 15.0 million in principal amount outstanding under the Restated Note.

January 25, 2024, GIC Acquisition, LLC (“GIC”) and the Company amended and restated the Junior Note to increase the principal

amount thereunder to $ 1.0 million and to extend the maturity date until June 30, 2024 (as amended and restated, the “Restated Junior

Deficiency Notices

January 30, 2024, the Company received formal notice that the Nasdaq Hearing Panel had granted the Company’s request for an exception

through April 15, 2024 to evidence compliance with the Listing Rule.

The compliance date of April 15, 2024 represents the full extent

of the Panel’s discretion to grant continued listing while the Company is non-compliant with Nasdaq Listing Rules.

on March 5, 2024, the Company received a deficiency letter from the Listing Qualifications Department of 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 continued listing on the Nasdaq Stock Market under Nasdaq Listing Rule 5550(a)(2)

(the “Minimum Bid Requirement”).

The Notice has no immediate effect on the listing of the Company’s common stock on

In accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company has 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 this period pursuant to Nasdaq Listing Rule 5810(c)(3)(H).

The compliance period for the Company will expire

on September 3, 2024.

can be no assurance that the Company will be able to regain compliance with the Nasdaq listing rules or maintain its listing on the Nasdaq

Capital Market.

If the Company’s common stock is delisted, it could be more difficult to buy or sell the Company’s common

stock or to obtain accurate quotations, and the price of the Company’s common stock could suffer a material decline.

could also impair the Company’s ability to raise capital.

November 28, 2023, the Company granted an aggregate of 1,774,409 restricted stock units pursuant to its 2022 Plan to its officers, directors

and employees.

Of the total shares granted, 860,486 restricted stock units were approved by the shareholder committee on January 8, 2024.

The vesting of the remaining RSUs is subject to future shareholder approval of an amendment to the Plan to increase the shares available

for issuance thereunder by an amount that is sufficient for issuance of the underlying shares.

February 27, 2024, the Company entered into a placement agency agreement (the “Agency Agreement”) with Alexander Capital,

LP as placement agent (the “Placement Agent”), pursuant to which the Company agreed to issue and sell an aggregate of 2,760,000

shares of its common stock, and, in lieu of common stock to certain investors that so chose, pre-funded warrants (the “Pre-Funded

Warrants”) to purchase 3,963,684 shares of its common stock (the “Offering”).

The public offering price for each share

of common stock was $ 0.38 , and the offering price for each Pre-Funded Warrant is $ 0.379 , which equals the public offering price per share

of the common stock, less the $ 0.001 per share exercise price of each Pre-Funded Warrant.

The Pre-Funded Warrants are exercisable at

A holder of Pre-Funded Warrants may not exercise the warrant if the holder, together with its affiliates, would beneficially

own more than 4.99 % (or such other percentage, up to 9.99 %, as may be required by the investor) of the number of shares of common stock

outstanding immediately after giving effect to such exercise.

A holder of Pre-Funded Warrants may increase or decrease this percentage,

but not in excess of 9.99 %, by providing at least 61 days’ prior notice to the Company.

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