What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-14 compared with 2023-10-02 · 665 added, 759 removed, 86 unchanged (94% of the section changed)

Management’s Discussion and Analysis of Financial

Condition and Results of Operations

The information contained in this Quarterly

Report on Form 10-Q is intended to update the information contained in our Annual Report on Form 10-K for the year ended December 31,

2021 filed with the Securities and Exchange Commission on March 31, 2022 (the “Form 10-K”) and presumes that readers have

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

and other information contained in such Form 10-K.

The following discussion and analysis also should be read together with our financial

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

The following discussion contains certain statements

that may be deemed “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.

Such statements appear in a number of places in this Report, including, without limitation, “Management’s Discussion and Analysis

of Financial Condition and Results of Operations.” These statements are not guarantees of future performance and involve risks,

uncertainties and requirements that are difficult to predict or are beyond our control.

Forward-looking statements speak only as of the

date of this quarterly report.

Management’s Discussion and

Analysis of Financial Condition and Results of Operations

The information contained

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

ended December 31, 2023 filed with the Securities and Exchange Commission on April 15, 2024, as amended on April 29, 2024 (the “Form

10-K”) and presumes that readers have access to, and will have read, the “Management’s Discussion and Analysis of Financial

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

The following discussion and analysis also

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

Report on Form 10-Q.

The following discussion

contains certain statements that may be deemed “forward-looking statements” within the meaning of the Private Securities

Litigation Reform Act of 1995.

Such statements appear in a number of places in this Report, including, without limitation, “Management’s

Discussion and Analysis of Financial Condition and Results of Operations.” These statements are not guarantees of future performance

and involve risks, uncertainties and requirements that are difficult to predict or are beyond our control.

Forward-looking statements

speak only as of the date of this quarterly report.

You should not put undue reliance on any forward-looking statements.

We strongly encourage investors to

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

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

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

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

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

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

Except as otherwise indicated herein or as

the context otherwise requires, references in this quarterly report to “we,” “us,” “our,” “Company,”

and “Agrify” refer to Agrify Corporation, a Nevada corporation.

We are a developer of proprietary precision hardware

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

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

We believe we are the only company with an automated and fully integrated

grow solution in the industry.

Our Agrify “Precision Elevated™” cultivation solution seamlessly combines our integrated

hardware and software offerings with a broad range of associated services including consulting, engineering, and construction and is designed

to deliver the most complete commercial indoor farming solution available from a single provider.

The totality of our product offerings

and service capabilities forms an unrivaled ecosystem in what has historically been a highly fragmented market.

As a result, we believe

we are well situated to create a dominant market position in the indoor agriculture sector.

Agrify Corporation was incorporated in the state

of Nevada on June 6, 2016, originally incorporated as Agrinamics, Inc.

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

Except as otherwise indicated

herein or as the context otherwise requires, references in this quarterly report to “we,” “us,” “our,”

“Company,” and “Agrify” refer to Agrify Corporation, a Nevada corporation.

We are a developer of proprietary

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

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

We believe we are the only company with an

automated and fully integrated grow solution in the industry.

Our Agrify “Precision Elevated™” cultivation solution

seamlessly combines our integrated hardware and software offerings with a broad range of associated services including consulting, engineering,

and construction and is designed to deliver the most complete commercial indoor farming solution available from a single provider.

totality of our product offerings and service capabilities forms an unrivaled ecosystem in what has historically been a highly fragmented

As a result, we believe we are well situated to create a dominant market position in the indoor agriculture sector.

Agrify Corporation was incorporated

in the state of Nevada on June 6, 2016, originally incorporated as Agrinamics, Inc.

(or “Agrinamics”).

On September 16, 2019, Agrinamics

amended its articles of incorporation to reflect a name change to Agrify Corporation.

Our corporate headquarters are located in Troy, Michigan.

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

Massachusetts, Michigan, and Oregon.

On September 16, 2019,

Agrinamics amended its articles of incorporation to reflect a name change to Agrify Corporation.

Our corporate headquarters

are located in Billerica, Massachusetts.

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

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

Reverse Stock Split

On January 12, 2021, we effected a 1-for-1.581804

reverse stock split on our Common Stock.

All share and per share information has been retroactively adjusted to give effect to the reverse

stock split for all periods presented, unless otherwise indicated.

On October 18, 2022, the Company effected a 1-for-10

reverse stock split of its Common Stock.

All share and per share information has been retroactively adjusted to give effect to the reverse

stock split for all periods presented unless otherwise indicated.

On July 5, 2023, the Company effected a 1-for-20

reverse stock split of its Common Stock.

All share and per share information has been retroactively adjusted to give effect to the reverse

stock split for all periods presented unless otherwise indicated.

No fractional shares of Common Stock were issued

as a result of these reverse stock splits.

Any fractional shares in connection with these reverse stock splits were rounded up to the

nearest whole share and no stockholders received cash in lieu of fractional shares.

The reverse stock splits had no impact on the number

of shares of Common Stock that the Company is authorized to issue pursuant to its articles of incorporation or on the par value per share

of the Common Stock.

Proportional adjustments were made to the number of shares of Common Stock

issuable upon exercise or conversion of the Company’s outstanding stock options and

warrants, the exercise price or conversion price (as applicable) of the Company’s outstanding stock options and warrants, and the

number of shares reserved for issuance under the Company’s equity incentive plan.

All share and per share information included

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

On July 5, 2023, the Company

effected a 1-for-20 reverse stock split of its Common Stock, All share and per share information has been retroactively adjusted to give

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

Recent Business Developments

Private Placement

On January 25, 2022,

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

investors for the sale by us of (i) 12,252 shares (the “SA Shares”) of the our 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 is exercisable into one share of Common Stock at a price

per share of $0.20 (as adjusted from time to time in accordance with the terms thereof).

Each Common Warrant is exercisable into one share

of Common Stock at a price per share of $1,496.00 (as adjusted from time to time in accordance with the terms thereof) and will expire

on the fifth anniversary of the initial exercise date.

The institutional investor that received the Pre-Funded Warrants fully exercised

such warrants in March 2022.

Raymond Chang, our Chairman and Chief Executive

Officer, and Stuart Wilcox, a member of our Board of Directors, participated in the private placement on essentially the same terms as

other investors, except for having a combined purchase price of $1,380.00 per share.

The gross proceeds to us from the private placement were

approximately $27.3 million, before deducting the placement agent’s fees and other offering expenses, and excluding the proceeds,

if any, from the exercise of the SA Warrants.

Acquisition of Lab Society

On February 1, 2022,

we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with LS Holdings Corp.

(“Lab Society”),

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

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

we agreed to acquire Lab Society.

Concurrently with the execution of the Merger Agreement, we consummated the merger of Lab Society with

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

The aggregate consideration

for the Lab Society Acquisition consisted of:

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

of Lab Society at closing;

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

and (c) the Earn-out Consideration (as defined

below), to the extent earned.

We withheld 638 of the

Buyer Shares issuable to the Owners (the “Holdback Lab Buyer Shares”) for the purpose of securing any post-closing adjustment

owed to us and any claim for indemnification or payment of damages to which we may be entitled under the Merger Agreement.

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

of the Merger Agreement.

The Merger Agreement

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

The Owners may become entitled

to additional consideration with a value of up to $3.5 million based on the eligible net revenues achieved by the Lab Society business

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

be payable by issuing shares of Common Stock.

The purchase price allocation for the business

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

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

The estimated fair value at acquisition is $7.9 million

and may be adjusted upon further review of the values assigned to identifiable intangible assets and goodwill.

Our initial fair value estimates related to the

various identified intangible assets were determined under various valuation approaches including the Income Approach, Relief-from-Royalty

Method, and Discounted Cash Flow Method.

These valuation methods require management to project revenues, operating expenses, working capital

investment, capital spending and cash flows for the reporting unit over a multiyear period, as well as determine the weighted-average

cost of capital to be used as a discount rate.

We amortize our intangible assets assuming no

residual value over periods in which the economic benefit of these assets is consumed.

Securities Purchase Agreement

14, 2022, we entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with an accredited investor

(the “Investor”), pursuant to which, among other things, we agreed to issue and sell to the Investor, in a private placement

transaction (the “Private Placement”), in exchange for the payment by the Investor of $65 million, less applicable expenses

as set forth in the Securities Purchase Agreement, (i) a senior secured promissory note in an aggregate principal amount of $65 million

(the “SPA Note”), and (ii) a warrant (the “SPA Warrant”) to purchase up to an aggregate of 34,406 shares

of Common Stock.

Note will be a senior secured obligation of us and ranks senior to all indebtedness of us.

We 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 we will be required to

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

the one-year anniversary of the SPA Note’s issuance, we 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

following the one-year anniversary of the SPA Note’s issuance, we 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 us to redeem the SPA Note if we undergo a fundamental change at a price equal to 107% of the

then-outstanding principal amount under the SPA Note plus any accrued interest thereon.

The Securities

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

and on substantially the same terms as the initial closing.

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

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

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

Note will impose certain customary affirmative and negative covenants upon us, as well as covenants that (i) restrict us and

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

the ability of us 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 us to maintain specified earnings and adjusted

EBITDA targets, and (v) require us 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.

date the SPA Note is fully repaid, the Investor will, subject to certain exceptions, have the right to participate for up to 30%

of any debt, Preferred Stock or equity-linked financing of us or its subsidiaries.

Warrant to be issued in the initial closing will have an exercise price of $1,350.00 per share, subject to adjustment for stock splits,

reverse stock splits, stock dividends and similar transactions, will be immediately exercisable, has a term of five and one-half years

from the date of issuance and will be exercisable on a cash basis, unless there is not an effective registration statement covering the

resale of the shares issuable upon exercise of the Warrant (the “SPA Warrant Shares”), in which case the SPA Warrant shall

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

The Securities Purchase Agreement requires us 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.

Warrant will provide 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 our 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

The Securities

Purchase Agreement also contains customary representations and warranties of us and the Investor.

There is no material relationship between

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

Impact of coronavirus pandemic (“COVID-19”)

The extensive impact of the pandemic caused by

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

markets around the world.

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

have imposed, and may impose in the future, various measures, including but not limited to, voluntary and mandatory quarantines, stay-at-home

orders, travel restrictions, limitations on gatherings of people, reduced operations, and extended closures of businesses.

To date, although all of our operations are functioning,

COVID-19 has continued to cause some disruptions to our business, such as some temporary delays in the delivery of our inventory.

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

our suppliers have not yet materially impacted our ability to deliver products to our customers.

However, if this continues, it may negatively

affect any inventory we may have and more significantly delay the delivery of merchandise to our customers, which in turn will adversely

affect our revenues and results of operations.

The extent to which COVID-19 and the related global

economic crisis, affect our business, results of operations and financial condition, will depend on future developments that are highly

uncertain and cannot be predicted, including the scope and duration of the pandemic and any recovery period, future actions taken by governmental

authorities, central banks and other third parties (including new financial regulation and other regulatory reform) in response to the

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

We continue to service our customers amid uncertainty and disruption

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

At the beginning of 2023,

we announced a strategic plan to foster sustainable long-term growth through cost efficiencies and enhanced sales and growth initiatives.

We have been focused on growing our cultivation business by helping our existing Agrify Total Turn-Key customers to bring their facilities

online and driving additional sales through our RDP.

As a result, we have successfully installed and commenced our Las Vegas customer,

Nevada Holistic Medicine, our Denver Colorado customer, Denver Greens, and signed several new customers such as Golden Lake Business

Park in California, and Harvest Works in New Jersey.

As a testimony to the Vertical Farming Unit’s (“VFU”) ability

to produce high quality flower, Nevada Holistic Medicine is already consistently harvesting 9 pounds of A-grade flower per VFU, or roughly

64 grams per canopy square foot, and seeing 90%+ A-grade flower produced with exceptional color, trichome, and terpene levels.

Similarly, since we have

streamlined our expansive extraction portfolio of technologies, we have successfully supported the deployment of several turnkey solvent-based

and solventless extraction packages to customers in California, Michigan, and the East Coast.

In addition, we have released several new

technologies and products into the market based on customer feedback, including our first peer-reviewed Cannabeast 13 Distillation Unit,

a Diamond Miner, Stitch-less Double Filtration Rosin Bags, and the revamped PX30 Hydrocarbon Extractor.

We have also made significant

strides to receive UL Compliance for Precision Extractions’ EXP Explosion Proof Rooms in an effort to continue our commitment to

safety and quality within cannabis extraction facilities.

These industry developments

illustrate the continuous innovation, and commitment to safety within the cannabis sector as our company adapts to evolving market demands.

More importantly, our growing partnership across the Country is a strong testimony to operators’ continued trust in Agrify’s

team and technologies in the most competitive markets.

Recent Developments

Note Amendment, Consolidation and Conversion

On January 25, 2024, following

stockholder approval at an annual meeting of stockholders on January 8, 2024, we and the New Lender consolidated the outstanding principal

and interest due under the Junior Secured Note and the Exchange Note into the Convertible Note and amended and restated the Convertible

Note (as amended and restated, the “Restated Note”), with an outstanding principal amount of approximately $18.9 million

at the time of issuance of the Restated Note.

The Restated Note amended the terms of the Convertible Note by, among other things, (i)

reducing the conversion price to $1.46 per share of common stock, (ii) increasing the beneficial ownership limitation to 49.99% with

respect to any individual or group, provided that the New Lender may assign its right to receive shares upon conversion to Mr.

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

(iii) extending the maturity date to December 31, 2025, (iv) increasing the interest rate from 9% to 10% per annum, (v) increasing the

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

payments, we may issue shares as payments-in-kind at a conversion price equal to the higher of (i) $1.46 or (ii) a 20% discount to our

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

Immediately following the execution of the Restated

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

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

Chang and Ms.

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

Nasdaq Notices and Hearing

On October 17, 2023, we

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

notifying us that we were not in compliance with Nasdaq’s continued listing requirements under the Listing Rule as a result of

our failure to file the First Quarter Form 10-Q, the Second Quarter Form 10-Q and the Form 10-K (collectively, the “Delinquent

Reports”) in a timely manner.

We filed each of the Delinquent Reports between November 28, 2023 and January 3, 2024.

On December 1, 2023, we

received a notice Nasdaq stating that because we reported stockholders’ equity of $(17.17) million in our Quarterly Report on Form

10-Q for the quarter ended March 31, 2023, we were no longer in compliance with Nasdaq Listing Rule 5550(b)(1), which requires that listed

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

We timely requested a hearing

before the Nasdaq Hearings Panel (the “Panel”), which hearing was held on January 11, 2024.

At the hearing, we presented

a plan to regain compliance with Nasdaq Listing Rule 5550(b)(1).

On January 30, 2024, we received formal notice that the Panel had granted

our request for an exception through April 15, 2024 to evidence compliance with Rule 5550(b)(1), which was subsequently extended to May

As a result, there can be no assurance that we can regain compliance by the end of the extension period.

Additionally, on March 5,

2024, we received a deficiency letter from the Listing Qualifications Department of Nasdaq notifying us that, for the last 30 consecutive

business days, the bid price for our common stock had closed below $1.00 per share, which is the minimum closing price required to maintain

continued listing on the Nasdaq Stock Market under Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Requirement”).

had no immediate effect on the listing of our common stock on Nasdaq.

In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we have 180

calendar days to regain compliance with the Minimum Bid Requirement.

To regain compliance with the Minimum Bid Requirement, the closing

bid price of our common stock must be at least $1.00 per share for a minimum of 10 consecutive trading days during this 180-day compliance

period, unless the Staff exercises its discretion to extend this period pursuant to Nasdaq Listing Rule 5810(c)(3)(H).

The compliance

period for us will expire on September 3, 2024.

We can provide no assurances

that the listing of our common stock will be restored or that we otherwise will remain listed on Nasdaq.

If we fail to continue to satisfy

the continued listing requirements of Nasdaq, such as the corporate governance requirements or the minimum closing bid price requirement,

Nasdaq will take steps to delist our common stock.

Such a de-listing would likely have a negative effect on the price of our common stock

and would impair stockholders’ ability to sell or purchase our common stock when they wish to do so, as well as adversely affect

our ability to issue additional securities and obtain additional financing in the future.

Public Offering

On February 27, 2024, we

entered into a placement agency agreement with Alexander Capital, LP as placement agent, pursuant to which we agreed to issue and sell

an aggregate of 2,760,000 shares of common stock, and, in lieu of common stock to certain investors that so chose, pre-funded warrants

to purchase 3,963,684 shares of common stock.

The public offering price for each share of common stock was $0.38, and the offering price

for each pre-funded warrant was $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 Offering was made pursuant to a registration statement on Form S-1 that we filed with

the Securities and Exchange Commission on January 26, 2024 and was declared effective on February 14, 2024.

Raymond Chang, our Chairman

and Chief Executive Officer, participated in the offering on the same terms as other investors.

The net proceeds from the public offering

were approximately $2.2 million, after deducting placement agent fees and commissions and expenses.

The public offering closed on February

Use of Estimates

The preparation of financial statements in accordance

with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the

reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements,

and the reported amounts of revenues and expenses during the reporting period.

Actual results could differ from those estimates.

estimates include assumptions about collection of accounts and notes receivable, the valuation and recognition of stock-based compensation

expense, valuation allowance for deferred tax assets and useful life of fixed assets and intangible assets.

The preparation of financial

statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and

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

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

Actual results could differ

from those estimates.

Significant estimates include assumptions about collection of accounts and notes receivable, the valuation and

recognition of stock-based compensation expense, valuation allowance for deferred tax assets and useful life of fixed assets and intangible

Financial Overview

Critical Accounting Policies and Significant Judgments and Estimates

Our management’s discussion and analysis

of our financial position and results of operations is based on our financial statements, which have been prepared in accordance with

accounting principles generally accepted in the United States of America, or GAAP.

The preparation of financial statements in conformity

with GAAP requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying

On an ongoing basis, we evaluate estimates, which include estimates related to accruals, stock-based compensation expense, and

reported amounts of revenues and expenses during the reported period.

We base our estimates on historical experience and other market-specific

or other relevant assumptions that we believe to be reasonable under the circumstances.

Actual results may differ materially from those

estimates or assumptions.

We have a history of losses, expect to continue to incur losses in

the near term and may not achieve or sustain profitability in the future, and as a result, our management has identified, and our auditors

agreed that there is a substantial doubt about our ability to continue as a going concern.

Our financial statements have been prepared assuming we will continue

as a going concern.

Since inception, we have experienced recurring net losses.

These factors, among others, raise substantial doubt about

our ability to continue as a going concern.

Our financial statements do not include any adjustments that might result from the outcome

of this uncertainty.

Critical Accounting Policies and Significant

Judgments and Estimates

Our management’s

discussion and analysis of our financial position and results of operations is based on our financial statements, which have been prepared

in accordance with accounting principles generally accepted in the United States of America, or U.S.

The preparation of financial

statements in conformity with U.S.

GAAP requires us to make estimates and assumptions that affect the amounts reported in the financial

statements and accompanying notes.

On an ongoing basis, we evaluate estimates, which include estimates related to accruals, stock-based

compensation expense, and reported amounts of revenues and expenses during the reported period.

We base our estimates on historical experience

and other market-specific or other relevant assumptions that we believe to be reasonable under the circumstances.

Actual results may

differ materially from those estimates or assumptions.

Revenue Recognition

We generate revenue from the following sources:

We generate revenue from

the following sources:

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

In accordance with ASC 606 “Revenue Recognition”,

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

identify the customer contract;

identify performance obligations that are distinct;

determine the transaction price;

allocate the transaction price to the distinct performance obligations;

recognize revenue as the performance obligations are satisfied.

Identify the customer contract

A customer contract is generally identified when

there is approval and commitment from both use and its customer, the rights have been identified, payment terms are identified, the contract

has commercial substance and collectability, and consideration is probable.

Specifically, we obtain written/electronic signatures on contracts

and a purchase order, if said purchase orders are issued in the normal course of business by the customer.

Identify performance obligations that are

A performance obligation is a promise by us to

provide a distinct good or service or a series of distinct goods or services.

A good or service that is promised to a customer is distinct

if the customer can benefit from the good or service either on its own or together with other resources that are readily available to

the customer, and our promise to transfer the good or service to the customer is separately identifiable from other promises in the contract.

Determine the transaction price

The transaction price is the amount of consideration

to which we expect to be entitled in exchange for transferring goods or services to a customer, excluding sales taxes that are collected

on behalf of government agencies.

Allocate the transaction price to distinct

performance obligations

The transaction price is allocated to each performance

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

Our contracts typically contain multiple performance obligations, for which we account for individual performance obligations separately,

if they are distinct.

The standalone selling price reflects the price we would charge for a specific piece of equipment or service if

it was sold separately in similar circumstances and to similar customers.

Recognize revenue as the performance obligations

are satisfied

Revenue is recognized when, or as, performance

obligations are satisfied by transferring control of a promised product or service to a customer.

In accordance with ASC 606

“Revenue Recognition”, we recognize revenue from contracts with customers using a five-step model, which is described below:

customer contract;

identify performance obligations

that are distinct;

determine the

transaction price;

allocate the transaction

price to the distinct performance obligations;

recognize revenue as the

performance obligations are satisfied.

Identify the customer

A customer contract is generally

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

the contract has commercial substance and collectability, and consideration is probable.

Specifically, we obtain written/electronic signatures

on contracts and a purchase order, if said purchase orders are issued in the normal course of business by the customer.

Identify performance

obligations that are distinct

A performance obligation

is a promise by us to provide a distinct good or service or a series of distinct goods or services.

A good or service that is promised

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

are readily available to the customer, and our promise to transfer the good or service to the customer is separately identifiable from

other promises in the contract.

Determine the transaction

The transaction price is

the amount of consideration to which we expect to be entitled in exchange for transferring goods or services to a customer, excluding

sales taxes that are collected on behalf of government agencies.

Allocate the transaction

price to distinct performance obligations

The transaction price is

allocated to each performance obligation based on the relative standalone selling prices (“SSP”) of the goods or services

being provided to the customer.

Our contracts typically contain multiple performance obligations, for which we account for individual

performance obligations separately, if they are distinct.

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

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

Recognize revenue

as the performance obligations are satisfied

Revenue is recognized when,

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

Significant Judgments

We enter into contracts that may include various

combinations of equipment, services and construction, which are generally capable of being distinct and accounted for as separate performance

Contracts with customers often include promises to transfer multiple products and services to a customer.

Determining whether

products and services are considered distinct performance obligations that should be accounted for separately versus together may require

significant judgment.

Once we determine the performance obligations, it determines the transaction price, which includes estimating the

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

We then allocate the transaction price to each performance

obligation in the contract based on the SSP.

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

Judgment is required to determine the SSP for

each distinct performance obligation.

We determine SSP based on the price at which the performance obligation is sold separately and the

methods of estimating SSP under the guidance of Accounting Standards Codification (“ASC”) 606-10-32-33.

If the SSP is not

observable through past transactions, we estimate the SSP, taking into account available information such as market conditions, expected

margins, and internally approved pricing guidelines related to the performance obligations.

We license our software as a SaaS type subscription

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

The full value of the contract is

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

We typically satisfy

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

for services sales as services

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

We utilize the cost-plus margin method to determine

the SSP for equipment and build-out services.

This method is based on the cost of the services from third parties, plus a reasonable markup

that we believe is reflective of a market-based reseller margin.

We determine the SSP for services in time and

materials contracts by observable prices in standalone services arrangements.

We estimate variable consideration in the form

of royalties, revenue share, monthly fees, and service credits are estimated at contract inception and updated at the end of each reporting

period if additional information becomes available.

We enter into contracts

that may include various combinations of equipment, services and construction, which are generally capable of being distinct and accounted

for as separate performance obligations.

Contracts with customers often include promises to transfer multiple products and services to

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

versus together may require significant judgment.

Once we determine the performance obligations, it determines the transaction price,

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

We then allocate the

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

The corresponding revenue is recognized as the related

performance obligations are satisfied.

Judgment is required to

determine the SSP for each distinct performance obligation.

We determine SSP based on the price at which the performance obligation is

sold separately and the methods of estimating SSP under the guidance of Accounting Standards Codification (“ASC”) 606-10-32-33.

If the SSP is not observable through past transactions, we estimate the SSP, taking into account available information such as market

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

We license our 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

We typically satisfy our performance obligations for equipment sales when equipment is made available for shipment to the customer;

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

is completed.

We utilize the cost-plus

margin method to determine the SSP for equipment and build-out services.

This method is based on the cost of the services from third

parties, plus a reasonable markup that we believe is reflective of a market-based reseller margin.

We determine the SSP for

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

We estimate variable consideration

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

of each reporting period if additional information becomes available.

Variable consideration is typically not subject to constraint.

Changes to variable

consideration were not material for the periods presented.

If a contract has payment terms that differ from

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

We have elected the practical expedient that permits an entity to not adjust for the effects of a significant financing component if we

expect that at the contract inception, the period between when the entity transfers a promised good or service to a customer and when

the customer pays for that good or service, will be one year or less.

For those contracts in which the period exceeds the one-year threshold,

this assessment, as well as the quantitative estimate of the financing component and its relative significance, requires judgment.

we impute interest on such contracts at an agreed upon interest rate and will present the financing components separately as financial

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

If a contract has payment

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

significant financing component.

We have elected the practical expedient that permits an entity to not adjust for the effects of a significant

financing component if we expect that at the contract inception, the period between when the entity transfers a promised good or service

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

For those contracts in which the period

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

requires judgment.

Accordingly, we impute interest on such contracts at an agreed upon interest rate and will present the financing components

separately as financial income.

For the three months ended March 31, 2024 and 2023, we did not have any such financial income.

Payment terms with customers typically require

payment 30 days from invoice date.

Our agreements with customers do not provide for any refunds for services or products and therefore

no specific reserve for such is maintained.

In the infrequent instances where customers raise a concern over delivered products or

services, we have endeavored to remedy the concern and all costs related to such matters have been insignificant in all periods presented.

We have elected to treat shipping and handling

activities after the customer obtains control of the goods as a fulfillment cost and not as a promised good or service.

Accordingly, we

will accrue all fulfillment costs related to the shipping and handling of consumer goods at the time of shipment.

We have payment terms

with its customers of one year or less and has elected the practical expedient applicable to such contracts not to consider the time value

Sales, value add, and other taxes we collect concurrent with revenue-producing activities are excluded from revenue.

We receive payment from customers based on specified

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

There are no contract assets related

to performance under the contract.

The difference in the opening and closing balances of our deferred revenue primarily results from the

timing difference between our performance and the customer’s payment.

We fulfill obligations under a contract with a customer by

transferring products and services in exchange for consideration from the customer.

Accounts receivables are recorded when the customer

has been billed or the right to consideration is unconditional.

We recognize deferred revenue when consideration has been received or

an amount of consideration is due from the customer, and we have a future obligation to transfer certain proprietary products.

In accordance with ASC 606-10-50-13, we are required

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

Due to the nature of our

contracts, these reporting requirements are not applicable.

The majority of our remaining contracts meet certain exemptions as defined

in ASC 606-10-50-14 through 606-10-50-14A, including (i) performance obligation is part of a contract that has an original expected

duration of one year or less and (ii) the right to invoice practical expedient.

We generally provide a one-year warranty on our

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

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

In accordance with ASC 450-20-25, we accrue for product warranties when

the loss is probable and can be reasonably estimated.

Payment terms with customers

typically require payment 30 days from invoice date.

Our agreements with customers do not provide for any refunds for services or products

and therefore no specific reserve for such is maintained.

In the infrequent instances where customers raise a concern over delivered

products or services, we have endeavored to remedy the concern and all costs related to such matters have been insignificant in all periods

We have elected to treat

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

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

We have payment terms with its customers of one year or less and has elected the practical expedient applicable to such contracts not

to consider the time value of money.

Sales, value add, and other taxes we collect concurrent with revenue-producing activities are excluded

from revenue.

We receive payment from

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

contract assets related to performance under the contract.

The difference in the opening and closing balances of our contract liabilities

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

We fulfill obligations under a

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

Accounts receivables

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

We recognize contract liabilities when

consideration has been received or an amount of consideration is due from the customer, and we have a future obligation to transfer certain

proprietary products.

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

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

the nature of our contracts, these reporting requirements are not applicable.

The majority of our remaining contracts meet certain exemptions

as defined in ASC 606-10-50-14 through 606-10-50-14A, including (i) performance obligation is part of a contract that has an original

expected duration of one year or less and (ii) the right to invoice practical expedient.

We generally provide a one-year

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

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

In accordance with ASC 450-20-25, we accrue for product warranties

when the loss is probable and can be reasonably estimated.

The reserve for warranty returns is included in accrued expenses and other

current liabilities in our condensed consolidated balance sheets.

current liabilities in our consolidated balance sheets.

Accounting for Business Combinations

We allocated the purchase price of acquired companies

to the tangible and intangible assets acquired, including in-process research and development assets, and liabilities assumed, based upon

their estimated fair values at the acquisition date.

These fair values are typically estimated with assistance from independent valuation

The purchase price allocation process requires us to make significant estimates and assumptions, especially at the acquisition

date with respect to intangible assets, contractual support obligations assumed, contingent consideration arrangements, and pre-acquisition

contingencies.

Although we believe the assumptions and estimates

we have made in the past have been reasonable and appropriate, they are based in part on historical experience and information obtained

from the management of the acquired companies and are inherently uncertain.

Examples of critical estimates in valuing certain

of the intangible assets we have acquired or may acquire in the future include but are not limited to:

future expected cash flows from software license sales, support agreements, consulting contracts, other customer contracts, and acquired developed technologies;

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

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

cost of capital and discount rates;

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

The fair value estimates related to the various

identified intangible assets were determined under various valuation approaches including the Income Approach, Relief-from-Royalty Method,

and Discounted Cash Flow Method.

These valuation methods require management to project revenues, operating expenses, working capital investment,

capital spending and cash flows for the reporting unit over a multiyear period, as well as determine the weighted-average cost of capital

to be used as a discount rate.

Goodwill and Intangible Assets

Amortization of acquired intangible assets is

the result of the acquisition of TriGrow, which occurred in 2020, the acquisition of Sinclair which occurred in 2021, the acquisition

of PurePressure, which also occurred in 2021, and the acquisition of Lab Society, which occurred in 2022.

As a result of these transactions,

customer relationships, acquired developed technology, non-compete agreements and trade names were identified as intangible assets, and

are amortized over their estimated useful lives.

We recognize the excess of the purchase price

over the fair value of identifiable net assets acquired as goodwill.

Goodwill is not amortized but is tested for impairment annually on

December 2 or more frequently if events or changes in circumstances indicate that the carrying amount of the goodwill may not be recoverable.

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

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

amount of goodwill.

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

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

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

There have been no impairment charges recorded for

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

Capitalization of Internal Software Development Costs

We capitalize certain software engineering efforts

related to the continued development of Agrify Insights software under ASC 985-20.

Costs incurred during the application development

phase are only capitalized once technical feasibility has been established and the work performed will result in new or

additional functionality.

The types of costs capitalized during the application development phase include employee compensation, as well

as consulting fees for third-party software developers working on these projects.

Costs related to the research and development are

expensed as incurred until technical feasibility is established as well as post-implementation activities.

Internal-use software is amortized

on a straight-line basis over the estimated useful life of the asset, which ranges from two to five years.

We account for income taxes pursuant to the provisions

of ASC Topic 740, “Income Taxes,” which requires, among other things, an asset and liability approach to calculating deferred

income taxes.

The asset and liability approach requires the recognition of deferred tax assets and liabilities for the expected future

tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities.

A valuation allowance

is provided to offset any net deferred tax assets for which management believes it is more likely than not that the net deferred asset

will not be realized.

We follow the provisions of ASC 740-10-25-5, “Basic

Recognition Threshold.” When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination

by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position

that would be ultimately sustained.

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

the 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,

We allocated the purchase

price of acquired companies to the tangible and intangible assets acquired, including in-process research and development assets, and

liabilities assumed, based upon their estimated fair values at the acquisition date.

These fair values are typically estimated with assistance

from independent valuation specialists.

The purchase price allocation process requires us to make significant estimates and assumptions,

especially at the acquisition date with respect to intangible assets, contractual support obligations assumed, contingent consideration

arrangements, and pre-acquisition contingencies.

Although we believe the

assumptions and estimates we have made in the past have been reasonable and appropriate, they are based in part on historical experience

and information obtained from the management of the acquired companies and are inherently uncertain.

Examples of critical estimates

in valuing certain of the intangible assets we have acquired or may acquire in the future include but are not limited to:

future expected

cash flows from software license sales, support agreements, consulting contracts, other customer contracts, and acquired developed

technologies;

expected costs to develop

in-process research and development into commercially viable products and estimated cash flows from the projects when completed;

the acquired company’s

brand and competitive position, as well as assumptions about the period of time the acquired brand will continue to be used in the

combined company’s product portfolio;

cost of capital and discount

estimating the useful lives

of acquired assets as well as the pattern or manner in which the assets will amortize.

The fair value estimates

related to the various identified intangible assets were determined under various valuation approaches including the Income Approach,

Relief-from-Royalty Method, and Discounted Cash Flow Method.

These valuation methods require management to project revenues, operating

expenses, working capital investment, capital spending and cash flows for the reporting unit over a multiyear period, as well as determine

the weighted-average cost of capital to be used as a discount rate.

Capitalization of Internal Software Development

We capitalize certain software

engineering efforts related to the continued development of Agrify Insights software under ASC 985-20.

Costs incurred during the application

development phase are only capitalized once technical feasibility has been established and the work performed will result in new or additional

functionality.

The types of costs capitalized during the application development phase include employee compensation, as well as consulting

fees for third-party software developers working on these projects.

Costs related to the research and development are expensed as incurred

until technical feasibility is established as well as post-implementation activities.

Internal-use software is amortized on a straight-line

basis over the estimated useful life of the asset, which ranges from two to five years.

We account for income taxes

pursuant to the provisions of ASC Topic 740, “Income Taxes,” which requires, among other things, an asset and liability approach

to calculating deferred income taxes.

The asset and liability approach requires the recognition of deferred tax assets and liabilities

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

A valuation allowance is provided to offset any net deferred tax assets for which management believes it is more likely than not that

the net deferred asset will not be realized.

We follow the provisions

of ASC 740-10-25-5, “Basic Recognition Threshold.” When tax returns are filed, it is highly certain that some positions taken

would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position

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

In accordance with the guidance of ASC 740-10-25-6, the benefit

of a tax position is recognized in the consolidated financial statements in the period during which, based on all available evidence,

management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals

or litigation processes, if any.

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

Tax positions that meet the more-likely-than-not recognition

threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with

the applicable taxing authority.

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

above should be reflected as a liability for unrecognized tax benefits in the accompanying balance sheets along with any associated interest

and penalties that would be payable to the taxing authorities upon examination.

We believe our tax positions are all highly certain of

being upheld upon examination.

Tax positions that meet the more-likely-than-not

recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement

with the applicable taxing authority.

The portion of the benefits associated with tax positions taken that exceeds the amount measured

as described above should be reflected as a liability for unrecognized tax benefits in the accompanying balance sheets along with any

associated interest and penalties that would be payable to the taxing authorities upon examination.

We believe our tax positions are

all highly certain of being upheld upon examination.

As such, we have not recorded a liability for unrecognized tax benefits.

We recognize the benefit of a tax position when

it is effectively settled.

ASC 740-10-25-10, “Basic Recognition Threshold” provides guidance on how an entity should determine

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

ASC 740-10-25-10 clarifies

that a tax position can be effectively settled upon the completion of an examination by a taxing authority.

For tax positions considered

effectively settled, we recognize the full amount of the tax benefit.

We recognize the benefit

of a tax position when it is effectively settled.

ASC 740-10-25-10, “Basic Recognition Threshold” provides guidance on how

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

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

For tax positions considered effectively settled, we recognize the full amount of the tax benefit.

Accounting for Stock-Based Compensation

We follow the provisions of ASC Topic 718, “Compensation

— Stock Compensation.” ASC Topic 718 establishes standards surrounding the accounting for transactions in which an entity

exchanges its equity instruments for goods or services.

ASC Topic 718 focuses primarily on accounting for transactions in which an entity

obtains employee services in share-based payment transactions, such as options issued under our Stock Option Plans.

The fair value of each option is estimated on

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

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

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

value of the underlying Common Stock.

The Black-Scholes option-pricing model was developed

for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable.

In addition, option

valuation models require the input of highly subjective assumptions including the expected stock price volatility.

Because our stock options

and warrants have characteristics different from those of our traded stock, and because changes in the subjective input assumptions can

materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single

measure of the fair value of such stock options.

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

debt securities with a term similar to the expected term.

The expected dividend yield is based upon our history of having never issued

a dividend and management’s current expectation of future action surrounding dividends.

We calculate the expected volatility of

the stock price based on the corresponding volatility of our peer group stock price for a period consistent with the underlying instrument’s

expected term.

The expected lives for such grants were based on the simplified method for employees and directors.

In arriving at stock-based compensation expense,

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

Our forfeiture assumption is based primarily

on its turn-over historical experience.

If the actual forfeiture rate is higher than the estimated forfeiture rate, then an adjustment

will be made to increase the estimated forfeiture rate, which will result in a decrease to the expense recognized in our financial statements.

If the actual forfeiture rate is lower than the estimated forfeiture rate, then an adjustment will be made to lower the estimated forfeiture

rate, which will result in an increase to expense recognized in our financial statements.

The expense we recognize in future periods will

be affected by changes in the estimated forfeiture rate and may differ significantly from amounts recognized in the current period.

It is important that the discussion of our operating

results that follows be read in conjunction with the critical accounting policies disclosed above.

We follow the provisions

of ASC Topic 718, “Compensation — Stock Compensation.” ASC Topic 718 establishes standards surrounding the accounting

for transactions in which an entity exchanges its equity instruments for goods or services.

ASC Topic 718 focuses primarily on accounting

for transactions in which an entity obtains employee services in share-based payment transactions, such as options issued under our Stock

Option Plans.

The fair value of each option

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

This model incorporates certain assumptions for inputs

including a risk-free market interest rate, expected dividend yield of the underlying Common Stock, expected option life, and expected

volatility in the market value of the underlying Common Stock.

The Black-Scholes option-pricing

model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable.

In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility.

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

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

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

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

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

The expected dividend yield is based upon our history

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

We calculate the

expected volatility of the stock price based on the corresponding volatility of our peer group stock price for a period consistent with

the underlying instrument’s expected term.

The expected lives for such grants were based on the simplified method for employees

and directors.

In arriving at stock-based

compensation expense, we estimate the number of stock-based awards that will be forfeited due to employee turnover.

Our forfeiture assumption

is based primarily on its turn-over historical experience.

If the actual forfeiture rate is higher than the estimated forfeiture rate,

then an adjustment will be made to increase the estimated forfeiture rate, which will result in a decrease to the expense recognized

in our financial statements.

If the actual forfeiture rate is lower than the estimated forfeiture rate, then an adjustment will be made

to lower the estimated forfeiture rate, which will result in an increase to expense recognized in our financial statements.

we recognize in future periods will be affected by changes in the estimated forfeiture rate and may differ significantly from amounts

recognized in the current period.

It is important that the

discussion of our operating results that follows be read in conjunction with the critical accounting policies disclosed above.

Results of Operations

Comparison of the Three Months Ended March 31, 2022 and 2021

The following table summarizes our results of

operations for the three months ended March 31, 2022 and March 31, 2021:

Comparison of the Three Months Ended March

31, 2024 and 2023

The following table summarizes

our results of operations for the three months ended March 31, 2024 and 2023:

Three months ended

(In thousands, except share and per share data)

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

Cost of goods sold

Gross profit (loss)

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 (expense), 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

Total other income (expense), net

Net income (loss) before income taxes

Income tax benefit

Income tax benefit (expense)

Net income (loss)

Income (loss) attributable to non-controlling interest

Net income (loss) attributable to Agrify Corporation

3 unchanged sentences

Weighted average common shares outstanding - diluted

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.

Our goal is to provide our customers with a variety

of products to address their entire indoor agriculture needs.

Our core product offering includes our Agrify Vertical Farming Units (or

“VFUs”) and Agrify Integrated Grow Racks with our Agrify Insights software, which are supplemented with environmental control

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

We continue to monitor and address COVID-19 pandemic

impacts on our supply chain.

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

to which they are impacted by the COVID-19 pandemic, we are proactively working with manufacturers to meet the needs of our customers

during the pandemic.

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

interim profits.

We generate revenue from sales of cultivation

solutions, including ancillary products and services, Agrify Insights software, facility build-outs and extraction equipment and solutions.

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

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

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

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

The following table provides a breakdown of our

revenue for the three months ended March 31, 2022 and 2021:

Our goal is to provide our

customers with a variety of products to address their entire indoor agriculture needs.

Our core product offering includes our Agrify

Vertical Farming Units (or “VFUs”) and Agrify Integrated Grow Racks with our Agrify Insights software, which are supplemented

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

We generate revenue from

sales of cultivation solutions, including ancillary products and services, Agrify Insights software, facility build-outs and extraction

equipment and solutions.

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

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

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

into a sellable product.

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

solutions and services.

The following table provides

a breakdown of our revenue for the three months ended March 31, 2024 and 2023:

Three months ended

5 unchanged sentences

Total revenue

Revenues increased by $19.0 million, or 271% for

the three months ended March 31, 2022 compared to the same period in 2021.

The comparative increase in revenue was generated primarily

from extraction solutions sales of equipment and services from our acquisition of Lab Society in 2022 and acquisitions of Precision, Cascade

and PurePressure in 2021.

Extraction division revenues totaled $12.4 million in the first quarter of 2022.

Additionally, design and build

revenues increased by $6.4 million due to the continued build-out of facilities under our TTK Solutions.

Revenues decreased by $3.2

million, or 55% for the three months ended March 31, 2024 compared to the same period in 2023.

The comparative decrease in revenue was

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

Extraction division revenues totaled

$2.5 million in the first quarter of 2024.

Additionally, design and build revenues decreased by $0.6 million due to the discontinued

build-out of facilities under our TTK Solutions.

Cost of Goods Sold

Cost of goods sold represents a combination of the following:

construction-related

costs associated with our facility build-outs, internal and outsourced labor and material costs associated with the assembly of both cultivation

equipment (primarily VFUs) and extraction equipment, as well as labor and parts costs associated with the sale or provision of other products

and services.

The following table provides a breakdown of our

cost of goods sold for the three months ended March 31, 2022 and 2021:

Cost of goods sold represents

a combination of the following:

construction-related costs associated with our facility build-outs, internal and outsourced labor and

material costs associated with the assembly of both cultivation equipment (primarily VFUs) and extraction equipment, as well as labor

and parts costs associated with the sale or provision of other products and services.

The following table provides

a breakdown of our cost of goods sold for the three months ended March 31, 2024 and 2023:

Three months ended

1 unchanged sentence

Cultivation solutions, including ancillary products and services

Agrify Insights software

Facility build-outs

1 unchanged sentence

Total cost of goods sold

Cost of goods sold increased by $14.3 million,

or 189%, for the three months ended March 31, 2022 compared to the same period in 2021.

The comparative quarterly increase in cost

of goods sold is associated with the increased amount of internal and outsourced labor and materials

costs for the extraction solutions sales, combined with an increase in subcontractor construction

costs related to our facility build-outs, including construction costs associated with design and build projects under our TTK Solutions.

Gross Profit (Loss)

Cost of goods sold decreased

by $2.4 million, or 49%, for the three months ended March 31, 2024 compared to the same period in 2023.

The comparative quarterly decrease

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

Three months ended

(In thousands)

Gross profit (loss)

Gross profit totaled $4.2 million, or 16 .0%

of total revenue during the three months ended March 31, 2022 compared to a gross loss of $(540) thousand, or (7.7)% of total revenue

during the three months ended March 31, 2021.

The comparative $4.7 million first-quarter year over year improvement in gross profit, as

well as the comparative improvement in gross profit margin, is primarily attributable to the introduction of extraction solutions revenue

in the first quarter of 2022, which contributes higher gross margins than those realized on our cultivation-related revenue, which

includes our TTK Solutions design and build revenue.

During the first quarter of 2022, we realized a gross profit margin of 33% associated

with our extraction solutions revenue, while we realized a gross profit margin of approximately 1% on our cultivation-related revenues.

On a forward-looking basis, with the full year

benefit of anticipated margin contribution associated with the extraction-related revenue contributions, the Company anticipates that

gross margin performance, aided by our extraction-related equipment sales, will be in a mid-teens range.

We anticipate that we will be

able to improve upon that expected gross profit margin performance once we are able to generate meaningful software and production fee

revenues from our TTK Solutions, which we currently expect to begin in the late third or early fourth quarter of 2022.

Gross profit totaled

$0.2 million, or 6.4% of total revenue during the three months ended March 31, 2024 compared to a gross loss of $1.0 million, or 17%

of total revenue during the three months ended March 31, 2023.

The comparative $0.8 million first-quarter year over year decrease in

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

goods sold relative to the decrease in revenue for the period.

During the first quarter of 2024, we realized a gross profit margin of

33% associated with our extraction solutions revenue, while we realized a gross profit margin of approximately (824)% on our cultivation-related

On a forward-looking basis,

with the full year benefit of anticipated margin contribution associated with the extraction-related revenue contributions, the Company

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

We anticipate

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

production fee revenues from our TTK Solutions, which we currently expect to begin in the late third or early fourth quarter of 2024.

General and Administrative

2 unchanged sentences

General and administrative

General and administrative (“G&A”)

expenses consist principally of salaries and related costs for personnel, including stock-based compensation and travel expenses, associated

with executive and other administrative functions.

Other G&A expenses include, but are not limited to, professional fees for legal,

consulting, depreciation and amortization and accounting services, as well as facility-related costs.

G&A expense increased by $5.3 million, or

119%, for the three months ended March 31, 2022, compared to the same period in 2021.

The increase is attributable to payroll and

related expenses increase of $2.5 million, an increase in acquisition-related expenses of $1.3 million, an increase in facility and other

related expenses of $964 thousand, an increase in investor relations and directors’ and officers’ insurance of $592 thousand,

an increase in depreciation and amortization of $865 thousand, which primarily reflects an increase in amortization associated with the

identified intangible assets from our acquisition of Lab Society in 2022 and acquisitions of Precision, Cascade and PurePressure in 2021.

These increases were partially offset by a reduction in stock compensation expense of $906 thousand.

General and administrative

(“G&A”) expenses consist principally of salaries and related costs for personnel, including stock-based compensation

and travel expenses, associated with executive and other administrative functions.

Other G&A expenses include, but are not limited

to, professional fees for legal, consulting, depreciation and amortization and accounting services, as well as facility-related costs.

G&A expense decreased

by $2.8 million, or 41%, for the three months ended March 31, 2024, compared to the same period in 2023.

The decrease is attributable

to payroll, benefits and related expenses decrease of $1.8 million, a decrease in consulting and other related expenses of $0.3 million,

a decrease in insurance expenses of $0.5 million, a decrease in legal expense of $0.2 million.

Research and Development

2 unchanged sentences

Research and development

Research and development (“R&D”)

expenses consisted primarily of costs incurred for the development of our Agrify Insights software and next generation VFUs, which includes:

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

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

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

R&D expense increased by $1.2 million, or

136%, for the three months ended March 31, 2022, compared to the same period in 2021.

The increase is attributable to the personnel

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

and humidity environments.

We expect to continue to invest in future developments

of our VFUs, Agrify Insights software and our extraction products.

As a percentage of net revenue, R&D expenses were 8.0% of total

revenue for the three months ended March 31, 2022, compared to 12.6% for the three months ended March 31, 2021.

Although we continue to

increase our investment in R&D activities, we expect R&D expense to decrease as a percentage of revenue due to our revenue growth.

Research and development

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

VFUs, and new extraction technology and methodology, which includes:

employee-related

expenses, including salaries, benefits, and travel;

expenses incurred by the

subcontractor under agreements to provide engineering work related to the development of our Agrify Insights software and next generation

expenses related to our

facilities, depreciation, and other expenses, which include direct and allocated expenses for rent and maintenance of facilities,

insurance and other supplies.

R&D expense decreased

by $0.5 million, or 63%, for the three months ended March 31, 2024, compared to the same period in 2023.

The decrease is attributable

to the reduction in personnel, outsourced consulting and materials purchased.

We expect to continue to

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

As a percentage of net revenue, R&D

expenses were 10.6% of total revenue for the three months ended March 31, 2024, compared to 12.7% for the three months ended March 31,

Selling and Marketing

2 unchanged sentences

Selling and marketing

Selling and marketing expenses consist primarily

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

Selling and marketing expenses increased by $1.5

million, or 239%, for the three months ended March 31, 2022, compared to the same period in 2021.

The increase is attributable to payroll

and related expenses increase of $1.2 million and an increase in advertising and trade show expenses of $152 thousand and an increase

in travel and other expenses of $155 thousand.

Other Income (Expense), Net

Three Months ended March 31,

Selling and marketing expenses

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

Selling and marketing expenses

decreased by $1.1 million, or 71%, for the three months ended March 31, 2024, compared to the same period in 2023.

The decrease is attributable

to a decrease in payroll, advertising, and trade show expenses.

Gain on settlement of contingent liabilities

During the first quarter

of 2024, the Company met its contractual obligations under the terms of a modification agreement with a vendor, Mack Moldings.

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 Stock.

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.

Other Income, Net

Three months ended

(In thousands)

(As Restated)

Interest income (expense), net

Interest expense, net

Other income, net

Change in fair value of warrant liabilities

Gain on extinguishment of notes payable

Loss on extinguishment of notes payable

Total other income, net

Interest income (expense), net increased by $591

thousand, or 1,847%, for the three months ended March 31, 2022 compared to the same period in 2021.

The increase in interest income

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

The change in fair value of warrant liabilities

during the three months ended March 31, 2022 is related to the fair value remeasurement of warrants issued during the three months ended

Gain on extinguishment of notes payable decreased

Interest expense decreased

by $0.7 million, or 87%, for the three months ended March 31, 2024, compared to the same period in 2023.

Provision for (benefit from) Income Taxes

Three Months ended

(In thousands)

Provision for (benefit from) income taxes

Effective tax rate

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 $(200) thousand recorded during the first quarter of 2022, which is attributable to a non-recurring partial release

valuation allowance as a result of the Lab Society acquisition.

Income (Loss) Attributable to Non-Controlling Interest

We consolidate the results of operations of two

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

On December 8, 2019, we formed Agrify Valiant LLC,

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

Agrify Valiant LLC started

its operations during the second quarter of 2020.

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

75% interest in Agrify Brands, LLC (formerly TriGrow Brands, LLC), a licensor of an established portfolio of consumer brands that utilize

our grow technology.

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

products in the marketplace.

The decrease in interest expense

is attributable mainly to the decrease in principal balance on outstanding loans.

The change in fair value

of warrant liabilities during the three months ended March 31, 2024 for 1.8 million is related to the fair value remeasurement of warrants

issued during March, August, and December, 2022.

Income (Loss) Attributable to Non-Controlling

We consolidate the results

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

On December 8, 2019, we formed Agrify

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

Agrify Valiant

LLC started its operations during the second quarter of 2020.

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

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

brands that utilize our grow technology.

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

customers’ products in the marketplace.

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

Accordingly, we

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

Loss attributable to non-controlling interest

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

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

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

and regulatory perspective.

Loss attributable to non-controlling

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

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

Liquidity and Capital Resources

As of March 31, 2022, our principal sources of

liquidity were cash and cash equivalents and marketable securities totaling $63.4 million and $30 million in restricted cash.

such amount, together with the proceeds from the private placement that closed on January 28, 2022 and the senior secured debt facility

that closed on March 24, 2022, will be sufficient to support our planned operations for at least the next 12 months.

Our current working

capital needs are to support revenue growth, to fund construction and equipment financing commitments associated with our TTK Solutions,

manage inventory to meet demand forecasts and support operational growth.

Our long-term financial needs primarily include working capital

requirements and capital expenditures.

We anticipate that we will allocate a significant portion of our current balance of working capital

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

These arrangements require a significant amount of upfront

capital necessary to fund construction, associated with facility build-outs, and equipment.

There are many factors that may negatively

impact our available sources of funds in the future, including the ability to generate cash from operations, raise debt capital and raise

cash from the issuance of our securities.

The amount of cash generated from operations is dependent upon factors such as the successful

execution of our business strategy and general economic conditions.

We may opportunistically raise debt capital, subject

to market and other conditions.

Additionally, as part of our growth strategies, we may also raise debt capital for strategic alternatives

and general corporate purposes.

If additional financing is required from outside sources, we may not be able to raise such capital on

terms acceptable to us or at all.

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

condition may be adversely affected.

We entered into one Loan Agreement and Promissory

Note with Bank of America pursuant to the Paycheck Protection Program (the “PPP”) under the Coronavirus Aid, Relief, and Economic

Security Act (“CARES Act”) administered by the U.S.

As of March 31, 2024, our

principal sources of liquidity were cash and cash equivalents and marketable securities totaling $0.1 million.

Our current working capital

needs are to support revenue growth, to fund construction and equipment financing commitments associated with our TTK Solutions, manage

inventory to meet demand forecasts and support operational growth.

Our long-term financial needs primarily include working capital requirements

and capital expenditures.

We anticipate that we will allocate a significant portion of our current balance of working capital to satisfy

the financing requirements of our current and future TTK arrangements.

These arrangements require a significant amount of upfront capital

necessary to fund construction, associated with facility build-outs, and equipment.

There are many factors that may negatively impact

our available sources of funds in the future, including the ability to generate cash from operations, raise debt capital and raise cash

from the issuance of our securities.

The amount of cash generated from operations is dependent upon factors such as the successful execution

of our business strategy and general economic conditions.

We may opportunistically

raise debt capital, subject to market and other conditions.

Additionally, as part of our growth strategies, we may also raise debt capital

for strategic alternatives and general corporate purposes.

If additional financing is required from outside sources, we may not be able

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

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

results and financial condition may be adversely affected.

We entered into one Loan

Agreement and Promissory Note with Bank of America pursuant to the Paycheck Protection Program (the “PPP”) under the Coronavirus

Aid, Relief, and Economic Security Act (“CARES Act”) administered by the U.S.

Small Business Administration.

We received total proceeds of approximately

$779 thousand from the unsecured PPP Loan which is scheduled to mature in May 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.

If the remaining principal amount is not

forgiven in full, we would be obligated to repay any principal amount not forgiven and interest accrued thereon.

On March 14, 2022, we

entered into a Securities Purchase Agreement with an institutional investor.

The Purchase Agreement provides for of the issuance of a

senior secured note (the “SPA Note”) in the aggregate amount of $65 million and a warrant exercisable 34,406 shares of Common

Stock, with the potential for two potential subsequent closings for notes with an original principal amount of $35 million each.

closing pursuant to this debt facility occurred on March 24, 2022.

The SPA Note is a senior secured obligation and ranks senior to all

other indebtedness.

We 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 an interest

rate of 6.75% per year, and we will be 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, we 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, we 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 any accrued but unpaid interest.

The noteholder

also has the option of requiring us to redeem the SPA Note if we undergo a fundamental change at a price equal to 107% of the then-outstanding

principal amount under the SPA Note plus any accrued interest.

The following table presents the major components

of net cash flows from and used in operating, investing, and financing activities for the three months ended March 31, 2022, and 2021:

total proceeds of approximately $779 thousand from the unsecured PPP Loan which was originally scheduled to mature in May 2022.

for forgiveness on the $779 thousand of our PPP Loan however was denied by the SBA.

On June 23, 2022, we received a letter from Bank

of America agreeing to extend the maturity date to May 7, 2025 and bears interest at a rate of 1.00% per year.

The PPP loan is payable

in 34 equal combined monthly principal and interest payments of approximately $24 thousand that commenced on August 7, 2022.

On March 14, 2022, we entered

into a Securities Purchase Agreement with the Former Lender.

The Purchase Agreement provides for the issuance of the SPA Note in the

aggregate amount of $65.0 million and a SPA Warrant to purchase up to an aggregate of 34,406 shares of Common Stock, with the potential

for two potential subsequent closings for notes with an original principal amount of $35.0 million each.

On August 18, 2022, we entered

into a Securities Exchange Agreement.

Pursuant to the August 2022 Exchange Agreement, we partially paid $35.2 million along with approximately

$300 thousand in repayments for other fees under the SPA Note and exchanged the remaining balance of the SPA Note for an Exchange Note

with an aggregate original principal amount of $35.0 million and a Note Exchange Warrant to purchase 71,139 shares of Common Stock.

Additionally,

we exchanged the SPA Warrant for a Modified Warrant for the same number of underlying shares but with a reduced exercise price.

On March 8, 2023, we entered

into a new Securities Exchange Agreement.

Pursuant to the March 2023 Exchange Agreement, we prepaid approximately $10.3 million in principal

amount under the Exchange Note and exchanged $10.0 million in principal amount of the remaining balance of the Exchange Note for a new

senior secured convertible note (the “Convertible Note”).

The Convertible Note is

a senior secured obligation and will rank senior to all of our indebtedness.

The Convertible Note will mature on August 19, 2025 (the

“Maturity Date”) and has a 9.0% annualized interest rate, with interest to be paid monthly, in cash.

The principal amount

of the Convertible Note will be payable on the maturity date, provided that the lender will be entitled to a cash sweep of 30% of the

proceeds of any at-the-market equity offering and 20% of the proceeds received by us in connection with any other equity financing, which

will reduce the outstanding principal amount under the Exchange Note.

On October 27, 2023, CP Acquisitions LLC, and entity affiliated

with and controlled by Raymond Chang, acquired the Exchange Note and the Convertible Note.

As of October 30, 2023, there was approximately

$6.7 million outstanding under the Exchange Note and $8.8 million outstanding under the Convertible Note.

At any time, we may prepay

all of the Exchange Note by redemption at a price equal to 102.5% of the then-outstanding principal amount under the Note plus accrued

but unpaid interest.

The holder will also have the option of requiring us to redeem the Exchange Note on the one-year or two-year anniversaries

of issuance at a price equal to the then-outstanding principal amount under the Exchange Note plus accrued but unpaid interest, or if

we undergo a fundamental change at a price equal to 102.5% of the then-outstanding principal amount under the Exchange Note plus accrued

but unpaid interest.

The following table presents

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

31, 2024, and 2023:

(In thousands)

(As restated)

Net cash (used in) provided by:

2 unchanged sentences

Financing activities

Net increase in cash, cash equivalents, and restricted cash

Net decrease in cash and cash equivalents

Cash Flow from Operating Activities

For the three months ended March 31, 2022, we incurred a net income

of $1.8 million, which included a non-cash gain related to the remeasurement of warrant liabilities of $10.8 million, non-cash expenses

of $1.1 million related to depreciation and amortization, $1.0 million in connection with the issuance and acceleration of stock options,

non-cash interest income of $0.4 million related to TTK Solutions, and gain attributed to non-controlling interest in the amount of $1

Net cash was reduced by a $0.8 million increase in accounts receivable, a $0.6 million decrease in deferred revenue, a $16.4

million increase in inventory due to demand forecast, and a $0.9 million increase in prepaid expenses, a $2.1 million decrease in accrued

expenses and other current liabilities and $2.8 million decrease in accounts payable.

For the three months ended March 31, 2021, we

incurred a net loss of $(3.8) million, which includes non-cash expenses of $147 thousand related to depreciation and amortization, $2.1

million in connection with the issuance and acceleration of stock options, non-cash interest expenses of $33 thousand related to leases

and the issuance of notes payable, partially offset by a gain of $2.7 million related to extinguishment of notes payable, loss attributed

to non-controlling interest in the amount of $(33) thousand.

Net cash was reduced by a $5.2 million increase in accounts receivable, a

$3.3 million increase in prepaid inventory due to demand forecast, a $2.2 million increase in prepaid expenses, and a $96 thousand increase

in deferred revenue, partially offset by a $7.4 million increase in accrued expenses ($6 million related to construction cots), and a

$181 thousand increase in accounts payable.

For the three months

ended March 31, 2024, we incurred a net loss of $4.24 million, which included $0.4 million related to depreciation and amortization,

$0.5 million of stock based compensation expense, and $0.9 million related to the change in fair value of warrant liabilities.

was reduced by changes in operating assets and liabilities of $0.8 million.

For the three months ended

March 31, 2023, we incurred a net loss of $10.3 million, which included $0.4 million related to depreciation and amortization, $0.9 million

of stock based compensation expense, and $2.7 million related to the change in fair value of warrant liabilities.

Net cash was reduced

by changes in operating assets and liabilities of $2.4 million.

Cash Flow from Investing Activities

Net cash used in investing activities primarily

relates to net purchases of marketable securities, cash paid associated with the Company’s 2022 acquisition of Lab Society, the

issuance of loans receivable in connection with the Company’s financing of construction and equipment under its TTK Solutions offering,

and for purchases of property and equipment, expenditures, and purchase of marketable securities.

The capital expenditures support growth

and investment in property and equipment, to expand research, development, and testing capabilities and, to a lesser extent, the replacement

of existing equipment.

For the three months ended March 31, 2022, net

cash used in investing activities was $(13.4) million, which included cash outflows of $6.4 million

in net purchases of marketable securities, $3.5 million paid in connection with our 2022 acquisitions of Lab Society, $12.5 million related

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

For the three months ended March 31, 2021, net

cash used in investing activities was $(142) thousand for leasehold improvements, purchasing computer equipment and small machinery.

For the three months ended

March 31, 2024, net cash used in investing activities was $328.0 thousand, which resulted from cash outflows of $2.0 thousand for purchases

of property and equipment.

For the three months ended

March 31, 2023, net cash provided by investing activities was $9.8 million, which included cash outflows of $0.1 million in net purchases

of property, plant and equipment and $0.6 million in issuances of notes receivable and cash inflows of $10.4 million related to proceeds

from sales of securities.

Cash Flow from Financing Activities

For the three months ended March 31, 2022, net

cash provided by financing activities was $87.4 million.

Net cash provided by financing activities

was primarily driven by the Company’s two private placements during 2022.

The Company received $62.4 million in net proceeds from

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

in a private placement.

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

of the above inflows of cash was offset by $782 thousand in payments relating to financing loans and financing leases.

For the three months ended March 31, 2021, net

cash provided by financing activities was $137 million, attributable to $57 million proceeds from our initial IPO, $80 million from our

secondary public offering, both net of fees, and proceeds from the exercise of options and warrants of $444 thousand, slightly offset

by $47 thousand payments relating to financing leases.

For the three months ended

March 31, 2024, net cash provided by financing activities was $2.3 million.

Net cash provided by financing activities was primarily driven

by repayments of notes payable of $0.2 million and proceeds from the issuance of common stock and warrants of $2.1 million.

For the three months ended

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

Net cash used in financing activities was primarily driven by

repayments of notes payable of $10.8 and offset by proceeds from at-the-market offerings of $1.5 million.

Off-Balance Sheet Arrangements

6 unchanged sentences

Critical Accounting Policies and Estimates

Part I, Item, 2, “Management’s Discussion

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

have been prepared in accordance with GAAP.

The preparation of these condensed consolidated financial statements requires management

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

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

reporting period.

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

These estimates are based on our knowledge and

understanding of current conditions and actions that we may take in the future.

Changes in these estimates will occur as a result

of the passage of time and the occurrence of future events.

Subsequent changes in these estimates may have a significant impact on

our financial condition and results of operations and are recorded in the period in which they become known.

We have identified the

following estimates that, in our opinion, are subjective in nature, require the exercise of judgment and involve complex analysis:

fair value of derivative assets and liabilities, goodwill impairment assessment, revenue recognition and cost of goods sold.

The significant accounting policies and estimates

that have been adopted and followed in the preparation of our condensed consolidated financial statements are detailed in Note 3

- Summary of Significant Accounting Policies included in our 2021 Annual Report and Note 3 - Summary

of Significant Accounting Policies to our condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form

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

of operations for the periods covered in this Quarterly Report.

Recently Issued Accounting Pronouncements Adopted

For more information

on recently issued accounting pronouncements are included within Note 4 – Recent Accounting

Pronouncements, included elsewhere in the notes to condensed consolidated financial statements covered under Part I, Item 1 of

this Quarterly Report on Form 10-Q.

Part I, Item, 2, “Management’s

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

have been prepared in accordance with U.S.

The preparation of these consolidated financial statements requires management to make

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

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

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

These estimates are based

on our knowledge and understanding of current conditions and actions that we may take in the future.

Changes in these estimates will

occur as a result of the passage of time and the occurrence of future events.

Subsequent changes in these estimates may have a significant

impact on our financial condition and results of operations and are recorded in the period in which they become known.

We have identified

the following estimates that, in our opinion, are subjective in nature, require the exercise of judgment and involve complex analysis:

the fair value of derivative assets and liabilities, goodwill impairment assessment, revenue recognition and cost of goods sold.

The significant accounting

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

Note 1 - Overview, Basis of Presentation and Significant Accounting Policies included in our 2023 Annual Report and Note 1 - Overview,

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

Report on Form 10-Q.

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

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

Recently Issued Accounting Pronouncements

For more information on

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

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

New Accounting Pronouncements Not Yet Adopted

For more information

on new accounting pronouncements not yet adopted are included within Note 4 – Recent Accounting

Pronouncements, included elsewhere in the notes to condensed consolidated financial statements covered under Part I, Item 1 in

this Quarterly Report on Form 10-Q.

For more information on

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

Policies, included elsewhere in the notes to consolidated financial statements covered under Part I, Item 1 in this Quarterly Report

on Form 10-Q.

Quantitative and Qualitative Disclosures

About Market Risk

As a “smaller reporting company” as

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

As a “smaller reporting

company” as defined by 17 C.F.R.

§ 229.10, the Company is not required to provide information required by this Item.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q/A

Item 2. Management’s Discussion and Analysis