What changed in this filing

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Item 1. Financial Statements

2024-08-14 compared with 2023-10-02 · 1509 added, 2076 removed, 149 unchanged (96% of the section changed)

Financial Statements

CONSOLIDATED BALANCE SHEETS

thousands, except share and per share data)

(As Restated)

Current assets:

and cash equivalents

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

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

and refundable taxes

expenses and other current assets

current assets

and equipment, net

non-current assets

and Stockholders’ Equity

expenses and other current liabilities

lease liabilities, current

debt, current

current liabilities

non-current liabilities

lease liabilities, non-current

tax liabilities, net

and contingencies (Note 22)

Stockholders’

Common Stock, $ 0.001 par value per share, 250,000 shares authorized, 132,714 and 111,035 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively (1)

Preferred Stock, $ 0.001 par value per share, 2,895,000 shares authorized, no shares issued or outstanding

Preferred A Stock, $ 0.001 par value per share, 105,000 shares authorized, no shares issued or outstanding

paid-in capital (1)

stockholders’ equity attributable to Agrify

Non-controlling

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 condensed consolidated financial statements.

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

CONSOLIDATED STATEMENTS OF OPERATIONS

thousands, except share and per share data)

(As Restated)

Revenue (including $ 1,271 and $ 5,518 from related parties, respectively)

Cost of goods sold

Gross profit (loss)

General and administrative

Research and development

Selling and marketing

Total operating expenses

Loss from operations

Interest income (expense), net

Change in fair value of warrant liabilities

Gain on extinguishment of notes payable

Other income, net

Net income (loss) before

Income tax benefit

Net income (loss)

Income (loss) attributable to non-controlling

Net income (loss) attributable

to Agrify Corporation

Net income (loss) per share

attributable to Common Stockholders – basic (1)

Net income (loss) per share

attributable to Common Stockholders – diluted (1)

Weighted-average common shares

outstanding – basic (1)

Weighted-average common shares

outstanding – 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.

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

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

thousands, except share data)

Stockholders’

at January 1, 2021

conversion feature associated with amended Convertible Promissory Notes

of Convertible Notes

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

of Common Stock – Secondary public offering, net of fees

of Preferred A Stock

Exercise of options

Exercise of warrants

at March 31, 2021

Stockholders’

(As Restated)

at January 1, 2022

of Common Stock and warrants in private placement

of Lab Society

Exercise of options

Exercise of warrants

at March 31, 2022, as restated

(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.

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

CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months ended

Cash flows from operating activities

Net income (loss) attributable to Agrify Corporation

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

Depreciation and amortization

Amortization of premium on investment securities

Amortization of debt discount

Amortization of issuance costs

Interest on investment securities

Deferred income taxes

Compensation in connection with the issuance of stock options

Non-cash interest (income) expense

Change in fair value of warrant liabilities

Gain on extinguishment of notes payable, net

Early termination of lease

Income (loss) 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

Accounts payable

Accrued expenses and other current liabilities

Deferred revenue, net

Net cash used in operating activities

Cash flows from investing activities

Purchases of property and equipment

Purchase of securities

Proceeds from the sale of securities

Issuance of loan receivable

Cash paid for business combination, net of cash acquired

Net cash used in investing activities

Cash flows from financing activities

Proceeds from issuance of debt and warrants in private placement, net

Proceeds from issuance of Common Stock and warrants in private placement, net of fees

Proceeds from IPO, net of fees

Proceeds from Secondary public offering, net of fees

Proceeds from exercise of options

Proceeds from exercise of warrants

Payments on other financing loans

Payments on insurance financing loan

Payments of financing leases

Net cash provided by financing activities

Net increase in cash, cash equivalents, and restricted cash

Cash, cash equivalents, and restricted cash at the beginning of period

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

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

Cash and cash equivalents

Restricted cash

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

Supplemental disclosures of cash flow information

Conversion of Convertible Note to Common Stock

Supplemental disclosures of non-cash flow information

Initial fair value of warrants

Financing of prepaid insurance

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

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Nature of Business and Basis of Presentation

Corporation (“Agrify” or the “Company”) is a developer of proprietary precision hardware and software grow solutions

for the commercial indoor agriculture industry and provides equipment and solutions for cultivation, extraction, post-processing, and

testing for the cannabis and hemp industries.

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

subsequently changed its name to Agrify Corporation.

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

“our,” and similar terminology.

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

AGM Service Corp LLC (formerly

AGM Service Corp Inc.);

TriGrow Systems, LLC (“TriGrow”, which

acted as the Company’s exclusive distributor and which was acquired in January 2020 as TriGrow Systems, Inc.

and converted

to TriGrow Systems, LLC in May 2020);

Ariafy Finance, LLC;

Harbor Mountain Holdings,

LLC (“HMH”) (acquired in July 2020);

Cascade Sciences, LLC (“Cascade”)

(which was acquired by the Company on October 1, 2021);

Precision Extraction NewCo, LLC (“Precision”)

(which was a newly formed subsidiary in connection with October 1, 2021 acquisition of Mass2Media, LLC, d/b/a PX2 Holdings, LLC,

d/b/a Precision Extraction Solutions and Cascade);

PurePressure, LLC (“PurePressure”)

(which was acquired by the Company on December 31, 2021);

Lab Society NewCo, LLC (“Lab Society”)

(which was a newly formed subsidiary in connection with February 1, 2022 acquisition of LS Holdings Corp).

Company also has ownership interests in the following companies:

Teejan Podoponics International

LLC (“TPI”) (the Company has owned 50% of TPI since December 2018);

Agrify-Valiant, LLC (“Agrify-Valiant”)

(the Company owns 60% of Agrify-Valiant, which was formed in December 2019);

Agrify Brands, LLC (“Agrify Brands”) (formerly

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

January 12, 2021, the Company effected a 1-for-1.581804 reverse stock split (“Reverse Stock Split”) of its Common Stock,

$0.001 par value per share (“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.

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 Quarterly Report on Form 10-Q has been retroactively adjusted to reflect the impact of these reverse stock

Public Offering and Secondary Public Offering

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).

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

on Form S-1 (File Nos.

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

In the IPO, Maxim Group

LLC and Roth Capital Partners acted as the underwriters.

The IPO price for shares of Common Stock was $ 2,000.00 per share.

gross proceeds from the IPO were $ 62.1 million.

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

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

The Company used the net proceeds from the IPO for its current working

capital needs, to support revenue growth, to increase inventory to meet customer demand forecasts, and to support operational growth.

February 19, 2021, the Company consummated a secondary public offering (the “February Offering”) of 27,778 shares of its

Common Stock for a price of $ 2,700.00 per share, less certain underwriting discounts and commissions.

On March 22, 2021, the Company

closed on the sale of an additional 4,167 shares of Common Stock on the same terms and conditions pursuant to the exercise of the underwriters’

over-allotment option.

The exercise of the over-allotment option brought the total number of shares of Common Stock sold by the Company

in connection with the February Offering to 31,944 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.

The Company used the net proceeds

from the IPO for its current working capital needs, to support revenue growth, to increase inventory, to meet customer demand forecasts,

and to support operational growth.

(“COVID-19”) Pandemic

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

There is significant uncertainty

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

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

The extent of the impact of COVID-19 on

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

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

Protection Program

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 the U.S.

Small Business Administration (the “SBA”).

The Company received total loan proceeds

of approximately $ 779 thousand from the PPP Loan.

The Company’s application for the forgiveness of the outstanding balance of PPP

Loan is currently under review by the SBA.

— Restatement of Current Period

Company’s financial statements as of and for the three months ended March 31, 2022 have been restated due to the following errors:

Warrants and SPA Warrants Classification and Measurement

the three months ended March 31, 2022 the Company entered into several debt and equity financing transactions including i) the issuance

of common stock and warrants in a private placement on January 25, 2022 (the “PIPE Warrants”) and ii) the issuance of a note

payable with associated warrants on March 14, 2022 (the “SPA Warrants”).

Company determined that the PIPE Warrants and the SPA Warrants were incorrectly classified as equity and must be reclassified to liabilities

measured at fair value upon issuance and remeasured to fair value at each reporting date.

As a result of these errors:

● Additional paid-in capital was overstated by $ 24.2 million as of March 31, 2022 due to the incorrect classification of the SPA Warrants and the PIPE Warrants as equity rather than liabilities;

● Warrant liabilities was understated by the fair value of the PIPE Warrants and the SPA Warrants of $ 29.7 million as of March 31, 2022;

● Long-term debt and Long-term debt, current was overstated by $ 15.5 million and $ 0.7 million, respectively as of March 31, 2022 due to the incorrect allocation of the debt discount in connection with the issuance of debt and SPA Warrants, as a result of the improper classification of the SPA Warrants as equity rather than liabilities;

● Accumulated deficit as of March 31, 2022 was overstated by $ 10.7 million as a result of the net impact of the following errors in the condensed consolidated statement of operations:

ο The change in fair value of warrant liabilities was understated by $ 10.8 million because the Company did not appropriately remeasure the fair value of the warrant liabilities as of March 31, 2022 through earnings;

ο Interest income, net was overstated by $ 123 thousand due to incorrect debt discount amortization in connection with the issuance of debt and SPA Warrants, as a result of the improper classification of the SPA Warrants as equity rather than liabilities.

Issuance Costs Classification

Company incorrectly classified debt issuance costs as an asset rather than as a direct deduction from the carrying value of the associated

debt liability as of March 31, 2022.

As a result of this error:

● Prepaid expenses and other current assets were understated by $ 0.8 million as of March 31, 2022;

● Other non-current assets were overstated by $ 0.8 million as of March 31, 2022;

of these adjustments are shown below in the restated and reclassified condensed consolidated balance sheet, condensed consolidated statement

of operations, condensed consolidated statement of cash flows, and condensed consolidated statement of stockholders’ equity as

of and for the three months ended March 31, 2022.

The following

is a summary of the impact of the restatement and reclassifications on the Company’s condensed consolidated balance sheet:

March 31, 2022

AGRIFY CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

Current assets:

Cash and cash equivalents

Restricted cash

Marketable securities

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

Inventory, net of reserves of $ 942

Prepaid and refundable taxes

Accounts receivable, net of allowance for credit losses of $ 2,512 and $ 1,887 at March 31, 2024 and December 31, 2023, respectively

Inventory, net of reserves of $ 17,184 and $ 17,599 at March 31, 2024 and December 31, 2023, respectively

Loan receivable, current

Prepaid expenses and other current assets

Total current assets

Non-Current Assets

Loan receivable

Loan receivable, net of allowance for credit losses of $ 18,885 and $ 19,215 at March 31, 2024 and December 31, 2023, respectively, net of current

Property and equipment, net

Right-of-use assets, net

Intangible assets, net

Operating lease right-of-use assets

Other non-current assets

Liabilities and stockholders’ equity

Liabilities and Stockholders’

Current liabilities:

3 unchanged sentences

Long-term debt, current

Deferred revenue

Related party debt, current

Contract liabilities

Total current liabilities

Non-current liabilities

Warrant liabilities

Other non-current liabilities

Operating lease liabilities, non-current

Deferred tax liabilities, net

Long-term debt

Operating lease liabilities, net of current

Related party debt, net of current

Long-term debt, net of current

Total liabilities

Commitments and contingencies (Note

Stockholders’ equity

Common Stock, $ 0.001 par value per share, 250,000 shares authorized, 132,714 shares issued and outstanding

Stockholders’ deficit:

Common Stock, $ 0.001 par value per share, 35,000,000 and 10,000,000 shares authorized at March 31, 2024 and December 31, 2023, respectively, 13,275,702 and 1,702,243 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively (1)

Preferred Stock, $ 0.001 par value per share, 2,895,000 shares authorized, no shares issued or outstanding

2 unchanged sentences

Accumulated deficit

stockholders’ equity attributable to Agrify

Total stockholders’ deficit attributable to Agrify

Non-controlling interests

Total liabilities and stockholders’ equity

The following

is a summary of the impact of the restatement and reclassifications on the Company’s condensed consolidated statement of operations:

Three Months ended March 31, 2022

Revenue (including $ 1,271 from related parties)

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

The accompanying notes are an integral part of

these condensed consolidated financial statements.

AGRIFY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share and per share data)

Three months ended

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

Cost of goods sold

General and administrative

Research and development

Selling and marketing

Research and development

Gain on settlement of contingent liabilities

Change in contingent consideration

Total operating expenses

Loss from operations

Interest income, net

Operating income (loss)

Interest expense, net

Change in fair value of warrant liabilities

Gain on extinguishment of notes payable

Loss on extinguishment of long-term debt, net

Other income, net

Net (loss) income before income taxes

Income tax benefit

Net (loss) income

Income attributable to non-controlling interest

Net (loss) income attributable to Agrify Corporation

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

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

Total other income (expense),

Net income (loss) before income taxes

Income tax benefit (expense)

Net income (loss)

Net income (loss) attributable

to Agrify Corporation

Net income (loss) per share attributable

to Common Stockholders – basic (1)

Net income (loss) per share attributable

to Common Stockholders – diluted (1)

Weighted average common shares outstanding - basic

( 24,466,167 )

Weighted average common shares outstanding - diluted

(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.

The accompanying notes are an integral part of

these condensed consolidated financial statements.

AGRIFY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’

(In thousands)

Stockholders’

attributable to

Stockholders’

Balance at January

$ ( 247,148 )

The following

is a summary of the impact of the restatement and reclassifications on the Company’s condensed consolidated statement of cash flows:

Three Months ended March 31, 2022

Stock-based compensation

Issuance of Common Stock

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

Issuance of Common Stock

to Pure Pressure

Vesting of restricted stock

Proceeds from Employee Stock

Purchase Plan Shares

March 31, 2023

$ ( 257,475 )

Stockholders’

attributable to

Stockholders’

(As restated)

January 1, 2024

$ ( 265,797 )

Stock-based compensation

Issuance of Common Stock

and prefunded warrants through public offering

Issuance of held-back

shares from Sinclair acquisition

Cashless exercise of High

Trail Warrants

Exercise of Prefunded

Warrants issued through public offering

Conversion of Convertible

Contribution from troubled

debt restructuring with related party

Stock split share adjustment

March 31, 2024

$ ( 261,561 )

The accompanying notes are an integral part of

these condensed consolidated financial statements.

AGRIFY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

For the three months ended March

Cash flows from operating activities:

Net income (loss) attributable to Agrify Corporation

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

Adjustments to reconcile net income (loss) attributable to Agrify Corporation to net cash used in

operating activities:

Depreciation and amortization

Amortization of premium on investment securities

Amortization of debt discount

Amortization of issuance costs

Interest on investment securities

Debt issuance costs

Deferred income taxes

Compensation in connection with the issuance of stock options

Non-cash interest (income)

Amortization of right of use assets

Stock based compensation expense

Change in fair value of warrant liabilities

Gain on extinguishment of notes payable, net

Early termination of lease

Income attributable to non-controlling interests

Loss on extinguishment of long-term debt, net

Change in provision for credit losses, net

Recovery of provision for credit losses

Change in inventory reserves

Loss on disposal of property and equipment

Gain on settlement of contingent liability

Change in accrued acquisition liabilities due to issuance of held-back shares

Changes in operating assets and liabilities, net of acquisitions:

1 unchanged sentence

Prepaid expenses and other current assets

Right of use assets, net

Other non-current assets

1 unchanged sentence

Accrued expenses and other current liabilities

Deferred (expense), net

Net cash used in operating activities

Operating lease liabilities

Contract liabilities

Net cash and cash equivalents used

in operating activities

Cash flows from investing activities:

Purchases of property and equipment

Purchase of securities

Proceeds from the sale of securities

Issuance of loan receivable

Cash paid for business combinations, net of cash acquired

Net cash used in investing activities

Proceeds from sale of marketable securities

Proceeds from repayment of loans receivable

Issuance of loans receivable

Net cash and cash equivalents provided

by investing activities

Cash flows from financing activities:

Proceeds from issuance of debt and warrants in private

placement, net

Proceeds from issuance of Common Stock and warrants in private

placement, net of fees

Proceeds from IPO, net of fees

Proceeds from Secondary public offering, net of fees

Proceeds from exercise of options

Proceeds from exercise of warrants

Proceeds from Issuance of Common Stock through an S-1 and Prefunded Warrants offering

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 S-1 Prefunded Warrants

Proceeds from issuance of related party notes

Repayments of notes payable, other

Repayment of debt in private placement

Payments on other financing loans

Payments on insurance financing loan

Payments on insurance financing loans

Payments of financing leases

Net cash provided by financing activities

Net increase in cash, cash equivalents, and restricted cash

Cash, cash equivalents, and restricted cash at the beginning of period

Cash, cash equivalents, and restricted cash 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

Net cash and cash equivalents provided

by (used in) 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

Supplemental disclosures

Cash paid for interest

Supplemental disclosures of non-cash flow information

Initial fair value of warrants

Cashless exercise of High-Trail warrants

Financing of prepaid insurance

The following

is a summary of the impact of the restatement and reclassifications on the Company’s condensed consolidated statement of stockholders’

equity as of March 31, 2022:

(Previously Reported)

Stockholders’

(Previously Reported)

Stockholders’

Non-Controlling

(Previously Reported)

Non-Controlling

Stockholders’

(Previously Reported)

Stockholders’

at January 1, 2022

of Common Stock and warrants in private placement

of debt and warrants in private placement

of Lab Society

at March 31, 2022

notes to the condensed and consolidated financial statements have also been restated to reflect the error corrections described above.

Summary of Significant Accounting Policies

of Condensed Consolidated Financial Statements

condensed consolidated financial statements included herein have been prepared in accordance with accounting principles generally accepted

in the United States of America (“GAAP”), and on the same basis as the audited consolidated financial statements included

in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 and filed with the SEC (“Form 10-K”),

except for the recently adopted accounting pronouncements described below.

condensed consolidated financial statements included herein reflect all normal and recurring adjustments which, in the opinion of management,

are necessary for a fair presentation of the Company’s condensed consolidated statements of operations for the three months ended

March 31, 2022 and 2021, condensed consolidated statements of stockholders’ equity for the three months ended March 31,

2022 and 2021, and the condensed consolidated cash flows for the three months ended March 31, 2022 and 2021.

condensed consolidated balance sheet as of December 31, 2021 is derived from the audited consolidated financial statements presented

in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

Certain information and disclosures normally

included in annual consolidated financial statements have been omitted pursuant to the rules and regulations of the SEC.

condensed consolidated interim financial statements do not include all of the information and disclosures required by GAAP for a complete

set of financial statements, they should be read in conjunction with the audited consolidated financial statements and notes included

in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on March 31, 2022.

for interim periods are not necessarily indicative of a full year’s results.

of Presentation and Principles of Consolidation

for Wholly-Owned Subsidiaries

accompanying condensed consolidated financial statements have been prepared in accordance with GAAP and include the accounts of Agrify

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

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

Trade payables refinanced into consolidated notes payable

Accrued interest consolidated into related party debt

Contribution from troubled debt restructuring with related party

Consolidation of related party debt principal

Conversion of convertible notes

The accompanying notes are an integral part of

these condensed consolidated financial statements.

Note 1 — Overview, Basis of Presentation

and Significant Accounting Policies

Description of Business

Agrify Corporation (“Agrify”

or the “Company”) is a 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 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

Nasdaq Deficiency Notice

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 a Staff Delisting Determination (the “Staff Determination”) from the Listing Qualifications Department of

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

as a result of its failure to file the First Quarter Form 10-Q, the Second Quarter Form 10-Q and the Form 10-K (collectively, the “Delinquent

Reports”) in a timely manner.

On 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.

On December 1, 2023, the

Company received a notice from The Nasdaq Stock Market LLC (“Nasdaq”) stating that because the Company reported stockholders’

deficit of $( 17.17 ) million in its Form 10-Q for the quarter ended March 31, 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.

On 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, which was subsequently extended to May 15, 2024.

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.

Delisting could also impair the Company’s ability

to raise capital.

On March 5, 2024, the Company

received a deficiency letter from the Staff 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”).

has no immediate effect on the listing of the Company’s common stock on Nasdaq.

In accordance with Nasdaq Listing Rule 5810(c)(3)(A),

the Company has 180 calendar days to regain compliance with the Minimum Bid Requirement.

The compliance period for the Company will expire

on September 3, 2024.

Restatement of Previously Issued Quarterly Condensed Consolidated Financial

Statements for the Three Months Ended March 31, 2024

As further described below, our unaudited condensed

consolidated financial statements covering the quarterly reporting period ended March 31, 2024 have been revised to reflect the correction

Restatement Background

The need for the restatement arose out of the results of certain reassessment

by the Company of the accounting for the settlement agreement entered into by the Company with Mack Molding Co which became effective

in the first quarter of 2024 (See Note 14 - Commitments and Contingencies).

Management determined that the gain from the derecognized

contingent liability should be recognized fully in Q1, rather than over time as previously reported.

Consequently, the Company concluded

that the accounting treatment applied in the first quarter of 2024 was not appropriate.

Therefore, the Company misstated inventory, accounts

payable, notes payable, accumulated deficit and total stockholders’ equity (deficit), on the face of the unaudited condensed consolidated

balance sheet as of March 31, 2024, and cost of goods sold, general and administrative expenses, gain on settlement of contingent liabilities,

and interest income (expense), net, on the unaudited condensed consolidated statement of operations, for the three months ended March

The Company principally attributes the errors to a material weakness in internal controls over financial reporting, as disclosed

in Item II, Part 9A of this Annual Report on Form 10-K.

The Company has commenced procedures to remediate the material weaknesses.

these material weaknesses will not be considered remediated until the applicable remedial actions have been fully implemented and the

Company has concluded that these controls are operating effectively for a sufficient period of time.

Restatement Adjustments

The following tables summarizes the

effect of the errors on the Company’s unaudited condensed consolidated balance sheet as of March 31, 2024 and unaudited condensed

consolidated statement of operations and unaudited condensed consolidated statement of cash flows for the three months ended March 31,

Accounts payable

Notes payable, current

Notes payable, net of current

Accumulated deficit

Total stockholders’ equity (deficit)

As Previously

Cost of goods sold

General and administrative

Gain on settlement of contingent liabilities

Operating (loss) income

Interest income (expense), net

Net (loss) income

While the adjustments changed net loss, gain on supply agreement, gain

on revaluation of contingent liability, gain on settlement of contingent liabilities, inventory, and accounts payable line items in the

unaudited condensed consolidated cash flow statement, they did not have an impact on total net cash used in operating activities, net

cash used in investing activities, or net cash provided by financing activities.

As Previously

Cash flows from operating activities

Adjustments to reconcile net loss to net cash used in

operating activities:

Gain on supply agreement

Gain on revaluation of contingent liability

Gain on settlement of contingent liabilities

Changes in operating assets and liabilities

Accounts payable

used in operating activities

The related notes to the unaudited

condensed consolidated financial statements have also been restated to reflect the error corrections described above.

Basis of Presentation and Principles of Consolidation

These interim unaudited

condensed consolidated financial statements of the Company and its subsidiaries are unaudited.

In the opinion of management, all adjustments

(consisting of normal recurring accruals) and disclosures necessary for a fair presentation of these interim unaudited condensed consolidated

financial statements have been included.

The results reported in the unaudited condensed consolidated financial statements for any interim

periods are not necessarily indicative of the results that may be reported for the entire year.

The accompanying unaudited condensed

consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission

and do not include all information and footnotes necessary for a complete presentation of financial statements in conformity with accounting

principles generally accepted in the United States (“U.S.

Certain information and

footnote disclosures normally included in the annual consolidated financial statements prepared in accordance with U.S.

GAAP have been

condensed or omitted.

These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s

audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended

December 31, 2023 filed with the Securities and Exchange Commission on April 15, 2024.

Accounting for Wholly-Owned

The accompanying unaudited

condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United

States (“U.S.

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”).

2 unchanged sentences

All significant intercompany transactions and balances are eliminated.

for Less Than Wholly-Owned Subsidiaries

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

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

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

A VIE is an entity that has (i) insufficient

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

the characteristics of a controlling financial interest.

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.

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

a VIE, and that the Company is the primary beneficiary.

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

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

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

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

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

Company records this non-controlling interest at its initial fair value, adjusting the basis prospectively for the third parties’

share of the respective consolidated investments’ net income or loss or equity contributions and distributions.

These non-controlling

interests are not redeemable by the equity holders and are presented as part of permanent equity.

Income and losses are allocated to

the non-controlling interest holders based on its economic ownership percentage.

The investment in 50 % of the shares of TPI is treated

as an equity investment as the Company cannot exercise significant influence.

preparation of the Company’s condensed 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 condensed consolidated financial statements, and the reported amounts of expenses during the reporting period.

estimates and assumptions reflected in these condensed consolidated financial statements include, but are not limited to, the accrual

The Company bases its estimates on historical experience, known trends and other market-specific, 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.

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

Growth Company

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

refer to as the JOBS Act.

As a result, the Company is permitted to, and intends to, rely on exemptions from certain disclosure requirements

that are applicable to companies that are not emerging growth companies.

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

new or revised accounting standards.

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

reporting $1.0 billion

or more in annual gross revenues;

the issuance, in a three-year

period, of more than $1.0 billion in non-convertible debt;

the end of the fiscal year

in which the market value of Common Stock held by non-affiliates exceeds $700 million on the last business day of our second fiscal

December 31, 2026.

Reclassifications

amounts in the Company’s prior period financial statements have been reclassified to conform to the presentation of the current

period financial statements.

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

line items in the accompanying condensed consolidated statement of operations as general and administrative expenses and selling and

marketing expenses for the three months ended March 31, 2022 and 2021.

Cash Equivalents, and Restricted Cash

and cash equivalents consist principally of cash and deposits with maturities of three months or less as of March 31, 2022 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 senior secured promissory note (the “SPA Note”).

Accordingly, these balances contain

restrictions as to their availability and usage and are classified as restricted cash in the condensed consolidated balance sheets.

to Note 16 – Debt, included elsewhere in the notes to the condensed consolidated financial statements.

Cash deposits with financial

institutions, including restricted cash and restricted marketable securities, generally exceed federally insured limits.

believes minimal credit risk exists with respect to these financial institutions and the Company has not experienced any losses on such

Balances held in a brokerage account are disclosed on the balance sheet as restricted cash.

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 condensed 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

condensed consolidated balance sheets.

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

price quotations.

The Company considers current assets to be those investments which will mature within the next 12 months, including

interest receivable on the long-term bonds.

Receivable, Net

Accounting for Less

Than Wholly-Owned Subsidiaries

For 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.

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.

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 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 are issued.

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 $ 261.6 million as of March 31, 2024.

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 March 31, 2024, the Company

had $ 0.1 million of cash, cash equivalents, and marketable securities.

The Company had no restricted cash as of March 31, 2024.

liabilities were $ 26.7 million as of March 31, 2024.

These unaudited condensed

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 unaudited condensed

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.

On February 28,

2024, the company raised net proceeds of $ 2.2 million via the issuance of common stock and prefunded warrants in a public offering through

Alexander Capital and is recorded within common stock and additional paid-in capital on the Company’s unaudited condensed consolidated

balance sheet.

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

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.

There is no assurance

that the Company will ever be profitable.

The unaudited condensed 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 condensed consolidated financial statements in conformity with U.S.

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 loans receivable, the valuation and recognition of stock-based compensation expense, valuation allowance for

deferred tax assets, the valuation of inventory, and useful life of property and equipment.

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, the Company 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.

The Company regularly

evaluates its assets, including asset groups or reporting units, for impairment in accordance with U.S.

The Company is aware of

the impact that prolonged net losses can have on the fair value of underlying assets and the overall company.

The Company is committed

to ensuring that the carrying amounts of its assets are appropriately assessed and adjusted for any impairment, reflecting a true and

fair view of its financial position.

Accounts Receivable, Net and Loans Receivable,

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.

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 condensed 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 and accounts receivable.

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

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

thousand per depositor with unlimited insurance for funds in noninterest-bearing transaction accounts through March 31, 2022.

the amounts in these accounts may exceed the federally insured limits.

Company has certain customers from whom revenue individually represented 10 % or more of the Company’s total revenue, or whose accounts

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

to the following tables below.

the three months ended March 31, 2022 and 2021, the Company’s customers that accounted for 10 % or more of the total revenue were

Three Months ended

March 31, 2022

Three Months ended

March 31, 2021

(In thousands)

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

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

Receivable, Net

of March 31, 2022 and December 31, 2021, the Company’s customers that accounted for 10 % or more of the total accounts receivable,

net, were as follows:

March 31, 2022

December 31, 2021

(In thousands)

NEIA – Related Party

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

Company values all of its inventories, which consist primarily of 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.

and Equipment

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

Depreciation and amortization expenses are recognized

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

Estimated Useful Life

The composition

of loan receivable, net is detailed in Note 5 - Loans Receivable.

In accordance with ASC 310-10, accounts receivable and loan receivable

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

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

securities, accounts receivable, and loans 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 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.

During the year three -month

period ended March 31, 2024, the Company has one customer that comprised approximately 1 % of its revenue and two customers that comprised

approximately 47 % of its accounts receivable balance.

During the year three -month

period ended March 31, 2023, the Company has one customer that comprised approximately 11 % of its revenue and two customers that comprised

approximately 84 % of it accounts receivable balance.

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 a physical inventory

count 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 Life (Years)

Computer and office equipment

Furniture and fixtures

Research and development laboratory equipment

Research and development of laboratory equipment

Machinery and equipment

Leased equipment at customer

Leased equipment

Trade show assets

1 unchanged sentence

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

The Company charges maintenance and repairs to expense as incurred.

When the Company retires or disposes assets, the

carrying cost of these assets and related accumulated depreciation or amortization are eliminated from the condensed consolidated

balance sheet and any resulting gain or loss are included in the condensed consolidated statement 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.

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

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

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

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

Based upon the Company’s 2021 annual impairment

testing analyses, including the consideration of reasonably likely adverse changes in assumptions described above, the Company determined

that there are no goodwill impairments to date.

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

intangible assets, which consist principally of acquired 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.

finite-lived useful lives are as follows:

Acquired developed technology

Non-compete agreements

Customer relationships

Capitalized website costs

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 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

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 (“ASC815”).

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.

the Company determines that an instrument is not a derivative liability, it then evaluates whether there is a beneficial conversion feature

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

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

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

Costs and Debt Discount

Company may record debt issuance costs and/or debt discounts in connection with issuing of debt.

The Company may cover these costs by

paying cash or issuing or equity (such as 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.

Issue Discount

certain convertible debt issued by the Company, it 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.

Distinguishing

Liabilities from Equity

relies on the guidance provided by ASC Topic 480, Distinguishing Liabilities from Equity and ASC 815-40, Derivatives and Hedging:

Contracts in Entity’s Own Equity (“ASC 815-40”), to classify certain redeemable and/or convertible instruments.

The Company first determines whether a financial instrument should be classified as a liability.

The Company will determine the liability

classification if the financial instrument is mandatorily redeemable, or if the financial instrument, other than outstanding shares,

embodies a conditional obligation that the Company must or may settle by issuing a variable number of its equity shares.

Company determines that a financial instrument should not be classified as a liability, the Company determines whether the financial

instrument should be presented between the liability section and the equity section of the balance sheet (“temporary equity”).

The Company will determine temporary equity classification if the redemption of the financial instrument is outside the control of the

Company (i.e.

at the option of the holder).

Otherwise, the Company accounts for the financial instrument as permanent equity.

records its financial instruments classified as liability, temporary equity or permanent equity at issuance at the fair value, or cash

Measurement – Financial instruments classified as liabilities

records the fair value of its financial instruments classified as liabilities at each subsequent measurement date.

The changes in fair

value of its financial instruments classified as liabilities are recorded as other income, net.

Company determines at the inception of a right-of-use 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 condensed consolidated balance sheet for all leases with an initial lease term of greater than 12 months.

an initial term of 12 months or less is not recorded on the balance sheet, but related payments are recognized as expense on a straight-line

basis over the lease term.

Company’s right-of-use 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 right-of-use asset leases include options to extend or terminate the lease.

The amounts determined for the Company’s

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

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

revenue includes amounts collected or billed in excess of revenue that it can recognize.

The Company recognizes 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 condensed consolidated balance sheet.

of Financial Instruments

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

The estimated

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

Company measures all stock options and other stock-based awards granted to employees and directors based on the fair value on the date

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

is generally the vesting period of the respective 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.

Company classifies stock-based compensation expense in its condensed consolidated statements of operations and comprehensive loss in

the same manner in which the award’s recipient’s payroll costs are classified.

Company estimates the fair value of each stock option grant on the date of 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.

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

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

The expected dividend yield is based on the fact that the

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

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

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

The fair value of the consideration paid, including contingent

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

Goodwill represents

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

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 operations.

Additional information regarding the Company’s contingent consideration arrangements

may be found in Note 6 – Fair Value Measures, included elsewhere in the notes to the condensed consolidated financial statements.

Company generates revenue from the following sources:

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

accordance with ASC 606 “Revenue Recognition”, the Company recognizes revenue from contracts with customers using a five-step

model, which is described below:

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 condensed consolidated balance sheets and any resulting gain

or loss is included in the condensed 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.

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.

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

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.

For issued or modified

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

time of issuance.

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

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

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

Fair Value of Financial Instruments

The Company’s financial

instruments consist of cash, marketable securities, accounts receivable, accounts payable, accrued expenses, warrant liabilities, and

loans receivable.

Refer to Note 4 - Fair Value Measures, included elsewhere in the notes to the unaudited condensed consolidated financial

statements for details of the Company’s financial instruments.

Revenue Recognition

The Company generates revenue

from the following sources:

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

In accordance with ASC

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

● identify the customer contract;

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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

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 the distinct performance obligations;

recognize revenue as the

performance obligations are satisfied.

the customer contract

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

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

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

in the normal course of business by the customer.

performance obligations that are distinct

performance obligation is a promise 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.

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 software

as a SaaS type subscription license, whereby the customer only has a right to access the software over a specified time period.

value of the contract is recognized ratably over the contractual term of the SaaS subscription, adjusted monthly if tiered pricing is

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 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,

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 software as a service

(“SaaS”) type subscription license, whereby the customer only has a right to access the software over a specified time period.

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

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

1 unchanged sentence

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

and when contract is completed.

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

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 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.

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 three months

ended March 31, 2022 and 2021, 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 a concern over delivered products or services, the Company has endeavored to remedy the concern and all costs related

to such matters have been insignificant in all periods presented.

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

not as a promised good or service.

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

consumer goods at the time of shipment.

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

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

Sales, value add, and other taxes the Company collects

concurrent with revenue-producing activities are excluded from revenue.

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

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.

As of March 31, 2024 and March 31, 2023, 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 or service.

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

the time of shipment.

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

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

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

activities are excluded from revenue.

The Company receives

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

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

The difference in the opening and closing balances

of the Company’s deferred revenue primarily results from the timing difference between the Company’s performance and the

customer’s payment.

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

exchange for consideration from the customer.

Accounts receivables are recorded when the customer has been billed or the right to consideration

is unconditional.

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

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

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

of the current reporting period.

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

contract liabilities 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 a contract liability when consideration has been received or an amount of consideration is due from the customer,

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

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

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

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

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

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

right to invoice practical expedient.

Company generally provides a one-year warranty on its products for materials and workmanship but may provide multiple-year warranties

as negotiated, and will pass on the warranties from its vendors, if any, which generally covers this one-year period.

In accordance with

ASC 450-20-25, the Company accrues for product warranties when the loss is probable and can be reasonably estimated.

The reserve for

warranty returns is included in accrued expenses and other current liabilities in the Company’s condensed consolidated balance

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 software.

Capitalization

of Internal Software Development Costs

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

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.

related to the research and development are expensed as incurred until technical feasibility is established as well as post-implementation

Internal-use software is amortized on a straight-line basis over the estimated useful life of the asset, which ranges from

two to five years.

and Handling Charges

Company incurs costs related to shipping and handling of its manufactured products.

These costs are expensed as incurred as a component

of cost of goods sold.

Shipping and handling charges related to the receipt of raw materials are also incurred, which are recorded as

a cost of the related inventory.

Method Investments

in affiliates which are 50 % or less owned by the Company for which the Company exercises significant influence but does not have

control are accounted for using the equity method.

The Company has investments in equity investments without readily determinable fair

values, which represents investments in entities where the Company does not have the ability to significantly influence the operations

of the entities.

assessment of whether or not the Company (as a holder of 50 % of TPI) has the power to direct activities that most significantly impact

TPI’s economic performance and to identify the party that obtains the majority of the benefits of the investment was performed

as of March 31, 2022 and December 31, 2021 and will be performed as of each subsequent reporting date.

After each of these assessments,

the Company concluded that the activities that most significantly impact TPI’s economic performance are the growth, marketing,

sale, and distribution of products using TPI’s technology and IP, each of which are solely directed by TPI.

Based on our consideration

of these assessments, the Company concluded that the Company’s investment in TPI should be accounted for under the equity method.

carrying value of the Company’s investment in TPI was $ 0 as of March 31, 2022 and December 31, 2021.

The Company did not recognize

revenue from TPI for the three months ended March 31, 2022 and March 31, 2021.

Company accounts for income taxes pursuant to the provisions of ASC Topic 740, “Income Taxes,” which requires, among other

things, an asset and liability approach to calculating deferred income taxes.

The asset and liability approach requires the recognition

of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts

and the tax bases of assets and liabilities.

A valuation allowance is provided to offset any net deferred tax assets for which management

believes it is more likely than not that the net deferred asset will not be realized.

Company follows the provisions of ASC 740-10-25-5, “Basic Recognition Threshold.” When tax returns are filed, it is highly

certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty

about the merits of the position taken or the amount of the position that would be ultimately sustained.

In accordance with the guidance

of ASC 740-10-25-6, the benefit of a tax position is recognized in the condensed consolidated financial statements in the period during

which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination,

including the resolution of appeals or litigation processes, if any.

Tax positions taken are not offset or aggregated with other positions.

Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more

than 50 percent likely of being realized upon settlement with the applicable taxing authority.

The portion of the benefits associated

with tax positions taken that exceeds the amount measured as described above should be reflected as a liability for unrecognized tax

benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing authorities

upon examination.

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

As such, the Company

has not recorded a liability for unrecognized tax benefits.

As of March 31, 2022, tax years 2016 through 2021 remain open for IRS audit.

The Company has received no notice of audit from the IRS for any of the open tax years.

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

ASC 740-10-25-10, “Basic Recognition Threshold”

provides guidance on how an entity should determine whether a tax position is effectively settled for the purpose of recognizing previously

unrecognized tax benefits.

ASC 740-10-25-10 clarifies that a tax position can be effectively settled upon the completion of an examination

by a taxing authority.

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

(Loss) Per Share

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

required for participating securities.

We compute basic income (loss) per share by dividing net income (loss) available to Common Stockholders

by the weighted-average number of common shares outstanding.

Net income (loss) available to Common Stockholders represents net income

(loss) attributable to Common Stockholders reduced by the allocation of earnings to participating securities.

Diluted income per share

adjusts basic income per share for the potentially dilutive impact of stock options and warrants.

For periods during which the Company

recorded a net loss, diluted net loss per share is equal to basic net loss per share because the effect of dilutive securities outstanding

is anti-dilutive.

income (loss) per share calculations for all periods have been adjusted to reflect the Reverse Stock Split effected on January 12, 2021.

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

Recent Accounting Pronouncements

Adopted Accounting Pronouncements

2020, the FASB issued Accounting Standards Update (“ASU”) No.

2020-06, Debt - Debt with Conversion

and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own

Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.

amendments in ASU No.

2020-06 simplify the complexity associated with applying U.S.

GAAP for certain financial

instruments with characteristics of liabilities and equity.

More specifically, the amendments focus on the guidance for convertible

instruments and derivative scope exceptions for contracts in an entity’s own equity.

ASU 2020-06 is effective for

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

adoption of this new accounting guidance had no impact on the Company’s consolidated financial position.

Accounting Pronouncements

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.

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

instruments by using all practical and relevant information.

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

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

ASU 2016-13 is effective in the first quarter

of fiscal 2024.

The Company is currently evaluating the potential impact of this adoption on its condensed consolidated financial statements

and related disclosures.

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.

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

The amendment in this update is effective for fiscal years beginning after December 15, 2022, including interim

periods within those fiscal years.

Early adoption is permitted, including adoption in an interim period.

The guidance should be applied

prospectively to business combinations occurring on or after the effective date of the amendment in this update.

The Company is currently

evaluating the potential impact of this adoption on its condensed consolidated financial statements and related disclosures.

Company does not believe that any other ASU issued but not yet effective, if adopted, will have a material effect on the Company’s

future financial statements.

Revenue and Deferred Revenue

the three months ended March 31, 2022 and 2021, the Company generated revenue from the following sources:

(1) equipment sales, (2) services

sales and (3) construction contracts.

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.

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.

Disaggregation

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

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.

The Company maintained a reserve for warranty returns of $ 0.4 million and $ 0.4 million as of March 31, 2024 and December 31, 2023, respectively.

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

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 unaudited condensed 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™”).

Net Loss Per Share

The Company presents basic and diluted net (loss) income per share

attributable to common stockholders in conformity with the one-class method.

The Company computes basic (loss) income per share by dividing

net (loss) income available to common stockholders by the weighted-average number of common stock outstanding.

Diluted (loss) income per

share adjusts basic (loss) income per share for the potentially dilutive impact of convertible notes, stock options, restricted stock

units and warrants.

As the Company has reported losses for the three months ended March 31, 2023, all potentially dilutive securities

including convertible notes, stock options, restricted stock units and warrants, are anti-dilutive, and accordingly, basic net loss per

share equals diluted net loss per share for that period.

For the three months ended March 31, 2024, the Company adjusts the net income

available to common stockholders and the weighted average common stock outstanding for the effect of dilutive securities as presented

within Note 13 — Net (Loss) Income Per Share.

Net loss per share calculations

for all periods have been adjusted to reflect the reverse stock split effected on July 5, 2023.

Net loss per share was calculated based

on the weighted-average number of common stock outstanding.

Recently Announced Accounting Pronouncements

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.

The 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 condensed consolidated financial statements.

Note 2 — Revenue and Contract Liabilities

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 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.

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-materials 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:

Three months ended

3 unchanged sentences

Total revenue

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.

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 $ 398 thousand for both March 31, 2022 and December 31, 2021.

The Company’s

reserve for warranty returns is included in accrued expenses and other current liabilities in its condensed consolidated balance sheets.

in the Company’s current deferred revenue balance for the three months ended March 31, 2022 and the year ended

December 31, 2021 were as follows:

(In thousands)

Deferred revenue – beginning of period

Interest income on deferred revenue

Deferred revenue – end of period

revenue balances primarily consist of customer deposits on our cultivation and extraction solutions equipment.

As of March 31, 2022 and

December 31, 2021, all of the Company’s deferred revenue balances were reported as current liabilities in our accompanying condensed

consolidated balance sheets.

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.

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.

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.

March 31, 2022 and December 31, 2021, the Company’s assets and liabilities measured at fair value on a recurring basis were

March 31, 2022

December 31, 2021

Fair Value Measurements Using Input Types

(In thousands)

Mutual funds (included in cash and cash equivalents)

Municipal bonds

Corporate bonds

Contingent consideration

Warrant liabilities

Total liabilities

Value of Financial Instruments

Company has certain financial instruments which consist of cash and cash equivalents, marketable securities, contingent consideration,

and warrant liabilities.

Fair value information for each of these instruments is as follows:

Cash and cash equivalents, accounts receivable, accounts

payable and deferred revenue liabilities fair values approximate their carrying values, due to the expected duration of these instruments.

Marketable securities classified as current held-to-maturity

securities are recorded at amortized cost, which at March 31, 2022, approximated fair value.

The Company’s

deferred consideration was recorded in connection with acquisitions during the three months ended March 31, 2022 and fiscal 2021

using an estimated fair value discount at the time of the transaction.

As of March 31, 2022 and December 31, 2021, the carrying value

of the deferred consideration approximated fair value, respectively.

Warrant liabilities were recorded in connection with

the issuance of warrants to purchase the Company’s common stock during the three months ended March 31, 2022.

As of March 31,

2022, the warrant liabilities were recorded at fair value.

of March 31, 2022, the Company held investments in mutual funds, municipal bonds and corporate bonds.

The Company records mutual funds

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

The municipal and corporate

bonds are considered held-to-maturity securities and are recorded at amortized cost in the accompanying condensed consolidated balance

The fair values of these investments were estimated using recently executed transactions and market price quotations.

considers current assets those investments which will mature within the next 12 months including, interest receivable on the long-term

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

(In thousands)

Current marketable securities:

Municipal bonds

Corporate bonds

amortized cost and estimated fair value of marketable securities as of March 31, 2022, are as follows:

(In thousands)

Current marketable securities:

Municipal bonds

Corporate bonds

Consideration

Company has classified its net liability for contingent earn-out considerations to the sellers relating to one acquisition completed

during the three months ended March 31, 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 three months ended March 31, 2022 and fiscal

2021 are included within Note 15 – Business Combinations, included elsewhere in the notes to the condensed consolidated financial

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

three months ended March 31, 2022, the Company accrued $ 1.4 million relating to the Lab Society acquisition for contingent consideration

recorded from the initial purchase price accounting.

(In thousands)

Three Months ended

Contingent consideration – beginning of period

Accrued contingent consideration

Change in estimated fair value

Contingent consideration – end of period

Company included contingent consideration within accrued expense and other current liabilities in its condensed consolidated balance

sheets as of March 31, 2022 and December 31, 2021, respectively.

January 2022, the Company issued warrants to purchase up to an aggregate of 15,078 shares of Common Stock in connection with a private

placement transaction (the “PIPE Warrants”).

The warrants have an exercise price of $ 1,496.00 .

March, 2022, the Company issued warrants to purchase up to an aggregate of 34,406 shares of Common Stock in connection with the issuance

of debt (the “SPA Warrants”).

The warrants have an exercise price of $ 1,350.00 .

grant date fair value of the PIPE Warrants and the SPA Warrants issued during the three months ended March 31, 2022 was calculated using

a Black-Scholes model and was determined to be $ 40.5 million using the following inputs:

Exercise price

Expected term (in years)

Annualized volatility

Annual rate of quarterly dividends

Discount rate -bond equivalent yield

fair value of the PIPE Warrants and the SPA Warrants were remeasured and determined to be $ 29.7 million at March 31, 2022, using a Black-Scholes

model using the following inputs:

Exercise price

Expected term (in years)

Annualized volatility

Annual rate of quarterly dividends

Discount rate -bond equivalent yield

The following

table sets forth a summary of the changes in the fair value of the Level 3 warrant liabilities for the three months ended March 31, 2022:

(In thousands)

Warrant liabilities – beginning of period

Initial fair value of warrant liabilities

Change in estimated fair value

Warrant liabilities – end of period

Loan Receivable

portion of the capital raised from the Company’s IPO has been allocated to launch Agrify’s total turn-key solution (“TTK

Solution”) program.

The TTK Solution is industry’s first end-to-end solution that provides access to capital for construction

costs, equipment lease(s) to VFUs and other related operating equipment, subscription to the Company’s Agrify Insights software,

and business consultation services, which will enable the Company’s customers to go to market faster and better.

Company’s initial allowable investment in the TTK Solution engagements is currently capped at $ 50.0 million, as approved by the

Company’s Board of Directors.

As of March 31, 2022 and December 31, 2021, the Company has committed $ 32.9 million to the Agrify

TTK Solution for five customers under contract and $ 20.3 million to the Agrify TTK Solution for five customers under contract, respectively.

Of the five parties who have purchased the Agrify TTK Solution to date, Greenstone Holdings is a related party as of March 31, 2022 and

December 31, 2021.

loan agreements entered into with customers receiving the Agrify TTK Solution generally provide for loans ranging from approximately

$ 200 thousand up to $ 13.5 million with maturity dates of approximately two to three years after the completion of the construction projects.

Typically, the TTK Solution construction loans have interest rates ranging from 12 % to 18 % per year.

breakdown of loans receivable by Company as of March 31, 2022 and December 31, 2021 is as follows:

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.

Contract Liabilities

Changes in the Company’s

current contract liabilities balance for the three months ended March 31, 2024 and the year ended December 31, 2023 were as follows:

(In thousands)

Company A – Agrify TTK Solution

Greenstone Holdings – TTK Solution – Related Party

Company C – Agrify TTK Solution

Company D – Agrify TTK Solution

Company E – Agrify TTK Solution

Company F – Non-TTK Solution (1)

Other – Non-TTK Solutions

Total loan receivable

portion of loan receivable are included within Note 10 – Prepaid Expenses and Other Current Receivables, included elsewhere in

the notes to the condensed consolidated financial statements.

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 Holdings is a

As of March 31, 2022, two of the Company’s employees own approximately 36.6 % of the equity of Greenstone Holdings, however,

since the Company is not the primary beneficiary and does not hold significant influence over Greenstone Holdings business decisions,

the Company is not required to consolidate Greenstone Holdings.

Accounts Receivable

receivable consisted of the following as of March 31, 2022 and December 31, 2021:

Contract liabilities – beginning of period

Contract liabilities – end of period

Contract liabilities balances primarily consist of customer deposits

on the Company’s cultivation and extraction solutions equipment.

As of March 31, 2024 and December 31, 2023, all of the Company’s

contract liabilities balances were reported as current liabilities in the accompanying unaudited condensed consolidated balance sheets.

Note 3 — Supplemental Condensed Consolidated Balance Sheet

Accounts Receivable, net

Accounts receivable consisted of the following

as of March 31, 2024 and December 31, 2023:

(In thousands)

Accounts receivable, gross

Less allowance for doubtful accounts

Less allowance for credit losses

Accounts receivable, net

a related party, accounted for $ 1.3 million and $ 3.5 million of the Company’s accounts receivable, net as of March 31, 2022 and

December 31, 2021, respectively.

changes in the allowance for doubtful accounts consisted of the following:

(In thousands)

Three Months ended

Allowance for doubtful accounts - beginning of period

Provision for doubtful accounts

Other adjustments

Allowance for doubtful accounts - end of period

debt expense was nil for both the three months ended March 31, 2022 and March 31, 2021.

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.

consisted of the following as of March 31, 2022 and December 31, 2021:

(In thousands)

Raw materials

Prepaid inventory

Finished goods

Inventory, gross

Inventory reserves

Total 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:

The changes in the allowance for credit losses

accounts consisted of the following:

(In thousands)

Three Months ended

Inventory reserves – beginning of period

Increase in inventory reserves

Inventory write-offs

Inventory reserves – end of period

Allowance for credit losses - beginning of period

(Recovery of) allowance for credit losses

Accounts receivable written-off

Allowance for credit losses - end of period

Prepaid Expenses and Other Current Assets

expenses and other current assets consisted of the following as of March 31, 2022 and December 31, 2021:

Prepaid expenses and other current assets consisted

of the following as of March 31, 2024 and December 31, 2023:

(In thousands)

Other receivables, other

Prepaid insurance

Prepaid software

Prepaid expenses, other

Deferred costs

Other note receivables (1)

Other receivables, other

Prepaid software

Prepaid materials

Prepaid settlement asset

Total prepaid expenses and other current assets

note receivables relate to the current portion of one of our TTK Solutions loan receivable balances.

The Company recorded in

the fourth quarter of the year ended December 31, 2023 a prepaid settlement asset in connection with the Modification and Settlement

Agreement entered into with Mack Molding Co.

as described in detail within Note 14 — Commitments and Contingencies.

represents the value of warrants to be issued to Mack Molding Co.

upon satisfaction of the terms of the settlement agreement and one

$ 500 thousand prepayment to Mack Molding Co.

During the quarter ended March 31, 2024, the conditions of the agreement were met and the

prepaid settlement asset was derecognized and recorded into gain on settlement of contingent liabilities upon the closing of the settlement.

Property and Equipment, Net

and equipment, net consisted of the following as of March 31, 2022 and December 31, 2021:

Property and equipment, net consisted of the

following as of March 31, 2024 and December 31, 2023:

(In thousands)

Computer and office equipment

Furniture and fixtures

Leased equipment

Leasehold improvements

Machinery and equipment

Computer and office equipment

Research and development laboratory equipment

Leased equipment at customer

Furniture and fixtures

Trade show assets

3 unchanged sentences

Total property and equipment, net

expense for the three months ended March 31, 2022 and 2021 was $ 379 thousand and $ 90 thousand, respectively.

Intangible Assets, Net and Goodwill

Company records intangible assets initially at fair value and tests these values periodically for impairment.

Goodwill represents the

excess of the purchase price over the fair value of identifiable tangible and intangible assets acquired and liabilities assumed in a

business combination and is tested at least annually for impairment.

The Company performs an impairment test of goodwill during the fourth

quarter of each year or sooner if indicators of potential impairment arise.

There were no such indicators in the three months ended March

assets, net as of March 31, 2022 was as follows:

Intangible Assets, Gross

Accumulated Amortization

Intangible Assets, Net

(In thousands)

Customer Relationships

Acquired developed Technology

Capitalized website costs

assets, net as of December 31, 2021 was as follows:

Intangible Assets, Gross

Accumulated Amortization

Intangible Assets, Net

(In thousands)

Customer Relationships

Acquired developed Technology

Capitalized website costs

expense recorded in general and administrative in the condensed consolidated statements of operations were $ 673 thousand and $ 58 thousand

for the three months ended March 31, 2022 and 2021, respectively.

amortization expense for the remainder of 2022 and subsequent years for acquired intangible assets:

Years ending December 31 (In thousands),

Remaining 2022

2027 and thereafter

consisted of the following:

(In thousands)

Three Months ended

Goodwill - beginning of period

Goodwill acquired during period

Goodwill purchase accounting adjustment

Goodwill - end of period

Other Non-Current Assets

non-current assets consisted of the following as of March 31, 2022 and December 31, 2021:

(In thousands)

Long-term deferred commissions expense

Security deposits

Total other non-current assets

Depreciation expense for the three months ended

March 31, 2024 and 2023 was $ 0.4 million and $ 0.4 million, respectively, and included within general and administrative, selling and

marketing, and research and development depending on the nature of the related property and equipment.

Construction in Progress

(“CIP”) includes all direct and indirect costs related to the construction, development, or acquisition of tangible property

and equipment that is not yet ready for use.

All costs incurred during the construction phase are accumulated in the CIP account.

remain in the CIP account until the asset is substantially complete and ready for its intended use.

Once the asset is ready for use,

the total accumulated costs are transferred from the CIP account to the appropriate property and equipment account.

The asset is then

depreciated over its estimated useful life from the date it is placed into service.

CIP is reviewed regularly to ensure that all costs

are accurate and that the project is progressing as planned.

Any indication of impairment is assessed, and if the carrying amount exceeds

the recoverable amount, an impairment loss is recognized.

During the year ended December 31, 2023, the Company sold property

and equipment in exchange for proceeds of $ 105,000 , resulting in a gain of $ 144,000 .

During the year ended December 31, 2023, the Company

retired certain fully depreciated property and equipment which had an original cost of $ 444,000 .

Accrued Expenses and Other Current Liabilities

expenses and other current liabilities consisted of the following as of March 31, 2022 and December 31, 2021:

Accrued expenses and other current liabilities

consisted of the following as of March 31, 2024 and December 31, 2023:

(In thousands)

Accrued acquisition liability (1)

Sales tax payable (1)

Accrued construction costs

Compensation related fees

Accrued professional fees

Accrued warranty expenses

Compensation related fees

Accrued consulting fees

Accrued interest expense

Accrued inventory purchases

Financing lease liabilities

Accrued non-income taxes

Accrued acquisition liabilities

Total accrued expenses and other current liabilities

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.

tax payable primarily represents identified sales and use tax liabilities arising from our acquisition of Precision and Cascade.

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.

Business Combination

of Lab Society

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

Society NewCo, LLC, a newly-formed wholly-owned subsidiary of the Company (“Merger Sub”), Michael S.

Maibach Jr., as the

Owner Representative thereunder, and each of the shareholders of Lab Society (collectively, the “Owners”), pursuant to which

the Company agreed to acquire Lab Society.

Concurrently with the execution of the Merger Agreement, the Company consummated the merger

of Lab Society with and into Merger Sub, with Merger Sub surviving such merger as a wholly-owned subsidiary of the Company (the “Lab

Society Acquisition”).

aggregate consideration for the Lab Society Acquisition consisted of:

(a) $4.0 million in cash, subject to certain adjustments for working

capital, cash and indebtedness of Lab Society at closing;

(b) 2,128 shares of Common Stock (the “Buyer Shares”);

the Earn-out Consideration (as defined below), to the extent earned.

Company withheld 638 of the Buyer Shares issuable to the Owners (the “Holdback Lab Buyer Shares”) for the purpose of securing

any post-closing adjustment owed to the Company and any claim for indemnification or payment of damages to which the Company may be entitled

under the Merger Agreement.

The Holdback Lab Buyer Shares will be released following the twelve-month anniversary of the Closing Date

in accordance with and subject to the conditions of the Merger Agreement.

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

may become entitled to additional consideration with a value of up to $3.5 million based on the eligible net revenues achieved by the

Lab Society business during the fiscal years ending December 31, 2022 and December 31, 2023, of which 50% will be payable in cash and

the remaining 50% will be payable by issuing shares of Common Stock.

and related costs, consisting primarily of professional fees, directly related to the acquisition, totaled approximately $ 28 thousand

for the three months ended March 31, 2022.

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

administrative expenses.

Company has prepared purchase price allocations for the business combination with Lab Society on a preliminary basis.

Changes to those

allocations may occur as additional information becomes available during the respective measurement period (up to one year from the acquisition

Fair values still under review as of March 31, 2022 include values assigned to identifiable intangible assets and goodwill.

following table sets forth the components and the allocation of the purchase price for the business combination:

(In thousands)

Purchase price consideration:

Estimated closing proceeds

Transaction expenses

Closing buyer shares

Holdback buyer shares

Earn-out consideration

Estimated working capital adjustment

Fair value of total consideration transferred

Total purchase price, net of cash acquired

Fair value allocation of purchase price:

Cash and cash equivalents

Accounts receivable

Prepaid expenses and other current receivables

Right of use assets, net

Property and equipment, net

Prepaid and refundable taxes

Accounts payable, accrued expenses, and other current liabilities

Deferred revenue

Deferred tax liability

Finance lease liabilities, current

Finance lease liabilities, noncurrent

Operating lease liabilities, current

Operating lease liabilities, noncurrent

Acquired intangible assets

Total purchase price

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:

(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

Accrued acquisition liabilities

Resulting from the 2021

acquisitions of Precision Extraction Newco, LLC (“Precision”) and Cascade Sciences, LLC (“Cascade”) from Sinclair

Scientific, LLC (“Sinclair”), the Company withheld from the transaction shares issuable to Precision and Cascade 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 accrued acquisition liabilities as of December 31, 2023 represent the value of this

held back Common Stock at the price per share at the time of the transaction.

On June 15, 2023, the

Company and its wholly-owned subsidiary, Precision, filed an Amended Verified Complaint in the Court of Chancery of the State of Delaware

against 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.

Pursuant to 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.

As a result of this settlement, the Company derecognized the accrued

acquisition liability and issued the held back Common Stock in the first quarter of 2024 at Agrify’s price per share at the time of issuance.

The difference between the value of the shares at issuance and the derecognized liabilities was recorded as a gain within change in contingent

consideration within the Company’s condensed and consolidated statement of operations for the three months ended March 31, 2024.

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:

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.

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 March 31, 2024 and December

31, 2023, the Company’s assets and liabilities measured at fair value on a recurring basis were as follows:

March 31, 2024

December 31, 2023

Fair Value Measurements Using Input Types

(In thousands)

Identified intangible assets:

Acquired developed technology

Customer relationships

Total identified intangible assets

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.

Company amortizes its intangible assets assuming no residual value over periods in which the economic benefit of these assets is consumed.

amount of revenue of Lab Society included in the condensed consolidated statement of operations from the acquisition date of February

1, 2022 to March 31, 2022 was $ 1.5 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 as of October 1, 2021 (as amended, the “Purchase Agreement”), with Sinclair Scientific, LLC, a Delaware

limited liability company (“Sinclair”), Mass2Media, LLC, d/b/a PX2 Holdings, LLC, d/b/a Precision Extraction Solutions, a

Michigan limited liability company (“Precision”);

and each of the equity holders of Sinclair named therein (collectively,

the “Sinclair Members”).

On October 1, 2021, the Company consummated the transactions contemplated by the Purchase Agreement.

to the terms and conditions set forth in the Purchase Agreement, (1) Sinclair transferred, to the Company, and the Company purchased

(the “Interest Purchase”) from Sinclair, 100 % of the equity interests of Cascade Sciences, LLC, a Delaware limited liability

company (“Cascade”), such that immediately after the consummation of such Interest Purchase, Cascade became a wholly-owned

subsidiary of the Company, and (2) Precision merged (the “Merger”) with and into a newly-formed wholly-owned subsidiary of

the Company, Precision Extraction NewCo, LLC.

aggregate consideration for the Interest Purchase and the Merger consisted of:

(a) 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;

(b) the number of shares of Common Stock, subject to adjustment, equal to the quotient

of (i) $ 20.0 million divided by (ii) the volume weighted-average price per share of Common Stock on The Nasdaq Capital Market for

the 30 consecutive trading days ending on the Execution Date (the “VWAP Price”), issuable in connection with the Merger;

and (c) the True-Up Buyer Shares, if any (as defined below), issuable in connection with the Merger.

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

Members may become 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.

However, in no event shall the aggregate

purchase price paid by the Company pursuant to the terms of the Purchase Agreement, taking into account any Aggregate True-Up Payment

in favor of the Sinclair Members, exceed $ 65.0 million.

During the fourth quarter of 2021,

the fair value of the contingent earn-out consideration totaled $ 5.4 million based on Sinclair Members achieving certain revenue targets.

and related costs, consisting primarily of professional fees, directly related to the acquisition, totaled approximately $ 38 thousand

for the three months ended March 31, 2022.

All transaction and related costs were expensed as incurred and are included in selling, general

and administrative expenses.

The purchase price allocation for the business combination has been prepared on a preliminary basis and

changes to those allocations may occur as additional information becomes available during the measurement period (up to one year from

the acquisition date).

following table sets forth the components and the allocation of the purchase price for the business combination:

Money market funds

Warrant liabilities - January 2022 warrants

Warrant liabilities - March 2022 warrants

Warrant liabilities - August 2022 warrants

Warrant liabilities - December 2022 warrants

Total liabilities

Fair Value of Financial Instruments

The Company has certain

financial instruments which consist of cash and cash equivalents, marketable securities, accounts receivable, loans receivable, accounts

payable, accrued expenses, contingent consideration, operating lease liabilities, long-term debt, related party debt, and warrant liabilities.

Fair 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, and accrued expenses approximate their

fair value 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 March 31, 2024 and December 31, 2023, approximated fair value.

● Loans receivable

are presented net of an allowance for estimated credit losses, which approximates fair value.

● The Company’s

contingent consideration was recorded in connection with acquisitions during the three months

ended March 31, 2024 and fiscal 2023 using an estimated fair value discount at the time of

the transactions.

As of March 31, 2024 and December 31, 2023, the carrying value of the contingent

consideration approximated fair value.

● The carrying value of lease liabilities approximates fair value due to the implicit discount rates used in the

determination of the lease liabilities being consistent with the Company’s incremental borrowing rates at the time of lease inception

and accounting for the duration of the leases.

● Long-term debt and related party debt, including the debt that has undergone troubled debt restructuring, is

carried at amortized cost, dictated by the prevailing market interest rates at the time of each transaction in accordance with ASC 470,

● 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 unaudited

condensed consolidated statements of operations until the warrants are exercised.

value of the warrant liabilities are estimated using a Black-Scholes option-pricing model.

Marketable Securities

As of March 31, 2024

and December 31, 2023, the Company held investments in money market funds.

They are valued using quoted market prices in active markets

and are classified under Level 1 within the fair value hierarchy.

The fair value of the Company’s money market funds as of March

31, 2024 and December 31, 2023 is $ 4 thousand for both years, respectively.

Warrant Liabilities

The estimated fair value

of the warrant liabilities on March 31, 2024 and 2023 is determined using Level 3 inputs.

Inherent in a Black-Scholes option-pricing

model are assumptions used in calculating the estimated fair values that represent the Company’s best estimate.

The volatility

rate is determined utilizing the Company’s own share price and the share price of competitors over time.

However, inherent uncertainties

are involved.

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

The following table summarizes

the Company’s assumptions used in the valuations as of March 31, 2024 and December 31, 2023:

Warrants March

Warrants August

Warrants December

Warrants January

Warrants March

Warrants August

Warrants December

March 31, 2024 December 31, 2023

Stock price $ 0.37 $ 0.37 $ 0.37 $ 0.37 $ 1.26 $ 1.26 $ 1.26 $ 1.26

Exercise price $ 1,496 $ 430 $ 246 $ 0.38 $ 1,496 $ 430 $ 246 $ 3.45

Expected term (in Years) 3.32 3.88 3.88 3.88 3.57 4.13 4.13 4.13

Volatility 136.00 % 138.00 % 138.00 % 138.00 % 138.00 % 136.00 % 136.00 % 136.00 %

Discount rate - treasury yield 4.37 % 4.32 % 4.32 % 4.32 % 3.96 % 3.91 % 3.91 % 3.91 %

The following table sets forth a summary of the

changes in the fair value of the Level 3 warrant liabilities for the three months ended March 31, 2024 and for the year ended December

(In thousands)

Purchase price consideration:

Cash paid to Sinclair Members at close

Cash contributed to escrow accounts at close

Cash paid for excess net working capital

Stock issued at close

Fair value of contingent consideration to be achieved

Fair value of total consideration transferred

Total purchase price, net of cash acquired

Fair value allocation of purchase price:

Cash and cash equivalents

Accounts receivable

Prepaid expenses and other current receivables

Property and equipment, net

Right of use assets, net

Capitalized web costs, net

Accounts payable and accrued expenses

Deferred revenue

Long-term debt

Operating lease liabilities, current

Operating lease liabilities, noncurrent

Acquired intangible assets

Total purchase price

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:

Warrant liabilities – beginning of period

Change in estimated fair value

Warrant liabilities –end of period

Note 5 — Loans Receivable

A portion of the capital

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

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.

Bud & Mary’s Cultivation, Inc.

& Mary’s”) - Customer 139

The initial payment date

on the loan receivable from Bud & Mary’s is the first business day of the first full month following the commencement of commercial

products sales and the maturity date is 24 months from the initial payment date.

The interest rate is 16 % per annum.

In Q3 2022, Agrify became

aware that Bud & Mary’s was not in compliance with all debt covenants as defined in the loan agreement which resulted in Agrify issuing

a loan acceleration letter to Bud & Mary’s on September 15, 2022, demanding full repayment of the construction loan under the loan

agreement dated May 12, 2021.

Consequently, the Company established a reserve of $ 14.7 million specifically related to Bud & Mary’s.

As of March 31, 2024 the allowance related to Bud & Mary’s was reduced to $14.4 million, reflecting a recovery of allowance for credit

losses resulting from a loan repayment of $ 330 thousand that was previously included in the allowance.

Hannah Industries (“Hannah”)

- Customer 125

As of December 31, 2022,

the Company was unable to provide additional financing to Hannah Industries under the TTK Solution program to complete the build out

and development of Hannah’s cultivation business.

As a result, the Company concluded that the existing receivable due from Hannah was

impaired as of this date.

Given the uncertainty around the customer’s ability to repay the outstanding balance of the loan as well as

the absence of value attributed to any collateral from Hannah, an allowance for credit losses was recognized for 50 % of the total outstanding

receivable balance as of December 31, 2022.

The Company recognized an allowance for credit losses related to the Hannah loan receivable

in the amount of $ 4.5 million as of December 31, 2022.

In October 2023, the Company remitted an additional $ 250 thousand to Hannah under

the TTK Solution program, on which an allowance was not recorded.

Therefore the allowance on the Hannah loan remains at $ 4.5 million

as of March 31, 2024.

Once the project is completed,

the customer will begin making monthly payments based on the harvest.

Nevada Holistics (“Tree house”)

- Customer 24096

As of March 2024, Nevada

Holistics has a current balance of $ 692 due in relation to the TTK loan.

The project went live in Q2 2023.

After the 90 day period for

the first harvest, the customer was given an additional 6-month grace period which ended in Q1 2024.

Upon completion of this grace period,

the Company began invoicing the customer each month for a portion of the outstanding loan balance.

The borrower will begin making monthly

payments in Q2 2024 based on what is produced through harvests.

Monthly payments are calculated based off of the Production Success Fees

(‘PSF”) generated from each harvest.

Upon issuance of each invoice, that portion of the loan is reclassified into loan receivable,

current on the unaudited condensed consolidated balance sheets.

The breakdown of loans receivable

by customer as of March 31, 2024 and December 31, 2023 were as follows:

(In thousands)

Identified intangible assets:

Acquired developed technology

Non-compete agreements

Customer relationships

Total identified intangible assets

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.

Company amortizes its intangible assets assuming no residual value over periods in which the economic benefit of these assets is consumed.

Acquisition of PurePressure

On December 31, 2021, the Company entered into

a Membership Interest Purchase Agreement (the “Pure Purchase Agreement”) with PurePressure, LLC, a Colorado Limited liability

company (“PurePressure”) and the members of PurePressure (collectively, the “Members”), Benjamin Britton as the

Member Representative thereunder, and each of the Members.

Concurrently with the execution of the Pure Purchase Agreement, the Company

consummated the acquisition of all the outstanding equity interests of PurePressure, such that immediately after the consummation of such

purchase, PurePressure became a wholly-owned subsidiary of the Company (the “Acquisition”).

The aggregate consideration for the Acquisition

consisted of:

(a) $ 4.0 million in cash, subject to certain adjustments for working capital, cash and indebtedness of PurePressure at closing;

(b) 1,646 shares of Common Stock (the “Buyer Shares”);

and (c) 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.

Buyer Shares will be released following the twelve-month anniversary of the Closing Date in accordance with and subject to the conditions

of the Pure Purchase Agreement.

The Pure Purchase Agreement includes customary

post-closing adjustments, representations and warranties and covenants of the parties.

The Members may become entitled to additional consideration

with a value of up to $3.0 million based on the eligible net revenues achieved by the PurePressure business during the fiscal years ending

December 31, 2022 and December 31, 2023, of which 40% will be payable in cash and the remaining 60% will be payable by issuing shares

of Common Stock (collectively, the “Earn-out Consideration”).

Transaction and related costs, consisting primarily

of professional fees, directly related to the acquisition, totaled approximately $ 562 thousand for the three months ended March 31, 2022.

All transaction and related costs were expensed as incurred and are included in general and administrative expenses.

The purchase price allocation for the business

combination has been prepared on a preliminary basis and changes to those allocations may occur as additional information becomes available

during the respective measurement period (up to one year from the acquisition date).

Fair values still under review as of March 31, 2022

include values assigned to identifiable intangible assets and goodwill.

The following table sets forth the components

and the allocation of the purchase price for the business combination:

Customer 24096

Allowance for credit losses

Total loan receivable, net of allowance for credit losses

current portion

Total loan receivable, net of current

Note 6 — Inventory

Inventories are stated at

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

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

The Company’s standard payment terms with

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

The Company’s prepaid inventory is

applied to the purchase of products once they are delivered.

Inventory consisted of the following as of March

31, 2024 and December 31, 2023:

(In thousands)

Purchase price consideration:

Estimated closing proceeds

Indebtedness paid

Transaction expenses

Closing buyer shares

Holdback buyer shares

Earn-out consideration

Estimated working capital adjustments

Fair value of total consideration transferred

Total purchase price, net of cash acquired

Fair value allocation of purchase price:

Cash and cash equivalents

Accounts receivable, net

Property and equipment, net

Right of use assets, net

Prepaid expenses and other current receivables

Other non-current assets

Accounts payable and accrued expenses

Deferred revenue

Operating lease liabilities, current

Operating lease liabilities, noncurrent

Finance lease liabilities, current

Finance lease liabilities, noncurrent

Notes payable, current

Notes payable, noncurrent

Acquired intangible assets

Total purchase price

Identified intangible assets consist of trade

names, technology, and customer relationships.

The fair value of intangible assets and the determination of their respective useful lives

were made in accordance with ASC 805 and are outlined in the table below:

Raw materials

Prepaid inventory

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:

(In thousands)

Identified intangible assets:

Acquired developed technology

Customer relationships

Total identified intangible assets

Subject to certain customary limitations, (i)

the Members will indemnify the Company and its affiliates, officers, directors and other agents against certain losses related to, among

other things, breaches of the Members’ and PurePressure’s representations and warranties, indebtedness, transaction expenses,

pre-closing taxes and the failure to perform covenants or obligations under the Pure Purchase Agreement, and (ii) the Company will indemnify

the Members and their respective affiliates, officers, directors and other agents against certain losses related to, among other things,

breaches of the Company’s representations and warranties and the failure to perform covenants or obligations under the Pure Purchase

Inventory reserves – beginning of period

(Decrease) increase in inventory reserves

Inventory reserves – end of period

Note 7 – Debt

The Company’s debt consisted of:

Note payable – SPA Note

Other notes payable (1)

unamortized debt discount

Total debt, net of debt discount

current portion, net of current unamortized debt discount

(In thousands)

Related party debt:

Consolidated CP Acquisitions Note

CP Acquisitions Junior Secured Note

GIC Acquisition Note

Total related party debt

current portion

Related party debt, net of current

Long-term debt:

(1) Other notes payable relates

to one-year insurance premium that was financed over nine-months.

Securities Purchase Agreement

On March 14, 2022, the

Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with an accredited investor (the

“Investor”), pursuant to which 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 million, less applicable expenses, as set forth in the Securities Purchase Agreement,

(i) a SPA Note in an aggregate principal amount of $65 million, and (ii) a warrant (the “SPA Warrant”) to purchase

up to an aggregate of 34,406 shares of Common Stock.

The SPA Note is a senior

Exchange Note

Convertible Note

Other notes payable (1)

Unamortized debt premium

Total long-term debt

current portion

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 $ 7 thousand for the three

months ended March 31, 2024.

Other notes payable also includes the Navitas Loan with a balance of $ 5 thousand as of March 31, 2024.

Exchange Note

The Exchange Note is a senior

secured obligation of the Company and ranks senior to all indebtedness of the Company.

The Company will be required to make amortization

payments equal to 4.0 % of the original principal amount of the SPA Note on the first day of each calendar month starting on February 1,

2023 and extending through the maturity date of March 1, 2026 (the “Maturity Date”), at which time all remaining outstanding

principal and accrued but unpaid interest will be due.

The SPA Note has a stated interest rate of 6.75% per year, and the Company is required

to pay interest on March 1, June 1, September 1, and December 1 of each calendar year through the Maturity Date.

Following the one-year

anniversary of the SPA Note’s issuance, the Company may, in lieu of paying interest in cash, pay such interest in kind, in which

case interest on the SPA Note will be calculated at the rate of 8.75 % per year and will be added to the principal amount of the SPA Note.

At any time following

the one-year anniversary of the SPA Note’s issuance, the Company may prepay all (but not less than all) of the SPA Note by redemption

at a price equal to 106.75 % of the then-outstanding principal amount under the SPA Note, plus accrued but unpaid interest.

will also have the option of requiring the Company to redeem the SPA Note if the Company undergoes a fundamental change at a price equal

to 107 % of the then-outstanding principal amount under the SPA Note, plus any accrued interest.

The Securities Purchase

Agreement provides for up to two additional closings subject to certain conditions set forth in the Securities Purchase Agreement and

on substantially the same terms as the initial closing.

Each subsequent closing would result in the issuance of a senior secured note

with an original principal amount of $ 35.0 million and warrants to purchase shares of Common Stock for up to 65 % of such principal amount

divided by the closing price of Common Stock on the trading day immediately prior to such subsequent closing.

The SPA Note imposes

certain customary affirmative and negative covenants upon the Company, as well as covenants that (i) restrict the Company and its

subsidiaries from incurring any additional indebtedness or suffering any liens, subject to specified exceptions, (ii) restrict the

ability of the Company and its subsidiaries from making certain investments, subject to specified exceptions, (iii) restrict the

declaration of any dividends or other distributions, subject to specified exceptions, (iv) require the Company to maintain specified

earnings and adjusted EBITDA targets, and (v) require the Company to maintain minimum amounts of cash on hand.

If an event of default

under the SPA Note occurs, the Investor can elect to redeem the SPA Note for cash equal to 115 % of the then-outstanding principal amount

of the SPA 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.

Until the date the SPA

Note is fully repaid, the Investor has, subject to certain exceptions, the right to participate for up to 30 % of any debt, Preferred Stock

or equity-linked financing of the Company or its subsidiaries.

Each SPA Warrant issued

in the initial closing has an exercise price of $ 1,350.00 per share, subject to adjustment for stock splits, reverse stock splits, stock

dividends and similar transactions, is immediately exercisable, has a term of five and one-half years from the date of issuance and is

exercisable on a cash basis, unless there is not an effective registration statement covering the resale of the shares issuable upon exercise

of the SPA Warrant (the “SPA Warrant Shares”), in which case the SPA Warrant is also exercisable on a cashless exercise basis

at the Investor’s election.

The Securities Purchase Agreement requires the Company to file resale registration statements with respect

to the SPA Warrant Shares as soon as practicable and in any event within 45 days following the initial closing and any subsequent closings.

The SPA Warrant provides

that in no event will the number of shares of Common Stock issued upon exercise of the SPA Warrant result in the Investor’s beneficial

ownership exceeding 4.99% of the Company’s shares outstanding at the time of exercise (which percentage may be decreased or increased

by the Investor, but to no greater than 9.99%, and provided that any increase above 4.99% will not be effective until the sixty-first

day after notice of such request by the Investor to increase its beneficial ownership limit has been delivered to the Company).

The Securities Purchase

Agreement also contains customary representations and warranties of the Company and the Investor.

There is no material relationship between

the Company or its affiliates and the Investor other than in respect of the Securities Purchase Agreement, the SPA Note and the SPA Warrant.

The following table provides

a breakdown of the note payable balances as of March 31, 2022:

(In thousands)

Accrued interest expense

Notes payable, discount

Net carrying amount

The following table summarizes

short-term and long-term portion of the SPA Note as of March 31, 2022:

(In thousands)

Unamortized discount

Net carrying amount

As of March 31, 2022,

future minimum payments were as follows:

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 Lender was 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.

Convertible Note

On March 8, 2023, as a result

of the Exchange Agreement, the Company issued a Convertible Note to 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 was 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

would reduce the outstanding principal amount under the August 2022 Note or the Convertible Note.

At any time, the Company

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

Note plus accrued but unpaid interest.

The Lender had 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.

The Convertible Note imposed

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 Lender), 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.

Until the date the Convertible

Note is fully repaid, the Lender had, 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.

If the Lender elected to

convert the Convertible Note, the conversion price per share would be $ 7.64 , 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 %.

The 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.

Aggregate interest expense

related to the Convertible Note and Exchange Note described above was $ 116 thousand as of March 31, 2024.

Note Conversion

Pursuant to the Exchange

Agreement the Company entered into with the Lender 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.

On 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.

The total aggregated Exchange Note and Convertible

Note is classified as long-term as of March 31, 2024.

Convertible Note Forgiveness

On November 30, 2023, the

New Lender 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.

CP Acquisitions Junior Secured Note

On 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 Purchase”).

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.

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.

The Junior Secured Note bears interest

at a rate of 10 % per annum, will mature in full on December 31, 2023, and may be prepaid without any fee or penalty.

On December 4, 2023,

the New Lender and the Company amended and restated the Junior Secured Note agreement.

Pursuant 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

Consolidated CP Acquisitions Note

On 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

as well as the interest due under the Convertible Note into the Convertible Note (collectively, with the Junior Secured Note and the

Exchange Note, the “Consolidated Notes”), and amended and restated the Convertible Note under a Senior Secured Amended, Restated,

and Consolidated Convertible Note agreement (the “Restated Note”) having a total outstanding principal of $ 18,717,973 (the

“New Lender Debt Consolidation”).

The Restated Note bears interest at a rate of 10 % per annum and will mature in full on

December 31, 2025.

The Company may redeem all or a portion not less than $ 5.0 million of principal at any time at a price equal to 102.5 %

of the redeemed principal amount plus accrued but unpaid interest.

The Restated Note imposes

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 Restricted Note occurs, then

the then outstanding principal and all accrued and unpaid interest on the Restated Note will immediately become due and payable.

If the New Lender elects

to convert the Restated Note, the conversion price per share will be $ 1.46 , subject to customary adjustments for certain corporate events.

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

The Restated Note may not be converted into shares

of Common Stock if such conversion would result in the New Lender and its affiliates owning an aggregate of in excess of 49.99 % of the

then-outstanding shares of Common Stock.

Immediately following the

execution of the Restated Note, the New Lender elected to convert approximately $ 3.9 million of outstanding principal into an aggregate

of 2,671,633 shares of common stock (the “January Conversion”) having a fair value of approximately $ 1.7 million.

January Conversion was exercised by the New Lender in conjunction and in connection with the Debt Consolidation, the two transactions

combined were considered a modification of the total debt outstanding with the New Lender (the “New Lender Debt Restructuring”).

The New Lender Debt Restructuring

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 New Lender Debt Restructuring was deemed to result in a concession by the New Lender.

The Company performed

a comparison of the undiscounted cash flows associated with the Restructured Note subsequent to the New Lender Debt Restructuring to

the carrying value of the Consolidated Notes as of the New Lender Debt Restructuring date.

The net carrying value of the Consolidated

Notes was determined to exceed the undiscounted future cash flows of the Restated Note after consideration of the January Conversion

by approximately $ 675,000 (the “Excess Carrying Value”).

The Restated Note was thus written down to the amount of the undiscounted

future cash flows on the Restated Note from the New Lender Restructuring date to maturity.

Further, as the New Lender is a related party

of the Company, the Excess Carrying Value was accounted for as a capital transaction and no gain or loss was recognized related to the

restructuring.

GIC Acquisition Note

On 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 $ 24 thousand for the three months ended March 31, 2024.

As of March 31, 2024, the Company has borrowed approximately

$ 1.0 million under the Related Party Note agreement.

As of March 31, 2024, future minimum payments

on all debt positions were as follows:

Years ending December 31 (In thousands),

1 unchanged sentence

Total future payments

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 is scheduled to mature on May 7, 2022.

Subject to certain conditions, the PPP Loan may

be forgiven in whole or in part by applying for forgiveness pursuant to the CARES Act and the PPP.

The Company’s submission to have

the remaining $ 779 thousand PPP Loan forgiven is currently being reviewed by the SBA.

If the remaining principal amount from the $ 779

thousand PPP Loan is not forgiven in full, the Company would be obligated to repay any principal amount not forgiven and interest accrued

As of March 31, 2022 and December 31, 2021, all of our PPP Loan balances were reported as current portion of long-term debt in

the accompanying condensed consolidated balance sheets.

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 has subsequently been paid as a part

of the PurePressure acquisition.

Note 17 — Convertible Promissory Notes

On January 11, 2021, the Company’s Board

of Directors and shareholders approved the amendment to the conversion formula of the Convertible Promissory Notes (the “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 .

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

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 $ 19.6 million

(inclusive of $ 13.1 million of principal, $ 7.1 million of derivative liabilities, less $ 587 thousand of debt discount) and the recognition

of the $ 16.9 million fair value of the new convertible notes (including the same principal amount of $ 13.1 million plus the $ 3.8 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 18 — Capital Structure

On January 9, 2020, the Company increased its

authorized number of shares of Common Stock to 265,000 , consisting of:

250,000 shares of Common Stock, and 3,000,000 shares of Preferred

At that time, it also designated 100,000 shares of the 3,000,000 authorized shares of Preferred Stock, as Series A Convertible

Preferred Stock (“Series A Preferred Stock”).

Series A Convertible Preferred Stock

Beginning in the first quarter of 2020, the Company

issued an aggregate of 60,000 shares of Series A Preferred Stock, for an aggregate purchase price of $ 6.0 million.

In May 2020, the Company

completed an offering of Series A Preferred Stock with the issuance of an additional 40,000 shares of Series A Preferred Stock for an

aggregate purchase price of $ 4.0 million.

Amendment of Conversion Formulas

On January 11, 2021, the Company’s Board

of Directors approved the amendment to the conversion formula of the Series A Preferred Stock and Convertible Notes.

After the amendment:

the Series A Preferred Stock

is convertible, at any time after issuance or immediately prior to the closing of a public transaction, into Common Stock in an amount

of shares equal to (i) the product of the Series A Preferred Stock original price plus accrued but unpaid dividends on the shares being

converted, multiplied by the number of shares of Series A Preferred Stock being converted, divided by (ii) a conversion price of $7.72

per share (after the reverse split taking effect);

immediately prior to the consummation

of a public transaction, the outstanding principal amount of the 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 $7.72 (after the reverse split taking effect).

On January 11, 2021, the Company’s shareholders

approved the amendment to the Series A Preferred Stock.

Initial Public Offering

On February 1, 2021, the Company completed an

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:

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 (b) 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

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 $ 57.0 million, after deducting

underwriting discounts and estimated offering expenses.

Immediately prior to the closing of the Company’s

IPO, all outstanding shares of Series A Preferred Stock and 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

a secondary public offering (the “February Offering”) for the sale of 27,778 shares of Common Stock for a price of $ 2,700.00

The Company also granted the underwriters:

(a) 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 (b) 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 per share.

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 $ 80.0 million, after deducting

underwriting discounts and estimated offering expenses.

Private Placement

On January 25, 2022, the Company entered

into a Securities Purchase Agreement (the “Securities Agreement”) with an institutional investor and other accredited investors

for the sale by the Company of (i) 12,252 shares (the “SA Shares”) of Common Stock, (ii) pre-funded warrants (the “Pre-Funded

Warrants”) to purchase up to an aggregate of 7,853 shares of Common Stock and (iii) 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 accompanying

fraction of a Common Warrant was $1,360.00.

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

at a price per share of $0.00001 (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

of the Company, and Stuart Wilcox, 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.

Issuance 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.

Refer to Note 15 – Business Combinations, included elsewhere in

the notes to the condensed 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.

Refer to Note 15 – Business Combinations, included elsewhere in the notes to the condensed

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.

Refer to Note 15 – Business Combinations, included elsewhere in the notes to the condensed

consolidated financial statements.

2020 Omnibus Equity Incentive Plan

On December 18, 2020, the Company’s Board

of Directors, and on January 11, 2021, the Company’s stockholders, adopted and approved the 2020 Omnibus Equity Incentive Plan (the

“2020 Plan”), which replaced the 2019 Stock Option Plan (the “2019 Plan”).

The 2020 Plan provides for the grant

of stock options, SARs, performance share awards, performance unit awards, distribution equivalent right awards, restricted stock awards,

restricted stock unit awards and unrestricted stock awards to non-employee directors, officers, employees and non-employee consultants

of the Company or its affiliates.

The aggregate number of shares of Common Stock that may be reserved and available for grant and issuance

under the 2020 Plan is 22,669 shares.

Shares will be deemed to have been issued under the 2020 Plan solely to the extent actually issued

and delivered pursuant to an award.

If any award granted under the 2019 Plan or the 2020 Plan expires, is cancelled, or terminates unexercised

or is forfeited, the number of shares subject thereto is again available for grant under the 2020 Plan.

The 2020 Plan shall continue in

effect, unless sooner terminated, until the tenth anniversary of the date on which it is adopted by the Board of Directors.

Stock-based Compensation

The Company’s stock option compensation

expense was $ 953 thousand and $ 2.1 million for the three months ended March 31, 2022 and 2021, respectively, and there was $ 3.4 million

of total unrecognized compensation cost related to unvested options granted under the Company’s options plans as of March 31, 2022.

This stock option expense will be recognized through 2025.

The fair value of each option is estimated on

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

This model incorporates certain assumptions for inputs including a risk-free

market interest rate, expected dividend yield of the underlying Common Stock, expected option life, and expected volatility in the market

value of the underlying Common Stock.

No stock options were granted during the three months ended March 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

0% 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.

Because the Company’s

stock options and warrants have characteristics different from those of its traded stock, and because changes in the subjective input

assumptions can materially affect the fair value estimate, in management’s opinion the existing models do not necessarily provide

a reliable single measure of the fair value of such stock options.

The risk-free interest rate is based upon quoted market yields for

United States Treasury debt securities with a term similar to the expected term.

The expected dividend yield is based upon the Company’s

history of having never issued a dividend and management’s current expectation of future action surrounding dividends.

calculates the expected volatility of the stock price based on the corresponding volatility of the Company’s peer group stock price

for a period consistent with the underlying instrument’s expected term.

The expected lives for such grants were based on the simplified

method for employees and directors.

In arriving at stock-based compensation expense,

the Company estimates the number of stock-based awards that will be forfeited due to employee turnover.

The Company’s forfeiture

assumption is based primarily on its 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 financial statements.

If the actual forfeiture rate is lower than the estimated forfeiture rate, then

an adjustment will be made to lower the estimated forfeiture rate, which will result in an increase to expense recognized in the Company’s

financial statements.

The expense the Company recognizes in future periods will be affected by changes in the estimated forfeiture rate

and may differ significantly from amounts recognized in the current period.

Stock Option Activity

As of March 31, 2022, there were 2,580 shares

of Common Stock available to be granted under the Company’s 2020 Plan.

The following table presents option activity under

the Company’s stock option plans for the three months ended March 31, 2022 and 2021:

(In thousands, except share and per share data)

Weighted-Average

Options outstanding at January 1, 2021

Options outstanding at March 31, 2021

Options outstanding at January 1, 2022

Options outstanding at March 31, 2022

Options vested and exercisable as of March 31, 2022

Options vested and expected to vest as of March 31, 2022

The following table summarizes information about

options vested and exercisable at March 31, 2022:

Options Vested and Exercisable

Weighted-Average

Remaining Contractual

Weighted-Average

Exercise Price

1,536.00 -$ 2,898.00

The following table summarizes information about

options expected to vest after March 31, 2022:

Options Vested and Expected to Vest

Weighted-Average

Remaining Contractual

Weighted-Average

Exercise Price

1,536.00 -$ 2,898.00

As of March 31, 2022, warrants to purchase

50,780 shares of Common Stock were outstanding.

The following table presents the Company’s warrant activity for the three months

ended March 31, 2022 and 2021:

Weighted-Average

Exercise Price

Warrants outstanding at December 31, 2020

Warrants outstanding at March 31, 2021

Warrants outstanding at December 31, 2021

Warrants outstanding at March 31, 2022

The Company received proceeds from the exercise

of warrants of less than $ 1 thousand and $ 5 thousand during the three months ended March 31, 2022 and March 31, 2021, respectively.

Note 19 — Employee Benefit Plan

The Company maintains an employee’s savings

and retirement plan under Section 401(k) of the Internal Revenue Code (the “401k Plan”).

All full-time U.S.

become eligible to participate in the 401k Plan.

The Company’s contribution to the 401k Plan is discretionary.

During the three

months ended March 31, 2022 and 2021, the Company did not contribute to the 401k Plan.

Note 20 — Income Taxes

The Company’s effective income tax rate

was 2.0 % and 0.0 % for the three months ended March 31, 2022 and 2021, respectively.

The provision for (benefit from) income

taxes was approximately $( 200 ) thousand and $ 0 for the three months ended March 31, 2022 and 2021, respectively.

The difference between

the Company’s effective tax rates for the 2022 and 2021 periods and the U.S.

statutory tax rate of 21 % was primarily due a valuation

allowance recorded against certain deferred tax assets.

The change in the provision for (benefit from) income taxes for the three months

ended March 31, 2022 compared to the three months ended March 31, 2021 was primarily due to a discrete income tax benefit of approximately

$( 200 ) thousand recorded during the first quarter of 2022, which is attributable to a non-recurring partial release of the Company’s U.S.

valuation allowance as a result of the Lab Society acquisition.

Note 21 — Net Income (Loss) Per Share

Net income (loss) per share calculations for all

periods have been adjusted to reflect the Company’s Reverse Stock Split.

Net income (loss) per share was calculated based on the

weighted-average number of its Common Stock then outstanding.

Basic net income (loss) per share is calculated

using the weighted-average number of Common Stock outstanding during the periods.

Net income (loss) per share, assuming dilution, is calculated

using the weighted-average number of common shares outstanding and the dilutive effect of all potentially dilutive securities, including

Common Stock equivalents and convertible securities.

For periods during which the Company recorded a net income (loss), diluted net income

(loss) per share is equal to basic net income (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 income

(loss) per share were as follows:

Three Months ended

(In thousands, except share and per share data)

Net income (loss) attributable to Agrify Corporation

Accrued dividend attributable to Preferred A Stockholders

Net income (loss) available for common shareholders

Weighted-average common shares outstanding – basic (1)

Effect of dilutive securities

Options outstanding

Warrants outstanding

Weighted-average common shares outstanding – diluted (1)

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

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

As of March 31, 2021, the Company excluded the

following securities from net loss per share as the effect of including them would have been anti-dilutive.

The shares shown represent

the number of shares of Common Stock which would be issued upon conversion in the period shown below :

Options outstanding

Warrants outstanding

Note 22 — Commitments and Contingencies

The determination if any arrangement contained

a lease at its inception was done based on whether or not the Company has the right to control the asset during the contract period.

lease term was determined assuming the exercise of options that were reasonably certain to occur.

Leases with a lease term of 12 months

or less at inception were not reflected in the Company’s balance sheet and those lease costs are expensed on a straight-line basis

over the respective term.

Leases with a term greater than 12 months were reflected as non-current right-of-use assets and current and

non-current lease liabilities in the Company’s condensed 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 March 31, 2022, the Company’s weighted-average discount rate utilized for its leases was 7.32 %.

When a contract contained lease and non-lease

elements, both were accounted as a single lease component.

The Company had several non-cancellable finance

leases for machinery and equipment.

The Company’s finance leases have remaining lease terms of one year to five years.

The Company had several non-cancellable operating

leases for corporate offices, warehouses, showrooms, research and development facilities and vehicles.

The Company’s leases have

remaining lease terms of one year to five years, some of which include options to extend.

Note 8 — 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 unaudited condensed 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.

The Company’s incremental borrowing rate was determined using the interest

rate on a long term debt position entered into at approximately the same time and for the same duration as the lease.

At March 31, 2024

and December 31, 2023, the Company’s weighted-average discount rate utilized for its leases was 7.50 % and 7.51 %, 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.

As of March 31, 2024 the Company had no active finance leases.

The Company had several

non-cancellable operating leases for corporate offices, warehouses, showrooms, research and development facilities and vehicles.

Company’s leases have remaining lease terms of one year to four years, some of which include options to extend.

Some leases include

payment for common area maintenance associated with the property.

payment for communal area maintenance associated with the property.

Additional information on the Company’s

lease activity, for the three months ended March 31, 2022 and 2021, is as follows:

operating and financing lease activity was as follows:

Three months ended

4 unchanged sentences

Interest on lease liabilities

Short-term lease cost

Total lease cost

Weighted-average remaining lease term – operating leases

2024 December 31,

Weighted-average remaining lease term – operating leases 2.85 years 3.09 years

Weighted-average remaining lease term – finance leases —

1 unchanged sentence

Weighted-average discount rate – finance leases —

(In thousands)

Right-of-use assets, net

Operating lease liabilities, current

Operating lease liabilities, non-current

(In thousands) Balance Sheet

Location March 31,

2024 December 31,

Right-of-use assets, net Right-of-use, net $ 1,651 $ 1,803

Total lease assets $ 1,651 $ 1,803

Operating lease liabilities, current Operating lease liabilities, current $ 615 $ 599

Operating lease liabilities, non-current Operating lease liabilities, non-current 1,235 1,394

Total operating lease liabilities $ 1,850 $ 1,993

Finance lease liabilities, current

Finance lease liabilities, non-current

Total finance lease liabilities

Maturities of operating and finance lease liabilities

as of March 31, 2022 are as follows:

Maturities of operating lease liabilities as

of March 31, 2024 are as follows:

Years ending December 31 (In thousands),

1 unchanged sentence

Total minimum lease payments

Less imputed interest

Less discount

Total lease liabilities

Legal Proceedings

On January 5, 2021, the Company received a demand

letter from Nicholas Cooper and Richard Weinstein, (two of the Company’s former employees), and one of Mr.

Cooper’s affiliated

entities, asserting that Messrs.

Cooper and Weinstein were entitled to compensation arising out of their employment by the Company, and

their partial ownership of TriGrow Systems, LLC which had been acquired by the Company.

The demand letter asserts that Messrs.

and Weinstein are due certain sales commissions under their applicable bonus plan, equity earn-outs based on certain sales targets, and

various equity purchases through the Company’s employee stock ownership plan.

The demand letter also asserts various employment

claims, including but not limited to, statutory wage withholding violations, wrongful termination, breach of contract, breach of the duty

of good faith and fair dealing, fraud in the inducement, promissory estoppel, minority shareholder oppression, breach of fiduciary duty,

unjust enrichment, and violations of state and federal securities laws.

On January 19, 2021, Messrs.

Cooper and Weinstein

filed a lawsuit against the Company in the United States District Court for the Western District of Washington, alleging the same claims

made in their demand letter based on the facts disclosed above.

The plaintiffs are seeking relief in the form of monetary damages in an

amount to be determined.

Cooper and Weinstein are also seeking relief in the form of reinstatement and Mr.

Weinstein is seeking

rescission of his previously executed Release of Claims Agreement.

On March 10, 2021, the Company moved to dismiss all Messrs.

and Weinstein’s claims, asserting that the claims failed to allege legal grounds for relief.

On May 12, 2021, a Magistrate issued

a preliminary Report and Recommendation, which recommended dismissal of certain of Messrs.

Cooper and Weinstein’s claims, and recommended

others for additional factual discovery.

On July 27, 2021, a District Judge entered an order partially adopting the Report and Recommendation,

dismissing one claim with prejudice, dismissing a second claim with leave to amend, and permitting the remaining claims to proceed.

Additionally, on July 29, 2021, the Company filed

a separate arbitration in Boston, Massachusetts against Messrs.

Cooper and Weinstein, in which the Company alleges that Messrs.

and Weinstein were liable for certain conduct during the time they were TriGrow employees, including breach of fiduciary duty, unjust

enrichment, usurpation of corporate opportunity, conversion, fraudulent concealment, and false representation.

Also on July 29, 2021,

the Company submitted a claim for indemnification to certain legacy TriGrow Systems, LLC.

shareholders.

The claim for indemnification

relates to conduct by Messrs.

Cooper and Weinstein during the time they were TriGrow employees.

The Company does not believe these claims

have any merit and intends to vigorously defend its position.

Supply Agreement with Mack Molding Co.

In December 2020, the Company entered into a five-year

supply agreement with Mack Molding Co.

Note 9 — Stockholders’ Deficit

Public Offerings

On 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 to purchase 3,963,684 shares of its common

stock (the “S-1 Offering”).

The public offering price for each share of common stock is $ 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 Company issued 67,237

warrants to purchase common stock to Alexander Capital, L.P., referred to as the Placement Agents Warrants above.

The warrants were classified

as equity warrants and recorded under additional paid-in capital in the unaudited condensed consolidated balance sheets.

have a five-year term and exercise price of 100 % of the offering price, 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 issuance 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 Alexander Capital election.

The measurement of fair value

of the Alexander Capital Warrants were determined utilizing a Black-Scholes model considering all relevant assumptions current at the

date of issuance (i.e., share price of $ 0.52 , exercise price of $ 0.38 , term of five years , volatility of 128 %, risk-free rate of 4.32 %,

and expected dividend rate of 0 %).

The grant date fair value of these Alexander Capital Warrants was estimated to be $ 31 thousand on

February 27, 2024 and is reflected within additional paid-in capital as of March 31, 2024.

Note 10 — 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 and 250,000 additional shares issued upon approval by the Board

of Directors on January 8, 2024.

Shares will be deemed to have been issued under the 2022 Plan solely to the extent actually issued and

delivered pursuant to an award.

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 March 31, 2024, there were 57,719 shares of Common Stock available to be

granted under the Company’s 2022 Plan.

The Company’s stock

compensation expense was $ 0.5 million and $ 0.9 million for the three months ended March 31, 2024 and 2023, respectively.

Stock Options

For the three months ended

March 31, 2024, there were no options granted, exercised, forfeited or expired under the Company’s stock option plans.

10,310 options outstanding with a weighted average exercise price of $ 1,595.92 as of March 31, 2024 and December 31, 2023.

10,206 options vested and exercisable with a weighted average exercise price of $ 1,594.66 as of March 31, 2024.

There were 10,310 options

vested and expected to vest with a weighted average exercise price of $ 1,595.92 as of March 31, 2024

As of March 31, 2024, total

unrecognized compensation expense related to unvested options under the Company’s 2022 Plan was $ 1.5 thousand, which is expected

to be recognized over a weighted average period of years.

The following table summarizes information about

options vested and exercisable at March 31, 2024:

Options Vested and Exercisable

Price ($) Number of Options Weighted-Average

Remaining Contractual

Life (Years) Weighted-Average

$ 456.00 2,884 6.12 $ 456.00

$ 972.00 2,842 6.57 $ 972.00

$ 1,536.00 50 7.00 $ 1,536.00

$ 1,840.00 160 7.75 $ 1,840.00

$ 2,768.00 4,270 6.89 $ 2,768.00

The following table summarizes information about

options vested and expected to vest after March 31, 2024:

Options Vested and Expected to Vest

Price ($) Number of Options Weighted-Average

Remaining Contractual

Life (Years) Weighted-Average

$ 456.00 2,884 6.12 $ 456.00

$ 972.00 2,856 6.57 $ 972.00

$ 1,536.00 50 7.00 $ 1,536.00

$ 1,840.00 250 7.75 $ 1,840.00

$ 2,768.00 4,270 6.89 $ 2,768.00

Restricted Stock Units

The following table presents restricted stock

unit activity under the 2022 Plan for the three months ended March 31, 2024:

Unvested at December 31, 2023

Unvested at March 31, 2024

As of March 31, 2024, total

unrecognized compensation expense related to unvested restricted stock units was $ 139 thousand, which is expected to be recognized over

a weighted average period of 1.12 years.

Note 11 — Stock Warrants

The following tables present all warrant activity

of the Company for the three months ended March 31, 2024:

Warrants outstanding at December 31, 2023

( 6,142,217 )

Warrants outstanding at March 31, 2024

The Company received proceeds

from the exercise of warrants of $ 3 thousand for the three months ended March 31, 2024.

Note 12 — Income Taxes

The Company’s effective

income tax rate is both 0 % for the three months ended March 31, 2024 and 2023, respectively.

There were no provisions for (benefits from)

income taxes for both years, respectively.

There is no difference between the Company’s effective tax rates for the 2024 and 2023

There was no change in the provision for (benefit from) income taxes for the three months ended March 31, 2024 compared to the

three months ended March 31, 2023.

Note 13 — Net Loss Per Share

Net (loss) income per

share calculations for all periods have been adjusted to reflect the Company’s reverse stock splits.

Net (loss) income per share

was calculated based on the weighted-average number of the Company’s Common Stock outstanding.

Basic net (loss) income

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 convertible notes, 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 for the three months ended March 31, 2024 and 2023 because the effect of dilutive securities outstanding

during the periods, including convertible notes, options, restricted stock units and warrants computed using the treasury stock method,

is anti-dilutive.

The components of basic and diluted net loss

per share were as follows:

Three months ended

(In thousands, except

share and per share data)

Numerator for diluted EPS - net (loss) income

available to common stockholders after assumed conversions

Effect of dilutive securities:

Interest expense on convertible

Numerator for diluted EPS - net

(loss) income available to common stockholders after assumed conversions

Denominator for basic EPS - weighted-average common

stock outstanding

Effect of dilutive securities:

Conversion of convertible notes

Denominator for diluted EPS -

adjusted weighted-average common stock outstanding and assumed conversions

Basic net loss (income) per share

attributable to common stockholders

Diluted net loss (income) per share attributable to

common stockholders

As of March 31, 2024,

the Company had convertible notes outstanding with a principal balance of approximately $ 14.8 million convertible into 10,332,411 shares

of Common Stock.

During the three months ended March 31, 2024, the Company also converted a portion of the convertible notes into 2,671,633

shares of Common Stock.

Given the nominal exercise price of the Company’s issuance of Pre-funded Warrants, such Pre-funded Warrants

are included in in the calculation of basic net (loss) income per share and weighted for the period outstanding from issuance to March

The exercise price per warrant is deemed non-substantive when compared to the fair value of the underlying common shares.

determination of the denominator for diluted EPS for the three months ended March 31, 2024, the Company assumed conversion of the 2,671,633

shares of Common Stock as of the beginning of the period, January 1, 2024, eliminating the weighting of the shares from issuance to March

The Company also included in the denominator for diluted EPS for the three months ended March 31, 2024, the assumed conversion

of 10,332,411 shares of Common Stock related to the convertible notes.

For each of the periods

presented, the Company’s potential dilutive securities, which include stock options, restricted stock units, and warrants, have

been excluded from the computation of basic and diluted net (loss) income per share with the exception of the Pre-funded Warrants, or

penny warrants, which are included in the computation, as detailed above.

The weighted-average number of Common Shares outstanding used

to calculate both basic and diluted net loss per share attributable to Common Stockholders is the same for the three months ended March

The Company excluded the following potential Common Stock equivalents presented based on amounts outstanding at each period

end, from the computation of diluted net loss per share attributable to Common Stockholders for the periods indicated because including

them would have had an anti-dilutive effect:

Three months ended

Shares subject to outstanding stock options

Shares subject to unvested restricted stock units

Shares subject to outstanding warrants

Note 14 — Commitments and Contingencies

Legal Matters

From time to time, the

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

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.

Bud & Mary’s Litigation

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

During the third quarter of 2022, the Company deemed it necessary to fully reserve for the outstanding $ 14.7 million note receivable

balance due to the current litigation and the uncertainty of the customer’s ability to repay the balance.

The $ 14.7 million represents

the amount of the contingent loss that the Company has determined to be reasonably possible and estimable.

The actual cost of resolving

this matter may be higher or lower than the amount the Company has reserved.

If the Company is unable to realize revenue from its TTK

Solution offerings on a timely basis or at all, or if it incurs an additional loss as a result of the Bud & Mary’s claim, the

Company’s business and financial performance will be adversely affected.

On November 14, 2022, the Company filed its answers and

affirmative defenses to the Bud & Mary’s complaint and counterclaims.

The Company is seeking, among other relief, monetary

damages in connection with the breach of contract, breach of the implied covenant of good faith and fair dealing, unjust enrichment,

and enforcement of the guarantees.

Bud & Mary’s is permitted to file an amended complaint, and Agrify will be permitted to

make responsive filings, which may include an answer and counterclaim.

Bowdoin Construction Corp.

On 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

Agrify Corporation, Bud & Mary’s Cultivation, Inc.

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 $ 6.3 million is included in accounts payable

in the unaudited condensed consolidated

balance sheet.

One of Bowdoin’s subs, Hannon Electric, Inc.

has filed a separate suit against Agrify in the amount of $ 1.498 million.

The amount is part of the $ 6.3 million claimed in Bowdoin’s complaint.

The Company is entitled to indemnification by Bud &

Mary’s and intends to vigorously defend this claim .

Mack Molding Co.

In December 2020, the Company entered into a five-year supply agreement

with Mack Molding Co.

(“Mack”) pursuant to which Mack will become a key supplier of VFUs.

In February 2021,

the Company placed a purchase order with Mack amounting to approximately $ 5.2 million towards initial production of VFUs during 2021.

In September 2021, the Company increased the purchase order with Mack to approximately $ 11.5 million towards production of VFUs during

2021 and 2022.

The Company believes the supply agreement with Mack will provide the Company with increased scaling capabilities and the

ability to more efficiently meet the potential future demand of its customers.

The supply agreement contemplates that, following an introductory

period, the Company will negotiate a minimum percentage of the VFU requirements that the Company will purchase from Mack each year based

on the agreed-upon pricing formula.

The introductory period is not time-based but rather refers to the production of an initial number

of units after which the parties have rights to adjust pricing and negotiate a certain minimum requirements percentage.

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

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 recognized a contingent liability in the amount of $ 8.4 million, representing an estimate of the amount payable

to Mack with respect to the original Mack purchase agreement, and which was included in accounts payable in the unaudited condensed consolidated

balance sheet.

On March 2, 2023, Mack filed an arbitration action seeking the amounts owed to Mack for purchased inventory.

27, 2023, and effective as of October 18, 2023, Mack and the Company entered into a Modification and Settlement Agreement (the “Modification

Agreement”) with respect to the dispute rather than engaging in litigation through the courts.

On February 29, 2024,

the Company met its contractual obligations under the terms of the Modification Agreement.

In settlement of the dispute, the Company

made cash payments of $ 500,000 and $ 250,000 to Mack and issued to Mack a warrant to purchase 750,000 shares of the Company’s Common

In the first quarter of 2024, management derecognized the previously recognized contingent liability, resulting in a credit of

approximately $ 5.9 million, recorded within gain on settlement of contingent liabilities, on the unaudited condensed consolidated statement

of operations during the three months ended March 31, 2024.

TRC Electronics Litigation

The Company was named as

a defendant in a complaint filed by TRC Electronics, Inc.

(“TRC”) on April 13, 2023 in the United States District Court for

the Eastern District of Pennsylvania.

In the Complaint, TRC asserts two causes of action against the Company:

(1) breach of contract,

and (2) promissory estoppel.

TRC’s claims are based on allegations that the Company failed to make payments due under three purchase

orders for commercial electronics parts.

TRC seeks damages in the amount of $ 565,210 , plus attorneys’ fees, costs, and post-judgment

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

McCutchan, Inc.

In December 2021, the Company

entered into a Standard Form of Agreement (“Agreement”) between Owner and Contractor whereby Valiant Group LLC (“Valiant”)

is the general contractor for tenant improvements on certain real property located in Bellevue, Washington (the “Project”).

McCutchan, Inc.

(“McCutchan”) agreed to be a subcontractor on the Project and engaged various other subcontractors.

terminated Valiant as the general contractor for, among other allegations, breach of contract and unjust enrichment.

Following the termination

of Valiant, in October 2022, the Agreement was assigned and accepted (the “Assignment”) to Agxion, LLC, a wholly owned subsidiary

of the Company.

The Assignment contemplates that, as a subcontractor to the Agreement, McCutchan is still bound to the subcontract agreement

and will continue construction operations on the Project.

The Company is pursuing Valiant in a separate litigation (the “Valiant

Litigation”) to collect no less than approximately $ 1.4 million alleging overbilling, breach of the Agreement, and violation of

Chapter 18.27 and 19.86 RCW in Washington.

On March 5, 2024, McCutchan, Inc.

(“McCutchan”) filed a complaint in the Superior

Court of Washington for King County naming the Company, Valiant, and certain related parties as defendants.

In the Complaint, McCutchan

asserts two causes of action against the Company:

(1) breach of contract, (2) voidable contract, (3) interference with business or economic

expectancy, (4) unjust enrichment, and (5) defamation.

McCutchan’s claims are based on allegations of misrepresentations made by

the Company to pay McCutchan for work completed on the Project as well as a failure to pay under the Agreement.

In the alternative, McCutchan

is alleging the Assignment is void and not a valid contract.

McCutchan is seeking to collect no less than $3 million against the Company

and all other named defendants.

The Company, Valiant, and McCutchan have all agreed to mediate the matter.

McCutchan has asked to postpone

the original scheduled May 7 th mediation date, and the Company, Valiant and McCutchan are collectively working to set up a

new three-way mediation date.

In the event the parties cannot reach an agreement in the mediation, this matter will be moved to arbitration

pursuant to the mandatory arbitration clause in the Agreement.

Valiant Group LLC

Agrify filed a separate complaint against Valiant

for overbilling, misrepresentation, and breach for the Treehouse project in Nevada.

Valiant has failed to respond and Agrify has since

submitted an entry of default to the court and is currently seeking for award in the amount of $ 1.5 million.

However, there is no guarantee

that the Court would award the full amount and no guarantee that Agrify would be able to successfully collect the full amount from Valiant.

Other Litigation

In 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 unaudited condensed consolidated statement of operations

for the three months ended March 31, 2024, with the approximate $ 0.9 million receivable balance recognized as part of prepaid expenses

and other current assets, per the unaudited condensed consolidated balance sheet, as of March 31, 2024.

The settlement also resulted

in the return of equipment to the Company in October 2023.

The Company is currently

pursuing 10 separate legal proceedings in attempting to collect approximately $ 2.5 million outstanding receivables.

The Company is not

confident that all legal proceedings and collection efforts will yield in positive results or return of equipment.

On April 25, 2024, Medical

Investor Holdings, LLC dba Vertical Companies (“MIH”) filed a complaint against Agrify demanding $ 288,000 .

MIH purchased

an XMU hydrocarbon extraction system from Precision in October 2021.

MIH chose to not include installation and training in the original

purchase but is now having problems with this equipment.

The Company this is a meritless case.

The Company is also a defendant

or plaintiff in a variety of other litigation matters that are individually insignificant.

The timing and amount of any settlements,

including potential payments made or received, is uncertain.

Nonetheless, management currently estimates that the Company’s aggregate

net loss exposure with respect to these cases is within the range of approximately $ 150,000 to $ 300,000 .

On July 2022, claimant,

an ex-sales VP is claiming he is owed back wages, commission and is entitled to equity in the company, under theories of liability under

Massachusetts labor laws including retaliation, breach of contract, breach of covenant of good faith and fair dealing, fraudulent inducement,

tortious interference & unjust enrichment.

Company has filed its answer to the initial complaint in January 2023.

The Company believes

this approach will result in both parties making a more informed decision with respect to the pricing and other terms of the supply agreement

Distribution Agreements with Related Party

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.

In March 2021, the Company notified

Bluezone of non-renewal of the agreement which means it ended on May 31, 2021.

The Company exceeded the minimum purchase amount for the

first year and purchased approximately $ 309 thousand of the committed $ 660 thousand second year purchases through December 31, 2021.

is a related party to the Company.

Committed Purchase Agreement with Greenstone Holdings

On December 29, 2021, Greenstone Holdings purchased

239 VFUs from the Company of which 60 VFUs were already in Greenstone Holdings possession under a lease agreement.

Under the lease agreement,

Greenstone Holdings owed Agrify a production service fee of $ 300 per pound of flower produced and contained an option to purchase the

equipment within the lease agreement.

The term of this agreement was for ten years , but it was terminated upon signing the purchase agreement

for the 239 VFUs.

There is no remaining obligation under the lease agreement.

The remaining 179 VFUs were shipped to Greenstone Holdings

storage facility on December 30, 2021 and December 31, 2021.

this is a meritless case and has responded to various discovery requests.

Mack Molding Co.

The Modification Agreement

with Mack referenced above resulted in the Company entering a purchase commitment with Mack where it is contractually obligated to purchase

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, at a per VFU price of $ 14,000 .

The Company made payment and took collection of 25 VFUs in the second quarter

The Company has also granted Mack a second lien position on all Agrify assets.

The Company is also required

to pay a storage fee of $ 25,000 to Mack, per month, for VFU parts subject to the Modification Agreement.

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 7 –

Debt, included elsewhere in the notes to the unaudited condensed consolidated financial statements for details of the Company’s

future minimum debt payments.

Refer to Note 8 – Leases, included elsewhere in the notes to the unaudited condensed consolidated

financial statements for details of the Company’s future minimum lease payments under operating and financing lease liabilities.

Refer to Note 12 – Income Taxes, included elsewhere in the notes to the unaudited condensed consolidated financial statements for

information regarding income tax contingencies.

Note 15 — 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.

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

2 unchanged sentences

(In thousands)

Cannae Policy Group

Topline Performance Group

Greenstone Holdings

Valiant Americas, LLC

Living Greens Farm

(1) Purchases from 4D Bios for the three months ended March 31, 2021 include $ 384 thousand for a down payment on inventory orders.

The following table summarizes net related party

1 unchanged sentence

(In thousands)

Cannae Policy Group

Greenstone Holdings

Living Greens Farm

Valiant Americas, LLC

On 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 7 - Debt for further disclosure related to this Related Party Note.

On 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 7 - Debt for further disclosure

related to this Related Party Note.

Note 16 — Subsequent Events

Bud & Mary’s Litigation

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 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 outstanding due to the current litigation

and the uncertainty of the customer’s ability to repay the outstanding 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.

In addition, $ 5.3 million of the notes receivable balance for work performed

during the third quarter of 2022 has been recorded as an unbilled note receivable and deferred the revenue to a future period.

has recognized the expenses associated with the work completed in the current period due to the uncertainty of the Company’s ability

to recover the funds owed by the customer and its obligations to the vendors that have performed this work.

The Company determined that

it will only recognize unbilled notes receivable revenue if cash is collected from the customer in a future period.

Approval of Issuance of Shares Upon Exercise of Warrants

On October 14, 2022, the Company received approval

for the issuance of up to 105,544 shares of Common Stock upon the exercise of the SPA Warrant

and Note Exchange Warrant in connection with the issuance of a senior secured note and the exchange

of previously issued warrants in August 2022, and the reduction of the exercise price of certain of those warrants under certain

circumstances, was approved.

Additional information regarding the Warrant Liabilities may be found in Note

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

At The Marketing Offering

In October 2022, the Company entered into the

ATM Program with the Agent.

The ATM Program allows 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.

Subsequent to the quarter ended September 30, 2022,

as of November 7, 2022, the Company sold 306,628 shares of Common Stock, under the ATM at an average price of $ 50.80 per share, resulting

in gross proceeds to the Company of $ 15.6 million, and net proceeds of $ 15.1 million after commissions and fees to the Agent totaling

$ 468 thousand.

$ 3.1 million of the proceeds under the ATM Program were used to repay amounts due to the Investor under the Exchange Note.

The ATM allows for quick and agile sales of Common Stock to interested investors and provides an opportunity to raise additional capital

for working capital requirements or to fund strategic opportunities that may present themselves from time to time.

The Company has used,

and intends to continue to use, 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.

Nasdaq Deficiency Notices

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

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

price for the Company’s Common Stock had closed below $ 1.00 per share, which is the minimum closing price required to maintain a

continued listing on The Nasdaq Capital Market under Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Requirement”).

In accordance

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

compliance with the Minimum Bid Requirement, the closing bid price of the Company’s Common Stock must be at least $ 1.00 per share

for a minimum of 10 consecutive trading days during this 180-day compliance period, unless the Staff exercises its discretion

to extend the minimum trading day period pursuant to Nasdaq Listing Rule 5810(c)(3)(G).

On October 28, 2022, the Staff notified the Company

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

compliance with the Minimum Bid Requirement.

On April 18, 2023, the Company received a notice

from Nasdaq stating that because the Company had not yet filed its Annual Report on Form 10-K for the fiscal year ended December 31, 2022,

the Company is no longer in compliance with Nasdaq Listing Rule 5250(c)(1).

Nasdaq Listing Rule 5250(c)(1) requires listed companies to

timely file all required periodic financial reports with the Securities and Exchange Commission.

As disclosed by the Company 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.

scope of the process for preparing the Amended 10-Qs, the Company was unable to complete and file the Form 10-K by the required due date

of March 31, 2023.

The Notice states that the Company has 60 calendar days from April 18, 2023, or until June 20, 2023, to regain compliance

by filing the Form 10-K or to submit to Nasdaq a plan to regain compliance with the Nasdaq Listing Rules.

On May 17, 2023, the Company received a second

notice from Nasdaq that the Company remains noncompliant with the 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 with the SEC by the required due date.

This notice requires the Company

to submit a plan to regain compliance with the continued listing requirements by June 20, 2023.

If Nasdaq accepts the Company’s

plan, then Nasdaq may, in its discretion, grant the Company up to 180 days from the prescribed due date for filing the Form 10-K, or until

October 16, 2023, to regain compliance.

On August 16, 2023, the Company received a third

notice from Nasdaq that the Company remains noncompliant with the 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 with the SEC by the required filing date.

This notice noted that

Nasdaq has previously granted the Company an exception until September 30, 2023, to file its Form 10-K and First Quarter Form 10-Q.

notice also requires the Company to update its original plan to regain compliance with the filing requirement, including the Company’s

plans to file the Second Quarter Form 10-Q, and indicate the progress the Company has made towards implementing the plan submitted in

connection with the Initial Delinquent Filing.

Agrify-Valiant

On October 27, 2022, the Company provided notice

to Valiant-America, LLC that the Company intended to begin the winding up of Agrify-Valiant.

Appointment of Raymond Chang as

principal financial and accounting officer and Resignation of Timothy Oakes and Chief Financial Officer

On January 6, 2023, Timothy Oakes, the Chief Financial

Officer of Agrify Corporation (the “Company”), resigned effective February 28, 2023.

In connection with Mr.

Oakes’ resignation,

the Company has engaged WilliamsMarston LLC to assist with accounting and internal control matters and 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.

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’

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 100,000,000 to 200,000,000 , and

correspondingly increased the total authorized shares of stock from 103,000,000 to 203,000,000 .

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 “Exchange Agreement”) with an accredited lender.

Pursuant to the Exchange Agreement, at

closing the Company will prepay approximately $ 10.3 million in principal amount under the Exchange Note and exchange $ 10.0 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 will be a senior secured obligation of the Company and will rank senior

to all indebtedness of the Company.

The Convertible Note will mature on August 19, 2025 and will contain a 9.0 % annualized interest rate,

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

Concurrently with the closing under the Exchange

Agreement, the Company and the Lender will enter into an Amendment to the Exchange Note (the “Note Amendment”).

the Note Amendment, the Exchange Note will be 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 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 8,903,927 shares of common

stock of the Company, subject to a Beneficial Ownership Limitation of 4.99 % of the Company’s Common Stock.

Issuance of Unsecured Promissory Note

On July 12, 2023, the Board of Directors of the

Company approved the issuance of an unsecured promissory note in favor of GIC Acquisition, LLC (the “Investor”), an entity

that is owned and managed by Raymond Chang, the Company’s Chairman and Chief Executive Officer.

Pursuant to the Note, the Investor

will lend up to $ 500,000 to the Company.

The 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 Note ranks junior to all existing secured indebtedness of the Company.

31, 2023, the Company extended its lease by three years until March 31, 2026, for the premises located at 2468 Industrial Row Dr., Troy,

Michigan 48084.

23, 2023, the Company extended its lease by three years until July 31, 2026, for the premises located at 2625 S.

Santa Fe Dr., Bldg.

Units 1H and 1IJ.

The Company evaluated

subsequent events and transactions that occurred after the balance sheet date up to the date that the unaudited condensed consolidated

financial statements were issued.

Exercise of Company Issued Prefunded Warrants

In April 2024, a holder

of 953,684 of the Company’s previously issued prefunded warrants exercised such warrants for the purchase of 953,684 of the Company’s

common stock.

Cash Contributions

CP Acquisitions LLC made cash contributions to the Company from the

ongoing CP note payable, in the amounts of $ 350 thousand and $ 175 thousand on July 24, 2024 and August 7, 2024, respectively.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q/A

Item 1. Financial Statements